SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of Earliest Event Reported): December 29, 2005
SECURITY NATIONAL FINANCIAL CORPORATION
(Exact name of registrant as specified in this Charter)
Utah 0-9341 87-0345941
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(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
5300 South 360 West, Salt Lake City, Utah 84123
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(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (801) 264-1060
Does Not Apply
(Former name or former address, if changed since last report)
ITEM 2.01. Completion of Acquisition of Memorial Insurance Company of America.
On December 29, 2005, Security National Financial Corporation (the
"Company"), through its subsidiaries, Security National Life Insurance Company,
a Utah domiciled insurance company and wholly owned subsidiary of the Company,
and Southern Security Life Insurance Company, a Florida domiciled insurance
company and wholly owned subsidiary of Security National Life Insurance Company,
completed a stock purchase transaction with Memorial Insurance Company of
America, an Arkansas domiciled insurance company ("Memorial Insurance Company"),
to purchase all of the outstanding shares of common stock of Memorial Insurance
Company. Under the terms of the transaction, the shareholders of Memorial
Insurance Company received $13,500,000 in consideration for all of the
outstanding common shares of Memorial Insurance Company, with each shareholder
having received a pro rata share of the total amount of the purchase
consideration based upon the number of shares such shareholder owns.
The shareholders received a total of $13,500,000 for their shares by means
of distributions, with Security National Life Insurance Company and Southern
Security Life Insurance Company simultaneously contributing sufficient capital
and surplus to Memorial Insurance Company to maintain its status as an admitted
insurer in good standing in the state of Arkansas. The transaction is to be
treated, for federal and state tax purposes, as a part sale, part redemption of
the Memorial Insurance Company stock. At the closing of the transaction, the
shareholders of Memorial Insurance Company sold all of their shares of Memorial
Insurance Company stock to Southern Security Life Insurance Company, such shares
representing all of the issued and outstanding stock of Memorial Insurance
Company. As a result, Memorial Insurance Company became a wholly-owned
subsidiary of Southern Security Life Insurance Company.
As of December 31, 2004, Memorial Insurance Company had 100,170 policies in
force and 50 agents. For the year ended December 31, 2004, Memorial Insurance
Company had revenues of $4,893,000 and net income of $2,158,000. As of December
31, 2004, the statutory assets and the capital and surplus of Memorial Insurance
Company were $45,048,000 and $12,303,000, respectfully.
Under the terms of the transaction, as set forth in the Stock Purchase
Agreement dated September 23, 2005 among Security National Life Insurance
Company, Southern Security Life Insurance Company, and Memorial Insurance
Company, the shareholders agree, where applicable following the closing of the
transaction, to maintain any existing policies from Memorial Insurance Company
that were previously sold through such shareholders' funeral and mortuary
businesses and to avoid replacing any of such policies with the policies of
other insurance companies. The shareholders further agree to use their
reasonable best efforts to support the business and operations of Memorial
Insurance Company, including, where applicable, to maintain a business
relationship with Memorial Insurance Company to the extent such a business
relationship existed prior to such closing.
Moreover, Security National Life Insurance Company and Southern Security
Life Insurance Company agree, pursuant to the terms of the Stock Purchase
Agreement, to maintain the corporate offices of Memorial Insurance Company at
its current location in Blytheville, Arkansas. Furthermore, Security National
Life Insurance Company and Southern Security Life Insurance Company agree to use
their best efforts, following the closing, to assist Memorial Insurance Company
in retaining the sales agents and brokers in its business and operations. The
obligations to complete the transaction were contingent upon approval of the
transaction by the Arkansas Insurance Department. A hearing was held on December
9, 2005 with the Commissioner of the Arkansas Insurance Department to consider
the request to approve the transaction, and the Commissioner issued an order
dated December 21, 2005 approving the transaction.
At the closing of the transaction, Security National Life Insurance Company
and Memorial Insurance Company entered into a reinsurance agreement to reinsure
the majority of the in force business of Memorial Insurance Company to Security
National Life Insurance Company, as reinsurer, to the extent permitted by the
Arkansas Insurance Department. The assets and liabilities to be reinsured under
the reinsurance agreement will be deposited into a trust account, in which
Zion's First National Bank has agreed to act as trustee. Under the terms of the
reinsurance agreement, in the event of the insolvency of Security National Life
Insurance Company, Zions First National Bank will hold the assets and
liabilities in trust for purposes of the administration of the assets and
liabilities with respect to such insolvency.
As a result of the execution of the reinsurance agreement, certain
insurance business and operations of Memorial Insurance Company will be
transferred to Security National Life Insurance Company, including all policies
in force as of the effective date thereof, except for certain policies to be
retained by Memorial Insurance Company. Any future insurance business by
Memorial Insurance Company will be covered by this reinsurance agreement. All of
the business and operations of Memorial Insurance Company are to be transferred
to Security National Life Insurance Company under the terms of the reinsurance
agreement, except for capital and surplus of approximately $1,000,000. Thus,
approximately $30,091,000 in assets and liabilities will be transferred from
Memorial Insurance Company to Security National Life Insurance Company pursuant
to the reinsurance agreement.
At the closing of the stock purchase transaction, Memorial Insurance
Company issued a $30,091,000 note to Security National Life Insurance Company
payable, together with accrued interest, within 30 days from the date of
issuance. The note is to be repaid in cash or in assets to be transferred to
Security National Life Insurance Company. The note is secured by the assets
owned by Memorial Insurance Company. In addition, Southern Security Life
Insurance Company contributed $2,200,000 to Memorial Insurance Company at
closing in consideration for the surplus note. It is anticipated that Memorial
Insurance Company will repay the surplus note in early 2006 using the proceeds
from the sale of the investments in common stock that Memorial Insurance Company
currently holds in its investment portfolio.
ITEM 9.01. Financial Statements and Exhibits
(a) It is impracticable for the Company to provide audited financial
statements of Memorial Insurance Company at the time this report is
required to be filed. The Company intends to file the required audited
financial statement as soon as practicable but not later than 71 days
after this report must be filed.
(b) The Company intends to file the required pro forma financial
information as soon as practicable but not later than 71 days after
this report must be filed.
(c) Exhibits
10.1 Stock Purchase Agreement among Security National Life Insurance
Company, Southern Security Life Insurance Company, Memorial
Insurance Company of America, and the shareholders of Memorial
Insurance Company that have executed the Agreement by
Shareholders of Memorial Insurance Company of America to Sell
Shares in Stock Purchase Transaction.*
10.2 Reinsurance Agreement between Security National Life Insurance
Company and Memorial Insurance Company of America.
10.3 Trust Agreement between Security National Life Insurance Company
and Memorial Insurance Company of America.
10.4 Promissory Note between Memorial Insurance Company as Maker and
Security National Life Insurance Company as Payee.
10.5 Security Agreement between Memorial Insurance Company as Debtor
and Security National Life Insurance Company as Secured Party.
10.6 Surplus Contribution Note between Memorial Insurance Company of
America as Maker and Southern Security Life Insurance Company as
Payee.
10.7 Guaranty Agreement by Security National Life Insurance Company
and Southern Security Life Insurance Company as Guarantors.
10.8 Administrative Services Agreement between Security National Life
Insurance Company and Memorial Insurance Company of America.
* Incorporated by reference from Report on Form 8-K, as filed on September
27, 2005.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
SECURITY NATIONAL FINANCIAL CORPORATION
(Registrant)
Date: January 4, 2006
By: /s/ Scott M. Quist
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Scott M. Quist
President and Chief Operating Officer
REINSURANCE AGREEMENT
Between
MEMORIAL INSURANCE COMPANY OF AMERICA
and
SECURITY NATIONAL LIFE INSURANCE COMPANY
TABLE OF CONTENTS
ARTICLES
I. GENERAL PROVISIONS................................................ 1
II. DURATION OF RISK.................................................. 3
III. PREMIUMS AND CONSIDERATIONS....................................... 4
IV. BENEFIT PAYMENTS.................................................. 4
V. ACCOUNTING AND SETTLEMENTS........................................ 5
VI. ARBITRATION....................................................... 6
VII. INSOLVENCY........................................................ 6
VIII. DAC TAX PROVISION................................................. 7
IX. MISCELLANEOUS PROVISIONS.......................................... 8
X. EXECUTION AND EFFECTIVE DATE...................................... 9
SCHEDULES
A. POLICIES AND RISKS REINSURED
B. REINSURANCE PREMIUMS
C. COMMISSION AND EXPENSE ALLOWANCE
D. MONTHLY REPORT OF ACTIVITY AND SETTLEMENTS
EXHIBITS
1. TRUST AGREEMENT
REINSURANCE AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into, effective this
29th day of December, 2005, by and between MEMORIAL INSURANCE COMPANY OF
AMERICA, an Arkansas domiciled insurance company (hereinafter referred to as the
"Company") and SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah domiciled
insurance company (hereinafter referred to as the "Reinsurer").
The Company and the Reinsurer mutually agree to reinsure on the terms and
conditions stated herein. This Agreement is an indemnity reinsurance agreement
solely between the Company and the Reinsurer, and performance of the obligations
of each party under this Agreement shall be rendered solely to the other party.
ARTICLE I
GENERAL PROVISIONS
1. Contracts and Risks Reinsured. The Reinsurer agrees to indemnify and the
Company agrees to transfer risk to the Reinsurer, according to the terms and
conditions hereof, the risks described in Schedule A hereto, which are in force
on the effective date (the "Effective Date") of this Agreement; subject,
however, to the same rights, offsets, counterclaims, cross claims and defenses
as are available to the Company. The Reinsurer agrees to assume all of the risk
relating to the policies transferred hereunder on the Effective Date and any new
business written after the Effective Date, except for certain policies to be
retained by the Company. No such offsets, counterclaims, cross claims or
defenses are waived but the same are expressly preserved, and Reinsurer is and
shall be fully subrogated thereto, either in its own name or in the name of the
Company, and whether the name be now known to exist or may hereafter be
discovered.
2. Coverages and Exclusions. Only risks under the life insurance policies
referred to in Schedule A are reinsured under this Agreement.
3. Plan of Reinsurance. This indemnity reinsurance shall be on the coinsurance
plan. The Company and the Reinsurer shall establish, maintain, and place all
assets held in relation to the reserves in trust in accordance with the terms of
a certain Trust Agreement, a copy of which is attached hereto as Exhibit _1_ and
by this reference is made a part hereof. The assets are to be accounted for
using statutory accounting principles of the state of Arkansas. On the Effective
Date of this Agreement, the assets to be transferred into the trust pursuant to
the Trust Agreement shall be equal to the amount of reserves transferred
thereunto.
4. Reserves. The word reserves, whenever used, shall mean the statutory reserves
held by the Company, or as should be held by the Company, on its NAIC Convention
Blank, with respect to the policies reinsured hereunder. The Company certifies,
to the best of its knowledge and belief, the actuarial accuracy of the reserves
based upon the appropriate mortality table, interest assumptions, and method of
calculation relating to each of the policies reinsured hereunder, and the
accuracy of the outstanding balances of the policy loans, dividend deposits and
coupon deposits, if any, applicable to each of the policies reinsured hereunder;
provided, however, that in the event of a breach of these policies or the
discovery by the Company or the Reinsurer of an error in calculation or
actuarial inaccuracies, any such breach or error may be cured by the Company or
the Reinsurer making a cash payment to the other, as the case may be, of the
amount of any such error in calculation or actuarial inaccuracy.
