EXHIBIT 99.1(a)(3)(d)
PARTICIPATION AGREEMENT
BY AND AMONG
AIM VARIABLE INSURANCE FUNDS, INC.,
A I M DISTRIBUTORS, INC.,
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
ON BEHALF OF ITSELF AND
ITS SEPARATE ACCOUNTS
AND
PRUCO SECURITIES CORPORATION
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TABLE OF CONTENTS
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DESCRIPTION PAGE
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Section 1. Available Funds...................................................................... 2
1.1 Availability.................................................................... 2
1.2 Addition, Deletion or Modification of Funds..................................... 2
1.3 No Sales to the General Public.................................................. 2
Section 2. Processing Transactions.............................................................. 3
2.1 Timely Pricing and Orders....................................................... 3
2.2 Timely Payments................................................................. 3
2.3 Applicable Price................................................................ 4
2.4 Dividends and Distributions..................................................... 4
2.5 Book Entry...................................................................... 4
Section 3. Costs and Expenses................................................................... 4
3.1 General......................................................................... 4
3.2 Registration.................................................................... 4
3.3 Other (Non-Sales-Related)....................................................... 5
3.4 Other (Sales-Related)........................................................... 5
3.5 Parties To Cooperate............................................................ 5
Section 4. Legal Compliance..................................................................... 6
4.1 Tax Laws........................................................................ 6
4.2 Insurance and Certain Other Laws................................................ 8
4.3 Securities Laws................................................................. 9
4.4 Notice of Certain Proceedings and Other Circumstances........................... 9
4.5 Prudential and the Underwriter To Provide Documents; Information About AVIF..... 10
4.6 AVIF or AIM To Provide Documents; Information About Prudential and the
Underwriter..................................................................... 11
4.7 Definition of Sales Literature or Other Promotional Material.................... 12
Section 5. Mixed and Shared Funding............................................................. 12
5.1 General......................................................................... 12
5.2 Disinterested Directors......................................................... 12
5.3 Monitoring for Material Irreconcilable Conflicts................................ 13
5.4 Conflict Remedies............................................................... 14
5.5 Notice to Prudential............................................................ 15
5.6 Information Requested by Board of Directors..................................... 15
5.7 Compliance with SEC Rules....................................................... 15
5.8 Other Requirements.............................................................. 15
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DESCRIPTION Page
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Section 6. Termination.......................................................................... 15
6.1 Events of Termination........................................................... 15
6.2 Notice Requirement for Termination.............................................. 17
6.3 Funds To Remain Available....................................................... 17
6.4 Survival of Warranties and Indemnifications..................................... 17
6.5 Continuance of Agreement for Certain Purposes................................... 18
Section 7. Parties To Cooperate Respecting Termination.......................................... 18
Section 8. Assignment........................................................................... 18
Section 9. Notices.............................................................................. 18
Section 10. Voting Procedures................................................................... 19
Section 11. Foreign Tax Credits................................................................. 19
Section 12. Indemnification..................................................................... 20
12.1 Of AVIF and AIM by Prudential and the Underwriter............................... 20
12.2 Of Prudential and the Underwriter by AVIF and AIM............................... 22
12.3 Effect of Notice................................................................ 24
12.4 Successors...................................................................... 24
12.5 Assignments..................................................................... 24
Section 13. Applicable Law...................................................................... 25
Section 14. Execution in Counterparts........................................................... 25
Section 15. Severability........................................................................ 25
Section 16. Rights Cumulative................................................................... 25
Section 17. Headings............................................................................ 25
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PARTICIPATION AGREEMENT
THIS AGREEMENT, made and entered into as of the day of , 1998
("Agreement"), by and among AIM Variable Insurance Funds, Inc., a Maryland
corporation ("AVIF"); A I M Distributors, Inc., a Delaware corporation ("AIM");
The Prudential Insurance Company of America ("Prudential"), a New Jersey life
insurance company, on behalf of itself and each of its segregated asset accounts
listed in Schedule A hereto, as the parties hereto may amend from time to time
(each, an "Account," and collectively, the "Accounts"); and Pruco Securities
Corporation, a New Jersey corporation and the principal underwriter of the
Contracts and Policies referred to below ("Underwriter") (collectively, the
"Parties").
WITNESSETH THAT:
WHEREAS, AVIF is registered with the Securities and Exchange Commission
("SEC") as an open-end management investment company under the Investment
Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, AVIF currently consists of fifteen separate series ("Series"),
shares ("Shares") of each of which are registered under the Securities Act of
1933, as amended (the "1933 Act") and are currently sold to one or more
separate accounts of life insurance companies to fund benefits under variable
annuity contracts; and
WHEREAS, AVIF will make Shares of each Series listed on Schedule A hereto
as the Parties hereto may amend from time to time (each a "Fund"; reference
herein to "AVIF" includes reference to each Fund, to the extent the context
requires) available for purchase by the Accounts; and
WHEREAS, AIM is a broker-dealer registered with the SEC under the
Securities Exchange Act of 1934 (the "1934 Act") and a member in good standing
of the National Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, AIM currently serves as the distributor for the Shares; and
WHEREAS, Prudential will be the issuer of certain variable annuity
contracts ("Contracts") and/or variable life insurance policies ("Policies") as
set forth on Schedule A hereto, as the Parties hereto may amend from time to
time, which Contracts and Policies (hereinafter collectively, the "Policies"),
if required by applicable law, will be registered under the 1933 Act; and
WHEREAS, Prudential will fund the Policies through the Accounts, each of
which may be divided into two or more subaccounts ("Subaccounts"; reference
herein to an "Account" includes reference to each Subaccount thereof to the
extent the context requires); and
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WHEREAS, Prudential will serve as the depositor of the Accounts, each of
which is registered as a unit investment trust investment company under the 1940
Act (or exempt therefrom), and the security interests deemed to be issued by the
Accounts under the Policies will be registered as securities under the 1933 Act
(or exempt therefrom); and
WHEREAS, to the extent permitted by applicable insurance laws and
regulations, Prudential intends to purchase Shares in one or more of the Funds
on behalf of the Accounts to fund the Policies; and
WHEREAS, the Underwriter is a broker-dealer registered with the SEC under
the 1934 Act and a member in good standing of the NASD;
NOW, THEREFORE, in consideration of the mutual benefits and promises
contained herein, the Parties hereto agree as follows:
SECTION 1. AVAILABLE FUNDS
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1.1 AVAILABILITY.
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AVIF will make Shares of each Fund available to Prudential for
purchase and redemption at net asset value and with no sales charges, subject to
the terms and conditions of this Agreement. The Board of Directors of AVIF may
refuse to sell Shares of any Fund to any person, or suspend or terminate the
offering of Shares of any Fund if such action is required by law or by
regulatory authorities having jurisdiction or if, in the sole discretion of the
Directors acting in good faith and in light of their fiduciary duties under
federal and any applicable state laws, such action is deemed in the best
interests of the shareholders of such Fund.
1.2 ADDITION, DELETION OR MODIFICATION OF FUNDS.
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The Parties hereto may agree, from time to time, to add other Funds to
provide additional funding media for the Policies, or to delete, combine, or
modify existing Funds, by amending Schedule A hereto. Upon such amendment to
Schedule A, any applicable reference to a Fund, AVIF, or its Shares herein shall
include a reference to any such additional Fund. Schedule A, as amended from
time to time, is incorporated herein by reference and is a part hereof.
1.3 NO SALES TO THE GENERAL PUBLIC.
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AVIF represents and warrants that Shares of each Fund have been and
will be sold only to those entities listed under Section 817(h)(4) of the Code
and the regulations thereunder, as such Code Section and the regulations may be
amended from time to time.
