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 20, 2007
SECURITY
NATIONAL FINANCIAL
CORPORATION
(Exact
name of registrant as specified in this Charter)
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Utah
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0-9341
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87-0345941
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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5300
South 360
West, Salt Lake City, Utah
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84123
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
Telephone Number, Including Area Code: (801)
264-1060
Does
Not
Apply
(Former
name or former address, if changed since last report)
ITEM
1.01.Other Events.
Completion
of Acquisition of Capital Reserve Life Insurance Company
On
December 20, 2007, Security National
Financial Corporation, through its wholly owned subsidiary, Security National
Life Insurance Company ("Security National Life"), completed a stock purchase
transaction with Capital Reserve Life Insurance Company, a Missouri domiciled
insurance company ("Capital Reserve"), and its shareholders to purchase all
of
the outstanding shares of common stock of Capital Reserve from its
shareholders. Under the terms of the stock purchase agreement among
Security National Life, Capital Reserve, and the shareholders of Capital
Reserve, Security National Life paid the shareholders of Capital Reserve
at
closing purchase consideration equal to the capital and surplus of Capital
Reserve as of September 30, 2007 in the amount of $1,274,000, plus the interest
maintenance reserve in the amount of $31,000 and the asset valuation reserve
in
the amount of $209,000 as of September 30, 2007, plus $1,037,967,
less certain
adjustments. The adjustments consist of any losses related to two
litigation matters involving Capital Reserve and the difference in the amount
of
Capital Reserve's adjusted capital and surplus at closing compared to the
amount
of Capital Reserve's adjusted capital and surplus on September 30,
2007.
At
the closing of the transaction, the
shareholders of Capital Reserve deposited $2,100,000 of the purchase
consideration into an escrow account. The funds are to remain in
escrow until a lawsuit brought by Darlene Russell ("Russell"), a former employee
of Capital Reserve, is resolved. The litigation involves an action by
Russell against Capital Reserve in the Circuit Court of Cole County, Missouri
(the "Russell Litigation") for unpaid bonuses allegedly due her in the amount
of
$1,486,045. If Capital Reserve or any of its officers, directors,
employees or agents is determined to be liable in the Russell Litigation
or if
Capital Reserve settles the Russell Litigation, the escrow agent shall pay
from
funds in the escrow account any amounts owing to Russell as a result of such
judgment or settlement, including interest, attorney's fees, and related
expenses.
Also
at the closing, an escrow
agreement was entered into among Security National Life, Capital Reserve,
the
shareholders of Capital Reserve, and Mackey Price Thompson & Ostler as
escrow agent. Under the terms of the escrow agreement, the escrow
agent is instructed to pay any remaining amounts from the $2,100,000 deposit
in
the escrow account to the shareholders of Capital Reserve on a pro rata basis
to
the number of shares of Capital Reserve common stock held by the shareholders,
after (i) the payment of any judgment or settlement in the Russell Litigation,
(ii) the payment of the costs in defending Capital Reserve in the Russell
Litigation, including attorney's fees and related expenses, and (iii) the
payment of the amount in which Capital Reserve's adjusted capital and surplus
on
September 30, 2007 exceeds Capital Reserve's adjusted capital and surplus
on the closing date of the transaction.
The
shareholders of Capital Reserve
also delivered a signed indemnification agreement to Security National Life
and
Capital Reserve at closing. Under the terms of the indemnification
agreement, the shareholders agree to indemnify Security National Life and
Capital Reserve (A) for any payments made by Capital Reserve following the
closing relating to any judgment or settlement in the Russell Litigation,
(B)
for any attorney's fees and related expenses incurred by Capital Reserve
in
defending itself in the Russell Litigation, and (C) for the amount in which
Capital Reserve's adjusted capital and surplus on September 30, 2007 exceeds
the
adjusted capital and surplus of Capital Reserve on the closing
date. The shareholders additionally agree to be solely responsible
for the Russell Litigation following the closing, including all decisions
related to defending Capital Reserve in the litigation.
Moreover,
an amount equal to $316,649
of the purchase consideration was paid to the shareholders of Capital Reserve
at
closing in the form of real estate and improvements thereon located at 812
and
820 Madison Street, Jefferson City, Missouri, which is listed as an asset
on
Capital Reserve's financial statements. Title to the real estate was
transferred to the shareholders at closing and the purchase consideration
was
reduced by $316,649, the book value of the real estate as reflected on Capital
Reserve's financial statements.
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2
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The
shareholders of Capital Reserve
represented and acknowledged in the stock purchase agreement that on October
31,
2005, Capital Reserve filed an action against James E. Warden, a former
President and Chief Executive Officer of Capital Reserve, and his wife Linda
Warden in the Circuit Court of Cole County, Missouri (the "Warden
Litigation"). The complaint claims damages in excess of $25,000 for
breach of fiduciary duty by Joseph Warden and misappropriation of funds by
Joseph Warden and Linda Warden. On July 9, 2007, a judgment was
entered against Joseph and Linda Warden in the amount of $551,342. At
closing, Capital Reserve transferred and assigned to the shareholders of
Capital
Reserve all of the interest in and rights to the Warden Litigation, including
the right to reserve the proceeds from the judgment, together with all payments
of interest, attorney's fees and related expenses of the litigation, said
proceeds to be paid to the shareholders on a pro rata basis to the number
of
shares of Capital Reserve common stock held by such shareholders. The
shareholders further agreed to be responsible for the payment of any costs
associated with legal representation of Capital Reserve in the Warden Litigation
subsequent to the closing, including but not limited to any attorney's fees
and
related expenses.
As
of December 31, 2006, Capital
Reserve had 10,851 policies in force and approximately 30 agents. For
the year ended December 31, 2006, Capital Reserve had revenues of $5,663,000
and
a net loss of $244,000. As of December 31, 2006, the statutory assets
and the capital and surplus of Capital Reserve were $24,084,000 and $1,960,000,
respectively.
