PARTICIPATION AGREEMENT
Among
THE PALLADIAN TRUST
WESTERN CAPITAL FINANCIAL GROUP, INC.
and
ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
THIS AGREEMENT, made and entered into as of this 24th day of October, 1996 by
and among Allmerica Financial Life Insurance and Annuity Company
(hereinafter, the "Company"), a Delaware insurance company, on its own behalf
and on behalf of each segregated asset account of the Company set forth on
Schedule A hereto as may be amended from time to time (hereinafter referred
to as the "Accounts"), The Palladian Trust, a business trust organized under
the laws of Massachusetts (hereinafter referred to as the "Fund"), and
Western Capital Financial Group, Inc., the underwriter of the Fund
(hereinafter the "Distributor"), a California corporation.
WHEREAS, the Fund is engaged in business as an open-end management investment
company and wishes to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity
contracts (collectively referred to as "Variable Insurance Contracts" and
the owners of such products being referred to as "Contract Owners") to be
offered by insurance companies which have entered into participation
agreements with the Fund ("Participating Insurance Companies"); and
WHEREAS, the shares of the Fund (the "Fund shares") consist of separate
classes or series of shares, each designated a "Portfolio" and each series of
shares ("Portfolio shares") representing an interest in a particular managed
portfolio of securities and other assets; and
WHEREAS, the Fund has filed a registration statement (referred to herein as
the "Fund Registration Statement" and the prospectus contained therein,
referred to herein as the "Fund Prospectus") with the Securities and Exchange
Commission (the "SEC") on Form N-lA to register itself as an open-end
management investment company (File No. 811-08278) under the Investment
Company Act of 1940, as amended (the "1940 Act"), and the Fund shares (File
No. 33-73882) under the Securities Act of 1933, as amended (the "1933 Act");
and
WHEREAS, each Account is a validly existing separate account duly authorized
and established by resolution of the Board of Directors of the Company on
the date set forth on Schedule 2, and sets aside and invests assets
attributable to the Contracts, and the Company has registered or will have
registered each Account with the SEC as a unit investment trust under the
1940 Act before any Contracts are issued by the Account; and
WHEREAS, the Company has filed or will file registration statements with the
SEC to register under the 1933 Act certain variable annuity contracts and
variable life contracts described in Schedule 1 to this Agreement, as may be
amended from time-to-time (the "Contracts"), each such registration statement
for a class or classes of contracts listed on Schedule 1 being referred to as
the "Contracts Registration Statement," and the prospectus for each such
class or classes being referred to herein as the "Contracts Prospectus," and
the owners of such contracts; and,
WHEREAS, the Fund has obtained or has filed an application to obtain an order
from the Securities and Exchange Commission ("SEC")granting Participating
Insurance Companies and variable annuity and variable life insurance separate
accounts exemptions from the provisions of Sections
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9)a),13(a),15(a), and 15(b) of the Investment Company Act of 1940, as
amended, (hereinafter the "1940 Act") and Rules 6e(b)(15) and 6e(T)(b)(15)
thereunder, if any to the extent necessary to permit shares of the Fund to be
sold to and held by variable annuity and variable life insurance separate
accounts of both affiliated and unaffiliated life insurance companies
(hereinafter the "Shared Funding Exemptive Order"); and
WHEREAS, Palladian Advisors, Inc. (the "Investment Manager") is registered as
an investment adviser under the Investment Advisers Act of 1940 and any
applicable state securities laws and serves as overall manager to the Fund;
and
WHEREAS, the Distributor is registered as a broker-dealer with the SEC under
the Securities Exchange Act of 1934, as amended (the "1934 Act"), and is a
member in good standing of the National Association of Securities Dealers,
Inc. (the "NASD"), and
WHEREAS, the Distributor and the Fund have entered into a Distribution
Agreement (the "Fund Distribution Agreement") dated October 12, 1995
pursuant to which the Distributor will distribute Fund shares, and to the
extent permitted by applicable insurance laws and regulations, the Company
intends to purchase Portfolio shares on behalf of the Accounts to fund the
Contracts and the Distributor is authorized to sell such shares to unit
investment trusts such as the Accounts at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund and the Distributor agree as follows:
ARTICLE I. TRANSACTIONS IN FUND SHARES
1.1. The Fund agrees to sell to the Company those shares of the Fund which
the Company orders on behalf of the Accounts, executing such orders on a
daily basis in accordance with Section 1.4 of this Agreement.
1.2. The Fund agrees to make the shares of its Portfolios available for
purchase by the Company on behalf of the Accounts at the then applicable net
asset value per share on Business Days as defined in Section 1.4 of this
Agreement, and the Fund shall use reasonable efforts to calculate such net
asset value on each such Business Day. Notwithstanding any other provision
in this Agreement to the contrary, the Board of Directors of the Fund (the
"Board") may suspend or terminate the offering of Fund shares of any
Portfolio, if such action is required by law or by regulatory authorities
having jurisdiction or if, 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, suspension or termination is necessary and in the best interests
of the shareholders of any Portfolio.
1.3. The Fund agrees to redeem, upon request, any full or fractional shares
of the Fund held by the Accounts or the Company, executing such requests at
net asset value on a daily basis in accordance
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with Section 1.4 of this Agreement and applicable provisions of the 1940 Act.
