EXHIBIT 8(B)(1)
PARTICIPATION AGREEMENT
Among
ARIEL INVESTMENT TRUST,
ARIEL DISTRIBUTORS, INC.,
and
THE VARIABLE ANNUITY LIFE INSURANCE
COMPANY
THIS AGREEMENT, made and entered into as of this 1st day of November, 2000
by and among THE VARIABLE ANNUITY LIFE INSURANCE COMPANY, (hereinafter the
"Company"), organized under the laws of the State of Texas, on its own behalf
and on behalf of each segregated asset account of the Company set forth on
Schedule A hereto as such schedule may be amended from time to time (each such
account hereinafter referred to as the "Account"), and the ARIEL INVESTMENT
TRUST, a Massachusetts Business Trust (hereinafter the "Fund") and ARIEL
DISTRIBUTORS, INC. (hereinafter the "Underwriter"), an Illinois 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 to be offered by insurance companies which have
entered into participation agreements with the Fund and the Underwriter
(hereinafter "Participating Insurance Companies"); and
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (hereinafter
the "1940 Act"), its shares are registered under the Securities Act of 1933,
as amended (hereinafter the "1933 Act"); and
WHEREAS, the Fund intends to offer shares of the series set forth on
Schedule C, as may be amended form time to time by mutual agreement of the
parties hereto; under this Agreement to the Accounts of the Company; and
WHEREAS, Ariel Capital Management (the "Adviser") is duly registered as
an investment adviser under the Investment Advisers Act of 1940 and any
applicable state securities law; and
WHEREAS, the Company has registered or will register certain variable
life insurance policies and/or variable annuity eontracts under the 1933
Act; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established by resolution of the Board of Directors of the
Company, on the date shown for such Account on Schedule hereto, to set aside
and invest assets attributable to one or more variable life insurance
policies and/or variable annuity contracts; and
WHEREAS, the Underwriter is registered as a broker-dealer with the
Securities and Exchange Commission ("SEC") under the Securities Exchange Act
of 1934, as amended (hereinafter the "1934 Act"), and is a member in good
standing of the National Association of Securities Dealers, Inc.
(hereinafter "NASD"); and
WHEREAS, the Company has registered or will register 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 Fund at net asset
value on behalf of each Account to fund certain of the aforesaid variable
life insurance policies and/or variable annuity contracts; and
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NOW THEREFORE, in consideration of their mutual promises, the Company,
the Fund and the Underwriter agree as follows:
ARTICLE I. Sale of Fund Shares
Subject to the suspension and termination of sales pursuant to 1.2. below,
l.l.(a) The Fund agrees to make available to the Company those shares of the
Fund which each Account orders, executing such orders on a daily basis at the
net asset value next computed after receipt by the Fund or its designee of the
order for the shares of the Fund. For purposes of this Section 1.1, the Company
shall be the designee of the Fund for receipt of such orders from each Account
and receipt by such designee shall constitute receipt by the Fund; provided
that the Fund receives notice of such order by 10:15 a.m. Eastern time on the
next following Business Day. "Business Day" shall mean any day on which the New
York Stock Exchange is open for trading and on which the Fund calculates its
net asset value pursuant to the rules of the SEC.
1.1.(b) Anything herein to the contrary notwithstanding the company agrees
that it shall not purchase any shares of the fund in respect to any variable
life insurance policies or Variable Annuity contracts which are offered to or
held by any governmental plan established pursuant to or in accordance with
Section 457 of the Internal Revenue Service Code (the "Code").
1.2 The Fund agrees to make its shares available indefinitely for purchase
at the applicable net asset value per share by the Company and its Accounts on
those days on which the Fund calculates its net asset value pursuant to rules
of the SEC and the Fund shall use reasonable efforts to calculate such net
asset value on each day which the New York Stock Exchange is open for trading.
Notwithstanding the foregoing, the Board of Trustees of the Fund (hereinafter
the "Board") may refuse to sell shares of the Fund to any person, or suspend or
terminate the offering of its shares if such action is required or ordered by
law or by regulatory authorities having jurisdiction over the Board. Notice of
election to suspend or terminate shall be furnished in writing, by the Fund,
said termination to be effective 10 Business Days after receipt of such notice
by the Company in order to give the Company sufficient time to take appropriate
steps in response to such suspension or termination unless such suspension or
termination must be affected in a shorter time as required by law or a
regulatory body.
