PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of September,
1999, by and among ROYCE CAPITAL FUND, an open-end management investment company
organized as a Delaware business trust (the "Fund"), ROYCE & ASSOCIATES, INC., a
corporation organized under the laws of New York (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 are divided into several
series of shares, each 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 polices (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 10:00 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.
Notwithstanding the above, if the Fund receives notice of the purchase
order on a federal bank holiday, the Company will pay for the purchase
order on the next Business Day. 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 (or on the next Business Day if such
redemption order notice is received on a federal bank holiday) 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 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 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, on behalf of
the Account, 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 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.
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;
(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 is currently qualified 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) its investment objectives, policies and restrictions comply with applicable
state securities laws as they may apply to the Fund and it will register
and qualify the shares of the Portfolios for sale in accordance with the
laws of the various states only if and 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, upon the Company's request, the information required by state
insurance laws 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 use their
best efforts to comply at all times 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
(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 the cost of typesetting and printing such documents and of
distributing such documents to existing Contract owners. The Company will
bear the cost of distributing 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
(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.
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 its separate 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, (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
Royce Capital Fund 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 Adviser will be liable to
the Company for any material mistakes it makes in calculating the
performance information for the Fund which cause losses to the Company. The
Company will be liable to the Adviser for any material mistakes it makes in
calculating the performance information for the Contracts which cause
losses to the Adviser. Each party will be liable for any material mistakes
it makes in reproducing the performance information for Contracts or the
Fund, as appropriate. 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. 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 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 trustees, 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 trustees), 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 trustees 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 trustees 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.
4.6. 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 (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; 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 5.3 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 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 of
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 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 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 5.3 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.
(d) It is understood that these indemnities shall have no effect
on any other agreements or arrangements between the Fund
and/or its series and the Adviser.
5.3. Indemnification Procedure
Any person obligated to provide indemnification under this Article V
("Indemnifying Party" for the purpose of this Section 5.3) 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 5.3) 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
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 solely 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 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.
5.4 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.
5.5 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. 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 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
(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, if the Company determines in its sole
judgment exercised in good faith, that the Fund or the Adviser has suffered
a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material
adverse publicity which is likely to have a material adverse impact upon
the business and operations of the Company, such termination to be
effective sixty (60) days' after receipt by the other parties of written
notice of the election to terminate; or
(j) at the option of the Fund, if the Fund determines in its sole judgment
exercised in good faith, that the Company has suffered a material adverse
change in its business, operations or financial condition since the date of
this Agreement or is the subject of material adverse publicity which is
likely to have a material adverse impact upon the business and operations
of the Fund, such termination to be effective sixty (60) days' after
receipt by the other parties of written notice of the election to
terminate; or
(k) at the option of the Company or the Fund upon receipt of any necessary
regulatory approvals and/or the vote of the Contract owners having an
interest in the Account (or any subaccount) to substitute the shares of
another investment company for the corresponding Portfolio shares of the
Fund in accordance with the terms of the Contracts for which those
Portfolio shares had been selected to serve as the underlying investment
media. The Company will give sixty (60) days' prior written notice to the
Fund of the date of any proposed vote or other action taken to replace the
Fund's shares; or
(l) 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
(m) 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.
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
00 Xxxxx 0xx Xxxxxx
Xxxxxxxxxxx, XX 00000
Attn: President
With a Copy to:
Law Department (Unit 52)
American Enterprise Life Insurance Company
00 Xxxxx 0xx Xxxxxx
Xxxxxxxxxxx, XX 00000
If to the Fund:
Xxxx X. Xxxxxxxxx
Vice President
Royce Capital Fund
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
If to the Adviser:
Xxxx X. Xxxxxxx
Associate General Counsel
Royce & Associates, Inc.
0000 Xxxxxx xx xxx Xxxxxxxx
Xxx Xxxx, XX 00000
ARTICLE IX. Miscellaneous
9.1. All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither
the directors, trustees, officers, partners, employees, agents or
shareholders assume any personal liability for obligations entered into
on behalf of the Fund.
9.2. The Fund and the Adviser acknowledge that the identities of the customers
of the Company or any of its affiliates (collectively the "Protected
Parties" for purposes of this Section 9.2), information maintained
regarding those customers, and all computer programs and procedures or
other information developed or used by the Protected Parties or any of
their employees or agents in connection with the Company's performance of
its duties under this Agreement are the valuable property of the Protected
Parties. The Fund and the Adviser agree that if they come into possession
of any list or compilation of the identities of or other information about
the Protected Parties' customers, or any other information or property of
the Protected Parties, other than such information as may be independently
developed or compiled by the Fund or the Adviser from information supplied
to them by the Protected Parties' customers who also maintain accounts
directly with the Fund or the Adviser, the Fund and the Adviser will hold
such information or property in confidence and refrain from using,
disclosing or distributing any of such information or other property
except: (a) with the Company's prior written consent; or (b) as required by
law or judicial process. The Fund and the Adviser acknowledge that any
breach of the agreements in this Section 9.2 would result in immediate and
irreparable harm to the Protected Parties for which there would be no
adequate remedy at law and agree that in the event of such a breach, the
Protected Parties will be entitled to equitable relief by way of temporary
and permanent injunctions, as well as such other relief as any court of
competent jurisdiction deems appropriate.
9.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions
hereof or otherwise affect their construction or effect.
9.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the
same instrument.
9.5. If any provision of this Agreement will be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the
Agreement will not be affected thereby.
9.6. This Agreement will not be assigned by any party hereto without the
prior written consent of all the parties.
9.7. Each party to this Agreement will cooperate with each other party and
all appropriate governmental authorities (including without limitation
the SEC, the NASD and state insurance regulators) and will permit each
other and such authorities reasonable access to its books and records
in connection with any investigation or inquiry relating to this
Agreement or the transactions contemplated hereby.
9.8. Each party represents that the execution and delivery of this Agreement
and the consummation of the transactions contemplated herein have been
duly authorized by all necessary corporate or board action, as
applicable, by such party and when so executed and delivered this
Agreement will be the valid and binding obligation of such party
enforceable in accordance with its terms.
9.9. The parties to this Agreement may amend the schedules to this Agreement
from time to time to reflect changes in or relating to the Contracts,
the Accounts or the Portfolios of the Fund or other applicable terms of
this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and behalf by its duly authorized
representative as of the date specified above.
ROYCE CAPITAL FUND ROYCE & ASSOCIATES, INC.
By: By:
Name: Name:
Title: Title:
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY ATTEST:
By: By:
Xxxxx X. Xxxxx Xxxx Xxxxx Xxxxxxx
President Assistant Secretary
Schedule 1
PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
The following Accounts of American Enterprise Life Insurance Company are
permitted in accordance with the provisions of this Agreement to invest in
Portfolios of the Fund shown in Schedule 2:
American Enterprise Variable Annuity Account
American Enterprise Variable Life Account
Schedule 2
PARTICIPATION AGREEMENT
By and Among
ROYCE CAPITAL FUND
And
ROYCE & ASSOCIATES, INC.
And
AMERICAN ENTERPRISE LIFE INSURANCE COMPANY
The Accounts shown on Schedule 1 may invest in the following Portfolios:
Royce Micro-Cap Portfolio
Royce Premier Portfolio