Notwithstanding the foregoing, the Fund may delay redemption of Fund shares
to the extent permitted by the 1940 Act, or any rules, regulations or orders
thereunder.
1.4.(a) For purposes of Sections 1.1, 1.2 and 1.3, the Company shall be the
agent of the Fund for the limited purpose of receiving redemption and
purchase requests from the Account (but not from the general accounts of the
Company), and receipt on any Business Day by the Company as such limited
agent of the Fund by the time prescribed in the current Contracts Prospectus
(which as of the date of execution of this Agreement is expected to be 4
p.m.). shall constitute receipt by the Fund on that same Business Day,
provided that the Fund receives notice of such redemption or purchase request
by 11:00 a.m. Eastern Time on the next following Business Day. For purposes
of this Agreement, "Business Day" shall mean any day on which the New York
Stock Exchange is open for trading or as otherwise provided in the Fund's
then currently effective Fund Prospectus.
(b) The Company shall pay for shares of each Portfolio on the same day
that it places an order with the Fund to purchase those Portfolio shares.
Payment for Portfolio shares will be made by the Account or the Company in
Federal funds transmitted to the Fund by wire to be received by 11:00 a.m. on
the day the Fund is notified of the purchase order for Portfolio shares
(unless sufficient proceeds are available from redemption of shares of other
Portfolios). If Federal funds are not received on time, such funds will be
invested, and Portfolio shares purchased thereby will be issued, as soon as
practicable.
(c) Payment for Portfolio shares redeemed by the Accounts or the Company
will be made in Federal funds transmitted to the Company by wire on the day
the Fund is notified of the redemption order of Fund shares (unless
redemption proceeds are applied to the purchase of shares of other
Portfolios), except that the Fund reserves the right to delay payment of
redemption proceeds, but in no event may such payment be delayed longer than
the period permitted under Section 22(e) of the 1940 Act. The Fund shall
bear no responsibility whatsoever for the disbursement or crediting of
redemption proceeds.
1.5. Issuance and transfer of Fund shares will be by book entry only. Stock
certificates will not be issued to the Company or the Accounts. Purchase and
redemption orders for Fund shares will be recorded in an appropriate ledger
for the Account or the appropriate SubAccount of the Account.
1.6. The Fund shall furnish notice as soon as reasonably practicable to the
Company of any income dividends or capital gain distributions payable on Fund
shares. The Company hereby elects to receive all such dividends and
distributions as are payable on any Portfolio shares in the form of
additional shares of that Portfolio. The Company reserves the right to
revoke this election and to receive all such dividends in cash. The Fund
shall notify the Company of the number of Portfolio shares so issued as
payment of such dividends and distributions.
1.7. The Fund shall use its best efforts to make the net asset value per
share for each Portfolio available to the Company by 7 p.m. Eastern Time each
Business Day, and in any event, as soon as reasonably practicable after the
net asset value per share for such series is calculated, and shall calculate
such net asset value in accordance with the then currently effective Fund
Prospectus.
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Neither the Fund, the Distributor, nor the Investment Manager nor any of
their affiliates shall be liable for any information provided to the Company
pursuant to this Agreement which information is based on incorrect
information supplied by the Company to the Fund, the Distributor or the
Investment Manager.
1.8. While this Agreement is in effect, the Company agrees that all amounts
available for investment under the Contracts shall be invested only in the
Fund and/or allocated to the Company's general account, provided that such
amounts may also be invested in an investment other than the Fund if:
(a) such other investment company is advised by the Fund's Investment
Manager;
(b) the Fund and/or the Distributor, in their sole discretion, consents
to the use of such other investment company;
(c) this Agreement is terminated pursuant to Article X of this Agreement.
The Company also agrees that it will not take any action to operate the
Accounts as management investment companies under the 1940 Act without the
Fund's and Distributor's prior written consent.
1.9. The Fund and the Distributor agree that Fund shares will be sold only to
Participating Insurance Companies, their separate accounts, and to certain
qualified pension plans, as may be permitted by Section 817 of the Internal
Revenue Code of 1986, as amended. The Fund and the Distributor will not
sell Fund shares to any insurance company, separate account, or qualified
pension plan unless an agreement containing provisions substantially the same
as Article VII of this Agreement, as it may be amended from time to time, is
in effect to govern such sales. No Fund shares of any Portfolio will be sold
to the general public.
ARTICLE II. REPRESENTATIONS AND WARRANTIES
2.1. The Company represents and warrants:
(a) that the Contracts are registered under the 1933 Act or will be so
registered before the issuance thereof;
(b) that the Contracts will be issued in compliance in all material
respects with all applicable Federal and state laws; and
(c) that the Company will require of every person distributing the
Contracts (i) that the Contracts be offered and sold in compliance in all
material respects with all applicable Federal and state laws and (ii) that at
the time it is issued each Contract is a suitable purchase for the applicant
therefor under applicable state insurance laws.
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 authorized each of its
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Accounts as a separate account under the insurance law of its state of
domicile, and has registered or, prior to the issuance of any Contracts, will
register the Accounts as unit investment trusts in accordance with the
provisions of the 1940 Act to serve as separate accounts for the Contracts,
and that such registration will be maintained for as long as any Contracts
are outstanding.
