PARTICIPATION AGREEMENT
By and Among
THIRD AVENUE VARIABLE SERIES TRUST
And
THIRD AVENUE MANAGEMENT LLC
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 5th day of June, 2002,
by and among THIRD AVENUE VARIABLE SERIES TRUST, an open-end management
investment company organized under the laws of Delaware (the "Fund"), THIRD
AVENUE MANAGEMENT LLC, a limited liability company organized under the laws of
Delaware (the "Adviser"), and AMERICAN ENTERPRISE LIFE INSURANCE COMPANY, an
Indiana life insurance company (the "Company"), on its own behalf and on behalf
of each separate account of the Company named in Schedule 1 to this Agreement,
as may be amended from time to time, (each account referred to as the
"Account").
WHEREAS, the Fund was established for the purpose of serving as the investment
vehicle for insurance company separate accounts supporting variable annuity
contracts and variable life insurance policies to be offered by insurance
companies that have entered into participation agreements with the Fund and the
Adviser (the "Participating Insurance Companies"), and
WHEREAS, beneficial interests in the Fund currently consist of one series of
shares representing the interest in a particular managed portfolio of securities
and other assets; and
WHEREAS, the Fund has received an order from the Securities & Exchange
Commission (the "SEC") granting Participating Insurance Companies and their
separate accounts relief from the provisions of Sections 9(a), 13(a), 15(a), and
15(b) of the 1940 Act and Rules 6e-2(b)(15) and -6e-3(T)(b)(15) thereunder, to
the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated Participating Insurance Companies and certain
qualified pension and retirement plans outside of the separate account context
(the "Exemptive Order"); and
WHEREAS, the Company has registered or will register certain variable annuity
contracts and/or variable life insurance policies (the "Contracts") under the
1933 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares of the portfolios named in Schedule 2 to
this Agreement, as may be
amended from time to time, (the "Portfolios") on behalf of the Account to fund
the Contracts; and
WHEREAS, under the terms and conditions set forth in this Agreement, the Adviser
desires to make shares of the Fund available as investment options under the
Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the parties agree as
follows:
ARTICLE I. Sale and Redemption of Fund Shares
1.1. The Fund will sell to the Company those shares of the Portfolios that
each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt and acceptance by the
Fund (or its agent). Shares of a particular Portfolio of the Fund
will be ordered in such quantities and at such times as determined by
the Company to be necessary to meet the requirements of the
Contracts. The Board of Trustees of the Fund (the "Fund Board") may
refuse to sell shares of any Portfolio to any person, or suspend or
terminate the offering of shares of any Portfolio if such action is
required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Fund Board, acting in good faith
and in light of its fiduciary duties under federal and any applicable
state laws, necessary in the best interests of the shareholders of
such Portfolio.
1.2. The Fund will redeem any full or fractional shares of any Portfolio
when requested by the Company on behalf of an Account at the net asset
value next computed after receipt by the Fund (or its agent) of the
request for redemption, as established in accordance with the
provisions of the then current prospectus of the Fund.
1.3. For purposes of Sections 1.1 and 1.2, the Fund hereby appoints the
Company as its agent for the limited purpose of receiving and
accepting purchase and redemption orders resulting from investment in
and payments under the Contracts. Receipt by the Company will
constitute receipt by the Fund provided that: (a) such orders are
received by the Company in good order prior to the time the net asset
value of each Portfolio is priced in accordance with its prospectus;
and (b) the Fund receives notice of such orders by 9:00 a.m. Central
Time on the next following Business Day. "Business Day" will mean
any day on which the New York Stock Exchange is open for trading and
on which the Fund calculates its net asset value pursuant to the
rules of the SEC.
1.4. The Company will pay for a purchase order on the same Business Day as
the Fund receives notice of the purchase order in accordance with
Section 1.3. The Fund will pay for a redemption order on the same
Business Day as the Fund receives notice of the redemption order in
accordance with Section 1.3 and in the manner established from time
to time by the Fund, except that the Fund reserves the right to
suspend payment consistent with Section 22(e) of the Investment
Company Act of 1940, as amended (the "1940 Act") and any rules
thereunder. In any event, absent extraordinary circumstances
specified in Section 22(e) of the 1940 Act, the Fund will make such
payment within five (5) calendar days after the date the redemption
order is placed in order to enable the Company to pay redemption
proceeds within the time specified in Section 22(e) of the 1940 Act
or such
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shorter period of time as may be required by law. All payments will be
made in federal funds transmitted by wire or other method agreed to by
the parties.
1.5. Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account.
Purchase and redemption orders for Fund shares will be recorded in an
appropriate title for each Account or the appropriate subaccount of
each Account.
1.6. The Fund will furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of the declaration of any
income, dividends or capital gain distributions payable on each
Portfolio's shares. The Company hereby elects to receive all such
dividends and distributions as are payable on the Portfolio shares in
the form of additional shares of that Portfolio. The Company
reserves the right to revoke this election and to receive all such
dividends and distributions in cash. The Fund will notify the
Company of the number of shares so issued as payment of such
dividends and distributions.
1.7. The Fund will make the net asset value per share for each Portfolio
available to the Company on a daily basis as soon as reasonably
practical after the net asset value per share is calculated and will
use its best efforts to make such net asset value per share available
by 5:30 p.m. Central Time, but in no event later than 6:00 p.m.