5. Extracontractual Damages. In no event shall the Reinsurer indemnify nor be
liable for any extracontractual damages or liability of any kind whatsoever
resulting from, but not limited to, the Company's negligent, reckless or
intentional wrongs, fraud, oppression, bad faith or strict liability. The
Reinsurer shall indemnify the Company for any extracontractual damages or
liability of any kind whatsoever resulting from but not limited to, the
Reinsurer's or its agents' neglect, reckless or intentional wrong, fraud,
oppression, bad faith or strict liability. The following liabilities are
examples of liabilities that would be considered extracontractual: compensatory
damages, damages for emotional distress, and punitive or exemplary damages.
6. Contract Administration. The Reinsurer shall administer the contracts
reinsured hereunder and shall perform all accounting and other administrative
functions. The Company shall make the use of its name available in such
administration and shall otherwise make available all records and other material
needed in such administration.
7. Inspection. At any reasonable time, the Reinsurer may inspect, during normal
business hours at the principal office of the Company, the papers and any other
books or documents of the Company relating to reinsurance under this Agreement.
At any reasonable time, the Company may inspect, during normal business hours at
the principal office of the Reinsurer, the papers and any and all other books or
documents of the Reinsurer relating to reinsurance under this Agreement. Neither
the Company nor the Reinsurer will use any information obtained through any
inspection pursuant to this section for purposes not relating to reinsurance
under this Agreement.
8. Taxes. The allowance, if any, for any premium taxes paid in connection with
the contracts reinsured hereunder shall be granted as part of the commission and
expense allowance as defined in Article V below.
9. Condition. The reinsurance hereunder is subject to the same limitations and
conditions as the contracts written by the Company that are reinsured hereunder,
except as otherwise provided in this Agreement.
10. Misunderstandings and Oversights. If any failure to pay amounts due or to
perform any other act required by this Agreement is unintentional and caused by
misunderstanding and oversight, the Company and the Reinsurer will adjust the
situation to what it would have been had the misunderstanding or oversight not
occurred.
11. Age Adjustment. If the Company's liability under any of the contracts
reinsured under this Agreement is changed because of a misstatement of age, the
Reinsurer will share in the change proportionately to the amount reinsured
hereunder, and the Company and the Reinsurer will make any and all proportional
adjustments thereunto.
12. Reinstatements. If a contract reinsured hereunder that was reduced,
terminated, or lapsed, and is subsequently reinstated, the reinsurance for such
contract under this Agreement will be reinstated automatically to the amount
that would be in force if the contract had not been reduced, terminated, or
lapsed. The Company will pay to the Reinsurer the Reinsurer's proportionate
share of all amounts collected from, or charged to, the insured.
13. Amendments. This Agreement shall be amended only by written agreement of the
parties.
14. Policies, Contracts. The words policy or policies, and contract or contracts
as used herein shall have the same meaning.
15. Policyholder Information. The Company shall not sell, distribute or in any
way use the policyholder information on contracts reinsured hereunder without
the prior approval of the Reinsurer, except for purposes of executing its duties
under this Agreement.
16. Reinsurance With Other Companies. Existing reinsurance with other insurance
companies on the policies specified in Schedule A shall be retained by the
Company, except as agreed upon in writing by the Reinsurer and the Company. Any
amounts paid to other reinsurance companies shall be fully reimbursed by the
Reinsurer. Any amounts received by the Company from other insurance companies
will be paid to the Reinsurer.
ARTICLE II
DURATION OF RISK
1. Duration. Except as otherwise provided herein, this Agreement shall be
unlimited in duration, and the Company and the Reinsurer shall have no right to
terminate it.
2. Reinsurer's Liability. The liability of the Reinsurer with respect to any
contract reinsured hereunder will begin simultaneously with that of the Company,
but not prior to the Effective Date of this Agreement. The Reinsurer's liability
with respect to any contract reinsured hereunder will terminate with that of the
Company on the date the Company's liability on such contract is terminated.
3. Recapture. Contracts reinsured under this Agreement are not eligible for
recapture, unless the Reinsurer becomes insolvent or is placed in receivership
or ceases to exist as a life insurance company.
4. Contract Changes. The Company will not make any contract changes in any
policies reinsured hereunder except as required by law or as mutually agreed to
by the Company and the Reinsurer. See Schedule C in reference to increases in
coverage amounts.
ARTICLE III
PREMIUM AND CONSIDERATIONS
1. Net Reserves. On the Effective Date of this Agreement, the Company agrees to
transfer into the trust pursuant to the Trust Agreement as a reserve transfer an
amount equal to the net reserves on the Effective Date of this Agreement with
respect to the liabilities reinsured as of such date and described in Schedule
A, less the ceding allowance. Net reserves are calculated as statutory reserves
minus net due and deferred premiums minus policy loans, plus advance premiums.
2. Ceding Allowance. On the Effective Date of this Agreement, the Reinsurer
agrees to pay the Company a ceding allowance equal to ten dollars ($10.00).
3. Reinsurance Premiums. The Company agrees to pay the Reinsurer reinsurance
premiums in accordance with Schedule B. For each contract, the amount of
reinsurance premium will be the amount which corresponds to the portion of the
contract reinsured. The Company makes no representations or warranties with
respect to future lapses and surrenders of the contracts reinsured.
ARTICLE IV
BENEFIT PAYMENTS
1. Notice. The Reinsurer will notify the Company promptly after receipt of any
information as to a claim on a policy to the extent reinsured hereunder. The
reinsurance claim form and any copies of notifications, claim papers and proofs
will be furnished to the Company as soon as possible.
2. Liability and Payment. The Company will accept the decision of the Reinsurer
on payment of a claim or surrender on a policy reinsured hereunder. The
Reinsurer agrees to utilize to the extent possible the claims practices of the
Company. The Reinsurer will pay such claim based upon the form of claim
settlement determined. In no instance shall anyone other than the Company or the
Reinsurer have any rights under this Agreement, and the Company shall be and
remain solely liable to any insured, policyowner, or beneficiary under any
policy reinsured hereunder.
3. Contract Claims. The Company will not contest, compromise or litigate a claim
involving a policy reinsured hereunder without the prior approval of the
Reinsurer. The Reinsurer will pay to the Company any litigation or investigative
expenses incurred on contested claims.
ARTICLE V
ACCOUNTING AND SETTLEMENT
1. Agreement Accounting Period. This Agreement shall be on a monthly accounting
period for all accounting settlements.
2. Monthly Accounting Reports. Accounting reports shall be submitted to the
Reinsurer by the Company and by the Reinsurer to the Company, not later than 15
business days after the end of each calendar month. Such reports shall include
information on the amount of reinsurance premiums, policy loans and policy loan
interest, the commission and expense allowance, claims, and reserves on the
contract reinsured for the preceding calendar month.
3. Monthly Accounting Period. The monthly accounting shall be on a
calendar-month basis, except that the initial monthly accounting period shall
run from the Effective Date of this Agreement, after the initial accounting has
occurred, through the last day of the calendar month in which the Effective Date
of this Agreement falls. The final monthly accounting period shall run from the
end of the preceding calendar month until the termination of this Agreement but
prior to actual termination of this Agreement.
4. Monthly Settlements.
(a) Within 15 business days after the end of each calendar month, the
Company will pay the Reinsurer the sum of: (i) the reinsurance premiums for the
preceding month, determined in accordance with Article III, plus (ii) the policy
loan repayments and policy loan interest paid in the preceding month, plus (iii)
any amounts received from other reinsurance companies.
(b) Simultaneously, the Reinsurer will pay the Company the sum of: (i) the
amount of benefits paid during the preceding month on the policies reinsured
hereunder, plus (ii) the commission and expense allowance determined in
accordance with Schedule C, plus (iii) new policy loans paid to policyholders in
the preceding calendar month, plus (iv) any amounts paid to other reinsurance
companies.
5. Amounts Due Monthly. Except as otherwise specifically provided in this
Agreement, all amounts due to be paid to either the Company or the Reinsurer
under this Agreement on a monthly basis shall be determined on a net basis as of
the last day of each calendar month and shall be due and payable as of such
date.
6. Estimations. If the amounts, as defined in Paragraph 4 above, cannot be
determined at such dates, as defined in Paragraph 5 above, on an exact basis,
such payments will be paid in accordance with a mutually agreeable formula that
will approximate the actual payments.
7. Offset of Payments. All monies due to either the Company or the Reinsurer
under this Agreement may be offset against each other, dollar for dollar,
regardless of the insolvency of either party.
8. Accounting Reports. Annual reports shall be submitted to the Company by the
Reinsurer not later than 20 business days after the end of each calendar year.
Such reports shall include information for the analysis of increase in reserves
and the exhibit of life insurance of the NAIC Convention Blank based on the
contracts reinsured hereunder. Quarterly accounting reports shall be submitted
to the Reinsurer by the Company not later than 20 business days after the end of
each calendar quarter and shall include information for pages 2, 3, 4, and 5 of
the NAIC Quarterly Blank.
ARTICLE VI
ARBITRATION
1. General. All disputes and differences between the Company and the Reinsurer
on which an agreement cannot be reached will be decided by arbitration. The
arbitrators will regard this Agreement from the standpoint of practical business
and equitable principles rather than that of strict law.
2. Method. Three arbitrators will decide any differences. They must be officers
of life insurance companies other than the two parties to this Agreement or any
Company owned by, or affiliated with, either party. One of the arbitrators is to
be appointed by the Reinsurer, another by the Company, and they shall select a
third before arbitration begins. Should one of the two parties decline to
appoint an arbitrator or should the two arbitrators not be able to agree upon
the choice of a third arbitrator, the appointment(s) shall be left to the
President of the American Council of Life Insurance or its successors. The
arbitrators are not bound by any rules of evidence. They shall decide by a
majority of votes and their decision will be final and binding. The cost of
arbitration, including the fees of the arbitrators, shall be shared equally by
the parties unless the arbitrators decide otherwise.
ARTICLE VII
INSOLVENCY
1. General. In the event of the Company's insolvency, liquidation, entry into
rehabilitation, change of control, bankruptcy, or other significant adverse
financial event, this Agreement will be deemed to convert, pending approval by
the Arkansas Insurance Department but without any action on the part of any
party, to an assumption reinsurance agreement as of the day prior to such
insolvency, change of control, or other adverse event. Following such
conversion, the Reinsurer is hereby empowered without any need of action on the
part of the Company, to take all other steps necessary for such conversion
including the issuance of assumption certificates. Notwithstanding the forgoing,
the Reinsurer may elect not to have such automatic conversion occur. In the
event the Reinsurer elects not to have such automatic conversion to assumption
reinsurance, then the Reinsurer's contractual liability on contracts reinsured
hereunder shall continue to be determined by all the terms, conditions and
limitations under this Agreement, but the Reinsurer will make settlement (i)
directly to the Company's liquidator, receiver or statutory successor, and (ii)
without increase or diminution because of the Company's insolvency. The
liquidator, receiver or statutory successor of the Company shall give the
Reinsurer written notice of the pendency of a claim against the Company on any
contract reinsured within reasonable time after such claim is filed in the
insolvency proceeding. During the pendency of any such claim, the Reinsurer
shall investigate such claim and interpose in the Company's name (or in the name
of the Company's liquidator, receiver or statutory successor) in the proceeding
where such claim is to be adjudicated, any defense or defenses that the
Reinsurer may deem available to the Company or its liquidator, receiver or
statutory successor. The expense thus incurred by the Reinsurer shall be
chargeable, subject to court approval, against the Company as a part of the
expense of liquidation to the extent of a proportionate share of the benefit
which may accrue to the Company solely as a result of the defense undertaken by
the Reinsurer. In the event of the Reinsurer's insolvency, liquidation, entry
into rehabilitation, change of control, bankruptcy, or other significant adverse
financial event, the assets and liabilities held by the trustee pursuant to the
Trust Agreement shall be held for purposes of administration of such assets and
liabilities with respect to such insolvency.