1.3 Subject to any order of suspension or termination by law or by
regulatory body, the Fund agrees to redeem for cash, on the Company's request,
any full or fractional shares of the Fund held by the Company, executing such
requests on a daily basis at the net asset value next computed after receipt by
the Fund or its designee of the request for redemption. For purposes of this
Section 1.5, the Company shall be the designee of the Fund for receipt of
requests for redemption from each Account and receipt by such designee shall
constitute receipt by the Fund; provided that the Fund receives notice of such
request for redemption on the next following Business Day. Proceeds shall be
wired to Company within three (3) Business Days or such longer period permitted
by the Investment Company Act of 1940, as amended (the "1940 Act") or the
rules, orders or regulations thereunder, and the Fund shall notify the person
designated in writing by Company as the recipient for such notice of such delay
by 3:00 p.m. Central time the same Business Day that Company transmits the
redemption order to the Fund.
1.4 The Company agrees to purchase and redeem the shares of the Fund in
accordance with the provisions of this Agreement. The Company agrees that all
net amounts available under the variable life insurance policies and/or
variable annuity contracts with the form number(s) which are listed on Schedule
B attached hereto and incorporated herein by this reference, as such Schedule B
may be amended from time to time hereafter by mutual written agreement of all
the parties hereto, (the "Contracts") shall be invested in the Fund, in such
other Funds advised by the Adviser as may be mutually agreed to in writing by
the parties hereto, in the Company's general account, or in an investment
company other than the Fund.
1.5 The Company shall pay for Fund shares on the next Business Day after an
order to purchase Fund shares is made in accordance with the provisions of
Section 1.1 hereof. Payment shall be in federal funds transmitted by wire. For
purpose of Section 2.10 and 2.11, 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.
1.6 Issuance and transfer of the Fund's shares will be by book entry only.
Stock certificates will not be issued to the Company or any Account. Shares
ordered from the Fund will be recorded in an appropriate title for each Account
or the appropriate subaccount of each Account.
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1.7 The Fund shall furnish same day notice (by wire or telephone, followed
by written confirmation) to the Company of any income, dividends or capital
gain distributions payable on the Fund's shares. Notwithstanding this
Section 1.9, the Fund shall utilize its best efforts to provide the Company
with at least ten (10) Business Days advance notice of any forthcoming dividend
or capital gain distributions. The Company hereby elects to receive all such
income dividends and capital gain distributions as are payable on the Fund
shares in additional shares of the Fund. The Company reserves the right to
revoke this election and to receive all such income dividends and capital gain
distributions in cash. 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 make its net asset value per share available to the
Company on a daily basis as soon as reasonably practical after the net asset
value per share is calculated and shall make such net asset value per share
available by 6:30p.m. Eastern Time. If the Fund is unable to meet the 6:30 p.m.
time stated herein, it shall provide additional time for the Company to place
orders for the purchase and redemption of shares and make any applicable
purchase payments.
1.9 If the Fund provides the Company with materially incorrect net asset
value information through no fault of the Company, the Company shall be
entitled to an adjustment with respect to the Fund shares purchased or redeemed
to reflect the correct net asset value per share and the Company's
responsibility to adjust any Contract owners account value effected by the
materially incorrect net asset value. The determination of materiality of any
net asset value pricing error shall be based on the SEC's recommended
guidelines regarding such errors. Any material error in the calculation or
reporting of net asset value per share, dividend or capital gain information
shall be reported promptly upon discovery by the Fund to the Company.
1.10 The Fund shall provide written confirmation to the Company of the
amount of shares traded and the associated net asset value total trade amount
and the outstanding share balances held in the Account(s) as of the end of each
Business Day. Such information shall be furnished by 1:00 p.m. Eastern time on
the next Business Day.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that the Contracts are or will be
registered under the 1933 Act; that the Contracts will be issued and sold in
compliance in all material respects with all applicable federal and state laws
and that the sale of the Contracts shall comply in all material respects with
state insurance suitability requirements. The Company further represents and
warrants that it is an insurance company duly organized and in good standing
under applicable law and that it has legally and validly established each
Account prior to any issuance or sale thereof as a segregated asset account
under the Insurance Code of the State of Texas and has registered or, prior to
any issuance or sale of the Contracts, will register each 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 and will remain so registered.
