PARTICIPATION AGREEMENT
AMONG
XXXXXXX VARIABLE SERIES, INC.
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
AND
XXXXXXX ASSET MANAGEMENT COMPANY, INC.
THIS AGREEMENT, made and entered into this -- day of April 1998, by
and among Xxxxxxx Variable Series, Inc., a management investment company
organized under the laws of the State of Maryland ("Xxxxxxx"), American
Foundation Life Insurance Company, an Alabama corporation (the "Company") on
its own behalf and on behalf of each of the segregated asset accounts of the
Company set forth in Schedule A hereto, as may be amended from time to time
(the "Accounts", and XXXXXXX ASSET MANAGEMENT COMPANY, INC. ("CAMCO"), a
Delaware corporation.
WHEREAS, Xxxxxxx is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940
Act"), and its shares are registered or will be registered under the
Securities Act of 1933, as amended (the "1933 Act");
WHEREAS, shares of beneficial interest of Xxxxxxx are divided into
several series of shares, each representing the interests in a particular
managed pool of securities and other assets;
WHEREAS, the series of shares of Xxxxxxx offered by Xxxxxxx to the
Company and the Accounts are set forth on Schedule A attached hereto (each, a
"Portfolio," and. collectively, the "Portfolios");
WHEREAS, CAMCO is duly registered as an investment adviser under the
Investment Advisers Act of 1940, as amended, and any applicable state
securities law, and is the Xxxxxxx'x investment adviser;
WHEREAS, the Company will issue certain variable annuity and/or variable
life insurance contracts (individually, the "Policy" or, collectively, the
"Policies') which, if required by applicable law will be registered under the
1933 Act;
WHEREAS, the Accounts are duly organized, validly existing segregated
asset accounts, established by resolution of the Board of Directors of the
Company, to set aside and invest assets attributable to the aforesaid
variable annuity and/or variable life insurance contracts that are allocated
to the Accounts (the Policies and the Accounts covered by this Agreement, and
each corresponding Portfolio covered by this Agreement in which the Accounts
invest, is specified in Schedule A attached hereto as may be modified from
time to time);
WHEREAS, the Company has registered or will register the Accounts as
unit investment trusts under the 1940 Act (unless exempt therefrom);
WHEREAS, XXXXXXX DISTRIBUTORS, (the "Underwriter") is registered as a
broker-dealer with the Securities and Exchange Commission (the "SEC") under
the Securities Exchange Act of 1934, as amended (hereinafter the "1934 Act"),
and is a member in good standing of the National Association of Securities
Dealers. Inc. (the"NASD");
WHEREAS, INVESTMENT DISTRIBUTORS, INC., the underwriter for the
individual variable annuity and the variable life policies, is registered as
a broker-dealer with the SEC under the 1934 Act and is a member in good
standing of the NASD; and
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WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares in one or more of the
Portfolios specified in Schedule A attached hereto (the "Shares") on behalf
of the Accounts to fund the Policies, and Xxxxxxx intends to sell such Shares
to the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, Xxxxxxx,
CAMCO, and the Company agree as follows:
ARTICLE I. SALE OF TRUST SHARES
1.1 Xxxxxxx agrees to sell to the Company those Shares that the Accounts
order (based on orders placed by Policy holders on that Business Day, as
defined below) and that are available for purchase by such Accounts,
executing such orders on a daily basis at the net asset value next computed
after receipt by Xxxxxxx or its designee of the order for the Shares. For
purposes of this Section 1.1, the Company shall be the designee of Xxxxxxx
for receipt of such orders from Policy owners and receipt by such designee
shall constitute receipt by Xxxxxxx; PROVIDED that Xxxxxxx receives written
or facsimile notice of such orders by 10:30 a.m. Eastern time on the next
following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange, Inc. (the "NYSE") is open for trading and on which
Xxxxxxx calculates its net asset value pursuant to the rules of the SEC.
Xxxxxxx shall furnish to the Company same day written or facsimile
confirmation of each order under this paragraph 1.1. Written or facsimile
notices under Article I of this agreement shall be delivered to the address
or facsimile number designated from time to time by Xxxxxxx, CAMCO and the
Company.
1.2. Xxxxxxx agrees to make the Shares available indefinitely for
purchase at the applicable net asset value per share by the Company and the
Accounts on those days on which Xxxxxxx calculates its net asset value
pursuant to rules of the SEC and Xxxxxxx shall calculate such net asset
value on each day which the NYSE is open for trading. Notwithstanding
the foregoing, the Board of Directors of Xxxxxxx (the "Board") may refuse
to sell any Shares to the Company and the Accounts, or suspend or terminate
the offering of the Shares if such action is required by law or by
regulatory authorities having jurisdiction or is, in the sole discretion of
the Board acting in good faith and in light of its fiduciary duties
under federal and any applicable state laws, necessary in the best interest
of the Shareholders of such Portfolio.
1.3. Xxxxxxx and CAMCO agree that (1) the Shares will be sold only to
insurance companies that have entered into participation agreements with
Xxxxxxx and CAMCO (the "Participating Insurance Companies") and their
separate accounts, qualified pension and retirement plans and CAMCO or its
affiliates; and (2) all such sales will comply with applicable federal and
state securities laws and with Xxxxxxx'x Exemptive Order regarding Shared
Funding. The Company will not resell the Shares except to Xxxxxxx or its
agents.
