AMENDMENT
TO
PARTICIPATION AGREEMENT
This amendment (the "Amendment") is made and entered into as of September 3,
2002 by and among Principal Life Insurance Company, an Iowa corporation
("Company"), VANGUARD VARIABLE INSURANCE FUND, a Delaware business trust (the
"Fund"), THE VANGUARD GROUP, INC., a Pennsylvania corporation (the "Sponsor"),
VANGUARD MARKETING CORPORATION, a Delaware corporation (the "Distributor"),
(Fund, Sponsor, Distributor, and Company collectively, the "Parties") in order
to modify that certain Participation Agreement entered into by the Parties as
of April 30, 2002 (the "Agreement").
The Parties agree to amend the Agreement as follows:
1. Schedule A of the Agreement is hereby amended to include the new Benefit
Variable Universal Life (BVUL) product.
3. Except as modified hereby, all other terms and conditions of the Agreement
shall remain in full force and effect.
Acknowledged and agreed by:
VANGUARD VARIABLE VANGUARD THE VANGUARD GROUP,
INSURANCE FUND MARKETING INC.
CORPORATION
By: /s/ J. F. Dietrick By: /s/ J. F. Dietrick By: /s/ W. R. Gustafson
Name: Joseph F. Dietrick Name: Joseph F. Dietrick Name: W. R. Gustafson
Title: Assistant Secretary Title: Assistant Secretary Title: Principal
PRINCIPAL LIFE
INSURANCE COMPANY
By: /s/ Sara Wiener
Name: Sara Wiener
Title: Assistant Director
Product Management
PARTICIPATION AGREEMENT
Among
VANGUARD VARIABLE INSURANCE FUND
and
THE VANGUARD GROUP, INC.
and
VANGUARD MARKETING CORPORATION
and
PRINCIPAL LIFE INSURANCE COMPANY
THIS AGREEMENT, made and entered into as of the 30th day of April, 2002, by
and among VANGUARD VARIABLE INSURANCE FUND (hereinafter the "Fund"), a Delaware
business trust, THE VANGUARD GROUP, INC. (hereinafter the "Sponsor"), a
Pennsylvania corporation, VANGUARD MARKETING CORPORATION (hereinafter the
"Distributor"), a Delaware corporation, and PRINCIPAL LIFE INSURANCE COMPANY
(hereinafter the "Company"), an Iowa corporation, on its own behalf and on
behalf of each segregated asset account of the Company named in Schedule A
hereto as may be amended from time to time (each such account hereinafter
referred to as the "Account").
WHEREAS, the Fund was organized to act as the investment vehicle for
variable life insurance policies and variable annuity contracts to be offered by
separate accounts of insurance companies which have entered into participation
agreements with the Fund and the Sponsor (hereinafter "Participating Insurance
Companies"); 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
WHEREAS, the Fund is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and its shares are registered under the Securities Act of 1933, as amended (the
"1933 Act"); and
WHEREAS, the assets of each Portfolio of the Fund are managed by several
entities (the "Advisers"), each of which is duly registered as an investment
adviser under the federal Investment Advisers Act of 1940 and any applicable
state securities laws; and
WHEREAS, the Company has established or will establish one or more Accounts
to fund certain variable life insurance policies and variable annuity contracts
(the "Variable Insurance Products"), which Accounts and Variable Insurance
Products are registered under the 1940 Act and the 1933 Act, respectively; and
WHEREAS, each Account is a duly organized, validly existing segregated
asset account, established to set aside and invest assets attributable to the
Variable Insurance Products; and
WHEREAS, the Distributor is a wholly-owned subsidiary of the Sponsor, is
registered as a broker dealer with the Securities and Exchange Commission
("SEC") under the Securities Exchange Act of 1934, as amended (the "1934 Act")
and is a member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"); and
WhEREAS, to the extent permitted by applicable insurance laws and
regulations, the Company intends to purchase shares of the Portfolios on behalf
of each Account to fund the Variable Insurance Products and the Sponsor is
authorized to sell such shares to the Accounts at net asset value;
WHEREAS, the Company's affiliate, Delaware Charter Guarantee & Trust
Company (doing business as Trustar Retirement Services), and the Sponsor have
entered into a Fund/SERV Agreement (Non-Discretionary Financial Intermediary)
dated as of July 17, 2000 (the "Fund/SERV Agreement"), which sets forth, among
other things, the operational provisions governing the purchase and redemption
of shares of the Fund by the Accounts and related matters;
NOW, THEREFORE, in consideration of their mutual promises, the Company, the
Fund, the Sponsor and the Distributor agree as follows:
ARTICLE I. Sale of Fund Shares
1.1 The Sponsor and the Distributor agree to sell to the Company those
shares of the Portfolios of the Fund listed on Schedule B which each Account
orders, in accordance with the Fund/SERY Agreement.
