ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT (the "Agreement") is effective as of December 29, 2005 (the
"Effective Date") and is made and entered into by and between SECURITY NATIONAL
LIFE INSURANCE COMPANY, a Utah domiciled life insurance company ("Security
National"), and MEMORIAL INSURANCE COMPANY OF AMERICA, an Arkansas domiciled
insurance company ("Memorial").
WITNESSETH:
WHEREAS, on September 23, 2005, Security National and its wholly-owned
subsidiary, Southern Security Life Insurance Company, a Florida domiciled
insurance company, entered into a stock purchase agreement (the "Stock Purchase
Agreement") with Memorial;
WHEREAS, under the terms of the Stock Purchase Agreement, Security National
and Memorial each agree at the closing of the stock purchase transaction to
enter into a reinsurance agreement (the "Reinsurance Agreement") to reinsure all
the in force business of Memorial to Security National, as the reinsurer, except
for certain policies that are to be retained by Memorial; and
WHEREAS, as a condition to the Stock Purchase Agreement and the Reinsurance
Agreement, Security National agrees to enter into an administrative services
agreement with Memorial, in a form acceptable to the Arkansas and Utah insurance
departments, to provide general and administrative services to Memorial in
connection with the policies to be retained by Memorial following the closing of
the stock purchase transaction and the execution of the Reinsurance Agreement,
but not to include the policies to be reinsured to Security National pursuant to
the Reinsurance Agreement, in accordance with the terms and conditions
hereinafter contained;
NOW, THEREFORE, in consideration of the mutual promises, covenants,
representations and undertakings hereinafter contained, the parties hereto agree
as follows:
ARTICLE I
Term and Termination
Section 1.1 This Agreement shall commence on the Effective Date and shall
be unlimited in duration, remaining in full force and effect as long as the
Reinsurance Agreement shall remain in full force and effect.
Section 1.2. Any termination of this Agreement shall not affect the rights
and obligations of the parties hereto as to transactions or acts done or
performed by either party prior to the effective date of termination.
ARTICLE II
Appointment, Authority and Duties of Security National
Section 2.1. Memorial hereby engages Security National to provide
administrative and financial services described herein to Memorial for the
policies to be retained by Memorial pursuant to the stock purchase transaction
and the Reinsurance Agreement, but not to include the policies reinsured to
Security National under the Reinsurance Agreement.. Without limiting the
generality of the foregoing, Security National shall, directly or indirectly,
and at the reasonable request and direction of the Board of Directors of
Memorial, perform or render the following administrative and financial services
relating to:
A. Accounting Services. These services shall include policyholder billing,
collection of policyholder premiums, payment of commissions, maintaining records
of accounts receivable and accounts payable, payment of expenses, providing
management reports to include budgeting and interim financial reports, payroll
administration to the extent Memorial has employees outside the scope of this
Agreement, proper posting of financial transactions to the policyholder in
force, among other items.
B. Financial Reports and Statements. Preparation of financial reports and
statements to include the preparation of statutory reports including quarterly
and annual reports for the submission to the Arkansas Insurance Department and
other relevant jurisdictions, other management reports to be agreed upon,
periodic reports to the Internal Revenue Service, including tax returns, the
management and payment of an annual audit fee with an acceptable certified
public accounting firm, management of insurance department examinations, and the
payment of the fees therefore.
C. Actuarial. Security National shall make available all existing products
of Security National or related subsidiaries, shall maintain reserves and
reserve calculations for financial statement, including GAAP, statutory, and
federal income tax, and internal purposes, shall perform profitability analysis
and shall be available for limited product development and/or product
enhancement work.
D. Policyholder Services. Policyholder services shall handle all
policyholder correspondence, shall calculate cash surrender values, maintain
lapses, cancellations, reinstatement, and shall provide claim services,
including investigation and administration of claims and the payment thereof.
E. Underwriting. To include the receipt of applications, analysis of said
applications, and selection of risks including the management of medical
evaluation of such risks, requesting MIB reports, requesting and evaluating
attending physician statements, medical examinations, and upon the acceptance of
such risks the issuance of the policy.
F. Data Processing. To allow Memorial access to the data processing system
of Security National and to provide data processing services such that the
services contemplated by this Agreement can be provided on a timely basis,
including new policy issue, policyholder services, accounting, in-force
maintenance, commissions and other functions.
G. Legal. To include review of contracts, drafting or review of contracts
for the purpose of agents or other purposes, and management of legal expenses
incurred by Memorial for litigation or otherwise.
H. Building Management. To insure the building is properly maintained.
I. Marketing Advisory Services. To include agent licensing, calculation of
commissions, payment of commissions, maintenance of the agency system, providing
market analysis of various opportunities, and managing policy acquisition costs
including commissions, advertising, marketing contests, sales conventions, and
other items.