1.4. Xxxxxxx agrees to redeem for cash, on the Company's request, any
full or fractional Shares held by the Accounts (based on orders placed by
Policy owners on that Business Day), executing such requests on a daily
basis at the net asset value next computed after receipt by Xxxxxxx or its
designee of the request for redemption. For purposes of this Section 1.4.
the Company shall be the designee of Xxxxxxx for receipt of requests for
redemption from Policy owners and receipt by such designee shall constitute
receipt by Xxxxxxx; provided that Xxxxxxx receives written or facsimile
notice of such request for redemption by 10:30 a.m. Eastern time on the
next following Business Day. Xxxxxxx shall furnish to the Company same day
written or facsimile confirmation of each request for redemption under this
paragraph 1.4. Written or facsimile notice under Article I of this
agreement shall be delivered to the address or facsimile number designated
from time to time by Xxxxxxx, CAMCO and the Company.
1.5. Each purchase, redemption and exchange order placed by the Company
shall be placed separately for each Portfolio and shall not be netted with
respect to any Portfolio. However, with respect to payment of the purchase
price by the Company and of redemption proceeds by Xxxxxxx, the Company and
Xxxxxxx shall net purchase and redemption orders with respect to each
Portfolio and shall transmit one net payment for all of the Portfolios in
accordance with Section 1.6 hereof.
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1.6. In the event of net purchases, the Company shall pay for the Shares
on the next Business Day after an order to purchase the Shares is made in
accordance with the provisions of Section 1.1. hereof. In the event of net
redemptions, Xxxxxxx shall pay the redemption proceeds on the next Business
Day after an order to redeem the shares is made in accordance with the
provisions of Section 1.4. hereof. All such payments shall be in federal
funds transmitted by wire.
1.7. Issuance and transfer of the Shares will be by book entry only.
Stock certificates will not be issued to the Company or the Accounts. The
Shares ordered from Xxxxxxx will be recorded in an appropriate title for
the Accounts or the appropriate subaccounts of the Accounts.
1.8. Xxxxxxx shall furnish same day notice (by wire or telephone followed
by written confirmation) to the Company of any dividends or capital gain
distributions payable on the Shares. The Company hereby elects to receive
all such dividends and distributions as are payable on a Portfolio's Shares
in additional Shares of that Portfolio. Xxxxxxx shall notify the Company
of the number of Shares so issued as payment of such dividends and
distributions.
1.9. Xxxxxxx or its custodian shall make the net asset value per share
for each Portfolio available to the Company on each Business Day as soon as
reasonably practical after the net asset value per share is calculated and
shall use its best efforts to make such net asset value per share available
by 6:30 p.m. Eastern time. If Xxxxxxx provides materially incorrect share
net asset value information, Xxxxxxx shall make an adjustment to the number
of shares purchased or redeemed for the Accounts to reflect the correct net
asset value per share. Any material error in the calculation or reporting
of net asset value per share, dividend or capital gains information shall
be reported promptly upon discovery to the Company.
ARTICLE II, CERTAIN REPRESENTATIONS, WARRANTIES AND COVENANTS
2.1. The Company represents and warrants that the Policies are or will be
registered under the 1933 Act or are exempt from or not subject to
registration thereunder, and that the Policies will be issued, sold, and
distributed in compliance in all material respects with all applicable
state and federal laws, including without limitation the 1933 Act, the
Securities Exchange Act of 1934, as amended (the "1934 Act"), and the 1940
Act. The Company further represents and warrants that it is an insurance
company duly organized and in good standing under applicable law and that
it has legally and validly established the Accounts as segregated asset
accounts under applicable law and has registered or, prior to any issuance
or sale of the Policies, will register the Accounts as unit investment
trusts in accordance with the provisions of the 1940 Act (unless exempt
therefrom) to serve as segregated investment accounts for the Policies, and
that it will maintain such registration for so long as any Policies are
outstanding. The Company shall amend the registration statements under the
1933 Act for the Policies and the registration statements under the 1940
Act for the Accounts from time to time as required in order to effect the
continuous offering of the Policies or as may otherwise be required by
applicable law. The Company shall register and qualify the Policies for
sales in accordance with the securities laws of the various states only if
and to the extent deemed necessary by the Company.
2.2. Subject to Article VI hereof, the Company represents and warrants
that the Policies are currently and at the time of issuance will be treated
as life insurance, endowment or annuity contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
that it will maintain such treatment and that it will notify Xxxxxxx or
CAMCO immediately upon having a reasonable basis for believing that the
Policies have ceased to be so treated or that they might not be so treated
in the future.
2.3. The Company represents and warrants that Investment Distributors,
Inc., the underwriter for the individual variable annuity and the variable
life policies, is a member in good standing of the NASD and is a registered
broker-dealer with the SEC. The Company represents and warrants that the
Company and Investment Distributors, Inc. will sell and distribute such
policies in accordance in all material respects with all applicable state
and federal securities laws including without limitation the 1933 Act, the
1934 Act and the 1940 Act.
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2.4. Xxxxxxx and CAMCO represent and warrant that the Shares sold
pursuant to this Agreement shall be registered under the 1933 Act, duly
authorized for issuance and sold in compliance with the laws of the State
of Maryland and all applicable federal and state securities laws and that
Xxxxxxx is and shall remain registered under the 1940 Act. Xxxxxxx shall
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. Xxxxxxx shall register and qualify the Shares for
sale in accordance with the laws of the various states only if and to the
extent deemed necessary by Xxxxxxx.