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SECTION 2. PROCESSING TRANSACTIONS
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2.1 TIMELY PRICING AND ORDERS.
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(a) AVIF or its designated agent will use its best efforts to provide
Prudential with the net asset value per Share for each Fund by 5:30 p.m. Central
Time on each Business Day. As used herein, "Business Day" shall mean any day on
which (i) the New York Stock Exchange is open for regular trading, and (ii) AVIF
calculates the Fund's net asset value.
(b) Prudential will use the data provided by AVIF each Business Day
pursuant to paragraph (a) immediately above to calculate Account unit values and
to process transactions that receive that same Business Day's Account unit
values. Prudential will perform such Account processing the same Business Day,
and will place corresponding orders to purchase or redeem Shares with AVIF by
9:00 a.m. Central Time the following Business Day; provided, however, that AVIF
shall provide additional time to Prudential in the event that AVIF is unable to
meet the 5:30 p.m. time stated in paragraph (a) immediately above. Such
additional time shall be equal to the additional time that AVIF takes to make
the net asset values available to Prudential.
(c) Each order to purchase or redeem Shares will separately describe
the amount of Shares of each Fund to be purchased, redeemed or exchanged and
will not be netted; provided, however, with respect to payment of the purchase
price by Prudential and of redemption proceeds by AVIF, Prudential and AVIF
shall net purchase and redemption orders with respect to each Fund and shall
transmit one (1) net payment per Fund in accordance with Section 2.2, below.
Each order to purchase or redeem Shares shall also specify whether the order
results from purchase payments, surrenders, partial withdrawals, routine
withdrawals of charges, or requests for other transactions under Policies
(collectively, "Policy transactions").
(d) If AVIF provides materially incorrect Share net asset value
information, Prudential shall be entitled to an adjustment to the number of
Shares purchased or redeemed to reflect the correct net asset value per Share.
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
to Prudential.
2.2 TIMELY PAYMENTS.
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Prudential will wire payment for net purchases to a custodial account
designated by AVIF by 1:00 p.m. Central Time on the same day as the order for
Shares is placed, to the extent practicable. AVIF will wire payment for net
redemptions to an account designated by Prudential by 1:00 p.m. Central Time on
the same day as the Order is placed, to the extent practicable, but in any event
within five (5) calendar days after the date the order is placed in order to
enable Prudential to pay redemption proceeds within the time specified in
Section 22(e) of the 1940 Act or such shorter period of time as may be required
by law.
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2.3 APPLICABLE PRICE.
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(a) Share purchase and redemption orders that result from Policy
transactions and that Prudential receives prior to the close of regular trading
on the New York Stock Exchange on a Business Day will be executed at the net
asset values of the appropriate Funds next computed after receipt by AVIF or its
designated agent of the orders. For purposes of this Section 2.3(a), the
Underwriter shall be the designated agent of AVIF for receipt of orders relating
to Policy transactions on each Business Day and receipt by such designated agent
shall constitute receipt by AVIF; provided, that AVIF receives notice of such
orders by 9:00 a.m. Central Time on the next following Business Day or such
later time as computed in accordance with Section 2.1(b) hereof.
(b) All other Share purchases and redemptions by Prudential will be
effected at the net asset values of the appropriate Funds next computed after
receipt by AVIF or its designated agent of the order therefor, and such orders
will be irrevocable.
2.4 DIVIDENDS AND DISTRIBUTIONS.
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AVIF will furnish notice promptly to Prudential of any income
dividends or capital gain distributions payable on the Shares of any Fund.
Prudential hereby elects to reinvest all dividends and capital gains
distributions in additional Shares of the corresponding Fund at the ex-dividend
date net asset values until Prudential otherwise notifies AVIF in writing, it
being agreed by the Parties that the ex-dividend date and the payment date with
respect to any dividend or distribution will be the same Business Day.
Prudential reserves the right to revoke this election and to receive all such
income dividends and capital gain distributions in cash.
2.5 BOOK ENTRY.
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Issuance and transfer of AVIF Shares will be by book entry only. Stock
certificates will not be issued to Prudential. Shares ordered from AVIF will be
recorded in an appropriate title for Prudential, on behalf of its Account.
SECTION 3. COSTS AND EXPENSES
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3.1 GENERAL.
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Except as otherwise specifically provided herein, each Party will bear
all expenses incident to its performance under this Agreement.
3.2 REGISTRATION.
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(a) AVIF will bear the cost of its registering as a management
investment company under the 1940 Act and registering its Shares under the 1933
Act, and keeping such
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registrations current and effective; including, without limitation, the
preparation of and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices
with respect to AVIF and its Shares and payment of all applicable registration
or filing fees with respect to any of the foregoing.
(b) Prudential will bear the cost of registering, to the extent
required, each Account as a unit investment trust under the 1940 Act and
registering units of interest under the Policies under the 1933 Act and keeping
such registrations current and effective; including, without limitation, the
preparation and filing with the SEC of Forms N-SAR and Rule 24f-2 Notices with
respect to each Account and its units of interest and payment of all applicable
registration or filing fees with respect to any of the foregoing.
3.3 OTHER (NON-SALES-RELATED).
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(a) AVIF will bear, or arrange for others to bear, the costs of
preparing, filing with the SEC and setting for printing AVIF's prospectus,
statement of additional information and any amendments or supplements thereto
(collectively, the "AVIF Prospectus"), periodic reports to shareholders, AVIF
proxy material and other shareholder communications.
(b) Prudential will bear the costs of preparing, filing with the SEC
and setting for printing each Account's prospectus, statement of additional
information and any amendments or supplements thereto (collectively, the
"Account Prospectus"), any periodic reports to Policy owners, annuitants or
participants under the Policies (collectively, "Participants"), voting
instruction solicitation material, and other Participant communications.
(c) Prudential or the Underwriter will print in quantity and deliver
to existing Participants the documents described in Section 3.3(b) above and the
documents provided by AVIF in camera ready or computer diskette form pursuant to
Section 4.6(b) hereof. The costs of printing in quantity and delivering to
existing Participants such documents will be borne by Prudential.
3.4 OTHER (SALES-RELATED).
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The Underwriter will bear the expenses of distributing Fund Shares and
the Policies. These expenses would include by way of illustration, but are not
limited to, the costs of printing and distributing to offerees the AVIF
Prospectus and periodic reports of AVIF. These costs would also include the
costs of preparing, printing, and distributing sales literature and advertising
relating to the Funds, as well as filing such materials with, and obtaining
approval from, the SEC, NASD, any state insurance regulatory authority, and any
other appropriate regulatory authority, to the extent required.
3.5 PARTIES TO COOPERATE.
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Each Party agrees to cooperate with the others, as applicable, in
arranging to print, mail and/or deliver, in a timely manner, combined or
coordinated prospectuses or other materials of AVIF and the Accounts.
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SECTION 4. LEGAL COMPLIANCE
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4.1 TAX LAWS.
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(a) AVIF represents and warrants that each Fund is currently qualified
as a regulated investment company ("RIC") under Subchapter M of the Internal
Revenue Code of 1986, as amended (the "Code"), and represents that it will
qualify and maintain qualification of each Fund as a RIC. AVIF will notify
Prudential immediately upon having a reasonable basis for believing that a Fund
has ceased to so qualify or that it might not so qualify in the future.
