Ex-99.h.iii
FORM OF PARTICIPATION AGREEMENT
This Agreement made as of ________, 2000, by and between The Potomac
Insurance Trust ("Trust"), a Massachusetts business trust, ▇▇▇▇▇▇▇▇ Asset
Management, LLC ("▇▇▇▇▇▇▇▇") a New York corporation, and _______________
("Company"), a life insurance company organized under the laws of the State of
_____________.
WHEREAS, Trust is registered with the Securities and Exchange
Commission ("SEC") under the Investment Company Act of 1940, as amended (the
"1940 Act"), as an open-end management investment company; and
WHEREAS, Trust is organized as a series fund comprised of multiple
Portfolios ("Portfolios"), those of which are currently available for sale being
listed on Appendix A hereto as may be amended from time to time; and
WHEREAS, Trust was organized to act as the funding vehicle for certain
variable life insurance and/or variable annuity contracts ("Variable Contracts")
offered by life insurance companies through separate accounts of such life
insurance companies ("Participating Insurance Companies"); and
WHEREAS, Trust intends to apply for an order from the SEC, granting
Participating Insurance Companies and their separate accounts exemptions from
the provisions of Sections 9(a), 13(a), 15(a) and 15(b) of the 1940 Act, and
Rules 6e-2(b)(15) and 6e-3(T)(b)(15) thereunder, to the extent necessary to
permit shares of the Portfolios of the Trust to be sold to and held by variable
annuity and variable life insurance separate accounts of both affiliated and
unaffiliated Participating Insurance Companies ("Exemptive Order"); and
WHEREAS, the Company has established or will establish one or more
separate accounts ("Separate Accounts") to offer Variable Contracts and is
desirous of having Trust as one of the underlying funding vehicles for such
Variable Contracts; and
WHEREAS, ▇▇▇▇▇▇▇▇ is registered with the SEC as an investment adviser
under the Investment Advisers Act of 1940; and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of Trust to fund the
aforementioned Variable Contracts and Trust is authorized to sell such shares to
the Company at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company,
Trust and ▇▇▇▇▇▇▇▇ agree as follows:
Article I. SALE OF TRUST SHARES
--------------------
1.1 Trust agrees to make available to the Separate Accounts of the
Company shares of the selected Portfolios as listed on Appendix B for investment
of proceeds from Variable Contracts allocated to the designated Separate
Accounts, such shares to be offered as provided in Trust's Prospectus.
1.2 Trust agrees to sell to Company those shares of the selected
Portfolios of Trust which Company orders, executing such orders on a daily basis
at the net asset value next computed after receipt by Trust or its designee of
the order for the shares of Trust. For purposes of this Section 1.2, Company
shall be the designee of Trust for receipt of such orders from Company and
receipt by such designee shall constitute receipt by Trust; provided that Trust
receives notice of such order by _____ Eastern Time on the next following
Business Day. "Business Day" shall mean any day on which the New York Stock
Exchange is open for trading and on which Trust calculates its net asset value
pursuant to the rules of the SEC.
1.3 Trust agrees to redeem for cash, on Company's request, any full or
fractional shares of Trust held by Company, executing such requests on a daily
basis at the net asset value next computed after receipt by Trust or its
designee of the request for redemption. For purposes of this Section 1.3,
Company shall be the designee of Trust for receipt of requests for redemption
from Company and receipt by such designee shall constitute receipt by Trust;
provided that Trust receives notice of such request for redemption by _______
Eastern Time on the next following Business Day.
1.4 Trust shall furnish, on or before the ex-dividend date, notice to
Company of any income dividends or capital gain distributions payable on the
shares of any Portfolio of Trust. Company hereby elects to receive all such
income dividends and capital gain distributions as are payable on a Portfolio's
shares in additional shares of the Portfolio. Trust shall notify Company or its
designee of the number of shares so issued as payment of such dividends and
distributions.
1.5 Trust shall make the net asset value per share for the selected
Portfolio(s) available to Company on a daily basis as soon as reasonably
practicable after the net asset value per share is calculated but shall use its
best efforts to make such net asset value available by ____ Eastern time. If
Trust provides Company with materially incorrect share net asset value
information through no fault of Company, Company on behalf of the Separate
Accounts, shall be entitled to an adjustment to the number of shares purchased
or redeemed to reflect the correct share net asset value. Any material error in
the calculation of net asset value per share, dividend or capital gain
information shall be reported promptly upon discovery to Company.