Finally,
at closing, Security National
Life and Capital Reserve entered into a reinsurance agreement to reinsure
the
majority of the in force business of Capital Reserve, as reinsurer, to the
extent permitted by the Missouri Department of Insurance. Under the
terms of the reinsurance agreement, Security National Life paid a ceding
commission to Capital Reserve in the amount of $1,738,000. In
addition, following the payment of the ceding commission, Capital Reserve
declared a dividend to Security National Life in the amount of
$1,738,000. The Missouri Insurance Department approved both the
reinsurance agreement and the dividend payment. The dividend payment
was approved subject to Capital Reserve maintaining capital and surplus of
at
least $1,500,000.
As
a result of the reinsurance
agreement, certain insurance business and operations of Capital Reserve were
transferred to Security National Life, including all policies in force as
of the
effective date thereof. Any future business by Capital Reserve is
covered by this reinsurance agreement. Consequently, except for
capital and surplus of $1,500,000, $23,500,000 in assets and liabilities
were
transferred from Capital Reserve to Security National Life pursuant to the
reinsurance agreement. Following the closing of the transaction,
Capital Reserve will continue to sell and service life insurance, annuity
products, accident and health insurance, and funeral plan
insurance.
ITEM
9.01. Financial
Statements and Exhibits
(c)
Exhibits
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10.1
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Stock
Purchase Agreement among Security National Life Insurance Company,
Capital
Reserve Life Insurance Company, and the shareholders of Capital
Reserve
Life Insurance Company(1).
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10.2
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Indemnification
Agreement among Security National Life Insurance Company, Capital
Reserve
Life Insurance Company, and the shareholders of Capital Reserve
Life
Insurance Company.
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10.3
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Escrow
Agreement among Security National Life Insurance Company, Capital
Reserve
Life Insurance Company, the shareholders of Capital Reserve Life
Insurance
Company, and Mackey Price Thompson & Ostler as Escrow Agent.
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10.4
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Reinsurance
Agreement between Security National Life Insurance Company and
Capital
Reserve Life Insurance Company.
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_______________________
(1) Incorporated
by reference from Report in Form 8-K, as filed on November 2, 2007.
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3
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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.
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SECURITY
NATIONAL FINANCIAL CORPORATION
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(Registrant)
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Date:
January 9, 2008
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By:
/s/
Scott M.
Quist
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Scott
M. Quist, President
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INDEMNIFICATION
AGREEMENT
THIS
INDEMNIFICATION AGREEMENT (the
"Agreement") is made and entered into this 17th day of December, 2007, by
and
among SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah corporation ("Security
National"), CAPITAL RESERVE LIFE INSURANCE COMPANY, a Missouri corporation
("Capital Reserve"), and the shareholders of Capital Reserve that have executed
the Agreement by Shareholders of Capital Reserve Life Insurance
Company to Sell Shares in Stock Purchase Transaction (the
"Shareholders") (each of the foregoing parties is referred to singly,
as a "Party" and collectively, as the "Parties").
WITNESSETH:
WHEREAS,
on October 9, 2007, Security
National, Capital Reserve, and the Shareholders entered into a stock purchase
agreement (the "Stock Purchase Agreement") in which the Shareholders agreed
to
sell to Security National and Security National agreed to purchase from the
Shareholders all of the issued and outstanding shares of stock of Capital
Reserve in consideration for purchase consideration payable to the Shareholders
on a pro rata basis in an amount equal to the Capital and Surplus of Capital
Reserve as of September 30, 2007, plus the interest maintenance reserve and
the
asset valuation reserve as set forth on the September 30, 2007 Statutory
Quarterly Statement of Capital Reserve, plus $1,037,967, less certain
adjustments set forth in Section 1.2 of the Stock Purchase Agreement (the
"Purchase Consideration"); and
WHEREAS,
the Parties amended the Stock
Purchase Agreement, effective November 26, 2007; and
WHEREAS,
in Section 1.2 of the Stock
Purchase Agreement, the Shareholders acknowledge that on June 8, 2007, Darlene
Russell ("Russell"), a former employee of Capital Reserve, filed an action
against Capital Reserve in the Circuit Court of Cole County, Missouri (Case
No.
07ALCC00513) (the "Russell Litigation") for unpaid bonuses allegedly due
her in
the total amount of $1,486,045, plus interest at the statutory rate of 9%
per
annum until the judgment is paid in full; and
WHEREAS,
if the Russell Litigation is
not completely resolved prior to the closing (the "Closing") of the transaction
relating to the Stock Purchase Agreement, the Shareholders agree to deposit
at
Closing $2,100,000 of the Purchase Consideration into an escrow
account (the "Escrow Account") until the Russell Litigation has been
completely resolved; and
WHEREAS,
the Shareholders agree to
deliver a signed indemnification agreement to Capital Reserve and Security
National at Closing, in which the Shareholders each agree to indemnify and
hold
harmless Capital Reserve and Security National for any payments made, and
any
damages or losses incurred, by Capital Reserve following the Closing relating
to
a judgment or settlement in the Russell Litigation and for the amount in
which
the Adjusted Capital and Surplus on September 30, 2007 exceeds the Adjusted
Capital and Surplus on the closing date to the extent that such payments
have
not been previously made or such damages or losses have not been previously
satisfied by means of an adjustment in the Purchase Consideration at Closing
or
from funds in the Escrow Agreement;
NOW,
THEREFORE, in consideration of the
mutual promises, agreements and covenants contained herein, and other good
and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties hereto hereby agree as follows:
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1.
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Indemnification.
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(a) Russell
Litigation. The Shareholders agree, jointly, severally and
individually, to be liable for and to pay to or reimburse Capital Reserve
and
Security National for any and all payments made, and any and all damages,
obligations, expenses, or losses incurred, by Capital Reserve or Security
National following the Closing by reason of or in any way arising out of
a
judgment or settlement in the Russell Litigation, including any attorney's
fees
and related expenses paid or incurred by Capital Reserve in defending itself
in
the Russell Litigation, provided that such payments have not been previously
reimbursed or such damages, obligations, expenses, or losses have not been
previously paid or satisfied from funds in the Escrow Account.
