TABLE OF CONTENTS
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Page
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2
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1.1
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Sale and Purchase of the Shares
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2
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1.2
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Purchase Consideration
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2
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1.3
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Delivery of Shares
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4
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1.4
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Administrative Control of Operations
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4
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5
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2.1
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Closing
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5
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5
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3.1
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Organization, Good Standing and Power
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5
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3.2
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Capital Structure
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6
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3.3
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Authority
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7
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3.4
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Dividends, Stock Purchases, Etc.
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8
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3.5
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Financial Statements
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8
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3.6
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Annual Insurance Statements
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8
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3.7
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Insurance Business
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9
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3.8
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Compliance With Law
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10
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3.9
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No Defaults
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10
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3.10
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Litigation
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10
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3.11
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No Material Adverse Change
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11
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3.12
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No Material Adverse Change in Capital and
Surplus
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12
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3.13
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Absence of Undisclosed Liabilities
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12
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3.14
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Information Supplied
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13
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3.15
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Certain Agreements
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13
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3.16
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Plans; Benefits; Employment Claims
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13
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3.17
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Major Contracts
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14
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3.18
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Taxes
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16
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3.19
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Interests of Officers and Directors
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18
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3.20
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Intellectual Property
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18
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3.21
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Restrictions on Business Activities
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18
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3.22
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Title to Properties; Absence of Liens and
Encumbrances; Conditions of Equipment
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19
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3.23
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Governmental Authorization and Licenses
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19
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3.24
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Environmental Matters
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20
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3.25
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Insurance
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20
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3.26
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Labor Matters
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21
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3.27
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Agents; Customers and Complaints
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21
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3.28
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Questionable Payments
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21
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TABLE OF CONTENTS
(continued)
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Page
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21
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4.1
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Shareholders to Sell Shares in Transaction
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21
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4.2
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Continuing Shareholder Obligations
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22
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4.3
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Shareholders Liable for Liquidated
Damages21
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22
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23
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5.1
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Organization, Good Standing and Power
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23
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5.2
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Authority
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23
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5.3
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Board Authorization
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23
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24
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6.1
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Conduct of Business of Southern Security
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24
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27
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7.1
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Conditions to Each Party's Obligation to
Effect this Transaction
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27
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7.2
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Conditions to Obligations of Security
National
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28
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7.3
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Conditions to Obligations of Southern Security
and Shareholders
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30
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31
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8.1
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Termination
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31
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32
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9.1
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Obligation of Shareholders to Indemnify
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32
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9.2
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Notice and Opportunity to Defend
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32
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TABLE OF CONTENTS
(continued)
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Page
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34
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10.1
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Survival of Representations, Warranties,
Covenants and Agreements
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34
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10.2
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Amendment
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34
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10.3
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Extension; Waiver
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34
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10.4
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Notices
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34
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10.5
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Interpretation
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36
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10.6
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Counterparts
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36
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10.7
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Entire Agreement
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36
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10.8
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No Transfer
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36
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10.9
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Severability
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36
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10.10
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Other Remedies
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37
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10.11
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Further Assurances
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37
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10.12
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No Third Party Beneficiary Rights
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37
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10.13
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Mutual Drafting
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37
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10.14
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Expenses
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37
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10.15
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Brokers or Finders
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37
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10.16
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Public Announcements
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37
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10.17
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Confidentiality
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38
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10.18
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Attorney’s Fees
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38
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ANNEX I
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42
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EXHIBITS
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Exhibit 1
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Southern Security Disclosure Schedule
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Exhibit 2
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Security National Disclosure Schedule
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the
"Agreement") is dated effective as of August 13, 2008, and entered
into by and among SECURITY NATIONAL LIFE INSURANCE COMPANY, a Utah
corporation (“Security National”), SOUTHERN SECURITY
LIFE INSURANCE COMPANY, INC., a Mississippi corporation
(“Southern Security”), and the shareholders of Southern
Security that have executed the AGREEMENT BY SHAREHOLDERS OF
SOUTHERN SECURITY LIFE INSURANCE COMPANY TO SELL SHARES IN STOCK
PURCHASE TRANSACTION in the form attached as Annex I (the
“Shareholders”).
NOW, THEREFORE, in consideration of the mutual
covenants and agreements contained herein, Security National,
Southern Security, and the Shareholders hereby agree as
follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Sale
and Purchase of the Shares . At the Closing, as
hereinafter defined, upon and subject to the terms and conditions
set forth in this Agreement, the Shareholders shall sell, transfer,
assign and deliver to Security National, and Security National
shall purchase from the Shareholders, 50,000 shares of voting Class
A common stock and 450,000 shares of non-voting Class B common
stock of Southern Security (the "Southern Security Common
Stock”), representing all of the issued and outstanding stock
and securities of Southern Security, free and clear of all liens,
claims, options, proxies, voting agreements, charges and
encumbrances. Security National, Southern Security, and
the Shareholders hereby acknowledge and agree that regulatory
approval from the Utah and Mississippi insurance departments for
the transaction described in this Section 1.1 must be obtained
prior to Closing, as defined in Section 2.1 below.