2.2. The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act and duly authorized for
issuance in accordance with applicable law and that the Fund is a business
trust duly organized and in good standing under the laws of Massachusetts.
2.3. The Fund represents that each series currently qualifies and will make
every effort to continue to qualify as a Regulated Investment Company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code")
and to maintain such qualification (under Subchapter M or any successor or
similar provision), and that the Fund will notify the Company immediately
upon having a reasonable basis for believing that it has ceased to so qualify
or that it might not so qualify in the future.
2.4. The Fund represents that each series currently complies with and will
make every effort to continue to comply with Section 817(h) (or any successor
or similar provision) of the Code, and all regulations issued thereunder, and
that the Fund will notify the Company immediately upon having a reasonable
basis for believing that it has ceased to so qualify or that it might not so
qualify in the future.
2.5. The Company represents that the Contracts are currently and at the time
of issuance will be treated as annuity contracts or life insurance policies,
whichever is appropriate, under applicable provisions of the Code. The
Company shall make every effort to maintain such treatment and shall notify
the Fund and the Distributor immediately upon having a reasonable basis for
believing that the Contracts have ceased to be so treated or that they might
not be so treated in the future.
2.6. The Fund represents that the Fund's investment policies, fees and
expenses and operations are and shall at all times remain in material
compliance with the laws of Massachusetts, to the extent required to perform
this Agreement. The Fund, however, makes no representation as to whether any
aspect of its operations (including, but not limited to, fees and expenses
and investment policies) otherwise complies with the insurance laws or
regulations of any states.
2.7. The Distributor represents and warrants that the Distributor is duly
registered as a broker-dealer under the 1934 Act, is a member in good
standing with the NASD, and is duly registered as a broker-dealer under
applicable state securities laws; its operations are in compliance with
applicable law, and it will distribute the Fund shares according to
applicable law.
2.8. The Distributor, on behalf of the Investment Manager, represents and
warrants that the Investment Manager is registered as an investment adviser
under the Investment Advisers Act of 1940 and is in compliance with
applicable federal and state securities laws.
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ARTICLE III. PROSPECTUSES AND PROXY STATEMENTS;
SALES MATERIAL AND OTHER INFORMATION
3.1 At lease annually, the Fund or its designee shall provide the Company,
free of charge, with "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 a
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 Fund is supplemented or amended) to have the prospectus for the
Contracts and the prospectus for the shares printed together in one document.
The Fund or its designee shall bear the cost of printing and mailing the
Fund's prospectus portion of such document for distribution to Contract
owners of existing Contracts, and the Company shall bear the expenses of
printing and mailing the portion of such document relating to the Accounts;
provided, however, that the Company shall bear all printing expenses of such
combined document where used for distribution to prospective purchasers.
3.2 The Fund's prospectus shall state that the current Statement of
Additional Information ("SAI") for the Fund is available from the Distributor
(or, in the Fund's discretion, from the Fund),and the Distributor (or the
Fund) at its expense, shall print, or otherwise reproduce, and provide a copy
of such SAI free of charge to the Company for itself and for any Contract
owner who requests such SAI.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distributing to Contract owners. The Fund or its designee shall bear the
cost of printing, duplicating, and mailing of these documents to current
Contract owners, and the Company shall bear the cost for such documents used
for purposes other than distribution to current Contract owners.
3.4. The Company shall furnish each piece of sales literature or other
promotional material in which the Fund or the Investment Manager or the
Distributor is named to the Fund and the Distributor prior to its use. No
such material shall be used, except with the prior written permission of the
Fund and the Distributor. The Fund and the Distributor agree to respond to
any request for approval on a prompt and timely basis. Failure to respond
shall not relieve the Company of the obligation to obtain the prior written
permission of the Fund or the Distributor.
3.5. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund other than the
information or representations contained in the Fund Registration Statement
or Fund Prospectus, as such Registration Statement and Prospectus may be
amended or supplemented from time to time, or in reports or proxy statements
for the Fund, or in sales literature or other promotional material approved
by the Fund or by the Distributor, except with the prior written permission
of the Fund or the Distributor. The Fund and the Distributor agree to
respond to any request for permission on a prompt and timely basis. Failure
to respond shall not relieve the Company of the obligation to obtain the
prior written permission of the Fund or the Distributor.
3.6. The Fund and the Distributor shall not give any information or make any
representations on behalf of the Company or concerning the Company, the
Accounts or the Contracts other than the information or representations
contained in the Contracts Registration Statement or Contracts Prospectus, as
such Registration Statement and Prospectus may be amended or supplemented
from time to time, or in published reports of the Account which are in the
public domain or approved in writing by the Company for distribution to
Contract Owners, or in sales literature or other promotional material
approved in writing by the Company, except with the prior written permission
of the Company. The Company agrees to respond to any request for permission
on a prompt and timely basis. Failure
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to respond shall not relieve the Fund or the Distributor of the obligation to
obtain the prior written permission of the Company.