1.2 The Fund, subject to the provisions of Article IX of this Agreement,
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 the rules of the SEC and the
Fund shall use its best efforts to calculate such net asset value on each day
which the NYSE is open for trading. Notwithstanding the foregoing, the Board of
Trustees of the Fund (hereinafter the "Board") may refuse to sell
shares of any Portfolio to any person including, but not limited to, the
Company, or suspend or terminate the offering of shares of any Portfolio if such
action is required by law or by regulatory authorities having jurisdiction or
is, in the sole discretion of the Board, acting in good faith and in light of
their fiduciary duties under federal and any applicable state laws, necessary in
the best interests of the shareholders of such Portfolio. Further, it is
acknowledged and agreed that the availability of shares of the Fund shall be
subject to the Fund's then current prospectus and statement of additional
information, federal and state securities laws and applicable rules and
regulations of the SEC and the NASD.
1.3 The Fund and the Sponsor agree that shares of the Fund will be sold
only to Participating Insurance Companies and their separate accounts. No shares
of any Portfolio will be sold to the general public.
1.4 The Fund and the Sponsor will not sell Fund shares to any Participating
Insurance Company or its separate account unless an agreement containing a
provision substantially the same as Section 2.6 of Article II of this Agreement
is in effect to govern such sales.
1.5 The Fund agrees to redeem for cash, on the Company's request, any full
or fractional shares of the Fund held by an Account, in accordance with the
Fund/SERV Agreement. The Fund reserves the right to suspend redemption
privileges or pay redemptions in kind, as disclosed in the Fund's prospectus or
statement of additional information. The Fund agrees to treat the Company like
any other shareholder in similar circumstances in making these determinations.
1.6 The Company agrees to purchase and redeem the shares of each Portfolio
offered by the then current prospectus of the Fund and in accordance with the
provisions of such prospectus and the accompanying statement of additional
information.
1.7 Issuance and transfer of a 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. The Fund shall furnish to the
Company the CUSIP number assigned to each Portfolio of the Fund identified in
Schedule B hereto.
1.8 The Company hereby elects to receive all income, dividends and capital
gain distributions as are payable on the Portfolio shares in additional shares
of that Portfolio. 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
dividends and distributions.
ARTICLE II. Representations and Warranties
2.1 The Company represents and warrants that it is an insurance company
duly organized and in good standing under applicable law; that it has legally
and validly established each Account prior to any issuance or sale thereof as a
segregated asset account under Section 508A.l of the Iowa Insurance Code; that
it has and will maintain the capacity to issue all Variable Insurance Products
that may be sold; and that it is properly licensed, qualified and in good
standing to sell the Variable Insurance Products in all fifty states and the
District of Columbia.
2.2 The Company represents and warrants that the Variable Insurance
Products are registered under the 1933 Act.
2.3 The Company represents and warrants it has registered each Account as a
unit investment trust in accordance with the provisions of the 1940 Act to serve
as segregated investment accounts for the Variable Insurance Products.
2.4 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 the laws of the State of Iowa and all applicable
federal and state securities laws and that the Fund is and shall remain
registered under the 1940 Act. 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, the
Distributor, or the Sponsor.