1.2
Purchase
Consideration . Subject to the terms and
conditions of this Agreement, in reliance upon Southern
Security’s representations, warranties, agreements and
covenants contained herein, and in consideration of the sale,
transfer, assignment and delivery of the Southern Security Common
Stock as herein provided, Security National agrees to provide the
following purchase consideration (the "Purchase Consideration") to
the Shareholders:
(a) Cash
in U.S. dollars by certified funds or wire transfer payable to the
Shareholders on a pro rata basis to the number of shares of
Southern Security Common Stock held by the Shareholders in an
amount equal to (i) the Capital and Surplus of Southern Security as
of the date that Security National assumes Administrative Control
over Southern Security, as defined in Section 1.4 below (as set
forth on page 3, line 38, column 1 of the Statutory Statement,
which shall include any capital contributions that were made
subsequent to June 30, 2008, including the July subsequent event of
$70,380 as an admissible asset), plus (ii) the Interest
Maintenance Reserve as of the Administrative Control Date (as set
forth on page 3, line 9.4, column 1 of the Statutory Statement),
plus (iii) the Asset Valuation Reserve as of the
Administrative Control Date (as set forth on page 3, line 24.1,
column 1 of the Statutory Statement), plus (iv) the amount
of the adjustment in Section 1.2(b), less the amount of the
adjustments in Sections 1.2(c), (d), (e) and (f)
below. (It should be noted for purposes of illustration
that the Capital and Surplus, Interest Maintenance Reserve, and
Asset Valuation Reserve of Southern Security as of June 30, 2008
was $1,154,418.00. Additionally, assuming the payment to
Southern Security of the ceding commission pursuant to the
Reinsurance Agreement, as required under Section 1.4 below, the
Capital and Surplus would increase by approximately
$1,500,000. Accordingly, the Capital and Surplus,
Interest Maintenance Reserve, and Asset Valuation Reserve of
Southern Security at the Administrative Control Date could be
approximately $2,655,418.00. This illustration is not
intended to be binding upon the parties to this
Agreement and is to be used only as an
example. Thus, there can be no assurance that the actual
payments under this Section 1.2(a) will be equal to the amounts set
forth in this illustration.);
(b) The
Purchase Consideration shall also include an allowance not to
exceed $100,000 (the “Allowance”) that Security
National agrees to provide toward Southern Security’s
expected losses in the second quarter ended June 30,
2008. This Allowance to be provided by Security National
shall in nowise exceed $100,000 even if the actual losses
experienced by Southern Security in the second quarter, or in any
subsequent quarter, are in excess of $100,000;
(c) The
Shareholders agree at Closing to deposit $175,000 (the "Deposit
Amount") of the Purchase Consideration into an interest bearing
escrow account (the "Escrow Account") with an escrow agent (the
“Escrow Agent”) mutually acceptable to Security
National and the Shareholders. The Deposit Amount shall
be used to pay the amount of any adjustments required under the
terms of this Agreement. The Escrow Agent shall be
instructed to pay any remaining amount from the Deposit Amount to
the Shareholders on a pro rata basis following the payment of any
adjustments;
(d) The
Shareholders further agree at Closing to deposit $537,000 of the
Purchase Consideration (the "Real Estate Deposit Amount") into the
interest bearing Escrow Account. This amount represents
approximately 50% of the total outstanding balances on the
promissory notes (the “Notes”) that Southern Security
has entered into with Ray-Nowell Funeral Home, Inc. and Wade Nowell
Funeral Homes, Inc., which Notes are secured by funeral home
properties in Senatobia, Mississippi and Collins, Mississippi,
respectively. The Shareholders agree to grant to
Security National a security interest in the Real Estate Deposit
Amount to secure payment of these Notes. Except as set
forth below, beginning on September 1, 2009, and continuing on the
same date of each year thereafter, Security National shall instruct
the Escrow Agent to release to the Shareholders on a pro rata basis
an amount equal to the combined principal reduction of said Notes
that has occurred during the preceding August 1 through July 31
period, until such time as the Real Estate Deposit Amount,
including any accrued interest thereon, has been paid to the
Shareholders. However, no payments shall be made to the
Shareholders from the Real Estate Deposit Amount if either of the
Notes is in default. In addition, in order for any funds
to be released to the Shareholders as a result of any prepayment of
either of the Notes, both Notes must be prepaid by an equal
percentage, in which event the Escrow Agent shall be instructed to
release to the Shareholders on a pro rata basis, an amount equal to
the combined principal reduction of said Notes resulting from such
prepayments. In the event there is a default in the
payment of either of the Notes, Security National shall have the
right to foreclose on the Note in default pursuant to the terms
thereunder and shall be entitled to receive payment from the Real
Estate Deposit Amount in an amount equal to the full amount of any
losses and expenses incurred by Security National as a result of
such default and the enforcement of its rights pursuant
thereto. The Shareholders and Security National agree
that the Shareholders have the right, but not the obligation, to
refinance the existing debt on the notes. The
Shareholders have informed Security National that they contemplate
a refinance of the notes by providing a $750,000 first mortgage and
satisfying the remaining debt on the notes through a second
mortgage to be funded through the sale proceeds to be paid to the
Shareholders, as part of the purchase consideration paid to the
Shareholders at closing;
(e) Part
of the Purchase Consideration shall be paid to the Shareholders in
the form of the Nowell Legacy Trust, which is listed as an asset on
the financial statements of Southern Security. Southern
Security agrees to transfer its interest in the Nowell Legacy Trust
(as set forth on page 2, line 2302, column 3, of the Statutory
Statements) to the Shareholders at Closing and the Purchase
Consideration to be paid by Security National shall be reduced by
the admitted value of the Nowell Legacy Trust as reflected on the
financial statements of Southern Security as of the date that
Security National assumes “Administrative Control”, as
defined in Section 1.4 below; and
(f) Shareholders
warrant that properties shown on the annual statement are owned
free and clear, and that the loans shown in the annual statement
conform with the rules and regulations of Mississippi for
admissibility. Shareholders shall furnish all usual and
customary documentation to Security National in support of this
warranty.