3.7. Each party will provide to the other party copies of draft versions of
any registration statements, prospectuses, statements of additional
information, reports, proxy statements, solicitations for voting
instructions, sales literature and other promotional materials, applications
for exemptions, requests for no-action letters, and all amendments or
supplements to any of the above, to the extent that the other party
reasonably needs such information for purposes of preparing a report or other
filing to be filed with or submitted to a regulatory agency. If a party
requests any such information before it has been filed, the other party will
provide the requested information if then available and in the version then
available at the time of such request.
3.8. For purposes of this Article IV, 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), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circulars,
research reports, market letters, form letters, seminar texts, or reprints or
excerpts of any other advertisement, sales literature, or published article),
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration
statements, prospectuses, Statements of Additional Information, shareholder
reports and proxy materials, and any other material constituting sales
literature or advertising under NASD rules, the 1940 Act or the 1933 Act.
ARTICLE IV. VOTING
4.1 Subject to applicable law, the Company shall:
(a) solicit voting instructions from Contract Owners;
(b) vote Fund shares of each Portfolio attributable to Contract Owners in
accordance with instructions or proxies timely received from such Contract
Owners;
(c) vote Fund shares of each Portfolio attributable to Contract Owners for
which no instructions have been received in the same proportion as Fund
shares of such Portfolio for which instructions have been timely received; and
(d) vote Fund shares of each Portfolio held by the Company on its own behalf
or on behalf of the Account that are not attributable to Contract Owners in
the same proportion as Fund shares of such Portfolio for which instructions
have been timely received.
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The Company shall be responsible for assuring that voting privileges for the
Account are calculated in a manner consistent with the provisions set forth
above. The Company reserves the right to vote Fund shares held in any
segregated asset account in its own right, to the extent permitted by law.
4.2 Participating Insurance Companies shall be responsible for assuring that
each of their separate accounts participating in a Designated Portfolio
calculates voting privileges as required by the Shared Funding Exemptive
Order and consistent with any reasonable standards that the Fund may adopt.
4.3 The Fund will comply with all provisions of the 1940 Act requiring voting
by shareholders, and in particular the Fund will either provide for annual
meetings or comply with Section 16(c) of the 1940 Act (although the Fund is
not one of the trusts described in Section 16(c) of that Act) as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, the Fund will
act in accordance with the SEC's interpretation of the requirements of
Section 16(a) with respect to periodic elections of directors or trustees and
with whatever rules the SEC may promulgate with respect thereto.
ARTICLE V. FEES AND EXPENSES
5.1. The Fund and Distributor shall pay no fee or other compensation to the
Company under this Agreement, except that if the Fund or any Portfolio adopts
and implements a plan pursuant to Rule 12b-l under the 1940 Act to finance
distribution expenses, then the Distributor may make payments to the Company
in amounts agreed to by the Company and the Distributor in writing. The
Fund currently does not intend to make any payments to finance distribution
expenses pursuant to Rule 12b-l under the 1940 Act or in contravention of
such rule, although it may make payments pursuant to Rule 12b-l in the
future. Nothing herein shall prevent the parties from otherwise agreeing to
perform, and arranging for appropriate compensation for, other services
relating to the Fund and/or the Accounts.
5.2. All expenses incident to performance by the Fund under this Agreement
(including expenses expressly assumed by the Fund pursuant to this Agreement)
shall be paid by the Fund to the extent permitted by law. Except as may
otherwise be provided in Sections 1.4 and 3.1 of this Agreement (or Article
VII, as it may be amended), the Company shall not bear any of the expenses
for the cost of registration and qualification of the Fund shares under
Federal and any state securities law, preparation and filing of the Fund
Prospectus and Fund Registration Statement, Fund proxy materials and reports,
setting the Fund Prospectus in type, setting in type and printing and
distributing the Fund proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any Federal or state
securities law, all taxes on the issuance or transfer of Fund shares, and any
expenses permitted to be paid or assumed by the Fund pursuant to a plan, if
any, under Rule 12b-l under the 1940 Act.
ARTICLE VI. COMPLIANCE UNDERTAKINGS
6.1. The Fund undertakes to comply with Sub-chapter M and Section 817(h) of
the Code, and all regulations issued thereunder.
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6.2. The Company shall amend the Contracts Registration Statement under the
1933 Act and the Account's Registration Statement under the 1940 Act from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law. The Company
shall register and qualify the Contracts for sale to the extent required by
applicable securities laws of the various states.
6.3. The Fund shall amend the Fund Registration Statement under the 1933 Act
and the 1940 Act from time to time as required in order to effect for so long
as Fund shares are sold the continuous offering of Fund shares as described
in the then currently effective Fund Prospectus. The Fund shall register and
qualify Fund shares for sale to the extent required by applicable securities
laws of the various states.
6.4. The Company shall be responsible for assuring that any prospectus
offering a Contract that is a life insurance contract where it is reasonably
probable that such Contract would be a "modified endowment contract," as that
term is defined in Section 7702A of the Code, will identify such Contract as
a modified endowment contract (or policy).
6.5. To the extent that it decides to finance distribution expenses pursuant
to Rule 12b-l, the Fund undertakes to have a Board of Trustees, a majority of
whom are not interested persons of the Fund, formulate and approve any plan
under Rule 12b-l to finance distribution expenses.
ARTICLE VII. POTENTIAL CONFLICTS
The following provisions apply effective upon (a) the issuance of the Shared
Funding Exemptive Order, and (b) investment in the Fund by a separate account
of a Participating Insurance Company supporting variable life insurance
contracts.