2.2 The Fund represents and warrants that Fund shares sold pursuant to this
Agreement shall be registered under the 1933 Act, duly authorized for issuance
and sold in compliance with all applicable federal and state securities laws
and that the Fund is and shall remain registered under the 0000 Xxx. 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 or the Underwriter.
2.3 The Fund represents that, under the terms of its investment advisory
agreements with Adviser, the Adviser is and will be responsible for managing
the Fund in compliance with the Fund's investment objectives, policies and
restrictions as set forth in the Fund Prospectus. The Fund represents that
these objectives, policies and restrictions do and will include operating as a
RIC in compliance with Section 851 of the Code and regulations thereunder. The
Fund has adopted and will maintain procedures for ensuring that the Fund is
managed in compliance with Section 851 and regulations thereunder. On request,
the Fund shall also provide the Company with such materials, cooperation and
assistance as may be reasonably necessary for the Company
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or any appropriate person designated by the Company to review from time to time
the procedures and practices of the Adviser or each sub-investment adviser to
the Fund for ensuring that the Fund is managed in compliance with Section 851
and regulations thereunder. In the event of any noncompliance regarding its
status as a RIC, the Fund shall notify the Company immediately and shall pursue
those efforts necessary to enable each affected series of the Fund to qualify
once again for treatment as a RIC in compliance with Section 851, including
cooperation in good faith with the Company.
2.4 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Massachusetts and that it does and will comply
in all material respects with the 1940 Act.
2.5 The Underwriter represents and warrants that it is duly organized and in
good standing under the laws of the State of Illinois. The Underwriter
represents and warrants that it is a member in good standing of the National
Association of Securities Dealers, Inc. and is registered as a broker-dealer
with the SEC. The Underwriter further represents that it will sell and
distribute the Fund shares in accordance with all applicable state and federal
securities laws, including without limitation the 1933 Act, the 1934 Act and
the 0000 Xxx.
2.6 The Underwriter represents and warrants that the Adviser is and shall
remain duly registered in all material respects under all applicable federal or
state securities laws.
2.7 The Fund and Underwriter represent and warrant that all of their
directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money or 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 minimal
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.
2.8 The Company represents and warrants that all of its directors, officers,
employees, investment advisers, and other entities dealing with the money or
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 amount set forth in 17g-(1) of 1940 Act. The aforesaid
Bond shall include coverage for larceny and embezzlement and shall be issued by
a reputable bonding company.
ARTICLE III. Prospectuses and Proxy Statements: Voting
3.1 The Underwriter shall provide the Company with as many copies of the
Fund's current prospectus as the Company may reasonably request. If requested
by the Company in lieu thereof, the Fund shall provide camera-ready film
containing the Fund's prospectus and Statement of Additional Information, and
such other assistance as is reasonably necessary in order for the Company once
each year (or more frequently if the prospectus and/or Statement of Additional
Information for the Fund is amended during the year) to have the prospectus for
the Contracts and the Fund's prospectus printed together in one document, and
to have the Statement of Additional Information for the Fund and the Statement
of Additional Information for the Contracts printed together in one document.
Alternatively, the Company may print the Fund's prospectus and/or its Statement
of Additional Information in combination with other fund companies'
prospectuses and statements of additional information or place the Fund's
Prospectus and Statement of Additional Information on the Company's internet
website or other electronic media. All expenses of printing and distributing
Fund prospectuses and Statements of Additional Information shall not be an
expense of the Company. For Fund prospectuses and Statements of Additional
Information provided by the Company to its existing owners of Contracts in
order to update disclosure as required by the 1933 Act and/or the 1940 Act, the
cost of printing shall not be an expense of the Company. If the Company chooses
to receive camera-ready film in lieu of receiving printed copies of the
underwriter in the Fund's prospectus, the Underwriter or the Fund will
reimburse the Company in an amount equal to the product of A and B where A is
the number of such prospectuses distributed to owners of the Contracts, and B
is the Fund's per unit cost of typesetting and printing the Fund's prospectus.
