EXHIBIT 11
SEPARATE ACCOUNT ADMINISTRATIVE SERVICES AGREEMENT
THIS SEPARATE ACCOUNT ADMINISTRATIVE SERVICES AGREEMENT (this "Agreement"),
dated as of May 15, 1998, , is made by and between Provident National Assurance
Company ("Provident") on behalf of itself and on behalf of its Separate Account
B (the "Separate Account") and The Variable Annuity Life Insurance Company
("VALIC"), a Texas stock life insurance company ("Administrator").
WHEREAS, the parties previously entered into the Acquisition Agreement
(defined below) and this Agreement is being entered into as contemplated by the
Acquisition Agreement.
WHEREAS, Provident wishes to appoint Administrator to provide certain
administrative services with respect to the Separate Account and the Contracts
(as defined below), and Administrator desires to provide such administrative
services.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and upon the terms and conditions set forth herein, the parties
to this Agreement agree as follows:
ARTICLE 1
DEFINITIONS
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The following terms shall have the respective meaning set forth below
throughout the Agreement:
"ADMINISTRATOR LOSSES" shall have the meaning set forth in Section 10.1.
"ADMINISTRATIVE SERVICES" shall have the meaning set forth in Section 2.1.
"ACQUISITION AGREEMENT" means the Asset Transfer and Acquisition Agreement
entered into by and among Provident, various affiliates of Provident, VALIC, and
various affiliates of VALIC, dated as of December 8, 1997, and all exhibits
thereto, as amended through the date hereof.
"AFFILIATE" means, with respect to any Person, at the time in question, any
other Person controlling, controlled by, or under common control with, such
Person.
"BOARD OF MANAGERS" shall mean the Board of Managers of the Separate
Account.
"BUSINESS" shall have the same meaning as set forth in the Acquisition
Agreement.
"BUSINESS DAY" shall have the same meaning as set forth in the Acquisition
Agreement.
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in Section 5.3.
"CONTRACT" means a contract of the Separate Account as identified in
Schedule A hereto.
"CONTRACTHOLDER" means the holder of a Contract.
"COMMISSION" means the United States Securities and Exchange Commission.
"EFFECTIVE DATE" shall mean August 31, 1998.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FILINGS" shall mean all documents required to be filed with the Commission
relating to the Separate Account, including, but not limited to, Registration
Statements, Annual and Semi-Annual Reports to Contractholders, Contractholder
proxy materials, and filings on Form N-3, Form NSAR, and Form 24 F-2
"INDEMNIFIED PARTY" shall have the meaning set forth in Section 10.2.
"INDEMNIFYING PARTY" shall have the meaning set forth in Section 10.2.
"INTERMEDIARY" means an individual or entity designated by a Contractholder
as its broker of record or as the individual or entity that will act on such
Contractholder's behalf, in some or all respects, in connection with such
Contractholder's Contract.
"PERSON" means any individual, corporation, partnership, firm, joint
venture, association, joint-stock company, trust, unincorporated organization,
governmental, judicial or regulatory body, business unit, division or other
entity.
"RULES AND REGULATIONS OF THE SEPARATE ACCOUNT" shall mean the Separate
Account's governing Rules and Regulations as adopted by the Separate Account's
Board of Managers and, as amended, from time to time.
"SEPARATE ACCOUNT LOSSES" shall have the meaning set forth in Section 10.1.
"SERVICE PROVIDER" means an individual or entity, other than an
Intermediary, that provides services to holders of Contracts.
"THIRD PARTY CLAIM" shall have the meaning set forth in Section 10.3.
"UMPIRE" shall have the meaning set forth in Article 12.
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ARTICLE 2
APPOINTMENT; STANDARDS; NOTIFICATION OF CONTRACTHOLDERS
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2.1 APPOINTMENT AND ACCEPTANCE OF APPOINTMENT. Provident hereby appoints
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Administrator to provide, with respect to the Separate Account and the
Contracts, the administrative services specified herein (collectively, the
"Administrative Services") for the period specified in Section 11.1, and
Administrator hereby accepts such appointment and agrees to perform such
services.
2.2 STANDARDS. Administrator acknowledges that the performance of the
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Administrative Services in an accurate and timely manner is of paramount
importance to Provident and the Separate Account. Administrator agrees to
perform the Administrative Services with the skill, diligence and expertise
commonly expected from experienced and qualified personnel, performing such
duties and in conformance with industry standards and applicable law; provided
that, prior to the date hereof, the Separate Account shall have been
administered in compliance with all applicable representations and warranties in
the Acquisition Agreement.
2.3 NOTIFICATION OF CONTRACTHOLDERS. Administrator agrees to send to (i)
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holders of the Contracts, (ii) Intermediaries, and (iii) Service Providers, a
written notice prepared by the Separate Account and reasonably acceptable to
Administrator to the effect that Administrator has been appointed by the
Separate Account to provide Administrative Services. This notice shall be in the
form of a supplement to the prospectus of the Separate Account. Administrator
shall send such notice promptly after receipt thereof, but in no event more than
30 Business Days thereafter, by first class U.S. mail.
ARTICLE 3
ADMINISTRATIVE SERVICES
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3.1 ADMINISTRATIVE SERVICES IN GENERAL.