2.5. CAMCO represents and warrants that the Underwriter is a member in
good standing of the NASD and is registered as a broker-dealer with the
SEC. Xxxxxxx and CAMCO represent that Xxxxxxx and the Underwriter will
sell and distribute the Shares in accordance in all material respects with
all applicable state and federal securities laws, including without
limitation the 1933 Act, the 1934 Act, and the 1940 Act.
2.6. Xxxxxxx represents that it is lawfully organized and validly
existing under the laws of the State of Maryland and that it does and
will comply in all material respects with the 1940 Act and any applicable
regulations thereunder and Subchapter M of the Code.
2.7. CAMCO represents and warrants that it is and shall remain duly
registered under all applicable federal securities laws and that it shall
perform its obligations for Xxxxxxx in compliance in all material respects
with any applicable federal and state securities laws.
2.8. No less frequently than annually, the Company shall submit to the
Board such reports, material or data as the Board may reasonably request so
that it may carry out fully the obligations imposed upon it by the
conditions contained in the exemptive application pursuant to which the SEC
has granted exemptive relief to permit mixed and shared funding (the "Mixed
and Shared Funding Exemptive Order").
2.9. Xxxxxxx and CAMCO represent that Xxxxxxx'x investment policies, fees
and expenses are and shall at all times remain in compliance with
applicable state securities laws, if any, and with the insurance laws of
the State of Tennessee and any other states as may be identified by the
Company from time to time. Xxxxxxx and CAMCO represent that their
respective operations are and shall at all times remain in material
compliance with applicable state securities laws and with the insurance
laws of the State of Tennessee and any other state as may be identified by
the Company from time to time to the extent required to perform this
Agreement.
ARTICLE III. PROSPECTUS AND PROXY STATEMENTS; VOTING
3.1. At least annually, Xxxxxxx or its designee shall provide the
Company, free of charge, with as many copies of the current prospectus
(describing only the Portfolios listed in Schedule A hereto) for the Shares
as the Company may reasonably request for distribution to existing Policy
owners whose Policies are funded by such Shares. Xxxxxxx or its designee
shall provide the Company, at the Company's expense, with as many copies of
the current prospectus for the Shares as the Company may reasonably request
for distribution to prospective purchasers of Policies. If requested by
the Company in lieu thereof, Xxxxxxx or its designee shall provide such
documentation (including a "camera ready" copy of the new prospectus as set
in type or, at the request of the Company, as a diskette in the form sent
to the financial printer) and other assistance as is reasonably necessary
in order for the parties hereto once each year (or more frequently if the
prospectus for the Shares is supplemented or amended) to have the
prospectus for the Policies and the prospectus for the Shares printed
together in one document; the expenses of such printing to be apportioned
between (a) the Company and (b) Xxxxxxx or its designee in proportion to
the number of pages of the Policy and Shares' prospectuses taking account
of other relevant factors affecting the expense of printing, such as
covers, columns, graphs and charts; Xxxxxxx or its designee to bear the
cost of printing the Shares' prospectus portion of such document for
distribution to owners of existing Policies funded by Shares and the
Company to bear the expenses of printing the portion of such document
relating to the Accounts; PROVIDED, however, that the Company shall bear
all printing expenses of such combined documents where used for
distribution to prospective purchasers. In the event that the Company
requests that Xxxxxxx or its designee provides Xxxxxxx'x prospectus in a
"camera ready" or diskette format, Xxxxxxx shall be responsible for
providing the prospectus in the format in which it or CAMCO is accustomed
to formatting prospectuses and shall bear the expense of providing the
prospectus in such format (E.G., typesetting expenses), and the Company
shall bear the expense of adjusting or changing the format to conform with
any of its prospectuses.
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3.2. The prospectus for the Shares shall state that the statement of
additional information for the Shares is available from Xxxxxxx or its
designee. Xxxxxxx or its designee, at its expense, shall print and provide
such statement of additional information to the Company (or a master of
such statement suitable for duplication by the Company) for distribution to
any owner of a Policy. Xxxxxxx or its designee, at the Company's expense,
shall print and provide such statement to the Company (or a master of such
statement suitable for duplication by the Company) for distribution to a
prospective purchaser who requests such statement.
3.3. Xxxxxxx or its designee shall provide the Company free of charge
copies, if and to the extent applicable to the Shares, of Xxxxxxx'x proxy
materials, reports to Shareholders and other communications to Shareholders
in such quantity as the Company shall reasonably require for
distribution to Policy owners.
3.4. Notwithstanding the provisions of Sections 3.1, 3.2, and 3.3 above,
or of Article V below, Xxxxxxx shall not pay the expense of printing or
providing documents to the extent such cost is considered a distribution
expense.
3.5. Xxxxxxx hereby notifies the Company that it may be appropriate to
include in the prospectus pursuant to which a Policy is offered disclosure
regarding the potential risks of mixed and shared funding.
3.6. If and to the extent required by law, the Company shall:
(a) solicit voting instructions from Policy owners;
(b) vote the Shares in accordance with instructions received
from Policy owners; and
(c) vote the Shares for which no instructions have been received
in the same proportion as the Shares of such Portfolio for
which instructions have been received from Policy 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.