(b) AVIF represents that it will comply and maintain each Fund's
compliance with the diversification requirements set forth in Section 817(h) of
the Code and Section 1.817-5(b) of the regulations under the Code. AVIF will
notify Prudential immediately upon having a reasonable basis for believing that
a Fund has ceased to so comply or that a Fund might not so comply in the future.
(c) Prudential agrees that if the Internal Revenue Service ("IRS")
asserts in writing in connection with any governmental audit or review of
Prudential or, to Prudential's knowledge, of any Participant, that any Fund has
failed to comply with the diversification requirements of Section 817(h) of the
Code or Prudential otherwise becomes aware of any facts that could give rise to
any claim against AVIF or its affiliates as a result of such a failure or
alleged failure:
(i) Prudential shall promptly notify AVIF of such assertion or potential
claim;
(ii) Prudential shall consult with AVIF as to how to minimize any
liability that may arise as a result of such failure or alleged failure;
(iii) Prudential shall use its best efforts to minimize any liability of
AVIF or its affiliates resulting from such failure, including, without
limitation, demonstrating, pursuant to Treasury Regulations Section 1.817-
5(a)(2), to the Commissioner of the IRS that such failure was inadvertent;
(iv) Prudential shall permit AVIF, its affiliates and their legal and
accounting advisors to participate in any conferences, settlement discussions or
other administrative or judicial proceeding or contests (including judicial
appeals thereof) with the IRS, any Participant or any other claimant regarding
any claims that could give rise to liability to AVIF or its affiliates as a
result of such a failure or alleged failure;
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(v) any written materials to be submitted by Prudential to the IRS, any
Participant or any other claimant in connection with any of the foregoing
proceedings or contests (including, without limitation, any such materials to be
submitted to the IRS pursuant to Treasury Regulations Section 1.817-5(a)(2)),
(a) shall be provided by Prudential to AVIF (together with any supporting
information or analysis) at least ten (10) business days' prior to the day on
which such proposed materials are to be submitted, and (b) shall not be
submitted by Prudential to any such person without the express written consent
of AVIF WHICH shall not be unreasonably withheld;
(vi) Prudential shall provide AVIF or its affiliates and their accounting
and legal advisors with such cooperation as AVIF shall reasonably request
(including, without limitation, by permitting AVIF and its accounting and legal
advisors to review the relevant books and records of Prudential) in order to
facilitate review by AVIF or its advisors of any written submissions provided to
it pursuant to the preceding clause or its assessment of the validity or amount
of any claim against its arising from such a failure or alleged failure;
(vii) Prudential shall not with respect to any claim of the IRS or any
Participant that would give rise to a claim against AVIF or its affiliates (a)
compromise or settle any claim, (b) accept any adjustment on audit, or (c)
forego any allowable administrative or judicial appeals, without the express
written consent of AVIF or its affiliates, which shall not be unreasonably
withheld, provided that Prudential shall not be required, after exhausting all
administrative penalties, to appeal any adverse judicial decision unless AVIF or
its affiliates shall have provided an opinion of independent counsel to the
effect that a reasonable basis exists for taking such appeal; and
provided further that the costs of any such appeal shall be borne equally by the
Parties hereto; and
(viii) AVIF and its affiliates shall have no liability as a result of such
failure or alleged failure if Prudential fails to comply with any of the
foregoing clauses (i) through (vii), and such failure could be shown to have
materially contributed to the liability.
Should AVIF or any of its affiliates refuse to give its written
consent to any compromise or settlement of any claim or liability hereunder,
Prudential may, in its discretion, authorize AVIF or its affiliates to act in
the name of Prudential in, and to control the conduct of, such conferences,
discussions, proceedings, contests or appeals and all administrative or judicial
appeals thereof, and in that event AVIF or its affiliates shall bear the fees
and expenses associated with the conduct of the proceedings that it is so
authorized to control; provided that in no event shall Prudential have any
liability resulting from AVIF's refusal to accept the proposed settlement or
compromise with respect to any failure caused by AVIF. As used in this
Agreement, the term "affiliates" shall have the same meaning as "affiliated
person" as defined in Section 2(a)(3) of the 1940 Act.
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(d) Prudential represents and warrants that the Policies currently are
and will be treated as annuity, endowment, or life insurance contracts under
applicable provisions of the Code and that it will maintain such treatment;
Prudential will notify AVIF immediately upon having a reasonable basis for
believing that any of the Policies have ceased to be so treated or that they
might not be so treated in the future.
(e) Prudential represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are offered
exclusively through the purchase of or transfer into a "variable contract,"
within the meaning of such terms under Section 817 of the Code and the
regulations thereunder. Prudential will continue to meet such definitional
requirementS, and it will notify AVIF immediately upon having a reasonable basis
for believing that such requirements have ceased to be met or that they might
not be met in the future.
4.2 INSURANCE AND CERTAIN OTHER LAWS.
--------------------------------
(a) AVIF and AIM will use their best efforts to comply with any
applicable state insurance laws or regulations, to the extent specifically
requested in writing by Prudential.
(b) Prudential represents and warrants that (i) it is an insurance
company duly organized, validly existing and in good standing under the laws of
the State of New Jersey and has full corporate power, authority and legal right
to execute, deliver and perform its duties and comply with its obligations under
this Agreement, (ii) it has legally and validly established and maintains each
Account as a segregated asset account under the New Jersey Insurance Code and
the regulations thereunder, and (iii) the Policies comply in all material
respects with all other applicable federal and state laws and regulations.
(c) AVIF represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Maryland and has full power, authority, and legal right to execute, deliver, and
perform its duties and comply with its obligations under this Agreement.
(d) AIM represents and warrants that it is a Delaware corporation duly
organized, validly existing, and in good standing under the laws of the State of
Delaware and has full power, authority and right to execute, deliver and perform
its duties and comply with the its obligations under this Agreement.
(e) The Underwriter represents and warrants that it is a New Jersey
corporation duly organized, validly existing, and in good standing under the
laws of the State of New Jersey and has full power, authority, and legal right
to execute, deliver, and perform its duties and comply with its obligations
under this Agreement.
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4.3 SECURITIES LAWS.
---------------
(a) Prudential and the Underwriter represent and warrant that (i)
interests in each Account pursuant to the Policies will be registered under the
1933 Act to the extent required by the 1933 Act, (ii) the Policies will be duly
authorized for issuance and sold in compliance with all applicable federal and
state laws, including, without limitation, the 1933 Act, the 1934 Act, the 1940
Act and Arizona law, (iii) each Account is and will remain registered under the
1940 Act, to the extent required by the 1940 Act, (iv) each Account does and
will comply in all material respects with the requirements of the 1940 Act and
the rules thereunder, to the extent required, (v) each Account's 1933 Act
registration statement relating to the Policies, together with any amendments
thereto, will at all times comply in all material respects with the requirements
of the 1933 Act and the rules thereunder, (vi) Prudential will amend the
registration statement for its Policies under the 1933 Act and for its Accounts
under the 1940 Act from time to time as required in order to effect the
continuous offering of its Policies or as may otherwise be required by
applicable law, and (vii) each Account Prospectus will at all times comply in
all material respects with the requirements of the 1933 Act and the rules
thereunder.
(b) AVIF and AIM represent and warrant that (i) Shares sold pursuant
to this Agreement will be registered under the 1933 Act to the extent required
by the 1933 Act and duly authorized for issuance and sold in compliance with
Maryland law, (ii) AVIF is and will remain registered under the 1940 Act to the
extent required by the 1940 Act, (iii) AVIF will amend the registration
statement for its Shares under the 1933 Act and itself under the 1940 Act from
time to time as required in order to effect the continuous offering of its
Shares, (iv) AVIF does and will comply in all material respects with the
requirements of the 1940 Act and the rules thereunder, (v) AVIF's 1933 Act
registration statement, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933 Act and rules
thereunder, and (vi) AVIF Prospectus will at all times comply in all material
respects with the requirements of the 1933 Act and the rules thereunder.