2.5 The Fund represents that it is qualified as a Regulated Investment
Company under Subchapter M of the Internal Revenue Code of 1986, as amended (the
"Code"), and that it will make every effort to maintain qualification (under
Subchapter M or any successor or similar provision) and (ii) it will notify the
Company immediately upon having a reasonable basis for believing that it ceased
to so qualify or that it might not so qualify in the future. The Fund
acknowledges that any failure to qualify as a Regulated Investment Company will
eliminate the ability of the subaccounts to avail themselves of the "look
through" provisions of Section 817(h) of the Code, and that as a result the
Variable Insurance Products will almost certainly fail to qualify as endowment
or life insurance contracts under Section 8 17(h) of the Code.
2.6 The Company represents that the Variable Insurance Products that are
variable life insurance policies will be treated as life insurance contracts
under applicable provisions of the Code and that it will make every effort to
maintain such treatment and that it will notify the Fund and the Sponsor
immediately upon having a reasonable basis for believing that such policies have
ceased to be so treated or that they might not be so treated in the future.
2.7 The Fund currently does not intend to make any payments to finance
distribution expenses pursuant to Rule 12b-1 under the 1940 Act or otherwise
2.8 The Fund makes no representation as to whether any aspect of its
operations (including, but not limited to, fees and expenses and investment
policies) complies with the insurance laws or regulations of the various states
except that the Fund represents that the Fund's investment policies, fees and
expenses are and shall at all times remain in compliance with the laws of the
State of Iowa and the Fund and the Sponsor represent that their respective
operations are and shall at all times remain in material compliance with the
laws of the State of Iowa to the extent required to perform this Agreement.
2.9 The Distributor represents and warrants that it is a member in good
standing of the NASD and is registered as a broker-dealer with the SEC. The
Distributor further represents that it will sell and distribute the Fund shares
in accordance with the laws of the State of Iowa and all applicable state and
federal securities laws, including without limitation the 1933 Act, the 1934
Act, and the 1940 Act.
2.10 The Fund represents that it is lawfully organized and validly existing
under the laws of the State of Delaware and that it does and will comply in all
material respects with the 1940 Act and any applicable regulations thereunder.
2.11 The Sponsor represents and warrants that the Advisers to the Fund are,
and the Sponsor shall use its best effort to cause the Advisers to remain, duly
registered in all material respects under all applicable federal and state
securities laws and to perform their obligations for the Fund in compliance in
all material respects with the laws of the State of Iowa and any applicable
state and federal securities laws.
2.12 The Fund and the Sponsor represent and warrant that all of their
trustees, directors, officers, employees, investment advisers, and other
individuals/entities dealing with the money and/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
minimum coverage required currently by Rule 1 7g- 1 under the 1940 Act or other
applicable laws or regulations 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.
2.13 With respect to the Variable Insurance Products, which are registered
under the 1933 Act, the Company represents and warrants that:
(a) Princor Financial Services Corporation is the principal distributor
of each such Account and any subaccounts thereof and is a registered
broker-dealer with the SEC under the 1934 Act;
(b) the shares of the Portfolios of the Fund are and will continue to be
the only investment securities held by the corresponding divisions of
the Accounts;
(c) the number of Portfolios of the Fund available for investment by the
Accounts will not constitute a majority of the total number of mutual
funds or portfolio selections available for investment by the
Accounts in any Variable Insurance Product; and
(d) with regard to each Portfolio, the Company, if permitted by law, on
behalf of the corresponding subaccount, will:
(i) vote such shares held by it in the same proportion as the vote of
all other holders of such shares; and
(ii) refrain from substituting shares of another security for such
shares unless the SEC has approved such substitution in the
manner provided in Section 26 of the 1940 Act.
2.14 The Fund represents that it will comply with all provisions of the
1940 Act requiring voting by shareholders, and in particular the Fund will
either provide for annual meetings or comply with Section 16(c) of the 1940 Act
(although the Fund is not one of the trusts described in Section 16(c) of that
Act) as well as with Sections 16(a) and, if an when applicable, 16(b). Further,
the Fund will act in accordance with the SEC's interpretation of the
requirements of Section 16(a) with respect to periodic elections of trustees and
with whatever rules the SEC may promulgate with respect thereto.
