SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K/A
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date of
Report (Date of Earliest Event Reported): August 13, 2008
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. Entry into Stock Purchase
Agreement to Acquire Southern Security Life Insurance
Company.
On August
13, 2008, Security National Financial Corporation, through its wholly owned
subsidiary, Security National Life Insurance Company (“Security National Life”),
entered into a stock purchase agreement (the "Stock Purchase Agreement") with
Southern Security Life Insurance Company, a Mississippi domiciled insurance
company ("Southern Security"), and its shareholders to purchase all of the
outstanding shares of common stock of Southern Security from its
shareholders. Under the terms of the transaction, Security National
Life agrees to pay to the shareholders of Southern Security purchase
consideration equal to the capital and surplus of Southern Security as of the
date that Security National Life assumed administrative control over Southern
Security, which was on September 1, 2008, plus the interest
maintenance reserve and the asset valuation reserve of Southern Security as of
the administrative control date, plus an allowance not
to exceed $100,000 for the actual losses experienced by Southern Security in the
second quarter ended June 30, 2008, less certain
adjustments.
As of
December 31, 2007, Southern Security had 24,323 policies in force and
approximately 393 agents. For the year ended December 31, 2007,
Southern Security had revenues of $4,231,000 and a net loss of
$496,000. As of December 31, 2007, the statutory assets and the
capital and surplus of Southern Security were $24,402,000 and $758,000,
respectively. As of June 30, 2008, the statutory assets and the
capital and surplus of Southern Security were $24,780,000 and $713,000,
respectively.
As
adjustments to the purchase consideration, the shareholders of Southern Security
agree at closing to deposit $175,000 of the purchase consideration into an
interest bearing escrow account to pay the amount of any adjustments required
under the terms of the agreement. The shareholders additionally agree
to deposit $537,000 of the purchase consideration into an interest bearing
escrow account, representing about 50% of the total outstanding balances on two
loans that Southern Security had made in the form of promissory notes, which
notes are secured by funeral home properties in Senatobia, Mississippi and
Collins, Mississippi. The escrow agent will be instructed to release
to the shareholders on a pro rata basis an amount equal to the combined
principal reduction of the promissory notes that has occurred during the
preceding August 1 through July 31 period, until such time as the $537,000
deposit, including any accrued interest, has been paid to the
shareholders. However, no payments will be made to the shareholders
from the deposit if either of the notes is in default.
As
further adjustments, Southern Security agrees to transfer its interest in a
certain trust, known as the Nowell Legacy Trust, to the shareholders at closing
and the purchase consideration to be paid to the shareholders will be reduced by
the admitted value of the trust as reflected in the financial statements of
Southern Security on September 1, 2008, the date that Security National Life
assumed administrative control over Southern Security under the terms of the
Stock Purchase Agreement. Finally, the shareholders have warranted in
the Stock Purchase Agreement that the properties shown on the annual statement
are owned free and clear of any liens and encumbrances and that the loans
disclosed in the annual statement conform with the rules and regulations in
Mississippi for admissibility. The purchase consideration will be
adjusted to the extent that the shareholder warranties are not completely
accurate.
The Stock
Purchase Agreement further provides that Security National Life and Southern
Security each agree to enter into a reinsurance agreement contemporaneous with
the execution of such Stock Purchase Agreement. Under the terms of
this reinsurance agreement, Security National Life is required to reinsure all
of the in force and future insurance liabilities of Southern
Security. Security National Life will also assume complete
administrative control of all of the then current and future insurance related
business operations of Southern Security at such time as Security National Life
notifies Southern Security in writing that it is capable of assuming
administrative control over such insurance related business operations, provided
such notice is made no later than September 1, 2008.
Administrative
control over the insurance related operations of Southern Security is to include
control over day–to-day business expenses, trade, debt, locations of business
operations, employees, employee compensation, compensation to offices and
directors, cash flow, deposits and bank accounts. Upon assuming
administrative control, Security National Life will be given access to the
records, files and computer systems of Southern Security and will have the right
to transfer or move such records, files and computer systems to other offices
and locations in which Security National transacts business. Security
National Life notified Southern Security in writing that it would assume
administrative control over the insurance related operations of Southern
Security as of September 1, 2008. On September 1, 2008, Security
National Life assumed said administrative control over the insurance related
operations of Southern Security.
2
On August
29, 2008, in furtherance of the requirements of the Stock Purchase Agreement,
Security National Life and Southern Security entered into a reinsurance
agreement (the “Reinsurance Agreement”) to reinsure the majority of the in force
business of Southern Security, as reinsurer, to the extent permitted by the
Mississippi Department of Insurance. Pursuant to the terms of the
Reinsurance Agreement, Security National Life paid a ceding commission to
Southern Security in the amount of $1,500,000.
