EXHIBIT 8(i)
PARTICIPATION AGREEMENT
Among
▇▇▇▇▇▇▇▇▇▇ FUNDS III,
▇▇▇▇▇▇▇▇▇▇ ASSET MANAGEMENT, L.P.
And
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE COMPANY
Table of Contents
Section Description Page
------- ----------- ----
1 Sales of Fund Shares...................... 1
2 Proxy Solicitations and Voting............ 4
3 Representations and Warranties............ 6
4 Sales Material and Information............ 11
5 Fees and Expenses......................... 16
6 Indemnification........................... 17
7 Potential Conflicts....................... 28
8 Term and Termination...................... 33
9 Notices................................... 37
10 Miscellaneous............................. 38
THIS AGREEMENT, made and entered into this 15th day of November, 1996,
by and among First Providian Life and Health Insurance Company ("Company"), on
its own behalf and on behalf of First Providian Life and Health Insurance
Company Separate Account C, a segregated asset account of the Company
("Account"), ▇▇▇▇▇▇▇▇▇▇ Funds III ("Fund"), and the Fund's investment adviser,
▇▇▇▇▇▇▇▇▇▇ Asset Management, L.P. ("Adviser") (collectively, "Parties").
Company, Fund and Adviser intending to be legally bound, hereby agree
as follows:
1. Sales of Fund Shares
--------------------
1.1 Fund agrees to sell to Company those shares of the portfolios
listed on Schedule 1.1 hereto (the "Portfolios") which Company purchases for the
appropriate subaccount of the Account at the net asset value next computed after
receipt by Fund or its designee of each order of the Account or its designee, in
accordance with the provisions of this Agreement, and of the then current
prospectuses of Fund and of each variable annuity contract that uses Fund as an
underlying investment medium (the "Contracts"). Company may purchase shares of
the Portfolios for its own account subject to (a) Company's receipt of prior
written approval by Fund; and (b) such purchases being in accordance with the
then current prospectuses of Fund and of the Contracts. For purposes of this
Section 1.1, Company shall be the designee of Fund for receipt of such orders
and receipt by such designee shall constitute receipt by Fund, provided that
Fund
receives notice of any such order by 11:00 a.m. 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 Fund calculates its net asset
value pursuant to the rules of the Securities and Exchange Commission ("SEC").
Company will pay for Fund shares on the same Business Day that an order to
purchase Fund shares is communicated by Company to Fund in accordance with this
Section 1.1. Payment for Fund shares shall be made in Federal funds transmitted
to Fund by wire sent no later than 2:30 p.m. Eastern time on such Business Day.
1.2 The Board of Trustees of Fund ("Board") may refuse to sell shares
of Fund or any Portfolio to any person, or suspend or terminate the offering of
shares of any Portfolio if such action (a) is required by law or by regulatory
authorities having jurisdiction or (b) is, in the sole discretion of the Board,
acting in good faith and in light of the Board's duties under applicable law,
necessary in the best interests of the shareholders of any Portfolio, provided
that with respect to (b), any such suspension is temporary and any such
termination is specifically found in writing by the Board to be necessary in the
best interests of the shareholders of the applicable Portfolio. Fund will
redeem the shares when requested on behalf of the Company or the corresponding
subaccount of the Account at the net asset value next computed after receipt by
Fund or its designee of each request for redemption, as established in
accordance
2
with the provisions of the then current prospectuses of Fund and of
the Contracts. For purposes of this Section 1.2, Company will be the designee
of Fund for receipt of requests for redemption and receipt by such designee will
constitute receipt by Fund, provided that Fund receives notice of such request
for redemption by 11:00 a.m. Eastern time on the next following Business Day.
Fund will make payment in Federal funds transmitted to Company by wire on the
same Business Day that Fund is properly notified of the redemption order
pursuant to this Section 1.2; provided that Fund may postpone the date of
payment upon redemption in accordance with Section 22(e) of the Investment
Company Act of 1940 and the rules, orders and regulations promulgated thereunder
(the "1940 Act"). Fund will not bear any responsibility whatsoever for the
proper disbursement or crediting of redemption proceeds by Company; Company
alone will be responsible for such action. If notification of a redemption
request is received by Fund after 11:00 a.m. Eastern time, payment for redeemed
shares will be made on the next following Business Day.
1.3 Company agrees to purchase and redeem the shares of the
Portfolios in accordance with the provisions of this Agreement, of the Contracts
and of the then current prospectuses of the Contracts and of Fund. Except as
necessary to implement Owner initiated transactions initiated by purchasers of
the Contracts ("Owners"), or as otherwise permitted or required by state and/or
federal laws or
3
regulations, Company shall not redeem Fund shares of the Portfolios attributable
to the Contracts.