7.1 The Board will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in the Fund. An irreconcilable material conflict
may arise for a variety of reasons, including: (a) an action by any state
insurance regulatory authority; (b) a change in applicable federal or state
insurance, tax, or securities laws or regulations, or a public ruling,
private letter ruling, no-action or interpretative letter, or any similar
action by insurance, tax, or securities regulatory authorities; (c) an
administrative or judicial decision in any relevant proceeding; (d) the
manner in which the investments of any Portfolio are being managed; (e) a
difference in voting instructions given by variable annuity contract and
variable life insurance contract owners; or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall
promptly inform the Company if it determines that an irreconcilable material
conflict exists and the implications thereof.
7.2 The Company will report any potential or existing conflicts of which it
is aware to the Board. The Company will assist the Board in carrying out its
responsibilities under the Shared Funding Exemptive Order, by providing the
Board with all information reasonably necessary for the Board to consider any
issues raised. This includes, but is not limited to, an obligation by the
Company to inform the Board whenever Contract owner voting instructions are
disregarded.
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7.3 If it is determined by a majority of the Board, or a majority of its
disinterested members, that a material irreconcilable conflict exists, the
Company and other Participating Insurance Companies shall, at their expense
and to the extent reasonably practicable (as determined by a majority of the
disinterested Board members), take whatever steps are necessary to remedy or
eliminate the irreconcilable material conflict, up to and including: (1),
withdrawing the assets allocable to some or all of the separate accounts from
the Fund or any Portfolio and reinvesting such assets in a different
investment medium, including (but not limited to) another Portfolio of the
Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e. annuity contract
owners, life insurance contract owners, or variable contract owners of one or
more Participating Insurance Companies) that votes in favor of such
segregation, or offering to the affected contract owners the option of making
such a change; and (2), establishing a new registered management investment
company or managed separate account.
7.4 If a material irreconcilable conflict arises because of a decision by the
Company to disregard contract owner voting instructions and that decision
represents a minority position or would prelude a majority vote, the Company
may be required, at the Fund's election, to withdraw the affected Account's
investment in the Fund and terminate this Agreement with respect to such
Account provided, however, that such withdrawal and termination shall be
limited to the extent required by the foregoing material irreconcilable
conflict as determined by a majority of the disinterested members of the
Board. Any such withdrawal and termination must take place within six (6)
months after the Fund gives written notice that this provision is being
implemented, and until the end of that six month period the Fund shall
continue to accept and implement orders by the Company for the purchase (and
redemption) of shares of the Fund.
7.5 If a material irreconcilable conflict arises because a particular state
insurance regulator's decision applicable to the Company conflicts with the
majority of other state regulators, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six months after the Board informs the Company
in writing that it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
members of the Board. Until the end of the foregoing six month period, the
Fund shall continue to accept and implement orders by the company for the
purchase (and redemption) of shares of the Fund.
7.6 For purposes of Section 7.3 through 7.6 of this Agreement, a majority of
the disinterested members of the Board shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no
event will the Fund be required to establish a new funding medium for the
Contracts. The Company shall not be required by Section 7.3 to establish a
new funding medium for the Contract if fan offer to do so has been declined
by vote of a majority of Contract owners materially adversely affected by the
irreconcilable material conflict. In the event that the Board determines
that any proposed action does not adequately remedy any irreconcilable
material conflict, then the Company will withdraw the Account's investment in
the Fund 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 by any such material irreconcilable conflict as determination by a
majority of the disinterested members of the Board.
7.7 If and to the extent the Shared Funding Order contains terms and
conditions different from Sections, 3.4, 3.6, 7.1, 7.2, 7.3, 7.4 and 7.5 of
this Agreement, then the Fund and/or the Participating
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Insurance Companies, as appropriate, shall take such steps as may be
necessary to comply with the Shared Funding Exemptive Order, and Sections
3.4, 3.5, 7.1, 7.2, 7.3, 7.4 and 7.5 of the Agreement shall continue in
effect only to the extent that terms and conditions substantially identical
to such Sections are contained in the Shared Funding Exemptive Order or any
amendment thereto. 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 Shared Funding Exemptive Order) on
terms and conditions materially different from those contained in the Shared
Funding Exemptive Order, then (a) the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be necessary to
comply with Rules 6e-2 and 6e-3(T), as amended, and Rule 6e-3, as adopted, to
the extent such rules are applicable; and (b) Sections 3.4, 3.5, 3.6, 7.1,
7.2, 7.3, 7.4 and 7.5 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 the Fund, the Distributor
and each person who controls or is associated with the Fund or the
Distributor within the meaning of such terms under the Federal securities
laws and any officer, trustee, director, employee or agent of the foregoing,
against any and all losses, claims, damages or liabilities, joint or several
(including any investigative, legal and other expenses reasonably incurred in
connection with, and any amounts paid in settlement of, any action, suit or
proceeding or any claim asserted), to which they or any of them may become
subject under any statute or regulation, at common law or otherwise, insofar
as such losses, claims, damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Contracts Registration
Statement, Contracts Prospectus, sales literature for the Contracts or the
Contracts themselves (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 in light of the
circumstances in which they were made; provided that this obligation to
indemnify shall not apply if such statement or omission or such alleged
statement or alleged omission was made in reliance upon and in conformity
with information furnished in writing to the Company by the Fund or the
Distributor (or a person authorized in writing to do so on behalf of the
Fund or the Distributor) for use in the Contracts Registration Statement,
Contracts Prospectus or in the Contracts or sales literature (or any
amendment or supplement) or otherwise for use in connection with the sale
of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged
untrue statement of a material fact by or on behalf of the Company
(other than statements or representations contained in the Fund
Registration Statement, Fund Prospectus or sales literature of the Fund
not supplied by the Company or persons under its control) or wrongful
conduct of the Company or persons under its control with respect to the
sale or distribution of the Contracts or Fund shares; or
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Fund Registration Statement, Fund
Prospectus or sales literature of the Fund 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 statements therein not
11
misleading in light of the circumstances in which they were made; or
(d) arise out of any material breach by the Company to provide the
services and furnish the materials required under the terms of this
Agreement, including but not limited to any failure to transmit a
request for redemption or purchase of Fund shares on a timely basis in
accordance with the procedures set forth in Article I.