Subject to applicable law, the Company will in no way recommend action in
connection with or oppose or interfere with the solicitation of proxies for
the Shares held for such Policy owners. The Company reserves the right to
vote shares held in any segregated asset account in its own right, to the
extent permitted by law. Participating Insurance Companies shall be
responsible for assuring that each of their separate accounts holding
Shares calculates voting privileges in the manner required by the Mixed and
Shared Funding Exemptive Order. Xxxxxxx and CAMCO will notify the Company
of any changes of interpretations or amendments to the Mixed and Shared
Funding Exemptive Order.
ARTICLE IV. SALES MATERIAL AND INFORMATION
4.1. The Company shall furnish, or shall cause to be furnished, to
Xxxxxxx or its designee, each piece of sales literature or other
promotional material in which Xxxxxxx, CAMCO, any other investment adviser
to Xxxxxxx, or any affiliate of CAMCO are named, at least three (3)
Business Days prior to its use. No such material shall be used if Xxxxxxx,
CAMCO or their respective designees reasonably objects to such use within
three (3) Business Days after receipt of such material.
4.2. The Company shall not give any information or make any
representations or statement on behalf of Xxxxxxx, CAMCO, any other
investment adviser to Xxxxxxx, or any affiliate of CAMCO or concerning
Xxxxxxx or any other such entity in connection with the sale of the
Policies other than the information or representations contained in the
registration statement, prospectus or statement of additional information
for the 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 Xxxxxxx, or in sales literature or other
promotional material approved by Xxxxxxx, CAMCO or their respective
designees, except with the permission of Xxxxxxx, CAMCO or their respective
designees. Xxxxxxx, CAMCO or their respective designees each agrees to
respond to any request for approval on a prompt and timely basis. The
Company shall adopt and implement procedures reasonably designed to ensure
that information concerning Xxxxxxx, CAMCO or any of their affiliates which
is intended for use only by brokers or agents selling the Policies (i.e.,
information that is not intended for distribution to Policy owners or
prospective Policy owners) is so used, and neither Xxxxxxx, CAMCO nor any
of their affiliates shall be liable for any losses, damages or expenses
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relating to the improper use of such broker-only materials. The parties
hereto agree that this Section 4.2 is not intended to designate or
otherwise imply that the Company is an underwriter of Xxxxxxx'x shares.
4.3. Xxxxxxx or its designee shall furnish, or shall cause to be
furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company and/or the Accounts is
named at least three (3) Business Days prior to its use. No such material
shall be used if the Company or its designee reasonably objects to such use
within three (3) Business Days after receipt of such material.
4.4. Xxxxxxx and CAMCO shall not give, and agree that the Underwriter
shall not give, any information or make any representations on behalf of
the Company or concerning the Company, the Accounts, or the Policies in
connection with the sale of the Policies other than the information or
representations contained in a registration statement, prospectus, or
statement of additional information for the Policies, as such
registration statement, prospectus and statement of additional information
may be amended or supplemented from time to time, or in reports for the
Accounts, or in sales literature or other promotional material approved by
the Company or its designee, except with the permission of the Company.
The Company or its designee agrees to respond to any request for approval
on a prompt and timely basis. Xxxxxxx and CAMCO shall adopt and implement
procedures reasonably designed to ensure that information concerning the
Company or any of its affiliates and the Accounts that is intended for use
only by brokers or agents (I.E. information that is not intended for
distribution to owners of the Shares or prospective owners of the Share) is
so used, and neither the Company, its affiliates nor the Accounts shall be
liable for any losses, damages or expenses relating to the improper use of
such broker only materials. The parties hereto agree that this Section
4.4. is neither intended to designate nor otherwise imply that CAMCO is an
underwriter or distributor of the Policies.
4.5. The Company and Xxxxxxx (or its designee in lieu of the Company or
Xxxxxxx, as appropriate) will each provide to the other 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
Policies, or to Xxxxxxx or its Shares, prior to or contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
The Company and Xxxxxxx shall also each promptly inform the other of the
results of any examination by the SEC (or other regulatory authorities)
that relates to the Policies, Xxxxxxx or its Shares, and the party that
was the subject of the examination shall provide the other party with a
copy of relevant portions of any "deficiency letter" or other
correspondence or written report regarding any such examination.
4.6. Xxxxxxx and CAMCO will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Portfolio, and of
any material change in Xxxxxxx'x registration statement, particularly any
change resulting in change to the registration statement or prospectus or
statement of additional information for any Account. Xxxxxxx and CAMCO
will cooperate with the Company so as to enable the Company to solicit
proxies from Policy owners or to make changes to its prospectus, statement
of additional information or registration statement in an orderly manner.
Xxxxxxx and CAMCO will make reasonable efforts to attempt to have changes
affecting Policy prospectuses become effective simultaneously with the
annual updates for such prospectuses.
4.7. For purpose of this Article IV and Article VIII, 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), and sales literature (such as brochures, circulars,
reprints or excerpts or any other advertisement, sales literature, or
published articles), distributed or made generally available to customers
or the public, educational or training materials or communications
distributed or made generally available to some or all agents or employees.
