UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 14A
(Rule 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement
Pursuant to Section
14(a) of the Securities
Exchange Act of 1934
Filed by Registrant ☒
Filed by a Party other than the Registrant ☐
Check the appropriate box:
| ☒ | Preliminary Proxy Statement |
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(3)(2)) |
| ☐ | Definitive Proxy Statement |
| ☐ | Definitive Additional Materials |
| ☐ | Soliciting Material Pursuant to §240.14a-12 |
SECURITY NATIONAL FINANCIAL CORPORATION
(Name of Registrant as specified in its Charter)
(Name of Person(s) filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the Appropriate box):
| ☒ | No fee required. |
| ☐ | Fee computed on table below per Securities Exchange Act Rules 15a-6(i)(4) and 0-11. |
| ☐ | Fee paid previously with preliminary materials. |
| (1) | Title of each class of securities to which transaction applies: | |
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| (3) | Per unit price or other underlying value of transaction computed pursuant to Securities Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated and state how it was determined): | |
| (4) | Proposed maximum aggregate value of transaction: | |
| (5) | Total fee paid: |
| ☐ | Check box if any part of the fee is offset as provided by Securities Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid previously. Identify the previous filing by registration statement number, or the Form or Schedule and the date of its filing. |
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| (4) | Date Filed: |
SECURITY NATIONAL FINANCIAL CORPORATION
433 Ascension Way, 6th Floor
Salt Lake City, Utah 84123
May 6, 2022
Dear Stockholders:
On behalf of the Board of Directors (the “Board”), it is my pleasure to invite you to attend the Annual Meeting of Stockholders (the “Annual Meeting”) of Security National Financial Corporation (the “Company”) to be held on Friday, June 17, 2022, beginning at 10:00 a.m., Mountain Daylight Time, at 433 Ascension Way, 1st Floor, Salt Lake City, Utah 84123. The formal notice of the Annual Meeting and the Proxy Statement have been made a part of this invitation.
The matters to be addressed at the meeting will include (1) the election of ten directors; (2) the approval of the Company’s 2022 Equity Incentive Plan; (3) amendment and restatement of our Amended and Restated Articles of Incorporation to increase the number of authorized shares of Class A and Class C common stock; (4) the approval, on an advisory basis, of the compensation of the Company’s named executive officers; (5) the ratification of the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2022; and (6) the transaction of such other business as may properly come before the Annual Meeting, or any adjournments or postponements thereof. Please refer to the Proxy Statement for detailed information on each of the proposals and the Annual Meeting. I will also report on the Company’s business activities and answer any stockholder questions.
The Company will be providing access to its proxy materials over the Internet under the United States Securities and Exchange Commission’s “notice and access” rules. Accordingly, on or about May 6, 2022, you will receive a Notice of Internet Availability of Proxy Materials, which will provide instructions on how to access the Company’s Proxy Statement and 2021 Annual Report online. This approach conserves natural resources and reduces the Company’s printing and distribution costs, while providing a timely and convenient method of accessing the materials and voting. The notice also contains instructions on how to receive a paper copy of the Company’s proxy materials, including the Proxy Statement, the 2021 Annual Report, and a proxy card.
The Company intends to hold its Annual Stockholders Meeting in person. The Company will also provide a non- interactive broadcast of the meeting via the Internet. Please monitor the Company’s Annual Meeting website at www.securitynational.com/annualmeeting for updated information. As always, the Company encourages you to vote your shares prior to the Annual Meeting.
Your vote is important. Regardless of whether you plan to attend the Annual Meeting, please promptly submit your proxy over the Internet by following the instructions found on your notice. As an alternative, you may follow the procedures outlined in your notice to request a paper proxy card to submit your vote by mail.
Thank you for your support of Security National Financial Corporation. We look forward to your attendance at the Annual Meeting.
| Sincerely yours, | |
| Scott M. Quist | |
| Chairman of the Board, President, and Chief Executive Officer |
SECURITY NATIONAL FINANCIAL CORPORATION
433 Ascension Way, 6th Floor,
Salt Lake City, Utah 84123
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS TO
BE HELD ON JUNE 17, 2022
Dear Stockholders:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the “Annual Meeting”) of Security National Financial Corporation (the “Company”), a Utah corporation, will be held on Friday, June 17, 2022, at 433 Ascension Way, 1st Floor, Salt Lake City, Utah 84123, beginning at 10:00 a.m., Mountain Daylight Time, to consider and act upon the following:
| 1. | To elect a Board of Directors consisting of ten directors (three directors to be elected exclusively by the Class A common stockholders voting separately as a class, and the remaining seven directors to be elected by the Class A and Class C common stockholders voting together) to serve until the next Annual Meeting of Stockholders and until their successors are elected and qualified; | |
| 2. | The approval of the Company’s 2022 Equity Incentive Plan; | |
| 3. | The approval of the amendment and restatement of our Amended and Restated Articles of Incorporation to increase the number of authorized shares of Class A and Class C common stock; | |
| 4. | The approval, on an advisory basis, the compensation of the Company’s named executive officers; | |
| 5. | To ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2022; and | |
| 6. | To transact such other business as may properly come before the Annual Meeting or any adjournments or postponements thereof. |
The foregoing items of business are more fully described in the Proxy Statement accompanying this Notice.
The Board of Directors has fixed the close of business on April 14, 2022, as the record date for determining stockholders entitled to notice of, and to vote at, the Annual Meeting and any adjournments or postponements thereof. A list of such stockholders will be available for examination by a stockholder for any purpose relevant to the meeting during ordinary business hours at the offices of the Company at 433 Ascension Way, 6th Floor, Salt Lake City, Utah 84123 during the 20 days prior to the meeting.
| By order of the Board of Directors, | |
| Jeffrey R. Stephens | |
| Senior General Counsel and | |
| Secretary | |
| May 6, 2022 | |
| Salt Lake City, Utah |
Important Notice Regarding the Availability of Proxy Materials for the Security National Financial Corporation
Annual Meeting to be held on June 17, 2022
The Proxy Statement and the Company’s 2021 Annual Report are available at
www.securitynational.com/shareholders
Security National Financial Corporation
Proxy Statement
TABLE OF CONTENTS
SECURITY NATIONAL FINANCIAL CORPORATION
433 Ascension Way, 6th Floor
Salt Lake City, Utah 84123
PROXY STATEMENT
For Annual Meeting of Stockholders To
Be Held on Friday, June 17, 2022
This Proxy Statement is furnished in connection with the solicitation of proxies by the Board of Directors of Security National Financial Corporation (the “Company”) for use at the Annual Meeting of Stockholders (the “Annual Meeting”) to be held on Friday, June 17, 2022, at 433 Ascension Way, 1st Floor, Salt Lake City, Utah 84123, beginning at 10:00 a.m., Mountain Daylight Time, or at any adjournments or postponements thereof. The shares covered by the enclosed proxy, if such is properly executed and received by the Board of Directors prior to the meeting, will be voted in favor of the proposals to be considered at the Annual Meeting, and in favor of the election of the nominees to the Board of Directors (three nominees to be elected by the Class A common stockholders voting separately as a class, and seven nominees to be elected by the Class A and Class C common stockholders voting together) as listed unless such proxy specifies otherwise, or the authority to vote in the election of directors is withheld.
A proxy may be revoked at any time before it is exercised by giving written notice to the Secretary of the Company at 433 Ascension Way, 6th Floor, Salt Lake City, Utah 84123, Attention: Jeffrey R. Stephens, by submitting in writing a proxy bearing a later date, by authorizing a proxy again on a later date on the Internet or by telephone, or by attending the Annual Meeting and voting in person. Stockholders may vote their shares in person if they attend the Annual Meeting, even if they have executed and returned a proxy. This Proxy Statement and accompanying proxy card are being mailed to stockholders on or about May 6, 2022.
