PARTICIPATION AGREEMENT
BETWEEN
SECURITY BENEFIT LIFE INSURANCE COMPANY
AND
BARON CAPITAL, INC.
THIS AGREEMENT, dated as of the 10th day of August 2006, by and between
Security Benefit Life Insurance Company, (the "Company"), a stock life insurance
company organized under the laws of the State of Kansas, on its own behalf and
on behalf of each segregated asset account of the Company set forth on Schedule
A hereto, as may be amended from time to time (each an "Account") and Baron
Capital, Inc. (the " Fund Agent"), a New York corporation and the distributor of
shares of Baron Investment Funds and Baron Select Funds, (each a "Trust"),
registered investment companies and each respective series thereof, as amended
from time to time (each a "Fund", and collectively the "Funds").
WHEREAS, the shares of beneficial interest/common stock of the Fund are
divided into several series of shares, each representing the interest in a
particular managed portfolio of securities and other assets (each a
"Portfolio"); and
WHEREAS, the Funds are registered as open-end management investment
companies under the Investment Company Act of 1940 (the "1940 Act") and shares
of the Portfolios are registered under the Securities Act of 1933, as amended
(the "1933 Act"); and
WHEREAS, BAMCO, Inc., which serves as investment adviser to the Funds,
is duly registered as an investment adviser under the Investment Advisers Act of
1940, as amended; and
WHEREAS, the Company has issued or will issue certain variable annuity
contracts supported wholly or partially by the Account (the "Contracts"), and
said Contracts are listed in Schedule A hereto, as it may be amended from time
to time by mutual written agreement; and
WHEREAS, the Account is duly established and maintained as a segregated
asset account, duly established by the Company, on the date shown for such
Account on Schedule A hereto, to set aside and invest assets attributable to the
aforesaid Contracts; and
WHEREAS, the Company intends to purchase shares in the Portfolios
listed in Schedule A hereto, as it may be amended from time to time by mutual
written agreement (the "Designated Portfolios"), on behalf of the Account to
fund the aforesaid Contracts;
NOW, THEREFORE, in consideration of their mutual promises, the Company
and the Fund Agent agree as follows:
ARTICLE I. Sale of Fund Shares
1.1. Subject to Article IX hereof, the Fund Agent agrees to cause the
Fund's Transfer Agent to make available to the Company for purchase on behalf of
the Account, shares of the Designated Portfolios, such purchases to be effected
at net asset value in accordance with Section 1.3 of this Agreement.
Notwithstanding the foregoing, (i) the Portfolios (other than those listed on
Schedule A) in existence now or that may be established in the future will be
made available to the Company only as the Fund Agent may so provide, and (ii)
the Board of Trustees of the Fund (the "Board") may suspend or terminate the
offering of shares of any Designated Portfolio or class thereof, if such action
is required by law or by regulatory authorities having jurisdiction or if, in
the sole discretion of the Board acting in good faith and in light of its
fiduciary duties under federal and any applicable state laws, suspension or
termination is necessary and in the best interests of the shareholders of such
Designated Portfolio.
1.2. The Fund Agent shall cause the Fund's Transfer Agent to redeem, at the
Company's request, any full or fractional Designated Portfolio shares held by
the Company on behalf of the Account, such redemptions to be effected at net
asset value in accordance with Section 1.3 of this Agreement. Notwithstanding
the foregoing, the Fund Agent may delay redemption of Fund shares of any
Designated Portfolio to the extent permitted by the 1940 Act, and any rules,
regulations or orders thereunder.
1.3. Purchase and Redemption Procedures
(a) The Fund Agent hereby appoints the Company as an agent of the Funds for
the limited purpose of receiving and accepting purchase and redemption requests
on behalf of the Account (but not with respect to any Fund shares that may be
held in the general account of the Company) for shares of those Designated
Portfolios made available hereunder, based on allocations of amounts to the
Account or subaccounts thereof under the Contracts and other transactions
relating to the Contracts or the Account. Receipt and acceptance of any such
request (or relevant transactional information therefor) on any day the New York
Stock Exchange is open for trading and on which a Designated Portfolio
calculates its net asset value (a "Business Day") pursuant to the rules of the
Securities and Exchange Commission ("SEC"), by the Company as such limited agent
of the Fund prior to the time that the Fund ordinarily calculates its net asset
value as described from time to time in the Fund's prospectus shall constitute
receipt and acceptance by the Designated Portfolio on that same Business Day,
provided that the Fund Agent receives notice of such request by 8:30 a.m.