As a
result of the Reinsurance Agreement, certain insurance business and operations
of Southern Security was transferred to Security National Life, including all
policies in force as of the administrative control date. Any future
business by Southern Security would be covered by this Reinsurance
Agreement. It is estimated that as of September 1, 2008, when
Security National Life assumed administrative control over the insurance related
business operations of Southern Security, Southern Security transferred
approximately $23,600,000 in assets and liabilities to Wachovia Securities, LLC
of Oxford, Mississippi, as custodian for Security National Life pursuant to the
Reinsurance Agreement and the Custodial Agreement among Southern Security,
Security National Life, and Wachovia Securities, LLC. Following the
completion of the stock purchase transaction, Southern Security will continue to
sell and service life insurance, annuity products, and funeral plan
insurance.
The
shareholders further agree pursuant to the terms of the Stock Purchase Agreement
that after the closing of the transaction they will not induce any policyholder
to terminate any policy issued by Southern Security. Moreover, the
shareholders agree that all policyholder lists, insurance applications,
policyholder information, knowledge of business operations and sales methods,
and all other materials of Southern Security are the property of Southern
Security and that such information and property may not be used by any of the
shareholders without written approval by Security National Life. The
agreement expressly allows Russ Nowell, who is currently president of Southern
Security, to engage in the insurance business, including to sell or solicit new
policies on behalf of any competitor of Southern Security or Security National
Life, including new policies to existing policyholders, provided that no
replacement of inforce policies occurs and Mr. Nowell does not solicit existing
policyholders of Southern Security concerning inforce policies or utilize
information gained as an officer of Southern Security to solicit
existing policyholders regarding in force business. In the event any
shareholder breaches any of such covenants, Security National Life may obtain
immediate injunctive relief prohibiting further breach of such obligations
against the shareholder and such shareholder will be liable for liquidated
damages in the amount of two year’s annual premium for all policies that are
terminated as a result of such shareholder’s activities.
Security
National Life anticipates completing the stock purchase transaction on or before
October 1, 2008, or within seven days from the date the required regulatory
approvals are obtained. The obligations of Security National Life and
Southern Security to complete the transaction are contingent upon satisfaction
of the following conditions:
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•
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A
complete and satisfactory review by Security National Life of the books,
records and business of Southern Security;
and
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•
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Approval
of the transaction by any regulatory authorities having jurisdiction over
Security National Life and Southern Security, including the insurance
departments of the states of Mississippi and
Utah.
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ITEM
9.01. Financial
Statements and Exhibits
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(c)
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Exhibits
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10.1
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Stock
Purchase Agreement among Security National Life Insurance Company,
Southern Security Life Insurance Company, and the shareholders of Southern
Security Life Insurance Company(1)
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__________________________
(1) Incorporated
by reference from Report on Form 8-K, as filed on August 25, 2008.
3
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:
September 17, 2008
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By:
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/s/ Scott M.
Quist
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Scott
M. Quist, President
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4
REINSURANCE
AGREEMENT
effective
as of September 1, 2008
by
and among
SECURITY
NATIONAL LIFE INSURANCE COMPANY,
SOUTHERN
SECURITY LIFE INSURANCE COMPANY, INC.
and
THE
SHAREHOLDERS OF
SOUTHERN
SECURITY LIFE INSURANCE COMPANY, INC.
ARTICLES
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I.
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1
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II.
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3
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III.
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4
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IV.
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5
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V.
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5
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VI.
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6
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VII.
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7
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VIII.
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8
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IX.
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9
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X.
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9
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XI.
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9
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SCHEDULES
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A.
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B.
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C.
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D.
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EXHIBITS
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1.
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REINSURANCE
AGREEMENT
THIS
AGREEMENT (the "Agreement") is made and entered into, effective at 12:01 a.m.
on the 1st day of
September, 2008 (the “Effective Date”), by and among SECURITY NATIONAL LIFE
INSURANCE COMPANY, a Utah domiciled insurance company (hereinafter referred to
as the “Reinsurer”), SOUTHERN SECURITY LIFE INSURANCE COMPANY, INC., a
Mississippi domiciled insurance company (hereinafter referred to as the
“Company”), and the SHAREHOLDERS OF SOUTHERN SECURITY LIFE INSURANCE COMPANY,
INC. that have executed this Agreement (hereinafter referred to as the
“Shareholders”).
The
Company, the Reinsurer and the Shareholders agree to reinsure on the terms and
conditions stated herein. This Agreement is an indemnity reinsurance
agreement among the Company, the Reinsurer, and the Shareholders and performance
of the obligations of each party under this Agreement shall be rendered solely
to the other parties.