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(a) Administrator agrees to perform all administrative services
required to be performed with respect to the Separate Account and the Contracts,
and is authorized to do so in the name or on behalf of Provident or the Separate
Account where appropriate, including, without limitation those Administrative
Services specifically provided for in Sections 3.2 through 3.3 and elsewhere in
this Agreement, subject to the next following sentence. In no event shall
Administrator be responsible for the preparation or timely filing of the Filings
nor shall Administrator provide investment advisory services to the Separate
Account.
(b) The intention of the parties is that Administrator will perform
the Administrative Services in such a way as to minimize the involvement of the
Separate Account. When performing Administrative Services for the Separate
Account, the Administrator will comply with the provisions of the Rules and
Regulations of the Separate Account provided to
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Administrator by Provident, will safeguard and promote the welfare of the
Separate Account, and will comply with the policies that the Board of Managers
may from time to time reasonably determine; provided that such policies are not
in conflict with this Agreement, the Separate Account's governing documents, or
any applicable statutes or regulations; and further provided that Administrator
shall have no responsibility for compliance with any such provisions or policies
until it shall have received certified copies thereof.
3.2 ADMINISTRATIVE SERVICES AND DUTIES FOR SEPARATE ACCOUNT. As
Administrator, and subject to the supervision and control of the Separate
Account's Board of Managers, the Administrator will provide facilities,
equipment, and personnel to carry out the following administrative services for
operation of the business and affairs of the Separate Account:
(a) maintain copies of the Separate Account's governing documents,
including the Rules and Regulations, provided that Provident shall provide
Administrator all current copies of such documents;
(b) prepare and file with state insurance departments, necessary
filings for the Separate Account, and prepare and maintain required licenses and
permits of the type VALIC prepares and maintains for its own separate accounts,
and comply with all related regulatory requirements; provided that Administrator
shall not be responsible for any such activities related to the Separate Account
in combination with Provident's General Account (such as annual financial
statements);
(c) administer Contracts on behalf of the Separate Account with, among
others, the Separate Account's custodian and transfer agent (as provided in
Section 3.3), provided that Provident shall authorize Administrator to act on
behalf of the Separate Account under such Contracts;
(d) perform the accounting services for the Separate Account
identified in Schedule B hereto;
(e) calculate performance data of the Separate Account for
dissemination to information services covering the investment company industry;
(f) at least annually provide to Contractholders on the appropriate
forms the amount and Federal and State income tax character of any
distributions;
(g) examine and review the operations of the Separate Account
custodian, transfer agent and investment adviser to promote compliance with
applicable state and federal law;
(h) handle the printing and the distribution of publicly disseminated
prospectuses and reports;
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(i) prepare and disseminate confirmations pursuant to Rule 10b-10 of
the Exchange Act;
(j) respond to Contractholder inquiries;
(k) perform internal audit examinations in accordance with procedures
adopted by the Administrator and the Separate Account;
(l) assist with the operation of the Separate Account as may be
reasonably requested;
(m) monitor the Separate Account's compliance with Section 817 and
Sections 851 through 855 of the Internal Revenue Code of 1986, as amended, and
the regulations promulgated thereunder, so as to enable the Separate Account to
comply with the diversification requirements applicable to investments of
variable contracts and to maintain its status as a "regulated investment
company;" and
(n) advise the Separate Account and its Board of Managers on matters
concerning the Separate Account and its affairs.
3.3 ADMINISTRATIVE SERVICES AND DUTIES FOR CONTRACTS.
(a) Collection Services. Administrator agrees to perform the
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following services with respect to amounts due from holders of the Contracts:
(i) Collect premiums, deposits and other remittances from
Contractholders and from any collection facility, including
Intermediaries and other persons or institutions that receive
remittances with respect to the Contracts, and process the remittances
in a manner reasonably acceptable to the Separate Account.
(ii) Maintain records pertaining to the collection and processing
of premiums, deposits or other remittances in a format agreed to by
the parties.
(b) Processing of Disbursements. Administrator agrees to perform the
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following services with respect to disbursements made in respect of the
Contracts for payment of annuity benefits, withdrawals, surrenders, transfers,
and returns of deposits:
(i) Receive and process requests for disbursements.
(ii) Process certain transactions, including, but not limited to,
policy lapses, expiries and/or non-forfeiture options with respect to
the Contracts.
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(iii) Evaluate requests for disbursements and either pay any such
request for disbursement, in accordance with Section 3.3 (c), or
propose to deny any such request for disbursement in full or in part,
in accordance with Section 3.3 (d) within the time period specified in
the applicable Contract or within any shorter time provided by
applicable statute, rule or regulation. In the event that
Administrator is unable to make a determination as to whether any such
request for disbursement should be paid or denied within the specified
period, it shall notify the Separate Account promptly in writing and
shall state in such notice the reasons for such delay.
(c) Payment of Disbursements. Administrator agrees to pay all
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disbursements from the assets of the Separate Account and provide notice to
Provident with respect to disbursements from the assets of the General Account
as necessary.
(d) Denied Disbursements.