Central Time each Business Day. The Fund will notify the Company as
soon as possible if it is determined that the net asset value per
share will be available after 6:00 p.m. Central Time on any Business
Day, and the Fund and the Company will mutually agree upon a final
deadline for timely receipt of the net asset value on such Business
Day.
1.8. Any material errors in the calculation of net asset value, dividends
or capital gain information will be reported immediately upon
discovery to the Company. An error will be deemed "material" based
on the Fund's interpretation of the SEC's position and policy with
regard to materiality, as it may be modified from time to time. If
the Company is provided with materially incorrect net asset value
information, the Company will be entitled to an adjustment to the
number of shares purchased or redeemed to reflect the correct net
asset value per share. Neither the Fund, the Adviser nor any of
their affiliates will be liable for any information provided to the
Company pursuant to this Agreement which information is based on
incorrect information supplied by or on behalf of the Company to the
Fund or the Adviser.
1.9. The Fund agrees that its shares will be sold only to Participating
Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the
Exemptive Order. No shares of any Portfolio will be sold directly to
the general public. The Company agrees that Fund shares purchased by
the Company will be used only for the purposes of funding the
Contracts and Accounts listed in Schedule 1, as amended from time to
time.
1.10. The Fund agrees that all Participating Insurance Companies will have
the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 3.4
and Article IV of this Agreement.
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ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that:
(a) it is an insurance company duly organized and in good standing
under applicable law;
(b) it has legally and validly established or will legally and
validly establish each Account as a separate account under
applicable state law;
(c) it has registered or will register to the extent necessary
each Account as a unit investment trust in accordance with the
provisions of the 1940 Act to serve as a segregated investment
account for the Contracts;
(d) it has filed or will file to the extent necessary the
Contracts' registration statements under the Securities Act of
1933 (the "1933 Act") and these registration statements will
be declared effective by the SEC prior to the sale of any
Contracts;
(e) the Contracts will be filed and qualified and/or approved for
sale, as applicable, under the insurance laws and regulations
of the states in which the Contracts will be offered prior to
the sale of Contracts in such states; and
(f) it will amend the registration statement under the 1933 Act
for the Contracts and the registration statement under the
1940 Act for the Account from time to time as required in
order to effect the continuous offering of the Contracts or
as may otherwise be required by applicable law, but in any
event it will maintain a current effective Contracts' and
Account's registration statement for so long as the
Contracts are outstanding unless the Company has supplied
the Fund with an SEC no-action letter, opinion of counsel or
other evidence satisfactory to the Fund's counsel to the
effect that maintaining such registration statement on a
current basis is no longer required.
2.2. The Company represents and warrants that the Contracts are intended
to be treated as annuity or life insurance contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended (the
"Internal Revenue Code"), and that it will make every effort to
maintain such treatment and that it will notify the Fund and the
Adviser immediately upon having a reasonable basis for believing that
the Contracts have ceased to be so treated or that they might not be
so treated in the future.
2.3. The Fund represents and warrants that:
(a) it is duly organized and validly existing under applicable
state law;
(b) it has registered with the SEC as an open-end management
investment company under the 1940 Act;
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(c) Fund shares of the Portfolios offered and sold pursuant to
this Agreement will be registered under the 1933 Act and duly
authorized for issuance in accordance with applicable law;
(d) it is and will remain registered under the 1940 Act for as
long as such shares of the Portfolios are sold;
(e) it will amend the registration statement for its shares under
the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares;
(f) it expects to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code, it will make every
effort to maintain such qualification (under Subchapter M or
any successor or similar provision) and it will notify the
Company immediately upon having a reasonable basis for
believing that it has ceased to so qualify or that it might
not so qualify in the future; and
(g) it will register and qualify the shares of the Portfolios
for sale in accordance with the laws of the various states
to the extent deemed advisable by the Fund. The Fund makes
no representation as to whether any aspect of its operations
(including, but not limited to, fees and expenses and
investment policies, objectives and restrictions) complies
with the insurance laws and regulations of any state. The
Fund and the Adviser agree that they will furnish the
information required by state insurance laws and requested
by the Company so that the Company can obtain the authority
needed to issue the Contracts in the various states.
2.4. The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or
otherwise, although it reserves the right to make such payments in
the future. To the extent that the Fund decides to finance
distribution expenses pursuant to Rule 12b-1, the Fund undertakes to
have its Fund Board, a majority of whom are not "interested" persons
of the Fund, formulate and approve any plan under Rule 12b-1 to
finance distribution expenses.
2.5. The Fund and the Adviser represent and warrant that they will invest
money from the Contracts in such a manner as to ensure that the
Contracts will be treated as variable annuity contracts and variable
life insurance policies under the Internal Revenue Code and the
regulations issued thereunder. Without limiting the scope of the
foregoing, the Fund and the Adviser further represent and warrant
that they will comply with Section 817(h) of the Internal Revenue
Code and Treasury Regulation 1.817-5, as amended from time to time,
relating to the diversification requirements for variable annuity,
endowment, or life insurance contracts and any amendments or other
modifications to such Section or Regulation. In the event of a
breach of this representation and warranty by the Fund and/or the
Adviser, they will take all reasonable steps:
(a) to notify the Company of such breach; and
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(b) to adequately diversify the Fund so as to achieve compliance
within the grace period afforded by Treasury Regulation
1.817-5.