Eastern Time on the next following Business Day.
(b) The Company shall pay for shares of each Designated Portfolio on the
same Business Day that it notifies the Fund Agent of a purchase request for such
shares. Payment for Designated Portfolio shares shall be made in federal funds
transmitted to the Funds' designated bank by wire to be received by 3:00 p.m.
Eastern Time on the Business Day the Fund is notified of the purchase request
for Designated Portfolio shares (unless the Fund determines and so advises the
Company that sufficient proceeds are available from redemption of shares of
other Designated Portfolios effected pursuant to redemption requests tendered by
the Company on behalf of the Account, or unless the Fund otherwise determines
and so advises the Company to delay the date of payment, to the extent the Fund
may do so under the 1940 Act). If federal funds are not received on time, such
funds will be invested, and Designated Portfolio shares purchased thereby will
be issued, as soon as practicable and the Company shall promptly, upon the
Fund's request, reimburse the Fund for any charges, costs, fees, interest or
other expenses incurred by the Fund in connection with any advances to, or
borrowing or overdrafts by, the Fund, or any similar expenses incurred by the
2
Fund, as a result of portfolio transactions effected by the Fund based upon such
purchase request. Upon receipt of federal funds so wired, such funds shall cease
to be the responsibility of the Company and shall become the responsibility of
the Fund.
(c) Fund Agent shall cause payment for Designated Portfolio shares redeemed
by the Account or the Company to be made by the Fund's Transfer Agent in federal
funds transmitted by wire to the Company or any other designated person by 3
p.m. Eastern Time on the same Business Day the Fund is properly notified of the
redemption order of such shares (unless redemption proceeds are to be applied to
the purchase of shares of other Designated Portfolios in accordance with Section
1.3(b) of this Agreement), except that the Fund reserves the right to delay
payment of redemption proceeds to the extent permitted under Section 22(e) of
the 1940 Act and any rules thereunder, and in accordance with the procedures and
policies of the Fund as described in the then-current prospectus.
(d) Any purchase or redemption request for Designated Portfolio shares held
or to be held in the Company's general account shall be effected at the net
asset value per share next determined after the Fund's receipt and acceptance of
such request, provided that, in the case of a purchase request, payment for Fund
shares so requested is received by the Fund in federal funds prior to close of
business for determination of such value, as defined from time to time in the
Fund's prospectus.
1.4. The Fund Agent shall use its best efforts to make the net asset value
per share for each Designated Portfolio available to the Company by 6:30 p.m.
Eastern Time each Business Day, and in any event, as soon as reasonably
practicable after the net asset value per share for such Designated Portfolio is
calculated, and shall calculate such net asset value in accordance with the
Fund's prospectus. If the Trust provides the Company with materially incorrect
share net asset value information, the Company on behalf of the Account, 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 the net asset value per share, dividend or capital gain information shall be
reported promptly to the Company upon discovery. In the event that any such
material error is the result of the gross negligence of the Fund Agent, or its
designated agent for calculating the net asset value, any reasonable
administrative or other costs or losses incurred for correcting underlying
Contract owner accounts shall be at the Fund Agent's expense.
1.5. The Fund Agent shall use its best efforts to furnish notice (by wire
or telephone followed by written confirmation) to the Company of any income
dividends or capital gain distributions payable on any Designated Portfolio
shares by the record date, but in no event later than 6:30 p.m. Eastern Time on
the ex-dividend date. The Company, on its behalf and on behalf of the Account,
hereby elects to receive all such dividends and distributions as are payable on
any Designated Portfolio shares in the form of additional shares of that
Designated Portfolio. The Company reserves the right, on its behalf and on
behalf of the Account, to revoke this election and to receive all such dividends
and capital gain distributions in cash. The Fund Agent shall notify the Company
promptly of the number of Designated Portfolio shares so issued as payment of
such dividends and distributions.