The same procedures shall be followed with respect to the Fund's Statement of
Additional Information.
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3.2 The Fund's prospectus shall state that the Statement of Additional
Information for the Fund is available from the Underwriter or the Fund, at its
expense.
3.3 The Fund, at its expense, shall provide the Company with copies of its
proxy material, reports to shareholders, and other communications to
shareholders in such quantity as the Company shall reasonably require for
distribution to Contract owners.
3.4 If and to the extent required by law the Company shall: (i) solicit
voting instructions from Contract owners; (ii) vote the Fund shares in
accordance with instructions received from Contract owners; and (iii) vote Fund
shares for which no instructions have been received in the same proportion as
Fund shares of such portfolio for which instructions have been received, so
long as and to the extent that the Securities and Exchange Commission continues
to interpret the 1940 Act to require pass-through voting privileges for
variable contract owners. The Company reserves the right to vote Fund shares
held in any segregated asset account in its own right, to the extent permitted
by law. Participating Insurance Companies shall be responsible for assuring
that each of their separate accounts participating in the Fund calculates
voting privileges in a manner consistent with the above standards.
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
in which the Fund, the Adviser or the Underwriter is named, at least fifteen
Business Days prior to its use. No such material shall be used if the Fund or
its designee object to such use within fifteen Business Days after receipt of
such material. The Fund, the Adviser, the Underwriter, 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, the Adviser or the
Underwriter is named, and no such material shall be used if the Fund, the
Adviser, the Underwriter, or its designee so object.
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 for the Fund shares, as
such registration statement and prospectus may be amended or supplemented from
time to time, or in reports or proxy statements for the Fund, or in sales
literature or other promotional material approved by the Fund or its designee
or by the Underwriter, except with the permission of the Fund or the
Underwriter or the designee of either.
4.3 The Fund, the Underwriter, or its designee shall furnish, or shall cause
to be furnished, to the Company or its designee, each piece of sales literature
or other promotional material in which the Company or its Account(s), is named
at least fifteen Business Days prior to its use. No such material shall be used
if the Company or its designee object to such use within fifteen Business Days
after receipt of such material. Notwithstanding that the Company did not
initially object, the Company reserves the right to object at any time
thereafter to the continued use of any such sales literature or other
promotional material in which the Company is named, and no such material shall
be used thereafter if the Company so objects.
4.4 The Fund and the Underwriter shall not give any information or make any
representations on behalf of the Company or concerning the Company, each
Account, or the Contracts other than the information or representations
contained in a registration statement or prospectus for the Contracts, as such
registration statement and prospectus may be amended or supplemented from time
to time, or in published reports for each 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 or its
designee, except with the permission of the Company.
4.5 The Fund will provide to the Company at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, proxy statements, sales literature and other promotional materials,
applications for exemptions, requests for no-action letters, and notices,
orders or responses relating thereto and all supplements and amendments to any
of the above, that relate to the Fund or its shares, contemporaneously with the
filing of such document with, or the issuance of such documents by, the SEC or
other regulatory authorities.
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4.6 The Company will provide to the Fund at least one complete copy of all
registration statements, prospectuses, Statements of Additional Information,
reports, solicitations for voting instructions, sales literature and other
promotional materials, applications for exemptions, requests for no action
letters, and notices, orders or responses relating thereto and all supplements
and amendments to any of the above, that relate to the Contracts or each
Account, contemporaneously with the filing of such document with, or the
issuance of such documents by, the SEC or other regulatory authorities.
4.7 For purposes of this Article 4, the phrase "sales literature or other
promotional material" includes, but is not limited to, advertisements (such as
material published, or designed for use in, a newspaper, magazine, or other
periodical, radio, television, telephone or tape recording, videotape display,
signs or billboards, motion pictures, telephone directories (other than routine
listings), electronic or other pubic media), sales literature (i.e., any
written or electronic communication distributed or made generally available to
customers or the public, including brochures, circulars, research reports,
market letters, performance reports or summaries, form letters, telemarketing
scripts, seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published article), educational or training materials or other
communications distributed or made generally available to some or all agents or
employees, and registration statements, prospectuses, Statements of Additional
Information, shareholder reports, and proxy materials.