2.6. The Adviser represents and warrants that:
(a) it is and will remain duly registered under all applicable
federal and state securities laws; and
(b) it will perform its obligations for the Fund in accordance
with applicable state and federal securities laws and that it
will notify the Company promptly if for any reason it is
unable to perform its obligations under this Agreement.
2.7. Each party represents and warrants that, as applicable, all of its
directors, officers, employees, investment advisers, and other
individuals/entities having access to the funds and/or securities of
the Fund are and will continue to be at all times covered by a
blanket fidelity bond or similar coverage in an amount not less than
the minimal coverage as required currently by Rule 17g-(1) of the
1940 Act or related provisions as may be promulgated from time to
time. The aforesaid bond includes coverage for larceny and
embezzlement and is issued by a reputable bonding company.
ARTICLE III. Obligations of the Parties
3.1. The Fund will prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports,
notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of
additional information of the Fund. The Fund will bear the costs of
registration and qualification of its shares, preparation and filing
of documents listed in this Section 3.1 and all taxes to which an
issuer is subject on the issuance and transfer of its shares.
3.2. At the option of the Company, the Fund will either: (a) provide the
Company with as many copies of the Fund's current prospectus,
statement of additional information, annual report, semi-annual report
and other shareholder communications, including any amendments or
supplements to any of the foregoing, as the Company will reasonably
request; or (b) provide the Company with a camera-ready copy, computer
disk or other medium agreed to by the parties of such documents in a
form suitable for printing. The Fund will bear one-half of the cost of
typesetting and printing such documents and of distributing such
documents to existing Contract owners, with the Company bearing the
remainder of the cost. To the extent that such documents for the Fund
are printed in combination with such documents for other funds, the
Fund will bear its pro-rata share of the cost of typesetting, printing
and distributing such combined document. The Company will bear the
cost of distributing all such documents to prospective Contract owners
and applicants as required.
3.3. The Fund, at its expense, either will:
(a) distribute its proxy materials directly to the appropriate
Contract owners; or
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(b) provide the Company or its mailing agent with copies of its
proxy materials in such quantity as the Company will
reasonably require and the Company will distribute the
materials to existing Contract owners and will xxxx the Fund
for the reasonable cost of such distribution. The Fund will
bear the cost of tabulation of proxy votes.
3.4. If and to the extent required by law the Company will:
(a) provide for the solicitation of voting instructions from
Contract owners;
(b) vote the shares of the Portfolios held in the Account in
accordance with instructions received from Contract owners;
and
(c) vote shares of the Portfolios held in the Account for which no
timely instructions have been received, in the same proportion
as shares of such Portfolio for which instructions have been
received from the Company's Contract owners;
so long as and to the extent that the SEC continues to interpret the
1940 Act to require pass-through voting privileges for variable
contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent
permitted by law.
3.5. The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and in particular, the Fund either will
provide for annual meetings (except insofar as the SEC may interpret
Section 16 of the 1940 Act not to require such meetings) or, as the
Fund currently intends, to comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section
16(c) of that Act) as well as with Sections 16(a) and, if and when
applicable, 16(b). Further, the Fund will act in accordance with the
SEC's interpretation of the requirements of Section 16(a) with
respect to periodic elections of directors and with whatever rules
the SEC may promulgate with respect thereto.
3.6 The Company will prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports,
notices, prospectuses and statements of additional information of the
Contracts. The Company will bear the cost of registration and
qualification of the Contracts and preparation and filing of documents
listed in this Section 3.6. The Company also will bear the cost of
typesetting, printing and distributing the documents listed in this
Section 3.6 to existing and prospective Contract owners.
3.7. The Company will furnish, or will cause to be furnished, to the Fund or
the Adviser, each piece of sales literature or other promotional
material in which the Fund or the Adviser is named, at least ten (10)
Business Days prior to its use. No such material will be used if the
Fund or the Adviser reasonably objects to such use within five (5)
Business Days after receipt of such material.
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3.8. The Company will not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in
connection with the sale of the Contracts other than the information
or representations contained in the registration statement,
prospectus or statement of additional information for Fund shares, as
such registration statement, prospectus and statement of additional
information may be amended or supplemented from time to time, or in
reports or proxy statements for the Fund, or in published reports for
the Fund which are in the public domain or approved by the Fund or
the Adviser for distribution, or in sales literature or other
material provided by the Fund or by the Adviser, except with
permission of the Fund or the Adviser. The Fund and the Adviser
agree to respond to any request for approval on a prompt and timely
basis. Nothing in this Section 3.8 will be construed as preventing
the Company or its employees or agents from giving advice on
investment in the Fund.
3.9. The Fund or the Adviser will furnish, or will cause to be furnished, to
the Company or its designee, each piece of sales literature or other
promotional material in which the Company or an Account is named, at
least ten (10) Business Days prior to its use. No such material will be
used if the Company reasonably objects to such use within five (5)
Business Days after receipt of such material.