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(i) Administrator agrees to promptly notify the Separate
Account of any litigation that has been instituted or threatened, or
of any complaint that any person has filed or has threatened to file
with any state insurance department or other regulatory agency, with
respect to any denied disbursement request or any disbursement
request-handling procedure in connection with a Contract, regardless
of whether the disbursement request was paid or denied, or with
respect to any other matter relating to a Contract. Such notice shall
contain a report summarizing the nature of the litigation or
complaint, the alleged actions or omissions giving rise to the
litigation or complaint and copies of any files that Provident or the
Separate Account may require to respond to the litigation or
complaint.
(ii) Provident agrees to promptly notify Administrator of any
litigation that has been instituted or threatened, or of any complaint
which any person has filed or has threatened to file with any state
insurance department or other regulatory agency, with respect to any
denied disbursement request or any disbursement request-handling
procedure in connection with a Contract, regardless of whether the
disbursement request was paid or denied, or with respect to any other
matter relating to a Contract. Such notice shall contain a report
summarizing the nature of the litigation or complaint, the alleged
actions or omissions giving rise to the litigation or complaint and
copies of any files that Administrator may require to respond to the
litigation or complaint.
(iii) Administrator shall pay the expenses of any litigation or
regulatory proceeding with respect to its obligations under this
Agreement (subject to any indemnification rights of Administrator
under this Agreement or any other agreement between Administrator and
Provident, any Affiliate of Provident or the Separate Account);
provided, however, that Administrator shall have no
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obligation to pay any expenses of the Separate Account with respect to
actions arising from events or occurrences prior to the Effective
Date.
ARTICLE 4
YEAR 2000 COMPLIANCE
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4.1 ADMINISTRATOR COMPLIANCE
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(a) Administrator warrants and represents that it will use its best
efforts to ensure that its operating systems (including computer software,
hardware, and any other equipment with embedded chips) are or will be Year 2000
Compliant on December 31, 1998, or as soon thereafter as reasonably practicable.
"Year 2000 Compliant" means that the operating systems shall have the ability
to:
(i) accept input and provide output of data involving dates or
portion of dates correctly and without ambiguity as to the twentieth or
twenty-first centuries;
(ii) manage, store, manipulate, sort, sequence, and perform
calculations (collectively "process") with respect to data involving dates
or portions of dates before, during, and after January 1, 2000 (including
single century or multi-century date formulas) without malfunction, abends
or aborts; and
(iii) correctly process leap years including Year 2000, and any
Special Dates as defined below
when used in accordance with their associated documentation, and provided that
all other products (for example, hardware, software, and firmware) used with the
operating systems properly exchange date data with it.
This Year 2000 warranty shall survive for the full term of this Agreement
and any renewals, if applicable. This Year 2000 warranty shall not be subject
to any disclaimer or exclusion of warranties or to any limitation of
Administrator's liability under this Agreement.
The term "Special Dates," as used herein, means dates used by programmers
to create exceptions where no date could be determined as specified to serve as
end-of-file indicators or to facilitate sort routines. Administrator shall
disclose to Provident the Year 2000 development or remediation method used
(e.g., full 4-digit data expansion, sliding window, fixed window [if so, which
year is fixed], and data encoding/compression) and of the testing methods
Administrator used to ensure Year 2000 compliance of the operating systems.
(b) Administrator indemnifies and holds harmless from and against any
and all loss, liability, cost, damage or expense (including reasonable legal and
accounting fees) incurred by Provident and the Separate Account and resulting
from or arising in connection with a failure of
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Administrator's operating systems to be Year 2000 Compliant, as defined in this
Agreement, by December 31, 1999. Administrator shall not be liable for a failure
of other products used with the Administrator's operating systems (for example,
hardware, software and firmware) to properly exchange accurate date data with
Administrator's operating system. This indemnification shall survive termination
of this Agreement.
If, after December 31, 1998, Administrator fails to make the operating
systems Year 2000 Compliant within a reasonable period of time (as determined by
Provident) after receipt of written notice from Provident, Provident shall have
the option of terminating the Agreement.
ARTICLE 5
BOOKS AND RECORDS; REPORTS
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5.1 MAINTENANCE OF BOOKS AND RECORDS.
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(a) For the duration of this Agreement, Administrator shall maintain,
at a location to be agreed upon by Administrator and Provident, books and
records of all transactions, occurring under and during the term of this
Agreement, pertaining to the Separate Account and the Contracts, including any
disbursement requests submitted in respect of the Contracts and any documents
relating thereto, any communications relating to any Contract, any communication
with any regulatory authority, complaint logs and all data used by Administrator
in the performance of services required under this Agreement. These books and
records shall be maintained (i) in accordance with any and all applicable
statutes, rules and regulations and (ii) in a format no less accessible than the
format in which such books and records are maintained on the date hereof. In
compliance with Rule 31a-3 under the Investment Company Act of 1940 ("1940
Act"), all such books and records pertaining to the Separate Account and the
Contracts shall be made available to the Separate Account, its auditors or other
designees, and regulatory agencies, during normal business hours and at any
other time on reasonable notice, for review, inspection, examination and
reproduction. Administrator shall preserve for the periods prescribed by 1940
Act Rule 31a-2, the records required to be maintained by Rule 31a-1. Upon
termination of this Agreement, all books and records pertaining to the Separate
Account and the Contracts which have not expired, including the books and
records preserved by the Administrator pursuant to 1940 Act Rules 31a-1 and 31a-
2, shall be delivered promptly to Provident or such other person or entity as
Provident shall designate in writing.