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 and
annuity policies referred to in Schedule A, are reinsured under this
Agreement. It is the intention of the Reinsurer and the Company that
all of the Company’s business will be reinsured under the terms of this
Agreement. New policies issued by the Company after the Effective
Date of this Agreement will also 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 a custodial
account in accordance with the terms of a certain Custodial Agreement (the
“Custodial 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
Company. On the Effective Date of this Agreement, the book value of the assets
transferred to the Reinsurer pursuant to the Custodial Agreement 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 or should have
been reported by the Company on its NAIC Convention Blank as of June 30, 2008,
with respect to the policies reinsured hereunder, as if this treaty were not in
effect.
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 June 30, 2008, 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 June 30, 2008, 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 June 30, 2008, 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, files,
computer systems, and other materials including computer programs, processes,
knowledge, or otherwise needed in such administration. In addition,
upon approval by the Mississippi Insurance Department of the Form A application
relating to the transactions contemplated by that certain Stock Purchase
Agreement dated August 13, 2008, among the Reinsurer, the Company and the
Shareholders, the Reinsurer shall have the right to transfer or move such
records, files, computer systems, and other materials to other offices or
locations where the Reinsurer transacts business. Prior to approval
of the Form A application, the Reinsurer shall have the right to transfer or
move such records, files, computer systems, and other materials to other offices
or locations within the State of Mississippi where the Reinsurer transacts
business. Under no circumstances, however, shall such records, files,
computer systems or other materials be moved outside the State of Mississippi
without the Mississippi Insurance Department approving the Form A
application.
8. Inspection. At
any reasonable time, the Reinsurer may inspect, during normal business hours, at
the principal office of the Company or at such other place as determined by the
Reinsurer, 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 or at such other place as determined by 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.
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, subject to
prior approval of Mississippi Insurance Department, which approval shall not be
unreasonably withheld.
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 written 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.
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 the Reinsurer
notifies the Company 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. The Company has no right to terminate
this Agreement or any renewal term and has no right whatsoever to prevent any
renewal by the Reinsurer, except in the event that the Stock Purchase Agreement,
executed contemporaneously between the Parties is terminated according to its
terms, the Company has the right to prevent the renewal period of this Agreement
by providing ninety (90) days written notice to the Reinsurer of the Company’s
intent not to renew, subject to the repayment of the entire Ceding
Commission.
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.
PREMIUM AND
CONSIDERATIONS
1. Net
Reserves. On the Effective Date of this Agreement, the
Company agrees to pay the Reinsurer pursuant to the terms of the Custodial
Agreement 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, less the amount of the Ceding
Allowance, as defined below, which the Company shall retain as its Ceding
Allowance. Reinsurer shall have the sole right to determine which of
the Company’s assets shall be transferred to Reinsurer, subject to prior
approval of the Mississippi Insurance Department, which approval shall not be
unreasonably withheld. 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 net policy loans, prior
to the application of this treaty, plus advance premiums, prior to the
application of this treaty. The parties expressly agree that the
Company’s assets to be transferred to the Reinsurer pursuant to the terms of
this Agreement shall not include any mortgage loans or real estate without
Reinsurer’s prior approval or the Nowell Legacy Trust, which is listed as an
asset on the Company’s financial statements.
2. Ceding
Allowance. On the Effective Date of this Agreement, the
Reinsurer agrees to pay the Company a ceding allowance equal to one million five
hundred thousand dollars ($1,500,000), which shall be paid to the Company by
means of the Company retaining said amount from the reserves transferred to
Reinsurer as set forth in Article III, paragraph 1.
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 and its
Shareholders hereby make representations and warrants that they will make all
reasonable efforts to keep the reinsured business in force.
4. Control Over
Assets. Upon payment to Reinsurer of the reserve transfer set
forth in Article III, paragraph 1, the Reinsurer shall have control over the
transferred assets, subject only to the terms of the Custodial Agreement and the
regulatory requirements and approvals contained therein. The
Reinsurer shall be vested with full power and authority to direct the trustee of
the Custodial Agreement to sell, trade, liquidate, exchange, reinvest, and
otherwise dispose of and deal with the transferred assets, as it determines in
its sole discretion, subject to the insurance laws of the State of Mississippi
and the prior approval of the Mississippi Insurance Department, which approval
shall not be unreasonably withheld. However, the Reinsurer shall not
be required to obtain such prior approval of the Mississippi Insurance
Department if such trade or exchange of any transferred assets is in connection
with a transaction to replace such assets with assets having approximate equal
value on the Reinsurer’s financial statements.