(c) AVIF will register and qualify its Shares for sale in accordance
with the laws of any state or other jurisdiction if and to the extent reasonably
deemed advisable by AVIF.
4.4 NOTICE OF CERTAIN PROCEEDINGS AND OTHER CIRCUMSTANCES.
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(a) AVIF and/or AIM will immediately notify Prudential of (i) the
issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to AVIF's registration statement
under the 1933 Act or AVIF Prospectus, (ii) any request by the SEC for any
amendment to such registration statement or AVIF Prospectus, (iii) the
initiation of any proceedings for that purpose or for any other purpose relating
to the registration or offering of AVIF's Shares, or (iv) any other action or
circumstances that may prevent the lawful offer or sale of Shares of any Fund in
any state or jurisdiction, including, without limitation, any circumstances in
which (a) such Shares are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law, or (b) such law
precludes the use of such Shares as an underlying investment medium of the
Policies issued or to be issued by Prudential. AVIF will
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make every reasonable effort to prevent the issuance, with respect to any Fund,
of any such stop order, cease and desist order or similar order and, if any such
order is issued, to obtain the lifting thereof at the earliest possible time.
(b) Prudential and the Underwriter will immediately notify AVIF of (i)
the issuance by any court or regulatory body of any stop order, cease and desist
order, or other similar order with respect to each Account's registration
statement under the 1933 Act relating to the Policies or each Account
Prospectus, (ii) any request by the SEC for any amendment to such registration
statement or Account Prospectus, (iii) the initiation of any proceedings for
that purpose or for any other purpose relating to the registration or offering
of each Account's interests pursuant to the Policies, or (iv) any other action
or circumstances that may prevent the lawful offer or sale of said interests in
any state or jurisdiction, including, without limitation, any circumstances in
which said interests are not registered and, in all material respects, issued
and sold in accordance with applicable state and federal law. Prudential will
make every reasonable effort to prevent the issuance of any such stop order,
cease and desist order or similar order and, if any such order is issued, to
obtain the lifting thereof at the earliest possible time.
4.5 PRUDENTIAL AND THE UNDERWRITER TO PROVIDE DOCUMENTS; INFORMATION
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ABOUT AVIF.
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(a) Prudential or the Underwriter will provide to AVIF or its
designated agent at least one (1) complete copy of all SEC registration
statements, Account Prospectuses, reports, any preliminary and final voting
instruction solicitation material, applications for exemptions, requests for no-
action letters, and all amendments to any of the above, that relate to each
Account or the Policies, contemporaneously with the filing of such document with
the SEC or other regulatory authorities.
(b) The Underwriter will provide to AVIF or its designated agent at
least one (1) complete copy of each piece of sales literature or other
promotional material in which AVIF or any of its affiliates is named, at least
five (5) business days' prior to its use or such shorter period as the Parties
hereto may, from time to time, agree upon. No such material shall be used if
AVIF or its designated agent objects to such use within five (5) business days
after receipt of such material or such shorter period as the Parties hereto may,
from time to time, agree upon. AVIF hereby designates its investment adviser as
the entity to receive such sales literature or other promotional material, until
such time as AVIF appoints another designated agent by giving notice to
Prudential in the manner required by Section 9 hereof.
(c) Neither Prudential, the Underwriter, nor any of their respective
affiliates will give any information or make any representations or statements
on behalf of or concerning AVIF or its affiliates in connection with the sale of
the Policies other than (i) the information or representations contained in the
registration statement, including the AVIF Prospectus contained therein,
relating to Shares, as such registration statement and AVIF Prospectus may be
amended from time to time; or (ii) in reports or proxy materials for AVIF; or
(iii) in sales literature or other promotional material approved by AVIF, except
with the express written permission of AVIF.
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(d) Prudential and the Underwriter shall adopt and implement
procedures reasonably designed to ensure that information concerning AVIF and
its affiliates that is intended for use only by brokers or agents selling the
Policies (i.e., information that is not intended for distribution to
Participants or offerees) ("broker only materials") is so used, and neither AVIF
nor any of its affiliates shall be liable for any losses, damages or expense
relating to the improper use of such broker only materials.
4.6 AVIF OR AIM TO PROVIDE DOCUMENTS; INFORMATION ABOUT PRUDENTIAL AND
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THE UNDERWRITER.
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(a) AVIF will provide to Prudential at least one (1) complete copy of
all SEC registration statements, AVIF Prospectuses, reports, any preliminary and
final proxy material, applications for exemptions, requests for no-action
letters, and all amendments to any of the above, that relate to AVIF or the
Shares of a Fund, contemporaneously with the filing of such document with the
SEC or other regulatory authorities.
(b) AVIF will provide to Prudential or the Underwriter camera ready or
computer diskette copies of all AVIF Prospectuses, proxy materials, periodic
reports to shareholders and other materials required by law to be sent to
Participants who have allocated any Policy value to a Fund. AVIF will provide
such copies to Prudential or the Underwriter in a timely manner so as to enable
Prudential or the Underwriter, as the case may be, to print and distribute such
materials within the time required by law to be furnished to Participants.
(c) AIM will provide to Prudential or its designated agent at least
one (1) complete copy of each piece of sales literature or other promotional
material in which Prudential, the Underwriter or any of their respective
affiliates is named, or that refers to the Policies, at least five (5) business
days' prior to its use or such shorter period as the Parties hereto may, from
time to time, agree upon. No such material shall be used if Prudential or its
designated agent objects to such use within five (5) business days after receipt
of such material or such shorter period as the Parties hereto may, from time to
time, agree upon. Prudential shall receive all such sales literature or other
promotional material, until such time as it appoints a designated agent by
giving notice to AVIF in the manner required by Section 9 hereof.
(d) Neither AVIF nor any of its affiliates will give any information
or make any representations or statements on behalf of or concerning Prudential,
the Underwriter, each Account, or the Policies other than (i) the information or
representations contained in the registration statement, including each Account
Prospectus contained therein, relating to the Policies, as such registration
statement and Account Prospectus may be amended from time to time; or (ii) in
reports or voting instruction materials for each Account; or (iii) in sales
literature or other promotional material approved by Prudential or its
affiliates, except with the express written permission of Prudential.
II-24
(e) AIM shall adopt and implement procedures reasonably designed to
ensure that information concerning Prudential, the Underwriter, and their
respective affiliates that is intended for use only by brokers or agents selling
the Policies (i.e., information that is not intended for distribution to
Participants or offerees) ("broker only materials") is so used, and neither
Prudential, the Underwriter, nor any of their respective affiliates shall be
liable for any losses, damages or expense relating to the improper use of such
broker only materials.
4.7 DEFINITION OF SALES LITERATURE OR OTHER PROMOTIONAL MATERIAL.
------------------------------------------------------------
For purposes of this Section 4.7, 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, video tape
display, signs or billboards, motion pictures, or other public media), sales
literature (i.e., any written communication distributed or made generally
available to customers or the public, including brochures, circular, 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, prospectuses, statements of
additional information, shareholder reports, and proxy materials and any other
material constituting sales literature of advertising under NASD Rules, the 1940
Act or the 1933 Act.