ARTICLE VIII
DAC TAX PROVISION
1. The Company and Reinsurer hereby agree to abide by Section 1.848-2(g)(8) of
the Income Tax Regulations under Section 848 of the Internal Revenue Code of
1986, as amended. The terms used in this Article are defined by reference to
Regulation 1.848-2. The term "net consideration" will refer to either net
consideration as defined in Regulation Section 1.848-2(f) or amount of premiums
collected and other considerations as defined in Regulation Section 1.848-3(b),
as appropriate.
2. Each party shall attach a schedule to its federal income tax return that
identifies the relevant reinsurance agreements for which the joint election
under the Regulation has been made.
3. The party with net positive consideration, as defined in the Regulation
promulgated under Code Section 848, for such Agreement for each taxable year,
shall capitalize specified policy acquisition expenses with respect to such
Agreement without regard to the general deductions limitation of Section 848
(c)(1).
4. Each party agrees to exchange information pertaining to the amount of net
consideration under such Agreement each year to ensure consistency.
5. This election shall be effective for the year that the Agreement was entered
into and for all subsequent years that such Agreement remains in effect.
6. The Company will submit to the Reinsurer by May 1 of each year its
calculation of the net consideration for the preceding calendar year. This
schedule of calculations will be accompanied by a statement signed by an officer
of the Company stating that the Company will report such net consideration in
its tax return for the preceding calendar year.
7. The Reinsurer may contest such calculation by providing an alternative
calculation to the Company in writing within 30 days of the Reinsurer's receipt
of the Company's calculation. If the Reinsurer does not so notify the Company in
the Reinsurer's tax return for the previous calendar year.
8. If the Reinsurer contests the Company's calculation of the net consideration,
the parties will act in good faith to reach an agreement as to the correct
amount within 30 days of the date the Reinsurer submits its alternative
calculation. If the Company and the Reinsurer reach agreement on the net amount
of consideration, each party shall report such amount in their respective tax
returns for the previous calendar year.
ARTICLE IX
MISCELLANEOUS PROVISIONS
1. All Schedules referred to in this Agreement are attached hereto and
incorporated herein by reference.
2. Neither this Agreement nor any reinsurance under this Agreement shall be
sold, assigned or transferred by the Company without prior written consent of
the Reinsurer. Such approval shall not unreasonably be withheld. The provisions
of this section are not intended to preclude the Reinsurer from retroceding the
reinsurance on an indemnity basis.
3. This Agreement, including any of the schedules and amendments thereto,
constitutes the entire agreement between the parties with respect to the
business being reinsured hereunder, and there are no understandings between the
parties other than as expressed in this Agreement. Any changes in this Agreement
shall be null and void unless such changes are made by written amendment to this
Agreement, signed by both parties.
4. Any notice or notification required under this Agreement requires written
notice or notification mailed or delivered to the Company at its home office in
Blytheville, Arkansas, or to the Reinsurer at its administrative office in Salt
Lake City, Utah.
5. If any provision of this Agreement is determined to be invalid or
unenforceable, such determination will not impair or affect the validity or the
enforceability of the remaining provisions of the Agreement.
6. The Company agrees to assist the Reinsurer in maintaining, where applicable,
any existing policies reinsured under this Agreement and to avoid replacing any
of such policies with policies of the Company, or its subsidiaries, or any other
insurance companies. In addition, the Company agrees to use its best reasonable
efforts to keep the policies reinsured in force and to support the business and
operations of the Reinsurer, including, where applicable, in maintaining a
satisfactory business relationship with the Reinsurer.
ARTICLE X
EXECUTION AND EFFECTIVE DATE
This Agreement shall be effective on and after December 29, 2005. In the
event of a death or other occurrence giving rise to a claim under one of the
policies, which death or occurrence occurred prior to the Effective Date,
regardless of whether the death claim or occurrence is reported prior to or
subsequent to the effective date, the Company shall be solely liable for the
payment of any claim made on account of any such death or occurrence and
Reinsurer shall pay to the Company the amount of the reserve of the policy with
respect to which the claim is paid, to the extent that such reserve is reduced
as a result of such payment.
IN WITNESS of the above, this Agreement is executed effective as of this
29th day of December, 2005.
SECURITY NATIONAL LIFE INSURANCE COMPANY
By: /s/ Scott M. Quist
------------------
Title: President
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MEMORIAL INSURANCE COMPANY OF AMERICA
By: /s/ Larry N. Perrin
-------------------
Title: Treasurer
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SCHEDULE A
POLICIES AND RISKS REINSURED
Under this Agreement, the Reinsurer reinsures all policies in force as of
the Effective Date of this Agreement and any new business written after the
Effective Date, except for certain policies to be retained by the Company.
Following the transfer of reserves and related assets pursuant to this
Agreement, the Company's capital and surplus shall not be less than $1,000,000.
SCHEDULE B
REINSURANCE PREMIUMS
1. Reinsurance Premiums. The Company shall pay the Reinsurer a reinsurance
premium on all policies in effect from time to time under this Agreement in an
amount equal to the premium collected by the Company corresponding to the amount
and policies reinsured hereunder.
2. Mode of Payment. The Premium paid to the Reinsurer by the Company will be
paid as collected by the Company.
SCHEDULE C
COMMISSIONS AND EXPENSE ALLOWANCE
1. Ceding Commission Fee on Individual Life Insurance
Plan Description Ceding Commission Fee
---------------- ----------------------
All plans reinsured hereunder An amount equal to the actual sales
commissions paid on policies
reinsured hereunder
2. Expense Allowance for Premium Taxes, Including All Other Licenses and Fees.
An expense allowance equal to the actual premium taxes paid on collected
premiums plus other licenses and fees will be paid by reinsurer in addition to
all other allowances.
3. Any Other Administrative Expenses Will Be Paid by the Reinsurer.
All administrative expenses to include, but not be limited to, policy
administration, accounting, financial statement preparation, and policyholder
services.
SCHEDULE D
MONTHLY SETTLEMENT
FROM
MEMORIAL INSURANCE COMPANY OF AMERICA
TO SECURITY NATIONAL LIFE INSURANCE COMPANY
AND FROM
SECURITY NATIONAL LIFE INSURANCE COMPANY
TO
MEMORIAL INSURANCE COMPANY OF AMERICA
Reporting Month: ________________/ ____________/ ___________
Date Report Completed: ________________/ ____________/ ___________
1) Direct Premiums ____________
Less Other Reinsurance Premiums Paid ____________
Total Premiums ____________
Total ____________
2) Policy Loans ____________
Policy Loans Repaid ____________
Policy Loan Interest Paid in Cash ____________
Total ____________
3) Benefits
Surrenders ____________
Deaths ____________
Other ____________
Less Other Reinsurance Recoveries ____________
Total ____________
4) Commissions and Expense Allowance (Schedule C) ____________
Less Other Reinsurance Allowances ____________
Net Commission and Expense Allowance ____________
Total ____________
5) New Policy Loans Paid Out in Cash ____________
6) Net Due Equals (1) + (2) - (3) - (4) - (5) = ____________
SCHEDULE D CONTINUED
Supplemental Information
Direct
Policy
# of Policies Reserves Face Amount
Beg. of Period ___________ ____________ _____________
+Additions ___________ ____________ _____________
- -Terminations ___________ ____________ _____________
End of Period ___________ ____________ _____________
Reinsurance Ceded
Policy
# of Policies Reserves Face Amount
Beg. of Period ____________ ____________ _____________
+Additions ____________ ____________ _____________
- -Terminations ____________ ____________ _____________
End of Period ____________ ____________ _____________
Direct Gross Net
- ------ ----- ---
Deferred Premiums: _____________ ____________
Due Premiums: _____________ ____________
Advance Premiums: _____________
Reinsurance Ceded
Deferred premiums: _____________ ____________
Due Premiums: _____________ ____________
Advance Premiums: _____________
Coinsurance Allowances on Reinsurance Ceded
Deferred Premium ____________
Due Premium ____________
Advance Premium ____________
Policy Loan Interest Due: ____________
Policy Loan Interest Accrued: ____________
Policy Loan Interest Unearned: ____________
Policy Loan Beginning of Period: ____________
+ New Loans Paid in Cash: ____________
+ New Loans to Cover Interest: ____________
+ New Loans to Pay Premiums: ____________
- - Loans Paid Off: ____________
Policy Loans End of Period: ____________
Policy Loans Interest Paid in Cash: ____________
Policy Loans Interest Added to Loan: ____________
Total Policy Loan Interest: ____________
EXHIBIT 1
TRUST AGREEMENT
TRUST AGREEMENT
effective as of December 29, 2005, among
MEMORIAL INSURANCE COMPANY OF AMERICA, as Grantor.
SECURITY NATIONAL LIFE INSURANCE COMPANY, as Beneficiary, and
ZIONS FIRST NATIONAL BANK, as Trustee.
TABLE OF CONTENTS
Page
Parties and Recitals
Section 1. Deposit of Assets into the Trust Account........................ 1
Section 2. Withdrawal of Assets from the Trust Account.................... 3
Section 3. Redemption, Investment and Substitution of Assets.............. 4
Section 4. The Income Account............................................. 5
Section 5. Right to Vote Assets........................................... 5
Section 6. Additional Rights and Duties of Trustee........................ 5
Section 7. Trustee's Compensation, Expenses and Indemnification........... 6
Section 8. Resignation of Trustee......................................... 7
Section 9. Termination of the Trust Account............................... 7
Section 10. Tax Returns.................................................... 8
Section 11. Definitions.................................................... 8
Section 12. Governing Law.................................................. 9
Section 13. Successors and Assigns......................................... 9
Section 14. Severability................................................... 9
Section 15. Entire Agreement.............................................. 10
Section 16. Amendments..................................................... 10
Section 17. Notices........................................................ 10
Section 18. Headings....................................................... 11
Section 19. Counterparts................................................... 11
Exhibit A Reinsurance Agreement
Exhibit B List of Assets Deposited into Trust Account
TRUST AGREEMENT
THIS TRUST AGREEMENT is made and entered into, effective this 29th day of
December, 2005 (the "Agreement"), by and among MEMORIAL INSURANCE COMPANY OF
AMERICA, an Arkansas life insurance company, together with any successor
thereof, including, without limitation, any liquidator, rehabilitator, receiver
or conservator (the "Grantor"), SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah
domiciled life insurance company (the "Beneficiary") and ZIONS FIRST NATIONAL
BANK, a national banking corporation (the "Trustee") (Grantor, Beneficiary and
Trustee are each hereinafter sometimes referred to, individually, as a "Party"
and, collectively, as the "Parties").
WITNESSETH:
WHEREAS, Grantor and Beneficiary have entered into a certain reinsurance
agreement, effective as of December 29, 2005, a copy of which is attached hereto
as Exhibit "A", and by this reference made a part hereof (the "Reinsurance
Agreement") concerning certain insurance policies (the "Reinsured Policies");
WHEREAS, Grantor desires, pursuant to the Reinsurance Agreement, to
transfer to Trustee for deposit into a trust account (the "Trust Account")
assets equal in amount to the statutory reserves subject to the Reinsurance
Agreement in order to secure payments to be made pursuant to the terms of the
Reinsurance Agreement; and
WHEREAS, Trustee has agreed to act as the trustee hereunder, and to hold
such assets in trust in the Trust Account and the Income Account, as defined in
Section 4 below, for the sole use and benefit of Beneficiary pursuant to the
Reinsurance Agreement;
NOW, THEREFORE, for and in consideration of the promises and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
Parties hereby agree as follows:
Section 1. Deposit of Assets into the Trust Account
(a) Grantor shall establish the Trust Account and Trustee shall administer
the Trust Account in its name as the trustee for Beneficiary. The Trust Account
shall be subject to withdrawal by Beneficiary as provided herein.