ARTICLE III. Offering Documents and Reports
3.1 The Fund, the Sponsor or their designee shall provide the Company (at
the Sponsor's expense) with as many copies of the Fund's current prospectus as
the Company may reasonably request. The Company shall provide a copy of the
Fund's prospectus to each Variable Insurance Product owner. If requested by the
Company in lieu thereof, the Fund or the Sponsor shall provide such
documentation (including a final copy of the new prospectus as set in type at
the Fund's or the Sponsor's expense) and other assistance as is reasonably
necessary in order for the Company once each year (or more frequently if the
prospectus for the Fund is amended) to have the prospectus for the Variable
Insurance Products and the Fund's prospectus printed together in one document
(such printing to be at the Company's expense).
Company and to any owner of a Variable Insurance Product or prospective owner
who requests such statement.
3.3 The Fund, at its own expense, shall provide the Company with copies of
its reports to shareholders, other communications to shareholders, and, if
required by applicable law, proxy material, in such quantity as the Company
shall reasonably require for distributing to Variable Insurance Product owners.
The Fund shall provide to the Company the prospectuses and annual reports
referenced in this Agreement within fifteen (15) days prior to the Company's
obligation to mail, and the Company agrees to provide the Fund with advance
notice of such date. If the documents are not delivered to the Company within
ten (10) days of the Company's obligation to mail, the Fund shall reimburse the
Company for any extraordinary out-of-pocket costs (including, but not limited
to, overtime for printing and mailing).
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, its Advisers or the Sponsor is named, at least ten Business Days
prior to its use. The Company may use such material in fewer than ten Business
Days if it receives the written consent of the Fund or its designee. No such
material shall be used if the Fund or its designee reasonably objects to such
use within ten Business Days after receipt of such material. In connection with
the identification of the Portfolios in any such material, the use of the
Sponsor's name or identification of the Portfolios shall be given no greater
prominence than any other mutual fund or portfolio selection offered in a
Variable Insurance Product that is a variable annuity contract.
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 Variable Insurance Products 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 Sponsor, except with the permission of the Fund or the
Sponsor or the designee of either.
4.3 The Fund, Sponsor, Distributor or their 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 an Account is
named at least ten Business Days prior to its use. No such material shall be
used if the Company or its designee reasonably objects to such use within ten
Business Days after receipt of such material.
4.4 The Fund, the Distributor and the Sponsor shall not give any
information or make any representations on behalf of the Company or concerning
the Company, each Account, or the Variable Insurance Products other than the
information or representations contained in a prospectus for the Variable
Insurance Products, as such 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 Variable Insurance Product
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 all amendments
to any of the above, that relate to the Fund or its shares, prior to or
contemporaneously with the filing of each document with the SEC or other
regulatory authorities.
4.6 The Company will provide to the Fund at least one complete copy of all
prospectuses, reports, solicitations for voting instructions, sales literature
and other promotional materials, applications for exemption, requests for
no-action letters, and all amendments to any of the above, that relate to the
Variable Insurance Products or each Account, prior to or contemporaneously with
the filing of such document with the SEC or other regulatory authorities.
4.7 The Company and the Fund shall also each promptly inform the other of
the results of any examination by the SEC (or other regulatory authorities) that
relates to the Variable Insurance Products, the Fund or its shares, and the
party that was the subject of the examination shall provide the other party with
a copy of relevant portions of any "deficiency letter" or other correspondence
or written report regarding any such examination.
4.8 The Fund and the Sponsor will provide the Company with as much notice
as is reasonable practicable of any proxy solicitation for any Portfolio, and of
any material change in the Fund's registration statement, particularly any
change resulting in a change to the prospectus for any Account. The Fund and the
Sponsor will cooperate with the Company so as to enable the Company to solicit
voting instructions from owners of Variable Insurance Products, to the extent a
solicitation is required by applicable law, or to make changes to its prospectus
in an orderly manner.