If a stockholder wishes to assign a proxy to someone other than the directors’ proxy committee, all names appearing on the proxy card must be crossed out and the name(s) of another person or persons (not more than two) inserted. The signed card must be presented at the meeting by the person(s) representing the stockholder.
The cost of this solicitation will be borne by the Company. The Company may reimburse brokerage firms and other persons representing beneficial owners of shares for their expenses in forwarding solicitation materials to such beneficial owners. Proxies may also be solicited by certain of the Company’s directors, officers, and regular employees, without additional compensation.
The matters to be brought before the Annual Meeting are (1) to elect directors to serve for the ensuing year; (2) the approval of the Company’s 2022 Equity Incentive Plan; (3) amendment and restatement of our Amended and Restated Articles of Incorporation to increase the number of authorized shares of Class A and Class C common stock; (4) to approve, on an advisory basis, the compensation of the Company’s named executive officers; (5) to ratify the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2022; and (6) to transact such other business as may properly come before the Annual Meeting.
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RECORD DATE AND VOTING INFORMATION
Only holders of record of common stock at the close of business on April 14, 2022, will be entitled to vote at the Annual Meeting. As of April 14, 2022, there were issued and outstanding (excluding treasury stock shares) 17,701,192 shares of Class A common stock, $2.00 par value per share, and 2,866,358 shares of Class C common stock, $2.00 par value per share, resulting in a total of 20,567,550 shares of Class A and Class C common stock issued and outstanding. A majority of the outstanding shares of Class A and Class C common stock (or 10,283,776 shares) will constitute a quorum for the transaction of business at the meeting. A list of the Company’s stockholders will be available for review at the Company’s executive offices during regular business hours for a period of 20 days before the Annual Meeting. In addition, as of December 31, 2021, there were issued and outstanding (including treasury stock) 17,642,722 shares of Class A common stock and 2,866,565 shares of Class C common stock.
Proxies received at any time before the Annual Meeting, and not revoked or superseded before being voted, will be voted at the Annual Meeting. If a proxy indicates a specification, it will be in accordance with the specification. If no specification is indicated, the proxy will be voted for approval of the election of the directors recommended by the Board of Directors; for approval of the Company’s 2022 Equity Incentive Plan; for the amendment and restatement of our Amended and Restated Articles of Incorporation to increase the number of authorized Shares of Class A and Class C common stock; for approval, on an advisory basis, of the compensation of the Company’s named executive officers; for the appointment of Deloitte & Touche LLP as the Company’s independent registered public accountants for the fiscal year ending December 31, 2022; and, in the discretion of the persons named in the proxy, to transact such other business that may properly come before the meeting, or any adjournments or postponements of the meeting. You may also vote in person by ballot at the Annual Meeting.
The Company’s Articles of Incorporation provide that the Class A common stockholders and Class C common stockholders have different voting rights in the election of directors. The Class A common stockholders voting separately as a class will be entitled to vote for three of the ten directors to be elected (the nominees to be voted upon by the Class A common stockholders separately consist of Scott M. Quist, Gilbert A. Fuller and Robert G. Hunter, M.D.
The remaining seven directors will be elected by the Class A and Class C common stockholders voting together (the nominees to be so voted upon consist of Ludmya (Mia) B. Love, H. Craig Moody, Shital A. Mehta (a/k/a Alexandra Mysoor), S. Andrew Quist, John L. Cook, Jason G. Overbaugh and Adam G. Quist, with the Class A common stockholders having one vote per share and the Class C common stockholders having ten votes per share. For the other business to be conducted at the Annual Meeting, the Class A and Class C common stockholders will vote together with the Class A common stockholders having one vote per share and the Class C common stockholders having ten votes per share. The Class A common stockholders will receive a different form of proxy than the Class C common stockholders.
INTERNET AVAILABILITY OF PROXY MATERIALS
The Company will be providing access to its proxy materials over the Internet under the United States Securities and Exchange Commission’s “notice and access” rules. Accordingly, on or about May 6, 2022, stockholders will receive a Notice of Internet Availability of Proxy Materials, which will provide instructions on how to access the Company’s Proxy Statement and 2021 Annual Report online. This is designed to reduce the Company’s printing and mailing costs and the environmental impact of its proxy materials. The notice also contains instructions on how to receive a paper copy of the Company’s proxy materials, including the Proxy Statement, the 2021 Annual Report, and a proxy card.
Regardless of whether stockholders plan to participate in the Annual Meeting, stockholders should promptly submit their proxy over the Internet by following the instructions found on the notice. As an alternative, stockholders may follow the procedures outlined in the notice to request a paper proxy card in order to submit their vote by mail.
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VOTING SHARES AT THE ANNUAL MEETING
Holders of record of the Company’s shares of Class A and Class C common stock as of the close of business on the record date, April 14, 2022, are entitled to receive notice of, and to vote at, the Annual Meeting. The outstanding shares of Class A and Class C common stock constitute the only classes of securities entitled to vote at the Annual Meeting and each share of Class A common stock entitles the holder to one vote and each share of Class C common stock entitles the holder to ten votes. There are three ways to authorize a proxy to vote the shares held by the holders of Class A common stock and Class C common stock:
| 1. | Vote by Internet - Holders of shares of Class A and Class C common stock can use the Internet at www.proxyvote.com to transmit voting instructions and for electronic delivery of information up until 11:59 p.m., Eastern Time on June 16, 2022. Such stockholders should have their proxy card in hand when they access the Company’s website and follow the instructions thereon to obtain their records and to create an electronic voting instruction form; |
| 2. | Vote by Telephone - Stockholders located in the United States can authorize their proxy by touch-tone telephone by calling 1-800-690-6903 to transmit their voting instructions up until 11:59 p.m., Eastern Time on June 16, 2022. Stockholders should have their proxy card in hand when they call and then follow the instructions; or |
| 3. | Vote by Mail - Stockholders receiving proxy materials by mail may authorize a proxy by mail by signing and dating the proxy, then returning it in the postage-paid envelop that has been provided, or return it to Vote Processing, c/o Broadridge, 51 Mercedes Way, Edgewood, New York 11717. |
If the holders of shares of Class A and Class C common stock are held in the name of a bank, broker or other holder of record, such stockholders will receive instructions from the holder of record. Stockholders must follow the instructions of the holder of record in order for shares to be voted. Internet and telephone proxy authorization also will be offered to stockholders owning shares through certain banks and brokers. If such shares are not registered in the stockholder’s own name and the stockholder plans to vote such shares in person at the Annual Meeting, such stockholder should contact such stockholder’s broker or agent to obtain a legal proxy or broker’s proxy card and submit it by mail or bring it to the Annual Meeting in order to vote.
Shares will be voted as the stockholder of record instructs. The persons named as proxies on the proxy card will vote as recommended by the Company’s Board of Directors on any matter for which a stockholder has not given instructions. The Board of Directors’ recommendations appear at the end of each of the proposals.
REVOKING A PROXY
Stockholders of record may revoke their proxy and change votes any time before their votes are cast by:
| 1. | Giving written notice of revocation to the attention of Jeffrey R. Stephens, Senior General Counsel and Secretary, Security National Financial Corporation, 433 Ascension Way, 6th Floor, Salt Lake City, Utah 84123 prior to the Annual Meeting. |
| 2. | Authorizing a proxy again on a later date on the Internet or by telephone (only the latest Internet or telephone proxy submitted prior to the Annual Meeting will be counted); |
| 3. | Signing and forwarding to the Company a later-dated proxy; or |
| 4. | Attending the Annual Meeting and voting shares of the Company’s Class A common stock or Class C common stock in person. |
The Company intends to hold its Annual Stockholders Meeting in person and to provide a non-interactive broadcast of the meeting via the Internet. The Company is actively monitoring the coronavirus (COVID-19) and is sensitive to the public health and travel concerns that its stockholders may have and the protocols that federal, state, and local governments may impose. Access to the meeting broadcast will be at www.securitynational.com/annualmeeting. Whether or not you are planning on attending in person, please monitor the Company’s website at www.securitynational.com/annualmeeting for updated information at least one week prior to the meeting date. As always, the Company encourages you to vote your shares prior to the Annual Meeting.