1.6. Issuance and transfer of Fund shares shall be by book entry only.
Share certificates will not be issued to the Company or the Account. Purchase
and redemption orders for Fund shares shall be recorded in an appropriate ledger
for the Account or the appropriate subaccount of the Account.
1.7. (a) The parties hereto acknowledge that the arrangement contemplated
by this Agreement is not exclusive; the Fund's shares may be sold to other
insurance companies and the cash value of the Contracts may be invested in other
investment companies.
3
(b) The Company shall not, without prior notice to the Fund Agent (unless
otherwise required by applicable law), take any action to operate the Account as
a management investment company under the 1940 Act.
(c) The Company shall not, without prior notice to the Fund Agent (unless
otherwise required by applicable law), induce Contract owners to change or
modify the Fund or change the Fund's investment adviser.
(d) The Company shall not, without prior notice to the Fund Agent, induce
Contract owners to vote on any matter submitted for consideration by the
shareholders of the Fund in a manner other than as recommended by the Board.
1.8 The parties may agree, in lieu of the procedures set forth above in
this Article 1, to place and settle trades for Fund shares through a clearing
corporation. In the event that such a clearing corporation is used, the parties
agree to abide by the rules of the clearing corporation.
ARTICLE II. Representations and Warranties
2.1. The Company represents and warrants that the Contracts (a) are, or
prior to issuance will be, registered under the 1933 Act, or (b) are not
registered because they are properly exempt from registration under the 1933 Act
or will be offered exclusively in transactions that are properly exempt from
registration under the 1933 Act. The Company further represents and warrants
that the Contracts will be issued and sold in compliance in all material
respects with all applicable federal securities and state securities and
insurance laws. The Company further represents and warrants that it is an
insurance company duly organized and in good standing under applicable law, that
it has legally and validly established the Account as a segregated asset account
under Kansas insurance laws, and that it (a) has registered or, prior to any
issuance or sale of the Contracts, will register the Account as a unit
investment trust in accordance with the provisions of the 1940 Act to serve as a
segregated investment account for the Contracts, or alternatively (b) has not
registered the Account in proper reliance upon an exclusion from registration
under the 1940 Act.
2.2. The Fund Agent represents and warrants that Designated Portfolio
shares sold pursuant to this Agreement shall be registered under the 1933 Act,
shall be duly authorized for issuance and sold in compliance with applicable
state and federal securities laws and that the Fund is and shall remain
registered under the ▇▇▇▇ ▇▇▇. The 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. The Fund shall
register and qualify the shares for sale in accordance with the laws of the
various states only if and to the extent deemed advisable by the Fund.
2.3. The Fund Agent represents and warrants that the Funds are lawfully
organized and validly existing under the laws of their respective states of
organization (in the case of Baron Investment Funds Trust, the Commonwealth of
Massachusetts, and in the case of Baron Select Funds, the State of Delaware) and
that they do and will comply in all material respects with the 1940 Act,
including, without limitation, Rule 38a-1 under the 1940 Act.
2.4. The Fund Agent represents and warrants that it is registered as a
broker/dealer with the SEC and that it is and will remain a member in good
standing of the National Association of Securities Dealers, Inc. (the "NASD").
2.5. The Fund Agent represents and warrants that all of its and the Funds'
trustees/directors, officers, employees, and other individuals or entities
dealing with the money and/or
4
securities of the Fund are and shall continue to be at all times covered by a
blanket fidelity bond or similar coverage for the benefit of the Fund in an
amount not less than the minimum coverage as required currently by Rule 17g-1 of
the 1940 Act or related provisions as may be promulgated from time to time. The
aforesaid bond shall include coverage for larceny and embezzlement and shall be
issued by a reputable bonding company.