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
express written 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.
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 contracts 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. 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, in accordance with Mississippi 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.
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.
INSOLVENCY
In the
event of the Company’s insolvency, liquidation, entry into rehabilitation or
bankruptcy, this Agreement will be deemed to convert to an assumption
reinsurance agreement as of the day prior to such insolvency, liquidation, entry
into rehabilitation, or bankruptcy, subject to any applicable state law and to
prior approval of the Mississippi Insurance Department, which approval shall not
be unreasonably withheld. 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, subject to the receivership laws of the
State of Mississippi, 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.
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.
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.
SHAREHOLDER
OBLIGATIONS
1. Shareholder
Obligations. Each of the Shareholders agrees as
follows:
(i) not to induce or attempt to induce, or to cause or aid in any
manner whatsoever any other person to induce or attempt to induce, any
policyholder to terminate any policy issued by the Company;
(ii) that all policyholder lists, applications for insurance,
policyholder information, knowledge of business operations and sales methods,
and all other materials of the Company, are the property of the Company only,
that Shareholders’ or Officers’ access to all such information and property has
been in a fiduciary capacity, and that all such information and property shall
not be used by any of the Shareholders without specific written authorization by
the Reinsurer;
(iii) that the protection of such information and property is
necessary to provide the Reinsurer with the value of the benefits and rights
being purchased by it pursuant to this Agreement; and
(iv) provided, however, that nothing in this Agreement shall preclude
Russ Nowell from engaging in the insurance business, utilizing any lines of
authority and/or company affiliations to sell, solicit or negotiate new policies
on behalf of any competitor of the Company or the Reinsurer, including new
policies to existing policy holders provided no twisting or replacement of the
in-force policies occurs, so long as he does not solicit existing policyholders
regarding in-force policies or utilize information gained as an officer of the
Company to solicit existing policyholders regarding in-force
business.
2. Shareholders Liable for
Liquidated Damages. Each of the Shareholders agrees that any
engagement in activities described in Article IX, paragraph 1 above will result
in irreparable injury to the Reinsurer, for which there is no adequate remedy at
law. Thus, in the event of breach of Article IX, paragraph
1 by any respective Shareholder, the Reinsurer may apply for and obtain
immediate and continuing injunctive relief prohibiting further or continued
breach of such obligations hereunder against such Shareholder committing the
said breach. The said Shareholder(s) committing the breach further
agrees that he or she will be liable for liquidated damages in the amount of two
years’ annual premium for all policies that are terminated as a result of such
Shareholders’ activities. The other Shareholders shall have no
liability or responsibility for liquidated damages arising out of the activities
or actions of such Shareholder(s) committing the breach.
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 and
the prior approval of the Mississippi Insurance Department, which approval shall
not be unreasonably 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, 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 and subject to the prior approval of the Mississippi Insurance
Department, which approval shall not be unreasonably withheld.
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 Louisville,
Mississippi.
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.
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.
[The rest
of this page is left blank intentionally]
IN
WITNESS WHEREOF, this Agreement is executed effective as of the date first above
written.
|
“Company”
|
|
|
SOUTHERN
SECURITY LIFE INSURANCE COMPANY, INC.
|
|
|
By: /s/ Janet Nowell
Massey
|
|
|
Its: Executive
Vice President
|
|
|
“Reinsurer”
|
|
|
SECURITY
NATIONAL LIFE INSURANCE COMPANY
|
|
|
By:
/s/ Scott M.
Quist
|
|
|
Its: President
|
|
|
“Shareholders”
|
|
|
/s/ Russell C.
Nowell
|
|
|
Russell
C. Nowell
|
|
|
/s/ Janet Nowell
Massey
|
|
|
Janet
Nowell Massey
|
|
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/s/ Michael
Pierce
|
|
|
Michael
Pierce, Temporary Administrator of
|
|
|
the
Estate of Genece Nowell
|
|
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/s/ Harold B.
Nowell, Sr.
|
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Harold
B. Nowell, Sr.
|
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/s/ Harold
Nowell, III
|
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Harold
Nowell, III, Executor of the Estate
|
|
|
of
H. Bernard Nowell, Jr.
|
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, “Southern Security
Reinsured Policies 9/1/08.”
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 earned 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.
COMMISSIONS AND EXPENSE
ALLOWANCE
1. Commission Fee on Individual
Life Insurance as a Percentage of Collected Premiums
Plan Description Commission
Fee
Calculation of Commission
Fee
|
Premium
|
Reserve
Amount
|
|||||
|
Total
Collected Premium
|
$
|
|
$
|
|
||
|
|
||||||
|
Percentage
Reinsure
|
$
|
100%
|
$
|
100%
|
||
|
Reinsured
Collected Premiums
|
$
|
|
$
|
|
||
|
|
|
|||||
|
Commission
Fee Percentage
|
$
|
0%
|
$
|
0%
|
||
|
|
||||||
|
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.