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PROPOSAL 1 - ELECTION OF DIRECTORS
It is proposed that the Company’s Board of Directors shall consist of ten directors. All directors are elected annually to serve until the next annual meeting of the stockholders, until their respective successors are duly elected and qualified, or until their earlier resignation or removal. The nominees for the upcoming election of directors include six independent directors, as defined in the applicable rules for companies whose stock is traded on The Nasdaq Stock Market, and four members of the Company’s senior management. All ten of the nominees for director have served as directors since the Annual Meeting held on June 25, 2021.
The nominees to be elected by the holders of Class A common stock are as follows:
| Name | Age | Director Since | Position(s) with the Company | |||
| Scott M. Quist | 68 | 1986 | Chairman of the Board, President, and Chief Executive Officer | |||
| Robert G. Hunter, M.D. | 62 | 1998 | Director | |||
| Gilbert A. Fuller | 81 | 2012 | Director |
The nominees for election by the holders of Class A and Class C common stock, voting together, are as follows:
| Name | Age | Director Since | Position(s) with the Company | |||
| Jason G. Overbaugh | 47 | 2013 | Vice President, National Marketing Director of Life Insurance and Director | |||
| John L. Cook | 67 | 2013 | Director | |||
| Ludmya B. Love | 46 | 2021 | Director | |||
| H. Craig Moody | 70 | 1995 | Director | |||
| Shital A. Mehta | 41 | 2021 | Director | |||
| S. Andrew Quist | 41 | 2013 | Vice President, General Counsel, and Director | |||
| Adam G. Quist | 36 | 2021 | Vice President – Memorial Services, Assistant Secretary, General Counsel and Director |
The following is a description of the business experience of each of the nominees and directors.
Scott M. Quist has served as Chairman of the Board and Chief Executive Officer of the Company since 2012. Mr. Quist also serves as the Company’s President, a position he has held since 2002. He has additionally served as a director of the Company since 1986. From 1993 to 2013, Mr. Quist served as Treasurer and a director of the National Alliance of Life Companies (NALC), a national trade association of over 200 life insurance companies, and as its President from 1990 to 2000. From 1986 to 1991, Mr. Quist was Treasurer and a director of The National Association of Life Companies, a trade association of 642 insurance companies until its merger with the American Council of Life Companies. Mr. Quist has been a member of the Board of Governors of the Forum 500 Section (representing small insurance companies) of the American Council of Life Insurance. He has also served as a regional director of Key Bank of Utah since 1993. Mr. Quist holds a B.S. degree in Accounting from Brigham Young University and received his law degree also from Brigham Young University. Mr. Quist’s significant expertise and deep understanding of the technical, organizational and strategic business aspects of the insurance industry, his management expertise, his 20-year tenure as President of the Company and 35-year tenure as a director, and his years of business and leadership experience led the Board of Directors to conclude that Mr. Quist should continue to serve as Chairman of the Board, President, and Chief Executive Officer of the Company, and that his service in these capacities serves the best interests of the stockholders and encourages accountability and effective decision making.
John L. Cook has served as a director of the Company since 2013. Mr. Cook has served since 1982 as co-owner and operator of Cook Brothers Painting, Inc., a company that provides painting services for contractors and builders of residential and commercial properties. Mr. Cook attended the University of Utah. As a director Mr. Cook advises the Board concerning the Company’s investments in commercial and residential real estate projects. Moreover, Mr. Cook’s extensive background in construction and building is important as the Company continues to acquire new real estate holdings and develop its current portfolio of undeveloped land. Mr. Cook’s years of experience in the construction industry and with construction projects led the Board of Directors to conclude that he should continue to serve as a director of the Company.
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Jason G. Overbaugh has served as a director of the Company since 2013. Mr. Overbaugh has also served as a Vice President and the Assistant Secretary of the Company from 2002 to 2013. Mr. Overbaugh has additionally served as Vice President and National Marketing Director of Security National Life Insurance Company since 2006. From 2003 to 2006, he served as a Vice President of Security National Life Insurance Company with responsibilities as an investment manager over construction lending and commercial real estate investments. From 2000 to 2003, Mr. Overbaugh served as a Vice President of Memorial Estates, Inc., with responsibilities over operations and sales. Mr. Overbaugh has served since 2007 as a director of the LOMA Life Insurance Council, a trade association of life insurance companies. He is also a member of the NFDA Trade Association. Mr. Overbaugh received a B.S. degree in Finance from the University of Utah. Mr. Overbaugh’s expertise in insurance and marketing, and his 25 years of experience with the Company in its insurance, real estate, and mortuary and cemetery operations led the Board of Directors to conclude that he should continue to serve as a director of the Company.
Gilbert A. Fuller has served as a director of the Company since 2012. From 2006 until his retirement in 2008, Mr. Fuller served as Executive Vice President, Chief Financial Officer, and Secretary of USANA Health Sciences, Inc., a multinational manufacturer and direct seller of nutritional supplements. Mr. Fuller joined USANA in 1996 as the Vice President of Finance and served in that role until 1999 when he was appointed as its Senior Vice President. Mr. Fuller has served as a member of the Board of Directors of USANA since 2008. Mr. Fuller received a B.S. degree in Accounting and an M.B.A. degree from the University of Utah. Mr. Fuller’s accounting, finance, and corporate strategy expertise and his years of financial, accounting and business experience with public and private companies, including USANA Health Sciences, Inc., which is listed on the New York Stock Exchange, where he served as an executive officer and continues to serve as a director, led the Board of Directors to conclude that he should continue to serve as a director of the Company.
Robert G. Hunter, M.D. has served as a director of the Company since 1998. Dr. Hunter is currently a practicing physician in private practice. Dr. Hunter is Department Head of Otolaryngology, Head, and Neck Surgery at Intermountain Medical Center and a past President of the medical staff of the Intermountain Medical Center. He is also a delegate to the Utah Medical Association and has served as a delegate representing the State of Utah to the American Medical Association. Dr. Hunter holds a B.S. degree in Microbiology from the University of Utah and received his medical degree from the University of Utah College of Medicine. Dr. Hunter’s medical expertise and experience, and his administrative and leadership experience from serving in a number of administrative positions in the medical profession led the Board of Directors to conclude that he should continue to serve as a director of the Company.
Ludmya (Mia) B. Love has served as a director of the Company since 2021. Ms. Love served two terms (2015-2019) as the United States Representative for Utah’s 4th Congressional District. While serving in Congress, Ms. Love was a member of the prestigious House Financial Services Committee. She also served on the Terrorism and Illicit Finance Subcommittee, the Monetary Policy and Trade Subcommittee, and the Financial Institutions and Consumer Credit Subcommittee. Prior to her service in Congress, Ms. Love served for ten years on the Saratoga Springs City Council and as Mayor of Saratoga Springs, Utah. Ms. Love received a Bachelor of Fine Arts degree from the University of Hartford. She was also awarded an Honorary Doctorate of Law degree from the University of Hartford. Ms. Love taught as a Fellow at the Georgetown University Institute of Politics, as part of the Fall 2020 cohort, and is currently a Senior Fellow for the United States Study Center for Politics in Sydney Australia. Ms. Love is also a regular political commentator on CNN cable news network. Ms. Love’s experience and leadership in financial and governmental affairs led the Board of Directors to conclude that she should continue to serve as a director of the Company.