1.3
Delivery of Shares . At the Closing Date,
the Shareholders shall deliver to Security National certificates
with stock power executed in blank representing the outstanding
shares of Southern Security Common Stock required by Section 1.1
hereof.
1.4
Administrative Control of Operations .
Contemporaneous with the execution of this Agreement, Security
National and Southern Security each agree to enter into a
Reinsurance Agreement, wherein Security National shall reinsure all
of the in-force and future insurance liabilities of Southern
Security. In addition, Security National shall assume
complete and total administrative control of all of the then
current and future insurance related business operations of
Southern Security at such time as Security National notifies
Southern Security, in writing, that it is capable of assuming
control of those functions (hereinafter, “Administrative
Control”). The determination of when Security
National is capable of assuming Administrative Control over the
insurance related business operations of Southern Security shall be
made by Security National in its sole discretion, no later than
September 1st. Security National shall take
Administrative Control as soon as practicable and Southern Security
shall fully cooperate to assure an efficient and effective transfer
of control. Administrative Control shall include, but is
not limited to, control over all day-to-day business expenses,
trade debt, locations of business operations, employees, employee
compensation, compensation, if any, to officers and directors, cash
flow, deposits, and bank accounts. Upon assuming
Administrative Control, Security National shall not only be given
access to the records, files, and computer systems of Southern
Security, but shall also have the right to transfer or move such
records, files, and computer systems to other offices or locations
in which Security National transacts business. The
transfer of Administrative Control to Security National shall not
relieve Southern Security of its duties to prepare and file, at its
own expense, its tax returns, periodic reports and related
statements with the Mississippi Insurance Department, and all other
governmental reports and filings until the date of
Closing. Security National will provide information
within its control to Southern Security to assist with these
filings.
ARTICLE II
THE CLOSING
2.1 Closing
. The closing of the transaction (the "Closing") will
take place at the offices of Southern Security Life Insurance
Company, 211 Ball Drive, Louisville, Mississippi, unless a
different date or place is agreed to in writing by the parties
hereto. Each party hereto shall use its best efforts to
cause the Closing to occur on or before October 1, 2008, or within
seven (7) days from the date the required regulatory approvals are
obtained as set forth in Section 1.1 above, unless this date is
extended as provided herein (the "Closing Date").
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF SOUTHERN SECURITY
Except as disclosed in a document to be prepared by Southern
Security and delivered to Security National prior to the Closing
Date (the "Southern Security Disclosure Schedule") referring
specifically to the applicable representation and warranty in this
Agreement that identifies the basis for an exception to a
representation and warranty in this Agreement and that is delivered
by Southern Security to Security National and approved by Security
National by execution of this Agreement, Southern Security
represents and warrants to Security National as set forth below,
and such representations and warranties shall be true and correct
as of the date hereof and at all times thereafter including,
without limitation, the Closing Date, as if made at all such
times. As used in this Agreement (i) "Business
Condition" with respect to any corporate entity or group of
corporate entities shall mean the business and financial condition
and prospects of such entity or entities taken as a whole and (ii)
"material adverse effect" on the Business Condition shall be deemed
to include, without limitation, (x) any inaccuracy in the
capitalization representation set forth in Section 3.2 below and
(y) any material liability not reflected on the Southern Security
Financial Statements (as defined in Section 3.5 below) or Annual
Insurance Statements (defined in Section 3.6 below).