(b) Capital
and
Surplus. The Shareholders additionally agree, jointly,
severally and individually, to be liable for and to pay to or reimburse Capital
Reserve and Security National for any and all payments made, and any and
all
damages, obligations, expenses, or losses incurred, by Capital Reserve or
Security National following the Closing by reason of or in any way arising
out
of the Shareholders' required payment to Security National under Section
1.2 of
the Stock Purchase Agreement equal to the amount in which the Adjusted Capital
and Surplus of Capital Reserve on September 30, 2007 exceeds the Adjusted
Capital and Surplus at Closing, provided that such payments have not been
previously made or such damages, obligations, expenses, or losses have not
been
previously satisfied through an adjustment in the amount of the Purchase
Consideration at Closing or by means of payments or reimbursements to Security
National or Capital Reserve from funds in the Escrow Account.
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2
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Indemnification
Procedure.
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(a) Notice. Capital
Reserve and Security National shall, as a condition precedent to their right
to
be indemnified by the Shareholders under this Agreement, give the Shareholders
notice in writing as soon as practicable pursuant to the notice provision
in
Section 4 of this Agreement of any claim made against the Shareholders for
which
indemnification will or could be sought under this Agreement. In
addition, Capital Reserve and Security National shall give the Shareholders
such
information and cooperation as such Shareholders may reasonably require and
as
shall be within Capital Reserve's and Security National's power.
(b) Procedure. Any
indemnification and advances provided for in Section 1 hereof shall be made
no
later than forty-five (45) days after receipt of written notice of Capital
Reserve or Security National. If a claim under this Agreement for
indemnification is not paid in full by the Shareholders, Capital Reserve
and
Security National may at any time thereafter bring an action against the
Shareholders to recover the unpaid amount of the claim and, subject to Section
10 of this Agreement, Capital Reserve and Security National shall also be
entitled to be paid for the expense (including attorneys' fees) of bringing
such
action.
2
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3.
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Additional
Indemnification Rights.
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(a) Scope. Notwithstanding
any other provision of this Agreement, the Shareholders hereby agree to
indemnify Capital Reserve and Security National to the fullest extent permitted
by law, notwithstanding that such indemnification is not specifically authorized
by the other provisions of this Agreement or by statute. In the event
of any change, after the date of this Agreement, in any applicable law, statute,
or rule which expands the rights of a Utah corporation or a Missouri corporation
to be indemnified, such changes shall be within the purview of Capital Reserve's
and Security National's rights and the Shareholders' obligations under this
Agreement. In the event of any change in the applicable law, statute
or rule which narrows the right of a Utah corporation or a Missouri corporation
to be indemnified, such changes, to the extent not otherwise required by
such
law, statute, or rule to be applied to this Agreement shall have no affect
on
this Agreement or the Parties' rights and obligations hereunder.
(b) Nonexclusivity. The
indemnification provided by this Agreement shall not be deemed exclusive
of any
rights to which Capital Reserve and Security National may be entitled under
any
agreement, any vote of stockholders or disinterested directors, Utah or Missouri
law, or otherwise.
4.
Notices. All
notices and other communications hereunder shall be in writing and shall
be
deemed given if delivered personally or by courier, or mailed by registered
or
certified mail (return receipt requested) or if sent by facsimile, confirmation
received, to the respective party at the following addresses and/or facsimile
numbers, with the original thereof being mailed by registered or certified
mail,
return receipt requested (or at such other address or facsimile number for
the
parties hereto as shall be specified by like notice):
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(a)
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If
to Security National, to:
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Security
National Life Insurance Company
5300
South 360 West, Suite 250
Salt
Lake
City, Utah 84123
Attn: Scott
M. Quist, President
Facsimile
No.: (801) 264-1060
Telephone
No.: (801) 265-9882
With
a
copy to:
Mackey
Price Thompson & Ostler
57
West
200 South, Suite 350
Salt
Lake
City, Utah 84101
Attn: Randall
A. Mackey, Esq.
Facsimile
No.: (801) 575-5006
Telephone
No.: (801) 575-5000
3
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(b)
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If
to Capital Reserve, to:
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Capital
Reserve Life Insurance Company
812
Madison Street
P.O.
Box
896
Jefferson
City, Missouri 65102
Attn: Tony
Hutchinson, Vice President
Facsimile
No.: (573) 636-3751
Telephone
No.: (573) 636-3913
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(c)
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If
to Shareholders, to:
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Shareholders
of Capital Reserve Life Insurance Company
812
Madison Street
P.O.
Box
896
Jefferson
City, Missouri 65102
Attn: Jean
Warden
Facsimile
No.: (573) 636-3751
Telephone
No.: (573) 636-3913
With
a
copy to:
J.
Randy
Snodgrass, CPA
1620
Southridge, Suite A
Jefferson
City, Missouri 65109
Facsimile
No.: (573) 893-2872
Telephone
No.: (573) 635-0754
5.
Costs. Each
of the Parties to this Agreement agrees to bear its own costs, expenses and
attorney's fees incurred in connection with or relating to this
Agreement. No Party, therefore, has any claim against another Party
hereto for costs, expenses and attorney's fees incurred in connection with
or
relating to the preparation and negotiation of this Agreement.
6.
No Admission of
Liability. This Agreement is not intended to be, and shall not
be deemed, construed or treated in any respect as an admission of liability
by
any Party or entity for any purpose.
7.
Authorized
Representatives. Each Party that has signed this Agreement in
a representative capacity for such Party hereby represents and warrants to
the
Parties hereto that such Party is duly authorized and empowered to bind the
Party under this Agreement and to execute and enter into this Agreement on
behalf of the Party.
4
8. Successors
and
Assigns. This Agreement shall be binding upon the Shareholders
and their heirs, legal representatives and assigns, and shall inure to benefit
of Capital Reserve and Security National and their successors and
assigns.
9. Severability. If
any term or provision of this Agreement shall, to any extent, be determined
by a
court of competent jurisdiction to be invalid or unenforceable, the remainder
of
the Agreement shall not be affected thereby, and each term and provision
of this
Agreement shall be valid and be enforceable to the fullest extent permitted
by
law.