4.9 For purposes of this Article IV, the phrase "sales literature and other
promotional material" includes, but is not limited to, sales literature (i.e.,
any written communication distributed or made generally available to customers,
including brochures, circulars, research reports, market letters, form letters,
seminar texts, reprints or excerpts of any other advertisement, sales
literature, or published articles), educational or training
materials or other communications distributed or made generally available to
some or all agents or employees, and prospectuses, shareholder reports, and
proxy materials.
ARTICLE V. Fees and Expenses
5.1 The Fund and Sponsor shall pay no fee or other compensation to the
Company under this Agreement. Nothing herein shall prevent the parties hereto
from otherwise agreeing to perform, and arranging for appropriate compensation
for, other services relating to the Fund and or to the Accounts.
5.2 All expenses incident to performance by the Fund under this Agreement
shall be paid by the Fund. The Fund shall see to it that all its shares are
registered and authorized for issuance in accordance with applicable federal law
and, if and to the extent deemed advisable by the Fund, in accordance with
applicable state laws prior to their sale. The Fund shall bear the fees and
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 Fund shall bear the expenses of printing, and the Company shall
bear the expenses of distributing, the Fund's prospectus to owners of Variable
Insurance Products issued by the Company. The Company shall bear the expenses of
distributing the Fund's proxy materials (to the extent such proxy solicitation
is required by law) and reports to owners of Variable Insurance Products.
ARTICLE VI. Diversification
6.1 The Fund will at all times invest money from the Variable Insurance
Products in such a manner as to ensure that the Variable Insurance Products will
be treated as variable contracts under the Code and the regulations issued
thereunder. Without limiting the scope of the foregoing, the Fund and the
Sponsor represent and warrant that each Portfolio of the Fund will meet the
diversification requirements of Section 8 17(h) of the Code and Treasury
Regulation 1.817-5, relating to the diversification requirements for endowment
or life insurance contracts and any amendments or other modifications to such
Section or Regulations, as if those requirements applied directly to each such
Portfolio. In the event of a breach of this Article VI by the Fund, it will take
all reasonable steps (a) to notify Company of such breach and (b) to adequately
diversify, each Portfolio of the Fund so as to achieve compliance within the
grace period afforded by Regulation 8 17-5.
6.2 The Fund and the Sponsor represent that each Portfolio will elect to be
qualified as a Regulated Investment Company under Subchapter M of the Code and
they will maintain such qualification (under Subchapter M or any successor or
similar provision).
ARTICLE VII. Indemnification
7.1 Indemnification by the Company
(a) The Company agrees to indemnify and hold harmless the Fund and
each trustee of the Board and officers and each person, if any, who
controls the Fund within the meaning of Section 15 of the 1933 Act, the
Sponsor and the Distributor (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 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 or prospectus
for the Variable Insurance Products or contained in
the contract or policy or sales literature for the
Variable Insurance Products (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 Variable
Insurance Products or in the contract or policy sales
literature (or any amendment or supplement) or
otherwise for use in connection with the sale of the
Variable Insurance Products or the 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 unlawful conduct of the Company or persons
under its 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 a
registration statement, prospectus, or sales
literature of the Fund (or any amendment or supplement
thereto), or the omission or alleged omission to state
therein a material fact required to be stated therein
or necessary to make the statements therein not
misleading, if such statement or omission was made in
reliance upon information furnished to the Fund by or
on behalf of the Company; or
(iv) result from 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 and/or warranty made by the Company in
this Agreement or arise out of or result from any
material breach of this Agreement by the Company;
as limited by and in accordance with the provisions of Section 7.1(b) and
7.1(c) hereof.
(b) The Company shall not be liable under this indemnification
provision with respect to any losses, claims, damages, liabilities or
litigation to which an Indemnified Party would otherwise be subject by
reason of such Indemnified Party's willful misfeasance, bad faith, or gross
negligence in the performance of such Indemnified Party's duties or by
reason of such Indemnified Party's reckless disregard of obligations and
duties under this Agreement or to the Fund, whichever is applicable.