SECTION 5. MIXED AND SHARED FUNDING
-----------------------------------
5.1 GENERAL.
-------
The SEC has granted an order AVIF exempting it from certain provisions
of the 1940 Act and rules thereunder so that AVIF may be available for
investment by certain other entities, including, without limitation, separate
accounts funding variable life insurance contracts, separate accounts of
insurance companies unaffiliated with Prudential, and trustees of qualified
pension and retirement plans (collectively, "Mixed and Shared Funding"). The
Parties recognize that the SEC has imposed terms and conditions for such orders
that are substantially identical to many of the provisions of this Section 5.
Sections 5.2 through 5.8 below shall apply, if and only if AVIF continues to
implement Mixed and Shared Funding, pursuant to such an exemptive order or
otherwise. AVIF hereby notifies Prudential that it may be appropriate to include
in the prospectus pursuant to which a Policy is offered disclosure regarding the
potential risks of Mixed and Shared Funding.
5.2 DISINTERESTED DIRECTORS.
-----------------------
AVIF agrees that its Board of Directors shall at all times consist of
directors a majority of whom (the "Disinterested Directors") are not interested
persons of AVIF within the meaning of Section 2(a)(19) of the 1940 Act and the
Rules thereunder and as modified by any applicable orders of the SEC, except
that if this condition is not met by reason of the death,
II-25
disqualification, or bona fide resignation of any director, then the operation
of this condition shall be suspended (a) for a period of forty-five (45) days if
the vacancy or vacancies may be filled by the Board, (b) for a period of sixty
(60) days if a vote of shareholders is required to fill the vacancy or
vacancies, or (c) for such longer period as the SEC may prescribe by order upon
application.
5.3 MONITORING FOR MATERIAL IRRECONCILABLE CONFLICTS.
------------------------------------------------
AVIF agrees that its Board of Directors will monitor for the existence
of any material irreconcilable conflict between the interests of the
Participants in all separate accounts of life insurance companies utilizing AVIF
("Participating Insurance Companies"), including each Account, and participants
in all qualified retirement and pension plans investing in AVIF ("Participating
Plans"). Prudential agrees to inform the Board of Directors of AVIF of the
existence of or any potential for any such material irreconcilable conflict of
which it is aware. The concept of a "material irreconcilable conflict" is not
defined by the 1940 Act or the rules thereunder, but the Parties recognize that
such a conflict may arise for a variety of reasons, including, without
limitation:
(a) an action by any state insurance or other regulatory authority;
(b) a change in applicable federal or state insurance, tax or
securities laws or regulations, or a public ruling, private letter ruling, no-
action or interpretative letter, or any similar action by insurance, tax or
securities regulatory authorities;
(c) an administrative or judicial decision in any relevant proceeding;
(d) the manner in which the investments of any Fund are being managed;
(e) a difference in voting instructions given by variable annuity
contract and variable life insurance contract Participants or by Participants of
different Participating Insurance Companies;
(f) a decision by a Participating Insurance Company to disregard the
voting instructions of Participants; or
(g) a decision by a Participating Plan to disregard the voting
instructions of Plan participants.
Consistent with the SEC's requirements in connection with exemptive
orders of the type referred to in Section 5.1 hereof, Prudential will assist the
Board of Directors in carrying out its responsibilities by providing the Board
of Directors with all information reasonably necessary for the Board of
Directors to consider any issue raised, including information as to a decision
by Prudential to disregard voting instructions of Participants. Prudential's
responsibilities with the foregoing shall be carried out with a view only to the
interest of Participants.
II-26
5.4 CONFLICT REMEDIES.
-----------------
(a) It is agreed that if it is determined by a majority of the members
of the Board of Directors or a majority of the Disinterested Directors that a
material irreconcilable conflict exists, Prudential will, if it is a
Participating Insurance Company for which a material irreconcilable conflict is
relevant, at its own expense and to the extent reasonably practicable (as
determined by a majority of the Disinterested Directors), take whatever steps
are necessary to remedy or eliminate the material irreconcilable conflict, which
steps may include, but are not limited to:
(i) withdrawing the assets allocable to some or all of the
Accounts from AVIF or any Fund and reinvesting such assets in a
different investment medium, including another Fund of AVIF, or
submitting the question whether such segregation should be implemented
to a vote of all affected Participants and, as appropriate,
segregating the assets of any particular group (e.g., annuity
Participants, life insurance Participants or all Participants) that
votes in favor of such segregation, or offering to the affected
Participants the option of making such a change; and
(ii) establishing a new registered investment company of the
type defined as a "management company" in Section 4(3) of the 1940 Act
or a new separate account that is operated as a management company.
(b) If the material irreconcilable conflict arises because of
Prudential's decision to disregard Participant voting instructions and that
decision represents a minority position or would preclude a majority vote,
Prudential may be required, at AVIF's election, to withdraw each Account's
investment in AVIF or any Fund. No charge or penalty will be imposed as a result
of such withdrawal. Any such withdrawal must take place within six (6) months
after AVIF gives notice to Prudential that this provision is being implemented,
and until such withdrawal AVIF shall continue to accept and implement orders by
Prudential for the purchase and redemption of Shares of AVIF.
(c) If a material irreconcilable conflict arises because a particular
state insurance regulator's decision applicable to Prudential conflicts with the
majority of other state regulators, then Prudential will withdraw each Account's
investment in AVIF within six (6) months after AVIF's Board of Directors informs
Prudential that it has determined that such decision has created a material
irreconcilable conflict, and until such withdrawal AVIF shall continue to accept
and implement orders by Prudential for the purchase and redemption of Shares of
AVIF.
(d) Prudential agrees that any remedial action taken by it in
resolving any material irreconcilable conflict will be carried out at its
expense and with a view only to the interests of Participants.
(e) For purposes hereof, a majority of the Disinterested Directors
will determine whether or not any proposed action adequately remedies any
material irreconcilable conflict. In no event, however, will AVIF or any of its
affiliates be required to establish a new funding medium for any Policies.
Prudential will not be required by the terms hereof to establish a new funding
medium
II-27
for any Policies if an offer to do so has been declined by vote of a majority of
Participants materially adversely affected by the material irreconcilable
conflict.
5.5 NOTICE TO PRUDENTIAL.
--------------------
AVIF will promptly make known in writing to Prudential the Board of
Directors' determination of the existence of a material irreconcilable conflict,
a description of the facts that give rise to such conflict and the implications
of such conflict.
5.6 INFORMATION REQUESTED BY BOARD OF DIRECTORS.
-------------------------------------------
Prudential and AVIF (or its investment adviser) will at least annually
submit to the Board of Directors of AVIF such reports, materials or data as the
Board of Directors may reasonably request so that the Board of Directors may
fully carry out the obligations imposed upon it by the provisions hereof or any
exemptive order granted by the SEC to permit Mixed and Shared Funding, and said
reports, materials and data will be submitted at any reasonable time deemed
appropriate by the Board of Directors. All reports received by the Board of
Directors of potential or existing conflicts, and all Board of Directors actions
with regard to determining the existence of a conflict, notifying Participating
Insurance Companies and Participating Plans of a conflict, and determining
whether any proposed action adequately remedies a conflict, will be properly
recorded in the minutes of the Board of Directors or other appropriate records,
and such minutes or other records will be made available to the SEC upon
request.
5.7 Compliance with SEC Rules.
-------------------------
If, at any time during which AVIF is serving as an investment medium
for variable life insurance Policies, 1940 Act Rules 6e-3(T) or, if applicable,
6e-2 are amended or Rule 6e-3 is adopted to provide exemptive relief with
respect to Mixed and Shared Funding, AVIF agrees that it will comply with the
terms and conditions thereof and that the terms of this Section 5 shall be
deemed modified if and only to the extent required in order also to comply with
the terms and conditions of such exemptive relief that is afforded by any of
said rules that are applicable.