4.8 The Fund will provide the Company with as much notice as is reasonably
practicable of any proxy solicitation for the Fund, and of any material change
in the Fund's registration statement or prospectus, particularly any change
resulting in a change to the registration statement or prospectus for any
Account. The Fund will work with the Company so as to enable the Company to
solicit proxies from Contract owners, or to make changes to its registration
statement a prospectus, in an orderly manner. The Fund 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 and Underwriter shall pay no fee or other compensation to the
Company under this Agreement, except that if the Fund adopts and implements a
plan pursuant to Rule 12b-l to finance distribution expenses, then the
Underwriter may make payments to the Company or to the Underwriter for the
Contracts if and in amounts agreed to by the Underwriter in writing.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund, its Investment Adviser or the Underwriter. The Fund
shall be responsible for ensuring 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. The Company shall not 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, all taxes on the
issuance or transfer of the Fund's shares.
5.3 The Company shall not bear the expenses of printing and distributing the
Fund's Prospectus and of printing and distributing the Fund's proxy materials
and reports to such Contract owners.
ARTICLE VI. Foreign Tax Credits
6.1 The Fund agrees to consult in advance with the Company concerning any
decision to elect or not to elect pursuant to Section 853 of the Code to pass
through the benefit of any foreign tax credits to its shareholders.
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ARTICLE VII. Indemnification
7.1 Indemnification by the Company
7.1(a) The Company agrees to indemnify and hold harmless the Fund, the
Underwriter, the Fund's Investment Adviser and each officer and member of the
Board of each such entity, and officers and each person if any who "controls"
any such entity within the meaning of Section 15 of the 1933 Act (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, regulation, at common law or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof) or
settlements are related to the sale or acquisition of the Fund's shares or the
Contracts 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
or prospectus for the Contracts or contained in the Contracts or
advertisements 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 Fund for use in the Registration Statement or prospectus for the
Contracts or in the Contracts or advertisements or sales literature (or
any amendment or supplement) or otherwise for use in connection with the
sale of the Contracts or Fund shares; or (ii) arise out of or as a
result of statements or representations (other than statements or
representations contained in the Registration Statement, prospectus or
sales literature of the Fund not supplied by the Company, or persons
under its control) or wrongful conduct of the Company or persons under
its control, with respect to the sale or distribution of the Contracts
or Fund Shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus,
advertisements 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 Fund by
or on behalf of the Company; or
(iv)arise as a result of any 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 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 incurred
or assessed against an Indemnified Party as such may arise from such
Indemnified Party's willful misfeasance, bad faith, or gross negligence in the
performance of such Indemnified Party's duties or by reason of such Indemnified
Party's reckless disregard of obligations or duties under this Agreement or to
the Fund, whichever is applicable.
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
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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 the Indemnified Parties, 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 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 Fund shares or the Contracts or the operation of
the Fund.
7.2 Indemnification by the Underwriter
7.2(a) The Underwriter agrees to indemnify and hold harmless the Company and
the principal underwriter for the Contracts and each of their respective
directors and officers and the principal underwriter for the Contracts 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
Underwriter) 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 are related to the sale or
acquisition of the Fund's shares or the Contracts and:
(i)arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the Registration Statement
or prospectus or advertisements 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 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 Underwriter 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 Contracts or Fund shares; or
(ii)arise out of or as a result of statements or representations (other than
statements or representations contained in the Registration Statement,
prospectus or sales literature for the Contracts not supplied by the
Underwriter or persons under its control) or wrongful conduct of the
Fund, Adviser or Underwriter or persons under their control, with
respect to the sale or distribution of the Contracts or Fund shares; or
(iii)arise out of any untrue statement or alleged untrue statement of a
material fact contained in a Registration Statement, prospectus,
advertisements 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; or
(iv)arise as a result of any failure by the Fund to provide the services and
furnish the materials under the terms of this Agreement (including a
failure to qualify as a regulated investment company under Section 851
of the Code); or
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(v)arise as a result of the Fund's or Adviser's (or their designated
agent's) (i) incorrect calculation of the daily net asset value,
dividend rate or capital gain distribution rate; (ii) incorrect
reporting of the daily net asset value, dividend rate or capital gain
distribution rate; or (iii) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate. Any gain accruing to
the Company attributable to the Fund's or Adviser's (or their designated
agent's) incorrect calculation or reporting of the daily net asset value
shall be returned to the Fund by the Company upon receipt of notice from
the Fund or the Adviser regarding such incorrect calculation or
reporting; or
(vi)arise out of or result from any material breach of any representation or
warranty made by the Fund or the Underwriter in this Agreement or arise
out of or result from any other material breach of this Agreement by the
Fund or the Underwriter; as limited by and in accordance with the
provisions of Section 7.2(b) and 7.2(c) hereof.