4. Other
Administrative Expenses.
Other administrative expenses
shall be paid as mutually agreed upon by the parties.
MONTHLY
SETTLEMENT
FROM
SECURITY
NATIONAL LIFE INSURANCE COMPANY
TO
SOUTHERN SECURITY LIFE INSURANCE COMPANY, INC.
AND
FROM
SOUTHERN
SECURITY LIFE INSURANCE COMPANY, INC.
TO
SECURITY
NATIONAL LIFE INSURANCE COMPANY
Reporting
Month: ____________/ _________/ __________
Date
Report Completed: ________________/ ____________/ ___________
|
1)
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Direct
Premiums
|
|||
|
Less
Reinsurance Premiums Paid
|
||||
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Net
Premiums
|
||||
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2)
|
Policy
Loans
|
|||
|
Policy
Loans Repaid
|
||||
|
Policy
Loan Interest Paid in Cash
|
||||
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Total
|
||||
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3)
|
Benefits
|
|||
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Surrenders
|
||||
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Deaths
|
||||
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Other
|
||||
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Less
Reinsurance Recoveries
|
||||
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Total
|
||||
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4)
|
Commissions
and Expense Allowance (Schedule C)
|
|||
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Less
Allowances on Reinsured Ceded
|
||||
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Net
Commission and Expense Allowance
|
||||
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5)
|
New
Policy Loans Paid Out in Cash
|
|||
|
Net
Due Equals (1) + (2) – (3) – (4) – (5) =
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SCHEDULE
D CONTINUED
Supplemental
Information
Direct
|
# of
Policies
|
Policy
Reserves
|
Face
Amount
|
||||
|
Beg.
of Period
|
||||||
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+Additions
|
||||||
|
-Terminations
|
||||||
|
End
of Period
|
||||||
|
Reinsurance
Ceded
|
||||||
|
# of
Policies
|
Policy
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:
|
||||||
effective
as of September 1, 2008, among
SOUTHERN
SECURITY LIFE INSURANCE COMPANY, INC., as Grantor,
SECURITY
NATIONAL LIFE INSURANCE COMPANY, as Beneficiary, and
WACHOVIA
SECURITIES, LLC, as Custodian
Page
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CUSTODIAL
AGREEMENT
THIS
CUSTODIAL AGREEMENT is made and entered into, effective at 12:01 a.m. on the
1st
day of September, 2008 (the "Agreement"),
by and among SOUTHERN SECURITY LIFE INSURANCE COMPANY, INC., a Mississippi
domiciled 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 insurance company
(the "Beneficiary"), and WACHOVIA SECURITIES, LLC, a Delaware limited liability
company (the "Custodian")
(Grantor, Beneficiary and Custodian 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 September 1, 2008, a copy of which is attached hereto as Exhibit
"A", and by this reference made a part hereof (the "Reinsurance
Agreement") concerning certain life insurance and annuity policies (the
"Reinsured Policies"); and
WHEREAS,
Grantor desires, pursuant to the terms of the Reinsurance Agreement, to transfer
to Custodian for deposit into a trust account (the "Custodial
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,
Custodian has agreed to act as the trustee hereunder, and to hold such assets in
trust in the Custodial Account and the Income Account, as defined in Section 4
below, for the sole use and benefit of Beneficiary pursuant to the terms of 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:
Deposit
of Assets to the Custodial Account
(a) Grantor
shall establish the Custodial Account and Custodian shall administer the
Custodial Account in its name as the Custodian for Beneficiary. The Custodial
Account shall be subject to withdrawal by Beneficiary as provided
herein.
(b) Grantor
shall transfer to Custodian, for deposit into the Custodial Account, the assets
listed in Exhibit "B" hereto and, subject to prior approval of the Mississippi
Insurance Department, which approval shall not be unreasonably withheld, may
transfer to Custodian, for deposit into the Custodial Account, such other assets
as may be required or as Beneficiary may from time to time desire pursuant to
the terms of the Reinsurance Agreement (all such assets actually received in the
Custodial Account are herein referred to as the "Assets"). The
Assets shall consist of cash and Eligible Securities as defined
below. Subject to prior approval of the Mississippi Insurance
Department, which approval shall not be unreasonably withheld, Beneficiary shall
have the sole right to determine which of Grantor's assets shall be transferred
to Beneficiary.