10. Attorney's
Fees. In the event any Party hereto commences a legal action
or other proceeding for the enforcement of this Agreement or because of an
alleged dispute, breach, default or misrepresentation in connection with
any of
the provisions of this Agreement, the successful or prevailing Party shall
be
entitled to recover reasonable attorney's fees and other costs and expenses
incurred in the action or proceeding from the other Party, in addition to
any
other relief to which such Party may be entitled.
11. Entire
Agreement. This Agreement constitutes the entire agreement
among the Parties hereto and supersedes all prior agreements and understandings,
oral and written, among the Parties hereto relating to the subject
matter. No modification or amendment of this Agreement shall be of
any force or effect unless in writing and executed by the Party against whom
enforcement is sought.
12. Governing
Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Utah.
13. Counterparts. This
Agreement may be executed in counterparts, either by original signature or
by
facsimile, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute one
agreement.
IN
WITNESS WHEREOF, the parties hereto, intending to be legally bound hereby,
have
duly executed this Agreement effective as of the day and year first above
written.
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SECURITY
NATIONAL LIFE INSURANCE COMPANY
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By: /s/
Scott M.
Quist
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Scott
M. Quist, President
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CAPITAL
RESERVE LIFE INSURANCE COMPANY
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By: /s/
Jean P.
Warden
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Its: President
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5
THE
SHAREHOLDERS:
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/s/
Leanne Warden
Cardwell
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Leanne
Warden Cardwell
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/s/
Deborah J.
Miller
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Deborah
J. Miller
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/s/
Kristy J.
Neff
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Kristy
J. Neff
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/s/
Laura Warden
Smith
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Laura
Warden Smith
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/s/
David H.
Warden
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David
H. Warden
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/s/
David H.
Warden
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David
H. Warden for
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David
A. Warden (Minor Child)
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/s/
David H.
Warden
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David
J. Warden
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ETHEL
M. WARDEN TRUST
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By:
/s/ Ehtel M.
Warden
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Ethel
M. Warden, Trustee
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6
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/s/
Franklin L.
Warden
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Franklin
L. Warden
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Franklin
L. and Priscilla Ann Warden,
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Joint
Tenants
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By:
/s/ Franklin L.
Warden
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Franklin
L. Warden
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By:
/s/ Priscilla Ann
Warden
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Priscilla
Ann Warden
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JEAN
P. WARDEN TRUST
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By:
/s/ Jean P.
Warden
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Jean
P. Warden, Trustee
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/s/
Scott J.
Warden
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Scott
J. Warden
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/s/
Stephen T.
Warden
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Stephen
T. Warden
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ESCROW
AGREEMENT
THIS
ESCROW AGREEMENT (the "Escrow
Agreement") is made and entered into this 17th day of December, 2007, by
and
among SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah corporation ("Security
National"), CAPITAL RESERVE LIFE INSURANCE COMPANY, a Missouri corporation
("Capital Reserve"), the shareholders of Capital Reserve that have executed
the
Agreement by Shareholders of Capital Reserve Life Insurance
Company to Sell Shares in Stock Purchase Transaction (the
"Shareholders"), and MACKEY PRICE THOMPSON & OSTLER, a Utah professional
corporation (the "Escrow Agent") (each of the foregoing parties is referred
to
singly, as a "Party" and collectively, as the
"Parties").
WITNESSETH:
WHEREAS,
on October 9, 2007, Security
National, Capital Reserve, and the Shareholders entered into a stock purchase
agreement (the "Stock Purchase Agreement") in which the Shareholders agreed
to
sell to Security National, and Security National agreed to purchase from
the
Shareholders, all of the issued and outstanding shares of stock of Capital
Reserve in consideration for purchase consideration payable to the Shareholders
on a pro rata basis in an amount equal to the Capital and Surplus of Capital
Reserve as of September 30, 2007, plus the interest maintenance reserve and
the
asset valuation reserve as set forth on the September 30, 2007 Statutory
Quarterly Statement of Capital Reserve, plus $1,037,967, less certain
adjustments set forth in Section 1.2 of the Stock Purchase Agreement (the
"Purchase Consideration"); and
WHEREAS,
Security National, Capital
Reserve, and the Shareholders amended the Stock Purchase Agreement, effective
November 26, 2007; and
WHEREAS,
Security National, Capital
Reserve and the Shareholders desire to establish this escrow for the purpose
of
holding the funds to be deposited in an escrow account (the "Escrow Account")
in
accordance with the terms of the Stock Purchase Agreement and distributing
such
funds pursuant to the terms of such agreement; and
WHEREAS,
Escrow Agent is willing to
receive the funds contemplated by the Stock Purchase Agreement and to hold
and
distribute the same in accordance with the terms of such agreement;
WHEREAS,
in Section 1.2 of the Stock
Purchase Agreement, the Shareholders acknowledge that on June 8, 2007, Darlene
Russell ("Russell"), a former employee of Capital Reserve, filed an action
against Capital Reserve in the Circuit Court of Cole County, Missouri (Case
No.