(b) Grantor shall transfer to Trustee, for deposit into the Trust Account,
the assets listed in Exhibit B hereto, and may transfer to Trustee, for deposit
to the Trust Account, such other assets as it may from time to time desire or as
may be required pursuant to the terms of the Reinsurance Agreement (all such
assets actually received in the Trust Account are herein referred to as the
"Assets"). The Assets shall consist of cash and Eligible Securities (as
hereinafter defined).
(c) The amounts deposited by Grantor into the Trust Account shall be in
such amount that the aggregate market value of the Trust Account at the
inception of this Trust equals or exceeds the statutory reserves on the
reinsurance ceded under the Reinsurance Agreement as of the same date. For
purposes of this section, aggregate market value shall be determined by Trustee,
and the Assets that are in default according to their terms shall have a market
value of $0 (zero dollars). For purposes of this Agreement, statutory reserves,
whenever used, shall mean the gross statutory reserves held by Grantor, or as
should be held by Grantor, on its NAIC Convention Blank, with respect to the
policies reinsured hereunder. Grantor certifies, to the best of its knowledge
and belief, the actuarial accuracy of the reserves based upon the appropriate
mortality table, interest assumptions, and method of calculation relating to
each of the policies reinsured hereunder, and the accuracy of the outstanding
balances of the policy loans, dividend deposits and coupon deposits, if any,
applicable to each of the policies reinsured hereunder; provided, however, that
in the event of a breach of these certificates or the discovery by Grantor or
Beneficiary of an error in calculation, any such breach or error may be cured by
Grantor or Beneficiary making a cash payment to the other, as the case may be,
of the amount of any such error in calculation or actuarial inaccuracy.
(d) Grantor hereby represents and warrants (i) that any Assets transferred
by Grantor to Trustee for deposit into the Trust Account will be in such form
that Beneficiary may, whenever necessary, and Trustee will, upon direction by
Beneficiary, negotiate any such Assets without consent or signature from Grantor
or any other person in accordance with the terms of this Agreement; and (ii)
that all Assets transferred by Grantor to Trustee for deposit into the Trust
Account will consist only of cash and Eligible Securities.
(e) Trustee shall have no responsibility to determine whether the Assets in
the Trust Account are sufficient to secure Grantor's liabilities under the
Reinsurance Agreement or whether such assets are equal to the Statutory
Reserves.
(f) This Agreement is a security agreement under the Arkansas Uniform
Commercial Code ("Arkansas UCC"), as enacted and in effect in the State of
Arkansas, and creates a security interest in the Assets in favor of Trustee, for
the benefit of Beneficiary. Upon Beneficiary's request, financing statements
shall be executed by the necessary party or parties and filed by Trustee in the
manner required by law to perfect such security interest. Compliance with
Arkansas UCC requirements shall not alter any rights under this Agreement or
under any other laws of the State of Arkansas, nor shall it relieve Trustee of
any obligation. Compliance with the Arkansas UCC is solely to preserve the
priority of Beneficiary's security interest in the Assets.
(g) Grantor shall deliver the Assets listed in Exhibit B hereto to Trustee
with appropriate assignments, bond powers, or powers of attorney that authorize
Trustee to transfer the Assets to its name and hold them for the benefit of
Beneficiary. In the event Assets are added to or are substituted for the Assets
already in the fund, appropriate assignments, bond powers or powers of attorney
authorizing Trustee to transfer the Assets to its name shall also be delivered
to Trustee.
(h) Grantor warrants that it will not create any other security interest in
or otherwise encumber the Assets. In the event that any lien or claim is made
against any Assets which asserts an interest superior to that of Beneficiary,
Grantor will promptly take steps satisfactory to Beneficiary to discharge the
claim or lien or shall substitute other assets for those encumbered.
Section 2. Withdrawal of Assets from the Trust Account
(a) Without notice to Grantor, but upon written notice to Trustee (the
"Withdrawal Notice"), Beneficiary shall have the right, at any time and from
time to time, to withdraw from the Trust Account, such Assets as are specified
in such Withdrawal Notice for legitimate business purposes, including the
purposes set forth below. The Withdrawal Notice may designate a third party (the
"Designee") to whom the Assets specified therein shall be delivered and may
condition delivery of such Assets to such Designee upon receipt, and deposit to
the Trust Account, of other Assets specified in such Withdrawal Notice.
Beneficiary need present no statement or document other than a representation to
be contained in the Withdrawal Notice that the Assets, using statutory
accounting principles as required or allowed by the state of Arkansas, remaining
in the Trust Account are at least equal to the Statutory Reserves as of the
preceding quarterly statutory filing, nor is said right of withdrawal or any
other provision of this Agreement subject to any conditions or qualifications
not contained in this Agreement. At no time shall Beneficiary submit a
withdrawal notice to Trustee that would cause the Assets in this Trust to be
less than the Statutory Reserves, using statutory accounting principles as
required or allowed by the state of Arkansas, on the Reinsured Policies as of
the preceding quarterly statutory filing.
(b) Beneficiary shall have the right to withdraw Assets from the Trust
Account in accordance with this Section 2 for the following purposes: (i) to
make payment of any obligation of Beneficiary under the Reinsurance Agreement;
(ii) to fund Beneficiary's share of non-forfeiture benefits returned to the
owners of policies reinsured under the Reinsurance Agreement on account of
cancellations of such policies; (iii) to fund Beneficiary's share of surrenders
and benefits or losses paid pursuant to the provisions of the policies reinsured
under the Reinsurance Agreement; (iv) to the extent the Assets in the Trust
Account, using statutory accounting principles as required or allowed by the
state of Arkansas, exceed the statutory reserves for the policies covered by the
Reinsurance Agreement, such excess amount of Assets may be withdrawn by
Beneficiary in its sole discretion. Beneficiary shall have sole ownership of any
increases in the amount of the Assets in the Trust Account, including, without
limitation, any income derived from such Assets. However, Beneficiary is
responsible to contribute to the Trust Account if the Assets are insufficient to
cover all reserve requirements on an on-going basis.
(c) Upon receipt of a Withdrawal Notice, Trustee shall immediately take any
and all steps necessary to transfer the Assets specified in such Withdrawal
Notice and shall deliver such Assets to or for the account of Beneficiary or
such Designee as specified in such Withdrawal Notice.
(d) Subject to paragraph (a) of this Section 2 and to Section 4 of this
Agreement, in the absence of a Withdrawal Notice, Trustee shall allow no
substitution or withdrawal of any Asset from the Trust Account.
(e) Trustee shall have no responsibility whatsoever to determine the manner
in which any assets withdrawn from the Trust Account pursuant to this Section 2
will be used and/or applied.
Section 3. Redemption, Investment and Substitution of Assets
(a) Trustee shall surrender for payment all maturing Assets and all Assets
called for redemption and deposit the principal amount of the proceeds of any
such payment to the Trust Account.
(b) From time to time, at the written order and direction of Beneficiary,
Trustee shall invest Assets in the Trust Account in Eligible Securities, as
authorized by the insurance laws of Arkansas, and laws of other controlling
insurance authorities. Trustee is specifically authorized to invest any cash
balances in one or more money market vehicles utilized by Trustee for fiduciary
accounts without receiving prior written direction or any further confirmation
from Beneficiary. Trustee is further permitted to utilize any such fund invested
in its own bank's deposits.
(c) From time to time, Beneficiary may direct Trustee in writing to
substitute Eligible Securities for other Eligible Securities held in the Trust
Account at such time. Trustee shall have no responsibility whatsoever to
determine the value of such substituted securities or whether such substituted
securities constitute Eligible Securities. On an annual basis, Beneficiary shall
send a written statement to Trustee, certifying that all the securities in the
Trust Account constitute Eligible Securities.
(d) Trustee shall have no responsibility whatsoever to determine that any
Assets in the Trust Account are or continue to be Eligible Securities. Trustee
shall execute instructions or orders concerning such investments or
substitutions of securities (the "Investment Orders") and settle securities
transactions by itself or by means of an agent or broker. Trustee shall not be
responsible for any act or omission, or for the solvency, of any such agent or
broker unless said act or omission is the result, in whole or in part, of
Trustee's negligence, willful misconduct or lack of good faith.
(e) Any loss incurred from any investment pursuant to the terms of this
Section 3 shall be borne exclusively by Beneficiary. Trustee shall not be liable
for any loss due to changes in market rates or penalties for early redemption.
Section 4. The Income Account
All payments of interest and dividends received from or relating to the
Assets in the Trust Account shall be deposited by Trustee into a separate income
account that shall be established by Grantor and administered by Trustee (the
"Income Account") for the benefit of Beneficiary. Trustee's compensation and
expenses shall be deducted from the Income Account, as provided in Section 7 of
this Agreement.
Section 5. Right to Vote Assets
Trustee shall forward all annual and interim stockholder reports and all
proxies and proxy materials relating to the Assets in the Trust Account to
Beneficiary. Beneficiary shall have the full and unqualified right, where
applicable, to vote any Assets in the Trust Account.
Section 6. Additional Rights and Duties of Trustee
(a) Trustee shall notify Grantor and Beneficiary in writing within ten days
following each deposit to, or withdrawal from, the Trust Account.
(b) Before accepting any Asset for deposit to the Trust Account, Trustee
shall determine that such Asset is in such form that Beneficiary whenever
necessary may, or Trustee upon direction by Beneficiary will, negotiate such
Asset without consent or signature from Grantor or any person or entity other
than Trustee in accordance with the terms of this Agreement.
(c) Trustee may deposit any Assets in the Trust Account in a book-entry
account maintained at a federally chartered bank or in depositories such as the
Depository Trust Company. Assets may be held in the name of a nominee maintained
by Trustee or by any such depository.
(d) Trustee shall accept and open all mail directed to Grantor or
Beneficiary in care of Trustee.
(e) Trustee shall furnish Grantor and Beneficiary with a written statement
of all the Assets in the Trust Account upon the inception of the Trust Account
and at the end of each calendar quarter thereafter.
(f) Upon the request of Grantor or Beneficiary, Trustee shall promptly
permit the Grantor or Beneficiary, their respective agents, employees or
independent auditors to examine, audit, excerpt, transcribe and copy, during
Trustee's normal business hours, any books, documents, papers and records
relating to the Trust Account or the Assets.
(g) Trustee is authorized to follow and rely upon instructions consistent
with the provisions of this Agreement that may be given by officers named in
incumbency certificates furnished to Trustee from time to time by Grantor and
Beneficiary, respectively, and by attorneys-in-fact acting under written
authority furnished to Trustee by Grantor or Beneficiary, including, without
limitation, instructions given by letter, facsimile transmission, telegram,
teletype, cablegram or electronic media, if Trustee believes such instructions
to be genuine and to have been signed, sent or presented by the proper party or
parties. Trustee shall not incur any liability to anyone resulting from actions
taken by Trustee in reliance in good faith on such instructions. Trustee shall
not incur any liability in executing instructions (i) from an attorney-in-fact
prior to receipt by it of notice of the revocation of the written authority of
the attorney-in-fact or (ii) from any officer of Grantor or Beneficiary named in
an incumbency certificate delivered hereunder prior to receipt by it of a more
current certificate.
(h) The duties and obligations of Trustee shall only be such as are
specifically set forth in this Agreement, as it may from time to time be
amended, and no implied duties or obligations shall be read into this Agreement
against Trustee. Trustee shall only be liable for its own negligence, willful
misconduct or lack of good faith.