3.10. The Fund and the Adviser will not give any information or make any
representations or statements on behalf of the Company or concerning
the Company, each Account, or the Contracts other than the
information or representations contained in a registration statement,
prospectus or statement of additional information for the Contracts,
as such registration statement, prospectus and statement of
additional information may be amended or supplemented from time to
time, or in published reports for each Account or the Contracts which
are in the public domain or approved by the Company for distribution
to Contract owners, or in sales literature or other material provided
by the Company, except with permission of the Company. The Company
agrees to respond to any request for approval on a prompt and timely
basis.
3.11. The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, statements of additional
information, reports, proxy statements, sales literature and other
promotional materials, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that relate
to the Fund or its shares, contemporaneously with the filing of such
document with the SEC or the NASD.
3.12. The Company will provide to the Fund at least one complete copy of
all registration statements, prospectuses, statements of additional
information, reports, solicitations for voting instructions, sales
literature and other promotional materials, applications for
exemptions, requests for no action letters, and all amendments to any
of the above, that relate to the Contracts or each Account,
contemporaneously with the filing of such document with the SEC or
the NASD.
3.13. For purposes of this Article III, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements
(such as material published, or designed for use in, a newspaper,
magazine, or other periodical), radio, television, telephone or tape
recording, videotape display, signs or billboards, motion pictures, or
other public media,
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(e.g., on-line networks such as the Internet or other electronic
messages), sales literature (i.e., any written communication
distributed or made generally available to customers or the public,
including brochures, circulars, research reports, market letters, form
letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature, or published article), educational or
training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements, prospectuses, statements of additional information,
shareholder reports, and proxy materials and any other material
constituting sales literature or advertising under the NASD rules, the
1933 Act or the 0000 Xxx.
3.14. The Fund and the Adviser hereby consent to the Company's use of the
name Third Avenue Funds in connection with marketing the Contracts,
subject to the terms of Sections 3.7 and 3.8 of this Agreement. Such
consent will terminate with the termination of this Agreement.
3.15. The Adviser will be responsible for calculating the performance
information for the Fund. The Company will be responsible for
calculating the performance information for the Contracts. The Fund and
the Adviser agree to provide the Company with performance information
for the Fund on a timely basis to enable the Company to calculate
performance information for the Contracts in accordance with applicable
state and federal law.
ARTICLE IV. Potential Conflicts
4.1. Subject to Section 4.2 of this Agreement, the Fund Board will monitor
the Fund for the existence of any irreconcilable material conflict
among the interests of the contract owners of all separate accounts
investing in the Fund. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or
state insurance, tax, or securities laws or regulations, or a public
ruling, private letter ruling, no-action or interpretative letter, or
any similar action by insurance, tax, or securities regulatory
authorities; (c) an administrative or judicial decision in any
relevant proceeding; (d) the manner in which the investments of any
Portfolio are being managed; (e) a difference in voting instructions
given by Participating Insurance Companies or by variable annuity and
variable life insurance contract owners; or (f) a decision by an
insurer to disregard the voting instructions of contract owners. The
Fund Board will promptly inform the Company if it determines that an
irreconcilable material conflict exists and the implications
thereof. A majority of the Fund Board will consist of persons who
are not "interested" persons of the Fund.
4.2. The Company will report any potential or existing conflicts of which
it is aware to the Fund Board. The Company agrees to assist the Fund
Board in carrying out its responsibilities, as delineated in the
Exemptive Order, by providing the Fund Board with all information
reasonably necessary for the Fund Board to consider any issues
raised. This includes, but is not limited to, an obligation by the
Company to inform the Fund Board whenever Contract owner voting
instructions are to be disregarded. The Fund
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Board will record in its minutes, or other appropriate records, all
reports received by it and all action with regard to a conflict.
4.3. If it is determined by a majority of the Fund Board, or a majority of
its disinterested directors, that an irreconcilable material conflict
exists, the Company and other Participating Insurance Companies will,
at their expense and to the extent reasonably practicable (as
determined by a majority of the disinterested directors), take
whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (a)
withdrawing the assets allocable to some or all of the Accounts from
the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another portfolio
of the Fund, or submitting the question whether such segregation
should be implemented to a vote of all affected contract owners and,
as appropriate, segregating the assets of any appropriate group
(i.e., variable annuity contract owners or variable life insurance
contract owners of one or more Participating Insurance Companies)
that votes in favor of such segregation, or offering to the affected
contract owners the option of making such a change; and (b)
establishing a new registered management investment company or
managed separate account.
4.4. If a material irreconcilable conflict arises because of a decision by
the Company to disregard Contract owner voting instructions, and such
disregard of voting instructions could conflict with the majority of
contract owner voting instructions, and the Company's judgment
represents a minority position or would preclude a majority vote, the
Company may be required, at the Fund's election, to withdraw the
affected subaccount of the Account's investment in the Fund and
terminate this Agreement with respect to such subaccount; provided,
however, that such withdrawal and termination will be limited to the
extent required by the foregoing irreconcilable material conflict as
determined by a majority of the disinterested directors of the Fund
Board. No charge or penalty will be imposed as a result of such
withdrawal. Any such withdrawal and termination must take place
within six (6) months after the Fund gives written notice to the
Company that this provision is being implemented. Until the end of
such six-month period the Adviser and Fund will, to the extent
permitted by law and any exemptive relief previously granted to the
Fund, continue to accept and implement orders by the Company for the
purchase (and redemption) of shares of the Fund.