(b) Administrator shall back up all of its computer files used in the
performance of services under this Agreement on a daily basis and shall maintain
back-up files in an off-site location.
(c) Administrator shall maintain facilities and procedures reasonably
acceptable to Provident for safekeeping all records used in the performance of
services under this Agreement.
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5.2 TRANSACTION REPORT. Within ten Business Days of the end of each
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calendar quarter during the term of this Agreement, Administrator shall provide
Provident with a summary report and accounting of all transactions, including
receipts, payments, policy loans, surrenders and other matters, that have
occurred during that quarter, in a form acceptable to Provident. Administrator
shall provide a final accounting to Provident within 15 Business Days following
the end of the month during which the termination of this Agreement occurs.
5.3 CONFIDENTIAL INFORMATION. Administrator and Provident acknowledge
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that during the performance of services pursuant to this Agreement, each of them
will be exposed to the confidential and proprietary information of the other
party and the other party's Affiliates (the "Confidential Information"). Each
party agrees to take all commercially reasonable measures to prevent the
Confidential Information from being acquired by unauthorized Persons to the same
extent it protects its own confidential and proprietary information, and will
not disclose the Confidential Information to third parties without the prior
written consent of the other party, except as required by law. Administrator and
Provident agree that the Confidential Information will not be used for any
purpose other than the performance of responsibilities and duties hereunder,
except after prior notification to, and approval in writing by, the other party.
This Section 5.3 shall survive the termination of this Agreement under Article
11.
5.4 USE OF PROVIDENT'S OR SEPARATE ACCOUNT'S NAME. Administrator will
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furnish, or will cause to be furnished to Provident, all documentation, or as
appropriate, a form of such documentation, in which Provident or the Separate
Account is named, at least fifteen (15) Business Days prior to its intended use.
No such documentation will be used if Provident or the Separate Account objects
to its use in writing within ten (10) Business Days after receipt of such
material.
5.5 USE OF ADMINISTRATOR'S NAME. Provident will furnish, or will cause to
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be furnished to Administrator, all documentation, or as appropriate, a form of
such documentation, in which Administrator is named, at least fifteen (15)
Business Days prior to its intended use. No such documentation will be used if
Administrator objects to its use in writing within ten (10) Business Days after
receipt of such material.
ARTICLE 6
INABILITY TO PERFORM SERVICES; ERRORS
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6.1 INABILITY TO PERFORM SERVICES. In the event that Administrator shall
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be unable to perform services as required by this Agreement for any reason for a
period that can reasonably be expected to exceed five Business Days,
Administrator shall cooperate with Provident in obtaining an alternative means
of providing such services. Administrator will be responsible for all costs
incurred in either restoring services or obtaining an alternative source of
services, except to the extent such inability by Administrator to perform the
services required by this Agreement is the result of, or is caused by, the
failure of Provident to perform its obligations
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under this Agreement or its obligations with respect to the Contracts or the
Separate Account prior to the Effective Date.
6.2 ERRORS. Subject to the next following sentence, Administrator shall,
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at its own expense, correct any errors in Administrative Services caused by it
within a reasonable time after receiving notice thereof from Provident or
otherwise, except to the extent such inability by Administrator to perform the
services required by this Agreement is the result of, or is caused by, the
failure of Provident, the Separate Account or any of their Affiliates as the
case may be, to perform its obligations as set forth under this Agreement or its
obligations prior to the Effective Date. If Administrator incorrectly calculates
the accumulation unit value or annuity unit value with respect to a Contract
through no fault of Separate Account, Administrator shall notify the Separate
Account's custodian and shall use its best efforts to effect for the Separate
Account, on behalf of Contractholders, an adjustment to the number of
accumulation units purchased or annuity units redeemed to reflect the correct
value.
ARTICLE 7
EXPENSES
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Administrator shall be responsible for expenses incurred in providing to
the Separate Account the Administrative Services. Provident, the Separate
Account or the Separate Account's investment adviser shall be responsible for
all other expenses incurred by Administrator on behalf of the Separate Account,
including without limitation: (i) investment advisory fees; (ii) interest and
taxes; (iii) brokerage commissions and other costs in connection with the
purchase or sale of securities and other investment instruments; (iv) fees and
expenses of the Separate Account's Board of Managers, other than those who are
"interested persons" of the Administrator, distributor or investment adviser of
the Separate Account; (v) legal and audit expenses; (vi) custodian, registrar,
and transfer agent fees and expenses; (vii) fees and expenses related to the
registration and qualification of the Separate Account and the Separate Account
shares distributed under state and federal securities laws; (viii) all other
expenses incidental to holding meetings of the Separate Account's
Contractholders, including proxy solicitations therefor; and (ix) insurance
premiums and fidelity and other coverage of the Separate Account.