ARTICLE V. FEES AND EXPENSES
5.1. Xxxxxxx shall pay no fee or other compensation to the Company under
this Agreement, and the Company shall pay no fee or other compensation to
Xxxxxxx, except that if Xxxxxxx or any Portfolio adopts and implements a
plan pursuant to Rule 12b-1 under the 1940 Act to finance distribution and
Shareholder servicing expenses, then, subject to obtaining any required
exemptive orders or regulatory approvals, Xxxxxxx may make payments to the
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Company or to the underwriter for the Policies if and in amounts agreed to
by Xxxxxxx in writing. Each party, however, shall, in accordance with the
allocation of expenses specified in Articles III and V hereof, reimburse
other parties for expenses initially paid by one party but allocated to
another party. In addition, nothing herein shall prevent the parties hereto
from otherwise agreeing to perform, and arranging for appropriate
compensation for, other services relating to Xxxxxxx and/or to the
Accounts.
5.2. Xxxxxxx or its designee shall bear the expenses for the cost of
registration and qualification of the Shares under all applicable federal
and state laws, including preparation and filing of Xxxxxxx'x registration
statement, and payment of filing fees and registration fees; preparation
and filing of Xxxxxxx'x proxy materials and reports to Shareholders;
setting in type and printing its prospectus and statement of additional
information (to the extent provided by and as determined in accordance with
Article III above); setting in type and printing the proxy materials and
reports to Shareholders (to the extent provided by and as determined in
accordance with Article III above); the preparation of all statements and
notices required of Xxxxxxx by any federal or state law with respect to its
Shares; all taxes on the issuance or transfer of the Shares; and the costs
of distributing Xxxxxxx'x prospectuses and proxy materials to owners of
Policies funded by the Shares and any expenses permitted to be paid or
assumed by Xxxxxxx pursuant to a plan, if any, under Rule 12b-1 under the
1940 Act. Xxxxxxx shall not bear any expenses of marketing the Policies.
5.3. The Company shall bear the expenses of distributing the Shares
prospectus or prospectuses in connection with new sales of the Policies and
of distributing Xxxxxxx'x Shareholder reports to Policy owners. The Company
shall bear all expenses associated with the registration, qualification,
and filing of the Policies under applicable federal securities and state
insurance laws; the cost of preparing, printing and distributing the Policy
prospectus and statement of additional information; and the cost of
preparing, printing and distributing annual individual account statements
for Policy owners as required by state insurance laws.
ARTICLE VI. DIVERSIFICATION AND RELATED LIMITATIONS
6.1. Xxxxxxx and CAMCO represent and warrant that each Portfolio of
Xxxxxxx will meet the diversification requirements of Section 817 (h) (1) of
the Code and Treas. Reg. 1.817-5, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts,
as they may be amended from time to time (and any revenue rulings, revenue
procedures, notices, and other published announcements of the Internal
Revenue Service interpreting these sections), as if those requirements
applied directly to each such Portfolio. In the event that any Portfolio is
not so diversified at the end of any applicable quarter, Xxxxxxx and CAMCO
will make every effort to: (a) adequately diversify the Portfolio so as to
achieve compliance within the grace period afforded by Treas. Reg. 1.817.5,
and (b) notify the Company.
6.2. Xxxxxxx and CAMCO represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the Code
and that they will maintain such qualification (under Subchapter M or any
successor or similar provision).
ARTICLE VII. POTENTIAL MATERIAL CONFLICTS
7.1. Xxxxxxx agrees that the Board, constituted with a majority of
disinterested directors, will monitor each Portfolio of Xxxxxxx for the
existence of any material irreconcilable conflict between the interests of
the variable annuity contract owners and the variable life insurance policy
owners of the Company and/or affiliated companies ("contract owners")
investing in Xxxxxxx. The Board shall have the sole authority to determine
if a material irreconcilable conflict exists, and such determination shall
be binding on the Company only if approved in the form of a resolution by a
majority of the Board, or a majority of the disinterested directors of the
Board. The Board will give prompt notice of any such determination to the
Company.
7.2. The Company agrees that it will be responsible for assisting the
Board in carrying out its responsibilities under the conditions set forth
in Xxxxxxx'x exemptive application pursuant to which the SEC has granted
the Mixed and Shared Funding Exemptive Order by providing the Board, as it
may reasonably request, with all information necessary for the Board to
consider any issues raised and agrees that it will be responsible for
promptly reporting
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any potential or existing conflicts of which it is aware to the Board
including, but not limited to, an obligation by the Company to inform the
Board whenever contract owner voting instructions are disregarded. The
Company also agrees that, if a material irreconcilable conflict arises, it
will at its own cost remedy such conflict up to and including (a)
withdrawing the assets allocable to some or all of the Accounts from
Xxxxxxx or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of
Xxxxxxx, or submitting to a vote of all affected contract owners whether to
withdraw assets from Xxxxxxx or any Portfolio and reinvesting such assets
in a different investment medium and, as appropriate, segregating the
assets attributable to any appropriate group of contract owners that votes
in favor of such segregation, or offering to any of the affected contract
owners the option of segregating the assets attributable to their contracts
or policies, and (b) establishing a new registered management investment
company and segregating the assets underlying the Policies, unless a
majority of Policy owners materially adversely affected by the conflict
have voted to decline the offer to establish a new registered management
investment company.