2.6. The Company represents and warrants that all of its directors,
officers, employees, and other individuals/entities employed or controlled by
the Company dealing with the money and/or securities of the Account are covered
by a blanket fidelity bond or similar coverage for the benefit of the Account,
in an amount not less than $5 million. The aforesaid bond includes coverage for
larceny and embezzlement and is issued by a reputable bonding company.
ARTICLE III. Prospectuses and Proxy Statements; Voting
3.1. The Fund Agent shall provide the Company with as many printed copies
of the current prospectus, current Statement of Additional Information ("SAI"),
supplements, proxy statements, and annual or semi-annual reports of each
Designated Portfolio (for distribution to Contract owners with value allocated
to such Designated Portfolios) as the Company may reasonably request to deliver
to existing Contract owners. If requested by the Company in lieu thereof, the
Fund Agent shall provide such documents (including a "camera-ready" copy of such
documents as set in type, a diskette in the form sent to the financial printer,
or an electronic copy of the documents in a format suitable for posting on the
Company's website, all as the Company may reasonably request) and such other
assistance as is reasonably necessary in order for the Company to have
prospectuses, SAIs, supplements and annual or semi-annual reports for the
Contracts and the Fund printed together in a single document or posted on the
Company's web-site or printed individually by the Company if it so chooses. The
expenses associated with printing and providing such documentation shall be as
set forth in Article V.
3.2. The Fund's prospectus shall state that the current SAI for the Fund is
available.
3.3. The Fund Agent shall provide the Company with information regarding
the Fund's expenses, which information may include a table of fees and related
narrative disclosure for use in any prospectus or other descriptive document
relating to a Contract. The Company agrees that it will use such information
substantially in the form provided. The Company shall provide prior written
notice of any proposed modification of such information, which notice will
describe the manner in which the Company proposes to modify the information, and
agrees that it may not modify such information in any way without the prior
consent of the Fund Agent, which consent shall not be unreasonably withheld.
3.4. So long as, and to the extent the SEC continues to interpret the 1940
Act to require pass-through voting privileges for variable contract owners, or
to the extent otherwise required by law, the Company shall, at the Company's
option, follow one of the two methods described below to provide pass-through
voting privileges to contract owners:
(a) Provide a list of Contract owners with value allocated to a Designated
Portfolio as of the record date to the Fund or its agent in order to permit the
Fund to send solicitation material and gather voting instructions from Contract
owners on behalf of the Company. The Company shall also provide such other
information to the Fund as is reasonably necessary in order for the Fund to
properly tabulate votes for Fund initiated proxies. In the event that the
Company chooses this option, the Fund Agent shall direct the appropriate party
to properly "echo voting" shares of a Designated Portfolio for which no voting
instructions have been received.
5
(b) Solicit voting instructions from Contract holders itself and vote
shares of the Designated Portfolio in accordance with instructions received from
Contract holders. The Company shall vote the shares of the Designated Portfolios
for which no instructions have been received in the same proportion as shares of
the Designated Portfolio for which instructions have been received.
3.5. The Company reserves the right to vote Fund shares held in its general
account in its own right, to the extent permitted by applicable laws.
ARTICLE IV. Sales Material and Information
4.1. The Company shall furnish, or shall cause to be furnished, to the Fund
or its designee, each piece of sales literature or other promotional material
that the Company develops and in which the Fund (or a Designated Portfolio
thereof) or the Fund Agent is named. No such material shall be used until
approved by the Fund or its designee, and the Fund Agent will use its best
efforts for it or its designee to review such sales literature or promotional
material within five (5) Business Days after receipt of such material. The Fund
or its designee reserves the right to reasonably object to the continued use of
any such sales literature or other promotional material in which the Fund (or a
Designated Portfolio thereof) is named, and no such material shall be used if
the Fund Agent or its designee so objects.
4.2. The Company shall not give any information or make any representations
or statements on behalf of the Fund or concerning the Fund in connection with
the sale of the Contracts other than the information or representations
contained in the registration statement or prospectus or SAI for the Fund
shares, as such registration statement and prospectus or SAI may be amended or
supplemented from time to time, or in reports or proxy statements for the Fund,
or in sales literature or other promotional material approved by the Fund or its
designee, except with the permission of the Fund or its designee.