4.5. If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company
conflicts with the majority of other state insurance regulators, then
the Company will withdraw the affected subaccount of the Account's
investment in the Fund and terminate this Agreement with respect to
such subaccount; provided, however, that such withdrawal and
termination will be limited to the extent required by the foregoing
irreconcilable material conflict as determined by a majority of the
disinterested directors of the Fund Board. No charge or penalty will
be imposed as a result of such withdrawal. Any such withdrawal and
termination must take place within six (6) months after the Fund
gives written notice to the Company that this provision is being
implemented. Until the end of such six-month period the Adviser and
Fund will, to the extent permitted by law and any exemptive relief
previously granted to the Fund, continue to accept and implement
orders by the Company for the purchase (and redemption) of shares of
the Fund.
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4.6. For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested members of the Fund Board will
determine whether any proposed action adequately remedies any
irreconcilable material conflict, but in no event will the Fund be
required to establish a new funding medium for the Contracts. The
Company will not be required by this Article IV to establish a new
funding medium for the Contracts if an offer to do so has been
declined by vote of a majority of Contract owners affected by the
irreconcilable material conflict.
4.7. The Company will at least annually submit to the Fund Board such
reports, materials or data as the Fund Board may reasonably request so
that the Fund Board may fully carry out the duties imposed upon it as
delineated in the Exemptive Order, and said reports, materials and data
will be submitted more frequently if deemed appropriate by the Fund
Board.
4.8. If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision
of the 1940 Act or the rules promulgated thereunder with respect to
mixed or shared funding (as defined in the Exemptive Order) on terms
and conditions materially different from those contained in the
Exemptive Order, then: (a) the Fund and/or the Participating
Insurance Companies, as appropriate, will take such steps as may be
necessary to comply with Rules 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b)
Sections 3.4, 3.5, 4.1, 4.2, 4.3, 4.4, and 4.5 of this Agreement will
continue in effect only to the extent that terms and conditions
substantially identical to such Sections are contained in such
Rule(s) as so amended or adopted.
ARTICLE V. Indemnification
5.1. Indemnification By The Company
(a) The Company agrees to indemnify and hold harmless the Fund,
the Adviser, and each person, if any, who controls or is
associated with the Fund or the Adviser within the meaning
of such terms under the federal securities laws (but not any
Participating Insurance Companies) and any director,
trustee, officer, partner, employee or agent of the
foregoing (collectively, the "Indemnified Parties" for
purposes of this Section 5.1) against any and all losses,
claims, expenses, damages, liabilities (including amounts
paid in settlement with the written consent of the Company)
or litigation (including reasonable legal and other
expenses), to which the Indemnified Parties may become
subject under any statute, regulation, at common law or
otherwise, insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof) or
settlements:
(1) arise out of or are based on any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the
Contracts or contained in the Contracts or sales
literature or other promotional material for the
Contracts
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(or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the
omission or the alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or
such alleged statement or omission was made in
reliance upon and in conformity with information
furnished to the Company by or on behalf of the
Adviser or the Fund for use in the registration
statement, prospectus or statement of additional
information for the Contracts or in the Contracts or
sales literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained
in the Fund registration statement, prospectus,
statement of additional information or sales
literature or other promotional material of the Fund
(or any amendment or supplement to any of the
foregoing), or the omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not
misleading in light of the circumstances in which
they were made, if such statement or omission was
made in reliance upon and in conformity with
information furnished to the Fund or Adviser in
writing by or on behalf of the Company or persons
under its control; or
(3) arise out of or are based on any wrongful conduct of,
or violation of applicable federal or state law by,
the Company or persons under its control or subject
to its authorization, with respect to the purchase of
Fund shares or the sale, marketing or distribution of
the Contracts; or
(4) arise as a result of any failure by the Company to
provide the services and furnish the materials under
the terms of this Agreement including, but not
limited to, a material mistake in calculating the
performance information for the Contracts which
causes losses to the Adviser or material mistakes it
makes in reproducing performance information for the
Fund in accordance with Section 3.15 of this
Agreement; or
(5) arise out of any material breach of any
representation and/or warranty made by the Company in
this Agreement or arise out of or result from any
other material breach of this Agreement by the
Company or persons under its control or subject to
its authorization;
except to the extent provided in Sections 5.1(b) and 5.4
hereof. This indemnification will be in addition to any
liability that the Company otherwise may have.
(b) No party will be entitled to indemnification under Section
5.1(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or
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gross negligence in the performance of such party's duties
under this Agreement, or by reason of such party's reckless
disregard of its obligations or duties under this Agreement by
the party seeking indemnification.
(c) The Indemnified Parties promptly will notify the Company of
the commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection
with the issuance or sale of the Fund shares or the Contracts
or the operation of the Fund.