1.4 Issuance and transfer of Fund shares will be by book entry only.
Stock certificates will not be issued to the Company or the Account. Shares
ordered from Fund will be recorded in appropriate book entry titles for the
Account or the appropriate subaccount of the Account.
1.5 Fund shall furnish prompt notice followed by written
confirmation to Company or its delegates of any income, dividends or capital
gain distributions payable on each Portfolio's shares. Company hereby elects to
receive all such dividends and distributions as are payable on shares of a
Portfolio in additional shares of that Portfolio. Fund shall notify Company or
its delegates of the number of shares so issued as payment of such dividends and
distributions.
1.6 Fund shall use its best efforts to make the net asset value per
share for each Portfolio available to Company or its delegates by 6:30 p.m. on
each Business Day, and shall notify Company promptly if it is unable to make the
net asset value per share available to Company by 7:00 p.m. Eastern time on such
Business Day.
2. Proxy Solicitations and Voting
------------------------------
2.1 Adviser and Fund agree that the terms on which Fund shares are
offered to the Account under this Agreement will not be materially altered
("Material Alteration") without the prior written consent of Company, which
consent will not be unreasonably withheld, during any period in which Fund
shares
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are held by the Account, provided that the 1940 Act requires that such Material
Alteration be approved by the shareholders of Fund. In all other cases, Fund
will provide Company with as much advance notice as is reasonably practicable of
Material Alterations.
2.2 If and to the extent required by law the Company shall:
(i) solicit voting instructions from Owners;
(ii) vote Portfolio shares in accordance with instructions received
from Owners; and
(iii) vote Portfolio shares for which no instructions have been
received in the same proportion as shares of such Portfolio for
which instructions have been received,
so long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for variable contract owners. Company
reserves the right to vote Portfolio shares held in any segregated asset account
in its own right, to the extent permitted by law. Company shall be responsible
for assuring that each of its separate accounts holding shares of a Portfolio
calculates voting privileges as set forth above and consistent with Fund's mixed
and shared funding exemptive order (the "Exemptive Order").
2.3 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 (except insofar
5
as the SEC may interpret Section 16 of the 1940 Act not to require such
meetings) or comply with Section 16(c) of the 1940 Act (although Fund is not one
of the trusts described in Section 16(c) of the 1940 Act), as well as with
Sections 16(a) and, if and when applicable, 16(b). Further, Fund will act in
accordance with the SEC's interpretation of the requirements of Section 16(a)
with respect to periodic elections of trustees and with whatever rules the SEC
may promulgate with respect thereto.
3. Representations and Warranties
------------------------------
3.1 Company represents and warrants that it is an insurance company
duly organized and in good standing under applicable law and that it has legally
and validly established the Account prior to any issuance or sale thereof as a
segregated asset account under the laws of New York and that it has and will
maintain the capacity to issue all Contracts that may be sold; and that it is
properly licensed, qualified and in good standing to sell the Contracts in New
York.
3.2 Company represents and warrants that the Contracts are or will
be registered under the Securities Act of 1933 (the "1933 Act"); and that the
Contracts will be issued and sold in compliance with all applicable federal and
state laws.
3.3 Company represents and warrants that it has registered or will
have registered the Account as a unit investment trust in accordance with the
provisions of the
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1940 Act to serve as a segregated investment account for the Contracts, and that
it will maintain such registration for so long as any Contracts are outstanding.
Company will amend the registration statement under the 1933 Act for the
Contracts and the registration statement under the 1940 Act for the Account from
time to time as required in order to effect the continuous offering of the
Contracts or as may otherwise be required by applicable law.
3.4 Company represents that the Contracts are currently and at the
time of issuance will be treated as annuity contracts under applicable
provisions of the Internal Revenue Code of 1986, as amended ("Code"), and that
it will make every effort to maintain such treatment and that it will notify
Adviser and Fund 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.
3.5 Fund represents and warrants that it is lawfully established and
validly existing under the laws of the State of Delaware.
3.6 Fund represents and warrants that Fund shares of the Portfolios
sold pursuant to this Agreement are registered under the 1933 Act and duly
authorized for issuance; that Fund shall amend the registration statement for
its shares under the 1933 Act and the 1940 Act from time to time as required in
order to effect the continuous offering of its shares; that Fund will sell
shares of the Portfolios sold pursuant to this Agreement in compliance with all
applicable
7
federal and state securities laws including without limitation the 1933 Act, the
1934 Act and the 1940 Act; and that Fund is and will remain registered under and
complies and will comply in all material respects with the 1940 Act. Fund shall
register and qualify Portfolio shares for sale in accordance with the laws of
the various states only if and to the extent deemed advisable by Fund.