4.3. The Fund, or its designee, shall furnish, or cause to be furnished, to
the Company, each piece of sales literature or other promotional material that
it develops and in which the Company, and/or the Account, is named. No such
material shall be used until approved by the Company, and the Company will use
its best efforts to review such sales literature or promotional material within
five (5) Business Days after receipt of such material. The Company reserves the
right to reasonably object to the continued use of any such sales literature or
other promotional material in which the Company and/or its Account is named, and
no such material shall be used if the Company so objects.
4.4. The Fund Agent shall not give any information or make any
representations on behalf of the Company or concerning the Company, the Account,
or the Contracts other than the information or representations contained in a
registration statement, prospectus (which shall include an offering memorandum,
if any, if the Contracts issued by the Company or interests therein are not
registered under the 1933 Act), or SAI for the Contracts, as such registration
statement, prospectus, or SAI may be amended or supplemented from time to time,
or in published reports for the Account which are in the public domain or
approved by the Company for distribution to Contract owners, or in sales
literature or other promotional material approved by the Company, except with
the permission of the Company.
4.5. The Fund Agent will provide to the Company at least one complete copy
of all registration statements, prospectuses, SAIs, reports, proxy statements,
sales literature and other promotional materials, applications for exemptions,
requests for no-action letters, and all amendments to any of the above, that
relate to the Designated Portfolios or their shares, promptly after the filing
of such document(s) with the SEC or other regulatory authorities.
6
4.6. The Company will provide to the Fund Agent at least one complete copy
of all registration statements, prospectuses (which shall include an offering
memorandum, if any, if the Contracts issued by the Company or interests therein
are not registered under the 1933 Act), SAIs, 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 Contracts or the Account, promptly after the filing of
such document(s) with the SEC or other regulatory authorities. The Company shall
provide to the Fund Agent any complaints received from the Contract owners
pertaining to the Fund or a Designated Portfolio.
4.7. The Fund Agent will provide the Company with as much notice as is
reasonably practicable of any proxy solicitation for any Designated Portfolio,
and of any material change in the Fund's registration statement, particularly
any change resulting in a change to the registration statement or prospectus for
any Account. The Fund Agent will work with the Company so as to facilitate the
solicitation of proxies from Contract owners, or to make changes to its
prospectus or registration statement, in an orderly manner. The Fund Agent will
make reasonable efforts to attempt to have changes affecting Contract
prospectuses become effective simultaneously with the annual updates for such
prospectuses.
ARTICLE V. Fees and Expenses
5.1. The Fund shall pay no fee or other compensation to the Company under
this Agreement, except that if the Fund or any Designated Portfolio adopts and
implements a plan pursuant to Rule 12b-1 to finance distribution expenses, then
the Fund may make payments to the Company or to the underwriter for the
Contracts if and in amounts agreed to by the Fund in writing.
5.2. As between the Company and Fund Agent, all expenses incident to
performance by the Fund or the Fund Agent, as applicable under this Agreement
shall be paid by the Fund Agent. The Fund shall see to it that all its shares
are registered and authorized for issuance in accordance with applicable federal
law and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. Fund Agent shall cause the Fund to
bear the expenses for the cost of registration and qualification of the Fund's
shares, preparation and filing of the Fund's prospectus and registration
statement, proxy materials and reports, setting the prospectus in type, setting
in type and printing the proxy materials and reports to shareholders (including
the costs of printing a prospectus that constitutes an annual report), the
preparation of all statements and notices required by any federal or state law,
and all taxes on the issuance or transfer of the Fund's shares.
5.3. Either the Fund or the Fund Agent will pay or cause to be paid the
expenses associated with printing, mailing, distributing, solicitation and
tabulation of proxy materials to Contract owners with respect to proxies related
to the Fund, consistent with applicable provisions of the 1940 Act. Either the
Fund or the Fund Agent shall also bear the expense of printing and postage with
respect to Fund prospectuses, annual and semi-annual reports and all other Fund
reports delivered to existing Contract owners with value allocated to one or
more Designated Portfolios (regardless of whether such documents are printed by
the Fund or the Company).
