PARTICIPATION AGREEMENT
AMONG
ADVANTUS SERIES FUND, INC.
ADVANTUS CAPITAL MANAGEMENT, INC.
AND
AIG LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 1st day of April, 2002, by and
among AIG Life Insurance Company (hereinafter "Company"), a Delaware
corporation, 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 such account hereinafter referred to as "Account") and the Advantus Series
Fund, Inc., a Minnesota corporation (hereinafter the "Fund") and Advantus
Capital Management, Inc. (hereinafter the "Adviser"), a Minnesota corporation.
WHEREAS, the Fund engages in business as an open-end management investment
company and is available to act as the investment vehicle for separate accounts
established for variable life insurance policies and variable annuity contracts
(hereinafter collectively, the "Variable Insurance Products") to be offered by
affiliated and unaffiliated insurance companies which have entered into
participation agreements with the Fund and the Adviser (hereinafter
"Participating Insurance Companies") and Qualified Plans (as defined herein)
outside of the separate account context, (including, without limitation, those
trusts, plans, accounts, contracts or annuities described in Sections 401(a),
403, 408, 408A, 414(d), 457(b), and 501(c)(18) of the Internal Revenue Code of
1986, as amended (the "Code")), and any other trust, plan, account, contract or
annuity that is determined to be within the scope of Treasury regulation
1.817.5(f)(3)(iii) ("Qualified Plans" or "Plans"); and
WHEREAS, the beneficial interest in the Fund is divided into several series of
shares, each designated a "Portfolio" and representing the interest in a
particular managed portfolio of securities and other assets and liabilities; and
WHEREAS, the Fund has obtained an order from the Securities and Exchange
Commission ("SEC"), granting it and Participating Insurance Companies and
variable annuity and variable life insurance separate accounts exemptions from
the provisions of Sections 9(a), 13(b), 15(a) and 15(b), of the Investment
Company Act of 1940 and Rule 6e-2(b)(15) and 6e-3(T)(b)(15) under that Act, to
the extent necessary to permit shares of the Fund to be sold to and held by
variable annuity and variable life insurance separate accounts of both
affiliated and unaffiliated life insurance companies (hereinafter the "Mixed and
Shared Funding Exemptive Order") and the Fund will provide a copy of that Mixed
and Shared Funding Order to Company prior to the commencement of business under
this agreement; and
WHEREAS, the Fund is registered as an open-end management investment company
under the 1940 Act and its shares are registered under the Securities Act of
1933, as amended (hereinafter, the "1933 Act"); and
WHEREAS, the Adviser is duly registered as an investment adviser under the
federal Investment Advisers Act of 1940 (hereinafter, the "Advisers Act") and
any applicable state securities law; and
WHEREAS, the Company has an exemption from registration for certain variable
life insurance policies and variable annuity contracts under the 1933 Act, and
each such contract or policy will provide for the allocation of net amounts
received by the Company to an Account or Sub-Account for investment in the Fund
and its Portfolios as that selection may be made by a participant or contract or
policy owner, as applicable under that contract or policy; and
WHEREAS, each Account is a duly organized, validly existing segregated asset
account, established by resolution of the Board of Trustees or the Board of
Directors of the Company, to set aside and invest assets attributable to the
aforesaid Variable Insurance Products; and
WHEREAS, the Company has an exemption from registration for each Account as a
unit investment trust under the 1940 Act; and
WHEREAS, to the extent permitted by applicable insurance laws and regulations,
the Company intends to purchase shares in the Portfolios on behalf of each
Account to fund certain of the aforesaid Variable Insurance Products and the
Adviser is authorized to sell such shares to unit investment trusts such as each
Account at net asset value;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the Fund
and the Adviser agree as follows:
ARTICLE I.
PURCHASE AND REDEMPTION OF FUND PORTFOLIO SHARES
1.1 For purposes of this Article I, the Company shall be the Fund's
agent for receipt of purchase orders and requests for redemption relating to
each Portfolio from each Account or Sub-Account, provided that the Company
notifies the Fund of such purchase orders and requests for redemption by 8:30
a.m. Central time on the next following Business Day, as defined in Section 1.3.
The currently available Portfolios are as shown on Schedule B attached hereto.
1.2 The Fund agrees to make shares of the Portfolios available to the
Accounts and the Sub-Accounts of such Accounts for purchase at the net asset
value per share next computed after receipt of a purchase order by the Fund (or
its agent), as established in accordance with the provisions of the then current
prospectus of the Fund describing Portfolio purchase procedures on those days on
which the Fund calculates its net asset value pursuant to rules of the
Commission, and the Fund shall use its best efforts to
2
calculate such net asset value on each day on which the New York Stock Exchange
("NYSE") is open for trading. The Company will transmit orders from time to time
to the Fund for the purchase of shares of the Portfolios. The Directors of the
Fund (the "Directors") may refuse to sell shares of any Portfolio to any person,
or suspend or terminate the offering of shares of any Portfolio if such action
is required by law or by regulatory authorities having appropriate jurisdiction
or if, in the sole discretion of the Directors acting in good faith and in light
of their fiduciary duties under federal and any applicable state laws, such
action is deemed in the best interests of the shareholders of such Portfolio.