(i) No provision of this Agreement shall require Trustee to take any action
which, in Trustee's reasonable judgment, would result in any violation of this
Agreement or any provision of law.
(j) Trustee may confer with counsel of its own choice in relation to
matters arising under this Agreement and shall have full and complete
authorization from the other Parties hereunder for any action taken or suffered
by it under this Agreement or under any transaction contemplated hereby in good
faith and in accordance with the opinion of such counsel.
Section 7. Trustee's Compensation, Expenses and Indemnification
(a) Trustee shall be paid its compensation and expenses from the Income
Account, as set forth in Paragraph 4, for its services as trustee under this
Agreement, based upon a fee schedule that will be mutually agreed upon by
Trustee and Beneficiary. If at anytime there is not sufficient funds in the
Income Account to pay the trustee's fees, Beneficiary will pay such fees from
sources other than the Assets in the Trust Account. Beneficiary shall have the
right to review at any time the amount of compensation and expenses paid to
Trustee for serving as a trustee hereunder and, if necessary, to dispute any
such amounts that may be incorrectly or improperly determined. All of Trustee's
expenses and disbursements in connection with its duties under this Agreement
will be paid from the Income Account, except any such expense or disbursement as
may arise from Trustee's negligence, willful misconduct or lack of good faith.
Trustee shall be entitled to deduct its compensation and expenses from payments
of dividends, interest and other income in respect of the Assets held in the
Trust Account prior to the deposit thereof to the Income Account as provided in
Section 4 of this Agreement, upon written notification to Beneficiary.
Beneficiary and Grantor also hereby indemnify Trustee for, and hold it harmless
against, any loss, liability, costs or expenses (including attorney's fees and
expenses) incurred or made without negligence, willful misconduct or lack. of
good faith on the part of Trustee, arising out of or in connection with the
performance of its obligations in accordance with the provisions of this
Agreement, including any loss, liability, costs or expenses arising out of or in
connection with the status of Trustee and its nominee as the holder of record of
the Assets. Grantor hereby acknowledges that the foregoing indemnities shall
survive the resignation of Trustee or the termination of this Agreement and
hereby grants the Trustee a lien, right of set-off and security interest in the
funds in the Income Account for the payment of any claim for compensation,
reimbursement or indemnity hereunder.
(b) No Assets, other than as related to income, shall be withdrawn from the
Trust Account or used in any manner for paying compensation to, or reimbursement
or indemnification of, Trustee.
Section 8. Resignation of Trustee
(a) Trustee may resign at any time by giving not less than 90 days' written
notice thereof to Beneficiary and to Grantor, such resignation to become
effective on the acceptance of appointment by a successor trustee and the
transfer to such successor trustee of all Assets in the Trust Account in
accordance with paragraph (b) of this Section 8.
(b) Upon receipt of Trustee's notice of resignation, Grantor and
Beneficiary shall appoint a successor trustee. Any successor trustee shall be a
bank that is a member of Federal Reserve System or shall not be a Parent, a
Subsidiary or an Affiliate of Grantor or Beneficiary. Upon the acceptance of the
appointment as trustee hereunder by a successor trustee and the transfer to such
successor trustee of all Assets in the Trust Account, the resignation of Trustee
shall become effective. Thereupon, such successor trustee shall succeed to and
become vested with all the rights, powers, privileges and duties of Trustee, and
Trustee shall be discharged from any future duties and obligations under this
Agreement, but Trustee shall continue after its resignation to be entitled to
the benefits of the indemnities provided herein for Trustee.
Section 9. Termination of the Trust Account
(a) The Trust Account and this Agreement shall be terminated upon the joint
action of both Grantor and Beneficiary, provided they have obtained written
approval from the Arkansas Insurance Department consenting to such termination.
Such notice shall specify the date (the "Termination Date") on which Grantor and
Beneficiary intend the Trust Account to terminate, which date shall be at least
fifteen (15) days subsequent to the date that the termination notice is given.
(b) On the Termination Date, upon receipt of written approval of the
Arkansas Insurance Department consenting to such termination, Trustee shall
transfer to Beneficiary all amounts remaining in the Trust Account. In the event
of insolvency of Beneficiary, as defined in Article VII of the Reinsurance
Agreement, Trustee shall hold all monies due to the Beneficiary pursuant to
unreimbursed payments made in accordance with the terms of the Reinsurance
Agreement and thereafter hold any Assets and liabilities remaining in the Trust
Account for purposes of administration of such Assets and liabilities with
respect to such insolvency.
(c) If the Reinsurance Agreement is converted to an Assumption Agreement as
a result of Grantor's insolvency as defined in Article VII of the Reinsurance
Agreement, the Trust Account shall terminate and all Assets and liabilities in
the Trust Account shall be distributed to Beneficiary.
Section 10. Tax Returns
Beneficiary shall be responsible for causing to be prepared and filed in a
timely fashion all tax returns, if any, of the Trust relating to the
transactions contemplated by this Agreement or otherwise contemplated hereby,
and it shall send a copy of each such tax return to Trustee and Grantor.
Trustee, upon request, will furnish Grantor with all such information as it has
in its possession and as may be reasonably required in connection with the
preparation of such tax returns and shall, upon the request of Beneficiary,
execute such returns if required to do so by the applicable taxing authority.
Trustee shall not be liable for any tax due and payable in connection with this
Trust Agreement except for any tax based on or measured by the net income of
Trustee resulting from the amounts paid to Trustee as fees or compensation for
acting as Trustee hereunder.
Section 11. Definitions
Except as the context shall otherwise require, the following terms shall
have the following meanings for all purposes of this Agreement (the definitions
to be applicable to both the singular and the plural forms of each term defined
if both such forms of such term are used in this Agreement):
The term "Affiliate" with respect to any corporation shall mean a
corporation which directly, or indirectly through one or more intermediaries,
controls or is controlled by, or is under common control with, such corporation.
The term "control" (including the related terms "controlled by" and "under
common control with") shall mean the ownership, directly or indirectly of more
than fifty percent (50%) of the voting stock of a corporation.
The term "Business Day" shall mean any day on which the offices of Trustee
is open for business.
The term "Eligible Securities" shall mean and include certificates of
deposit issued by a United States bank and payable in United States legal tender
and obligations issued, assumed or guaranteed by the United States, any state,
territory or possession thereof, or the District of Columbia or any money market
vehicles utilized by Trustee for fiduciary accounts, to include those invested
in its own bank's deposits, any other investment authorized under the relevant
statutes and rules of Beneficiary's domiciliary state; provided, however, that
no such securities shall have been issued by a Parent, a Subsidiary or an
Affiliate of either Grantor or Beneficiary.
The term "obligations" shall mean, with respect to the Reinsurance
Agreement, (a) losses, to include policyholder benefits, and allocated loss
expenses paid or payable by Beneficiary, but not recovered from Grantor, (b)
reserves for losses reported and outstanding, (c) reserves for losses incurred
but not reported, (d) reserves for allocated loss expenses and (e) reserves for
unearned premiums.
The term "person" shall mean and include an individual, a corporation, a
partnership, an association, a trust, an unincorporated organization or a
government or political subdivision thereof.
The term "Parent" shall mean an institution that, directly or indirectly,
controls another institution.
The term "Subsidiary" shall mean an institution controlled, directly or
indirectly, by another institution.
Section 12. Governing Law
This Agreement shall be subject to and governed by the laws of the State of
Arkansas. Venue and jurisdiction shall be in the State of Arkansas.
Section 13. Successors and Assigns
No Party may assign this Agreement or any of its rights or obligations
hereunder, without the written consent of the other Parties, whether by merger,
consolidation, sale of all or substantially all of its assets, liquidation,
dissolution or otherwise, except as expressly permitted by Section 8 of this
Agreement, except that Beneficiary may assign all of its rights and obligations
hereunder to a Parent or Subsidiary.
Section 14. Severability
In the event that any provision of this Agreement shall be declared invalid
or unenforceable by any regulatory body or court having jurisdiction, such
invalidity or unenforceability shall not affect the validity or enforceability
of the remaining portions of this Agreement.
Section 15. Entire Agreement
This Agreement constitutes the entire agreement among the Parties, and
there are no understandings or agreements, conditions or qualifications relative
to this Agreement which are not fully expressed in this Agreement.
Section 16. Amendments
This Agreement may be modified or otherwise amended, and the observance of
any term of this Agreement may be waived, if such modification, amendment or
waiver is in writing and signed by all of the Parties.
Section 17. Notices
Unless otherwise provided in this Agreement, all notices, directions,
requests, demands, acknowledgments and other communications required or
permitted to be given or made under the terms hereof shall be in writing and
shall be deemed to have been duly given or made (a)(i) when delivered
personally, (ii) when made or given by prepaid telex, telegraph or telecopier,
or (iii) in the case of mail delivery, upon the expiration of three days after
any such notice, direction, request, demand, acknowledgment or other
communication shall have been deposited in the United States mail for
transmission by first class mail, postage prepaid, or upon receipt thereof,
whichever shall first occur and (b) when addressed as follows:
If to Grantor:
Memorial Insurance Company of America
634 West Main
Blytheville, Arkansas 72315
Attn: ________________________
If to Beneficiary:
Security National Life Insurance Company
5300 South 360 West, Suite 200
Salt Lake City, Utah 84123
Attn: Scott M. Quist, President
If to Trustee:
Zions First National Bank
10 East South Temple, Suite 300
Salt Lake City, Utah 84111
Attn: ___________________
Each Party may from time to time designate a different address for notices,
directions, requests, demands, acknowledgments and other communications by
giving written notice of such change to the other Parties. All notices,
directions, requests, demands, acknowledgments and other communications relating
to Beneficiary's approval of Grantor's authorization to substitute Assets and to
the termination of the Trust Account shall be in writing and may not be made or
given by prepaid telex, telegraph or telecopier.
Section 18. Headings
The headings of the Sections and the Table of Contents have been inserted
for convenience of reference only, and shall not be deemed to constitute a part
of this Agreement.
Section 19. Counterparts
This Agreement may be executed in any number of counterparts, each of which
when so executed and delivered shall constitute an original, but such
counterparts together shall constitute one and the same Agreement.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
executed and delivered by their respective officers thereunto duly authorized as
of the date first above written.
MEMORIAL INSURANCE COMPANY OF AMERICA,
as Grantor
By:_________________________________________
Title: ______________________________
SECURITY NATIONAL LIFE INSURANCE COMPANY,
as Beneficiary
By: /s/ Larry N. Perrin
-------------------
Title: Treasurer
---------
ZIONS FIRST NATIONAL BANK, as Trustee
By: /s/ Brandon Elzinga
-------------------
Title: Trust Officer
-------------
EXHIBIT A
REINSURANCE AGREEMENT between MEMORIAL INSURANCE COMPANY OF AMERICA of
Blytheville, Arkansas and SECURITY NATIONAL LIFE INSURANCE COMPANY of Salt Lake
City, Utah, effective as of December 29, 2005.
EXHIBIT B
Assets Deposited into Trust Account
PROMISSORY NOTE
DATED this 29th day of December, 2005.
For valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, MEMORIAL INSURANCE COMPANY OF AMERICA, an Arkansas domiciled
insurance company (the "Maker"), hereby promises to pay to the order of SECURITY
NATIONAL LIFE INSURANCE COMPANY, a Utah domiciled insurance company (the
"Payee"), at 5300 South 360 West, Suite 250, Salt Lake City, Utah 84123, or, at
the Payee's option, at such other place as may be designated in writing from
time to time by the Payee, the sum of Thirty Million Ninety-one Thousand Dollars
($30,091,000), together with interest thereon as hereinafter provided, in cash
or in assets of the Company to be transferred to the Payee as determined by the
Payee in its sole discretion to be acceptable as payment on the Note.