5.4. The Company shall bear the expense of distributing all prospectuses
and reports to shareholders (whether for existing Contract owners or prospective
Contract owners). The Company shall bear the expense of printing copies of the
prospectus for the Contracts for use with prospective Contract owners. The
Company shall bear the expenses incident to (including the costs of printing)
sales literature and other promotional material that the Company develops and in
which the Fund (or a Designated Portfolio thereof) is named.
7
ARTICLE VI. Qualification
The Fund Agent on behalf of the Funds represents and warrants that the
Funds are or will be qualified as a regulated investment companies under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Internal
Revenue Code,") and that the Funds will maintain such qualification (under
Subchapter M or any successor or similar provisions) and that Fund Agent will
notify the Company immediately upon having a reasonable basis for believing that
the Funds have ceased to so qualify or that the Funds might not so qualify in
the future.
ARTICLE VII. Indemnification
7.1. Indemnification by the Company
7.1(a). The Company agrees to indemnify and hold harmless the Fund Agent
and its trustees/directors and officers, and each person, if any, who controls
the Fund Agent within the meaning of Section 15 of the 1933 Act or who is under
common control with the Fund Agent (collectively, the "Indemnified Parties" for
purposes of this Section 7.1) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Company) or litigation (including 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:
(i) arise out of or are based upon any untrue statement or alleged
untrue statements of any material fact contained in the registration
statement, prospectus (which shall include a written description of a
Contract that is not registered under the 1933 Act), or SAI for the
Contracts or contained in the Contracts or sales literature for 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 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 the Company by or on behalf
of the Funds or the Fund Agent for use in the registration statement,
prospectus or SAI for the Contracts or in the Contracts or sales literature
(or any amendment or supplement) or otherwise for use in connection with
the sale of the Contracts, or
(ii) arise out of or as a result of statements or representations by
or on behalf of the Company (other than statements or representations
contained in the registration statement, prospectus, SAI, or sales
literature of the Funds not supplied by the Company or persons under its
control) or wrongful conduct of the Company or its agents or persons under
the Company's authorization or control, with respect to the sale or
distribution of the Contracts, or
(iii) arise out of any untrue statement or alleged untrue statement of
a material fact contained in a registration statement, prospectus, SAI, or
sales literature of the Fund or any amendment thereof or supplement thereto
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading if such a statement or omission was made in reliance upon
information furnished to the Funds by or on behalf of the Company; or
8
(iv) arise as a result of any material failure by the Company to
provide the services and furnish the materials 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 the Company in this Agreement or
arise out of or result from any other material breach of this Agreement by
the Company;
as limited by and in accordance with the provisions of Sections 7.1(b) and
7.1(c) hereof.
7.1(b). The Company 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 its obligations or duties under this Agreement.
7.1(c). The Company 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 the 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 the Company of any
such claim shall not relieve the 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, the Company shall be entitled to participate, at
its own expense, in the defense of such action. The Company also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the Company to such party of
the 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
the 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.
7.1(d). The Indemnified Parties will promptly notify the Company of the
commencement of any litigation or proceedings against them in connection with
the issuance or sale of the Funds' shares or the Contracts or the operation of
the Funds.