2
1.6 At the end of each Business Day, Company shall use the information
described in Section 1.5 to calculate Separate Account unit values for the day.
Using these unit values, Company shall process each such Business Day's Separate
Account transactions based on requests and premiums received by it by the close
of trading on the floor of the New York Stock Exchange (currently 4:00 p.m.
Eastern time) to determine the net dollar amount of Trust shares which shall be
purchased or redeemed at that day's closing net asset value per share. The net
purchase or redemption orders so determined shall be transmitted to Trust by
Company by _____ Eastern time on the Business Day next following Company's
receipt of such requests and premiums in accordance with the terms of Sections
1.2 and 1.3 hereof.
1.7 If Company's order requests the purchase of Trust shares, Company
shall pay for such purchase by wiring federal funds to Trust or its designated
custodial account on the next Business Day following the day the order is
transmitted by Company. If Company's order requests a net redemption resulting
in a payment of redemption proceeds to Company, Trust shall use its best efforts
to wire the redemption proceeds to Company by the next Business Day, unless
doing so would require Trust to dispose of portfolio securities or otherwise
incur additional costs, but in such event, proceeds shall be wired to Company
within seven days or such shorter period as may be required by applicable law
and Trust shall notify the person designated in writing by Company as the
recipient for such notice of such delay by ____ Eastern time the same Business
Day that Company transmits the redemption order to Trust. If Company's order
requests the application of redemption proceeds from the redemption of shares to
the purchase of shares of another fund as advised by ▇▇▇▇▇▇▇▇, the amount wire
transferred by Company shall be reduced by the amount of such proceeds and Trust
shall so apply such proceeds on the same Business Day that Company transmits
such order to Trust.
1.8 Notwithstanding Section 1.7, Trust reserves the right to suspend
the right of redemption or postpone the date of payment or satisfaction upon
redemption consistent with Section 22(e) of the 1940 Act and any rules
thereunder.
1.9 Trust agrees that all shares of the Portfolios of Trust will be
sold only to Participating Insurance Companies which have agreed to participate
in Trust to fund their Separate Accounts and/or to certain qualified pension and
other retirement plans, all in accordance with the requirements of Section
817(h) of the Internal Revenue Code of 1986, as amended ("Code") and Treasury
Regulation 1.817-5. Shares of the Portfolios of Trust will not be sold directly
to the general public.
1.10 Trust may refuse to sell shares of any Portfolio to any person, or
suspend or terminate the offering of the shares of any Portfolio if such action
is required by law or by regulatory authorities having jurisdiction or is, in
the sole discretion of the Board of Trustees of Trust, acting in good faith and
in light of its fiduciary duties under federal and any applicable state laws,
deemed necessary and in the best interests of the shareholders of such
Portfolios.
3
Article II. REPRESENTATIONS AND WARRANTIES
------------------------------
2.1 Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of _________ and that it has
legally and validly established each Separate Account as a segregated asset
account under such laws, and that ______________, the principal underwriter for
the Variable Contracts, is registered as a broker-dealer under the Securities
Exchange Act of 1934.
2.2 Company represents and warrants that it has registered or, prior to
any issuance or sale of the Variable Contracts, will register each Separate
Account as a unit investment trust ("UIT") in accordance with the provisions of
the 1940 Act and cause each Separate Account to remain so registered to serve as
a segregated asset account for the Variable Contracts, unless an exemption from
registration is available.
2.3 Company represents and warrants that the Variable Contracts will be
registered under the Securities Act of 1933 (the "1933 Act") unless an exemption
from registration is available prior to any issuance or sale of the Variable
Contracts and that the Variable Contracts will be issued and sold in compliance
in all material respects with all applicable federal and state laws and further
that the sale of the Variable Contracts shall comply in all material respects
with state insurance law suitability requirements.
2.4 Company represents and warrants that the Variable Contracts are
currently and at the time of issuance will be treated as life insurance,
endowment or annuity contracts under applicable provisions of the Code, that it
will maintain such treatment and that it will notify Trust immediately upon
having a reasonable basis for believing that the Variable Contracts have ceased
to be so treated or that they might not be so treated in the future.