5.2. Indemnification By The Adviser
(a) The Adviser agrees to indemnify and hold harmless the
Company and each person, if any, who controls or is
associated with the Company within the meaning of such terms
under the federal securities laws and any director, trustee,
officer, partner, employee or agent of the foregoing
(collectively, the "Indemnified Parties" for purposes of
this Section 5.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in
settlement with the written consent of the Adviser) or
litigation (including reasonable legal and other expenses),
to which the Indemnified Parties may become subject under
any statute, regulation, at common law or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or
actions in respect thereof) or settlements:
(1) arise out of or are based on any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement, prospectus
or statement of additional information for the Fund
or sales literature or other promotional material
produced by the Fund (or any amendment or supplement
to any of the foregoing), or arise out of or are
based on the omission or alleged omission to state
therein a material fact required to be stated or
necessary to make such statements not misleading in
light of the circumstances in which they were made;
provided that this agreement to indemnify will not
apply as to any Indemnified Party if such statement
or omission or such alleged statement or omission was
made in reliance upon and in conformity with
information furnished to the Adviser or Fund by or on
behalf of the Company for use in the registration
statement, prospectus or statement of additional
information for the Fund or in sales literature of
the Fund (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Contracts or Fund shares; or
(2) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained
in the Contract registration statement, prospectus or
statement of additional information or sales
literature or other promotional material for the
Contracts (or any amendment or supplement to any of
the foregoing), or the omission or alleged omission
to state therein a material fact required to be
stated therein or necessary to make the statements
therein not misleading in light of the circumstances
in which they were made, if such statement or
omission was made in reliance upon and in
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conformity with information furnished to the
Company in writing by or on behalf of the Adviser
or persons under its control; or
(3) arise out of or are based on any wrongful conduct of,
or violation of applicable federal and state law by,
the Adviser or the Fund or persons under their
respective control or subject to their authorization
with respect to the sale of Fund shares; or
(4) arise as a result of any failure by the Fund, the
Adviser or persons under their respective control or
subject to their authorization to provide the
services and furnish the materials under the terms of
this Agreement including, but not limited to, a
failure, whether unintentional or in good faith or
otherwise, to comply with the diversification
requirements and procedures related thereto specified
in Section 2.5 of this Agreement; a material mistake
in calculating the performance information for the
Fund which causes losses to the Company or material
mistakes it makes in reproducing performance
information for the Contracts in accordance with
Section 3.15 or this Agreement; or any material
errors in or untimely calculation or reporting of the
daily net asset value per share or dividend or
capital gain distribution rate (referred to in this
Section 5.2(a)(4) as an "error"); provided, that the
foregoing will not apply where such error is the
result of incorrect information supplied by or on
behalf of the Company to the Fund or the Adviser, and
will be limited to (i) reasonable administrative
costs necessary to correct such error, and (ii)
amounts which the Company has paid out of its own
resources to make Contract owners whole as a result
of such error; or
(5) arise out of or result from any material breach of
any representation and/or warranty made by the
Adviser or the Fund in this Agreement, or arise out
of or result from any other material breach of this
Agreement by the Adviser or the Fund or persons under
their respective control or subject to their
authorization;
except to the extent provided in Sections 5.2(b) and 5.4
hereof.
(b) No party will be entitled to indemnification under Section
5.2(a) if such loss, claim, damage, liability or litigation is
due to the willful misfeasance, bad faith, or gross negligence
in the performance of such party's duties under this
Agreement, or by reason of such party's reckless disregard of
its obligations or duties under this Agreement by the party
seeking indemnification.
(c) The Indemnified Parties will promptly notify the Adviser and
the Fund of the commencement of any litigation, proceedings,
complaints or actions by regulatory authorities against them
in connection with the issuance or sale of the Contracts or
the operation of the Account.
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5.3. Indemnification by the Fund
(a) To the extent, and only to the extent of proceeds of any
applicable insurance coverage of the Fund, the Fund agrees
to indemnify and hold harmless the Company and each person,
if any, who controls or is associated with the Company
within the meaning of such terms under the federal
securities laws and any director, trustee, officer, partner,
employee or agent of the foregoing (collectively, the
"Indemnified Parties" for purposes of this Section 5.3)
against any and all losses, claims, expenses, damages,
liabilities (including amounts paid in settlement with the
written consent of the Adviser) or litigation (including
reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions
in respect thereof) or settlements are related to the
operations of the Fund and:
(1) arise out of or are based on any untrue statement or
alleged untrue statement of any material fact contained
in the registration statement, prospectus or statement
of additional information for the Fund or sales
literature or other promotional material produced by
the Fund (or any amendment or supplement to any of the
foregoing), or arise out of or are based on the
omission or alleged omission to state therein a
material fact required to be stated or necessary to
make such statements not misleading in light of the
circumstances in which they were made; provided that
this agreement to indemnify will not apply as to any
Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon
and in conformity with information furnished to the
Fund by or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for the Fund or in sales
literature of the Fund (or any amendment or supplement)
or otherwise for use in connection with the sale of
Fund shares; or
(2) arise out of or are based on any untrue statement or
alleged untrue statement of a material fact contained
in the Contract registration statement, prospectus or
statement of additional information or sales literature
or other promotional material for the Contracts (or any
amendment or supplement to any of the foregoing), or
the omission or alleged omission to state therein a
material fact required to be stated therein or
necessary to make the statements therein not misleading
in light of the circumstances in which they were made,
if such statement or omission was made in reliance upon
and in conformity with information furnished to the
Company in writing by or on behalf of the Fund or
persons under its control; or
(3) arise out of or are based on any wrongful conduct of
the Fund or its Fund Board or officers with respect to
the sale of Fund shares; or
-15-
(4) arise as a result of any failure by the Fund to provide
the services and furnish the materials under the terms
of this Agreement including, but not limited to, a
failure, whether unintentional or in good faith or
otherwise, to comply with the diversification
requirements and procedures related thereto specified
in Section 2.5 of this Agreement; a material mistake in
calculating the performance information for the Fund
which causes losses to the Company or material mistakes
it makes in reproducing performance information for the
Contracts in accordance with Section 3.15 or this
Agreement; or any material errors in or untimely
calculation or reporting of the daily net asset value
per share or dividend or capital gain distribution rate
(referred to in this Section 5.3(a)(4) as an "error");
provided, that the foregoing will not apply where such
error is the result of incorrect information supplied
by or on behalf of the Company to the Fund or the
Adviser, and will be limited to (i) reasonable
administrative costs necessary to correct such error,
and (ii) amounts which the Company has paid out of its
own resources to make Contract owners whole as a result
of such error; or
(5) arise out of or result from any material breach of any
representation and/or warranty made by the Fund in this
Agreement, or arise out of or result from any other
material breach of this Agreement by the Fund or
persons under its control or subject to its
authorization;
except to the extent provided in Sections 5.3(b) and 5.4 hereof.