7.2. Indemnification by the Fund Agent
7.2(a). The Fund Agent agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who controls the
Company within the meaning of Section 15 of the 1933 Act (collectively, the
"Indemnified Parties" for purposes of this Section 7.2) against any and all
losses, claims, damages, liabilities (including amounts paid in settlement with
the written consent of the Fund Agent) or litigation (including 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:
(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 SAI or sales literature of the 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
9
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 the Fund Agent or Fund by or on behalf of the
Company for use in the registration statement, prospectus or SAI for the
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 by
or on behalf of the Fund or the Fund Agent (other than statements or
representations contained in the registration statement, prospectus, SAI or
sales literature for the Contracts not supplied by the Fund or the Fund
Agent) or wrongful conduct of the Fund Agent or the Fund 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, SAI or
sales literature covering the 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
statement or statements therein not misleading, if such statement or
omission was made in reliance upon information furnished to the Company by
or on behalf of the Fund Agent or the Fund; or
(iv) arise as a result of any failure by the Fund or the Fund Agent to
provide the services and furnish the materials under the terms of this
Agreement (including a failure of the Fund, to comply with the
diversification and other qualification requirements specified in Article
VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by or on behalf of the Fund Agent or
the Fund in this Agreement or arise out of or result from any other
material breach of this Agreement by or on behalf of the Fund Agent or the
Fund;
as limited by and in accordance with the provisions of Sections 7.2(b) and
7.2(c) hereof.
7.2(b). The Fund Agent 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 or such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement or to
the Company or the Account, whichever is applicable.
7.2(c). The Fund Agent 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 the Fund Agent 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 the Fund Agent of
any such claim shall not relieve the Fund Agent 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 Party, the Fund Agent will be entitled to participate,
at its own expense, in the defense thereof. The Fund Agent also shall be
entitled to assume the defense thereof, with counsel reasonably satisfactory to
the party named in the action. After notice from the Fund Agent to such party of
the Fund Agent's election to assume the
10
defense thereof, the Indemnified Party shall bear the fees and expenses of any
additional counsel retained by it, and the Fund Agent 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.
7.2(d). The Company agrees promptly to notify the Fund Agent of the
commencement of any litigation or proceedings against it or any of its officers
or directors in connection with the issuance or sale of the Contracts or the
operation of the Account.
ARTICLE VIII. Applicable Law
8.1. This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Kansas,
without regard to the conflict of laws provisions thereof.
8.2. This Agreement shall be subject to the provisions of the 1933 and 1940
Acts as well as the Exchange Act of 1934, and the rules and regulations and
rulings thereunder, including such exemptions from those statutes, rules and
regulations as the SEC may grant, and the terms hereof shall be interpreted and
construed in accordance therewith.
ARTICLE IX. Termination
9.1. This Agreement shall continue in full force and effect until the first
to occur of:
(a) termination by any party, for any reason with respect to some or all
Designated Portfolios, by six (6) months advance written notice
delivered to the other parties; or
(b) termination by the Company by written notice to the other parties
based upon the Company's determination that shares of the Fund are not
reasonably available to meet the requirements of the Contracts; or
(c) termination by the Company by written notice to the other parties in
the event any of the Designated Portfolio's shares are not registered,
issued or sold in accordance with applicable state and/or federal law
or such law precludes the use of such shares as the underlying
investment media of the Contracts issued or to be issued by the
Company; or
(d) termination by the Fund Agent by written notice to the Company in the
event that formal administrative proceedings are instituted against
the Company by the National Association of Securities Dealers, Inc.
(the "NASD"), the SEC, the Insurance Commissioner or like official of
any state or any other regulatory body regarding the Company's duties
under this Agreement or related to the sale of the Contracts, the
operation of any Account, or the purchase of the Designated
Portfolios' shares; provided, however, that the Fund Agent determines
in its sole judgment exercised in good faith, that any such
administrative proceedings will have a material adverse effect upon
the ability of the Company to perform its obligations under this
Agreement; or
11
(e) termination by the Company by written notice to the other parties in
the event that formal administrative proceedings are instituted
against the Fund or Fund Agent by the SEC or any state securities
department or any other regulatory body; provided, however, that the
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 the Fund Agent to perform its obligations
under this Agreement; or
(f) termination by the Company by written notice to the other parties in
the event that any Designated Portfolio ceases to qualify as a
regulated investment company under Subchapter M of the Internal
Revenue Code of 1986, or if the Company reasonably believes that any
such Portfolio may fail to so qualify or comply; or
(g) termination by the Fund Agent by written notice to the Company, if
Fund Agent shall determine, in its sole judgment exercised in good
faith, that the Company has suffered a material adverse change in its
business, operations, financial condition, or prospects since the date
of this Agreement or is the subject of material adverse publicity; or
(h) termination by the Company by written notice to the Fund Agent, if the
Company shall determine, in its sole judgment exercised in good faith,
that the Fund or the Fund Agent 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
(i) termination by the Company upon any substitution of the shares of
another investment company or series thereof for shares of a
Designated Portfolio of the Fund in accordance with the terms of the
Contracts, provided that the Company has given at least 45 days prior
written notice to the Fund Agent of the date of substitution.