7.3. A majority of the disinterested directors of the Board shall
determine whether any proposed action by the Company adequately remedies
any material irreconcilable conflict. In the event that the Board
determines that any proposed action does not adequately remedy any material
irreconcilable conflict, the Company will withdraw from investment in
Xxxxxxx each of the Accounts designated by the disinterested directors and
terminate this Agreement within six (6) months after the Board informs the
Company in writing of the foregoing determination; PROVIDED, HOWEVER, that
such withdrawal and termination shall be limited to the extent required to
remedy any such material irreconcilable conflict as determined by a
majority of the disinterested directors of the Board.
7.4. 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 Mixed and Shared Funding Exemptive Order)
on terms and conditions materially different from those contained in the
Mixed and Shared Funding Exemptive Order, then (a) Xxxxxxx and/or the
Participating Insurance Companies, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent such rules are applicable; and (b) Sections
3.5, 3.6, 7.1, 7.2, 7.3 and 7.4 of this Agreement shall 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 VIII. INDEMNIFICATION
8.1. INDEMNIFICATION BY THE COMPANY
The Company agrees to indemnify and hold harmless Xxxxxxx, CAMCO,
any affiliates of CAMCO, and each of their respective directors/trustees,
officers and each person, if any, who controls Xxxxxxx or CAMCO within the
meaning of Section 15 of the 1933 Act, and any agents or employees of the
foregoing (each an "Indemnified Party," or collectively, the "Indemnified
Parties" for purposes of this Section 8.1) against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Company) or expenses (including reasonable counsel
fees) to which any Indemnified Party 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 sale or acquisition of the Shares or the
Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus or statement of
additional information for the Policies or contained in or
sales literature or other promotional material for the
Policies (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 therein or necessary to make the
statements therein not misleading PROVIDED that this
agreement to indemnify shall not apply as to any Indemnified
Party if such statement or omission or such alleged
statement or omission was made in reasonable reliance upon
and in conformity with information furnished to the Company
or its designee by or on behalf of Xxxxxxx or CAMCO or the
Underwriter for use in the registration statement,
prospectus or statement of additional information for the
Policies or in the Policies or sales literature or other
promotional material (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Policies or Shares; or
8
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material of Xxxxxxx not supplied by the Company or its
designee, or persons under its control and on which the
Company has reasonably relied) or wrongful conduct of the
Company or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement, prospectus, statement of additional information
or sales literature or other promotional literature of
Xxxxxxx, or any amendment thereof or supplement thereto or
the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statement or statements therein not misleading, if such
statement or omission was made in reliance upon information
furnished to Xxxxxxx by or on behalf of the Company; or
(d) arise out of or result from 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
(e) arise as a result of any failure by the Company to provide
the services and furnish the materials under the terms of
this Agreement;
as limited by and in accordance with the provisions of this Article
VIII.
8.2. INDEMNIFICATION BY CAMCO
CAMCO agrees to indemnify and hold harmless the Company and each of
its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act, and any agents or
employees of the foregoing (each an "Indemnified Party," or collectively,
the "Indemnified Parties" for purposes of this Section 8.2) against any and
all losses, claims, damages, liabilities (including, but not limited to,
amounts paid in settlement with the written consent of CAMCO) or expenses
(including, but not limited to, reasonable counsel fees) to which any
Indemnified Party may become subject under any statute, 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
sale or acquisition of the Shares or the Policies and:
(a) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in
the registration statement, prospectus, statement of
additional information or sales literature or other
promotional material of Xxxxxxx (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 therein or
necessary to make the statement therein not misleading,
PROVIDED that this agreement to indemnify shall not apply
as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reasonable
reliance upon and in conformity with information furnished
to Xxxxxxx, CAMCO, the Underwriter or their respective
designees by or on behalf of the Company for use in the
registration statement, prospectus or statement of
additional information for Xxxxxxx or in sales literature or
other promotional material for Xxxxxxx (or any amendment or
supplement) or otherwise for use in connection with the sale
of the Policies or Shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus, statement of additional
information or sales literature or other promotional
material for the Policies not supplied by Xxxxxxx, CAMCO,
the Underwriter or any of their respective designees or
persons under their respective control and on which any
such entity has reasonably relied) or wrongful conduct of
Xxxxxxx or persons under its control, with respect to the
sale or distribution of the Policies or Shares; or
9
(c) arise out of any untrue statement or alleged untrue
statement of a material fact contained in the registration
statement, prospectus, statement of additional information,
or sales literature or other promotional literature of the
Accounts or relating to the Policies, or any amendment
thereof or supplement thereto, or the omission or alleged
omission to state therein a material fact required to be
stated therein or necessary to make the statement or
statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to
the Company by or on behalf of Xxxxxxx, CAMCO or the
Underwriter; or
(d) arise out of or result from any material breach of any
representation and/or warranty made by Xxxxxxx in this
Agreement (including a failure, whether unintentional or in
good faith or otherwise, to comply with the diversification
requirements specified in Article VI of this Agreement) or
arise out of or result from any other material breach of
this Agreement by Xxxxxxx; or
(e) arise out of or result from the materially incorrect or
untimely calculation or reporting of the daily net asset
value per share or dividend or capital gain distribution
rate; or
(f) arise as a result of any failure by Xxxxxxx to provide the
services and furnish the materials under the terms of the
Agreement;
as limited by and in accordance with the provisions of this Article VIII.