2.5 Company represents and warrants that is shall deliver such
prospectuses, statements of additional information, proxy statements and
periodic reports of Trust as required to be delivered under applicable federal
or state law in connection with the offer, sale or acquisition of the Variable
Contracts.
2.6 Company represents and warrants that no existing text or formatting
of Trust's prospectus as delivered to Company in electronic format will be
revised or altered by Company or any employee or agent of Company; provided,
that addition of hyperlinks and other common electronic features shall not
constitute a revision or alteration of the material.
2.7 Trust represents and warrants that the Portfolio shares offered and
sold pursuant to this Agreement will be registered under the 1933 Act and sold
in accordance with all applicable federal and state laws, and Trust shall be
registered under the 1940 Act prior to and at the time of any issuance or sale
of such shares. Trust shall register and qualify its shares for sale in
accordance with the laws of the various states only if and to the extent deemed
advisable by Trust.
4
2.8 Trust represents and warrants that each Portfolio will comply with
the diversification requirements set forth in Section 817(h) of the Code, and
the rules and regulations thereunder, including without limitation Treasury
Regulation 1.817-5, and will notify Company immediately upon having a reasonable
basis for believing any Portfolio has ceased to comply or might not so comply
and will immediately take all reasonable steps to adequately diversify the
Portfolio to achieve compliance within the grace period afforded by Regulation
1.817-5.
2.9 Trust represents and warrants that each Portfolio invested in by
the Separate Account is currently qualified as a "regulated investment company"
under Subchapter M of the Code, that it will make every effort to maintain such
qualification and will notify Company immediately upon having a reasonable basis
for believing it has ceased to so qualify or might not so qualify in the future.
Article III. PROSPECTUS AND PROXY STATEMENTS
-------------------------------
3.1 Trust shall prepare and be responsible for filing with the SEC and
any state regulators requiring such filing all shareholder reports, notices,
proxy materials (or similar materials such as voting instruction solicitation
materials), prospectuses and statements of additional information of Trust.
Trust shall bear the costs of registration and qualification of shares of the
Portfolios, preparation and filing of the documents listed in this Section 3.1
and all taxes to which an issuer is subject on the issuance and transfer of its
shares.
3.2 Trust will bear the printing costs (or duplicating costs with
respect to the statement of additional information), mailing costs, and, in the
case of proxy solicitations, tabulation costs, associated with the delivery of
the following Trust (or individual Portfolio) documents, and any supplements
thereto, to existing Variable Contract owners of Company: (i) prospectuses and
statements of additional information; (ii) annual and semi-annual reports; and
(iii) proxy materials.
If requested by Company, Trust shall provide such documentation (including a
final copy of the Trust's prospectus as set in type or in camera-ready copy) and
other assistance as is reasonably necessary in order for Company to print the
current prospectus for the Trust either as a standalone document or together
with the prospectus for the Variable Contracts or the prospectuses for other
funds offered through the Variable Contracts. Should Company wish to print any
of these documents in a format different from that provided by Trust, Company
shall provide Trust with sixty (60) days, prior written notice and Company shall
bear the cost associated with any format change (but not the cost of printing or
mailing).
Company will submit any bills for printing, duplicating and/or mailing costs,
relating to the Trust documents described above, to Trust for reimbursement by
Trust. Company shall monitor such costs and shall use its best efforts to
control these costs. Company will provide Trust on a semi-annual basis, or more
frequently as reasonably requested by Trust, with a current tabulation of the
number of existing Variable Contract owners of Company whose Variable Contract
values are invested in Trust. This tabulation will be sent to Trust in the form
of a letter signed by a duly authorized officer of Company attesting to the
accuracy of the information contained in the letter.
5
Trust will provide, at its expense, to Company with the following Trust (or
individual Portfolio) documents, and any supplements thereto, with respect to
prospective Variable Contract owners of Company: (i)camera-ready copy of the
current prospectus for printing by Company; (ii) a copy of the statement of
additional information suitable for duplication; (iii) camera-ready copy of
proxy material suitable for printing; and (iv) camera-ready copy of the annual
and semi-annual reports for printing by Company.
3.4 Trust, upon request of Company, will provide Company with
electronic copies of any of the Trust (or individual portfolio) documents listed
in Section 3.1 of this Agreement, for use by Company in the delivery of the
Trust's documents on an individual basis to current and prospective Variable
Contract Owners.