This indemnification will be in addition to any liability which the Company
may otherwise have; provided, however, that no party shall be entitled to
indemnification if such loss, claim, damage or liability is due to the wilful
misfeasance, bad faith, gross negligence or reckless disregard of duty by the
party seeking indemnification.
8.2. Indemnification by the Distributor
The Distributor agrees to indemnify and hold harmless the Company and each
person who controls or is associated with the Company within the meaning of
such terms under the Federal securities laws and any officer, director,
employee or agent of the foregoing, against any and all losses, claims,
damages or liabilities, joint or several (including any investigative, legal
and other expenses reasonably incurred in connection with, and any amounts
paid in settlement of, any action, suit or proceeding or any claim asserted),
to which they or any of them may become subject under any statute or
regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities:
(a) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Fund Registration
Statement, Fund Prospectus (or any amendment or supplement thereto) or
sales literature of the Fund, 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 in light of the circumstances in which they were made;
provided that this obligation to indemnify shall not apply if such
statement or omission or alleged statement or alleged omission was made
in reliance upon and in conformity with information furnished in writing
by the Company to the Fund or the Distributor for use in the Fund
Registration Statement, Fund Prospectus (or any amendment or supplement
thereto) or sales literature for the Fund or otherwise for use in
connection with the sale of the Contracts or Fund shares; or
(b) arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact by the Distributor or the Fund (other than
statements or representations contained in the Fund Registration
Statement, Fund Prospectus or sales literature of the Fund not supplied
by the Distributor or the Fund or persons under their control) or
wrongful conduct of the Distributor or persons under its control with
respect to the sale or distribution of the Contracts or Fund shares; or
12
(c) arise out of any untrue statement or alleged untrue statement of a
material fact contained in the Contracts Registration Statement,
Contracts Prospectus or sales literature for the Contracts (or any
amendment 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 statements therein not misleading in light of the
circumstances in which they were made, if such statement or omission was
made in reliance upon information furnished in writing by the Distributor
of the Fund to the Company (or a person authorized in writing to do so on
behalf of the Fund or the Distributor); or
(d) arise as a result of any material breach by the Distributor or the
Fund to provide the services and furnish the materials required under the
terms of 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).
This indemnification will be in addition to any liability which the
Distributor may otherwise have; provided, however, that no party shall be
entitled to indemnification if such loss, claim, damage or liability is due
to the wilful misfeasance, bad faith, gross negligence or reckless disregard
of duty by the party seeking indemnification.
8.3. Indemnification Procedures
After receipt by a party entitled to indemnification ("indemnified party")
under this Article VIII of notice of the commencement of any action, if a
claim in respect thereof is to be made against any person obligated to
provide indemnification under this Article VIII ("indemnifying party"), such
indemnified party will notify the indemnifying party in writing of the
commencement thereof as soon as practicable thereafter, provided that the
omission to so notify the indemnifying party will not relieve it from any
liability under this Article VIII, except to the extent that the omission
results in a failure of actual notice to the indemnifying party and such
indemnifying party is damaged solely as a result of the failure to give such
notice. The indemnifying party, upon the request of the indemnified party,
shall retain counsel reasonably satisfactory to the indemnified party to
represent the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements of such
counsel related to such proceeding. In any such proceeding, any indemnified
party shall have the right to retain its own counsel, but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the indemnifying party and the indemnified party shall have
mutually agreed to the retention of such counsel or (ii) the named parties to
any such proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. The indemnifying party shall not be liable
for any settlement of any proceeding effected without its written consent but
if settled with such consent or if there be a final judgment for the
plaintiff, the indemnifying party agrees to indemnify the indemnified party
from and against any loss or liability by reason of such settlement or
judgment.
A successor by law of the parties to this Agreement 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.