7.2(b) The Underwriter shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by reason
of such Indemnified Party's willful misfeasance, bad faith, or gross negligence
in the performance of such Indemnified Party's duties or by reason of such
Indemnified Party's reckless disregard of obligations and duties under this
Agreement or to each Company or the Account, whichever is applicable.
7.2(c) The Underwriter 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 Underwriter 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 Underwriter
of any such claim shall not relieve the Underwriter 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 Underwriter also shall be entitled
to assume the defense thereof, with counsel satisfactory to the party named in
the action. After notice from the Underwriter to such party of the
Underwriter'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 Underwriter 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 Underwriter 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 each Account.
7.3 Indemnification by the Fund
7.3(a) The Fund agrees to indemnify and hold harmless the Company and the
principal underwriter for Contracts and each of their respective 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 7.3) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
the Fund) 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:
(i)arise as a result of any failure by the Fund to provide the services and
furnish the materials under the terms of this Agreement (including a
failure to qualify as a regulated investment Company under Section 851
of the Code); or
(ii)arise as a result of the Fund's (or its designated agent's)
(i) incorrect calculation of the daily net asset value, dividend rate or
capital gain distribution rate; (ii) incorrect reporting of the daily
net asset value, dividend rate or capital gain
9
distribution rate; or (iii) untimely reporting of the net asset value,
dividend rate or capital gain distribution rate. Any gain accruing to
the Company attributable to the Fund's (or its designated agent's)
incorrect calculation or reporting of the daily net asset value shall be
returned to the Fund by the Company upon receipt of notice from the Fund
regarding such incorrect calculation or reporting; or
(iii)arise out of or result from any material breach of any representations
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 Sections 7.3(b) and
7.3(c) hereof.
7.3(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 on 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 or to
the Company, the Fund, the Underwriter or each Account, whichever is applicable.
7.3(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 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 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.
7.3(d) The Company and the Underwriter 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 Contracts, with respect to the operation of either
Account, or the sale or acquisition of shares of the Fund.
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 Texas.
8.2 This Agreement shall be subject to the provisions of the 1933 Act, 1934
Act and 1940 Act, 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 by ninety (90) day's advance
written notice delivered to the other parties; or
(b)termination by the Company by written notice to the Fund and
Underwriter based upon the Company's determination that shares of
such Fund are not reasonably available to meet the requirements of
the Contracts; or
10
(c)termination by the Company by written notice to the Fund and the
Underwriter in the event the Fund's shares are not registered, issued
or sold in accordance with applicable state or federal law or such
law precludes the use of such shares as the underlying investment
media of the Contracts issued or to be issued by the Company; or
(d)termination by the Company by written notice to the Fund and the
Underwriter in the event that the Fund ceases to qualify as a
Regulated Investment Company under Section 851 of the Code or under
any the Fund may fail to do so qualify; or
(e)termination by either the Fund or the Underwriter by written notice
to the Company, if either one or both of the Fund or the Underwriter
respectively, shall determine, in their sole judgment exercised in
good faith, that the Company or its affiliated companies 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
(f)termination by the Company by written notice to the Fund and the
Underwriter, if the Company shall determine, in its sole judgment
exercised in good faith, that either the Fund, the Adviser or the
Underwriter 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
(g)termination by any party by written notice upon the institution of
formal proceedings against the Company, the Fund, the Adviser or the
Underwriter by the NASD, the SEC or other regulatory body; or
(h)termination by any party by advance written notice upon the
"assignment" of the Agreement (as defined under the 0000 Xxx) unless
made with the written consent of each party to the Agreement; or
(i)termination by the Company by written notice upon the sale,
acquisition or change of control of the Adviser; or
(j)termination by the Company arising from the substitution of Fund
shares with the shares of another investment company for the
Contracts for which the Fund shares have been selected to serve as
the underlying investment medium, subject to compliance with
applicable regulations of the SEC, Company will give 90 day's written
notice to the Fund and the Underwriter of any proposed action to
replace Fund shares; or
(k)termination by the Company, the Fund or the Underwriter by written
notice to the other parties upon a material breach of the Agreement
by the other party; or
(1)termination by the Fund or the Underwriter by written notice to the
Company, if the Company gives the Fund and the Underwriter the
written notice specified in Section 1.6(b) hereof and at the time
such notice was given there was no notice of termination outstanding
under any other provision of this Agreement; provided, however any
termination under this Section 10.1(n) shall be effective forty five
(45) days after the notice specified in Section 1.6(b) was given.