ARTICLE 8
COMPENSATION
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For services to be rendered by Administrator as provided in this Agreement,
Provident shall pay to Administrator a monthly fee in an amount equal to the
total mortality and administrative fees charged under the Contracts during the
immediately preceding month. Administrator will send Provident an invoice for
the monthly fee amount, and payment shall be due within ten Business Days after
Provident's receipt of the invoice.
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In the event the total expenses of the Separate Account in any fiscal year
exceed expense limitations imposed by applicable state securities regulations,
the Separate Account's investment adviser shall reimburse the Separate Account
by the amount of such excess.
In case of termination of this Agreement during any month, the
administrative fee for that month shall be reduced proportionately on the basis
of the number of business days during which it is in effect, and the fee
computed upon the average net assets for the business day it is so in effect for
that month.
ARTICLE 9
EXCHANGES
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Administrator will utilize its best efforts to obtain the consent of each
Contractholder to redeem or exchange their Contracts for other suitable
investments. As part of this effort, either Administrator or an Affiliate or
agent of Administrator will offer each Contractholder an annuity policy issued
by Administrator or an Affiliate of Administrator in accordance with procedures
that may include, but are not limited to, active contact through direct mail,
telephone contact, person to person meetings and other means intended to result
in the timely exchange of all Contracts subject to this Agreement. In performing
its obligations under this section, Administrator and its Affiliates will comply
with all applicable insurance and other laws and regulations regarding
replacement of annuity policies.
Administrator agrees that in no event, as part of this process, will
Administrator disparage or criticize Provident, its operations, or its products,
including but not limited to the Separate Account.
ARTICLE 10
INDEMNIFICATION
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10.1 INDEMNIFICATION.
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(a) Administrator agrees to indemnify and hold harmless Provident and
the Separate Account and any of their directors, officers, employees, agents or
Affiliates from any and all losses, costs, claims, demands, compensatory,
indirect and/or punitive damages, fines and penalties (collectively, "Separate
Account Losses") arising out of or caused by: (i) fraud, theft or embezzlement
by officers, employees or agents of Administrator during the term of this
Agreement; (ii) the failure, either intentional or unintentional, of
Administrator to properly perform the services or take the actions required by
this Agreement, including, without limitation, the failure to properly process,
evaluate and pay disbursement requests in accordance with the terms of this
Agreement; (iii) the breach of any representation or warranty of Administrator;
(iv) any other act of negligence, bad faith, reckless disregard or willful
misconduct committed by officers, agents or employees of Administrator during
the term of this
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Agreement; (v) the failure of any subcontractor retained by Administrator in
accordance with Section 14.8 to provide the services that Administrator is to
provide hereunder; or (vi) any failure of Administrator to comply with
applicable laws, rules and regulations during the term of this Agreement. The
foregoing indemnity shall not apply to any Separate Account Losses to the extent
caused by the failure of Provident or the Separate Account or any of their
Affiliates to perform its obligations under this Agreement or its obligations
with respect to the Contracts or the Separate Account prior to the Effective
Date.
(b) Provident agrees to indemnify and hold harmless Administrator and
any of its directors, officers, employees, agents or Affiliates from any and all
losses, costs, claims, demands, compensatory, indirect and/or punitive damages,
fines and penalties (collectively, "Administrator Losses") arising out of or
caused by: (i) fraud, theft or embezzlement by officers, employees or agents of
Provident or the Separate Account; (ii) the failure, either intentional or
unintentional, of Provident or the Separate Account to properly perform the
services or take the actions required by this Agreement; (iii) the failure of
Provident or the Separate Account to perform its obligations with respect to the
Contracts or the Separate Account; (iv) the breach of any representation or
warranty of Provident or the Separate Account; (v) any other act of negligence,
bad faith, reckless disregard or willful misconduct committed by officers,
agents or employees of Provident or the Separate Account; or (vi) any failure of
Provident or the Separate Account to comply with applicable laws, rules and
regulations during the term of this Agreement. The foregoing indemnity shall not
apply to any Administrator Losses to the extent caused by the failure of
Administrator or any of its affiliates to perform its obligations under this
Agreement.
(c) Failure to deliver a notice with respect to a claim (other than a
claim based on a Third Party Claim) in a timely manner shall not be deemed a
waiver of the Indemnified Party's right to indemnification hereunder for Losses
in connection with such claim, but the amount of reimbursement to which the
Indemnified Party is entitled shall be reduced by the amount, if any, by which
the Indemnified Party's Losses would have been reduced had such Claims Notice
been timely delivered.
10.2 NOTICE OF THIRD PARTY CLAIMANT. In the event that either party hereto
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asserts a claim for indemnification hereunder, such party seeking
indemnification (the "Indemnified Party") shall give written notice to the other
party (the "Indemnifying Party"), no later than ten Business Days after such
claim becomes known to the Indemnified Party, specifying the facts constituting
the basis for, and the amount (if known) of, the claim asserted.