07ALCC00513) (the "Russell Litigation") for unpaid bonuses allegedly due
her in
the total amount of $1,486,045, plus interest at the statutory rate of 9%
per
annum until the judgment is paid in full; and
WHEREAS,
if the Russell Litigation is
not completely resolved prior to the closing (the "Closing") of the transaction
relating to the Stock Purchase Agreement, the Shareholders have agreed to
deposit $2,100,000 of the Purchase Consideration into the Escrow Account
at
Closing with such funds to be held and distributed pursuant to the terms
of the
Stock Purchase Agreement; and
WHEREAS,
Security National, Capital
Reserve, and the Shareholders have agreed that if Capital Reserve or any
of its
officers, directors, employees or agents is determined to be liable in the
Russell Litigation or if Capital Reserve settles the Russell Litigation,
funds
from the Escrow Account are to be distributed to Russell in the amount of
such
judgment or settlement, including the costs of defending Capital Reserve
in the
Russell Litigation; and
WHEREAS,
Security National, Capital
Reserve, and the Shareholders have additionally agreed that funds
from the Escrow Account are to be distributed to Security National in the
amount
in which the Adjusted Capital and Surplus of Capital Reserve on September
30,
2007, exceeds the Adjusted Capital and Surplus on the closing date (the "Closing
Date") as defined in Section 2.1 of the Stock Purchase Agreement;
and
WHEREAS,
Security National, Capital
Reserve, and the Shareholders have further agreed that upon distribution
of
funds from the Escrow Account to Russell equal to the amount of any judgment
or
settlement in the Russell Litigation, including the cost of defending Capital
Reserve in the litigation, and to Security National in the amount in which
the
Adjusted Capital and Surplus Capital Reserve on September 30, 2007 exceeds
the
Adjusted Capital and Surplus of Capital Reserve on the Closing Date, any
funds
remaining in the Escrow Account are to be distributed to the Shareholders
on a
pro rata basis;
NOW,
THEREFORE, in consideration of the
mutual promises and covenants contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the
parties hereto agree as follows:
1. Delivery
of Documents into
Escrow. Security National and Capital Reserve herewith deliver
the following documents to Escrow Agent to be held and disposed of by Escrow
Agent strictly in accordance with the terms of this Escrow
Agreement:
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(a)
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A
copy of the Stock Purchase Agreement.
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(b)
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A
certified shareholders list of Capital Reserve dated the Closing
Date (the
"Certified Shareholders List") with the names and addresses of
each of the
Shareholders and the number of shares held by each of the shareholders
as
of the Closing Date.
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|
(c)
|
A
copy of the September 30, 2007 Statutory Quarterly Statement of
Capital
Reserve.
|
|
|
(d)
|
A
copy of the complaint filed by Russell in the Russell Litigation.
|
2. Delivery
of Cash into
Escrow. The Shareholders herewith deliver cash in the form of
immediately available U.S. Dollars by bank wire transfer into the Escrow
Agreement in the amount of Two Million One Hundred Thousand Dollars
($2,100,000).
3. Investment
of Escrow
Funds. Any funds held in the Escrow Account shall be invested
by the Escrow Agent, in the Escrow Agent's discretion, in an interest-bearing
account held by the Escrow Agent.
2
|
4.
|
Distribution
of Escrow
Funds.
|
(a) Upon
the complete resolution of the Russell Litigation by the court rendering
a final
judgment and the applicable appeal time having expired or the court dismissing
the complaint with prejudice pursuant to a settlement, the Escrow Agent shall
distribute to Russell from funds in the Escrow Account any amounts owing
to
Russell as a result of such judgment or settlement, including but not limited
to, any interest, penalties, attorney's fees and related expenses as required
by
such judgment or settlement.
(b) The
Escrow Agent shall also distribute from the funds in the Escrow Account the
costs of defending Capital Reserve in the Russell Litigation, including any
attorney's fees and related expenses, to the extent such costs have not been
previously paid by the Shareholders. The Escrow Agent shall pay such costs
directly to the attorneys that defended Capital Reserve in the Russell
Litigation.
(c) Upon
completion of the determination of the Adjusted Capital and Surplus of Capital
Reserve as of the Closing Date, together with a statement from the Chief
Financial Officer of Security National certifying the accuracy of such
calculation, the Escrow Agent shall distribute to Security National from
the
funds in the Escrow Account the amount in which the Adjusted Capital and
Surplus
of Capital Reserve as of September 30, 2007, as defined in Section 1.2 of
the
Stock Purchase Agreement, exceeds the Adjusted Capital and Reserve of Capital
Reserve on the Closing Date.
(d) Upon
the completion and satisfaction of the required distributions set forth in
Sections 4(a) - (c) above, the Escrow Agent shall distribute the remaining
funds
in the Escrow Account to the Shareholders on a pro rata basis to the number
of
shares of Capital Reserve common stock held by the Shareholders on the Closing
Date, as set forth on the Certified Shareholders List. Such payments to the
Shareholders shall be in the form of cashier's checks payable to the order
of
each of the Shareholders as named on the Certified Shareholders List. Such
Shareholder checks shall be delivered to J. Randy Snodgrass, 1620 Southridge,
Suite R, Jefferson City, Missouri 65109, for disbursement to the
Shareholders.
5. Responsibility
of the Escrow
Agent. The escrow Agent accepts the escrow arrangements set
forth in this Escrow Agreement upon the terms and conditions hereof and
undertakes to act solely as depository for the escrow funds, with no obligations
to Security National, Capital Reserve, or the Shareholders except as
specifically set forth herein. The Parties hereto agree that the
following terms and conditions shall govern and control with respect to the
rights, duties, liabilities and immunities of the Escrow Agent
hereunder.
(a) Until
escrowed payments are distributed as provided herein, the Escrow Agent shall
maintain such funds in an interest bearing account, as provided
herein.
(b) The
duties and obligations of the Escrow Agent shall be determined solely by
the
express provisions of this Escrow Agreement, and no implied covenants, duties
or
obligations shall be read into this Escrow Agreement against the Escrow Agent,
nor shall it have, or be deemed to have, any duties or responsibilities under
the provisions of any other agreements between the other Parties
hereto.
3
(c) The
Escrow Agent shall not be liable for any error of judgment, or any actions
taken, or omitted by it in good faith, or mistake of fact or law, or for
anything it may do or refrain from doing in connection therewith, except
its own
gross negligence or willful misconduct.
(d) The
Escrow Agent may rely and shall be protected from acting in good faith in
reliance upon resolution, direction, certificate, statement, approval, notice,
court order, or other document, not only unto its due execution and the validity
and effectiveness of its provisions, but also as to the truth of any information
therein contained, which it in good faith believes to be genuine and what
purports to be.
(e) The
Escrow Agent may consult with counsel or other experts of its own choice
and any
opinion of its own choice and any opinion of counsel or written opinion of
such
other experts shall be full and complete authorization and protection with
respect to any action taken or omitted by the Escrow Agent hereunder in good
faith and in accordance with such opinion of counsel or opinion of such other
experts within the area of their respective expertise.