1.3 The Company shall submit payment for the purchase of shares of a
Portfolio on behalf of an Account or Sub-Account no later than the close of the
Federal Reserve Bank, which is 3:00 p.m. Central time, on the next Business Day
after the Fund receives the purchase order. Payment shall be made in federal
funds transmitted by wire to the Fund. Upon receipt by the Fund of the federal
funds so wired, such funds shall cease to be the responsibility of the Company
and shall become the responsibility of the Fund for this purpose. "Business Day"
shall mean any day on which the New York Stock Exchange is open for trading and
on which the Fund calculates its net asset value pursuant to the rules of the
Commission. If payment in federal funds for any purchase is not received by the
Fund or its designated custodian or is received after such time, the Company
shall promptly, upon written request, reimburse the Fund for any charges, costs,
fees, interest or other expenses incurred by the Fund as a result of
transactions effected by the Fund based upon such purchase order.
1.4 The Fund will redeem for cash any full or fractional shares of any
Portfolio, when requested by the Company on behalf of an Account, at the net
asset value next computed after receipt by the Fund (or its agent) of the
request for redemption, as established in accordance with the provisions of the
then current prospectus of the Fund describing Portfolio redemption procedures.
The Fund shall make payment for such shares in the manner established from time
to time by the Fund. Redemption with respect to a Portfolio will normally be
paid to the Company for an Account or Sub-Account in federal funds transmitted
by wire to the Company before the close of the Federal Reserve Bank, which is
3:00 p.m. Central time on the next Business Day after the receipt of the request
for redemption. If payment in federal funds for any redemption request is
received by the Company after such time, the Fund shall promptly upon the
Company's written request, reimburse the Company for any charges, costs, fees,
interest, or other expenses incurred by the Company as a result of such failure
to provide redemption proceeds within the specified time. Notwithstanding the
foregoing, such payment may be delayed if the Portfolio's cash position so
requires or if extraordinary market conditions exist, but in no event shall
payment be delayed for a greater period than is permitted by the 0000 Xxx.
1.5 Payments for the purchase of shares of the Fund's Portfolios by the
Company under Section 1.3 and payments for the redemption of shares of the
Fund's Portfolios under Section 1.4 may be netted against one another on any
Business Day for the purpose of determining the amount of any wire transfer of
that Business Day.
3
1.6 Issuance and transfer of the Fund's Portfolio shares will be by
book entry only. Stock certificates will not be issued to the Company, an
Account or a Sub-Account. Portfolio Shares purchased from the Fund will be
recorded in the appropriate title for each Account or the appropriate
sub-account of each Account.
1.7 The Fund shall furnish, on or before the ex-dividend date, advance
written notice to the Company of any income dividends or capital gain
distributions payable on the shares of any Portfolio of the Fund. The Company
hereby elects to receive all such income dividends and capital gain
distributions as are payable on a Portfolio's shares in additional shares of the
Portfolio. The Fund shall notify the Company of the number of shares so issued
as payment of such dividends and distributions.
1.8 The Fund shall calculate the net asset value of each Portfolio on
each Business Day, as defined in Section 1.3. The Fund shall make the net asset
value per share for each Portfolio available to the Company or its designated
agent on a daily basis as soon as reasonably practical after the net asset value
per share is calculated (normally by 5:30 p.m. Central time) and shall use
reasonable efforts to make such net asset value per share available by 6:00 p.m.
Central time each Business Day.
1.9 The Fund agrees that its Portfolio shares will be sold only to
Participating Insurance Companies and their separate accounts and to certain
qualified pension and retirement plans to the extent permitted by the Mixed and
Shared Funding Exemptive Order. The Fund agrees that it will not sell shares of
its Portfolios to any other insurance company or separate account unless an
agreement containing provisions substantially the same as Section 2.4 and
Articles I and V of this Agreement is in effect to govern sales. No shares of
any Portfolio will be sold directly to the general public. The Company agrees
that it will use Fund shares only for the purposes of funding the Variable
Insurance Products through the Accounts listed in Schedule A, as amended from
time to time.
1.10 The Fund agrees that all Participating Insurance Companies shall
have the obligations and responsibilities regarding pass-through voting and
conflicts of interest corresponding to those contained in Section 2.9 and
Article IV of this Agreement.
ARTICLE II.
OBLIGATIONS OF THE PARTIES; FEES AND EXPENSES
2.1 The Fund shall prepare and be responsible for filing with the
Commission and any state regulators requiring such filing all shareholder
reports, notices, proxy materials (or similar materials such as voting
instruction solicitation materials), prospectuses and statements of additional
information of the Fund. The Fund shall bear the costs of registration and
qualification of its shares of the Portfolios, preparation and filing of the
documents listed in this Section 2.1 and all taxes to which an issuer is subject
on the issuance and transfer of its shares.
2.2 At the option of the Company, the Fund or the Adviser shall either
(a) provide the Company with as many copies of portions of the Fund's current
prospectus, annual report, semi-annual report and other shareholder
communications, including any
4
amendments or supplements to any of the foregoing, pertaining specifically to
the Portfolios as the Company shall reasonably request; or (b) provide the
Company with a camera ready copy, PDF file or other electronic file of such
documents in a form suitable for printing and from which information relating to
series of the Fund other than the Portfolios has been deleted to the extent
practicable. The Fund or the Adviser shall provide the Company with a copy of
its current statement of additional information, including any amendments or
supplements, in a form suitable for duplication by the Company. Expenses of
furnishing and printing such documents for marketing purposes shall be borne by
the Company and expenses of furnishing and printing such documents for current
contract owners invested in the Fund shall be borne by the Fund or the Adviser.