5.8 Other Requirements.
------------------
AVIF will require that each Participating Insurance Company and
Participating Plan enter into an agreement with AVIF that contains in substance
the same provisions as are set forth in Sections 4.1(b), 4.1(d), 4.3(a), 4.4(b),
4.5(a), 5, and 10 of this Agreement.
SECTION 6. TERMINATION
----------------------
6.1 EVENTS OF TERMINATION.
---------------------
Subject to Section 6.4 below, this Agreement will terminate as to a Fund:
II-28
(a) at the option of AVIF or Prudential upon the approval by (i) a
majority of the Disinterested Directors, or (ii) a majority vote of the Shares
of the affected Fund that are held in the corresponding Subaccount of an Account
(pursuant to the procedures set forth in Section 10 of this Agreement for voting
Shares in accordance with Participant instructions); provided, however, that the
approvals described in clauses (i) and (ii) above shall not be required if (1)
the aggregate account value under the Policies is less than one million dollars
($1,000,000,000) at the date the notice of termination is delivered, and (2)
thirty-six (36) full calendar months have expired following the date the first
Policy invested in any Fund; or
(b) at the option of AVIF OR AIM upon institution of formal
proceedings against Prudential or its affiliates by The NASD, The SEC, any state
insurance regulator or any other regulatory body regarding Prudential's
obligations under this Agreement or related to the sale of the Policies, the
operation of each Account, or the purchase of Shares, if, in each case, AVIF or
AIM reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on the Fund with respect to which the Agreement is to be
terminated; or
(c) at the option of Prudential upon institution of formal proceedings
against AVIF, its principal underwriter, or its investment adviser by the NASD,
the SEC, or any state insurance regulator or any other regulatory body regarding
AVIF's obligations under this Agreement or related to the operation or
management of AVIF or the purchase of AVIF Shares, if, in each case, Prudential
reasonably determines that such proceedings, or the facts on which such
proceedings would be based, have a material likelihood of imposing material
adverse consequences on Prudential, or the Subaccount corresponding to the Fund
with respect to which the Agreement is to be terminated; or
(d) at the option of any Party in the event that (i) the Fund's Shares
are not registered and, in all material respects, issued and sold in accordance
with any applicable federal or state law, or (ii) such law precludes the use of
such Shares as an underlying investment medium of the Policies issued or to be
issued by Prudential; or
(e) upon termination of the corresponding Subaccount's investment in
the Fund pursuant to Section 5 hereof; or
(f) at the option of Prudential if the Fund ceases to qualify as a RIC
under Subchapter M of the Code or under successor or similar provisions, or if
Prudential reasonably believes that the Fund may fail to so qualify; or
(g) at the option of Prudential if the Fund fails to comply with
Section 817(h) of the Code or with successor or similar provisions, or if
Prudential reasonably believes that the Fund may fail to so comply; or
(h) at the option of AVIF or AIM if the Policies issued by Prudential
cease to qualify as annuity contracts or life insurance contracts under the Code
(other than by reason of the
II-29
Fund's noncompliance with Section 817(h) or Subchapter M of the Code) or if
interests in an Account under the Policies are not registered, where required,
and, in all material respects, are not issued or sold in accordance with any
applicable federal or state law; or
(i) upon another Party's material breach of any provision of this
Agreement; or
(j) at the option of either party upon six (6) months' advance written
notice.
6.2 NOTICE REQUIREMENT FOR TERMINATION.
----------------------------------
No termination of this Agreement will be effective unless and until
the Party terminating this Agreement gives prior written notice to the other
Party to this Agreement of its intent to terminate, and such notice shall set
forth the basis for such termination. Furthermore:
(a) in the event that any termination is based upon the provisions of
Sections 6.1(a) or 6.1(e) hereof, such prior written notice shall be given at
least six (6) months in advance of the effective date of termination unless a
shorter time is required by law or is agreed to by the Parties hereto;
(b) in the event that any termination is based upon the provisions of
Sections 6.1(b) or 6.1(c) hereof, such prior written notice shall be given at
least ninety (90) days in advance of the effective date of termination unless a
shorter time is required by law or is agreed to by the Parties hereto; and
(c) in the event that any termination is based upon the provisions of
Sections 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, such prior written
notice shall be given as soon as possible after the terminating Party learns of
the event causing termination to be required.
6.3 FUNDS TO REMAIN AVAILABLE.
-------------------------
Except (a) as necessary to implement Participant-initiated
transactions, (b) as required by state insurance laws or regulations, (c) as
required pursuant to Section 5 of this Agreement, or (d) with respect to any
Fund as to which this Agreement has terminated pursuant to Section 6.1 hereof,
Prudential shall not (i) redeem AVIF Shares attributable to the Policies (as
opposed to AVIF Shares attributable to Prudential's assets held in each
Account), or (ii) prevent Participants from allocating payments to or
transferring amounts from a Fund that was otherwise available under the
Policies, until six (6) months after Prudential shall have notified AVIF of its
intention to do so.
6.4 SURVIVAL OF WARRANTIES AND INDEMNIFICATIONS.
-------------------------------------------
All warranties and indemnifications will survive the termination of
this Agreement.
II-30
6.5 CONTINUANCE OF AGREEMENT FOR CERTAIN PURPOSES.
---------------------------------------------
If any Party terminates this Agreement with respect to any Fund pursuant to
Sections 6.1(b), 6.1(c), 6.1(d), 6.1(f), 6.1(g), 6.1(h) or 6.1(i) hereof, this
Agreement shall nevertheless continue in effect as to any Shares of that Fund
that are outstanding as of the date of such termination (the "Initial
Termination Date"). This continuation shall extend to the date as of which an
Account owns no Shares of the affected Fund.
SECTION 7. PARTIES TO COOPERATE RESPECTING TERMINATION
------------------------------------------------------
The Parties hereto agree to cooperate and give reasonable assistance
to one another in taking all necessary and appropriate steps for the purpose of
ensuring that an Account owns no Shares of a Fund after the Final Termination
Date with respect thereto, or, in the case of a termination pursuant to Section
6.1 (a), the termination date specified in the notice of termination. Such
steps may include combining the affected Account with another Account,
substituting other mutual fund shares for those of the affected Fund, or
otherwise terminating participation by the Policies in such Fund.
SECTION 8. ASSIGNMENT
---------------------
This Agreement may not be assigned by any Party, except with the
written consent of each other Party.
SECTION 9. NOTICES
------------------
Notices and communications required or permitted by Section 2 hereof
will be given by means mutually acceptable to the Parties concerned. Each other
notice or communication required or permitted by this Agreement will be given to
the following persons at the following addresses and facsimile numbers, or such
other persons, addresses or facsimile numbers as the Party receiving such
notices or communications may subsequently direct in writing:
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
751 Broad Street, 21st Floor
Newark, New Jersey 07102
Facsimile: (201) 643-5520
Attn: Mary Cavanaugh, Esq.
II-31
Pruco Securities Corporation
751 Broad Street
Newark, New Jersey 07102
Facsimile: (201) 643-5520
Attn: Mary Cavanaugh, Esq.
AIM VARIABLE INSURANCE FUNDS, INC.
A I M DISTRIBUTORS, INC.
11 Greenway Plaza, Suite 100
Houston, Texas 77046
Facsimile: (713) 993-9185
Attn: Nancy L. Martin, Esq.