(f) The
Escrow Agent may execute any of its powers or responsibilities hereunder
and
exercise any rights hereunder either directly or by or through its agent
or
attorneys.
(g) The
Escrow Agent shall not be responsible for and shall not be under a duty to
examine into or pass upon, the validity, binding effect, execution or
sufficiency of this Escrow Agreement or of any agreement, amendment or
supplement hereto nor shall the Escrow Agent be accountable for the source
of
the escrow funds.
(h) Except
as otherwise specifically provided herein, the Escrow Agent may deal with
Security National, its parent company or its affiliates, in the same manner
and
to the same extent and with like effect as if it were not the Escrow Agent
hereunder.
(i) If
any controversy or dispute arises between the Parties hereto or with any
third
party with respect to the subject matter of the escrow described herein,
the
Escrow Agent shall not be required to determine the same or take any action,
but
may await the settlement of any such controversy or dispute by final appropriate
legal proceedings or otherwise as the Escrow Agent may require, and in such
event the Escrow Agent shall not be liable for interest or damage, except
that
the Escrow Agent shall not deliver the escrow funds in any manner other than
in
accordance with Section 4 hereof. In addition, the Escrow Agent shall have
the
right to commence such interpleader or other legal proceedings or actions,
or
take or withhold any other actions, as are reasonably necessary or appropriate
pending resolution of such controversy or dispute. The Escrow Agent shall
be
entitled to retain counsel to represent it in any controversy or dispute
relating to this Escrow Agreement.
6. Termination. This
Escrow Agreement shall terminate upon distribution of all of the funds in
the
Escrow Account pursuant to Section 4 hereof.
4
7. Manner of Notice. All
notices required by this Escrow Agreement or which one party desires to serve
on
another party, shall be in writing and shall be deemed given or made when
delivered to such party personally, or three days after mailing to such party
by
bonded courier, by registered or certified mail, postage prepaid, return
receipt
requested, or by first-class mail, postage prepaid, to the addresses specified
below:
If to Security
National, to :
Security
National Life Insurance Company
5300
South 360 West, Suite 250
Salt
Lake
City, Utah 84123
Attn: Scott
M. Quist, President
Facsimile
No. (801) 264-1060
Telephone
No. (801) 265-9882
or
to
such other address or addresses as Security National shall hereinafter designate
by notice to the other parties as herein provided; and
If
to
Capital Reserve, to :
Capital
Reserve Life Insurance Company
812
Madison Street
P.O.
Box
896
Jefferson
City, Missouri 65102
Attn: Tony
Hutchinson, Vice President
Facsimile
No.: (573) 636-3751
Telephone
No.: (573) 636-3913
or
to
such other address or addresses as Capital Reserve shall hereinafter designate
by notice to the other parties as herein provided;
If
to
Shareholders, to:
J.
Randy
Snodgrass, CPA
1620
Southridge, Suite A
Jefferson
City, Missouri 65109
Facsimile
No.: (573) 893-2872
Telephone
No.: (573) 635-0754
or
to
such other address or addresses as the Shareholders shall hereinafter designate
by notice to the other parties as herein provided; and
5
If to Escrow Agent, to :
Mackey
Price Thompson & Ostler
57
West
200 South, Suite 350
Salt
Lake
City, Utah 84101
Attn: Randall
A. Mackey, Esq.
Facsimile
No.: (801) 575-5006
Telephone
No.: (801) 575-5000
or
to
such other address or addresses as the Escrow Agent shall hereinafter designate
by notice to the other parties as herein provided.
8. Governing Law. This
Escrow Agreement shall be enforced and construed in accordance with the laws
of
the State of Utah.
9. Counterparts. This
Escrow Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which shall constitute one and the
same
instrument.
10. Time. Time
is of the essence of this Escrow Agreement.
11. Headings. The
subject headings of the paragraphs contained in this Escrow Agreement are
included for purposes of convenience only and shall not control or affect
the
meaning, construction or interpretation of any of the provisions of this
Escrow
Agreement.
IN
WITNESS WHEREOF, the parties hereto have executed this Escrow Agreement as
of
the day and year first above written.
|
SECURITY
NATIONAL LIFE INSURANCE COMPANY
|
|
|
By: /s/
Scott M.
Quist
|
|
|
Scott
M. Quist, President
|
|
|
CAPITAL
RESERVE LIFE INSURANCE COMPANY
|
|
|
By: /s/
Jean P.
Warden
|
|
|
Its: President
|
6
THE
SHAREHOLDERS:
|
/s/
Leanne Warden
Cardwell
|
|
|
Leanne
Warden Cardwell
|
|
|
/s/
Deborah J.
Miller
|
|
|
Deborah
J. Miller
|
|
|
/s/
Kristy J.
Neff
|
|
|
Kristy
J. Neff
|
|
|
/s/
Laura Warden
Smith
|
|
|
Laura
Warden Smith
|
|
|
/s/
David H.
Warden
|
|
|
David
H. Warden
|
|
|
/s/
David H.
Warden
|
|
|
David
H. Warden for
|
|
|
David
A. Warden (Minor Child)
|
|
|
/s/
David J.
Warden
|
|
|
David
J. Warden
|
|
|
ETHEL
M. WARDEN TRUST
|
|
|
By:
/s/ Ehtel M.
Warden
|
|
|
Ethel
M. Warden, Trustee
|
7
|
/s/
Franklin L.
Warden
|
|
|
Franklin
L. Warden
|
|
|
Franklin
L. and Priscilla Ann Warden,
|
|
|
Joint
Tenants
|
|
|
By:
/s/ Franklin L.
Warden
|
|
|
Franklin
L. Warden
|
|
|
By:
/s/ Priscilla Ann
Warden
|
|
|
Priscilla
Ann Warden
|
|
|
JEAN
P. WARDEN TRUST
|
|
|
By:
/s/ Jean P.
Warden
|
|
|
Jean
P. Warden, Trustee
|
|
|
/s/
Scott J.
Warden
|
|
|
Scott
J. Warden
|
|
|
/s/
Stephen T.
Warden
|
|
|
Stephen
T. Warden
|
|
MACKEY
PRICE THOMPSON & OSTLER
|
|
|
By /s/
Randall A.