10.3 RIGHT TO CONTEST CLAIMS OF THIRD PARTIES.
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(a) If an Indemnified Party asserts, or may in the future seek to
assert, a claim for indemnification hereunder because of a claim or demand made,
or an action, proceeding or investigation instituted, by any Person not a party
to this Agreement that may result in an Administrator Loss with respect to which
Administrator is entitled to indemnification pursuant to Section 10.1(b) or a
Separate Account Loss with respect to which Provident or the Separate
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Account is entitled to indemnification pursuant to Section 10.1(a) (a "Third
Party Claim"), the Indemnified Party shall so notify the Indemnifying Party as
promptly as practicable, but in no event later than ten (10) Business Days after
such Third Party Claim is actually known to the Indemnified Party. Failure to
deliver notice with respect to a Third Party Claim in a timely manner shall not
be deemed a waiver of the Indemnified Party's right to indemnification for
Losses in connection with such Third Party Claim but the amount of reimbursement
to which the Indemnified Party is entitled shall be reduced by the amount, if
any, by which the Indemnified Party's losses would have been less had such
notice been timely delivered.
(b) The Indemnifying Party shall have the right, upon written notice
to the Indemnified Party, to investigate, contest, defend or settle the Third
Party Claim; provided, that the Indemnified Party may, at its option and at its
own expense, participate in the investigation, contesting, defense or settlement
of any such Third Party Claim through representatives and counsel of its own
choosing. If requested by the Indemnifying Party, the Indemnified Party will, at
the sole cost and expense of the Indemnifying Party, cooperate with the
Indemnifying Party and its counsel in defending and contesting any Third Party
claim, or if appropriate and related to the Third Party claim in question, in
making any counterclaim against the Third Party Claim, or any cross-complaint
against any such Person (other than the Indemnified Party or its Affiliates).
The failure of the Indemnifying Party to respond in writing to proper notice of
a Third Party Claim within ten days after receipt thereof shall be deemed an
election not to defend the same. Unless and until the Indemnifying Party elects
to defend the Third Party Claim, the Indemnified Party shall have the right, at
its option and at the Indemnifying Party's expense, to do so in such manner as
it deems appropriate, including, but not limited to, settling such Third Party
Claim (after giving notice of the settlement to the Indemnifying Party) on such
terms as the Indemnified Party deems appropriate.
(c) The Indemnified Party shall not settle or compromise any Third
Party Claim for which it seeks indemnification hereunder without the prior
written consent of the Indemnifying Party (which shall not be unreasonably
withheld) during the ten-day period specified above.
(d) The Indemnifying Party shall be entitled to participate in (but
not to control) the defense of any Third Party Claim which it has elected, or is
deemed to have elected, not to defend, or which it does not have the right to
defend under Section 10.3(b), with its own counsel and at its own expense.
(e) Except as provided in the first sentence of Section 10.3(b), the
Indemnifying Party shall bear all costs of defending any Third Party Claim and
shall indemnify and hold the Indemnified Party harmless against and from all
costs, fees and expenses incurred in connection with defending such Third Party
Claim.
(f) Administrator and Provident shall make mutually available to each
other all relevant information in their possession relating to any Third Party
Claim (except to the extent that such action would result in a loss of attorney-
client privilege).
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10.4 INDEMNIFICATION PAYMENTS. Any payment hereunder shall be made by wire
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transfer of immediately available funds to such account or accounts as the
Indemnified Party shall designate to the Indemnifying Party in writing.
ARTICLE 11
DURATION; TERMINATION
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11.1 DURATION. This Agreement shall commence on the Effective Date and
--------
continue until such time as none of the Contracts remains in force and no
further Administrative Services in respect of the Contracts are required, or
until it is terminated under Section 11.2. Administrator shall cooperate fully
in the transfer of services and the books and records maintained by
Administrator pursuant to Section 5.1 (or, where appropriate, copies thereof) to
the Separate Account or Provident's designee, so that Provident or its designee
will be able to perform the services required under this Agreement without
interruption following termination of this Agreement.
11.2 TERMINATION.
-----------
(a) This Agreement is subject to immediate termination at the option
of Provident, upon written notice to Administrator, on the occurrence of any of
the following events:
(i) A voluntary or involuntary proceeding is commenced in any
state by or against Administrator for the purpose of conserving,
rehabilitating or liquidating Administrator, or Administrator shall
lose its authority to perform services hereunder;
(ii) There is a material breach by Administrator of any term or
condition of this Agreement, that is not cured by Administrator within
90 days of receipt of written notice from Provident of such breach or
act;
(iii) Any liability policy or bond required pursuant to Article
13 is canceled, terminated or substantially revised; or
(iv) A proceeding is instituted against Administrator by any
federal or state regulatory authority that would materially impact the
ability of Administrator to perform its obligations under this
Agreement; or
(v) Administrator is unable to perform the services required
under Articles 3, 5 and 6 for a period of 90 consecutive days for any
reason; provided, however, that the inability to perform such services
is not due to the failure of Provident to perform its obligations
under this Agreement or its obligations with respect to the Contracts
or the Separate Account prior to the Effective Date.