SECTION 10. VOTING PROCEDURES
-----------------------------
Subject to the cost allocation procedures set forth in Section 3 hereof,
Prudential will distribute all proxy material furnished by AVIF to Participants
to whom pass-through voting privileges are required to be extended and will
solicit voting instructions from Participants. Prudential will vote Shares in
accordance with timely instructions received from Participants. Prudential will
vote Shares that are (a) not attributable to Participants to whom pass-through
voting privileges are extended, or (b) attributable to Participants, but for
which no timely instructions have been received, in the same proportion as
Shares for which said instructions have been received from Participants, so
long as and to the extent that the SEC continues to interpret the 1940 Act to
require pass-through voting privileges for Participants. Neither Prudential nor
any of its affiliates will in any way recommend action in connection with or
oppose or interfere with the solicitation of proxies for the Shares held for
such Participants. Prudential reserves the right to vote shares held in any
Account in its own right, to the extent permitted by law. Prudential shall be
responsible for assuring that each of its Accounts holding Shares calculates
voting privileges in a manner consistent with that of other Participating
Insurance Companies or in the manner required by the Mixed and Shared Funding
exemptive order obtained by AVIF. AVIF will notify Prudential of any changes of
interpretations or amendments to the Mixed and Shared Funding exemptive order it
has obtained.
SECTION 11. FOREIGN TAX CREDITS
-------------------------------
AVIF agrees to consult in advance with Prudential 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.
II-32
SECTION 12. INDEMNIFICATION
---------------------------
12.1 OF AVIF AND AIM BY PRUDENTIAL AND THE UNDERWRITER.
-------------------------------------------------
(a) Except to the extent provided in Sections 12.1(b) and 12.1(c),
below, Prudential and the Underwriter each agree to indemnify and hold harmless
AVIF, its affiliates (including AIM), and each of their respective directors and
officers, and each person, if any, who controls AVIF or its affiliates
(including AIM) within the meaning of Section 15 of the 1933 Act (collectively,
the "Indemnified Parties" for purposes of this Section 12.1) against any and
all losses, claims, damages, liabilities (including amounts paid in settlement
with the written consent of Prudential) or actions in respect thereof
(including, to the extent reasonable, 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
actions are related to the sale or acquisition of AVIF's Shares and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, the Policies,
or sales literature or advertising for the Policies (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 Prudential or the Underwriter
by or on behalf of AVIF for use in any Account's 1933 Act registration
statement, any Account Prospectus, the Policies, or sales literature or
advertising or otherwise for use in connection with the sale of Policies
or Shares (or any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in
AVIF's 1933 Act registration statement, AVIF Prospectus, sales
literature or advertising of AVIF, or any amendment or supplement to any
of the foregoing, not supplied for use therein by or on behalf of
Prudential or the Underwriter and on which such persons have reasonably
relied) or the negligent, illegal or fraudulent conduct of Prudential,
the Underwriter or their respective affiliates or persons under their
control (including, without limitation, their employees and "Associated
Persons," as that term is defined in paragraph (m) of Article I of the
NASD's By-Laws), in connection with the sale or distribution of the
Policies or Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus, sales literature or
advertising of AVIF, or any amendment or supplement to any of the
foregoing, or the omission or alleged omission to state
II-33
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 and in conformity with information
furnished to AVIF or AIM by or on behalf of Prudential, the Underwriter
or their respective affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, sales literature or advertising of AVIF, or
any amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by Prudential or the
Underwriter to perform the obligations, provide the services and furnish
the materials required of them under the terms of this Agreement, or any
material breach of any representation and/or warranty made by Prudential
or the Underwriter in this Agreement or arise out of or result from any
other material breach of this Agreement by Prudential or the
Underwriter; or
(v) arise as a result of failure by the Policies issued by
Prudential to qualify as life insurance, endowment, or annuity contracts
under the Code, otherwise than by reason of any Fund's failure to comply
with Subchapter M or Section 817(h) of the Code.
(b) Neither Prudential nor the Underwriter shall be liable under this
Section 12.1 with respect to any losses, claims, damages, liabilities or actions
to which an Indemnified Party would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance by that
Indemnified Party of its duties or by reason of that Indemnified Party's
reckless disregard of obligations or duties (i) under this Agreement, or (ii) to
AVIF or AIM.
(c) Neither Prudential nor the Underwriter shall be liable under this
Section 12.1 with respect to any action against an Indemnified Party unless AVIF
or AIM shall have notified Prudential or the Underwriter in writing within a
reasonable time after the summons or other first legal process giving
information of the nature of the action 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 Prudential or the
Underwriter of any such action shall not relieve Prudential or 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 Section 12.1. Except as
otherwise provided herein, in case any such action is brought against an
Indemnified Party, Prudential or the Underwriter shall be entitled to
participate, at its own expense, in the defense of such action and also shall be
entitled to assume the defense thereof, with counsel approved by the Indemnified
Party named in the action, which approval shall not be unreasonably withheld.
After notice from Prudential or the Underwriter to such Indemnified Party of its
election to assume the defense thereof, the Indemnified Party will cooperate
fully with Prudential and shall bear the fees and expenses of any additional
counsel retained by it, and Prudential will not be liable to such Indemnified
Party under this Agreement for any legal or other expenses subsequently incurred
by such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
II-34
12.2 OF PRUDENTIAL AND THE UNDERWRITER BY AVIF AND AIM.
-------------------------------------------------
(a) Except to the extent provided in Sections 4.1(c)(vii), 12.2(d),
12.2(e) and 12.2(f), below, AVIF and AIM each agree to indemnify and hold
harmless Prudential, the Underwriter, their respective affiliates, and each of
their respective directors and officers, and each person, if any, who controls
Prudential, the Underwriter, or their respective affiliates within the meaning
of Section 15 of the 1933 Act (collectively, the "Indemnified Parties" for
purposes of this Section 12.2) against any and all losses, claims, damages,
liabilities (including amounts paid in settlement with the written consent of
AVIF and AIM) or actions in respect thereof (including, to the extent
reasonable, 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 actions are related to
the sale or acquisition of AVIF's Shares and:
(i) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in AVIF's 1933
Act registration statement, AVIF Prospectus or sales literature or
advertising of AVIF (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 AVIF or its affiliates by or on behalf of
Prudential or its affiliates for use in AVIF's 1933 Act registration
statement, AVIF Prospectus, or in sales literature or advertising (or
any amendment or supplement to any of the foregoing); or
(ii) arise out of or as a result of any other statements or
representations (other than statements or representations contained in
any Account's 1933 Act registration statement, any Account Prospectus,
sales literature or advertising for the Policies, or any amendment or
supplement to any of the foregoing, not supplied for use therein by or
on behalf of AVIF or its affiliates and on which such persons have
reasonably relied) or the negligent, illegal or fraudulent conduct of
AVIF, its affiliates or persons under their control (including, without
limitation, their employees and "Associated Persons"), in connection
with the sale or distribution of AVIF Shares; or
(iii) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in any Account's
1933 Act registration statement, any Account Prospectus, sales
literature or advertising covering the Policies, or any amendment or
supplement to any of the foregoing, or the omission or alleged omission
to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, if such
statement or omission was made in reliance upon and in conformity with
information furnished to Prudential, the Underwriter, or their
respective affiliates by or on behalf of AVIF
II-35
or AIM for use in any Account's 1933 Act registration statement, any
Account Prospectus, sales literature or advertising covering the
Policies, or any amendment or supplement to any of the foregoing; or
(iv) arise as a result of any failure by AVIF or AIM to perform
the obligations, provide the services and furnish the materials required
of it under the terms of this Agreement, or any material breach of any
representation and/or warranty made by AVIF or AIM in this Agreement or
arise out of or result from any other material breach of this Agreement
by AVIF or AIM.