8.3. In no event shall CAMCO be liable under the indemnification
provisions contained in this Agreement to any individual or entity,
including without limitation, the Company, or any Participating Insurance
Company or any Policy holder, with respect to any losses, claims, damages,
liabilities or expenses that arise out of or result from (i) a breach of
any representation, warranty, and/or covenant made by the Company hereunder
or by any Participating Insurance Company under an agreement containing
substantially similar representations, warranties and covenants; (ii) the
failure by the Company or any Participating Insurance Company to maintain
its segregated asset account (which invests in any Portfolio) as a legally
and validly established segregated asset account under applicable state law
and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom); or (iii) subject to Xxxxxxx'x
compliance with the diversification requirements specified in Article VI,
the failure by the Company or any Participating Insurance Company to
maintain its variable annuity and/or variable life insurance contracts
(with respect to which any Portfolio serves as an underlying funding
vehicle) as life insurance, endowment or annuity contracts under applicable
provisions of the Code.
8.4. Neither the Company nor CAMCO shall be liable under the
indemnification provisions contained in this Agreement with respect to any
losses, claims, damages, liabilities or expenses to which an Indemnified
Party would otherwise be subject by reason of such Indemnified Party's
willful misfeasance, willful misconduct, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement.
8.5. Promptly after receipt by an Indemnified Party under this Section
8.5. of notice of commencement of any action, such Indemnified Party will,
if a claim in respect thereof is to be made against the indemnifying party
under this section, notify the indemnifying party of the commencement
thereof, but the omission so to notify the indemnifying party will not
relieve it from any liability which it may have to any Indemnified Party
otherwise than under this section. In case any such action is brought
against any Indemnified Party, and it notified the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, assume the defense
thereof, with counsel satisfactory to such Indemnified Party. After
notice from the indemnifying party of its intention to assume the defense
of an action, the Indemnified Party shall bear the expenses of any
additional counsel obtained by it, and the indemnifying party shall not be
liable to such Indemnified Party under this section for any legal or other
expenses subsequently incurred by such Indemnified Party in connection with
the defense thereof other than reasonable costs of investigation.
8.6. Each of the parties agrees promptly to notify the other parties of
the commencement of any litigation or proceeding against it or any of its
respective officers, directors, trustees, employees or 1933 Act control
persons in connection with the Agreement, the issuance or sale of the
Policies, the operation of the Accounts, or the sale or acquisition of
Shares.
10
8.7. A successor by law of the parties to this Agreement shall be
entitled to the benefits of the indemnification contained in this Article
VIII. The indemnification provisions contained in this Article VIII shall
survive any termination of this Agreement.
ARTICLE IX:. APPLICABLE LAW
9.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Maryland.
9.2. This Agreement shall be subject to the provisions of the 1933, 1934
and 1940 Acts, and the rules and regulations and rulings thereunder,
including such exemptions from those statutes, rules and regulations as the
SEC may grant and the terms hereof shall be interpreted and construed in
accordance therewith.
ARTICLE X. NOTICE OF FORMAL PROCEEDINGS
Xxxxxxx, CAMCO, and the Company agree that each such party shall promptly
notify the other parties to this Agreement, in writing, of the institution of
any formal proceedings brought against such party or its designees by the NASD,
the SEC, or any insurance department or any other regulatory body regarding such
party's duties under this Agreement or related to the sale of the Policies, the
operation of the Accounts, or the sale or purchase of the Shares.
ARTICLE XI. TERMINATION
11.1 This Agreement shall terminate with respect to the Accounts, or one,
some, or all Portfolios:
(a) at the option of any party upon six (6) months' advance
written notice to the other parties; or
(b) at the option of the Company to the extent that the Shares
of Portfolios are not reasonably available to meet the
requirements of the Policies or are not "appropriate funding
vehicles" for the Policies, as reasonably determined by the
Company. Without limiting the generality of the foregoing,
the Shares of a Portfolio would not be "appropriate funding
vehicles" if, for example, such Shares did not meet the
diversification or other requirements referred to in Article
VI hereof; or if the Company would be permitted to disregard
Policy owner voting instructions pursuant to Rule 6e-2 or
6e-3(T) under the 1940 Act. Prompt notice of the election to
terminate for such cause and an explanation of such cause
shall be furnished to Xxxxxxx by the Company; or
(c) at the option of Xxxxxxx or CAMCO upon institution of formal
proceedings against the Company by the NASD, the SEC, or any
insurance department or any other regulatory body regarding
the Company's duties under this Agreement or related to the
sale of the Policies, the operation of the Accounts, or the
purchase of the Shares; or
(d) at the option of the Company upon institution of formal
proceedings against Xxxxxxx by the NASD, the SEC, or any
state securities or insurance department or any other
regulatory body regarding Xxxxxxx'x or CAMCO' duties under
this Agreement or related to the sale of the Shares; or
(e) at the option of the Company, Xxxxxxx or CAMCO upon receipt
of any necessary regulatory approvals and/or the vote of the
Policy owners having an interest in the Accounts (or any
subaccounts) to substitute the shares of another investment
company for the corresponding Portfolio Shares in accordance
with the terms of the Policies for which those Portfolio
Shares had been selected to serve as the underlying
investment medium. The Company will give thirty (30) days
prior written notice to Xxxxxxx of the Date of any proposed
vote or other action taken to replace the Shares; or
11
(f) termination by either Xxxxxxx or CAMCO by written notice to
the Company, if either one or both of Xxxxxxx or CAMCO
respectively, shall determine, in their sole judgment
exercised in good faith, that the Company has suffered a
material adverse change in its business, operations,
financial condition, or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to Xxxxxxx and
CAMCO, if the Company shall determine, in its sole judgment
exercised in good faith, that Xxxxxxx or CAMCO has suffered
a material adverse change in this business, operations,
financial condition or prospects since the date of this
Agreement or is the subject of material adverse publicity;
or
(h) at the option of any party to this Agreement, upon another
party's material breach of any provision of this Agreement;
or
(i) upon assignment of this Agreement, unless made with the
written consent of the parties hereto.