(c) The Company shall not be liable under this indemnification
provision with respect to any claim made against an Indemnified Party
unless such Indemnified Party shall have notified the Company in writing
within a reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been served upon
such Indemnified Party (or after such Indemnified Party shall have received
notice of such service on a 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 a 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.
(d) The Indemnified Parties agree to notify the Company promptly of
the commencement of any material litigation or proceedings against them in
connection with the issuance or sale of the Fund shares or the Variable
Insurance Products or the operation of the Fund.
7.2 Indemnification by the Sponsor
(a) The Sponsor 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 1933Act (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 Sponsor) 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 Variable Insurance Products and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement or prospectus
or sales literature 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 Sponsor
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
thereto) 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 statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Variable Insurance Products not supplied by the
Sponsor or persons under its control) or unlawful
conduct of the Fund, the Advisers 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 a
registration statement, prospectus or sales literature
covering the Variable Insurance Products (or any
amendment 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) result from any failure by the Sponsor or the Fund to
provide the services and furnish the materials under
the terms of this Agreement (including a failure to
comply with the diversification requirements specified
in Article VI of this Agreement); or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Sponsor or
the Fund in this Agreement or arise out of or result
from any other material breach of this Agreement by
the Sponsor or the Fund;
as limited by and in accordance with the provisions of Sections 7.2(b) and
7.2(c) hereof.
(b) The Sponsor 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 the Company or the Accounts, whichever is
applicable.
(c) The Sponsor 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 Sponsor 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 any such service
on any designated agent), but failure to notify the Sponsor of any such
claim shall not relieve the Sponsor 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 Sponsor will be entitled to
participate, at its own expense, in the defense thereof. The Sponsor also
shall be entitled to assume the defense thereof, with counsel satisfactory
to the party named in the action. After notice from the Sponsor to such
party of the Sponsor'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 Sponsor will not be liable to such party
under this Agreement for any legal or other expenses subsequently incurred
by each party independently in connection with the defense thereof other
than reasonable costs of investigation.
(d) The Company agrees to notify the Sponsor promptly of the
commencement of any material 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.
7.3 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 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 action in respect
thereof) or settlements resulting 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
comply with the diversification requirements specified
in Article VI of this Agreement); or
(ii) 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 Sections 7.3(b) and
7.3(c) hereof.
(b) The Fund 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 the Company, the Fund, the Sponsor or each 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 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 or 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
independently in connection with the defense thereof other than reasonable
costs of litigation.
(d) The Company and the Sponsor agree to notify the Fund promptly of
the commencement of any material 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 an Account, or the sale or acquisition of
shares of the Fund.
7.4 Indemnification by the Distributor
(a) The Distributor agrees to indemnify and hold harmless the Company
and each of its directors and officers and each person, if any, who
controls the Company within the meaning of Section 15 of the 1933 Act
(collectively, the "Indemnified Parties" for purposes of this Section 7.4)
against any and all losses,
claims, damages, liabilities (including amounts paid in settlement with the
written consent of the Sponsor) 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 Variable Insurance Products and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact
contained in the registration statement or prospectus
or sales literature 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
Distributor or the 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 thereto) 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 statements or
representations (other than statements or
representations contained in the registration
statement, prospectus or sales literature for the
Variable Insurance Products not supplied by the
Distributor or persons under its control) or unlawful
conduct of the Fund, the Advisers 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 a
registration statement, prospectus or sales literature
covering the Variable Insurance Products (or any
amendment 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) result from any failure by the Distributor or the Fund
to provide the services and furnish the materials under
the terms of this Agreement; or
(v) arise out of or result from any material breach of any
representation and/or warranty made by the Distributor
or the Fund in this Agreement or arise out of or result
from any other material breach of this Agreement by the
Distributor of the Fund;
as limited by and in accordance with the provisions of Sections 7.4(b) and
7.4(c) hereof.
(b) The Distributor 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 the Company or the Accounts, whichever is
applicable.