H. Craig Moody has served as a director of the Company since 1995. Mr. Moody is owner of Moody & Associates, a political consulting and real estate company. He is a former Speaker and House Majority Leader of the House of Representatives of the State of Utah. From 1989 to 1992, Mr. Moody was Co-Chairman of the Utah Legislative Audit Committee. Mr. Moody received a B.S. degree in Political Science from the University of Utah. Mr. Moody’s real estate and governmental affairs expertise and years of business and leadership experience led the Board of Directors to conclude that he should continue to serve as a director of the Company.
Shital A. Mehta (a/k/a Alexandra Mysoor) has served as a director of the Company since 2021. Ms. Mehta is the founder and Chairwoman of Mysoor Industries, a multinational conglomerate involved in manufacturing, e-commerce, media, trading, and investments. Ms. Mehta is a self-made entrepreneur and operating executive. Ms. Mehta started her first company, a digital marketing agency, at the age of 24 and subsequently co-founded a social commerce company engaged in accelerating socially and environmentally conscious living. Ms. Mehta is also the executive producer and host of The Alexandra Mysoor Show, which airs on Rukus Avenue Radio, Dash Radio, YouTube, Amazon, Spotify, JioSaavn and wherever podcasts are found. Ms. Mehta received a Bachelor of Arts degree from the University of California at Berkeley in Interdisciplinary Field Studies and studied fashion at the Fashion Institute of Design & Merchandising in Los Angeles. Ms. Mehta’s experience in administration, marketing, sales, and e-commerce led the Board of Directors to conclude that she should continue to serve as a director of the Company.
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S. Andrew Quist has served as a director of the Company since 2013. Mr. Andrew Quist has also served as a Vice President of the Company since 2010. In addition, from 2007 to 2017, he served as the Company’s Associate General Counsel, and since 2017, has served as the Company’s General Counsel, where his responsibilities have included the Company’s regulatory matters and acquisitions. In addition, Mr. Quist has served as Executive Vice President and Chief Operating Officer since 2010, and as Vice President from 2008 to 2010 of C&J Financial, LLC, which funds the purchase of funeral and burial policies from funeral homes after the death of the insureds. Mr. Quist has also served since 2013 as a director of the National Alliance of Life Companies (NALC), a national trade association of over 200 life insurance companies. From 2014 to 2016, he served as President of the NALC. Mr. Quist previously served as President of the Utah Life Convention, a consortium of Utah domestic life insurers. Mr. Quist holds a B.S. degree in Accounting from Brigham Young University and received his law degree from the University of Southern California. Mr. Quist is a member of the State Bar of California. Mr. Quist’s expertise in insurance, legal, and regulatory matters led the Board of Directors to conclude that he should continue to serve as a director of the Company.
Adam G. Quist has served as Vice President – Memorial Services and Assistant Secretary of the Company since 2015 and as a director of the Company since 2021. From 2015 to 2017, he also served as the Company’s Associate General Counsel. Since 2017, Mr. Quist has served as the Company’s General Counsel. Mr. Quist has also served since 2015 as Vice President of Memorial Estates, Inc. (“Memorial Estates”) and since 2016 as Chief Operating Officer of Memorial Estates. Additionally, Mr. Quist has served since 2015 as Vice President of Memorial Mortuary, Inc. (“Memorial Mortuary”) and since 2016 as Chief Operating Officer of Memorial Mortuary. Both Memorial Estates and Memorial Mortuary are wholly owned subsidiaries of the Company. Mr. Quist has served on the ACLI’s Life Insurance Committee since 2019. Additionally, he has been serving on the Board of Directors for Special Olympics Utah since January 2021. Mr. Quist holds a B.S. degree and a Master’s degree in Accounting with an emphasis on taxation from Brigham Young University. He received his law degree from the University of Utah. Mr. Quist is a member of the Utah State Bar. Mr. Quist’s expertise in administration, insurance, legal, and accounting matters led the Board of Directors to conclude that he should continue to serve as a director of the Company.
The Board of Directors recommends that stockholders vote “FOR” the election of each of the director nominees.
The Board of Directors, Board Committees, and Meetings
The Company’s Bylaws provide that the Board of Directors shall consist of not fewer than five nor more than twelve. The term of office of each director is for a period of one year, until their successors are duly elected and qualified or until their earlier resignation or removal. A director is not required to be a resident of the State of Utah or a stockholder of the Company. The Board of Directors held a total of five meetings during the fiscal year ended December 31, 2021. Each of the directors attended 75% or more of the meetings of the Board of Directors during 2021.
The size of the Board of Directors of the Company is proposed to be ten members. A majority of the Board of Directors must qualify as “independent” as that term is defined in Rule 4200 of the listing standards of The Nasdaq Stock Market. The Board of Directors has affirmatively determined that six of the ten nominees for the Board of Directors, namely John L. Cook, Gilbert A. Fuller, Robert G. Hunter, M.D., H. Craig Moody, Ludmya B. Love and Shital A. Mehta are independent under the listing standards of The Nasdaq Stock Market.
Unless authority is withheld by your proxy, it is intended that the Class A or Class C common stock represented by your proxy will be voted for the respective nominees listed above. If any nominee should not serve for any reason, the proxy will be voted for such person as shall be designated by the Board of Directors to replace such nominee. The Board of Directors has no reason to expect that any nominee would be unable to serve. There is no arrangement between any of the nominees and any other person or persons pursuant to which he or she was or is to be selected as a director. There is no family relationship between or among any of the nominees, except that Scott M. Quist is the father of S. Andrew Quist and Adam G. Quist and the uncle of Jason G. Overbaugh.
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Board Leadership Structure
Mr. Scott M. Quist, our CEO, is also the Chairman of the Board. Our Board has determined that having the same individual hold both positions is in the best interests of the Company and our stockholders, and consistent with good corporate governance for the following reasons:
| ● | Our CEO is more familiar with our business and strategy than an independent, non-employee Chairman would be and is thus better positioned to focus our Board’s agenda on the key issues facing our Company. | |
| ● | A single Chairman and CEO provides strong and consistent leadership for the Company without risking overlap or conflict of roles. | |
| ● | Oversight of our Company is the responsibility of our Board as a whole, and this responsibility can be properly discharged without an independent Chairman. |
We do not have a lead independent director or a presiding director. However, the independent directors regularly meet in executive sessions of the Board. We believe that the structure of our Board provides an appropriate balance of management leadership and non-management oversight.
Board Committees
There are four committees of the Board of Directors, which meet periodically during the year: the Audit Committee, the Compensation Committee, the Executive Committee, and the Nominating and Corporate Governance Committee.
The Audit Committee directs the auditing activities of the Company’s internal auditors and outside public accounting firm and approves the services of the outside public accounting firm. The Audit Committee consists of John L. Cook, Gilbert A. Fuller (Chairman of the committee), H. Craig Moody, Ludmya B. Love and Shital A. Mehta. During 2021, the Audit Committee met on three occasions. The Board has determined that Gilbert A. Fuller is an audit committee financial expert as defined in Item 407(d) of Regulation S-K under the Exchange Act.
The Compensation Committee is responsible for recommending to the Board of Directors for approval the annual compensation of each executive officer of the Company and the executive officers of the Company’s subsidiaries, developing policy in the areas of compensation and fringe benefits, contributions under the Employee Stock Ownership Plan, contributions under the 401(k) Retirement Savings Plans, Non-Qualified Deferred Compensation Plan, granting of options and other awards under the stock option and incentive plans, and creating other employee compensation plans. The Compensation Committee consists of John L. Cook, Gilbert A. Fuller, Robert G. Hunter, M.D., H. Craig Moody (Chairman of the Committee), Ludmya B. Love and Shital A. Mehta. The Compensation Committee is composed solely of independent directors, as defined in the listing standards of The Nasdaq Stock Market. During 2021, the Compensation Committee met on three occasions.
At our annual meeting of shareholders held on June 25, 2021, we submitted the compensation of our named executive officers to our shareholders in a non-binding vote. Our executive compensation program received the votes totaling 36,007,714 for our executive compensation program and 268,230 votes against, with 100,054 abstentions. The Compensation Committee will continue to review the future shareholder voting results and determine whether changes should be made to our executive compensation program based on such voting results.