3.7 Fund represents and warrants that it will invest money from the
Contracts in such a manner as to ensure that the Contracts will be treated as
variable annuity contracts under the Code and the regulations issued thereunder,
and that Fund will comply with Section 817(h) of the Code as amended from time
to time and with all applicable regulations promulgated thereunder. Fund agrees
to notify Company immediately upon having a reasonable basis for believing that
any Portfolio has ceased to comply with Section 817(h) of the Code and to take
all reasonable steps to diversify such Portfolio so as to achieve compliance
within the grace period afforded by Treasury Regulation (S) 1.817-5.
3.8 Fund represents and warrants that it is currently qualified as a
Regulated Investment Company under Subchapter M of the Code, and that it will
maintain such qualification (under Subchapter M or any successor or similar
provision) and that it will notify 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.
8
3.9 Fund represents and warrants that the investment policies, fees
and expenses of the Portfolios are and shall at all times remain in compliance
with applicable state investment laws as they may apply to the Portfolios. Fund
makes no representation as to whether any aspect of its operations (including,
but not limited to, fees and expenses and investment policies) complies with the
insurance laws and regulations of any state. Company shall inform Fund of any
restrictions imposed by state insurance laws that may become applicable to Fund
from time to time as a result of the Account's investment therein, but Company
shall not be responsible for informing Fund of any restrictions imposed by state
insurance laws that may become applicable to Fund from time to time solely as a
result of investments in the Fund by other insurance companies. If Fund, acting
reasonably and in good faith, determines that it is not in the best interests of
shareholders (it being understood that "shareholders" for this purpose shall
mean Owners) to comply with such restrictions, Fund shall so inform Company, and
Fund and Company shall discuss alternative accommodations in the circumstances.
If Fund neither makes the determination stated in the previous sentence nor
determines that a material irreconcilable conflict exists pursuant to Section 7
of this Agreement, (i) to the extent feasible and consistent with market
conditions, Fund will adjust its investments to comply with the aforementioned
restrictions upon written notice from Company of such restrictions and proposed
9
adjustments, it being agreed and understood that in any such case Fund will be
allowed a reasonable period of time under the circumstances after receipt of
such notice to make any such adjustments, and (ii) if amendment of this
Agreement is deemed reasonably necessary by Company, Fund and Company shall
negotiate in good faith to amend this Agreement to reflect such restrictions.
3.10 Adviser represents and warrants that it is and will remain duly
registered under all applicable federal and state securities laws and that it
will perform its obligations for Fund in accordance in all material respects
with the laws of the State of California and any applicable state and federal
securities laws.
3.11 All parties hereto represent and warrant to each other that all
of their directors, trustees officers, employees, investment advisers, and other
individuals/entities dealing with the money and/or securities of Fund are and
shall continue to be at all times covered by a blanket fidelity bond or similar
coverage for the benefit of Fund in an amount not less than the amount required
by the applicable rules of the NASD and the federal securities laws. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company. All parties hereto agree to make all
reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and each agrees to
10
notify promptly the other parties hereto in the event that such coverage no
longer applies.
3.12 Company agrees not to solicit or cause to be solicited directly,
or indirectly at any time in the future, any proxies from the Owners in
opposition to proxies solicited by management of Fund, unless a court of
competent jurisdiction shall have determined that the conduct of a majority of
the Board constitutes willful misfeasance, bad faith, gross negligence or
reckless disregard of their duties. This Section 3.12 will survive the term of
this Agreement.
4. Sales Material and Information
------------------------------
4.1 Company will furnish or cause to be furnished, to Fund or
Adviser, each piece of sales literature or other promotional material in which
Fund or Adviser is named, (i) if such sales literature or other promotional
material is to be distributed only to broker-dealers that are selling the
Contracts and not to the general public, at least four (4) Business Days prior
to its use, and (ii) in the case of all other sales literature or other
promotional material, at least ten (10) days prior to its use. No such material
will be used if Fund or Adviser reasonably objects to such use within, (x) in
the case of sales material specified in clause (i) above, two (2) Business Days
after receipt of such material, and (y) in the case of sales material specified
in clause (ii) above, five (5) Business Days after receipt of such material.
11
4.2 Company shall not give any information or make any material
representations or statements on behalf of or concerning the Adviser or the Fund
other than the information or representations contained in: (a) a registration
statement or prospectus for Fund shares, as amended or supplemented from time to
time; (b) reports or proxy statements for Fund; (c) published reports for Fund
which are in the public domain or are approved by Fund or Adviser; or (d) sales
literature or other promotional material provided by or approved by Fund or
Adviser; except with permission of Fund or Adviser. Fund and Adviser agree to
respond to any request for approval on a prompt and timely basis.