13
8.4 Limitation of Liability
Notwithstanding anything to the contrary above, Company and its respective
officers, directors, employees and agents shall not be responsible for, and
the Fund and the Distributor shall indemnify and hold harmless the Company
from and against any and all losses, damages, charges, costs, reasonable
attorney's fees, payments, expenses and liabilities arising out of or
attributable to the reasonable reliance on information, records or documents
furnished by or on behalf of the Distributor or the Fund. Without limiting
the generality of the foregoing, the Company shall not be liable for any
error, delay, or failures to provide services under this Agreement
attributable, in whole or in part, to the error, delay, or failure of the
Distributor, the Fund or their agents in making the daily net asset value per
share of the Portfolios available to the Company.
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 Massachusetts, without
giving effect to the principles of conflicts of laws.
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 limited, interpreted and construed in
accordance therewith.
ARTICLE X. TERMINATION
10.1. This Agreement shall terminate:
(a) at the option of any party upon six months advance written notice to
the other parties, such termination to be effective no earlier than one
year following the date on which the first Contract is issued to the
public; or
(b) at the option of the Company if shares of any or all Portfolios are
not reasonably available to meet the requirements of the Contracts as
determined by the Company. Prompt notice of the election to terminate
for such cause shall be furnished by the Company, said termination to be
effective ten days after receipt of notice unless the Fund makes
available a sufficient number of Fund shares to meet the requirements of
the Contracts within said ten-day period; or
(c) at the option of the Fund upon institution of formal proceedings
against the Company by the NASD, the SEC, the insurance commission of
any state or any other regulatory body regarding the Company's duties
under this Agreement or related to the sale of the Contracts, the
operation of the Account, the administration of the Contracts or the
purchase of Fund shares, or an expected or anticipated ruling, judgment
or outcome which would, in the Fund's reasonable judgment, materially
impair the Company's ability to meet and perform the Company's
obligations and duties hereunder; or
(d) at the option of the Company upon institution of formal proceedings
against the Fund by the NASD, the SEC, or any state securities or
insurance commission or any other regulatory body; or
(e) upon requisite vote of the Contract Owners having an interest in the
affected Portfolio and the written approval of the Distributor (unless
otherwise required by applicable law), to substitute the
14
shares of another investment company for the corresponding Portfolio
shares of the Fund in accordance with the terms of the Contracts; or
(f) at the option of the Fund in the event any of the Contracts are not
registered, issued or sold in accordance with applicable Federal and/or
state law; or
(g) by either the Company or the Fund upon a determination by a majority
of the Board, or a majority of disinterested Board members, that an
irreconcilable material conflict exists among the interests of (i) all
Product owners or (ii) the interests of the Participating Insurance
Companies investing in the Fund; or
(h) at the option of the Company if any series of the Fund or the Fund
ceases to qualify as a Regulated Investment Company under Subchapter M of
the Code, or under any successor or similar provision, or if the Company
reasonably believes based on an opinion of counsel satisfactory to the
Fund that the series or Fund may fail to so qualify and the Fund does not
take reasonable steps to ensure qualification; or
(i) at the option of the Company if the Fund fails to meet the
diversification requirements specified in Article VI hereof; or
(j) at the option of the Fund if the Contracts cease to qualify as
annuity contracts or life insurance policies, as applicable, under the
Code, or if the Fund reasonably believes that the Contracts may fail to
so qualify; or
(k) at the option of either the Fund or the Distributor if the Fund or
the Distributor, respectively, shall determine, in their sole judgment
exercised in good faith, that either (1) the Company shall have suffered
a material adverse change in its business or financial condition or (2)
the Company shall have been the subject of material adverse publicity
which is likely to have a material adverse impact upon the business and
operations of either the Fund or the Distributor; or
(l) at the option of the Company, if (1) the Company shall determine, in
its sole judgment exercised in good faith, that the Fund or the
Distributor shall have been the subject of material adverse publicity
which is likely to have a material adverse impact upon the business and
operations of the Company; or (2) the Company shall have notified the
Fund in writing of such determination and the basis therefore, and (3)
after sixty (60) days after notice the Company again makes the same
determination;
(m) upon the assignment of this Agreement (including, without limitation,
any transfer of the Contracts or the Account to another insurance company
pursuant to an assumption reinsurance agreement) unless the non-assigning
party consents thereto or unless this Agreement is assigned to an
affiliate of the Distributor; or
(n) at the option of Company, as one party, or the Fund and the
Distributor, as one party, upon the other party's material breach of any
provision of this Agreement.
10.2. Notice Requirement
Except as otherwise provided in Section 10.1, no termination of this
Agreement shall be effective unless and until the party terminating this
Agreement gives prior written notice to all other parties to
15
this Agreement of its intent to terminate which notice shall set forth
the basis for such termination. Furthermore:
(a) In the event that any termination is based upon the provisions of
Article VII or the provisions of Section 10.1(a) of this Agreement, such
prior written notice shall be given in advance of the effective date of
termination as required by such provisions; and
(b) in the event that any termination is based upon the provisions of
Section 10.1(c) or 10.1(d) of this Agreement, such prior written notice
shall be given at least ninety (90) days before the effective date of
termination; and
(c) in the event that any termination is based upon the provisions of
Section 10.1(e) of this Agreement, such prior written notice shall be
given at least sixty (60) days before the date of any proposed vote to
replace the Fund's shares.
10.3. Except as necessary to implement Contract Owner initiated transactions,
or as required by state insurance laws or regulations, the Company shall not
redeem Fund shares attributable to the Contracts (as opposed to Fund shares
attributable to the Company's assets held in an Account).