Interest on the loan shall be charged on the unpaid principal of the loan
at a rate equal to six percent (6%) per annum, computed on the basis of a 365
day year until the loan shall have been paid in full.
Principal and accrued interest shall be due and payable on or before thirty
(30) days from the date of Note.
The Maker may prepay all or any portion of the principal balance of the
Note at any time, and from time to time, without penalty. All payments made
under this Note shall be applied first toward the reduction of accrued and
unpaid interest and then toward the reduction of the unpaid principal hereof.
This Note is secured by a Security Agreement of even date herewith executed
by the Maker.
The Maker shall be in default under this Note if the Maker shall (a) fail
to make payment due hereunder when the same shall be due and payable, (b) file a
petition seeking to be adjudged bankrupt, (c) make a general assignment for the
benefit of creditors, (d) suffer the appointment of a receiver, (e) be found to
have made any misrepresentation to the Payee, whether or not any such
misrepresentation resulted in the making of this Note, (f) fail to comply with
any other agreement related to or contemplated in connection with the execution
of this Note, or (g) become insolvent, and, in the Payee's sole discretion, any
such occurrence of default shall not be cured within ten (10) days thereof.
Upon default hereunder, at the option of the Payee, the Payee will, in
addition to the remedies set forth herein, be entitled to exercise all legal and
equitable remedies available to the holder of a full recourse obligation,
including seeking payment from all of the assets of the Maker. No agreement has
been made, or will be made, which limits the Payee's right to proceed for
payment against any or all of the Maker's assets. Upon default hereunder, the
Maker immediately shall pay the Payee, on demand, any and all expenses
reasonably incurred in relation hereto, including reasonable attorney's fees
incurred or paid by the Payee in protecting or enforcing its rights hereunder.
This Note, in whole or in part, may be extended from time to time with the
written consent of the Payee, without in any manner affecting the liability of
the Maker. Any consent of the Payee hereunder (written or otherwise), acceptance
of any payment due and payable under this Note other than in accordance with the
terms and provisions hereof, or any failure of the Payee to exercise any rights
under this Note or to specifically enforce the terms and provisions hereof shall
not be deemed or constitute a waiver of any rights or remedies to which the
Payee is entitled to under this Note or otherwise.
If any covenant or other provision of the Note is invalid, illegal, or
incapable of being enforced, by reason of any rule of law or public policy, all
other covenants and provisions of the Note shall nevertheless remain in full
force and effect, and no covenant or provision shall be deemed dependent upon
any other covenant or provision.
This Note has been executed as of the date first above written in
conformity with, and shall be construed under and governed by, the laws of the
State of Arkansas.
MAKER:
MEMORIAL INSURANCE COMPANY OF AMERICA
By: /s/ Larry N. Perrin
-------------------
Its: Treasurer
---------
ATTEST:
/s/ Bryan W. Duke
Its: Attorney
SECURITY NATIONAL LIFE INSURANCE COMPANY
By: /s/ Scott M. Quist
------------------
Its: President
---------
ATTEST:
/s/ Stephen M. Sill
Its: Chief Financial Officer
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Security Agreement") is made and entered into
effective this 29th day of December, 2005, by and between MEMORIAL INSURANCE
COMPANY OF AMERICA, an Arkansas domiciled insurance company (the "Debtor"), and
SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah domiciled insurance company
(the "Secured Party").
1. Security Interest. Subject to the terms and provisions of this Security
Agreement, the Debtor grants to the Secured Party a security interest (the
"Security Interest") in the following collateral (the "Collateral"): All of
the Debtor's right, title and interest in, and to the proceeds received
from, all of the assets owned by the Debtor, as of the effective date of
this Agreement, as listed and described in Schedule "A", which is attached
hereto and by this reference made a part hereof.
2. Obligation. This Security Agreement and the Security Interest granted
hereby secure payment by the Debtor of its obligations (the "Obligation")
under that certain promissory note, of even date herewith, payable to the
Secured Party in the principal amount of Thirty Million Ninety-one Thousand
Dollars ($30,091,000) (the "Note").
3. Debtor's Warranties and Covenants. The Debtor hereby represents and
warrants as follows:
a. Financing Statements. No financing statement or other security
agreement covering the Collateral or any proceeds thereof exists or is
on file in any public office.
b. Ownership of Collateral. The Debtor is the absolute owner of the
Collateral and has the right to pledge, sell, assign or transfer the
same. The Debtor shall defend the Collateral against all claims and
demands of all persons at any time claiming the same or any interest
therein adverse to the Secured Party.
c. No Material Adverse Change. There has been no material adverse change
in the business, business prospects or financial condition of the
Debtor that has not been fully disclosed to Secured Party.
d. Maintenance. The Debtor shall keep the Collateral free from liens and
other security interests and shall not create or suffer to exist any
lien or security interest in the Collateral. The Debtor shall
immediately pay all costs necessary (including reasonable attorney's
fees) to obtain, preserve, defend and enforce the Security Interest,
collect the Note, and preserve, defend and collect the Collateral.
4. Rights and Powers of Secured Party. The Secured Party may, in its
discretion, upon the occurrence of an event of default under this Security
Agreement, including, without limitation, any breach of any covenant or
warranty hereunder or any event of default under the Note (an "Event of
Default").
a. Require the Debtor to give title, possession or control of the
Collateral to the Secured Party;
b. Sell the Collateral and use cash proceeds of sale or other funds
generated by the Collateral to reduce any part of the Obligation;
c. Take any action the Secured Party is permitted to take under this
Security Agreement to preserve and enforce this Security Agreement,
and maintain and preserve the Collateral, all without notice to the
Debtor; and
d. Add costs incurred in connection with each of the forgoing to the
Obligation (but the Secured Party is under no duty to take any such
action).
5. Remedies of Secured Party Upon Default. When an Event of Default occurs,
and at any time thereafter, the Secured Party may declare the Obligation
secured hereby immediately due and payable and may proceed to enforce
payment of the same and to exercise any and all of the rights and remedies
provided by the Arkansas Uniform Commercial Code (the "Code"), as well as
all other rights and remedies processed by the Secured Party under this
Security Agreement or otherwise.
6. General. In addition to the foregoing, the parties to this Security
Agreement also agree as follows:
a. Waiver. No delay on the part of the Secured Party in exercising any
power or right shall operate as a waiver hereof or thereof; nor shall
nay single or partial exercise of any power or right preclude other or
further exercise thereof or the exercise of any other power or right.
No waiver by the Secured Party of any right hereunder or of any
default by the Debtor shall be binding upon the Secured Party, unless
in writing, and no failure by the Secured Party to exercise any right
hereunder or waiver of any default of the Debtor shall operate as a
waiver of any other or further exercise of such right or of any
further default.
b. Parties Bound. The rights of the Secured Party hereunder shall inure
to the benefit of its successors and assigns and shall be assignable
by the Secured Party without notice to or the consent of the Debtor.
Notwithstanding any other provision of this Security Agreement or any
instrument or agreement referenced herein, the Debtor may not assign
this Security Agreement or any interest herein voluntarily,
involuntarily, by operation of law or otherwise, without the prior
written consent of the Secured Party, which consent may be withheld
for any reason whatsoever. The terms of this Security Agreement shall
be binding upon, without restriction, the successors and assigns of
the parties hereto. All representations, warranties and agreements of
the Debtor shall bind the Debtor's successors, and assigns.
c. Definitions. Unless the context indicates otherwise, definitions in
the Code apply to words and phrases in this Security Agreement; if the
Code definitions conflict, Article 9 of the Code definitions apply.
d. Notice. Notice mailed postage prepaid to Debtor's most recent address
as shown by notice of change on file with the Secured Party at least
five (5) days prior to the related action (or if the Code elsewhere
specifies a longer period, such longer period) shall be deemed
reasonable.
e. Modifications. No provision hereof shall be modified or limited except
by a written agreement signed by both parties to this Security
Agreement.
f. Severability. The unenforceability of any provision of this Security
Agreement shall not affect the unforceability or validity of any other
provision hereof.
g. Financing Statement. The Debtor hereby appoints the Secured Party as
the exclusive attorney-in-fact with sole authority to complete and
sign one or more financing statements on behalf of the Debtor with
respect to the Collateral and to file the same in the appropriate
office or place.
h. Governing Law. This Security Agreement shall be governed by and
construed in accordance with the laws of the State of Arkansas.
i. Further Assurances; Diligence. Each party agrees to execute and
deliver all documents and to perform all further act as may be
reasonably necessary to carry out the provisions of this Security
Agreement. The parties hereto agree to use reasonable diligence and to
exercise their best efforts to fulfill their respective obligations
under this Security Agreement at all times that this Security
Agreement is in effect.
IN WITNESS WHEREOF, this Security Agreement is executed and delivered as of
the date and year first above written.
DEBTOR: MEMORIAL INSURANCE COMPANY OF AMERICA
By: /s/ Larry N. Perrin
-------------------
Its: Treasurer
---------
SECURED PARTY: SECURITY NATIONAL LIFE INSURANCE COMPANY
By: /s/ Scott M. Quist
------------------
Its: President
---------
STATE OF ARKANSAS )
)ss.
COUNTY OF PULASKI )
-------
On the 29 day of December, 2005, personally appeared before me Larry N.
Perrin , who being by me duly sworn did say that he is the Treasurer of MEMORIAL
INSURANCE COMPANY OF AMERICA, and that he signed the within and foregoing
document on behalf of said corporation.
/s/ Erin Cristler
NOTARY PUBLIC
[SEAL]
STATE OF UTAH )
)ss.
COUNTY OF SALT LAKE )
On the 29 day of December, 2005, personally appeared before me Scott M.
Quist, who being by me duly sworn did say that he is the President of SECURITY
NATIONAL LIFE INSURANCE COMPANY, and that he signed the within and foregoing
document on behalf of said corporation.
/s/ DeAnn Theurer
-----------------
NOTARY PUBLIC [SEAL]
MEMORIAL INSURANCE COMPANY OF AMERICA
SURPLUS CONTRIBUTION NOTE
FOR VALUE RECEIVED, MEMORIAL INSURANCE COMPANY OF AMERICA, an Arkansas
domiciled insurance company (hereinafter the "Company"), subject to and
conditioned upon the terms, conditions, limitations, and provisions hereof,
promises to pay to SOUTHERN SECURITY LIFE INSURANCE COMPANY, a Florida domiciled
insurance company, the principal amount of up to Two Million Two Hundred Dollars
($2,200,000), together with interest on the unpaid balance thereof at the rate
provided for herein. The Note and accrued interest shall not be a liability of
the Company until all conditions for repayment specifically provided for herein
are met.
Interest shall accrue on the outstanding principal amount of this Note from
the date hereof at the rate of six percent (6%) per annum, computed on the basis
of a 365 day year until the Note shall have been paid in full. The interest rate
herein shall never exceed the maximum rate permitted by the law in the state of
Arkansas. Principal and interest, if any, shall be payable upon the terms,
conditions, stipulations and in the amount set forth in this Note.
The Company shall be required to pay the principal amount of this Note and
any accrued interest, if any, only out of its surplus in excess of one million
dollars ($1,000,000). In no event shall any amount of principal or interest, if
any, be required of the Company if such payment reduces its surplus to less than
$1,000,000. Interest, if any, on the outstanding principal balance shall be paid
on a quarterly basis beginning January 1, 2006.
Any payments made on this Note by the Company to the holder hereof shall be
credited first to accrued but unpaid interest due, if any, and the balance of
such payment shall then be accredited to the principal amount of this Note.