4.3 Fund or Adviser will furnish, or will cause to be furnished, to
Company or its designee, each piece of sales literature or other promotional
material in which Company or the Account is named, at least ten (10) Business
Days prior to its use. No such material will be used if Company reasonably
objects to such use within five (5) Business Days after receipt of such
material.
4.4 Adviser or the Fund shall not give any information or make any
material representations or statements on behalf of or concerning Company other
than the information or representations contained in: (a) a registration
statement or prospectus for the Contracts, as amended or supplemented from time
to time; (b) published reports or statements of the Contracts or the Account
which are in the public domain or are approved by Company; or (c) sales
literature or other
12
promotional material provided or approved by Company; except with permission of
Company. Company agrees to respond to any request for approval on a prompt and
timely basis.
4.5 The sales literature and promotional material described in
Sections 4.1 and 4.3, and the requests for approval described in Sections 4.2
and 4.4, shall be sent by the parties via facsimile or overnight delivery
service.
4.6 No Party shall use any other Party's names, logos, trademarks or
service marks, whether registered or unregistered, without the prior consent of
such Party.
4.7 Fund will provide to Company at least one complete copy of all
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 to any of the above, that
relate to Fund or its shares, in final form as filed with the SEC, NASD and
other regulatory authorities. If requested by Company in lieu thereof, Fund
shall provide such documentation (including a final copy of the current
prospectus set in type at Fund's expense) and other assistance as is reasonably
necessary in order for Company once each year (or more frequently if the
prospectus for Fund is amended more frequently) to have the prospectus for the
Contracts and Fund's prospectus printed together in one document, in which case
Fund will pay its share of reasonable expenses directly related to the required
disclosure of
13
information concerning Fund. Fund agrees to notify Company of material changes
in the management of Fund within a reasonable time prior to any such change
becoming effective.
4.8 Company will provide to Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters and all amendments to any of the above, that relate to the Fund and the
Contracts, in final form as filed with the SEC, NASD and other regulatory
authorities. Company agrees to notify Fund of material changes in the
management of the Contracts within a reasonable time prior to any such changes
becoming effective.
4.9 For purposes of this Section 4, 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, i.e., on-line
networks such as the Internet or other electronic messages), sales literature
(i.e., any written communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, form letters, seminar texts, reprints or excerpts of any other
advertisement, sales literature or published article),
14
educational or training materials or other communications distributed or made
generally available to some or all agents or employees, registration statements,
prospectuses, statements of additional information, shareholder reports, and
proxy materials and any other material constituting sales literature or
advertising under the NASD rules, the 1933 Act or the 1940 Act. Such phrase
shall be construed in accordance with all applicable securities laws and
regulations.
4.10 To the extent required by applicable law, including the administrative
requirements of regulatory authorities, or as mutually agreed between Company
and Adviser, Company reserves the right to modify any of the Contracts in any
respect whatsoever. Company reserves the right in its sole discretion to
suspend the sale of any of the Contracts, in whole or in part, or to accept or
reject any application for the sale of a Contract, provided that any such
suspension is temporary. Company agrees to notify the other Parties promptly
upon the occurrence of any event Company believes might necessitate a material
modification or suspension.
4.11 The Parties agree to review the prospectuses for the Contracts and the
Fund during the first calendar quarter of each year for possible changes and
will make their personnel reasonably available to discuss such possible changes.
4.12 At the request of any Party, each other Party will make available to
the requesting Party's independent auditors
15
and or representative of the appropriate regulatory agencies, all records, data
and access to operating procedures that may be reasonably requested in
connection with compliance and regulatory requirements related to this Agreement
or to any Party's obligations under this Agreement.
5. Fees and Expenses
5.1 Fund shall bear the cost of registration and qualification of Fund's
shares; preparation and filing of Fund's prospectus and registration statement,
proxy materials and reports including postage; preparation of all other
statements and notices relating to Fund required by any federal or state law;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to Fund; all taxes on the issuance or transfer of
Fund's shares; and any expenses permitted to be paid or assumed by Fund pursuant
to a plan, if any, under Rule 12b-1 under the ▇▇▇▇ ▇▇▇.