9.2. Effect of Termination. Notwithstanding any termination of this
Agreement, the Fund and the Underwriter 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"). Specifically, without limitation, the owners of the Existing
Contracts
11
shall be permitted to reallocate investments in the Fund, redeem investments in
the Fund or invest in the Fund upon the making of additional purchase payments
under the Existing Contracts. The parties agree that this Section 10.2 shall
not apply to any terminations under Article Vll and the effect of such
Article VII terminations shall be governed by Article VII of this Agreement.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or
certified mail, overnight delivery or facsimile 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:
000 Xxxxx Xxxxxxxx Xxxxxx. Xxxxx 000
Xxxxxxx. Xxxxxxxx
Attention: Xxxxxxxxx X. Xxxxxx
If to the Underwriter:
000 Xxxxx Xxxxxxxx Xxxxxx. Xxxxx 000
Xxxxxxx. Xxxxxxxx
Attention: Xxxxxxxxx X. Xxxxxx
If to the Company:
0000 Xxxxx Xxxxxxx
Xxxxxxx, XX 00000
Attention: General Counsel
ARTICLE XI. Miscellaneous
11.1 All persons dealing with the Fund must look solely to the property of
the Fund for the enforcement of any claims against the Fund as neither the
Board, officers, agents or shareholders assume any personal liability for
obligations entered into on behalf of the Fund.
11.2 Subject to the requirements of legal process and regulatory authority,
each party hereto shall treat as confidential the names and addresses of the
owners of the Contracts and all information reasonably identified as
confidential in writing by any other party hereto and, except as permitted by
this Agreement, shall not disclose, disseminate or utilize such names and
addresses and other confidential information until such time as it may come
into the public domain without the express written consent of the affected
party.
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
to the extent practicable and except where a party's respective interests are
adverse to or in conflict with another party's interests.
12
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.
11.8 This Agreement or any of the rights and obligations hereunder may not
be assigned by any party without the prior consent of all parties hereto;
provided, however, that the Underwriter may assign this Agreement or any rights
or obligations hereunder to any affiliate of or company under common control
with the Underwriter, if such assignee is duly organized, licensed and
registered to perform the obligations of the Underwriter under this Agreement.
IN WITNESS HEREOF, each of the parties has caused this Agreement to be
executed in its name and on its behalf by its duly authorized representative
and its seal to be hereunder affixed as of the date specified below.
THE VARIABLE ANNUITY LIFE ARIEL INVESTMENT TRUST
INSURANCE COMPANY
By: /s/ [Illegible] By: /s/ XXXXXXXXX XXXXXX
-------------------------- -----------------------------------
Title: Executive Vice President Title: Senior Vice President
Date: 11-1-00 Date: 10-23-00
ARIEL DISTRIBUTORS, INC.
By: /s/ XXXXXXXXX XXXXXX
-----------------------------------
Title: Senior Vice President
Date: 10-23-00
13
SCHEDULE A
ACCOUNTS
Date of Resolution of Company's Board
Name of Account which Established the Account
--------------- -------------------------------------
The Variable Annuity Life Insurance April 18, 1979
Company Separate Account A
14
SCHEDULE B
CONTRACTS
.. PORTFOLIO DIRECTOR SERIES
15
SCHEDULE C
SERIES OF THE FUND
.. Ariel Fund
.. Ariel Appreciation Fund
.. Ariel Premier Bond Fund, Investor Class
16