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The Executive Committee reviews Company policy, major investment activities and other pertinent transactions of the Company. The Executive Committee consists of Gilbert A. Fuller, H. Craig Moody, S. Andrew Quist, and Scott M. Quist (Chairman of the committee). During 2021, the Executive Committee met on one occasion.
The Nominating and Corporate Governance Committee identifies individuals qualified to become Board members consistent with the criteria approved by the Board, recommends to the Board the persons to be nominated by the Board for election as directors at a meeting of stockholders, and develops and recommends to the Board a set of corporate governance principles. The Nominating and Corporate Governance Committee consists of John L. Cook, Gilbert A. Fuller, Robert G. Hunter, M.D., H. Craig Moody (Chairman of the committee), Ludmya B. Love and Shital A. Mehta. The Nominating and Corporate Governance Committee is composed solely of independent directors, as defined in the listing standards of The Nasdaq Stock Market. During 2021, the Nominating and Corporate Governance Committee met on two occasions.
Director Nominating Process
The process for identifying and evaluating nominees for directors include the following steps: (1) the members of the Nominating and Corporate Governance Committee, Chairman of the Board or other Board members identify a need to fill vacancies or add newly created directorships; (2) the Chairman of the Nominating and Corporate Governance Committee initiates a search and seeks input from Board members and senior management and, if necessary, obtains advice from legal or other advisors; (3) director candidates, including any candidates properly proposed by stockholders in accordance with the Company’s Bylaws, are identified and presented to the Nominating and Corporate Governance Committee; (4) initial interviews with candidates are conducted by the Chairman of the Nominating and Corporate Governance Committee; (5) the Nominating and Corporate Governance Committee meets to consider and approve final candidate(s) and conduct further interviews as necessary; and (6) the Nominating and Corporate Governance Committee makes recommendations to the Board for inclusion in the slate of directors at the annual meeting. The evaluation process is the same whether a nominee is recommended by a stockholder or by a member of the Board of Directors.
Meetings of Non-Management Directors
The Company’s independent directors meet regularly in executive session without management. The Board of Directors has designated a lead director to preside at executive sessions of independent directors. Mr. H. Craig Moody is currently the lead director.
Stockholder Communications with the Board of Directors
Stockholders who wish to communicate with the Board of Directors or a particular director may send a letter to Jeffrey R. Stephens, Senior General Counsel and Secretary, Security National Financial Corporation, 433 Ascension Way, 6th Floor, Salt Lake City, Utah 84123. The mailing envelope must contain a clear notation indicating that the enclosed letter is a “Stockholder-Board Communication” or “Stockholder-Director Communication.” All such letters must identify the author as a stockholder and clearly state whether the intended recipients are all members of the Board or certain specified individual directors. The Secretary will make copies of all such letters and circulate them to the appropriate director or directors.
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The following table sets forth certain information with respect to the executive officers of the Company (the business biographies for Scott M. Quist, Jason G. Overbaugh, Adam G. Quist, and S. Andrew Quist are set forth above):
| Name | Age | Title | ||
| Scott M. Quist | 68 | Chairman of the Board, President, Chief Executive Officer, and Director | ||
| Garrett S. Sill | 51 | Chief Financial Officer and Treasurer | ||
| S. Andrew Quist1 | 41 | Vice President, General Counsel, and Director | ||
| Jason G. Overbaugh1 | 47 | Vice President, National Marketing Director of Life Insurance, and Director | ||
| Jeffrey R. Stephens | 68 | Senior General Counsel and Secretary | ||
| Stephen C. Johnson | 65 | Vice President – Mortgage Operations | ||
| Adam G. Quist1 | 36 | Vice President – Memorial Services, Assistant Secretary, and General Counsel |
1 Scott M. Quist is the father of S. Andrew Quist and Adam G. Quist, and the uncle of Jason G. Overbaugh.
Garrett S. Sill has served as Chief Financial Officer and Treasurer of the Company since 2013. From 2011 to 2013, Mr. Sill served as Vice President and Assistant Treasurer of Security National Life Insurance Company, a wholly owned subsidiary of the Company. From 2002 to 2011, Mr. Sill was Chief Financial Officer and Treasurer of SecurityNational Mortgage Company, a wholly owned subsidiary of the Company. Mr. Sill is a certified public accountant, having been licensed since 2002. He holds a B.A. degree in Accounting from Weber State University and a Master’s degree in Business Administration (M.B.A. degree) from the University of Utah. Mr. Sill also serves as a member of the Advisory Council of the School of Accounting and Taxation at Weber State University.
Jeffrey R. Stephens has served as Senior General Counsel of the Company since 2017, as General Counsel from 2006 to 2017, and as Secretary of the Company since 2008. Mr. Stephens was in private practice from 1981 to 2006 in the States of Washington and Utah. Mr. Stephens holds a B.A. degree in Geography from the University of Utah and received his law degree from Brigham Young University. Mr. Stephens is a member of the Utah State Bar Association and the Washington State Bar Association.
Stephen C. Johnson has served as the Vice President of Mortgage Operations of the Company and as the President of SecurityNational Mortgage since 2016. Prior to Mr. Johnson’s appointment as President of SecurityNational Mortgage. Mr. Johnson served as Executive Vice President and Chief Operating Officer of SecurityNational Mortgage. Mr. Johnson has over 30 years of experience at the executive management level in the mortgage banking industry. Mr. Johnson holds a B.A. degree in International Relations from Brigham Young University and a Master’s degree in International Management and Finance from the American Graduate School of International Management (Thunderbird).
The Board of Directors of the Company has a written procedure that requires disclosure to the Board of any material interest or any affiliation on the part of any of its officers, directors or employees that is in conflict or may be in conflict with the Company’s interests.
All executive officers and directors of the Company hold office until the next Annual Meeting of Stockholders, until their successors are duly elected and qualified or until their earlier resignation or removal.
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Corporate Governance Guidelines. The Board of Directors has adopted the Security National Financial Corporation Corporate Governance Guidelines. These guidelines outline the functions of the Board, director qualifications and responsibilities, and various processes and procedures designed to ensure effective and responsive governance. The Board of Directors has also adopted written charters for its Audit Committee, Compensation Committee, and Nominating and Corporate Governance Committee. The guidelines and committee charters are reviewed from time to time in response to regulatory requirements and best practices and are revised accordingly. The full text of the guidelines and the committee charters is published on the Company’s website at www.securitynational.com/governance. A copy of the committee charters and guidelines may also be obtained at no charge by written request to the attention of Jeffrey R. Stephens, Senior General Counsel and Secretary, Security National Financial Corporation, 433 Ascension Way, 6th Floor, Salt Lake City, Utah 84123.
Code of Business Conduct and Ethics. All of the Company’s officers, employees, and directors are required to comply with the Company’s Code of Business Conduct and Ethics to help ensure that the Company’s business is conducted in accordance with appropriate standards of ethical behavior. The Company’s Code of Business Conduct and Ethics covers all areas of professional conduct, including customer relationships, conflicts of interest, insider trading, financial disclosures, intellectual property and confidential information, as well as requiring adherence to all laws and regulations applicable to the Company’s business. Employees are required to report any violations or suspected violations of the Code. The Code includes an anti-retaliation statement. The full text of the Code of Business Conduct and Ethics is published on the Company’s website at www.securitynational.com/governance. A copy of the Code of Business Conduct and Ethics may also be obtained at no charge by written request to the attention of Jeffrey R. Stephens, Senior General Counsel and Secretary, Security National Financial Corporation, 433 Ascension Way, 6th Floor, Salt Lake City, Utah 84123.