3.1
Organization, Good Standing and Power
. Southern Security is a corporation, duly organized,
validly existing and in good standing under the laws of its state
of incorporation and has all requisite power and authority to own,
operate and lease its properties and to carry on its businesses as
now being conducted. Schedule 3.1 of the Southern
Security Disclosure Schedule contains a true and correct listing of
all states in which Southern Security is registered, licensed and
authorized to engage in the insurance business. Southern
Security is not aware of any threatened or pending action or
inaction that could result in the loss of or an adverse change in
any such registration or license. Southern Security is
in good standing under all such registrations and
licenses. Southern Security is duly qualified as foreign
corporations and is in good standing in each jurisdiction in which
the failure to so qualify would have a material adverse effect on
its individual Business Condition. The Southern Security
Disclosure Schedule also sets forth a true and complete list of the
states where Southern Security is qualified as a foreign
corporation. Southern Security has no
subsidiaries. Southern Security has no other direct or
indirect equity interest in or loans to any partnership,
corporation, joint venture, business association or other
entity. Southern Security has delivered to Security
National complete and correct copies of its Articles of
Incorporation and Bylaws, in each case as amended to the date
hereof, and has delivered or made available minutes of all of
Southern Security's directors' and stockholders' meetings, and
stock certificate books correctly setting forth the record
ownership of all outstanding shares of Southern Security Common
Stock.
(a) The
authorized capital structure of Southern Security consists of
100,000 shares of Voting Class A Common Stock and 1,000,000 shares
of Non-Voting Class B Common Stock. There are 50,000
shares of Voting Class A Common Stock and 450,000 shares of
Non-Voting Class B Common Stock issued and outstanding, all of
which are owned by the Shareholders. Except as disclosed
on Schedule 3.2 of the Southern Security Disclosure Schedule, there
are no other debt, equity or hybrid debt or equity interests or
securities of Southern Security issued and outstanding.
(b) All
outstanding shares of Southern Security Common Stock and other
Southern Security securities, if any, are validly issued, fully
paid and non-assessable and, except as disclosed on the Southern
Security Disclosure Schedule, are not subject to any liens, claims,
encumbrances or charges of any kind or nature or any preemptive
rights created by statute, Southern Security's Articles of
Incorporation or Bylaws or any agreement to which Southern Security
is a party or by which Southern Security may be
bound. There are no options, warrants, calls, conversion
rights, commitments or agreements of any character to which
Southern Security is a party or by which Southern Security may be
bound that do or may obligate Southern Security to issue securities
of any kind or nature or to grant, extend or enter into any such
option, warrant, call, conversion right, commitment or agreement or
which relate to the voting of the Southern Security Common Stock or
other Southern Security securities, if any.
(a) Southern
Security has all requisite corporate power and authority to enter
into this Agreement and to perform its obligations hereunder and
thereunder, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this
Agreement, the performance by Southern Security of its obligations
hereunder and thereunder and the consummation of the transactions
contemplated hereby and thereby have been duly and validly
authorized by all necessary corporate action on the part of
Southern Security, including approval by its Boards of Directors
and the shareholders. This Agreement shall constitute legal, valid
and binding obligations of Southern Security enforceable against
Southern Security in accordance with their respective terms, except
as enforcement may be limited by bankruptcy, insolvency or other
similar laws affecting the enforcement of creditors' rights
generally and except that the availability of equitable remedies is
subject to the discretion of the court before which any proceeding
therefore may be brought.
(b) To
the best knowledge of Southern Security, the execution and delivery
of this Agreement does not, and the consummation of the
transactions contemplated hereby and thereby, will not, conflict
with or result in any violation of any material statute, law, rule,
regulation, judgment, order, decree or ordinance applicable to
Southern Security or its properties or assets, nor will it conflict
with or result in any breach or default (with or without the giving
of notice or the lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any material
obligation or to the loss of any material benefit under, or result
in the creation of a material lien, charge or encumbrance on any of
the properties or assets of Southern Security pursuant to (i) any
provision of the Articles of Incorporation or Bylaws of Southern
Security or (ii) any material agreement, contract, note, mortgage,
indenture, lease instrument, permit, concession, franchise,
registration or license to which Southern Security is a party or by
which Southern Security or any of its properties or assets may be
bound or affected.
(c) To
the best knowledge of Southern Security, no consent, approval,
order or authorization of, or registration, declaration or filing
with, any court, administrative agency, commission, regulatory
authority or other governmental authority or instrumentality,
whether domestic or foreign (collectively, a "Governmental
Entity"), is required by or with respect to Southern Security in
connection with the execution and delivery of this Agreement and by
Southern Security or the consummation by Southern Security of the
transactions contemplated hereby or thereby, except for (i) filing
required documents with the relevant authorities of states in which
Southern Security is qualified to do business, (ii) such consents,
approvals, authorizations, registrations or qualifications as may
be required under state insurance laws as identified in the
Southern Security Disclosure Schedule and (iii) such consents,
approvals, orders, authorizations, registrations, declarations and
filings as may be required under the laws of any foreign country,
which, if not obtained or made, would not have a material adverse
effect on the Business Condition of Southern
Security. All approvals of Southern Security's Board of
Directors and Shareholders as required by applicable law have been
obtained and are in force and effect and no dissenters' rights have
been exercised under applicable law.