3.5. Trust will provide Company with at least one complete copy of all
prospectuses, statements of additional information, annual and semi-annual
reports, proxy statements, exemptive applications and all amendments or
supplements to any of the above that relate to the Portfolios promptly after the
filing of each such document with the SEC or other regulatory authority. Company
will provide Trust with at least one complete copy of all prospectuses,
statements or additional information, annual and semi-annual reports, proxy
statements, exemptive applications and all amendments or supplements to any of
the above that relate to the Separate Account promptly after the filing of each
such document with the SEC or other regulatory authority.
Article IV. SALES MATERIALS
---------------
4.1 Company will furnish, or will cause to be furnished, to Trust each
piece of sales literature or other promotional material in which Trust is named,
at least fifteen (15) Business Days prior to its intended use. No such material
will be used if Trust objects to its use in writing within ten (10) Business
Days after receipt of such material.
4.2 Trust will furnish, or will cause to be furnished, to Company, each
piece of sales literature or other promotional material in which Company or its
Separate Accounts are named, at least fifteen (15) Business Days prior to its
intended use. No such material will be used if Company objects to its use in
writing within ten (10) Business Days after receipt of such material.
4.3 Trust and its affiliates and agents shall not give any information
or make any representations on behalf of Company or concerning Company, the
Separate Accounts, or the Variable Contracts issued by Company, other than the
information or representations contained in a registration statement or
prospectus for such Variable Contracts, as such registration statement and
prospectus may be amended or supplemented from time to time, or in reports of
the Separate Accounts or reports prepared for distribution to owners of such
Variable Contracts, or in sales literature or other promotional material
approved by the Company or its designee, except with the written permission of
the Company.
6
4.4 Company and its affiliates and agents shall not give any
information or make any representations on behalf of Trust or concerning Trust
other than the information or representations contained in a registration
statement or prospectus for Trust, as such registration statement or prospectus
may be amended or supplemented from time to time, or in sales literature or
other promotional material approved by Trust or its designee, except with the
written permission of Trust.
4.5 For purposes of this Agreement, the phrase "sales literature or
other promotional material" or words of similar import include, without
limitation, 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 (such as any written communication distributed
or made generally available to customers or the public including brochures,
circulars, research reports, market letters, form letters, seminar text, 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 (including
so-called "broker only" materials), registration statements, prospectuses,
statements of additional information, shareholder reports and proxy materials,
and any other material constituting sales literature or advertising under
National Association of Securities Dealers, Inc. rules, the 1940 Act or the 1933
Act, but shall not include depositor or variable account financial statements
sent to existing customers.
Article V. POTENTIAL CONFLICTS
-------------------
5.1 The Trust's Board of Trustees ("Board") will monitor Trust for the
existence of any material irreconcilable conflict between the interests of
Variable Contract owners of Participating Insurance Company Separate Accounts
investing in Portfolios. A material irreconcilable conflict may arise for a
variety of reasons, including: (a) state insurance regulatory authority action;
(b) a change in applicable federal or state insurance, tax, or securities laws
or regulations, or a public ruling, private letter ruling 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 the Portfolios are being managed; (e) a difference in voting
instructions given by contract owners of different Participating Insurance
Companies; and (f) a decision by a Participating Insurance Company to disregard
the voting instructions of Variable Contract owners.
5.2 Company will report any potential or existing conflicts to the
Board. Company will be responsible for assisting the Board in carrying out its
responsibilities under the Conditions set forth in the notice when issued by the
SEC for the Portfolios (the "Notice"), which Company has reviewed, by providing
the Board with all information reasonably necessary for the Board to consider
any issues raised. The responsibility includes, but is not limited to, an
obligation by Company to inform the Board whenever Variable Contract owner
voting instructions are disregarded by Company. These responsibilities will be
carried out with a view only to the interests of the Variable Contract owners.