2.3 The Fund (at its expense) shall provide the Company with copies of
any Fund-sponsored proxy materials in such quantity as the Company shall
reasonably require for distribution to contract owners. The Fund shall bear the
costs of distributing proxy materials (or similar materials such as voting
solicitation instructions). The Company shall bear the cost of distributing
prospectuses and statements of additional information to contract owners. The
Company assumes sole responsibility for ensuring that such materials are
delivered to contract owners in accordance with applicable federal and state
securities laws.
2.4 Except as provided in Section 2.6, the Company shall not use any
designation comprised in whole or part of the names or marks "Advantus Series
Fund, Inc." or "Advantus Capital Management, Inc." without prior written consent
of the Fund or the Adviser, and upon termination of this Agreement for any
reason, the Company shall cease all use of any such name or xxxx as soon as
reasonably practicable.
2.5 The Company and its agents shall not give any information or make
any representations or statements on behalf of the Fund or concerning the Fund
or the Adviser or an Adviser in connection with the sale of the Variable
Insurance Products other than information or representations contained in and
accurately derived from the registration statement or prospectus for the Fund
shares (as such registration statement and prospectus may be amended or
supplemented from time to time), annual and semi-annual reports of the Fund,
Fund-sponsored proxy statements, or in sales literature or other promotional
material prepared or approved by the Fund or its designee, except as required by
legal process or regulatory authorities or with the written permission of the
Fund or its designee. All material developed by the Company shall be furnished
to the Fund or the Adviser at least fifteen Business Days prior to its use. No
such material shall be used if the Fund or the Adviser reasonably objects to
such use within fifteen Business Days after receipt of such material.
2.6 The Fund shall use its best efforts to provide the Company, on a
timely basis, with such information about the Fund, the Portfolios and the
Adviser and any Sub-Advisers, in such form as the Company may reasonably
require, as the Company shall reasonably request in connection with the
preparation of materials pertaining to the Variable Insurance Products.
5
2.7 The Fund shall not give any information or make any representations
or statements on behalf of the Company or concerning the Company, the Accounts
or the Variable Insurance Products other than information or representations
contained in and accurately derived from the materials for the Variable
Insurance Products or in materials prepared or approved by the Company for
distribution including sales literature or other promotional materials, except
as required by legal process or regulatory authorities or with the written
permission of the Company. All sales literature or other promotional material
developed by the Fund or the Adviser shall be furnished to the Company at least
fifteen Business Days prior to its use. No such material shall be used if the
Company reasonably objects to such use within fifteen (15) Business Days after
receipt of such material.
2.8 If, and to the extent that, the Commission interprets the 1940 Act
to require pass-through voting privileges for contract owners, the Company will
provide pass-through voting privileges to contract owners whose Contract values
are invested, through the Accounts, in shares of one or more Portfolios of the
Fund. The Fund shall require all Participating Insurance Companies to calculate
voting privileges in the same manner consistent with voting instructions
timely-received from contract owners and the Company shall be responsible for
assuring that the Accounts calculate voting privileges in the manner established
by the Fund. The obligation to calculate voting privileges in a manner
consistent with all other Separate Accounts investing in the Fund is a
contractual obligation of the Company and of all Participating Insurance
Companies under the agreements governing participation in the Fund. The Company
reserves the right to vote Fund shares in any Account in its own right, to the
extent permitted by law.
2.9 The Fund will comply with all provisions of the 1940 Act requiring
voting by shareholders, and, in particular, each Fund will either provide for
annual meetings (except to the extent that the Commission may interpret Section
16 of the 1940 Act not to require such meetings) or comply with Section 16(c) of
the 1940 Act (although the Fund is not one of the trusts described in the
Section 16(c) of the 1940 Act), as well as with Section 16(a) of the 1940 Act
and, if and when applicable, Section 16(b) of the 1940 Act. Further, the Fund
will act in accordance with the Commission's interpretation of the requirements
of Section 16(a) with respect to periodic elections of directors and with
whatever rules the Commission may promulgate with respect thereto.
2.10 The Fund and Adviser shall pay no fee or other compensation to the
Company under this Agreement except as provided on Schedule C, if attached.
Nevertheless, the Fund or the Adviser or an affiliate may make payments (other
than pursuant to a Rule 12b-1 Plan) to the Company or its affiliates or to the
Adviser in amounts agreed to by the Adviser in writing and such payments may be
made out of fees otherwise payable to the Adviser or its affiliates, profits of
the Adviser or its affiliates, or other resources available to the Adviser or
its affiliates.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES
3.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under the laws of the State of Delaware and
that it has
6
legally and validly established each Account as a segregated asset account under
such law as of the date set forth in Schedule A.
3.2 The Company represents and warrants that each Account is exempt
from registration as a unit investment trust in accordance with the provisions
of the 1940 Act to serve as a segregated asset account for the Variable
Insurance Products.