Mackey
|
|
|
Randall
A. Mackey, President
|
REINSURANCE
AGREEMENT
Between
SECURITY
NATIONAL LIFE INSURANCE COMPANY
of
Salt Lake City, Utah
and
CAPITAL
RESERVE LIFE INSURANCE COMPANY
of
Jefferson City, Missouri
TABLE
OF
CONTENTS
|
ARTICLES
|
||
|
I.
|
GENERAL
PROVISIONS
|
1
|
|
II.
|
DURATION
OF RISK
|
4
|
|
III.
|
PREMIUMS
AND CONSIDERATIONS
|
4
|
|
IV.
|
BENEFIT
PAYMENTS
|
5
|
|
V.
|
ACCOUNTING
AND SETTLEMENTS
|
5
|
|
VI.
|
ARBITRATION
|
6
|
|
VII.
|
INSOLVENCY
|
7
|
|
VIII.
|
DAC
TAX PROVISION
|
8
|
|
IX.
|
MISCELLANEOUS
PROVISIONS
|
9
|
|
X.
|
EXECUTION
AND EFFECTIVE DATE
|
10
|
|
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 17th
day of
December, 2007 (“Effective Date”), by and between SECURITY NATIONAL LIFE
INSURANCE COMPANY, a Utah domiciled insurance company (hereinafter referred
to
as the “Reinsurer”) and CAPITAL RESERVE LIFE INSURANCE COMPANY, a Missouri
domiciled insurance company (hereinafter referred to as the
“Company”).
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 of this Agreement; subject, however, to the same rights, offsets,
counterclaims, crossclaims and defenses as are available to the
Company. No such offsets, counterclaims, crossclaims 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. New policies issued by the Company after the
Effective Date of this Agreement will be reinsured under the terms of 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 domicile of the Reinsurer. On the
Effective Date of this Agreement, the book value of the assets transferred
to
the Reinsurer shall be equal to the amount of reserves transferred
thereunto.
4. Reserves. The
expression net reserves, prior to the application of this treaty, whenever
used,
shall mean the statutory reserves, net of existing reinsurance ceded under
all
treaties in effect excluding this treaty, which would have been reported by
the
Company on its NAIC Convention Blank as of September 30, 2007, with respect
to
the policies reinsured hereunder, as if this treaty were not in
effect.
1
The
expression net due and deferred premiums, prior to the application of this
treaty, shall mean the due and deferred premiums, net of existing reinsurance
ceded under all treaties in effect excluding this treaty, which would have
been
held by the Company on its NAIC Convention Blank as of September 30, 2007,
with
respect to the policies reinsured hereunder, as if this treaty were not in
effect.
The
expression net policy loans, prior to the application of this treaty, shall
mean
the policy loans, net of existing reinsurance ceded under all treaties in effect
excluding this treaty, which would have been reported by the Company on its
NAIC
Convention Blank as of September 30, 2007, with respect to the policies
reinsured hereunder, as if this treaty were not in effect.
The
expression advance premiums, prior to the application of this treaty, shall
mean
the advance premiums, net of existing reinsurance ceded under all treaties
in
effect excluding this treaty, which would have been reported by the Company
on
its NAIC Convention Blank as of September 30, 2007, with respect to the policies
reinsured hereunder, as if this treaty were not in effect.
5. Commission
and Expense
Allowance. There is to be a commission and expense
allowance equal to actual premium taxes paid, actual sales commission paid
and
other administrative expenses, in accordance with Schedule C.
6. 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
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.
7. Contract
Administration. The Reinsurer shall administer the
contracts reinsured hereunder and shall perform all accounting, collection
and
all other administrative functions at the expense of the
Reinsurer. 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.
8. Inspection. At
any reasonable time, the Reinsurer may inspect, during normal business hours,
at
the principal office of the Company, the papers and any and all 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.
2
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. The Company
hereby warrants and represents that the contracts reinsured hereunder comply
with all applicable laws and regulations, including federal income tax
regulations, and have so complied since the date of issuance.
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.
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 Reinsurer and
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.
3
ARTICLE
II
DURATION
OF
RISK
1. Duration. The
initial term of this Agreement shall be for a period of three (3) years from
the
effective date of this Agreement. Subsequent to the three (3) year
term, this Agreement shall be automatically renewed unless either the Company
or
the Reinsurer notifies the other of its intention not to renew in writing,
no
less than one hundred eighty (180) days prior to the expiration of the then
current agreement. Each automatic renewal period of this Agreement
shall be for a term of three (3) years.
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.
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.
ARTICLE
III
PREMIUM
AND
CONSIDERATIONS
1. Net
Reserves. On the Effective Date of this Agreement, the
Company agrees to pay the Reinsurer as a reserve transfer an amount equal to
the
adjusted net reserves, on the Effective Date of this Agreement with respect
to
the liabilities reinsured as of such date and described in Schedule A. Adjusted
net reserves are calculated as net reserves, prior to the application of this
treaty, minus net due and deferred premiums, prior to the application of this
treaty, minus policy loans, prior to the application of this treaty, plus
advance premiums, prior to the application of this treaty.
2. Ceding
Allowance. On the Effective Date of this Agreement, the
Reinsurer agrees to pay the Company a ceding allowance equal to one million
seven hundred and thirty eight thousand dollars ($1,738,000) in cash by
certified funds or wire transfer and other good and valuable
consideration.
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
representations and warrants that it will make all reasonable efforts to keep
the reinsured business in force.
4
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 its
proportionate share of such claim based upon the form of claim settlement
determined. These amounts shall be paid within 15 business days after
the end of each calendar month. 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, unless said liability is
caused by the actions of the Reinsurer, and in that instance, Reinsurer will
be
liable and defend any litigation at its own cost.
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 and investigative expenses incurred on contested claims. Any expenses
will be paid on a monthly basis as described in Article V.
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.
5
4. Monthly
Settlements. 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. The Monthly Settlement Report
is attached as Schedule D.
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 which will approximate the
actual payments.
