snfc8k081308.htm
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date of
Report (Date of Earliest Event Reported): 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 assumes administrative control over Southern
Security, 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
excess of $100,000 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 the date that Security National Life assumes 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 of such insurance related business
operations. The determination of when Security National Life is
capable of assuming administrative control over the insurance related business
operations of Southern Security shall be made by Security National Life in its
sole discretion, but no later than September 1, 2008. Administrative
control 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.
On August
13, 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. Under the terms of the
Reinsurance Agreement, Security National Life is required to pay a ceding
commission to Southern Security in the amount of $1,500,000. The
Reinsurance Agreement is subject to approval by the Mississippi
Department of Insurance.
As a
result of the Reinsurance Agreement, certain insurance business and operations
of Southern Security will be 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 is required to assume administrative control of the
insurance related business operations of Southern Security, approximately
$23,600,000 in assets and liabilities will be transferred from Southern Security
to Security National Life pursuant to the Reinsurance
Agreement. 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 in-force policies occurs and Mr. Nowell does not solicit existing
policyholders of Southern Security concerning in-force 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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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.
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10.2
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Reinsurance
Agreement among Security National Life Insurance Company, Southern
Security Life Insurance Company, and the shareholders of Southern Security
Life Insurance Company.
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SIGNATURES
Pursuant to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report to
be signed on its behalf by the undersigned hereunto duly
authorized.
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SECURITY
NATIONAL FINANCIAL CORPORATION
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(Registrant)
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Date:
August 21, 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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President
and Chief Operating Officer
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