3.3 The Company represents and warrants that its Accounts are exempt
from registration under the 1940 Act in reliance upon Section 3(c)(1) or Section
3(c)(7) thereof and that its Accounts are exempt from the provision of Section
12(d)(1) under the 1940 Act pursuant to Section 12(d)(1)(E) thereof.
3.4 The Company represents and warrants that the Variable Insurance
Products will be exempt from registration under the 1933 Act; the Variable
Insurance Products will be issued and sold in compliance in all material
respects with all applicable federal and state laws; and the sale of the
Variable Insurance Products shall comply in all material respects with state
insurance suitability requirements.
3.5 The Company represents and warrants that all of its directors,
officers, employees, investment advisers, and other individuals or entities
dealing with the money and/or securities are and shall be at all times covered
by a blanket fidelity bond or similar coverage in an amount not less than $5
million. The aforesaid bond shall include coverage for larceny and embezzlement
and shall be issued by a reputable bonding company. The Company agrees to make
all reasonable efforts to see that this bond or another bond containing these
provisions is always in effect, and agrees to notify the Fund and the Adviser in
the event that such coverage no longer applies.
3.6 The Fund represents and warrants that it is duly organized and
validly existing under the laws of the State of Minnesota and that it does and
will comply in all material respects with the 1940 Act and the rules and
regulations thereunder and with the diversification rules applicable to the Fund
and its Portfolios under Subchapter M of the Internal Revenue Code of 1986, as
amended (hereinafter "Code").
3.7 The Fund represents and warrants that the Portfolio shares offered
and sold pursuant to this Agreement will be registered under the 1933 Act and
the Fund shall be registered under the 1940 Act prior to and at the time of any
issuance or sale of such shares. The Fund shall amend its registration statement
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 its shares for sale in accordance with the laws of the various states
only if and to the extent deemed advisable by the Fund or the Adviser.
3.8 The Fund represents and warrants that it is currently qualified as
a "regulated investment company" under Subchapter M of the Code, that it will
make every effort to maintain such qualification and will notify the Company
immediately upon having a reasonable basis for believing it has ceased to so
qualify or might not so qualify in the future.
7
3.9 The Fund and its Adviser each represents and warrants that the
investment advisory or management fees paid to the Adviser are legitimate and
not excessive and are derived from an advisory contract which does not result in
a breach of fiduciary duty.
3.10 The Fund represents and warrants that should it ever desire to
make any payments to finance distribution expenses pursuant to Rule 12b-1 under
the 1940 Act, the Directors, including a majority who are not "interested
persons" of the Fund under the 1940 Act ("disinterested Directors"), will
formulate and approve any plan under Rule 12b-1 to finance distribution
expenses. To the extent that any Class of the Fund may finance its distribution
expenses pursuant to a Plan adopted under Rule 12b-1, the Fund undertakes to
comply with any then current SEC and SEC staff interpretations concerning Rule
12b-1 or any successor provisions.
3.11 The Fund represents and warrants that it, its directors, officers,
employees and others dealing with the money or securities, or both, of a
Portfolio shall at all times be covered by a blanket fidelity bond or similar
coverage for the benefit of the Fund in an amount not less than the minimum
coverage required by Rule 17g-1 or other regulations under the 1940 Act. Such
bond shall include coverage for larceny and embezzlement and be issued by a
reputable bonding company.
3.12 The Adviser represents and warrants that it is duly organized and
validly existing under the laws of the State of Minnesota and that it is
currently registered and will, during the term of this Agreement, remain
registered as an investment adviser under the Advisers Act.
ARTICLE IV.
POTENTIAL CONFLICTS
4.1 The parties acknowledge that a Portfolio's shares may be made
available for investment to other Participating Insurance Companies. In such
event, the Directors will monitor the Fund for the existence of any material
irreconcilable conflict between the interests of the contract owners of all
Participating Insurance Companies. An irreconcilable material conflict may arise
for a variety of reasons, including: (a) an action by any state insurance
regulatory authority; (b) a change in applicable federal or state insurance,
tax, or securities laws or regulations, or a public ruling, private letter
ruling, no-action or interpretative letter, or any similar action by insurance,
tax, or securities regulatory authorities; (c) an administrative or judicial
decision in any relevant proceeding; (d) the manner in which the investments of
any Portfolio are being managed; (e) a difference in voting instructions given
by variable annuity contract and variable life insurance contract owners; or (f)
a decision by an insurer to disregard the voting instructions of contract
owners. The Fund shall promptly and in writing inform all Participating
Insurance Companies and Qualified Plans, of any determination by the Directors
that an irreconcilable material conflict exists and of the implications thereof.
4.2 The Company agrees to promptly report any potential or existing
conflicts of which it is aware to the Directors. The assets of a Fund
(collectively, the "Participants") will report any potential or existing
conflicts to the respective responsible Board(s). Participating Insurance
Companies will be responsible for assisting the Fund in carrying
8
out the responsibilities of the Fund under these conditions by providing the
Directors with all information reasonably necessary for the Board to consider
any issues raised. This includes, but is not limited to, an obligation by each
Participating Insurance Company, including the Company, to inform the respective
responsible Board whenever contract owner voting instructions are disregarded.