Payments of principal and/or interest on this Note shall not be made unless
such payment has been approved in advance by the Arkansas Insurance Department.
No payment on the Note shall be made if, in the sole discretion of the
Company, the payment will impair the capital or surplus of the Company or reduce
the capacity of the Company to maintain a proper ratio of retained written
premiums to surplus.
This Note, upon prior approval of the Arkansas Insurance Department, may be
repaid, in whole or in part, without premium or penalty and with accrued
interest, if any, to the date of payment only.
In the event of reorganization, consolidation, merger, dissolution,
liquidation or receivership of the Company, the holder of this Note shall be
entitled to an equal right in and to the assets of the Company, along with all
of the creditors, to the extent of any unpaid principal and accrued interest, if
any, thereon, before any payment to or consideration of stockholders' equity or
rights.
In the event of liquidation of the Company, all obligations, rights and
claims hereunder are expressly subordinated to the claims of (a) policyholders,
insureds and beneficiaries under insurance contracts issued by the Company, (b)
a supervisor, conservator, or receiver of the Company appointed by the Arkansas
Insurance Department, and (c) the payment of principal and interest on any prior
surplus contribution notes or bonds issued by the Company.
This Note will be governed by and construed in accordance with the laws of
the state of Arkansas. This Note will be binding upon the Company and its
successors and assigns, and shall not be amended by the parties without the
prior written consent of the Arkansas Insurance Department.
IN WITNESS WHEREOF, this Surplus Contribution Note has been executed and is
effective as of the 29th day of December, 2005.
MEMORIAL INSURANCE COMPANY OF AMERICA
Attest:
/s/ Bryan W. Duke By: /s/ Larry N. Perrin
----------------- -------------------
Its: Attorney Its Treasurer
-------- ---------
SOUTHERN SECURITY LIFE INSURANCE COMPANY
Attest:
/s/ Stephen M. Sill By: /s/ Scott M. Quist
------------------- -------------
Its: Chief Financial Officer Its President
GUARANTY AGREEMENT
THIS GUARANTY AGREEMENT (the "Guaranty") is made and given this 29th day of
December, 2005, by SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah domiciled
insurance company, and its wholly-owned subsidiary, SOUTHERN SECURITY LIFE
INSURANCE COMPANY, a Florida domiciled insurance company (collectively, the
"Guarantors").
WITNESSETH:
WHEREAS, on September 23, 2005, Security National Financial Corporation, a
Utah corporation, through its subsidiaries, Security National Life Insurance
Company and Southern Security Life Insurance Company, entered into a stock
purchase agreement (the "Stock Purchase Agreement") with Memorial Insurance
Company of America, an Arkansas domiciled insurance company ("Memorial Insurance
Company");
WHEREAS, under the terms of the Stock Purchase Agreement, Southern Security
Life Insurance Company and Memorial Insurance Company each agree at the closing
date of the stock purchase transaction to enter into a reinsurance agreement to
reinsure all of the in force business of Memorial Insurance Company to Security
National Life Insurance Company, as insured, except for eleven policies not
included within the reinsured policies, which are to be retained by Memorial
Insurance Company (the "Retained Policies");
WHEREAS, the Retained Policies that are to be retained by Memorial
Insurance Company pursuant to the terms of the stock purchase transaction
consist of the following policies, together with the face amount and amount of
reserves of such policies:
Policy Face
Number Amount SAP Reserve
------ ---------- -----------
40116 $1,400.00 $665.50
37893 1,400.00 665.50
40117 1,200.00 374.72
39303 1,200.00 374.72
34758 700.00 557.46
38161 1,300.00 406.95
39301 2,600.00 1,090.88
32025 3,500.00 1,984.97
36085 1,400.00 744.95
34759 700.00 576.04
44711 1,400.00 1,102.01
---------- ---------
Total $16,800.00 $8,543.70
========== =========
WHEREAS, on October 20, 2005, Security National Life Insurance Company and
Southern Security Life Insurance Company submitted to the Arkansas Insurance
Department for approval a Form A Filing for the Acquisition and Control of
Memorial Insurance Company by Southern Security Life Insurance Company, in which
the filing included a proposed reinsurance agreement (the "Reinsurance
Agreement") that Security National Life Insurance Company intends to enter into
with Memorial Insurance Company at the closing date of the stock purchase
transaction;
WHEREAS, as a condition to the Arkansas Insurance Department approving the
Form A filing, Security National Life Insurance Company has agreed to enter into
a guaranty agreement with Memorial Insurance Company, in a form acceptable to
the department, to guaranty the benefit payments stated in the eleven Retained
Policies as a result of the Reinsurance Agreement to be entered into at the
closing date of the stock purchase transaction; and
WHEREAS, Security National Life Insurance Company desires to enter into a
guaranty agreement to guaranty the benefit payments stated in the Retained
Policies to be retained by Memorial Insurance Company following the completion
of the stock purchase transaction and the execution of the Reinsurance
Agreement;
NOW, THEREFORE, in respect of the foregoing, Security National Life
Insurance Company and Southern Security Life Insurance Company, as guarantors,
represent and warrant as follows:
1. The Guarantors hereby unconditionally and irrevocably guarantee to Memorial
Insurance Company, the Arkansas Insurance Department and to the policyholders of
the Retained Policies the full and prompt payment, when due, of the benefit
payments stated in each of the Retained Policies to be retained by Memorial
Insurance Company following the closing of the stock purchase transaction and
the execution of the Reinsurance Agreement, to the extent that the reserves
relating to such policies are unable to provide for the full and complete
payment of the benefits thereto (the "Obligations").
2. This guarantee of the Obligations is a continuing, absolute, and
unconditional guaranty and shall remain in full force and effect and be binding
in accordance with and to the extent of its terms upon the Guarantors and their
respective successors, transferees and assigns thereof, and inure to the benefit
of the policyholders of the Retained Policies and their heirs, legal
representatives, assigns and successors in interest, until the Obligations shall
have been satisfied in full.
3. The Guarantors further represent and warrant that:
(a) the Guarantors have full power and authority to execute and deliver
this Guaranty and to preform fully and completely all of the obligations and
liabilities under this Guaranty;
(b) the execution, delivery and performance of this Guaranty shall not
violate any law, regulation, order, writ, injunction, decree or judgment of any
court or governmental authority, and will not result in a breach of any
contract, agreement or undertaking to which any Guarantor is a party; and
(c) this Guaranty is a valid and binding obligation, enforceable upon the
Guarantors in accordance with the terms hereof (except as may be limited by
bankruptcy, insolvency or other similar laws affecting the enforcement of
creditors' rights generally and subject to the qualification that the remedy of
specific performance or of injunctive relief is subject to the discretion of the
court before which any proceeding therefore may be brought).
4. If any of the provisions of this Guaranty shall contravene or be held invalid
under the laws of any jurisdiction, this Guaranty shall be construed as if not
containing those provisions and the rights and obligations of the parties
thereto shall be construed and enforced accordingly.
5. This Guaranty may not be changed orally, and this Guaranty and the rights,
obligations and liabilities of the parties and policyholders hereunder shall be
governed by and construed in accordance with the laws of the state of Arkansas,
without giving effect to provisions thereof concerning conflict of laws.
6. The Guarantors' liability hereunder shall not be discharged except by
performance and payment of all the Obligations hereunder, provided that,
Guarantors' liability hereunder shall be reduced to the extent of any benefit
payments made from the reserves relating to the Retained Policies.
7. The Guarantors jointly and severely waive presentment for payment, notice of
protest, notice of dishonor, notice of nonpayment, notice of presentment, demand
for payment, or protest of any of the Obligations.
8. Neither the Guarantors nor their successors in interest (by operation of law
or otherwise) or legal representatives, shall assign or otherwise transfer their
obligations hereunder.
9. This Guaranty shall continue in force and affect until all Obligations of the
Guarantors under said instrument have been fully satisfied and until the benefit
payments have been paid in full to the policyholders of each of the Retained
Policies to be retained by Memorial Insurance Company following the closing of
the stock purchase transaction and the execution of the Reinsurance Agreement.
IN WITNESS WHEREOF, the Guarantors have executed and given this Guaranty as
of the day and year first above written.
GUARANTORS:
SECURITY NATIONAL LIFE INSURANCE COMPANY
By: /s/ Scott M. Quist
------------------
Scott M. Quist, President
and Chief Operating Officer
SOUTHERN SECURITY LIFE INSURANCE COMPANY
By: /s/ Stephen M. Sill
-------------------
Stephen M. Sill, Vice President, Treasurer
and Chief Financial Officer
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
On this 29th day of December, 2005, personally appeared before me Scott M.
Quist, who being by me duly sworn did say that he is the President and Chief
Operating Officer of SECURITY NATIONAL LIFE INSURANCE COMPANY and that said
Scott M. Quist stated that he signed the within and foregoing document on behalf
of said corporations.
/s/ DeAnn Theurer
NOTARY PUBLIC [SEAL]
STATE OF UTAH )
) ss.
COUNTY OF SALT LAKE )
On this 29th day of December, 2005, personally appeared before me Stephen
M. Sill, who being by me duly sworn did say that he is the Vice President,
Treasurer and Chief Financial Officer of SOUTHERN SECURITY LIFE INSURANCE
COMPANY and that said Stephen M. Sill stated that he signed the within and
foregoing document on behalf of said corporations.
/s/ DeAnn Theurer
NOTARY PUBLIC [SEAL]
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT (the "Agreement") is effective as of December 29, 2005 (the
"Effective Date") and is made and entered into by and between SECURITY NATIONAL
LIFE INSURANCE COMPANY, a Utah domiciled life insurance company ("Security
National"), and MEMORIAL INSURANCE COMPANY OF AMERICA, an Arkansas domiciled
insurance company ("Memorial").
WITNESSETH:
WHEREAS, on September 23, 2005, Security National and its wholly-owned
subsidiary, Southern Security Life Insurance Company, a Florida domiciled
insurance company, entered into a stock purchase agreement (the "Stock Purchase
Agreement") with Memorial;
WHEREAS, under the terms of the Stock Purchase Agreement, Security National
and Memorial each agree at the closing of the stock purchase transaction to
enter into a reinsurance agreement (the "Reinsurance Agreement") to reinsure all
the in force business of Memorial to Security National, as the reinsurer, except
for certain policies that are to be retained by Memorial; and
WHEREAS, as a condition to the Stock Purchase Agreement and the Reinsurance
Agreement, Security National agrees to enter into an administrative services
agreement with Memorial, in a form acceptable to the Arkansas and Utah insurance
departments, to provide general and administrative services to Memorial in
connection with the policies to be retained by Memorial following the closing of
the stock purchase transaction and the execution of the Reinsurance Agreement,
but not to include the policies to be reinsured to Security National pursuant to
the Reinsurance Agreement, in accordance with the terms and conditions
hereinafter contained;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and undertakings hereinafter contained, the parties hereto agree
as follows:
ARTICLE I
Term and Termination
Section 1.1 This Agreement shall commence on the Effective Date and shall
be unlimited in duration, remaining in full force and effect as long as the
Reinsurance Agreement shall remain in full force and effect.
Section 1.2. Any termination of this Agreement shall not affect the rights
and obligations of the parties hereto as to transactions or acts done or
performed by either party prior to the effective date of termination.