9.2. Notwithstanding any termination of this Agreement, the Fund Agent
shall, at the option of the Company, continue to make available additional
shares of the Fund pursuant to the terms and conditions of this Agreement, for
all Contracts in effect on the effective date of termination of this Agreement
(hereinafter referred to as "Existing Contracts"), unless the Company seeks an
order pursuant to Section 26(b) of the 1940 Act to permit the substitution of
other securities for the shares of the Designated Portfolios. Specifically, the
owners of the Existing Contracts may be permitted to reallocate investments in
the Fund, redeem investments in the Fund and/or invest in the Fund upon the
making of additional purchase payments under the Existing Contracts (subject to
any such election by the Company).
9.3. Notwithstanding any termination of this Agreement, each party's
obligation under Article VII to indemnify the other parties shall survive.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail to the other party at the address of such party set forth below or at such
other address as such party may from time to time specify in writing to the
other party.
12
If to the Company: Security Benefit Life Insurance Company
Attention General Counsel
One Security Benefit Place
Topeka, Kansas 66636 - 0001
If to the Fund Agent: Baron Capital, Inc.
Attention General Counsel
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
ARTICLE XI. Miscellaneous
11.1. All persons dealing with the Fund must look solely to the property of
the respective Designated Portfolios listed on Schedule A hereto as though each
such Designated Portfolio had separately contracted with the Company and the
Fund Agent for the enforcement of any claims against the Fund. The parties agree
that neither the Board, officers, agents or shareholders of the Fund assume any
personal liability or responsibility for obligations entered into by or on
behalf of the Fund.
11.2. Subject to the requirements of legal process and regulatory
authority, the Fund Agent shall treat as confidential the names and addresses of
the owners of the Contracts. Each party shall treat as confidential all
information reasonably identified as confidential in writing by any other party
hereto and, except as permitted by this Agreement, shall not disclose,
disseminate or utilize such information without the express written consent of
the affected party until such time as such information has come into the public
domain.
11.3. The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.4. This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5. If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of the Agreement shall
not be affected thereby.
11.6. Each party hereto shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the SEC, the
NASD, and state insurance regulators) and shall permit such authorities
reasonable access to its books and records in connection with any investigation
or inquiry relating to this Agreement or the transactions contemplated hereby.
Notwithstanding the generality of the foregoing, each party hereto further
agrees to furnish the Kansas Insurance Commissioner with any information or
reports in connection with services provided under this Agreement which such
Commissioner may request in order to ascertain whether the variable insurance
operations of the Company are being conducted in a manner consistent with the
Kansas insurance laws and regulations and any other applicable law or
regulations.
11.7. The rights, remedies and obligations contained in this Agreement are
cumulative and are in addition to any and all rights, remedies, and obligations,
at law or in equity, which the parties hereto are entitled to under state and
federal laws.
13
11.8 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.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be executed in its name and on its behalf by its duly authorized representative.
Security Benefit Life
Insurance Company By its authorized officer
By:_________________________________
Title:______________________________
Date:_______________________________
Baron Capital, Inc. By its authorized officer
By:_________________________________
Title:______________________________
Date:_______________________________
14
August 10, 2006
SCHEDULE A
ACCOUNT(S) CONTRACT(S) DESIGNATED PORTFOLIO(S)
SBL Variable Annuity Account XIV V6029 o All portfolios of Baron Investment Funds
SBL Variable Annuity Account XVI GV9497 and Baron Select Funds
A-1