5.2 Fund will pay no fee or other compensation to Company under this
Agreement, except as provided below: (a) If Fund or any Portfolio adopts and
implements a plan pursuant to Rule 12b-1 under the 1940 Act to finance
distribution expenses, then, subject to obtaining any required exemptive orders
or other regulatory approvals, Fund may make payments to Company or to the
underwriter for the Contracts if and in such amounts as agreed to by Fund in
writing; and (b) Fund may pay fees to Company for services provided to Owners
that are not primarily intended to result
16
in the sale of shares of the Portfolios or of underlying contracts.
5.3 Company shall see to it that the Contracts are registered under the
1933 Act, and that the Account is registered as a unit investment trust in
accordance with the 1940 Act. Company shall bear the expenses for the costs of
preparation and filing of Company's prospectus and registration statement with
respect to the Contracts; preparation of all other statements and notices
relating to the Account or the Contracts required by any federal or state law;
expenses for the solicitation and sale of the Contracts, including all costs of
printing and distributing all copies of advertisements, prospectuses, Statements
of Additional Information, proxy materials, and reports to Owners or potential
purchasers of the Contracts as required by applicable state and federal law;
payment of all applicable fees, including, without limitation, all fees due
under Rule 24f-2 relating to the Contracts; all costs of drafting, filing and
obtaining approvals of the Contracts in the various states under applicable
insurance laws; filing of annual reports on form N-SAR, and all other costs
associated with ongoing compliance with all such laws and its obligations
hereunder.
6. Indemnification
6.1 Indemnification By Company
6.1(a) Company agrees to indemnify and hold harmless Fund and Adviser
and each of their directors,
17
trustees and officers, and each person, if any, who controls any of them within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.1) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of Company) or litigation (including legal and other expenses),
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, and:
(i) arise out of or are based upon any untrue statements or
alleged untrue statements of any material fact contained in the
registration statement, prospectus or sales literature or other
promotional material for the Contracts or contained in the
Contracts (or any amendment or supplement to any of the
foregoing), or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not
misleading, provided that this Section 6.1(a) 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 Fund
18
or Adviser for use in the registration statement or prospectus
for the Contracts or in the Contracts or in sales literature (or
any amendment or supplement) or otherwise for use in connection
with the sale of the Contracts or Fund shares; or
(ii) 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 or other promotional material of Fund, 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 Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature or other promotional
material of Fund (or any amendment or supplement to any of the
foregoing), or the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to
make the statements therein not misleading, if such a statement
or omission was made in
19
reliance upon information furnished to Fund or to Adviser by or
on behalf of Company; or
(iv) arise out of, or as a result of, any failure by
Company or persons under its control to provide the services and
furnish the materials contemplated under the terms of this
Agreement; or
(v) arise out of, or result from, any material breach of
any representation and/or warranty made by Company or persons
under its control in this Agreement or arise out of or result
from any other material breach of this Agreement by Company or
persons under its control;
as limited by and in accordance with the provisions of sections 6.1(b) and
6.1(c) hereof.
6.1(b) Company shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, 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 or duties under this Agreement or to
Fund.
6.1(c) Company shall not be liable under this indemnification provision
with respect to any claim made
20
against an Indemnified Party unless such Indemnified Party 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 otherwise than on account of this
indemnification provision. In case any such action is brought against the
Indemnified Parties, Company shall be entitled to participate, at its own
expense, in the defense of such action. Company also shall be entitled to assume
and to control the defense thereof, with counsel reasonably 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 other than reasonable costs of investigation.
6.1(d) The Indemnified Parties will promptly notify Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of Fund shares or the Contracts or the operation of Fund.
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6.2 Indemnification by Adviser
6.2(a) Adviser agrees to indemnify and hold harmless Company and each
of its directors and officers and each person, if any, who controls Company
within the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.2) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of Adviser) or litigation (including legal and other expenses)
to which the Indemnified Parties may become subject under any statute,
regulation, at common law or otherwise, and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
registration statement or prospectus or sales literature or other
promotional material of Fund (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 Section 6.2(a) 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
22
furnished to Fund or Adviser by or on behalf of Company for use
in the registration statement or prospectus for Fund or in sales
literature (or any amendment or supplement) or otherwise for use
in connection with the sale of the Contracts or Fund shares; or
(ii) 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 or other promotional material for the Contracts, not
supplied by Adviser or Fund, or persons under their control) or
wrongful conduct of Adviser or Fund or persons under their
control, with respect to the sale or distribution of the
Contracts or Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement, prospectus, or sales literature or other promotional
material for the Contracts (or any amendment or supplement to any
of the foregoing), or the omission or alleged omission to state
therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, if
23
such statement or omission was made in reliance upon information
furnished to Company by or on behalf of Fund or Adviser; or
(iv) arise out of, or as a result of, any failure by
Adviser, Fund or persons under their control to provide the
services and furnish the materials contemplated under the terms
of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by Adviser, Fund or persons
under their control in this Agreement or arise out of or result
from any other material breach of this Agreement by Adviser, Fund
or persons under their control;
as limited by and in accordance with the provisions of Sections 6.2(b) and
6.2(c) hereof.