7
5.3 If a majority of the Board or majority of its disinterested
trustees or directors, determines that a material irreconcilable conflict
exists, affecting Company, Company, at its expense and to the extent reasonably
practicable (as determined by a majority of the Board's disinterested trustees
or directors), will take any steps necessary to remedy or eliminate the
irreconcilable material conflict, including; (a) withdrawing the assets
allocable to some or all of the Separate Accounts from Trust or any Portfolio
thereof and reinvesting those assets in a different investment medium, which may
include another Portfolio of Trust, or another investment company; (b)
submitting the question of whether such segregation should be implemented to a
vote of all affected Variable Contract owners and as appropriate, segregating
the assets of any appropriate group (i.e., variable annuity or variable life
insurance Contract owners of one or more Participating Insurance Companies) that
votes in favor of such segregation, or offering to the affected Variable
Contract owners' the option of making such a change; and (c) establishing a new
registered management investment company (or series thereof) or managed separate
account. If a material irreconcilable conflict arises because of a decision by
Company to disregard Variable Contract owner voting instructions, and that
decision represents a minority position or would preclude a majority vote,
Company may be required, at the election of Trust, to withdraw the Separate
Account's investment in Trust, and no charge or penalty will be imposed as a
result of such withdrawal. The responsibility to take such remedial action shall
be carried out with a view only to the interests of the Variable Contract
owners.
For the purposes of this Section 5.3, a majority of the disinterested
members of the Board shall determine whether or not any proposed action
adequately remedies any material irreconcilable conflict, but in no event will
Trust or ▇▇▇▇▇▇▇▇ (or any other investment adviser of the Portfolios) be
required to establish a new funding medium for any Variable Contract. Further,
Company shall not be required by this Section 5.3 to establish a new funding
medium for any Variable Contracts if any offer to do so has been declined by a
vote of a majority of Variable Contract owners materially and adversely affected
by the irreconcilable material conflict.
5.4 The Board's determination of the existence of an material
irreconcilable conflict and its implications shall be made known promptly and in
writing to Company.
5.5 No less than annually, Company and ▇▇▇▇▇▇▇▇ shall submit to the
Board such reports, materials or data as the Board may reasonably request so
that the Board may fully carry out the obligations imposed upon them by these
Conditions. Such reports, materials, and data. shall be submitted more
frequently if deemed appropriate by the Board.
Article VI. VOTING
------
6.1 Company will provide pass-through voting privileges to all Variable
Contract owners so long as the SEC continues to interpret the 1940 Act as
requiring pass-through voting privileges for Variable Contract owners.
Accordingly, Company, where applicable, will vote shares of a Portfolio held in
its Separate Accounts in a manner consistent with voting instructions timely
received from its Variable Contract owners. Company will be responsible for
assuring that each of its Separate Accounts that participates in any Portfolio
8
calculates voting privileges in a manner consistent with other participants as
defined in the Conditions set forth in the Notice ("Participants"). The
obligation to calculate voting privileges in a manner consistent with all other
Separate Accounts investing in a Portfolio will be a contractual obligation of
all Participants under the agreements governing participation in the Portfolios.
Each Participant will vote shares for which it has not received voting
instructions, as well as shares it owns, in the same proportion as it votes
those shares for which it has received voting instructions.
6.2 If and to the extent Rule 6e-2 and Rule 6e-3(T) are amended, or if
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules thereunder with respect to mixed and shared funding on terms
and conditions materially different from any exemptions granted in the Exemptive
Order, then Trust and the Participants, as appropriate, shall take such steps as
may be necessary to comply with Rule 6e-2 and Rule 6e-3(T), as amended, and Rule
6e-3, as adopted, to the extent applicable.
Article VII. INDEMNIFICATION
---------------
7.1 INDEMNIFICATION BY COMPANY. Company agrees to indemnify and hold
harmless Trust, ▇▇▇▇▇▇▇▇ and each of their Trustees, directors, officers,
employees and agents and each person, if any, who controls Trust or ▇▇▇▇▇▇▇▇
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Article VII) against any and all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of Company, which consent shall not be unreasonably withheld) or
litigation (including reasonable legal and other expenses), to which the
Indemnified Parties may become subject under any statute, regulation, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements are related to the sale
or acquisition of Trust's shares or the Variable Contracts and:
(a) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in
the registration statement or prospectus for the Variable
Contracts or contained in the Variable Contracts (or any
amendment or supplement to any of the foregoing), or arise out
of or are based upon the omission or the alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading,
provided that this agreement to indemnify shall not apply as
to any Indemnified Party if such statement or omission or such
alleged statement or omission was made in reliance upon and in
conformity with information furnished to Company by or on
behalf of Trust for use in the registration statement or
prospectus for the Variable Contracts or in the Variable
Contracts or sales literature (or any amendment or supplement)
or otherwise for use in connection with the sale of the
Variable Contracts or Trust shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature of
9
Trust not supplied by Company, or persons under its control)
or wrongful conduct of Company or persons under its control,
with respect to the sale or distribution of the Variable
Contracts or Trust shares; or
(c) arise out of any untrue statement or alleged untrue statement
of a material fact contained in the registration statement,
prospectus or sales literature of Trust 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
misleading if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to Trust by or on behalf
of Company; or
(d) arise as a result of any failure by Company to substantially
provide the services and furnish the materials under the terms
of this Agreement; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by Company in this
Agreement or arise out of or result from any other material
breach of this Agreement by Company.