7. Delayed
Payments. For purposes of Paragraph 5 above, if there is
a delayed settlement of a payment due, there will be an interest penalty at
an
interest rate equal to one-half of one percent (.5%) per month, for the period
that the amount is overdue. For purposes of this paragraph, a payment
shall be considered delayed 30 days after the date such payment is
due.
8. 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 any insolvency of either party, in accordance with
Missouri law.
9. Accounting
Reports. Annual reports shall be submitted to the
Company by the Reinsurer not later than 45 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 45 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
6
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
7
1. General. In
the event of the Company’s insolvency, liquidation, entry into rehabilitation,
bankruptcy, or other significant adverse financial event, this Agreement
will be
deemed to convert to an Assumption Reinsurance Agreement as of the day prior
to
such insolvency, change of control, or other adverse event, subject to the
provisions of 375.1280-375.1294 RSMo. 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.
2. Capital
and Surplus
Priority. In the event that any person or entity obtains
a judgment against the Company that would reduce the Company’s Capital and
Surplus below the minimum required by the State of Missouri, the policy holders
of the Company would have priority over the judgment and a first lien on
the
minimum Capital and Surplus and Reserves of the Company.
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 gross amount of
premium and other considerations as defined in Regulation Section 1.848-3(b),
as
appropriate.
8
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
Reinsurer will submit to the Company 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
Reinsurer stating that the Reinsurer will report such net consideration in
its
tax return for the preceding calendar year.
7. The
Company may contest such calculation by providing an alternative calculation
to
the Reinsurer in writing within 30 days of the Company’s receipt of the
Reinsurer’s calculation. If the Company does not so notify the Reinsurer, the
Reinsurer will report the net consideration as determined by the Reinsurer
in
the Reinsurer’s tax return for the previous calendar year.
8. If
the Company contests the Reinsurer’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 Company submits its alternative calculation.
If
the Reinsurer and the Company 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.
9
3.
This Agreement, including any of the schedules and amendments, 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 Reinsurer at its administrative
office in Salt Lake City, Utah, or to the Company at its home office in
Jefferson City, Missouri.
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.
[The
rest
of this page is left blank intentionally]
ARTICLE
X
EXECUTION
AND EFFECTIVE
DATE
This
Agreement shall be effective on the Effective Date. 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 17th
day of
December, 2007.
10
CAPITAL
RESERVE LIFE INSURANCE COMPANY (Company)
By:
/s/ Scott M.
Quist
Title: President
Date:
December 17, 2007
Attest:
/s/ Andrew
Quist
Title:
Legal
counsel
Date:
December 17, 2007
SECURITY
NATIONAL LIFE INSURANCE COMPANY (Reinsurer)
By:
/s/ Scott M.
Quist
Title: President
Date: December
17, 2007
Attest:
/s/ Andrew
Quist
Title: Legal
counsel
Date: December
17, 2007
11
SCHEDULE
A
POLICIES
AND RISKS
REINSURED
The
business reinsured under this Agreement is 100% of the liabilities of the
policies identified on an attached compact disk entitled, “Capital Reserve
reinsured policies 12/17/07.”
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 gross premium charged
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 as a Percentage of Collected
Premiums
Plan
Description Ceding
Commission Fee
Calculation
of Ceding
Commission Fee
|
Premium
|
Reserve
Amount
|
|||||||
|
Total
Collected Premium
|
$ | $ | ||||||
|
Percentage
Reinsured
|
$ | 100% | $ | 100% | ||||
|
Reinsured
Collected Premiums
|
$ | $ | ||||||
|
Ceding
Commission Fee Percentage
|
$ | 0% | $ | 0% | ||||
|
Ceding
Commission Fee
|
$ | $ | ||||||
2. Monthly
Commission and
Expense Allowance.
A
commission and expense allowance for any period the Company performs contract
administration functions in an amount to be mutually agreed upon by the
parties.
3. Premium
Taxes, including all
other Licenses and Fees based on Premium.
The
commission and expense allowance shall be equal to actual premium taxes and
actual sales commissions paid.
SCHEDULE
D
MONTHLY
SETTLEMENT
FROM
SECURITY
NATIONAL LIFE INSURANCE COMPANY
TO
CAPITAL RESERVE LIFE INSURANCE COMPANY
AND
FROM
CAPITAL
RESERVE LIFE INSURANCE COMPANY
TO
SECURITY
NATIONAL LIFE INSURANCE COMPANY
Reporting
Month: ____________/ _________/ __________
Date
Report Completed: ________________/ ____________/ ___________
|
1)
|
Direct
Premiums
|
____________
|
|
Less
Reinsurance Premiums Paid
|
____________
|
|
|
Net
Premiums
|
____________
|
|
|
2)
|
Policy
Loans
|
|
|
Policy
Loans Repaid
|
____________
|
|
|
Policy
Loan Interest Paid in Cash
|
____________
|
|
|
Total
|
____________
|
|
3)
|
Benefits
|
|
|
Surrenders
|
____________
|
|
|
Deaths
|
____________
|
|
|
Other
|
____________
|
|
|
Less
Reinsurance Recoveries
|
____________
|
|
|
Total
|
____________
|
|
4)
|
Commissions
and Expense Allowance (Schedule C)
|
____________
|
|
Less
Allowances on Reinsured Ceded
|
____________
|
|
|
Net
Commission and Expense Allowance
|
____________
|
|
|
|
||
|
5)
|
New
Policy Loans Paid Out in Cash
|
____________
|
|
|
||
|
Net
due Equals (1) + (2) – (3) – (4) – (5) =
|
____________
|
SCHEDULE
D CONTINUED
Supplemental
Information
Direct
|
#
of
Policies
|
PolicyReserves
|
Face
Amount
|
||||
|
Beg.
of Period
|
___________
|
____________
|
_____________
|
|||
|
+Additions
|
___________
|
____________
|
_____________
|
|||
|
-Terminations
|
___________
|
____________
|
_____________
|
|||
|
End
of Period
|
___________
|
____________
|
_____________
|
Reinsurance
Ceded
|
#
of
Policies
|
PolicyReserves
|
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