Board Diversity. The Company is committed to diversity and inclusion, and believes it is important that the Board is composed of individuals representing the diversity of our communities. The table below reports self-identified gender and demographic statistics for the Board, as constituted prior to the Annual Meeting, in the format required by the Nasdaq Marketplace Rules.
| Board Diversity Matrix (as of March 31, 2022) | ||||
| Total Number of Directors 10 | ||||
| Part I: Gender Identity | Female | Male | ||
| 2 | 8 | |||
| Part II: Demographic Background | ||||
| African American or Black | 1 | |||
| Alaskan Native or Native American | ||||
| Asian | 1 | |||
| Hispanic or Latinx | ||||
| Native Hawaiian or Pacific Islander | ||||
| White | 8 | |||
| Two or More Races or Ethnicities | ||||
| LGBTQ+ | ||||
| Did Note Disclose Demographic Background | ||||
| Directors who are military veterans: | ||||
| Directors with disabilities: | ||||
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COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
The table below sets forth fiscal year 2021 and 2020 compensation information for (i) the Company’s Chief Executive Officer, (ii) the Company’s Chief Financial Officer, and (iii) the Company’s three other executive officers, who, based on their total compensation, were the most highly compensated executive officers in 2021. The Company refers to them in this Proxy Statement collectively as the “Named Executive Officers.”
| Name and Principal Position | Year | Salary($) | Bonus($) | Stock Option Awards($) | Non-Equity Incentive Plan Compensation($) | Change in Pension Value and Non-qualified Deferred Compensation on Change in Pension Value and Earnings($)(1) | All other Compensation($)(2) | Total($) | ||||||||||||||||||||||
| Scott M. Quist | 2021 | $ | 588,950 | $ | 429,300 | $ | 149,410 | - | - | $ | 50,978 | $ | 1,218,638 | |||||||||||||||||
| Chairman, President and Chief Executive Officer | 2020 | $ | 558,950 | $ | 157,800 | $ | 29,289 | - | - | $ | 49,969 | $ | 796,008 | |||||||||||||||||
| Garrett S. Sill | 2021 | $ | 259,167 | $ | 338,000 | $ | 89,346 | - | - | $ | 39,110 | $ | 725,623 | |||||||||||||||||
| Chief Financial Officer and Treasurer | 2020 | $ | 239,333 | $ | 112,000 | $ | 17,243 | - | - | $ | 37,986 | $ | 406,562 | |||||||||||||||||
| Stephen C. Johnson | 2021 | $ | 360,000 | $ | 394,447 | $ | 29,939 | - | - | $ | 25,501 | $ | 809,887 | |||||||||||||||||
| Vice President of Mortgage Operations | 2020 | $ | 360,000 | $ | 284,828 | $ | 6,896 | - | - | $ | 24,400 | $676,124| | ||||||||||||||||||
| S. Andrew Quist | 2021 | $ | 285,667 | $ | 339,325 | $ | 179,455 | - | - | $ | 35,066 | $ | 839,513 | |||||||||||||||||
| Vice President and General Counsel | 2020 | $ | 265,667 | $ | 138,325 | $ | 27,589 | - | - | $ | 33,561 | $ | 465,142 | |||||||||||||||||
| Jeffrey R. Stephens | 2021 | $ | 219,875 | $ | 96,025 | $ | 22,454 | - | - | $ | 27,894 | $ | 366,248 | |||||||||||||||||
| Senior General Counsel and Secretary | 2020 | $ | 205,167 | $ | 30,275 | $ | 5,172 | - | - | $ | 24,928 | $ | 265,542 | |||||||||||||||||
| (1) | The amounts indicated under “Change in Pension Value and Non-Qualified Deferred Compensation Earnings” consist of amounts that the Company contributed into a trust for the benefit of the Named Executive Officers under the Company’s Non-Qualified Deferred Compensation Plan. |
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| (2) | The amounts indicated under “All Other Compensation” consist of the following amounts that the Company paid for the benefit of the Named Executive Officers: | ||
| (a) | payments related to the operation of automobiles for Scott M. Quist ($7,200 for each of the years 2021 and 2020); Garrett S. Sill ($4,200 for 2021 and $4,400 for 2020) and, Stephen C. Johnson, S. Andrew Quist, and Jeffrey R. Stephens (nil for each of the years 2021 and 2020). However, such payments do not include the furnishing of an automobile by the Company to Scott M. Quist, nor the payment of insurance and property taxes with respect to the automobile operated by such executive officer; | ||
| (b) | group life insurance premiums that the Company paid to a group life insurance plan for Scott M. Quist, Garrett S. Sill, Stephen C. Johnson, S. Andrew Quist, and Jeffrey R. Stephens ($114 for each of the years 2021 and 2020); | ||
| (c) | life insurance premiums that the Company paid for the benefit of Scott M. Quist ($15,765 for each of the years 2021 and 2020); and Garrett S. Sill, Stephen C. Johnson, S. Andrew Quist, and Jeffrey R. Stephens (nil for each of the years 2021 and 2020); | ||
| (d) | medical insurance premiums that the Company paid to a medical insurance plan for Scott M. Quist ($15,849 for 2021 and $15,118 for 2020); Garrett S. Sill ($22,806 for 2021 and $21,756 for 2020); Stephen C. Johnson ($12,321 for 2021 and $11,764 for 2020); S. Andrew Quist ($22,806 for 2021 and $21,756 for 2020); and Jeffrey R. Stephens ($15,849 for 2021 and $15,118 for 2020); | ||
| (e) | long term disability insurance premiums that the Company paid to a provider of such insurance for Scott M. Quist ($450 for 2021 and $372 for 2020), Garrett S. Sill ($390 for 2021 and $316 for 2020), Stephen C. Johnson ($450 for 2021 and $372 for 2020), S. Andrew Quist ($430 for 2021 and $339 for 2020), and Jeffrey R. Stephens ($331 for 2021 and $278 for 2020); | ||
| (f) | contributions that the Company made to defined contribution plans for Scott M. Quist ($11,600 for 2021 and $11,400 for 2020); Garrett S. Sill ($11,600 for 2021 and $11,400 for 2020); Stephen C. Johnson ($11,600 for 2021 and $11,400 for 2020); S. Andrew Quist ($11,497 for 2021 and $10,927 for 2020); and Jeffrey R. Stephens ($11,600 for 2021 and $9,418 for 2020); | ||
| (g) | contributions that the Company made to health savings accounts for Scott M. Quist, Garrett S. Sill, S. Andrew Quist and Jeffrey R. Stephens (nil for each of the years 2021 and 2020); and Stephen C. Johnson ($1,016 for 2021 and $750 for 2020); and | ||
| (h) | gym membership incentives for Scott M. Quist, Garrett S. Sill, and Stephen C. Johnson (nil for each of the years 2021 and 2020); S. Andrew Quist ($219 for 2021 and $425 for 2020); and Jeffrey R. Stephens (nil for each of the years 2021 and 2020); | ||
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SUPPLEMENTAL ALL OTHER COMPENSATION TABLE
The table below sets forth all other compensation provided to the Named Executive Officers for fiscal years 2021 and 2020.