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(b) In the event that this Agreement is terminated under Section
11.2(a), Administrator shall select a third party administrator to perform the
services required by this Agreement. Provident shall have the right to approve
any such administrator selected by Administrator, but such approval will not
unreasonably be withheld. If Administrator fails to select an administrator
pursuant to this provision within a reasonable period of time, Provident shall
select such an administrator. In either case, Administrator shall pay all fees
and charges imposed by the selected administrator that exceed those fees and
charges set forth in Article 8 of this Agreement.
(c) This Agreement is subject to immediate termination at the option
of Administrator, upon written notice to Provident, on the occurrence of any of
the following events:
(i) A voluntary or involuntary proceeding is commenced in any
state by or against Provident or the Separate Account for the purpose
of conserving, rehabilitating or liquidating Provident or the Separate
Account, or the Separate Account shall lose its qualification as a
separate account under state insurance law;
(ii) There is a material breach by Provident or the Separate
Account of any term or condition of this Agreement, that is not cured
by Provident or the Separate Account within 90 days of receipt of
written notice from Administrator of such breach or act;
(iii) Any liability policy or bond held by Provident or the
Separate Account in compliance with federal securities law
requirements is canceled, terminated or substantially revised;
(iv) A proceeding is instituted against Provident or the
Separate Account by any federal or state regulatory authority that
would materially impact the ability of Provident or the Separate
Account to perform its obligations under this Agreement; or
(v) Provident is otherwise unable to perform its obligations
under this Agreement for a period of 90 consecutive days for any
reason.
(d) In the event Provident or the Separate Account fails to make any
payments due under Section 8 of this Agreement after receiving 30 days written
notice of such failure to pay from Administrator, this Agreement is subject to
immediate termination at the option of Administrator, upon written notice to
Provident, and Administrator shall have no continuing obligations to Provident
or the Separate Account hereunder.
(e) This Agreement may be terminated at any time upon the mutual
written consent of the parties hereto, which writing shall state the effective
date of termination.
15
ARTICLE 12
ARBITRATION
-----------
Any dispute arising out of or relating to the interpretation, performance
or breach of this Agreement, including the formation or validity thereof, shall
be submitted for decision to a panel of three arbitrators. Notice requesting
arbitration must be in writing and sent certified or registered mail, return
receipt requested.
One arbitrator shall be chosen by each party and the two arbitrators shall,
before instituting the hearing, choose an impartial third arbitrator (the
"Umpire") who shall preside at the hearing. If either party fails to appoint its
arbitrator within 30 days after being requested to do so by the other party, the
latter, after ten days notice by certified or registered mail of its intention
to do so, may appoint the second arbitrator. If the two arbitrators are unable
to agree upon the selection of the Umpire within 30 days of their appointment,
then each arbitrator shall submit to the other a list of three Umpire
candidates. Each arbitrator shall strike the names of two candidates from the
other arbitrator's list, and the Umpire shall be selected from the two remaining
candidates by a lot drawing procedure determined by the two arbitrators.
Unless the parties otherwise agree all arbitrators shall be disinterested
active or former officers of insurance or reinsurance companies.
Within 30 days after notice of appointment of all arbitrators, the panel
shall meet and determine a schedule for the conduct of the arbitration,
including hearings. The panel shall be relieved of all judicial formality and
shall not be bound by the strict rules of procedure and evidence. The panel
shall determine where the arbitration shall take place. To the extent and only
to the extent that the provisions of this Agreement are ambiguous or unclear,
the panel shall make its decision considering the custom and practice of the
applicable insurance and reinsurance business. Insofar as the arbitration panel
looks to substantive law, the law of the state of Tennessee shall govern. The
decision of any two arbitrators when rendered in writing shall be final and
binding. The panel is empowered to grant interim relief as it may deem
appropriate.
The panel shall render its decision, which shall be in writing and state
the reasons therefor, within 60 days following the termination of hearings.
Judgment upon the award may be entered in any court having jurisdiction thereof.
Each party shall bear the expense of its own arbitrator and shall jointly and
equally bear with the other party the cost of the Umpire. The remaining costs of
the arbitration shall be allocated by the panel. The panel may, at its
discretion, award such further costs and expenses as it considers appropriate,
including but not limited to interest (determined at the panel's discretion) and
attorneys' fees, to the extent permitted by law. The panel shall not award
punitive damages under any circumstances.
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ARTICLE 13
INSURANCE
---------
13.1 LIABILITY INSURANCE. Administrator shall maintain errors and
-------------------
omissions liability coverages in commercially prudent amounts, to cover any loss
arising as a result of any real or alleged negligence, errors or omissions on
the part of Administrator's officers, agents or employees in any aspect of the
performance of services under this Agreement.
13.2 FIDELITY BOND. Administrator shall maintain fidelity bond coverage in
-------------
commercially prudent amounts to cover any loss due to the misdeeds of
Administrator's officers, employees or agents.
13.3 CHANGES. Administrator shall notify Provident should any of its
-------
insurance coverage referenced in this Article 13 be canceled or reduced. Such
notification shall include the date of change and the reasons therefor.
Administrator shall notify Provident of any material claims against it with
respect to services performed under this Agreement, whether or not they may be
covered by insurance.