The responsibility to report such information and conflicts to and to assist the
Fund will be a contractual obligation of all Participating Insurance Companies
and Qualified Plans investing in the Fund under their agreements governing
participation in the Fund and these responsibilities will be carried out with a
view only to the interests of the contract owners and participants in the
Qualified Plans.
4.3 If it is determined by a majority of Directors, or a majority of
the disinterested Directors of the Fund, that a material irreconcilable conflict
exists, then the relevant Participating Insurance Companies and Qualified Plans,
including the Company, at their expense and to the extent reasonably practicable
(as determined by a majority of the disinterested Directors or trustees, as the
case may be), shall take whatever steps are necessary to remedy or eliminate the
material irreconcilable conflict, up to and including: (a) withdrawing the
assets allocable to some or all of the Separate Accounts from the affected Fund
or any Portfolio and reinvesting such assets in a different investment medium,
including another Portfolio of the Fund, or submitting the question as to
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 life 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; (b) withdrawing the assets allocable to some or
all of the Qualified Plans from the affected Fund or any Portfolio and
reinvesting such assets in a different investment medium, including another
Portfolio of the Fund; and (c) establishing a new registered management
investment company or managed separate account.
4.4 If a material irreconcilable conflict arises because of a decision
by the Company or a Participating Company to disregard contract owner voting
instructions, and that decision represents a minority position or would preclude
a majority vote, then the Company may be required, at the Fund's election, to
withdraw its Separate Account's investment in the Fund and no charge or penalty
will be imposed as a result of such withdrawal. The responsibility to take
remedial action in the event of the Fund's determination of a material
irreconcilable conflict and to bear the cost of such remedial action shall be a
contractual obligation of all Participating Insurance Companies, including the
Company under this Agreement, and all Qualified Plans under their agreements
governing participation in the Fund and these responsibilities will be carried
out with a view only to the interests of contract owners and participants in the
Qualified Plans. Any such withdrawal and termination must take place within six
(6) months after the Fund gives written notice that this provision is being
implemented. Until the end of such six (6) month period, the Fund shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Fund.
4.5 If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to the Company conflicts with a
majority of other state
9
regulators to which the Company is subject, then the Company will withdraw the
affected Account's investment in the Fund and terminate this Agreement with
respect to such Account within six (6) months after the Directors inform the
Company in writing it has determined that such decision has created an
irreconcilable material conflict; provided, however, that such withdrawal and
termination shall be limited to the extent required by the foregoing material
irreconcilable conflict as determined by a majority of the disinterested
Directors. Until the end of such six (6) month period, the Fund shall continue
to accept and implement orders by the Company for the purchase and redemption of
shares of the Fund.
4.6 For purposes of Sections 4.3 through 4.6 of this Agreement, a
majority of the disinterested Directors shall determine whether any proposed
action adequately remedies any irreconcilable material conflict, but in no event
will the Fund be required to establish a new funding medium for the Variable
Insurance Products. In the event that the disinterested Directors determine that
any proposed action does not adequately remedy any irreconcilable material
conflict, then the Company will withdraw the Account's investment in the Fund
and terminate this Agreement within six (6) months after the Directors inform
the Company in writing of the foregoing determination; provided, however, that
such withdrawal and termination shall be limited to the extent required by any
such material irreconcilable conflict as determined by a majority of the
disinterested Directors.
4.7 The Company shall at least annually submit to the Directors such
reports, materials or data as the Directors may reasonably request so that the
Directors may fully carry out the duties imposed upon them by the Mixed and
Shared Funding Exemptive Order, and said reports, materials and data shall be
submitted more frequently if reasonably deemed appropriate by the Directors. The
obligation of the Participating Insurance Companies, including the Company, and
Qualified Plans to provide these reports, materials, and data under this
Agreement to a Fund's Board, when the Board so reasonably requests, shall be a
contractual obligation of each Participating Insurance Company and Qualified
Plan under the agreements governing participation in the Fund. All reports of
potential or existing conflicts received by Fund, and all Board action with
regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Qualified Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board or other appropriate records.
4.8 Participating Insurance Companies, including the Company, will
determine appropriate disclosure for its Variable Insurance Products in order to
inform owners of Variable Insurance Products of the potential risks of a mixed
and shared fund.
4.9 If and to the extent that Rule 6e-2 or 6e-3(T) is amended, or
similar rule is adopted, so as 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 Mixed and Shared Funding Exemptive Order) on terms
and conditions materially different from those contained in the Mixed and Shared
Funding Exemptive Order, then the Fund and/or the Participating Insurance
Companies, as appropriate, shall take such steps as may be
10
necessary to comply with Rule 6e-2, 6e-3(T), or Rule 6e-3, as amended, or any
other rule, as adopted, to the extent such rules are applicable.
ARTICLE V.
DIVERSIFICATION AND QUALIFICATION
5.1 Both the Fund and the Adviser each represent and warrant that the
Fund will at all times sell the shares of each Series and invest the assets of
each Series in such a manner as to ensure that the Variable Insurance Products
will be treated as life insurance or annuity contracts, as the case may be,
under the Code and the regulations issued thereunder. Without limiting the scope
of the foregoing, each of the Fund and the Adviser represent and warrant that
the Fund and each Portfolio thereof will at all times comply with Section 817(h)
of the Code and Treasury Regulation ss.1.817-5, as amended from time to time,
and any Treasury interpretations thereof, relating to the diversification
requirements for variable annuity, endowment, or life insurance contracts and
any amendments or other modifications or successor provisions to such Section or
Regulations.