6.2(b) Adviser shall not be liable under this indemnification provision
with respect to any losses, claims, expenses, 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 or the Account.
24
6.2(c) Adviser 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 Adviser 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 Adviser of any such claim shall not
relieve Adviser from any liability which it may have to the Indemnified Party
otherwise than on account of this indemnification provision. In case any such
action is brought against the Indemnified Parties, Adviser will be entitled to
participate, at its own expense, in the defense thereof, with counsel reasonably
satisfactory to the Party named in the action. Adviser also shall be entitled
to assume and to control the defense thereof. After notice from Adviser to such
Party of Adviser's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
Adviser will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
6.2(d) The Indemnified Parties will promptly notify Adviser of the
commencement of any litigation or proceedings
25
against them in connection with the issuance or sale of the Contracts or the
operation of the Account.
6.3 Indemnification by Fund
6.3(a) Fund agrees to indemnify and hold harmless Company and each of
its directors and officers and each person, if any, who controls Company within
the meaning of Section 15 of the 1933 Act (collectively, the "Indemnified
Parties" for purposes of this Section 6.3) against any and all losses, claims,
expenses, damages, liabilities (including amounts paid in settlement with the
written consent of Fund) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, regulation,
at common law or otherwise, and:
(i) arise out of, or as a result of, any failure by Fund
to provide the services and furnish the materials contemplated
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 Section 3.7 of this
Agreement); or
(ii) arise out of or result from any material breach of any
representation and/or warranty made by Fund in this Agreement or
arise out of or result from any other material breach of this
Agreement by Fund or persons under its control;
26
as limited by and in accordance with the provisions of Sections 6.3(b) and
6.3(c) hereof.
6.3(b) Fund shall not be liable under this indemnification provision with
respect to any losses, claims, expenses, 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 its obligations and duties under this Agreement or
to Company or the Account.
6.3(c) Fund 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 Fund 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 Fund of any such claim shall not relieve Fund from
any liability which it may have to the Indemnified Party otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, Fund will be entitled to participate, at its
own expense, in the defense thereof. Fund also shall be entitled to assume and
to control the defense thereof, with counsel reasonably
27
satisfactory to the Party named in the action. After notice from Fund to such
Party of Fund's election to assume the defense thereof, the Indemnified Party
shall bear the fees and expenses of any additional counsel retained by it, and
Fund will not be liable to such party under this Agreement for any legal or
other expenses subsequently incurred by such Party independently in connection
with the defense thereof other than reasonable costs of investigation.
6.3(d) The Indemnified Parties will promptly notify Fund of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Contracts or the operation of the Account.
7. Potential Conflicts
7.1 The Board will monitor Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
separate accounts investing in 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 interpretive 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
28
life insurance contract owners or by contract owners of different insurers which
have entered into participation agreements similar to this Agreement
("Participating Insurance Companies"); or (f) a decision by an insurer to
disregard the voting instructions of contract owners. The Board shall promptly
inform Company if it determines that an irreconcilable material conflict exists
and the implications thereof.
7.2 Company will report any potential or existing conflicts of which it is
aware to the Board. Company will assist the Board in carrying out its
responsibilities under any applicable provisions of the federal securities laws
and/or the 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 Company to inform the Board
whenever Owner voting instructions are disregarded.
7.3 If it is determined by a majority of the Board, or a majority of its
disinterested trustees, that a material irreconcilable conflict exists, Company
and other Participating Insurance Companies shall, at their expense and to the
extent reasonably practicable (as determined by a majority of the disinterested
trustees), take whatever steps are necessary to remedy or eliminate the
irreconcilable material conflict, up to and including: (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
29
different investment medium, including (but not limited to) another Portfolio of
the Fund, or submitting the question whether such segregation should be
implemented to a vote of all affected contract owners and, as appropriate,
segregating the assets of any appropriate group (i.e. variable annuity contract
owners or variable insurance contract owners of one or more Participating
Insurance Companies) that votes in favor of such segregation, or offering to the
affected contract owners the option of making such a change; and (2)
establishing a new registered management investment company or managed separate
account.
7.4 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Company conflicts with the
majority of other state insurance regulators, then Company will withdraw the
affected Account's investment in Fund and terminate this Agreement with respect
to such Account within six (6) months after the Board informs the Company in
writing that it has determined that such decision has created a material
irreconcilable 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 Adviser and Fund shall, to
the extent permitted by law and any exemptive relief previously granted to Fund,
continue to
30
accept and implement orders by Company for the purchase (and redemption) of
shares of Fund.