7.2 Company shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation incurred
or assessed against an Indemnified Party as such may arise from such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations or duties under this Agreement or to Trust,
whichever is applicable.
7.3 Company shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Part shall have notified Company in writing within a reasonable time
after the summons or other first legal process giving information of the nature
of the claim shall have been served upon such Indemnified Party (or after such
Indemnified Party shall have received notice of such service on any designated
agent), but failure to notify Company of any such claim shall not relieve
Company from any liability which it may have to the Indemnified Party against
whom such action is brought otherwise than on account of this indemnification
provision. In case any such action is brought against an Indemnified Party,
Company shall be entitled to participate at its own expense in the defense of
action. Company also shall be entitled to assume the defense thereof, with
counsel satisfactory to the party named in the action. After notice from Company
to such party of Company's election to assume the defense thereof, the
Indemnified Party shall bear the fees and expenses of any additional counsel
retained by it, and Company will not be liable to such party under this
Agreement for any legal or other expenses subsequently incurred by such party
independently in connection with the defense thereof.
7.4 INDEMNIFICATION BY ▇▇▇▇▇▇▇▇. ▇▇▇▇▇▇▇▇ agrees to indemnify and hold
harmless Company and each of its directors, officers employees, and agents and
each person, if any, who controls Company within the meaning of Section 15 of
10
the 1933 Act (collectively, the "Indemnified Parties" for the purposes of this
Article VII) against any and all losses, claims, damages, liabilities (including
amounts paid in settlement with the written consent of ▇▇▇▇▇▇▇▇ which consent
shall not be unreasonably withheld) or litigation (including reasonable legal
and other expenses) to which the Indemnified Parties may become subject under
any statute, or regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of Trust's shares or the
Variable Contracts and:
(a) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the
registration statement, prospectus or sales literature of Trust
(or any amendment or supplement to any of the foregoing), or
arise out of or are based upon the omission or the alleged
omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not
misleading, provided that this agreement to indemnify shall not
apply as to any Indemnified Party if such statement or omission
or such alleged statement or omission was made in reliance upon
and in conformity with information furnished to ▇▇▇▇▇▇▇▇ or
Trust by or on behalf of Company for use in the registration
statement or prospectus for Trust or in sales literature (or any
amendment or supplement) or otherwise for use in connection with
the sale of the Variable Contracts or Trust shares; or
(b) arise out of or as a result of statements or representations
(other than statements or representations contained in the
registration statement, prospectus or sales literature for the
Variable Contracts not supplied by ▇▇▇▇▇▇▇▇ or Trust or persons
under their control) or wrongful conduct of ▇▇▇▇▇▇▇▇ or Trust or
persons under their control, with respect to the sale or
distribution of the Variable Contracts or Trust shares; or
(c) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement,
prospectus, or sales literature covering the Variable Contracts,
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 misleading, if such statement or omission or such alleged
statement or omission was made in reliance upon and in
conformity with information furnished to Company for inclusion
therein by or on behalf of Trust or ▇▇▇▇▇▇▇▇; or
(d) arise as a result of (i) a failure by Trust to substantially
provide the services ad furnish the material under the terms of
this Agreement; or (ii) a failure by a Portfolio(s) invested in
by the Separate Accounts to comply with the diversification
requirements of Section 817(h) of the Code; or (iii) a failure
by a Portfolio(s) invested in by the Separate Account to qualify
as a "regulated investment company" under Subchapter M of the
Code; or
(e) arise out of or result from any material breach of any
representation and/or warranty made by ▇▇▇▇▇▇▇▇ in this
Agreement or arise out of or result from any other material
breach of this Agreement by ▇▇▇▇▇▇▇▇.