10.4. Effect of Termination
(a) Notwithstanding any termination of this Agreement pursuant to Section
10.1 of this Agreement, the Fund and the Distributor may, at the option
of the Fund, continue to make available additional Fund shares for so
long after the termination of this Agreement as the Fund desires pursuant
to the terms and conditions of this Agreement as provided in paragraph
(b) below, for all Contracts in effect on the effective date of
termination of this Agreement (hereinafter referred to as "Existing
Contracts"). Specifically, without limitation, if the Fund or
Distributor so elects to make additional Fund shares available, the
owners of the Existing Contracts or the Company, whichever shall have
legal authority to do so, shall be permitted to reallocate investments in
the Fund, redeem investments in the Fund and/or invest in the Fund upon
the making of additional purchase payments under the Existing Contracts.
(b) In the event of a termination of this Agreement pursuant to Section
10.1 of this Agreement, the Fund and the Distributor shall promptly
notify the Company whether the Distributor and the Fund will continue to
make Fund shares available after such termination. If Fund shares
continue to be made available after such termination, the provisions of
this Agreement shall remain in effect except for Section 10.1(a) and
thereafter either the Fund or the Company may terminate the Agreement, as
so continued pursuant to this Section 10.4, upon prior written notice to
the other party, such notice to be for a period that is reasonable under
the circumstances but, if given by the Fund, need not be for more than
six months.
(c) The parties agree that this Section 10.4 shall not apply to any
termination under Article VII and the effect of such Article VII
termination shall be governed by Article VII of this Agreement.
ARTICLE XI. APPLICABILITY TO NEW ACCOUNTS AND NEW CONTRACTS
The parties to this Agreement may amend the schedules to this Agreement from
time to time to reflect changes in or relating to the Contracts and to add
new classes of variable annuity contracts and variable life insurance
policies to be issued by the Company through Separate Accounts investing in
16
the Fund. The provisions of this Agreement shall be equally applicable to
each such class of contracts or policies, unless the context otherwise
requires.
ARTICLE XII. NOTICES
Any notice shall be sufficiently given when sent by registered or certified
mail 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 the Fund:
The Palladian Trust
Attn: President
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to the Distributor:
Western Capital Financial Group, Inc.
Attn: President
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
If to the Company:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
President
Allmerica Financial Life Insurance and Annuity Company
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ARTICLE XIII. MISCELLANEOUS
13.1 All persons dealing with the Fund must look solely to the property of
such Fund, and in the case of a series company, the respective Designated
Portfolio listed on Schedule A hereto as though such Designated Portfolio had
separately contracted with the Company and the Underwriter for the
enforcement of any claims against the Fund. The parties agree that neither
the Board, officers, agents or shareholders of the Fund assume any personal
liability or responsibility for obligations entered into by or on behalf of
the Fund.
17
13.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, 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 such information may come
into the public domain.
13.3 The captions in this Agreement are included for convenience of reference
only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
13.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
13.5 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.
13.6 Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC,
the NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any
investigation or inquiry relating to this Agreement or the transactions
contemplated hereby. Notwithstanding the generality of the foregoing, each
party hereto further agrees to furnish the Delaware Insurance Commissioner
with any information or reports in connection with services provided under
this Agreement which such Commissioner may request in order to ascertain
whether the variable annuity operations of the Company are being conducted
in a manner consistent with variable annuity laws and regulations and any
other applicable law or regulations.
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 This Agreement or any of the rights and obligations hereunder may not be
assigned by any party without the prior written consent of all parties hereto.
13.9 A copy of the Fund's Declaration of Trust is on file with the Secretary
of the Commonwealth of Massachusetts. The Declaration of Trust has been
executed on behalf of the Fund by certain Trustees in their capacity as
Trustees of the Trust and not individually. All persons dealing with the
Fund must look solely to the property of the Fund for the enforcement of any
claims against the Fund as neither the Board, officers, agents, or
shareholders assume any personal liability for obligations entered into on
behalf of the Fund.
18
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on behalf by its duly authorized representative
and its seal to be hereunder affixed hereto as of the date specified below.
COMPANY: ALLMERICA FINANCIAL LIFE INSURANCE AND ANNUITY COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Title: President
---------------------------------
Date: 10/16/96
----------------------------------
FUND: THE PALLADIAN TRUST
By: /s/ M. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
Title: President
---------------------------------
Date: 10/24/96
----------------------------------
DISTRIBUTOR: WESTERN CAPITAL FINANCIAL GROUP, INC.
By: /s/ M. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
Title: President
---------------------------------
Date: 10/24/96
----------------------------------
19
SCHEDULE A
Name of Separate Account
(Date Authorized
by Board of Directors) Contracts Designated Portfolios
------------------------- --------- ----------------------
Fulcrum Separate Account Policy Form 3025-96/ 8025-96 Value Portfolio
(June 13, 1996) Growth Portfolio
International Growth Portfolio
Global Strategic Income Portfolio
Global Interactive/Telecomm Portfolio
Fulcrum Variable Life Value Portfolio
Separate Account Growth Portfolio
(June 13, 1996) International Growth Portfolio
Global Strategic Income Portfolio
Global Interactive/Telecomm Portfolio
20