7.5 If a material irreconcilable conflict arises because of a decision by
Company to disregard Owner voting instructions and that decision represents a
minority position or would preclude a majority vote, Company may be required, at
Fund's election, to withdraw the Account's investment in Fund and terminate this
Agreement; 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 trustees. Any such withdrawal
and termination must take place within six (6) months after Fund gives written
notice to Company that this provision is being implemented. Until the end of
the foregoing six (6) month period Fund shall, to the extent permitted by law
and any exemptive relief previously granted to Fund, continue to accept and
implement orders by Company for the purchase (and redemption) of shares of Fund.
7.6 For purposes of Sections 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 material irreconcilable conflict, but in no event
will 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 Contracts if an offer to do so has been declined by vote of a
31
majority of Owners affected by the material irreconcilable conflict. In the
event that the Board determines that any proposed action does not adequately
remedy any irreconcilable material conflict, then Company will withdraw the
Account's investment in Fund and terminate this Agreement within six (6) months
after the Board informs 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 determined by a
majority of the disinterested trustees.
7.7 If and to the extent that Rule 6e-2 and Rule 6e-3(T) are amended, or
Rule 6e-3 is adopted, to provide exemptive relief from any provision of the 1940
Act or the rules promulgated thereunder with respect to mixed or shared funding
(as defined in the Exemptive Order) on terms and conditions materially different
from those contained in the Exemptive Order, then (a) the Fund and/or the
Company or other 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 2.2, 2.3, 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.
7.8 Company shall at least annually submit to the Board such reports,
materials or data as Board may reasonably
32
request so that Board may fully carry out the duties imposed on it as delineated
in the Exemptive Order, and said reports, materials and data shall be submitted
more frequently if deemed appropriate by the Board.
8. Term and Termination
8.1 The initial term of this Agreement shall be from November 15, 1996
through November 14, 1999. Unless terminated upon thirty (30) days' prior
written notice to the other Parties, this Agreement shall thereafter
automatically renew from year to year, provided that any Party may terminate
this Agreement without cause following the initial term upon six (6) months'
advance written notice to the other.
8.2 Notwithstanding any other provision of this Agreement, Adviser or Fund
may terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to Company, unless Company has cured such cause within thirty
(30) days of receiving such notice, for any material breach by Company of any
representation, warranty, covenant or obligation hereunder.
8.3 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement for cause on not less than thirty (30) days' prior
written notice to Adviser and Fund unless Adviser or Fund has cured such cause
within thirty (30) days of receiving such notice, for any material breach by
Adviser or Fund of any representation, warranty, covenant or obligation
hereunder.
33
8.4 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser
with respect to any Portfolio based upon the Company's good faith determination
that shares of such Portfolio are not reasonably available to meet the
requirements of the Contracts.
8.5 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser
with respect to any Portfolio in the event any of the Portfolio's shares are not
registered, issued or sold in accordance with applicable state and/or federal
securities law or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by Company.
8.6 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser
with respect to any Portfolio in the event that such Portfolio ceases to qualify
as a Regulated Investment Company under Subchapter M of the Code or under any
successor or similar provision, or if Company reasonably and in good faith
believes that Fund may fail to so qualify.
8.7 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser
with respect to any Portfolio in the event that such Portfolio fails to meet the
diversification requirements specified in Section 3.7.
34
8.8 Notwithstanding any other provision of this Agreement, Fund or Adviser
may terminate this Agreement upon receipt of either's written notice by Company,
if either one or both shall determine, in their sole judgment exercised in good
faith, that Company has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity, or if formal proceedings against
Company have been instituted by the NASD, SEC or any state securities or
insurance department or any other regulatory body regarding Company's duties
under this Agreement or related to the sale of the Contracts, the administration
of the Contracts, the operation of the Account or the purchase of Fund shares;
provided, however, that Fund determines in its sole judgment exercised in good
faith, that any such administrative proceedings will have a material adverse
effect upon the ability of Company to perform its obligations under this
Agreement.
8.9 Notwithstanding any other provision of this Agreement, Company may
terminate this Agreement upon receipt of its written notice by Fund and Adviser,
if Company shall determine, in its sole judgment exercised in good faith, that
either Fund or Adviser has suffered a material adverse change in its business,
operations, financial condition or prospects since the date of this Agreement or
is the subject of material adverse publicity, or if formal proceedings against
Fund or Adviser have been instituted by the NASD, SEC or any
35
state securities or insurance department or any other regulatory body; provided,
however, that Company determines in its sole judgment exercised in good faith,
that any such administrative proceedings will have a material adverse effect
upon the ability of Fund or Adviser to perform its obligations under this
Agreement.