12
7.5 ▇▇▇▇▇▇▇▇ shall not be liable under this indemnification provision
with respect to any losses, claims, damages, liabilities or litigation to which
an Indemnified Party would otherwise be subject by reason of such Indemnified
Party's willful misfeasance, bad faith, or gross negligence in the performance
of such Indemnified Party's duties or by reason of such Indemnified Party's
reckless disregard of obligations and duties under this Agreement or to Company.
7.6 ▇▇▇▇▇▇▇▇ shall not be liable under this indemnification provision
with respect to any claim made against an Indemnified Party unless such
Indemnified Party shall have notified ▇▇▇▇▇▇▇▇ in writing within a reasonable
time after the summons or other first legal process giving information of the
nature of the claim shall have been served upon such Indemnified Party (or after
such Indemnified Party shall have received notice of such service on any
designated agent), but failure to notify ▇▇▇▇▇▇▇▇ of any such claim shall not
relieve ▇▇▇▇▇▇▇▇ from any liability which it may have to the Indemnified Party
against whom such action is brought otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, ▇▇▇▇▇▇▇▇ shall be entitled to participate at their own
expense in the defense thereof. ▇▇▇▇▇▇▇▇ also shall be entitled to assume the
defense thereof, with counsel satisfactory to the party named in the action.
After notice from ▇▇▇▇▇▇▇▇ to such party of ▇▇▇▇▇▇▇▇'▇ election to assume the
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and ▇▇▇▇▇▇▇▇ will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred by
such party independently in connection with the defense thereof.
Article VIII. TERM; TERMINATION
-----------------
8.1 This Agreement shall be effective as of the date hereof and shall
continue in force until terminated in accordance with the provisions herein.
8.2 This Agreement shall terminate in accordance with the following
provisions:
(a) At the option of Company, Trust or ▇▇▇▇▇▇▇▇ at any
time from the date hereof upon 60 days' notice,
unless a shorter time is agreed to by the parties;
(b) At the option of Company, if Trust shares are not
reasonably available to meet the requirements of the
Variable Contracts as determined by Company. Prompt
notice of election to terminate shall be furnished by
Company, said termination to be effective ten days
after receipt of notice unless Trust makes available
a sufficient number of shares to reasonably meet the
requirements of the Variable Contracts within said
ten-day period;
(c) At the option of Company, upon the institution of
formal proceedings against Trust by the SEC, or any
12
other regulatory body, the expected or anticipated
ruling, judgment or outcome of which would, in
Company's reasonable judgment, materially impair
Trust's ability to meet and perform Trust's
obligations and duties hereunder. Prompt notice of
election to terminate shall be furnished by Company
with said termination to be effective upon receipt of
notice;
(d) At the option of Trust or ▇▇▇▇▇▇▇▇, upon the
institution of formal proceedings against Company by
the SEC or any other regulatory body, the expected or
anticipated ruling, judgment or outcome of which
would, in Trust's or ▇▇▇▇▇▇▇▇'▇ reasonable judgment,
materially impair the Company's ability to meet and
perform its obligations and duties hereunder. Prompt
notice of election to terminate shall be furnished by
Trust or ▇▇▇▇▇▇▇▇ with said termination to be
effective upon receipt of notice;
(e) In the event Trust's shares are not registered,
issued or sold in accordance with applicable state or
federal law, or such law precludes the use of such
shares as the underlying investment medium of
Variable Contracts issued or to be issued by Company.
Termination shall be effective upon such occurrence
without notice;
(f) At the option of Trust, if the Variable Contracts
cease to qualify as annuity contracts or life
insurance contracts, as applicable, under the Code,
or if Trust reasonably believes that the Variable
Contracts may fail to so qualify. Termination shall
be effective upon receipt of notice by Company;
(g) At the option of Company, upon Trust's breach of any
material provision of this Agreement, which breach
has not been cured to the satisfaction of Company
within ten days after written notice of such breach
is delivered to Trust;
(h) At the option of Trust, upon Company's breach of any
material provision of this Agreement, which breach
has not been cured to the satisfaction of Trust
within ten days after written notice of such breach
is delivered to Company;
(i) At the option of Trust, if the Variable Contracts are
not registered, issued or sold in accordance with
applicable federal and/or state law. Termination
shall be effective immediately upon such occurrence
without notice;
(j) In the event this Agreement is assigned without the
prior, written consent of the Company, Trust, and
▇▇▇▇▇▇▇▇ termination shall be effective immediately
upon such occurrence without notice.