(c) The
amounts deposited by Grantor in the Custodial Account shall be in such amount
that the aggregate market value of the Custodial 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 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 to Beneficiary, 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
Custodian for deposit into the Custodial Account shall be in such form that
Beneficiary may request and Custodian shall, upon direction by Beneficiary,
negotiate any such Assets without consent or signature from
Grantor in accordance with the terms of this Agreement; and (ii) that
all Assets transferred by Grantor to Custodian for deposit into the Custodial
Account shall consist only of cash and Eligible Securities.
(e) Custodian
shall have no responsibility to determine whether the Assets in the Custodial
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 Mississippi Uniform Commercial Code
("Mississippi
UCC"), as
enacted and in effect in the State of Mississippi, and creates a security
interest in the Assets in favor of Custodian, for the benefit of Beneficiary.
Upon Beneficiary's request, financing statements shall be executed by the
necessary party or parties and filed by Custodian in the manner required by law
to perfect such security interest. Compliance with Mississippi UCC requirements
shall not alter any rights under this Agreement or under any other laws of the
State of Mississippi, nor shall it relieve Custodian of any obligation.
Compliance with the Mississippi 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 Custodian with
appropriate assignments, bond powers, or powers of attorney that authorize
Custodian to transfer the Assets to its name and hold them for the benefit of
Beneficiary. In the event additional Assets are added to or are substituted for
the Assets already in the fund, appropriate assignments, bond powers or powers
of attorney authorizing Custodian to transfer the additional Assets to its name
shall also be delivered to Custodian.
(h)
Grantor warrants that it will not create any other security interest in or
otherwise encumber the Assets. In the event 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, subject to prior approval of the Mississippi Insurance
Department, which approval shall not be unreasonably withheld, substitute other
assets for those encumbered.
Withdrawal
of Assets from the Custodial Account
(a)
Without notice to Grantor, but upon written notice to Custodian (the "Withdrawal
Notice"), Beneficiary shall have the right, at any time and from time to time,
to withdraw from the Custodial Account, such Assets as are specified in such
Withdrawal Notice for legitimate business purposes, as 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 Custodial
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 domiciliary state
of Grantor, remaining in the Custodial Account are at least equal to the
Statutory Reserves as of the preceding quarterly statutory filing. At no time
shall Beneficiary submit a withdrawal notice to Custodian 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 domiciliary state of
Grantor, on the Reinsured Policies as of the preceding quarterly statutory
filing.
(b) Beneficiary
shall have the right to withdraw Assets from the Custodial 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 Custodial Account,
using statutory accounting principles as required or allowed by the domiciliary
state of Grantor, 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 Custodial Account, including,
without limitation, any income derived from such Assets.
(c) Upon
receipt of a Withdrawal Notice, Custodian 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, Custodian shall allow no substitution or
withdrawal of any of the Assets from the Custodial Account.
(e) Custodian
shall have no responsibility whatsoever to determine the manner in which any
Assets withdrawn from the Custodial Account pursuant to this Section 2 will be
used and/or applied.
Redemption, Investment and
Substitution of
Assets
(a) Custodian
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 Custodial Account.
(b) From
time to time, at the written order and direction of Beneficiary, Custodian shall
invest Assets in the Custodial Account in Eligible Securities, as authorized by
the insurance laws of Mississippi. Custodian is specifically
authorized to invest any cash balances in one or more money market vehicles
utilized by Custodian for fiduciary accounts without receiving prior written
direction or any further confirmation from Beneficiary. Custodian is further
permitted to utilize any such fund invested in its own bank's
deposits.
(c) Subject
to prior approval of the Mississippi Insurance Department, which approval shall
not be unreasonably withheld, Beneficiary may direct Custodian from time to time
in writing to substitute Eligible Securities for other Eligible Securities held
in the Custodial Account at such time. Custodian 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 Custodian, certifying that all the
securities in the Custodial Account constitute Eligible Securities.
(d) Custodian
shall have no responsibility whatsoever to determine that any Assets in the
Custodial Account are or continue to be Eligible Securities. Custodian 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. Custodian 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 Custodian's
negligence or willful misconduct.
(e) Any
loss incurred from any investment pursuant to the terms of this Section 3 shall
be borne exclusively by Beneficiary. Custodian shall not be liable for any loss
due to changes in market rates or penalties for early redemption.
The
Income Account
All
payments of interest and dividends received from or relating to the Assets in
the Custodial Account shall be deposited by Custodian into a separate income
account that shall be administered by Custodian (the "Income Account") for the
benefit of Beneficiary. Custodian's compensation and expenses shall be deducted
from the Income Account, as provided in Section 7 of this
Agreement. At no time shall Beneficiary direct such payments be made
if they would cause the assets in the Custodial Account to be less than the
statutory reserves required under the insurance laws of the State of
Mississippi.