5.2 The Fund represents that it will not be subject to federal income
taxation under current laws and regulations, consistent with the provisions of
Subchapter M of the Code.
5.3 The Fund or the Adviser will notify the Insurer immediately upon
having a reasonable basis for believing that the Fund or any Portfolio has
ceased to comply with the aforesaid Section 817(h) diversification requirements
or might not so comply in the future.
5.4 Each of the Fund and the Adviser acknowledges that full compliance
with the requirements referred to in Sections 5.1 and 5.2 hereof is absolutely
essential because any failure to meet those requirements would result in the
Variable Insurance Products not being treated as life insurance or annuity
contracts, as the case may be, for federal income tax purposes, which would have
adverse tax consequences for contract owners and could also adversely affect the
Company's corporate tax liability. Each of the Fund and the Adviser also
acknowledges that it is solely within its power and control to meet those
requirements. Accordingly, without in any way limiting the effect of Section 8.2
hereof and without in any way limiting or restricting any other remedies
available to the Company, the Adviser will pay all costs associated with or
arising out of any failure, or any anticipated or reasonably foreseeable
failure, of the Fund or any Portfolio to comply with Sections 5.1 or 5.2 hereof,
including all costs associated with correcting or responding to any such
failure; such costs may include, but are not limited to, the costs involved in
creating and organizing a new investment company as a funding medium for the
Variable Insurance Products and/or the costs of obtaining whatever regulatory
authorizations are required to substitute shares of another investment company
for those of the failed Portfolio; such costs to include, but are not limited
to, fees and expenses of legal counsel and other advisers to the Company and any
federal income taxes or tax penalties incurred by the Company or its contract
owners in connection with any such failure or anticipated or reasonably
foreseeable failure.
11
5.5 Within forty-five (45) days of the close of each calendar quarter,
the Fund shall provide the Company or its designee with a certification of
compliance with the aforesaid Section 817(h) diversification and Code
qualification requirements, in substantially the form attached hereto as
Schedule D, provided, however, that providing such certification does not
relieve the Fund or the Adviser of its responsibility for such compliance or of
liability for any non-compliance.
ARTICLE VI.
INDEMNIFICATION
6.1 INDEMNIFICATION BY THE COMPANY
(a) The Company agrees to indemnify and hold harmless the Fund
and each of its Directors, officers, employees and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" and individually the "Indemnified
Party" for purposes of this Article VI) against any an all losses, claims,
damages, liabilities (including amounts paid in settlement with the written
consent of the Company, which consent shall not be unreasonably withheld) or
expenses (including the reasonable costs of investigating or defending any
alleged loss, claim, damage, liability or expense and reasonable legal counsel
fees incurred in connection therewith) (collectively, "Losses"), to which the
Indemnified Parties may become subject under any statute or regulation, or at
common law or otherwise, insofar as such Losses are related to the sale or
acquisition of Fund Shares or the Variable Insurance Products and:
(i) arise out of or are based upon any untrue
statements or alleged untrue statements of any material fact
contained in materials for the Variable Insurance Products or
in the Variable Insurance Products themselves or in materials
generated by the Company on behalf of the Variable Insurance
Products or Accounts (or any amendment or supplement to any of
the foregoing) (collectively, "Company Documents" for the
purposes of this Article VI), 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
indemnity 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 was accurately derived from
written information furnished to the Company by or on behalf
of the Fund for use in Company Documents or otherwise for use
in connection with the sale of the Variable Insurance Products
or Fund shares; or
(ii) arise out of or result from written statements or
representations (other than statements or representations
contained in and accurately derived from Fund Documents as
defined in Section 6.2 (a)(i)) or wrongful conduct of the
Company or persons under its control, with respect to the sale
or acquisition of the Variable Insurance Products or Fund
shares; or
12
(iii) arise out of or result from any untrue statement or
alleged untrue statement of a material fact contained in Fund
Documents as defined in Section 6.2(a)(i) or the omission or
alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein
not misleading if such statement or omission was made in
reliance upon and accurately derived from written information
furnished to the Fund by or on behalf of the Company; or
(iv) arise out of or result from any failure by the
Company to provide the services or furnish the materials
required 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.
(b) The Company shall not be liable under this indemnification
provision with respect to any Losses 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. The Company shall also 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. The Company also
shall be entitled to assume the defense thereof, with counsel 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 reasonable 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.
(c) The Indemnified Parties will promptly notify the Company
of the commencement of any litigation or proceedings against them or their
officers and directors in connection with the issuance or sale of the Fund
shares or the Variable Insurance Products or the operation of the Fund.