3.4
Dividends, Stock Purchases, Etc . Since
December 31, 2007, Southern Security has not (i) declared or paid
any dividends (either in cash, property or its stock of any class)
upon, or made or become committed to make any other distribution
with respect to, or purchased, redeemed or otherwise beneficially
acquired any of its outstanding capital stock of any class, or
become committed so to do; (ii) split up, combined or reclassified
any of its outstanding capital stock of any class, or become
committed so to do; or (iii) issued or become committed to issue
any additional capital stock of any class (whether or not from
treasury stock, heretofore authorized but unissued stock, or newly
authorized stock) or any options, rights or warrants to acquire, or
securities convertible into or exchangeable for, or which otherwise
confer upon the holder or holders thereof any right to acquire, any
shares of capital stock of any class or any other security or debt
of Southern Security. In addition, Southern Security
shall not, without Security National’s written consent, take
or attempt to take any of the actions described in this Section
3.4.
3.5
Financial Statements . Southern Security
has furnished or made available to Security National or will
furnish or make available to Security National within ten days from
the date of this Agreement Southern Security's audited financial
statements for the fiscal years ended December 31, 2005, 2006, and
2007, including balance sheets and the related audited statements
of income, cash flow and stockholders' equity, and the related
management letters (collectively, the “Audited Financial
Statements”). Additionally, Southern Security has
furnished or made available to Security National or will furnish or
make available to Security National within ten days from the date
of this Agreement Southern Security's unaudited financial statement
as of and for the quarter ended June 30, 2008, including the
unaudited balance sheet of Southern Security as at June 30, 2008,
and the related unaudited statements of income, cash flow and
stockholders' equity (collectively, the "Unaudited Financial
Statements"). The Audited Financial Statements and the
Unaudited Financial Statements provided previously to Security
National are listed in Schedule 3.5 of the Southern Security
Disclosure Schedule. The Audited Financial Statements
and the Unaudited Financial Statements, are, collectively, referred
to as the "Southern Security Financial Statements." The
Southern Security Financial Statements have been or will be
prepared in accordance with statutory accounting principles (STAT)
consistently applied and fairly present the financial position of
Southern Security as at the dates thereof and the results of its
operations and cash flows for the periods then ended. In
preparing the Unaudited Financial Statements, there have been no
changes in Southern Security's STAT or statutory accounting
policies or procedures used in preparing the December 31, 2007
audited financial statements.
3.6 Annual
Insurance Statements .
(a) Southern
Security has provided Security National with (i) all annual
statements, certificates and applications to the Mississippi or any
other insurance commissioner or other Governmental Entity, which
Southern Security has filed with or submitted with respect to years
ending on or after December 31, 2004, and such documentation
provided previously is listed in Schedule 3.6 of the Southern
Security Disclosure Schedule, and (ii) all reports of examination
issued by such insurance commissioners, regulatory authorities or
other Governmental Entity regarding Southern Security on or after
December 31, 2004, and such documentation provided previously is
listed also in Schedule 3.6.
(b) Such
filings or submissions in 3.6 (a) were in substantial compliance
with applicable law when filed and, as of their respective dates,
did not contain any materially false statements of fact or omit to
state any material fact necessary to make the statements set forth
therein not misleading in light of the circumstances under which
such statements were made; no material deficiencies have been
asserted by any insurance commissioner, insurance department or
other Governmental Entity with respect to such statements; Southern
Security has provided Security National with copies of all material
written responses with respect to comments from any Governmental
Entity concerning such filings, submissions or reports of
examination since December 31, 2004 and such written responses are
described in Schedule 3.6 of the Southern Security Disclosure
Schedule, and prior to the date of this Agreement, no fines or
penalties have been imposed on Southern Security by any
Governmental Entity; and no deposits (other than in the ordinary
course of business) have been made by Southern Security with any
Governmental Entity.
(c) The
statutory financial statements for Southern Security as of and for
the years ended December 31, 2005, 2006 and 2007 (i) fairly present
the statutory financial condition of Southern Security at such
dates and (ii) have been prepared in accordance with the required
or permitted statutory insurance accounting requirements or
practices under the insurance laws of Mississippi, except as
expressly set forth or disclosed in the notes, exhibits or
schedules thereto. The amounts shown in such statements
of account on aggregate reserves for life or annuity policies and
contracts, aggregate reserves for accident and health policies, net
deferred and uncollected premiums and all policy and contract
claims liability as of the end of each such year, are computed in
accordance with accepted actuarial and industry practices, are
fairly stated in accordance with those called for in applicable
insurance policy provisions, meet the requirements of the insurance
laws of Mississippi, make a sufficient provision for all unmatured
obligations of Southern Security provided for under the terms of
its policies and are consistent with the assumptions previously
employed. Adequate provision has been made for all
actuarial reserves and related statement items which ought to be
established.