Right
to Vote Assets
Custodian
shall forward all annual and interim stockholder reports and all proxies and
proxy materials relating to the Assets in the Custodial Account to Beneficiary.
Beneficiary shall have the full and unqualified right, where applicable, to vote
any proxies relating to the Assets in the Custodial Account at all annual and
interim stockholder meetings.
Additional
Rights and Duties of Custodian
(a) Beneficiary shall have
the right to direct the Custodian at any time in writing to sell, trade,
liquidate, exchange, reinvest, and otherwise dispose of and deal with the Assets
as Beneficiary determines in its sole discretion, subject to prior approval of
the Mississippi Insurance Department, which approval shall not be unreasonably
withheld.
(b) Custodian
shall notify Grantor and Beneficiary in writing within thirty (30) days
following each deposit to, or withdrawal from, the Custodial
Account.
(c) Custodian
may deposit any Assets in the Custodial 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 Custodian or by any such depository.
(d)
Custodian shall accept and open all mail directed to Grantor or Beneficiary in
care of Custodian.
(e) Custodian
shall furnish Grantor and Beneficiary with a written statement of all the Assets
in the Custodial Account upon the inception of the Custodial Account and at the
end of each calendar quarter thereafter.
(f) Upon
the request of Grantor, Beneficiary or the Mississippi Insurance Department,
Custodian shall promptly permit the Grantor, Beneficiary or the
Mississippi Insurance Department, their respective agents, employees or
independent auditors to examine, audit, excerpt, transcribe and copy, during
Custodian's normal
business hours, any books, documents, papers and records relating to the
Custodial Account or the Assets. Any reasonable costs associated with
such inspection shall be borne by Grantor and/or Beneficiary.
(g) Custodian
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 Custodian from time to time by Beneficiary and by
attorneys-in-fact acting under written authority furnished to Custodian by
Beneficiary, including, without limitation, instructions given by letter,
facsimile transmission, telegram, teletype, cablegram or electronic media, if
Custodian believes such instructions to be genuine and to have been signed, sent
or presented by the proper party or parties. Custodian shall not incur any
liability to anyone resulting from actions taken by Custodian in reliance in
good faith on such instructions. Custodian 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 Beneficiary named in an incumbency certificate
delivered hereunder prior to receipt by it of a more current
certificate.
(h) The
duties and obligations of Custodian 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 Custodian.
Custodian shall only be liable for its own negligence or willful
misconduct.
(i) No
provision of this Agreement shall require Custodian to take any action which, in
Custodian's reasonable judgment, would result in any violation of this Agreement
or any provision of law.
(j) Custodian
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.
Custodian's
Compensation, Expenses and Indemnification
(a) Custodian
shall be paid its reasonable compensation and expenses from the Income Account,
as set forth in Paragraph 4, for its services as Custodian under this Agreement,
based upon a fee schedule that will be mutually agreed upon by Custodian and
Beneficiary. Beneficiary shall have the right to review at any time the amount
of compensation and expenses paid to Custodian for serving as a Custodian
hereunder and, if necessary, to dispute any such amounts that may be incorrectly
or improperly determined. All of Custodian's
expenses and disbursements in connection with its duties under this Agreement
(including reasonable attorney's fees and expenses) will be paid from the Income
Account, except any such expense or disbursement as may arise from
Custodian's
negligence or willful misconduct. Custodian 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 Custodial 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 Custodian for, and hold it harmless against, any loss, liability,
costs or expenses (including reasonable attorney's fees and expenses) incurred
or made without negligence or willful misconduct on the part of Custodian,
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 Custodian
and its nominee as the holder of record of the Assets. Grantor hereby
acknowledges that the foregoing indemnities shall survive the resignation of
Custodian or the termination of this Agreement and hereby grants the Custodian a
lien, right of set-off and security interest in the funds in the Custodial
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 Custodial
Account or used in any manner for paying compensation to, or reimbursement or
indemnification of, Custodian.
Resignation
of Custodian
(a) Custodian
may resign at any time by giving not less than thirty (30) days' written
notice thereof to Beneficiary and to Grantor, such resignation to become
effective on the acceptance of appointment by a successor Custodian and the
transfer to such successor Custodian of all Assets in the Custodial Account in
accordance with paragraph (b) of this Section 8.