(a) No party will be entitled to indemnification under Section 5.3(a)
if such loss, claim, damage, liability or litigation is due to
the willful misfeasance, bad faith, or gross negligence in the
performance of such party's duties under this Agreement, or by
reason of such party's reckless disregard of its obligations or
duties under this Agreement by the party seeking indemnification.
(b) The Indemnified Parties will promptly notify the Fund of the
commencement of any litigation, proceedings, complaints or
actions by regulatory authorities against them in connection with
the issuance or sale of the Contracts or the operation of the
Account.
5.4. Indemnification Procedure
Any person obligated to provide indemnification under this Article V
("Indemnifying Party" for the purpose of this Section 5.4) will not be
liable under the indemnification provisions of this Article V with
respect to any claim made against a party entitled to indemnification
under this Article V ("Indemnified Party" for the purpose of this
Section 5.4) unless such Indemnified Party will have notified the
Indemnifying Party in writing within a reasonable time after the
summons or other first legal process giving information of the nature
of the claim will have been served upon such Indemnified Party (or
after such party will have received notice of such service on any
designated agent), but failure to notify the Indemnifying Party of any
such claim will not relieve the Indemnifying Party from any liability
which it may have to the Indemnified Party against whom such action is
-16-
brought otherwise than on account of the indemnification provision of
this Article V, except to the extent that the failure to notify results
in the failure of actual notice to the Indemnifying Party and such
Indemnifying Party is damaged as a result of failure to give such
notice. In case any such action is brought against the Indemnified
Party, the Indemnifying Party will be entitled to participate, at its
own expense, in the defense thereof. The Indemnifying Party also will
be entitled to assume the defense thereof, with counsel reasonably
satisfactory to the party named in the action. After notice from the
Indemnifying Party to the Indemnified Party of the Indemnifying Party's
election to assume the defense thereof, the Indemnified Party will bear
the fees and expenses of any additional counsel retained by it, and the
Indemnifying Party will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such
party independently in connection with the defense thereof other than
reasonable costs of investigation, unless: (a) the Indemnifying Party
and the Indemnified Party will have mutually agreed to the retention of
such counsel; or (b) the named parties to any such proceeding
(including any impleaded parties) include both the Indemnifying Party
and the Indemnified Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential
differing interests between them. The Indemnifying Party will not be
liable for any settlement of any proceeding effected without its
written consent but if settled with such consent or if there is a final
judgment for the plaintiff, the Indemnifying Party agrees to indemnify
the Indemnified Party from and against any loss or liability by reason
of such settlement or judgment. A successor by law of the parties to
this Agreement will be entitled to the benefits of the indemnification
contained in this Article V. The indemnification provisions contained
in this Article V will survive any termination of this Agreement.
5.5. Limitation of Liability
Except as expressly stated herein, as between the parties, in no event
will any party to this Agreement be responsible to any other party for
any incidental, indirect, consequential, punitive or exemplary damages
of any kind arising from this Agreement, including without limitation,
lost revenues, loss of profits or loss of business.
5.6. Arbitration
Any controversy or claim arising out of or relating to this Agreement,
or the breach thereof, will be settled by arbitration administered by
the American Arbitration Association in accordance with its Commercial
Arbitration Rules and Title 9 of the U.S. Code. Judgment on the award
rendered by the arbitrators may be entered in any court having
jurisdiction thereof. The number of arbitrators will be three, one of
whom will be appointed by the Company or an affiliate; one of whom will
be appointed by the Fund and/or the Adviser or an affiliate; and the
third of whom will be selected by mutual agreement, if possible, within
30 days of the selection of the second arbitrator and thereafter by the
administering authority. The place of arbitration will be Minneapolis,
Minnesota or New York, New York. The arbitrators will have no authority
to award punitive damages or any other damages not measured by the
prevailing party's actual damages, and may not, in any event, make any
ruling, finding or award that does not conform to the terms and
conditions of this Agreement. Any party may make an
-17-
application to the arbitrators seeking injunctive relief to maintain
the status quo until such time as the arbitration award is rendered or
the controversy is otherwise resolved. Any party may apply to any court
having jurisdiction hereof and seek injunctive relief in order to
maintain the status quo until such time as the arbitration award is
rendered or the controversy is otherwise resolved.