(a) Security
National has been provided true and complete copies of all
contracts, arrangements, treaties, understandings and agreements of
(or related to) Southern Security with any party with respect to
reinsurance currently in force and such documents and information
are listed in Schedule 3.7 of the Southern Security Disclosure
Schedule attached hereto. All policies assumed by
Southern Security were assumed under agreements submitted to and
approved by all relevant regulatory authorities and are valid, in
force, and not subject to recapture (except at Southern Security's
option), and are fairly reflected on the Southern Security
Financial Statements. No party thereto is in material
default with respect to any provision thereof and no such agreement
contains any provision providing that the other party thereto may
terminate same by reason of the transactions contemplated by this
Agreement or any other provisions which would be altered or
otherwise become applicable by reason of such transactions.
(b) All
policies of insurance issued or assumed by Southern Security as now
in force are, to the extent required under applicable law, on forms
submitted to and approved by the applicable jurisdiction's
insurance commissioner. No policy holder or related
group of policy holders which, singularly or in the aggregate,
accounted for 5% of the gross revenues of Southern Security
considered as a whole for the year ended December 31, 2007 has,
after December 31, 2007, terminated or, to the best knowledge of
the Southern Security, threatened to terminate its relationship
with Southern Security. The contracts between Southern
Security and its agents, managers or brokers are valid, binding and
in full force and effect in accordance with their
terms. Southern Security is not in material default with
respect thereto and no such contract contains any provision
providing that the other party thereto may terminate the same by
reason of the transactions contemplated by this Agreement or any
other provision which would be altered or otherwise become
applicable by reason of such transactions.
3.8
Compliance with Law . To the best
knowledge of Southern Security, Southern Security is in compliance
with and has conducted its business so as to comply with all laws,
rules, regulations, judgments, decrees or orders of any
Governmental Entity applicable to their operations or with respect
to which compliance is a condition of engaging in the business
thereof, except to the extent that failure to comply could,
individually or in the aggregate, not have had and is not
reasonably expected to have, a material adverse effect on the
Business Condition of Southern Security. There are no
material judgments, orders, injunctions, decrees, stipulations or
awards (whether rendered by a court or administrative agency or by
arbitration) against Southern Security or against any of its
properties or businesses. Schedule 3.8 of the Southern
Security Disclosure Schedule contains a summary of all material
violations of, or conflicts with, any applicable statute, law,
rule, regulation, ruling, order, judgment or decree, listed by each
such Governmental Entity, including any of the foregoing relating
to any environmental or health laws.
3.9 No
Defaults . To the best knowledge of Southern
Security, Southern Security is not, nor has it received notice that
it is or would be with the passage of time or the giving of notice,
or both, (a) in violation of any provision of its Articles of
Incorporation or Bylaws or (b) in default or violation of any term,
condition or provision of (i) any judgment, decree, order,
injunction or stipulation applicable to Southern Security or (ii)
any agreement, note, mortgage, indenture, contract, lease,
instrument, permit, registration, concession, franchise or license
to which Southern Security is a party or by which Southern Security
or any of its properties or assets may be bound, which violation or
default could, individually or in the aggregate, have a material
adverse effect on the Business Condition of Southern Security.
3.10 Litigation
. There is no action, suit, proceeding, claim,
arbitration or investigation pending or, to the best knowledge of
Southern Security, threatened, against Southern Security that,
individually or in the aggregate, could be reasonably expected to
have a material adverse effect on the Business Condition of
Southern Security, or which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions
contemplated hereby. Schedule 3.10 of the Southern
Security Disclosure Schedule sets forth with respect to each
pending action, suit, proceeding, claim, arbitration or
investigation to which Southern Security is a party, the forum, the
parties thereto, a brief description of the subject matter thereof
and the amount of damages claimed. Southern Security is
not aware of any reasonable basis for any other such action, suit,
proceeding, claim, arbitration or
investigation. Southern Security has delivered or made
available to Security National correct and complete copies of all
correspondence prepared by its counsel for Southern Security's
independent public accountants in connection with any audits or
reviews completed by Southern Security's independent public
accountants.