(b) Upon
receipt of Custodian's notice
of resignation, Beneficiary shall appoint a successor Custodian. Any successor
Custodian shall be a bank that is a member of Federal Reserve System and shall
not be a Parent, a Subsidiary or an Affiliate of Grantor or Beneficiary. Upon
the acceptance of the appointment as Custodian hereunder by a successor
Custodian and the transfer to such successor Custodian of all Assets in the
Custodial Account, the resignation of Custodian shall become effective.
Thereupon, such successor trustee shall succeed to and become vested with all
the rights, powers, privileges and duties of Custodian, and Custodian shall be
discharged from any future duties and obligations under this Agreement, but
Custodian shall continue after its resignation to be entitled to the benefits of
the indemnities provided herein for Custodian.
Termination
of the Custodial Account
(a) The
Custodial Account and this Agreement, except for the indemnities provided
herein, shall be terminated at any time by Beneficiary after Beneficiary has
given Custodian written notice of its intention to terminate the Custodial
Account in accordance with the terms thereof. Insolvency of Beneficiary shall
also be considered to cause the termination of this Custodial
Account. Such notice shall specify the date (the "Termination
Date") on
which Beneficiary intends the Custodial Account to terminate, which date shall
be at least thirty (30) days subsequent to the date that the termination notice
is given. No termination of the Trust Agreement shall be effective
absent prior approval of the Mississippi Insurance Department, which approval
shall not be unreasonably withheld.
(b) On
the Termination Date, upon receipt of written approval of Beneficiary and the
Mississippi Insurance Department, Custodian shall transfer to Beneficiary all
amounts remaining in the Custodial Account.
(c) If
the Reinsurance Agreement is converted to an assumption agreement as a result of
Grantor's
insolvency as set forth in Article VII of the Reinsurance Agreement, the
Custodial Account shall terminate and all Assets in the Custodial Account shall
be distributed to Beneficiary, subject to prior approval of the Mississippi
Insurance Department, which approval shall not be unreasonably withheld and
subject further to the receivership laws of the State of
Mississippi.
Tax
Returns
Beneficiary
shall be responsible for causing to be prepared and filed in a timely fashion
all tax returns, if any, of the Custodial Account relating to the transactions
contemplated by this Agreement or otherwise contemplated hereby, and it shall
send a copy of each such tax return to Custodian and Beneficiary. Custodian,
upon request, shall 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. Custodian shall
not be liable for any tax due and payable in connection with this Custodial
Agreement.
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 ten percent (10%) of the voting stock of a corporation.
The term
"Business
Day" shall mean any day on which the offices of Custodian 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
Custodian for fiduciary accounts, to include those invested in its own bank's
deposits, any other investment authorized under the relevant statutes and rules
of Grantor'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. Any investment of Assets in the Custodial Account is
subject to the insurance laws of the State of Mississippi which govern the
investment of assets of insurance companies.
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.
Governing
Law
This
Agreement shall be subject to and governed by the laws of the state of
Mississippi.
Assignment
No party
may assign this Agreement or any of its rights or obligations hereunder at any
time without the written consent of Grantor and the prior approval of the
Mississippi Insurance Department, which approval shall not be unreasonably
withheld.
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.
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.
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. Any modification or
amendment to this Agreement is subject to prior approval of the Mississippi
Insurance Department, which approval shall not be unreasonably
withheld.
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:
Southern Security Life Insurance
Company, Inc.
211 Ball Drive
P.O. Box 924
Louisville, Mississippi
39339
Attn: Russell C. Nowell,
President
If to Beneficiary:
Security National Life Insurance
Company
5300 South 360 West, Suite
250
Salt Lake City, Utah 84123
Attn: Stephen Sill, Vice
President
If to Custodian:
Wachovia Securities, LLC
265 North Lamar Blvd., Suite
K
Oxford, Mississippi 38655
Attn: D. Lindsay Reid, First
Vice President
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 the termination of the Custodial Account shall be in writing and may not be
made or given by prepaid telex, telegraph or telecopier.
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.
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.
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SOUTHERN
SECURITY LIFE INSURANCE COMPANY, INC.,
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as
Grantor
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By:
/s/ Janet Nowell
Massey
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Title: Executive
Vice President
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SECURITY
NATIONAL LIFE INSURANCE COMPANY,
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as
Beneficiary
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By:
/s/ Scott M.
Quist
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Title:
President
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WACHOVIA
SECURITIES, LLC, as Custodian
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By:
/s/ John
West
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Title:
Senior Vice President
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Reinsurance Agreement between SOUTHERN
SECURITY LIFE INSURANCE COMPANY, INC., a Mississippi domiciled insurance
company, SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah domiciled insurance
company, and the shareholders of Southern Security Life Insurance Company, Inc.,
effective as of September 1, 2008.
Assets Equal to Reserves as of the Date
of the Reinsurance Agreement.