13
8.3 Notwithstanding any termination of this Agreement pursuant to
Section 8.2 hereof, Trust at the option may elect to continue to make available
additional Trust shares, as provided below, for so long as Trust desires
pursuant to the terms and conditions of this Agreement, for all Variable
Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"). Specifically, without
limitation, if Trust so elects to make additional Trust shares available, the
owners of the Existing Contracts or Company, whichever shall have legal
authority to do so, shall be permitted to reallocate investments in Trust,
redeem investments in Trust and/or invest in Trust upon the payment of
additional premiums or a transfer from other sub-accounts under the "Existing
Contracts". In the event of termination of this Agreement pursuant to Section
8.2 hereof, Trust and ▇▇▇▇▇▇▇▇ as promptly as is practicable under the
circumstances, shall notify Company whether Trust elects to continue to make
Trust shares available after such termination. If Trust shares continue to be
made available after such termination, the provisions of this Agreement shall
remain in effect and thereafter either Trust or Company may terminate this
Agreement, as so continued pursuant to Section 8.3, upon sixty (60) days prior
written notice to the other party.
8.4. Except as necessary to implement Variable Contract owner initiated
transactions, or as required by state insurance laws or regulations, Company
shall not redeem the shares attributable to the Variable Contracts (as opposed
to the shares attributable to Company's assets held in the Separate Accounts),
and Company shall not prevent Variable Contract owners from allocating payments
to a Portfolio that was otherwise available under the Variable Contracts, until
thirty (30) days after the Company shall have notified Trust of its intention to
do so.
Article IX NOTICES
----------
Any notice hereunder shall be given by registered or certified mail
return receipt requested 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 Trust OR ▇▇▇▇▇▇▇▇:
▇▇▇▇▇▇ ▇. ▇'▇▇▇▇▇
Managing Director
▇▇▇▇▇▇▇▇ Asset Management, LLC
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
If to the Company:
14
Notice shall be deemed given on the date of receipt by the addressee as
evidenced by the return receipt. Notice may also be given by facsimile
transmission with a confirming copy sent by overnight delivery. Such notice will
be deemed given on the date of receipt of the facsimile transmission.
Article X. MISCELLANEOUS
-------------
10.1 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.
10.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.3 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.
10.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of New York. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the SEC granting exemptive
relief therefrom and the conditions of such orders.
10.5 The parties agree that the assets and liabilities of each
Portfolio are separate and distinct from the assets and liabilities of each
other Portfolio. No Portfolio shall be liable or shall be charged for any debt,
obligation or liability of any other Portfolio. No Trustee, officer or agent
shall be personally liable for such debt, obligation or liability of any
Portfolio and not Portfolio or other investor, other than the Portfolio or other
investors investing in the Portfolio which incurs a debt, obligation or
liability, shall be liable therefor.
10.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
National Association of Securities Dealers, Inc. 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.
10.7 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.
10.8 No provision of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by
Company, Trust and ▇▇▇▇▇▇▇▇.
15
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Fund Participation Agreement as of the date and year
first above written.
Insurance Company Potomac Insurance Trust
By: By:
----------------------------- -----------------------
Name: Name:
Title: Title:
▇▇▇▇▇▇▇▇ Asset Management, LLC
By: By:
----------------------------- -----------------------
Name: Name:
Title: Title:
16
Appendix A
Potomac Insurance Trust Portfolios
----------------------------------
The Potomac VP OTC Plus Fund
The Potomac VP OTC/Short Fund
The Potomac ▇▇ ▇▇▇ 30 Plus Fund
The Potomac ▇▇ ▇▇▇ 30/Short Fund
The Potomac VP Small Cap Plus Fund
The Potomac VP Small Cap/Short Fund
The Potomac VP Internet Plus Fund
The Potomac VP Internet/Short Fund
The Potomac VP U.S. Plus Fund
The Potomac VP U.S./Short Fund
The Potomac VP Japan Plus Fund
The Potomac VP Japan/Short Fund
The Potomac VP Money Market Fund
17
APPENDIX B
Separate Accounts Selected Portfolios
----------------- -------------------
18