| Name of Executive Officer | Year | Perks and Other Personal Benefits | Tax Reimbursements | Discounted Securities Purchases | Payments/Accruals on Termination Plans | Registrant Contributions to Defined Contribution Plans | Insurance Premiums | Dividend or Earnings on Stock or Option Awards | Other | |||||||||||||||||||||||||
| Scott M. Quist | 2021 | $ | 7,200 | - | - | - | $ | 11,600 | $ | 32,178 | – | – | ||||||||||||||||||||||
| 2020 | $ | 7,200 | - | - | - | $ | 11,400 | $ | 31,369 | – | – | |||||||||||||||||||||||
| Garrett S. Sill | 2021 | $ | 4,200 | - | - | - | $ | 11,600 | $ | 23,310 | – | – | ||||||||||||||||||||||
| 2020 | $ | 4,400 | - | - | - | $ | 11,400 | $ | 22,186 | – | – | |||||||||||||||||||||||
| Stephen C. Johnson | 2021 | – | - | - | - | $ | 11,600 | $ | 13,901 | – | – | |||||||||||||||||||||||
| 2020 | – | - | - | - | $ | 11,400 | $ | 13,000 | – | – | ||||||||||||||||||||||||
| S. Andrew Quist | 2021 | $ | 219 | - | - | - | $ | 11,497 | $ | 23,350 | – | – | ||||||||||||||||||||||
| 2020 | $ | 425 | - | - | - | $ | 10,927 | $ | 22,209 | – | – | |||||||||||||||||||||||
| Jeffrey R. Stephens | 2021 | – | - | - | - | $ | 11,600 | $ | 16,294 | – | – | |||||||||||||||||||||||
| 2020 | – | - | - | - | $ | 9,418 | $ | 15,510 | – | – | ||||||||||||||||||||||||
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The table below sets forth certain information regarding options granted to the Named Executive Officers during the fiscal year ended December 31, 2021.
| Name of | Estimated Future Payouts Under Equity Incentive Plan Awards | All Other Awards: Number of Securities Underlying | Exercise or Base Price of Option | Closing Price on Grant | Grant Date Fair Value of Stock and Option | |||||||||||||||||||||||||
Executive | Grant | Threshold | Target | Maximum | Options | Awards | Date | Awards | ||||||||||||||||||||||
| Officer | Date | ($) | ($) | ($) | (#) | ($/Sh) | ($/Sh) | ($) | ||||||||||||||||||||||
| Scott M. Quist | 12/3/21 | – | – | – | 50,000 | $ | 9.48 | $ | 8.62 | $ | 149,410 | |||||||||||||||||||
| Garrett S. Sill | 12/3/21 | – | – | – | 30,000 | $ | 8.62 | $ | 8.62 | $ | 89,346 | |||||||||||||||||||
| Stephen C. Johnson | 12/3/2021 | – | – | – | 10,000 | $ | 8.62 | $ | 8.62 | $ | 29,939 | |||||||||||||||||||
| S. Andrew Quist | 12/3/2021 | – | – | – | 60,000 | $ | 8.62 | $ | 8.62 | $ | 179,455 | |||||||||||||||||||
| Jeffrey R. Stephens | 12/3/2021 | – | – | – | 7,500 | $ | 8.62 | $ | 8.62 | $ | 22,454 | |||||||||||||||||||
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The table below sets forth information concerning outstanding equity awards held by Named Executive Officers at December 31, 2021.
| Option Awards | Stock Awards | |||||||||||||||||||||||||||||||||||
| Name of Executive Officer | Option Grant Date | Number of Securities Underlying Unexercised Options Exercisable (1) (#) | Number of Securities Underlying Unexercised Options Unexercisable (1) (#) | Option Exercise Price (2) ($) | Option Expiration Date | Stock Award Grant Date | Number of Shares or Units of Stock That Have Not Vested (#) | Market Value of Shares or Units of Stock That Have Not Vested ($) | Equity Incentive Plan Awards: Number of Unearned Shares, Units or Other Rights That Have Not Vested (#) | Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Units or Other Rights That Have Not Vested ($) | ||||||||||||||||||||||||||
| Scott M. Quist | 12/1/17 | 93,443 | — | $ | 4.42 | 12/01/22 | — | — | — | — | — | |||||||||||||||||||||||||
| 11/30/18 | 83,059 | — | 5.07 | 11/30/23 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/6/19 | 56,504 | (5) | — | 5.04 | 12/06/24 | — | — | — | — | — | ||||||||||||||||||||||||||
| 3/27/20 | 53,813 | (6) | — | 3.66 | 03/27/25 | — | — | — | — | — | ||||||||||||||||||||||||||
| 12/3/21 | — | 50,000 | (7)(8) | 9.48 | 12/03/26 | — | — | — | — | — | ||||||||||||||||||||||||||
| Garrett S. Sill | 12/6/13 | 6,059 | — | $ | 3.14 | 12/06/23 | — | — | — | — | — | |||||||||||||||||||||||||
| 7/2/14 | 5,770 | — | 2.93 | 07/02/24 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/5/14 | 11,538 | — | 3.43 | 12/05/24 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/1/17 | 18,689 | (3) | — | 4.01 | 12/01/27 | — | — | — | — | — | ||||||||||||||||||||||||||
| 11/30/18 | 23,731 | (4) | — | 4.62 | 11/30/28 | — | — | — | — | — | ||||||||||||||||||||||||||
| 12/6/19 | 28,251 | (5) | — | 4.81 | 12/06/29 | — | — | — | — | — | ||||||||||||||||||||||||||
| 3/27/20 | 26,906 | (6) | — | 3.49 | 03/27/30 | |||||||||||||||||||||||||||||||
| 12/3/21 | — | 30,000 | (7)(8) | 8.62 | 12/03/31 | — | — | — | — | — | ||||||||||||||||||||||||||
| Stephen C. Johnson | 12/6/13 | 4,543 | — | $ | 3.14 | 12/06/23 | — | — | — | — | — | |||||||||||||||||||||||||
| 12/5/14 | 8,654 | — | 3.43 | 12/05/24 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/4/15 | 13,736 | — | 4.82 | 12/04/25 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/2/16 | 6,542 | — | 5.31 | 12/02/26 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/1/17 | 12,458 | — | 4.01 | 12/01/27 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/6/19 | 11,301 | — | 4.81 | 12/06/29 | — | — | — | — | — | |||||||||||||||||||||||||||
| 3/27/20 | 10,763 | — | 3.49 | 03/27/30 | ||||||||||||||||||||||||||||||||
| 12/3/21 | — | 10,000 | (8) | 8.62 | 12/03/31 | — | — | — | — | — | ||||||||||||||||||||||||||
| S. Andrew Quist | 4/13/12 | 23,852 | — | $ | 0.96 | 04/13/22 | — | — | — | — | — | |||||||||||||||||||||||||
| 12/6/13 | 15,144 | — | 3.14 | 12/06/23 | — | — | — | — | — | |||||||||||||||||||||||||||
| 7/2/14 | 14,423 | — | 2.93 | 07/02/24 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/5/14 | 28,847 | — | 3.43 | 12/05/24 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/4/15 | 27,473 | — | 4.82 | 12/04/25 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/2/16 | 26,165 | — | 5.31 | 12/02/26 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/1/17 | 24,919 | (3) | — | 4.01 | 12/01/27 | — | — | — | — | — | ||||||||||||||||||||||||||
| 11/30/18 | 29,665 | (4) | — | 4.62 | 11/30/28 | — | — | — | — | — | ||||||||||||||||||||||||||
| 12/6/19 | 45,203 | (5) | — | 4.81 | 12/06/29 | — | — | — | — | — | ||||||||||||||||||||||||||
| 3/27/20 | 43,050 | (6) | — | 3.49 | 03/27/30 | — | — | — | — | — | ||||||||||||||||||||||||||
| 12/3/21 | — | 60,000 | (7)(8) | 8.62 | 12/03/31 | — | — | — | — | — | ||||||||||||||||||||||||||
| Jeffrey R. Stephens | 7/2/14 | 3,607 | — | $ | 2.93 | 07/02/24 | — | — | — | — | — | |||||||||||||||||||||||||
| 12/5/14 | 7,212 | — | 3.43 | 12/05/24 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/4/15 | 6,869 | — | 4.82 | 12/04/25 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/2/16 | 6,542 | — | 5.31 | 12/02/26 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/1/17 | 6,231 | — | 4.01 | 12/01/27 | — | — | — | — | — | |||||||||||||||||||||||||||
| 11/30/18 | 8,900 | — | 4.62 | 11/30/28 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/6/19 | 8,476 | — | 4.81 | 12/06/29 | — | — | — | — | — | |||||||||||||||||||||||||||
| 3/27/20 | 8,072 | — | 3.49 | 03/27/30 | — | — | — | — | — | |||||||||||||||||||||||||||
| 12/3/21 | — | 7,500 | (8) | 8.62 | 12/03/31 | — | — | — | — | — | ||||||||||||||||||||||||||
| (1) | Except for options granted to Scott M. Quist that have five-year terms, such grants have ten-year terms. The vesting of any unvested shares is subject to the recipient’s continuous employment. This reflects the equivalent of Class A common shares. | |
| (2) | Exercise prices have been adjusted for the effect of annual stock dividends. | |