ARTICLE 14
MISCELLANEOUS
-------------
14.1 HEADINGS, SCHEDULES AND EXHIBITS. Headings used herein are not a part
--------------------------------
of this Agreement and shall not affect the terms hereof. The attached Schedules
and Exhibits are a part of this Agreement.
14.2 NOTICES. Any notice required or permitted hereunder shall be in
-------
writing and shall be delivered personally (by courier or otherwise),
telegraphed, telexed, sent by facsimile transmission, sent by electronic mail,
or sent by certified, registered or express mail, postage prepaid. Any such
notice shall be deemed given when so delivered personally, telegraphed, telexed
or sent by facsimile transmission or sent by electronic mail, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
(i) if to Administrator:
VALIC
0000 Xxxxx Xxxxxxx
Xxxxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxx, Esq.
Telecopier No.: (000) 000-0000
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(ii) if to Provident or the Separate Account:
Provident Companies, Inc.
0 Xxxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: F. Xxxx Xxxxxxxx
Telecopier No.: (000) 000-0000
Any party may, by notice given in accordance with this Agreement to the other
parties, designate another address or person for receipt of notices hereunder.
14.3 AMENDMENTS. This Agreement cannot be modified, changed, discharged or
----------
terminated, except by an instrument in writing signed by an authorized officer
of each of the parties hereto.
14.4 EXECUTION IN COUNTERPART. This Agreement may be executed by the
------------------------
parties hereto in separate counterparts, each of which when so executed and
delivered shall be an original, but all such counterparts shall together
constitute one and the same instrument. Each counterpart may consist of a number
of copies hereof each signed by less than all, but together signed by all of the
parties hereto.
14.5 LIMITED AUTHORITY. Provident, the Separate Account and Administrator
-----------------
are not partners or joint venturers, and no employee or agent of either party
shall be considered an employee or agent of the other. Administrator's authority
shall be limited to that which is expressly stated in this Agreement. The
performance of services by Administrator for the Separate Account pursuant to
this Agreement shall in no way impair the absolute control of the business and
operations of the Separate Account or Administrator by their respective Boards
of Directors/Managers.
14.6 ASSIGNMENT. This Agreement shall be binding upon and inure to the
----------
benefit of the parties hereto and their respective successors, permitted assigns
and legal representatives. Neither this Agreement, nor any right hereunder, may
be assigned by either party (in whole or in part) without the prior written
consent of the other party hereto, which consent shall not be unreasonably
withheld.
14.7 NO THIRD PARTY BENEFICIARIES. Except as otherwise specifically
----------------------------
provided for herein, nothing in this Agreement is intended or shall be construed
to give any person, other than the parties hereto, their successors and
permitted assigns, any legal or equitable right, remedy or claim under or in
respect of this Agreement or any provision contained herein.
14.8 SUBCONTRACTING. Administrator may not subcontract for the performance
--------------
of any services that Administrator is to provide hereunder, except as permitted
in writing by Provident, which consent shall not be unreasonably withheld.
Notwithstanding the foregoing sentence, Administrator shall be permitted to
subcontract for the performance of any of such services with
18
(i) any of its Affiliates, (ii) any Person that is performing such services as a
subcontractor for Provident or the Separate Account as of the Effective Date,
without obtaining the consent of Provident or the Separate Account so long as
Administrator notifies Provident or the Separate Account of such subcontract on
or prior to the Effective Date, or (iii) any Person that is performing such
services as a subcontractor for Administrator with respect to all or
substantially all of Administrator's insurance business that is similar to the
insurance business to be administered hereunder. The provisions of this Section
14.8 are not intended to and do not prohibit the employment by Administrator of
temporary personnel from time to time, in the ordinary course of business.
14.9 CHANGE IN STATUS. Administrator shall notify Provident immediately of
----------------
any "change of control" filing, the adoption of any plan to liquidate, merge or
dissolve Administrator, or of any proceeding or lawsuit which effects
Administrator's ability to perform this Agreement, including, but not limited
to, insolvency or rehabilitation proceedings.
14.10 SURVIVAL. The provisions of Section 5.3 and Articles 4, 10 and 12
--------
shall survive the termination of this Agreement.
14.11 FURTHER ASSURANCES. Each of the parties hereto shall execute such
------------------
documents and other papers and perform such further acts as may be reasonably
required to carry out the provisions of this Agreement.
14.12 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF TENNESSEE, WITHOUT GIVING EFFECT TO THE
PRINCIPLES OF CONFLICTS OF LAW THEREOF.
14.13 ENTIRE AGREEMENT. This Agreement contains the entire agreement
----------------
among the parties with respect to the subject matter hereof and supersedes all
prior agreements, whether written or oral, with respect thereto.
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IN WITNESS WHEREOF, the parties have executed this Administrative Services
Agreement as of the date first above written.
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
BY: /s/ Xxxxx Xxxxx
---------------
Xxxxx Xxxxx
PROVIDENT NATIONAL ASSURANCE COMPANY ON BEHALF OF
ITSELF AND ON BEHALF OF ITS SEPARATE ACCOUNT B
BY: /s/ Xxxxx X. Xxxxxx III
-----------------------
Xxxxx X. Xxxxxx III