6.2 INDEMNIFICATION BY THE ADVISER
(a) The Adviser agrees to indemnify and hold harmless the
Company and each of its Directors, officers, employees and each person, if any,
who controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the
13
"Indemnified Parties" and individually an "Indemnified Party" for purposes of
this Section 6.2) against any and all losses, claims, damages, liabilities
(including amounts paid in settlement with the written consent of the Adviser,
which consent shall not be unreasonably withheld) or expenses (including the
reasonable costs of investigating or defending any alleged loss, claim, damage,
liability or expense and reasonable legal counsel fees incurred in connection
therewith) (collectively, "Losses") to which the Indemnified Parties may become
subject under any statute, at common law or otherwise, insofar as such Losses
are related to the sale or acquisition of the Fund's Shares or the Variable
Insurance Products 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 of the Fund (or any amendment or supplement to any
of the foregoing) (collectively, the "Fund Documents") 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 of such alleged statement or omission was made in
reliance upon and in conformity with information furnished to
the Adviser or Fund by or on behalf of the Company for use in
the registration statement or prospectus for the Fund or in
sales literature (or any amendment or supplement) or otherwise
for use in connection with the sale of the Variable Insurance
Products or Fund shares; or
(ii) arise out of or as a result of written statements
or representations (other than statements or representations
contained and accurately derived from the materials for the
Variable Insurance Products) or wrongful conduct of the Fund,
Adviser or persons under their control, with respect to the
sale or distribution of the Variable Insurance Products or
Fund shares; or
(iii) arise out of any untrue statement or alleged untrue
statement of a material fact contained in materials or
literature covering the Variable Insurance Products, 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; or
(iv) arise out of or result from any material breach of
any representation and/or warranty made by the Adviser in this
Agreement or arise out of or result from any other material
breach of this Agreement by the Adviser, as limited by and in
accordance with the provisions of Sections 6.2(b) and 6.2(c)
hereof.
(b) The Adviser shall not be liable under this indemnification
provision with respect to any Losses to which an Indemnified Party would
otherwise be subject to
14
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 the Company or the Account, whichever is applicable.
(c) The 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 the 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 the Adviser of any
such claim shall not relieve the Adviser from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Adviser will be entitled to participate at
its own expense, in the defense thereof. The Adviser also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Adviser to such party of the Adviser's election to
assume the defense thereof, the Indemnified Party shall bear the expenses of any
additional counsel retained by it, and the 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.
(d) The Company agrees promptly to notify the Adviser 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 Variable Insurance
Products or the operation of each Account.
6.3 INDEMNIFICATION BY THE FUND
(a) The Fund 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 6.3)
against any and all losses, claims, damages, liabilities (including amounts paid
in settlement with the written consent of the Fund, which consent shall not be
unreasonably withheld) or litigation (including legal and other expenses) to
which the Indemnified Parties may become subject under any statute, at common
law or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions in respect thereof) or settlements result from the gross
negligence, bad faith or willful misconduct of the Board or any member thereof,
are related to the operations of the Fund, and arise out of or result from any
material breach of any representation and/or warranty made by the Fund in this
Agreement or arise out of or result from any other material breach of this
Agreement by the Fund; as limited by and in accordance with the provisions of
Section 6.3(b) and 6.3(c) hereof. It is understood and expressly stipulated that
neither the holders of shares of the Fund nor any Trustee, officer, agent or
employee of the Fund shall be personally liable hereunder, nor shall any resort
to be had to other private property for the satisfaction of any claim or
obligation hereunder, but the Fund only shall be liable.
15
(b) The Fund shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or litigation
incurred or assessed against any Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations and duties under this Agreement to the
Company or the Account, whichever is applicable.
(c) The 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 the Fund in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the claims 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 of any
such claim shall not relieve the Fund from any liability which it may have to
the Indemnified Party against whom such action is brought otherwise than on
account of this indemnification provision. In case any such action is brought
against the Indemnified Parties, the Fund will be entitled to participate, at
its own expense, in the defense thereof. The Fund also shall be entitled to
assume the defense thereof, with counsel satisfactory to the party named in the
action. After notice from the Fund to such party of the 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 the 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.
(d) The Company and the Adviser agree promptly to notify the
Fund of the commencement of any litigation or proceedings against it or any of
its respective officers or directors in connection with this Agreement, the
issuance or sale of the Variable Insurance Products, with respect to the
operation of either the Account, or the sale or acquisition of share of the
Fund.
ARTICLE VII.
TERMINATION
7.1 This Agreement may be terminated by any party in its entirety or
with respect to one, some or all Portfolios for any reason by ninety (90) days
advance written notice delivered to the other parties, and shall terminate
immediately in the event of its assignment, as that term is used in the 1940
Act.
7.2 This Agreement may be terminated immediately by either the Fund or
the Adviser following consultation with the Directors upon written notice to the
Company if either one or both of the Fund or the Adviser respectively, shall
determine, in their 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.
16
7.3 This Agreement may be terminated immediately by the Company upon
written notice to the Fund or the Adviser:
(a) with respect to any Portfolio based upon the Company's
determination that shares of such Portfolio are not reasonably available to meet
the requirements of the Contracts; or
(b) 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 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
(c) 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 the Company
reasonably believes that the Trust may fail to so qualify; or
(d) with respect to any Portfolio in the event that such
Portfolio fails to meet the diversification requirements specified in Article V
hereof.
7.4 This Agreement may be terminated immediately by the Company upon
written notice to the Fund and the Adviser, if the Company shall determine, in
its sole judgment exercised in good faith, that either the Fund or the Adviser
has suffered a material adverse change in its business, operations, financial
conditions or prospects since the date of this Agreement or is the subject of
material adverse publicity.