J. Investment Services. To provide investment services including the
recommendation of publicly traded investments, mortgage loan services including
purchase of loans and investments in mortgage warehouse lines, investment
accounting including preparation of Schedule D of the statutory annual
statement, and investment maintenance including calls and redemption of
securities.
Section 2.2. All services including underwriting, claims management and
investment services provided to Memorial hereunder are to be based upon the
written criteria, standards and guidelines of Memorial. In the absence of such
written procedures, Security National shall be entitled to rely upon its own
best judgment in the respective matter. The standard shall be that of a prudent
person managing his own affairs. Memorial shall have the ultimate and final
authority over all decisions and policies, including but not limited to,
decisions and policies related to the acceptance, rejection or canceling of
rights, the payment or nonpayment of claims, and the purchase and sale of
securities.
Section 2.3. Notwithstanding any other provision of this Agreement, it is
understood that the business and affairs of Memorial shall be managed by its
Board of Directors, and to the extent delegated by such Board, by its
appropriately designated officers.
Section 2.4. All services provided by Security National hereunder shall be
performed in accordance with generally accepted professional standards and, in
this regard, Security National shall (a) maintain a staff of competent and
trained personnel, supplies and equipment for the purpose of performing its
duties hereunder; (b) use reasonable efforts to service Memorial diligently and
faithfully, to promote and safeguard the best interests of Memorial; and (c)
perform all acts reasonably necessary to ensure the smooth and proper conduct of
the subject business on behalf of Memorial. Security National may employ other
persons or entities to furnish it with statistical and other factual
information, advice and assistance as it may deem necessary or desirable for the
proper and efficient conduct of its activities hereunder.
Section 2.5. Standard of care and standard of performance of duties. Duties
and obligations of Security National shall be provided in a manner consistent
with the nature, type, timeliness, and amount of service that was provided by
Memorial's own employees. Where services are to be provided by Security National
that had not previously been provided by Memorial's employees, the standard for
such services shall be that of a reasonable person managing his own affairs
engaged in similar service.
Section 2.6. It is contemplated that Security National will hire certain
current employees of Memorial in order to accomplish the purposes of this
Agreement. Memorial agrees to cooperate in retaining such employees and in other
ways to effectuate the purposes of this Agreement. Memorial represents and
agrees that all employees are "at will" employees not subject to any employment
agreement or retirement plan.
Section 2.7. Warranties and Limitation of Liability. It is understood and
agreed that Security National will be using certain commercially available
products to include software and computer hardware among others. Security
National specifically makes no guarantees, warranties, or otherwise regarding
such items and the only such warranty or guaranty is that provided by the
manufacturer. Furthermore, it is specifically agreed that in undertaking this
Agreement, Security National is relying upon Memorial's representation as to its
needs, requirements, and past capabilities. Security National makes no warranty
or guaranty and accepts no liability with regards to its services or with
regards to its investment advice.
ARTICLE III
Expenses and Compensation of Security National
Section 3.1. Security National shall furnish at its own expense, executive,
supervisory and other personnel and services in connection with the services
that it is to provide as contemplated by this Agreement.
Section 3.2. In full consideration for the services rendered by Security
National hereunder, during each year of the term of this Agreement, Memorial
shall pay to Security National an Administrative Services Fee (the
"Administrative Services Fee") of $25.00 per policy per year, provided, however,
that the Administrative Services Fee shall be reduced to zero for as long as
capital and surplus of Memorial is less than or equal to $1,000,000, unless
Memorial and Security National otherwise agree in writing and such agreement is
approved by the Arkansas and Utah insurance departments.
ARTICLE IV
Representations and Warranties
Section 4.1. Security National hereby represents and warrants to Memorial
that it has full corporate power and authority to enter into this Agreement, and
that the officer executing this Agreement has full authority and right to do so
on behalf of Security National.
Section 4.2. Memorial hereby represents and warrants to Security National
that it has full corporate power and authority to enter into this Agreement and
that the officer executing this Agreement has full authority and right to do so
on behalf of Memorial.
ARTICLE V
Compliance with the Memorial Policies
Security National covenants and agrees that the investment planning,
investment advice and services that it furnishes Memorial hereunder will be in
accordance with the general investment policies of Memorial set forth from time
to time by its Board of Directors or any appropriate committee thereof, and in
any memoranda or letter agreements to Security National, in accordance with the
criteria and limitations provided by Sections of the Arkansas insurance laws, as
amended from time to time.
ARTICLE VI
Records
Section 6.1. Security National agrees that it will maintain all records,
memoranda, instructions and authorizations relating to the services performed
hereunder on behalf of Memorial (the "Records"). The Records shall (a) be and
remain the property of Memorial, (b) be open at all times to inspection and
audit by Memorial or its authorized representatives, and (c) shall be delivered
to Memorial upon written demand therefore provided that Security National may
retain a copy or duplicate of each Record, delivered to Memorial pursuant to (d)
and Memorial will reimburse Security National for all reasonable expenses
incurred in delivering Records to Memorial, including without limitation the
cost to photocopy Records, copies of which are retained by Security National,
and delivery expenses.