8.10 Notwithstanding any other provision of this Agreement, Fund or Adviser
may terminate this Agreement upon receipt of either's written notice by Company
in the event that any of the Contracts are not registered, issued, sold or
administered in accordance with applicable state and/or federal law ("Non-
Complying Contracts").
8.11 Notwithstanding the termination of this Agreement, Fund shall continue
to make Fund shares available to the extent necessary to permit Owners under all
Contracts in effect on the effective date of such termination ("Existing
Contracts") to reallocate investments in the Portfolios (as in effect on such
date, redeem investments in the Portfolios) and/or invest in the Portfolios upon
the making of additional purchase payments under the Existing Contracts.
Existing Contracts shall not include Non-Complying Contracts, if any. In the
event that Fund terminates this Agreement, Fund shall promptly notify Company
whether Fund is electing to make Fund shares available after termination for
Non-Complying Contracts (or a class thereof). The Parties agree that this
Section 8.11 shall not apply to any terminations under
36
Article 7 and the effect of such Article 7 terminations shall be governed by
Article 7 of this Agreement.
9. Notices
Any notice shall be deemed sufficiently given when sent by registered or
certified mail to the other Parties 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 Fund:
▇▇▇▇▇▇▇▇▇▇ Funds III
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇, Executive Vice President
If to Adviser:
▇▇▇▇▇▇▇▇▇▇ Asset Management, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇ ▇▇▇▇▇, Executive Vice President
If to Company:
▇▇▇▇▇▇▇ ▇▇▇▇
Providian Corporation
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
With a copy to:
Marketing Director
First Providian Life and Health Insurance Company
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
37
10. Miscellaneous
10.1 The captions in this Agreement are included for convenience of
reference only and in no way affect the construction or effect of any provisions
hereof.
10.2 If any portion 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.
10.3 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
10.4 Each Party shall cooperate with each other Party and all appropriate
governmental authorities (including without limitation the SEC, the NASD and
state insurance and securities regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement.
10.5 Each Party hereto grants to the other the right to audit its records
relating to the terms and conditions of this Agreement upon reasonable notice
during reasonable business hours in order to confirm compliance with this
Agreement.
10.6 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.
38
10.7 Subject to the requirements of legal process and regulatory
authority, Fund and Adviser shall treat as confidential the names and addresses
of the owners of the Contracts and all information reasonably identified as
confidential in writing by Company 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
Company until such time as it may come into the public domain.
10.8 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.
10.9 In any dispute arising hereunder, each Party waives its right to
demand a trial by jury and hereby consents to a bench trial of all such
disputes.
10.10 The terms of this Agreement shall be construed and the provisions
hereof interpreted under and in accordance with the laws of Kentucky; provided,
however, that all performances rendered hereunder shall be subject to compliance
with all applicable state and federal laws and regulations.
10.11 Sections 1, 2, 3, 4.1, 4.2, 4.3, 4.4, 4.5, 4.6, 4.7, 4.8, 4.9, 6,
7.4, 7.5 8, 9 and 11 hereof shall survive termination of this Agreement.
10.12 Company is hereby expressly put on notice of the limitation of
liability as set forth in the Declaration of Trust of Fund and agrees that the
obligations assumed by
39
Fund with respect to any single Portfolio pursuant to this Agreement shall be
limited in any case to assets of such Portfolio and Fund and that Company shall
not seek satisfaction of any such obligation from other Portfolios of Fund, the
shareholders of Fund or Adviser, the trustees, officers, employees or agents of
Fund or Adviser, or any of them.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be duly executed as of the date first set forth above.
Company:
FIRST PROVIDIAN LIFE AND HEALTH INSURANCE
COMPANY
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Fund:
▇▇▇▇▇▇▇▇▇▇ FUNDS III
By: /s/ ▇▇▇▇ ▇▇▇▇▇
----------------------------
▇▇▇▇ ▇▇▇▇▇
Fund Adviser:
▇▇▇▇▇▇▇▇▇▇ ASSET MANAGEMENT, L.P.
By: /s/ ▇▇▇▇ ▇▇▇▇▇
----------------------------
▇▇▇▇ ▇▇▇▇▇
40
SCHEDULE 1.1
▇▇▇▇▇▇▇▇▇▇ Growth Portfolio
▇▇▇▇▇▇▇▇▇▇ Emerging Markets Portfolio