(c) The Distributor 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 Distributor 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 any such service on any designated agent), but
failure to notify the Distributor of any such claim shall not relieve the
Distributor 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 any case any such action is brought against
the Indemnified Parties, the Distributor will be entitled to participate,
at its own expense, in the defense thereof. The Sponsor also shall be
entitled to assume the defense thereof, with counsel satisfactory to the
party named in the action. After notice from the Distributor to such party
of the Distributor'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 Distributor will not be liable to such
party under this Agreement for any legal or other expenses subsequently
incurred by each party independently in connection with the defense thereof
other than reasonable costs of investigation.
(d) The Company agrees to notify the Distributor promptly of the
commencement of any material 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.
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 Iowa.
8.2 This Agreement shall be subject to the provisions of the 1933, 1934 and
1940 Acts, 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 Agreement shall continue in full force and effect until the first to
occur of:
(a) termination by any party for any reason by one hundred
eighty(180) days' advance written notice delivered to the other parties; or
(b) termination by the Company by written notice to the Fund and the
Sponsor 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 Variable Insurance Products; or
(c) termination by the Company by written notice to the Fund and the
Sponsor 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 Variable Insurance Products issued
or to be issued by the Company; or
(d) termination by the Company by written notice to the Fund and the
Sponsor 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 Fund may fail to so qualify (in the event of
such termination, the Company shall withdraw all assets allocable to the
separate accounts from the Portfolio and shall reinvest such assets in a
different investment medium, including, but not limited to, another
Portfolio of the Fund); or
(e) termination by the Company by written notice to the Fund and the
Sponsor with respect to any Portfolio in the event that such Portfolio
fails to meet the diversification requirements as specified in Article VI
hereof; or
(f) termination by the Fund, the Sponsor, or the Distributor by
written notice to the Company, if any of the Fund, the Sponsor, or the
Distributor shall determine, in its sole judgment exercised in good faith,
that the Company and/or its affiliated companies has suffered a material
adverse change in its business, operations, or financial condition since
the date of this Agreement or is the subject of material adverse publicity;
or
(g) termination by the Company by written notice to the Fund and the
Sponsor, if the Company shall determine, in its sole judgment exercised in
good faith, that either the Fund, the Sponsor, or the Distributor has
suffered a material adverse change in its business, operations or financial
condition since the date of this Agreement or is the subject of material
adverse publicity.
9.2 Notwithstanding any termination of this Agreement, the Fund and the
Sponsor shall, at the option of the Company, continue to make available shares
of the Fund pursuant to the terms and conditions of this Agreement, for all
Variable Insurance Products 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 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.
9.3 The Company shall not redeem Fund shares attributable to the Variable
Insurance Products (as opposed to Fund shares attributable to the Company's
assets held in the Accounts) except (a) as necessary to implement Variable
Insurance Products owner initiated or approved transactions, or (b) pursuant to
an order of the SEC under Section 26(c) of the 1940 Act or as otherwise required
by state and/or federal laws or regulations or judicial or other legal precedent
of general application (hereinafter referred to as a "Legally Required
Redemption"). Furthermore, except in cases where permitted under the terms of
the Variable Insurance Products, the Company shall not prevent owners of
Variable Insurance Products from allocating payments to a Portfolio that was
otherwise available under the Variable Insurance Products without first giving
the Fund or the Sponsor 90 days' notice of its intention to do so.
ARTICLE X. Notices
Any notice shall be sufficiently given when sent by registered or certified
mail, overnight courier 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: Vanguard Variable Insurance Fund
P.O. Box 2600
Valley Forge, PA 19482
Attn: Heidi Stam
If to the Sponsor: The Vanguard Group, Inc.
P.O. Box 2600
Valley Forge, PA 19482
Attn: R. Gregory Barton
If to the Distributor: Vanguard Marketing Corporation
P.O. Box 2600
Valley Forge, PA 19482
Attn: R. Gregory Barton
If to the Company: Principal Life Insurance Company
711 High Street
Des Moines, IA 50392-0300
Attn: Sarah Pitts
ARTICLE XI. Miscellaneous
11.1 It is understood and stipulated that neither the shareholders of any
Portfolio nor the officers or trustees of the Fund shall be personally liable
hereunder.