Section 6.2. Security National shall, at the request of Memorial, assist
and provide operational support in connection with any audit of any records with
respect to the services provided hereunder that is undertaken by Memorial's
auditors, its firm of CPA's, its actuaries or the insurance department of any
state or any other governmental agency.
Section 6.3. Security National shall provide, upon Memorial's reasonable
request, any Records in its possession and control which are necessary to file
any report required by any federal, state or local governmental agencies. If
such Records are not timely provided, Security National will pay any cost
reasonably incurred by Memorial in compiling the necessary information.
Section 6.4. The terms and conditions of this Agreement and the Records in
the possession and the control of Security National are confidential and shall
be treated as such by Security National and its employees.
ARTICLE VII
Independent Contractors
This Agreement is not a contract of employment and nothing herein contained
shall be construed to created the relationship of employer and employee between
Memorial and Security National. Security National is an independent contractor
and shall be free to exercise judgment and discretion with regard to its duties
under this Agreement.
ARTICLE VIII
Notices
Section 8.1. All notices, requests, demands and other communications
under this Agreement or in connection therewith shall be given or made as
follows:
If to Memorial:
Memorial Insurance Company of America
64 West Main
Blytheville, Arkansas 72315
Attn: ________________________
Facsimile: (870) 838-0988
Telephone No.: (870) 763-0713
With copies to:
Randall A. Mackey, Esq.
Mackey Price Thompson & Ostler
57 West 200 South, Suite 350
Salt Lake City, Utah 84111
Facsimile: (801) 575-5006
Telephone No.: (801) 575-5000
If to Security National:
Security National Life Insurance Company
5300 South 360 West, Suite 250
Salt Lake City, Utah 84123
Attn: Scott M. Quist, President
and Chief Operating Officer
Facsimile: (801) 265-9882
Telephone No.: (801) 264-1060
with a copy to:
Randall A. Mackey, Esq.
Mackey Price Thompson & Ostler
57 West 200 South, Suite 350
Salt Lake City, Utah 84111
Facsimile: (801) 575-5006
Telephone No.: (801) 575-5000
Section 8.2. Any notice or communication required or permitted to be given
in terms of this Agreement shall be valid and effective only if in writing.
Section 8.3. Either party may by written notice to the other sent by
prepaid registered mail change its address to another physical address provided
that change of address shall only become effective on the seventh (7th) day
after dispatch of the notice.
Section 8.4. Any notice or communication sent by prepaid United States mail
pursuant to this Agreement shall be deemed to have been received within ten (10)
days of the date of posting. Any notice or communication sent by facsimile
transmission pursuant to this Agreement shall be deemed to have been received on
the day that such notice was transmitted and confirmation of receipt of
transmission was received.
ARTICLE IX
Miscellaneous
Section 9.1. This Agreement shall be governed by and interpreted according
to the laws of the State of Arkansas and the parties agree to submit themselves
to the jurisdiction of any competent Arkansas court, both state and federal.
Section 9.2. This Agreement embodies the final, complete and entire
agreement between the parties with respect to the Matters set forth herein. No
other representations, understandings or agreements have been made or relied
upon in the making of this Agreement other than those specifically set forth or
referred to herein.
Section 9.3. Any alterations, modifications, amendments, variations or
additions to this Agreement shall only be valid if in writing and executed with
the same formalities as this instrument.
Section 9.4. The failure of either party to enforce at any time any of the
provisions of this Agreement shall in no way be construed to be a waiver of such
provisions, nor in any way to affect the validity of this Agreement, or any part
thereof, or the rights of either party to thereafter enforce each and every such
provision.
Section 9.5. This Agreement shall not be assigned, delegated, subdelegated,
charged or otherwise disposed of by Memorial without the prior express written
consent of Security National. Upon written notice to Memorial, Security National
may assign, delegate, subdelegate, charge or otherwise transfer this Agreement
and its obligations hereunder; provided that any such assignee, delegee,
subdelegee, chargee or transferee agrees in writing to be bound hereunder.
Section 10.6. This Agreement may be executed in two separate counterparts,
each of which shall be deemed to be an original hereof, but all of which shall
constitute one and the same instrument.
IN WITNESS WHEREOF, Security National and Memorial have executed this
Agreement as of the Effective Date.
SECURITY NATIONAL LIFE INSURANCE COMPANY
By: /s/ Scott M. Quist
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Its: President
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MEMORIAL INSURANCE COMPANY OF AMERICA
By: /s/ Larry N. Perrin
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Its: Treasurer
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