(b) Except to the extent provided in Sections 4.1(c)(vii), 12.2(d),
12.2(e) and 12.2(f) hereof, AVIF and AIM each agree to indemnify and hold
harmless the Indemnified Parties from and against any and all losses, claims,
damages, liabilities (including amounts paid in settlement thereof with, except
as set forth in Section 12.2(c) below, the written consent of AVIF and AIM) or
actions in respect thereof (including, to the extent reasonable, legal and other
expenses) to which the Indemnified Parties may become subject directly or
indirectly under any statute, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or actions directly or indirectly result
from or arise out of the failure of any Fund to operate as a regulated
investment company in compliance with (i) Subchapter M of the Code and
regulations thereunder, or (ii) Section 817(h) of the Code and regulations
thereunder, including, without limitation, any income taxes and related
penalties, rescission charges, liability under state law to Participants
asserting liability against Prudential or the Underwriter pursuant to the
Policies, the costs of any ruling and closing agreement or other settlement with
the IRS, and the cost of any substitution by Prudential of Shares of another
investment company or portfolio for those of any adversely affected Fund as a
funding medium for each Account that Prudential reasonably deems necessary or
appropriate as a result of the noncompliance.
(c) The written consent of AVIF and AIM referred to in Section 12.2(b)
above shall not be required with respect to amounts paid in connection with any
ruling and closing agreement or other settlement with the IRS.
(d) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any losses, claims, damages, liabilities or actions to which an
Indemnified Party would otherwise be subject by reason of willful misfeasance,
bad faith, or gross negligence in the performance by that Indemnified Party of
its duties or by reason of such Indemnified Party's reckless disregard of its
obligations and duties (i) under this Agreement, or (ii) to Prudential, each
Account, the Underwriter or Participants.
(e) Neither AVIF nor AIM shall be liable under this Section 12.2 with
respect to any action against an Indemnified Party unless the Indemnified
Party shall have notified AVIF or AIM in writing within a reasonable time after
the summons or other first legal process giving information of the nature of the
action 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 AVIF or AIM of any such action shall not relieve
AVIF or AM from any liability
II-36
which it may have to the Indemnified Party against whom such action is brought
otherwise than on account of this Section 12.2. Except as otherwise provided
herein, in case any such action is brought against an Indemnified Party, AVIF or
AIM will be entitled to participate, at its own expense, in the defense of such
action and also shall be entitled to assume the defense thereof (which shall
include, without limitation, the conduct of any ruling request and closing
agreement or other settlement proceeding with the IRS), with counsel approved by
the Indemnified Party named in the action, which approval shall not be
unreasonably withheld. After notice from AVIF or AIM to such Indemnified Party
of its election to assume the defense thereof, the Indemnified Party will
cooperate fully with AVIF and shall bear the fees and expenses of any additional
counsel retained by it, and AVIF will not be liable to such Indemnified Party
under this Agreement for any legal or other expenses subsequently incurred by
such Indemnified Party independently in connection with the defense thereof,
other than reasonable costs of investigation.
(f) In no event shall either AVIF or AIM be liable under the
indemnification provisions contained in this Agreement to any individual or
entity, including, without limitation, Prudential, the Underwriter, or any other
Participating Insurance Company or any Participant, with respect to any losses,
claims, damages, liabilities or expenses that arise out of or result from (i) a
breach of any representation, warranty, and/or covenant made by Prudential or
the Underwriter hereunder or by any Participating Insurance Company under an
agreement containing substantially similar representations, warranties and
covenants, (ii) the failure by Prudential or any Participating Insurance Company
to maintain its segregated asset account (which invests in any Fund) as a
legally and validly established segregated asset account under applicable state
law and as a duly registered unit investment trust under the provisions of the
1940 Act (unless exempt therefrom), or (iii) the failure by Prudential or any
Participating Insurance Company to maintain its variable annuity and/or variable
life insurance contracts (with respect to which any Fund serves as an underlying
funding vehicle) as life insurance, endowment or annuity contracts under
applicable provisions of the Code.
12.3 Effect of Notice.
----------------
Any notice given by the indemnifying Party to an Indemnified Party
referred to in Sections 12.1 (c) or 12.2(e) above of participation in or
control of any action by the indemnifying Party will in no event be deemed to be
an admission by the indemnifying Party of liability, culpability or
responsibility, and the indemnifying Party will remain free to contest liability
with respect to the claim among the Parties or otherwise.
12.4 Successors.
----------
This Agreement shall be binding on successors of any Party who shall
be entitled, among other things, to the benefits of the indemnification
contained in this Section 12.
12.5 Assignments.
------------
This Agreement shall not be assigned by any party hereto without the
prior written consent of all the parties, which consent shall not be
unreasonably withheld.
II-37
SECTION 13. APPLICABLE LAW
--------------------------
This Agreement will be construed and the provisions hereof interpreted
under and in accordance with Maryland law, without regard for that state's
principles of conflict of laws.
SECTION 14. EXECUTION IN COUNTERPARTS
-------------------------------------
This Agreement may be executed simultaneously in two or more
counterparts, each of which taken together will constitute one and the same
instrument.
SECTION 15. SEVERABILITY
------------------------
If any provision of this Agreement is held or made invalid by a court
decision, statute, rule or otherwise, the remainder of this Agreement will not
be affected thereby.
SECTION 16. RIGHTS CUMULATIVE
-----------------------------
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, that the Parties are entitled to under federal and state
laws.
SECTION 17. HEADINGS
--------------------
The Table of Contents and headings used in this Agreement are for
purposes of reference only and shall not limit or define the meaning of the
provisions of this Agreement.
----------------------------
II-38
IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed
in their names and on their behalf by and through their duly authorized officers
signing below.
AIM VARIABLE INSURANCE FUNDS, INC.
Attest: /s/ Nancy L. Martin By: /s/ Robert H. Graham
-------------------- ---------------------
Name: Nancy L. Martin Name: Robert H. Graham
Title: Assistant Secretary Title: President
A I M DISTRIBUTORS, INC.
Attest: /s/ Nancy L. Martin By: /s/ Michael J. Cemo
-------------------- ---------------------
Name: Nancy L. Martin Name: Michael J. Cemo
Title Assistant Secretary Title: President
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, on behalf of itself and its
separate accounts
Attest: /s/ Thomas C. Castano By: /s/ Fred H. Funk
---------------------- ---------------------------
Name: Thomas C. Castano Name: Fred H. Funk
---------------------- ---------------------------
Title: Assistant Secretary Title: VP, Product Development
---------------------- ---------------------------
PRUCO SECURITIES CORPORATION
Attest: /s/ Thomas C. Castano By: /s/ Richard A. Topp
---------------------- ----------------------
Name: Thomas C. Castano Name: Richard A. Topp
---------------------- ----------------------
Title: Assistant Secretary Title: President
---------------------- ----------------------
II-39
SCHEDULE A
FUNDS AVAILABLE UNDER THE POLICIES
- ----------------------------------
AIM V.I. Value Fund
SEPARATE ACCOUNTS UTILIZING THE FUNDS
- -------------------------------------
The Prudential Variable Appreciable Account,
established August 11, 1987
POLICIES FUNDED BY THE SEPARATE ACCOUNTS
- ----------------------------------------
Prudential Variable Universal Life Insurance Policy
II-40