ARTICLE II
Appointment, Authority and Duties of Security National
Section 2.1. Memorial hereby engages Security National to provide
administrative and financial services described herein to Memorial for the
policies to be retained by Memorial pursuant to the stock purchase transaction
and the Reinsurance Agreement, but not to include the policies reinsured to
Security National under the Reinsurance Agreement.. Without limiting the
generality of the foregoing, Security National shall, directly or indirectly,
and at the reasonable request and direction of the Board of Directors of
Memorial, perform or render the following administrative and financial services
relating to:
A. Accounting Services. These services shall include policyholder billing,
collection of policyholder premiums, payment of commissions, maintaining records
of accounts receivable and accounts payable, payment of expenses, providing
management reports to include budgeting and interim financial reports, payroll
administration to the extent Memorial has employees outside the scope of this
Agreement, proper posting of financial transactions to the policyholder in
force, among other items.
B. Financial Reports and Statements. Preparation of financial reports and
statements to include the preparation of statutory reports including quarterly
and annual reports for the submission to the Arkansas Insurance Department and
other relevant jurisdictions, other management reports to be agreed upon,
periodic reports to the Internal Revenue Service, including tax returns, the
management and payment of an annual audit fee with an acceptable certified
public accounting firm, management of insurance department examinations, and the
payment of the fees therefore.
C. Actuarial. Security National shall make available all existing products
of Security National or related subsidiaries, shall maintain reserves and
reserve calculations for financial statement, including GAAP, statutory, and
federal income tax, and internal purposes, shall perform profitability analysis
and shall be available for limited product development and/or product
enhancement work.
D. Policyholder Services. Policyholder services shall handle all
policyholder correspondence, shall calculate cash surrender values, maintain
lapses, cancellations, reinstatement, and shall provide claim services,
including investigation and administration of claims and the payment thereof.
E. Underwriting. To include the receipt of applications, analysis of said
applications, and selection of risks including the management of medical
evaluation of such risks, requesting MIB reports, requesting and evaluating
attending physician statements, medical examinations, and upon the acceptance of
such risks the issuance of the policy.
F. Data Processing. To allow Memorial access to the data processing system
of Security National and to provide data processing services such that the
services contemplated by this Agreement can be provided on a timely basis,
including new policy issue, policyholder services, accounting, in-force
maintenance, commissions and other functions.
G. Legal. To include review of contracts, drafting or review of contracts
for the purpose of agents or other purposes, and management of legal expenses
incurred by Memorial for litigation or otherwise.
H. Building Management. To insure the building is properly maintained.
I. Marketing Advisory Services. To include agent licensing, calculation of
commissions, payment of commissions, maintenance of the agency system, providing
market analysis of various opportunities, and managing policy acquisition costs
including commissions, advertising, marketing contests, sales conventions, and
other items.
J. Investment Services. To provide investment services including the
recommendation of publicly traded investments, mortgage loan services including
purchase of loans and investments in mortgage warehouse lines, investment
accounting including preparation of Schedule D of the statutory annual
statement, and investment maintenance including calls and redemption of
securities.
Section 2.2. All services including underwriting, claims management and
investment services provided to Memorial hereunder are to be based upon the
written criteria, standards and guidelines of Memorial. In the absence of such
written procedures, Security National shall be entitled to rely upon its own
best judgment in the respective matter. The standard shall be that of a prudent
person managing his own affairs. Memorial shall have the ultimate and final
authority over all decisions and policies, including but not limited to,
decisions and policies related to the acceptance, rejection or canceling of
rights, the payment or nonpayment of claims, and the purchase and sale of
securities.
Section 2.3. Notwithstanding any other provision of this Agreement, it is
understood that the business and affairs of Memorial shall be managed by its
Board of Directors, and to the extent delegated by such Board, by its
appropriately designated officers.
Section 2.4. All services provided by Security National hereunder shall be
performed in accordance with generally accepted professional standards and, in
this regard, Security National shall (a) maintain a staff of competent and
trained personnel, supplies and equipment for the purpose of performing its
duties hereunder; (b) use reasonable efforts to service Memorial diligently and
faithfully, to promote and safeguard the best interests of Memorial; and (c)
perform all acts reasonably necessary to ensure the smooth and proper conduct of
the subject business on behalf of Memorial. Security National may employ other
persons or entities to furnish it with statistical and other factual
information, advice and assistance as it may deem necessary or desirable for the
proper and efficient conduct of its activities hereunder.
Section 2.5. Standard of care and standard of performance of duties. Duties
and obligations of Security National shall be provided in a manner consistent
with the nature, type, timeliness, and amount of service that was provided by
Memorial's own employees. Where services are to be provided by Security National
that had not previously been provided by Memorial's employees, the standard for
such services shall be that of a reasonable person managing his own affairs
engaged in similar service.
Section 2.6. It is contemplated that Security National will hire certain
current employees of Memorial in order to accomplish the purposes of this
Agreement. Memorial agrees to cooperate in retaining such employees and in other
ways to effectuate the purposes of this Agreement. Memorial represents and
agrees that all employees are "at will" employees not subject to any employment
agreement or retirement plan.
Section 2.7. Warranties and Limitation of Liability. It is understood and
agreed that Security National will be using certain commercially available
products to include software and computer hardware among others. Security
National specifically makes no guarantees, warranties, or otherwise regarding
such items and the only such warranty or guaranty is that provided by the
manufacturer. Furthermore, it is specifically agreed that in undertaking this
Agreement, Security National is relying upon Memorial's representation as to its
needs, requirements, and past capabilities. Security National makes no warranty
or guaranty and accepts no liability with regards to its services or with
regards to its investment advice.
ARTICLE III
Expenses and Compensation of Security National
Section 3.1. Security National shall furnish at its own expense, executive,
supervisory and other personnel and services in connection with the services
that it is to provide as contemplated by this Agreement.
Section 3.2. In full consideration for the services rendered by Security
National hereunder, during each year of the term of this Agreement, Memorial
shall pay to Security National an Administrative Services Fee (the
"Administrative Services Fee") of $25.00 per policy per year, provided, however,
that the Administrative Services Fee shall be reduced to zero for as long as
capital and surplus of Memorial is less than or equal to $1,000,000, unless
Memorial and Security National otherwise agree in writing and such agreement is
approved by the Arkansas and Utah insurance departments.
ARTICLE IV
Representations and Warranties
Section 4.1. Security National hereby represents and warrants to Memorial
that it has full corporate power and authority to enter into this Agreement, and
that the officer executing this Agreement has full authority and right to do so
on behalf of Security National.
Section 4.2. Memorial hereby represents and warrants to Security National
that it has full corporate power and authority to enter into this Agreement and
that the officer executing this Agreement has full authority and right to do so
on behalf of Memorial.
ARTICLE V
Compliance with the Memorial Policies
Security National covenants and agrees that the investment planning,
investment advice and services that it furnishes Memorial hereunder will be in
accordance with the general investment policies of Memorial set forth from time
to time by its Board of Directors or any appropriate committee thereof, and in
any memoranda or letter agreements to Security National, in accordance with the
criteria and limitations provided by Sections of the Arkansas insurance laws, as
amended from time to time.
ARTICLE VI
Records
Section 6.1. Security National agrees that it will maintain all records,
memoranda, instructions and authorizations relating to the services performed
hereunder on behalf of Memorial (the "Records"). The Records shall (a) be and
remain the property of Memorial, (b) be open at all times to inspection and
audit by Memorial or its authorized representatives, and (c) shall be delivered
to Memorial upon written demand therefore provided that Security National may
retain a copy or duplicate of each Record, delivered to Memorial pursuant to (d)
and Memorial will reimburse Security National for all reasonable expenses
incurred in delivering Records to Memorial, including without limitation the
cost to photocopy Records, copies of which are retained by Security National,
and delivery expenses.
Section 6.2. Security National shall, at the request of Memorial, assist
and provide operational support in connection with any audit of any records with
respect to the services provided hereunder that is undertaken by Memorial's
auditors, its firm of CPA's, its actuaries or the insurance department of any
state or any other governmental agency.
Section 6.3. Security National shall provide, upon Memorial's reasonable
request, any Records in its possession and control which are necessary to file
any report required by any federal, state or local governmental agencies. If
such Records are not timely provided, Security National will pay any cost
reasonably incurred by Memorial in compiling the necessary information.
Section 6.4. The terms and conditions of this Agreement and the Records in
the possession and the control of Security National are confidential and shall
be treated as such by Security National and its employees.
ARTICLE VII
Independent Contractors
This Agreement is not a contract of employment and nothing herein contained
shall be construed to created the relationship of employer and employee between
Memorial and Security National. Security National is an independent contractor
and shall be free to exercise judgment and discretion with regard to its duties
under this Agreement.
ARTICLE VIII
Notices
Section 8.1. All notices, requests, demands and other communications
under this Agreement or in connection therewith shall be given or made as
follows:
If to Memorial:
Memorial Insurance Company of America
64 West Main
Blytheville, Arkansas 72315
Attn: ________________________
Facsimile: (870) 838-0988
Telephone No.: (870) 763-0713
With copies to:
Randall A. Mackey, Esq.
Mackey Price Thompson & Ostler
57 West 200 South, Suite 350
Salt Lake City, Utah 84111
Facsimile: (801) 575-5006
Telephone No.: (801) 575-5000
If to Security National:
Security National Life Insurance Company
5300 South 360 West, Suite 250
Salt Lake City, Utah 84123
Attn: Scott M. Quist, President
and Chief Operating Officer
Facsimile: (801) 265-9882
Telephone No.: (801) 264-1060
with a copy to:
Randall A. Mackey, Esq.
Mackey Price Thompson & Ostler
57 West 200 South, Suite 350
Salt Lake City, Utah 84111
Facsimile: (801) 575-5006
Telephone No.: (801) 575-5000
Section 8.2. Any notice or communication required or permitted to be given
in terms of this Agreement shall be valid and effective only if in writing.
Section 8.3. Either party may by written notice to the other sent by
prepaid registered mail change its address to another physical address provided
that change of address shall only become effective on the seventh (7th) day
after dispatch of the notice.
Section 8.4. Any notice or communication sent by prepaid United States mail
pursuant to this Agreement shall be deemed to have been received within ten (10)
days of the date of posting. Any notice or communication sent by facsimile
transmission pursuant to this Agreement shall be deemed to have been received on
the day that such notice was transmitted and confirmation of receipt of
transmission was received.
ARTICLE IX
Miscellaneous
Section 9.1. This Agreement shall be governed by and interpreted according
to the laws of the State of Arkansas and the parties agree to submit themselves
to the jurisdiction of any competent Arkansas court, both state and federal.
Section 9.2. This Agreement embodies the final, complete and entire
agreement between the parties with respect to the Matters set forth herein. No
other representations, understandings or agreements have been made or relied
upon in the making of this Agreement other than those specifically set forth or
referred to herein.
Section 9.3. Any alterations, modifications, amendments, variations or
additions to this Agreement shall only be valid if in writing and executed with
the same formalities as this instrument.
Section 9.4. The failure of either party to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of such
provisions, nor in any way to affect the validity of this Agreement, or any part
thereof, or the rights of either party to thereafter enforce each and every such
provision.
Section 9.5. This Agreement shall not be assigned, delegated, subdelegated,
charged or otherwise disposed of by Memorial without the prior express written
consent of Security National. Upon written notice to Memorial, Security National
may assign, delegate, subdelegate, charge or otherwise transfer this Agreement
and its obligations hereunder; provided that any such assignee, delegee,
subdelegee, chargee or transferee agrees in writing to be bound hereunder.
Section 10.6. This Agreement may be executed in two separate counterparts,
each of which shall be deemed to be an original hereof, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Security National and Memorial have executed this
Agreement as of the Effective Date.
SECURITY NATIONAL LIFE INSURANCE COMPANY
By: /s/ Scott M. Quist
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Its: President
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MEMORIAL INSURANCE COMPANY OF AMERICA
By: /s/ Larry N. Perrin
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Its: Treasurer
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