ARTICLE VI. Applicable Law
6.1. This Agreement will be construed and the provisions hereof interpreted
under and in accordance with the laws of the State of Minnesota.
6.2. This Agreement will be subject to the provisions of the 1933 Act, the
Securities Exchange Act of 1934 and the 1940 Act, and the rules and
regulations and rulings thereunder, including such exemptions from
those statutes, rules and regulations as the SEC may grant (including,
but not limited to, the Exemptive Order) and the terms hereof will be
interpreted and construed in accordance therewith.
ARTICLE VII. Termination
7.1. This Agreement will terminate:
(a) at the option of any party, with or without cause, with
respect to some or all of the Portfolios, upon sixty (60)
days' advance written notice to the other parties or, if
later, upon receipt of any required exemptive relief or orders
from the SEC, unless otherwise agreed in a separate written
agreement among the parties;
(b) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio if shares of the Portfolio are not reasonably
available to meet the requirements of the Contracts as
determined in good faith by the Company; or
(c) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state
and/or federal law or such law precludes the use of such
shares as the underlying investment media of the Contracts
issued or to be issued by Company; or
(d) at the option of the Fund, upon receipt of the Fund's
written notice by the other parties, upon institution of
formal proceedings against the Company by the NASD, the SEC,
the insurance commission of any state or any other
regulatory body regarding the Company's duties under this
Agreement or related to the sale of the Contracts, the
administration of the Contracts, the operation of the
Account, or the purchase of the Fund shares, provided that
the Fund determines in its sole judgment, exercised in good
faith, that any such proceeding would have a material
adverse effect on the Company's ability to perform its
obligations under this Agreement; or
-18-
(e) at the option of the Company, upon receipt of the Company's
written notice by the other parties, upon institution of
formal proceedings against the Fund or the Adviser by the
NASD, the SEC, or any state securities or insurance
department or any other regulatory body, regarding the
Fund's or the Adviser's duties under this Agreement or
related to the sale of Fund shares or the administration of
the Fund, provided that the Company determines in its sole
judgment, exercised in good faith, that any such proceeding
would have a material adverse effect on the Fund's or the
Adviser's ability to perform its obligations under this
Agreement; or
(f) at the option of the Company, upon receipt of the Company's
written notice by the other parties, if the Fund ceases to
qualify as a Regulated Investment Company under Subchapter M
of the Internal Revenue Code, or under any successor or
similar provision, or if the Company reasonably and in good
faith believes that the Fund may fail to so qualify; or
(g) at the option of the Company, upon receipt of the Company's
written notice by the other parties, with respect to any
Portfolio if the Fund fails to meet the diversification
requirements specified in Article II hereof or if the Company
reasonably and in good faith believes the Fund may fail to
meet such requirements; or
(h) at the option of any party to this Agreement, upon written
notice to the other parties, upon another party's material
breach of any provision of this Agreement; or
(i) at the option of the Company or the Fund upon a
determination by a majority of the Fund Board, or a majority
of the disinterested Fund Board members, that an
irreconcilable material conflict exists among the interests
of: (i) all contract owners of variable insurance products
of all separate accounts; or (ii) the interests of the
Participating Insurance Companies investing in the Fund as
set forth in Article IV of this Agreement; or
(j) at the option of the Fund in the event any of the Contracts
are not issued or sold in accordance with applicable federal
and/or state law. Termination will be effective immediately
upon such occurrence without notice.
7.2. Notwithstanding any termination of this Agreement, the Fund and the
Adviser will, at the option of the Company, continue to make
available additional shares of the Fund pursuant to the terms and
conditions of this Agreement, for all Contracts in effect on the
effective date of termination of this Agreement (hereinafter referred
to as "Existing Contracts"). Specifically, without limitation, the
owners of the Existing Contracts will be permitted to reallocate
investments in the Portfolios (as in effect on such date), redeem
investments in the Portfolios and/or invest in the Portfolios upon
the making of additional purchase payments under the Existing
Contracts. The parties agree that this Section 7.2 will not apply
to any terminations under Article IV and the effect of such Article
IV terminations will be governed by Article IV of this Agreement.
-19-
7.3. The provisions of Article V will survive the termination of this
Agreement and as long as shares of the Fund are held under Existing
Contracts in accordance with Section 7.2, the provisions of this
Agreement will survive the termination of this Agreement with respect
to those Existing Contracts.
ARTICLE VIII. Notices
Any notice will be deemed duly given when sent by registered or
certified mail (or other method agreed to by the parties) to each other party at
the address of such party set forth below or at such other address as such party
may from time to time specify in writing to the other parties.
If to the Company:
American Enterprise Life Insurance Company
829 AXP Financial Center
Xxxxxxxxxxx, XX 00000
ATTN: President
With a copy to:
American Enterprise Life Insurance Company
c/o American Express Financial Advisors Inc.
50607 AXP Financial Center
Xxxxxxxxxxx, XX 00000
ATTN: Xxxx Xxxxx Xxxxxxx
Vice President, Counsel and Assistant Secretary
If to the Fund:
Third Avenue Variable Series Trust
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
ATTN: General Counsel
If to the Adviser:
Third Avenue Management LLC
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
ATTN: General Counsel
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