7.5 If this Agreement is terminated for any reason, except under
Article IV (Potential Conflicts) above, the Fund shall, at the option of the
Company, continue to make available additional shares of any Portfolio and
redeem shares of any Portfolio pursuant to all of the terms and conditions of
this Agreement for all Variable Insurance Products in effect on the effective
date of termination of this Agreement (hereinafter "Existing Contracts").
Specifically without limitation the owners of the Existing Contracts shall be
permitted to reallocate investments in the Fund, redeem investments in the Fund,
and/or invest in the Fund upon the making of additional purchase payments under
the Existing Contracts. The parties agree that this Section 7.4 shall not apply
to any terminations pursuant to Article IV, and that the provisions of Article
IV shall govern.
7.6 The provisions of Articles III (Representations and Warranties) and
VI (Indemnification) shall survive the termination of this Agreement. All other
applicable provisions of this Agreement shall survive the termination of this
Agreement, as long as shares of the Fund are held on behalf of contract owners
in accordance with Section 7.4, except that the Fund and the Adviser shall have
no further obligation to sell Fund shares with respect to Variable Insurance
Products issued after termination.
7.7 The Company shall not redeem Fund shares attributable to the
Variable Insurance Products except: (i) as necessary to implement contract owner
initiated or approved transactions, (ii) as required by state and/or federal
laws or regulations or
17
judicial or other legal precedent of general application (hereinafter referred
to as a "Legally Required Redemption"), or (iii) as permitted by an order of the
Commission pursuant to Section 26(b) of the 1940 Act. Upon request, the Company
will promptly furnish to the Fund and the Adviser the opinion of counsel for the
Company (which counsel shall be reasonably satisfactory to the Fund and the
Adviser) to the effect that any redemption pursuant to clause (ii) above is a
Legally Required Redemption. Furthermore, except in cases where permitted under
the terms of the Variable Insurance Products, the Company shall not prevent
contract owners from allocating payments to a Portfolio that was otherwise
available under the Variable Insurance Products without first giving the Fund or
the Adviser ninety (90) days notice of its intention to do so.
ARTICLE VIII.
NOTICES
Any notice shall be sufficiently given when sent by registered or
certified mail to the other party at the address of such party set forth below
or at such other address as such party may from time to time specify in writing
to the other party.
If to the Fund or the Adviser:
Advantus Capital Management, Inc.
000 Xxxxxx Xxxxxx Xxxxx
Xx. Xxxx, XX 00000-0000
Attention: President
If to the Company:
AIG Life Insurance Company
c/o American General Life Companies
0000 Xxxxx Xxxxxxx
Xxxxxxx, Xxxxx 00000
Attn: General Counsel
18
ARTICLE IX.
MISCELLANEOUS
9.1 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
9.2 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
9.3 If any provision of this Agreement shall be held or made invalid by
a court decision, statute, rule or otherwise, the remainder of the Agreement
shall not be affected thereby.
9.4 This Agreement shall be construed and the provisions hereof
interpreted under and in accordance with the laws of the State of Minnesota. It
shall also be subject to the provisions of the federal securities laws and the
rules and regulations thereunder and to any orders of the Commission granting
exemptive relief therefrom and the conditions of such orders. Copies of any such
orders shall be promptly forwarded by the Fund to the Company.
9.5 The parties to this Agreement acknowledge and agree that all
liabilities of the Fund arising, directly or indirectly, under this Agreement,
of any and every nature whatsoever, shall be satisfied solely out of the assets
of the Fund and that no director, officer, agent or holder of shares of
beneficial interest of the Fund shall be personally liable for any such
liabilities.
9.6 Each party shall cooperate with each other party and all
appropriate governmental authorities (including without limitation the
Commission, the National Association of Securities Dealers, Inc. and state
insurance regulators) and shall permit such authorities reasonable access to its
books and records in connection with any investigation or inquiry relating to
this Agreement or the transactions contemplated hereby.
19
9.7 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.
9.8 No provisions of this Agreement may be amended or modified in any
manner except by a written agreement properly authorized and executed by all
parties.
IN WITNESS WHEREOF, the parties have caused their duly authorized
officers to execute this Participation Agreement as of the date and year first
above written.
AIG Life Insurance Company
By its authorized officer
By:
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Advantus Series Fund, Inc.
By its authorized officer
By:
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Advantus Capital Management, Inc.
By its authorized officer
By:
--------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
20
SCHEDULE A
SEPARATE ACCOUNTS OF AIG LIFE INSURANCE COMPANY
Separate Account 7
SCHEDULE B
ADVANTUS SERIES FUND, INC. PORTFOLIOS AVAILABLE
---------------------------------- ---------------------------------------------- ----------------------------------------------
INVESTMENT INVESTMENT
PORTFOLIO ADVISER SUB-ADVISER
---------------------------------- ---------------------------------------------- ----------------------------------------------
Mortgage Securities Advantus Capital Management, Inc. --
---------------------------------- ---------------------------------------------- ----------------------------------------------
Capital Appreciation Advantus Capital Management, Inc. Credit Suisse Asset Management, Inc.
---------------------------------- ---------------------------------------------- ----------------------------------------------
Real Estate Securities Advantus Capital Management, Inc. --
---------------------------------- ---------------------------------------------- ----------------------------------------------
B-1