11.2 Subject to the requirements of the legal process and regulatory
authority, each party hereto shall treat as confidential the names and addresses
of the owners of the Variable Insurance Products and all information disclosed
by the other party pursuant to this Agreement and, except as permitted by this
Agreement, shall not (unless it has obtained the express written consent of the
affected party) disclose, disseminate or utilize such names and addresses and
other confidential information until such time as it may come into the public
domain.
11.3 The captions in this Agreement are included for convenience of
reference only and in no way define or delineate any of the provisions hereof or
otherwise affect their construction or effect.
11.4 This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together shall constitute one and the same
instrument.
11.5 If any provision of this Agreement shall be held or made invalid by a
court decision, statute, rule or otherwise, the remainder of this Agreement
shall not be affected thereby.
11.6 Each party hereto shall cooperate with each 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.
11.7 The fights, 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 written consent of all parties
hereto.
11.9 The Company shall cause copies of the following reports to be
furnished to the Fund or its designee:
(a) the Company's Annual Financial Statement on Statutory Basis
promptly after it becomes publicly available; and
(b) any registration statement, prospectus or other materials
distributed in connection with the sale of the Variable Insurance Products
to the extent such registration statement, prospectus or other materials
reference the Fund.
11.10 This Agreement, including any Schedule hereto, may be amended or
modified only by written instrument, executed by duly authorized officers of the
parties.
11.11 Except as otherwise expressly provided in this Agreement or as
reasonably necessary to comply with the terms of this Agreement:
(a) the Company shall not use the name(s), trademarks or trade names
of the Sponsor, the Fund, or the Distributor, or any variation of such
name, trademark or trade name, whether registered or not, in publicity
releases or advertising or publicly in any other manner, including company
client lists, without securing the prior written approval of a Managing
Director or higher ranking officer of the Sponsor;
(b) none of the Sponsor, the Fund or the Distributor shall use the
name(s), trademarks or trade names of the Company, or any variation of such
name, trademark or trade name, whether registered or not, in publicity
releases or advertising or
publicly in any other manner, including Company client lists, without
securing the prior written approval of the Company; and
(c) in the event of any violation of this Section 11.11, the aggrieved
party shall have the right and remedy of applying to any court of competent
jurisdiction for an injunction to restrain the violating party from
continuing the violation.
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement
to be executed in its name and on its behalf by its duly authorized
representative as of the date specified above.
VANGUARD VARIABLE INSURANCE FUND
By: /s/ J. F. Dietrick
Name: Joseph F. Dietrick
Title: Assistant Secretary
THE VANGUARD GROUP, INC.
By: /s/ M. G. Papariello
Name: M. G. Papariello
Title: Principal
VANGUARD MARKETING CORPORATION
By: J. F. Dietrick
Name: Joseph F. Dietrick
Title: Assistant Secretary
PRINCIPAL LIFE INSURANCE COMPANY
By: /s/ David House
Name: David House
Title Assistant Director
SCHEDULE A
SEPARATE ACCOUNTS AND ASSOCIATED CONTRACTS
Name of Separate Account Contracts Funded by Separate Account
Principal Life Insurance Company
Separate Account B The Principal(R)Variable Annuity
Principal Freedom Variable Annuity
Principal Life Insurance Company
Variable Life Separate Account PrinFlex Life(R)Variable Life Insurance
Survivorship Variable Universal Life
Flexible Variable Life Insurance
Principal Variable Universal Life
Accumulator (VUL)
Executive Variable Universal Life
Accumulator (EVUL)
SCHEDULE B
PORTFOLIOS
The following Portfolios of the Vanguard Variable Insurance Funds shall be
made available as investments underlying the Variable Insurance Products,
subject to the limitations set forth in Section 2.13(c) hereof:
Money Market Portfolio
High-Grade Bond Portfolio
High-Yield Bond Portfolio
Short-Term Corporate Portfolio
Balanced Portfolio
Diversified Value Portfolio
Equity Income Portfolio
Equity Index Portfolio
Growth Portfolio
Mid-Cap Index Portfolio
REIT Index Portfolio
Small Company Growth Portfolio
International Portfolio