11.2. The notice shall specify the Portfolio or Portfolios, Policies and,
if applicable, the Accounts as to which the Agreement is to be terminated.
11.3. It is understood and agreed that the right of any party hereto to
terminate this Agreement pursuant to Section 11.1(a) may be exercised for
cause or for no cause.
11.4. Except as necessary to implement Policy owner initiated
transactions, or as required by state insurance laws or regulations, the
Company shall not redeem the Shares attributable to the Policies (as
opposed to the Shares attributable to the Company's assets held in the
Accounts), and the Company shall not prevent Policy owners from allocating
payments to a Portfolio that was otherwise available under the Policies,
until thirty (30) days after the Company shall have notified Xxxxxxx of its
intention to do so.
11.5. Notwithstanding any termination of this Agreement, so long as the
Company shall have a balance of at least $1 million invested in any
Portfolio of Xxxxxxx, then Xxxxxxx and CAMCO shall, at the option of the
Company, continue to make available additional shares of that Portfolio
pursuant to the terms and conditions of this Agreement, for all Policies in
effect on the effective date of termination of this Agreement (the
"Existing Policies"), except as otherwise provided under Article VII of
this Agreement. Specifically, without limitation, the owners of the
Existing Policies shall be permitted to transfer or reallocate investment
under the Policies, redeem investments in any Portfolio and/or invest in
Xxxxxxx upon the making of additional purchase payments under the Existing
Policies.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail, overnight courier or facsimile to the 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 party.
If to Xxxxxxx:
Xxxxxxx Variable Series, Inc.
c/x Xxxxxxx Group Legal Department
0000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Facsimile No.: (301)
Attn: Xxxxxxx X. Xxxxxxxxx, Vice President
12
If to the Company:
American Foundation Life Insurance Company
0000 Xxxxxxx 000 Xxxxx
Xxxxxxxxxx, XX 00000
Facsimile No.: (000)000-0000
Attn: Legal Dept., Xxxxx X. Xxxxxxxx, Xx. Associate Counsel
If to CAMCO:
Xxxxxxx Asset Management Company, Inc.
c/x Xxxxxxx Group Legal Department
0000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxxx, XX 00000
Facsimile No.: (301)
Attn: Xxxxxxx X. Xxxxxxxxx, Vice President
ARTICLE XIII. MISCELLANEOUS
13.1. Subject to the requirement of legal process and regulatory
authority, each party hereto shall treat as confidential the names and
addresses of the owners of the Policies and all information reasonably
identified as confidential in writing by any other party hereto and, except
as permitted by this Agreement or as otherwise required by applicable law
or regulation, shall not disclose, disseminate or utilize such names and
addresses and other confidential information without the express written
consent of the affected party until such time as it may come into the
public domain.
13.2. 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.
13.3. This Agreement may be executed simultaneously in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
13.4. If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the
Agreement shall not be affected thereby.
13.5. The Schedule attached hereto, as modified from time to time, is
incorporated herein by reference and is part of this Agreement.
13.6. Each party hereto shall cooperate with each other party in
connection with inquiries by appropriate governmental authorities
(including without limitation the SEC, the NASD, and state insurance
regulators) relating to this Agreement or the transactions contemplated
hereby.
13.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies and
obligations, at law or in equity, which the parties hereto are entitled to
under state and federal laws.
13.8. Except as otherwise expressly provided in this Agreement, neither
Xxxxxxx nor CAMCO nor any affiliate thereof shall use any trademark, trade
name, service xxxx or logo of the Company or any of its affiliates, or any
variation of any such trademark, trade name, service xxxx or logo, without
the Company's prior written consent, the granting of which shall be at the
Company's sole discretion. Except as otherwise expressly provided in this
Agreement, neither the Company nor any affiliate thereof shall use any
trademark, trade name, service xxxx or logo of Xxxxxxx or of CAMCO, or any
variation of any such trademark, trade name, service xxxx or logo, without
the prior written consent of Xxxxxxx or of CAMCO, as appropriate, the
granting of which shall be at the sole discretion of Xxxxxxx or of CAMCO,
as applicable.
13
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative
as of the date specified above.
AMERICAN FOUNDATION LIFE INSURANCE COMPANY
By its authorized officer,
By:
-------------------------------------
Xxxxxxx Xxxx, Senior Vice President
XXXXXXX VARIABLE SERIES, INC.
By its authorized officer,
By:
--------------------------------------
Xxxxxxx X. Xxxxxxxxx, Vice President
XXXXXXX ASSET MANAGEMENT COMPANY, INC.
By its authorized officer,
By:
--------------------------------------
Xxxxxxx X. Xxxxxxxxx, Vice President
14
SCHEDULE A
American Foundation Life Insurance Company segregated asset accounts:
Variable Annity Account A of American Foundation
Xxxxxxx Variable Series
Social Small Cap Growth Portfolio
Social Balanced Portfolio
15