3.11 No Material
Adverse Change . Since December 31, 2007,
Southern Security has conducted its business in the ordinary course
and there has not occurred:
(a) Any
material adverse change in the Business Condition of Southern
Security;
(b) Any
amendments or changes in the Articles of Incorporation or Bylaws of
Southern Security;
(c) Any
damage, destruction or loss, whether covered by insurance or not,
materially and adversely affecting any of the properties or
businesses of Southern Security;
(d) Any
issuance, redemption, repurchase or other acquisition of the shares
of capital stock of Southern Security or any declaration, setting
aside payment of any dividend or other distribution (whether in
cash, stock or property) with respect to the capital stock of
Southern Security;
(e) Any
increase in or modification of the compensation or benefits payable
or to become payable by Southern Security to any of its directors,
officers or employees, except in the ordinary course of business
consistent with past practice;
(f) Any
material increase in or modification of any bonus, pension,
insurance or other employee benefit plan, payment or arrangement,
including, but not limited to, the granting of stock options,
restricted stock awards or stock appreciation rights made to, for
or with any of its employees, except in the ordinary course of
business consistent with past practice;
(g) Any
sale of the property or assets of Southern Security individually in
excess of $1,000 or in the aggregate in excess of $2,500;
(h) Any
alteration in any term of any outstanding security of Southern
Security;
(i) Any
(a) incurrence, assumption or guarantee by Southern Security of any
debt for borrowed money; (b) issuance or sale of any securities
convertible into or exchangeable for debt securities of Southern
Security; (c) issuance or sale of options or other rights to
acquire from Southern Security, directly or indirectly, debt
securities or any securities convertible into or exchangeable for
any such debt securities; or (d) any material premium refunds;
(j) Any
creation or assumption by Southern Security of any mortgage,
pledge, security interest, lien or other encumbrance on any of its
assets or properties;
(k) Any
making of any loan, advance or capital contribution to, or
investment in, any person other than (a) travel loans or advances
made in the ordinary course of business of Southern Security and
(b) other loans and advances in an aggregate amount that does not
exceed $1,000 outstanding at any time;
(l) Any
entry into or any amendment or relinquishment of or any termination
or renewal by Southern Security of any contract, lease transaction,
commitment or other right or obligation, except in the ordinary
course of business consistent with past practice;
(m) Any
transfer or grant of a right under the Southern Security
Intellectual Property Rights (as defined in Section 3.20 below)
other than those transferred or granted in the ordinary course of
business consistent with past practice;
(n) Any
labor dispute, other than routine individual grievances, or any
activity or proceeding by a labor union or representative thereof
to organize any employees of Southern Security;
(o) Any
violation of or conflict with any applicable laws, statutes,
orders, rules or regulations promulgated, or judgment entered by
any Governmental Entity, that, individually or in the aggregate,
materially and adversely affects (or, insofar as Southern Security
knows, might reasonably be expected to materially and adversely
affect) the Business Condition of Southern Security;
(p) Any
agreement or arrangement made by Southern Security to take any
action that, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Section 3 untrue or
incorrect as of the date when made; or
(q) Any
payment of amounts owing under Southern Security issued insurance
policies materially at variance with the Company's policy
provisions and policy payment history.
(r) Any
decrease in insurance premiums greater than 5%;
3.12 No Material
Adverse Change in Adjusted Capital and Surplus .
Since December 31, 2007, there has not been a reduction
in the Adjusted Capital and Surplus of Southern Security that has
not been previously disclosed to Security
National. Security National acknowledges receipt of
financial statements illustrating the financial condition of
Security National as of March 31 and June 30, 2008.
3.13 Absence of
Undisclosed Liabilities . Except as disclosed in
Schedule 3.13 of the Southern Security Disclosure Schedule or as
reflected in the Southern Security Financial Statements and except
for liabilities and obligations arising after March 31, 2008, in
the ordinary course of business consistent with past practices that
could not reasonably be expected to have a material adverse effect
on the Business Condition of Southern Security, Southern Security
has no liabilities or obligations (whether absolute, accrued or
contingent, and whether or not determined or determinable) of a
character that, under STAT, should be accrued, shown or disclosed
on an audited balance sheet of Southern Security (including the
footnotes thereto) or should be described on an Annual Insurance
Statement filed with any state insurance commissioner having
jurisdiction over Southern Security or its business.
3.14
Information Supplied
. None of the information supplied or to be supplied by
Southern Security pursuant to this Agreement and no representation
or warranty made herein or in any exhibit hereto or in any
financial statement or schedule attached hereto contains or will
contain any untrue statement of a material fact or omits or will
omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
3.15
Certain Agreements
. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby or
thereby will (a) result in any payment (including, without
limitation, severance, unemployment compensation, golden parachute,
bonus or otherwise) becoming due to any director or employee of
Southern Security under any Plan (as defined in Section 3.16 below)
or otherwise, (b) materially increase any benefits otherwise
payable under any Plan or (c) result in the acceleration of the
time of payment or vesting of any such benefit.
3.16 Plans; Benefits;
Employment Claims.
(a) All
employee benefit plans, programs, policies, commitments or other
arrangements (whether or not set forth in a written document)
covering any active, former or retired employee or consultant of
Southern Security are listed in Schedule 3.16 of the Southern
Security Disclosure Schedule (individually, a "Plan" and,
collectively, the "Plans"). To the extent applicable,
the Plans comply with the requirements of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), and the Code,
and any Plan intended to be qualified under Section 401(a) of the
Code has either obtained a favorable determination letter as to its
qualified status from the Internal Revenue Service (the "IRS") or
still has a remaining period of time under applicable Treasury
Regulations or IRS pronouncements in which to apply for such a
determination letter and to make any amendments necessary to obtain
a favorable determination. To the extent any Plan with
an existing determination letter from the IRS must be amended to
comply with the applicable requirement of the Tax Reform Act of
1986, as amended, and subsequent legislation, the time period for
effecting such amendments will not expire prior to this
transaction. Southern Security has furnished or made
available to Southern Security copies of the most recent IRS
letters and IRS Form 5500 with respect to any such
Plan. No Plan is covered by Title IV of ERISA or Section
412 of the Code. Neither Southern Security nor any
officer or director of Southern Security has incurred any liability
or penalty under Section 4975 through Section 4980 of the Code or
Title I of ERISA. Each Plan has been maintained and
administered in all material respects in compliance with its terms
and with the requirements prescribed by and all applicable
statutes, laws, rules, orders, rules and regulations, including,
but not limited to, ERISA and the Code, that are applicable to such
Plans. No suit, action or other litigation (excluding
claims for benefits incurred in the ordinary course of Plan
activities) has been brought, or, to the best knowledge of Southern
Security, is threatened, against or with respect to any such
Plan. All contributions, reserves and premium payments
required to be made or accrued as of the date hereof to the Plans
have been made or accrued.
(b) Except
as described in Schedule 3.16 attached hereto, no present or former
employee of Southern Security has any claim against Southern
Security (whether under federal or state law, under any employment
agreement, or otherwise) on account of or for (i) overtime pay,
other than overtime pay for work done in current payroll period;
(ii) wages or salary for any period other than the current payroll
period; (iii) vacation time off or pay in lieu of vacation time
off, other than (x) accumulated vacation pay as show in the
schedule referred to above, and (y) vacation time off (or pay in
lieu thereof) earned in or in respect of the current fiscal year;
or (iv) any material violation of any statute, ordinance or
regulation relating to minimum wages or maximum hours of work.
(c) No
person or party (including, but not limited to governmental
agencies of any kind) has filed, or to the knowledge of Southern
Security has threatened to file, any claim against Southern
Security under or rising out of any statute, ordinance or
regulation relating to discrimination in employment or employment
practices. No person has any material claim under which
Southern Security has any material liability under any health,
sickness, disability, medical, surgical, hospital, or surgical,
hospital, or similar benefit plan or arrangement, or by virtue of
his or her employment maintained by Southern Security, or to or by
which Southern Security is a party or is bound, or under any
workmen's compensation or similar law, which is not fully covered,
subject only to standard deductibles, by insurance maintained with
reputable, financially responsible insurers. No person
has any claim or has filed any action or has threatened to file any
action or bring a claim by virtue of his or her employment by
Southern Security including, without limiting the generality of the
foregoing, sexual harassment, wrongful termination, or other
actions.
3.17
Major Contracts
. Except as disclosed in Schedule 3.17 of the Southern
Security Disclosure Schedule, Southern Security is not a party to
or subject to:
(a) Any
union contract or any employment or consulting contract, agreement
or arrangement providing for future compensation, whether written
or oral, with any officer, consultant, director or employee that is
not terminable by Southern Security on thirty (30) days' or less
notice without penalty or obligation to make payments related to
such termination;
(b) Any
plan, contract or arrangement, whether written or oral, providing
for bonuses, pensions, deferred compensation, severance pay or
severance benefits, retirement payments, profit-sharing payments or
similar such payments;
(c) Any
joint venture contract, agreement or arrangement or any other
agreement that has involved or is expected to involve a sharing of
profits with another person or entity;
(d) Any
existing marketing, distribution, agency or brokerage agreement in
which the annual amount involved in fiscal 2007 exceeded $5,000 in
aggregate amount or pursuant to which Southern Security has granted
or received most favored nation pricing provisions or exclusive
marketing rights related to any product, group of products or
territory;
(e) Any
lease for realty or personal property in which the amount of
payments that Southern Security is required to make on an annual
basis exceeds $1,500;
(f)
Any instrument evidencing or related in any
way to indebtedness incurred in the acquisition of companies or
other entities or indebtedness for borrowed money by way of direct
loan, sale of debt securities, purchase money obligation,
conditional sale, guarantee, leasehold obligations or
otherwise;
(g) Any
material license agreement, either as licensor or licensee;
(h) Any
contract containing covenants purporting to limit the freedom of
Southern Security to compete in any line of business in any
geographic area;
(i)
Any insurance policy or fidelity or surety
bond;
(j)
Any agreement of indemnification relating to Southern
Security or any of its officers, directors or employees;
(k) Any
agreement, contract or commitment relating to capital expenditures
that involves future payments individually in excess of $1,500 or
in the aggregate in excess of $5,000 by Southern Security;
(l)
Any agreement, contract or commitment
relating to personal services to be rendered by any person to
Southern Security requiring the payment of more than $1,000 per
month or the disposition or acquisition of any assets by Southern
Security; or
(m) Any
other agreement, contract or commitment that is material to
Southern Security's business.
Each agreement, contract, mortgage, indenture, plan, lease,
instrument, permit, concession, franchise, arrangement, license,
re