| (3) | On December 1, 2017, Garrett S. Sill was granted stock options to purchase 15,000 shares of Class A common stock at an exercise price of $4.01 per share or 15,000 shares of Class C common stock at an exercise price of $4.01 per share, or any combination thereof. Also, on December 1, 2017, S. Andrew Quist was granted stock options to purchase 20,000 shares of Class A common stock at an exercise price of $4.01 per share or 20,000 shares of Class C common stock at an exercise price of $4.01 per share, or any combination thereof. | |
| (4) | On November 30, 2018, Garrett S. Sill was granted stock options to purchase 20,000 shares of Class A common stock at an exercise price of $4.62 per share or 20,000 shares of Class C common stock at an exercise price of $4.62 per share, or any combination thereof. Also, on November 30, 2018, S. Andrew Quist was granted stock options to purchase 25,000 shares of Class A common stock at an exercise price of $4.62 per share or 20,000 shares of Class C common stock at an exercise price of $4.62 per share, or any combination thereof. |
| -15- |
| (5) | On December 6, 2019, Scott M. Quist was granted stock options to purchase 50,000 shares of Class A common stock at an exercise price of $5.04 per share or 50,000 shares of Class C common stock at an exercise price of $5.04 per share, or any combination thereof. Also, on December 6, 2019, Garrett S. Sill was granted stock options to purchase 25,000 shares of Class A common stock at an exercise price of $4.81 per share or 25,000 shares of Class C common stock at an exercise price of $4.81 per share, or any combination thereof. Also, on December 6, 2019, S. Andrew Quist was granted stock options to purchase 40,000 shares of Class A common stock at an exercise price of $4.81 per share or 40,000 shares of Class C common stock at an exercise price of $4.81 per share, or any combination thereof. | |
| (6) | On March 27, 2020, Scott M. Quist was granted stock options to purchase 50,000 shares of Class A common stock at an exercise price of $3.66 per share or 50,000 shares of Class C common stock at an exercise price of $3.66 per share, or any combination thereof. Also, on March 27, 2020, Garrett S. Sill was granted stock options to purchase 25,000 shares of Class A common stock at an exercise price of $3.49 per share or 25,000 shares of Class C common stock at an exercise price of $3.49 per share, or any combination thereof. Also, on March 27, 2020, S. Andrew Quist was granted stock options to purchase 40,000 shares of Class A common stock at an exercise price of $3.49 per share or 40,000 shares of Class C common stock at an exercise price of $3.49 per share, or any combination thereof. | |
| (7) | On December 3, 2021, Scott M. Quist was granted stock options to purchase 50,000 shares of Class A common stock at an exercise price of $9.48 per share or 50,000 shares of Class C common stock at an exercise price of $9.48 per share, or any combination thereof. Also, on December 3, 2021, Garrett S. Sill was granted stock options to purchase 30,000 shares of Class A common stock at an exercise price of $8.62 per share or 30,000 shares of Class C common stock at an exercise price of $8.62 per share, or any combination thereof. Also, on December 3, 2021, S. Andrew Quist was granted stock options to purchase 60,000 shares of Class A common stock at an exercise price of $8.62 per share or 60,000 shares of Class C common stock at an exercise price of $8.62 per share, or any combination thereof. | |
| (8) | Stock options vest at the rate of 25% of the total number of shares per quarter over a one-year period after the grant date. |
OPTION AWARDS VESTING SCHEDULE
The table below sets forth the vesting schedule of unexercisable options reported in the “Number of Securities Underlying Unexercised Options — Unexercisable” column of the table above.
| Grant Date | Vesting | |
| 4/13/12 | These options vested 25% per quarter over a one year period after the grant date. | |
| 12/06/13 | These options vested 25% per quarter over a one year period after the grant date. | |
| 07/02/14 | These options vested 25% per quarter over a one year period after the grant date. | |
| 12/05/14 | These options vested 25% per quarter over a one year period after the grant date. | |
| 12/04/15 | These options vested 25% per quarter over a one year period after the grant date. | |
| 12/02/16 | These options vested 25% per quarter over a one year period after the grant date. | |
| 12/01/17 | These options vested 25% per quarter over a one year period after the grant date. | |
| 11/30/18 | These options vested 25% per quarter over a one year period after the grant date. | |
| 12/06/19 | These options vested 25% per quarter over a one year period after the grant date. | |
| 03/27/20 | These options vested 25% per quarter over a one year period after the grant date. | |
| 12/03/21 | These options vest 25% per quarter over a one year period after the grant date. |
OPTION EXERCISES AND STOCK VESTED
The table below sets forth all stock options exercised and value received upon exercise, and all stock awards vested and value realized upon vesting, by the Named Executive Officers during the year ended December 31, 2021.
| Option Awards | Stock Awards | |||||||||||||||
| Name of Executive Officer | Number
of Shares Acquired on Exercise (#) | Value ($) | Number
of | Value ($) | ||||||||||||
| Scott M. Quist | 104,656 | $ | 312,921 | — | — | |||||||||||
| Garrett S. Sill | — | — | — | — | ||||||||||||
| Stephen C. Johnson | 8,870 | 64,056 | — | — | ||||||||||||
| S. Andrew Quist | — | — | — | — | ||||||||||||
| Jeffrey R. Stephens | 7,394 | 46,603 | — | — | ||||||||||||
| -16- |
PENSION BENEFITS
The table below sets forth the present value as of December 31, 2021 of the benefit of the Named Executive Officers under the defined benefit pension plan.
| Name of Executive Officer | Plan Name | Number of Years Credited Service (#) | Present Value of Accumulated Benefit ($) | Payments During Last Fiscal Year ($) | ||||||||||
| Scott M. Quist | None | — | — | — | ||||||||||
| Garrett S. Sill | None | — | — | — | ||||||||||
| Stephen C. Johnson | None | — | — | — | ||||||||||
| S. Andrew Quist | None | — | — | — | ||||||||||
| Jeffrey R.Stephens | None | — | — | — |
EQUITY COMPENSATION PLAN INFORMATION
The table below sets forth certain information as of December 31, 2021 with respect to compensation plans (including individual compensation arrangements) under which the Company’s equity securities are authorized for issuance, aggregated as follows: (i) all compensation plans previously approved by security holders; and (ii) all compensation plans not previously approved by security holders.
| A | B | C | ||||||||||
| Plan Category | Number of Securities to be Issued upon Exercise of Outstanding Options, Warrants and Rights | Weighted Average Exercise Price of Outstanding Options, Warrants and Rights | Number of Securities Remaining Available for Future Issuance under Equity Compensation Plans (Excluding Securities Reflected in Column A) | |||||||||
| Equity compensation plans approved by stockholders (1) | 1,845,497 | (2) | $4.61 | (2) | 249,065 | (3) | ||||||
| Equity compensation plans not approved by stockholders | 0 | - | 0 | |||||||||
| (1) | This reflects the 2013 Amended and Restated Stock Option and other Equity Incentive Awards Plan (the “2013 Plan”) and the 2014 Amended and Restated Director Stock Option Plan (the “2014 Director Plan”). The 2013 Plan was approved by the stockholders at the annual stockholders meeting held on July 12, 2013, which reserved 450,000 shares of Class A common stock, of which 150,000 shares of Class C common stock could be issued as an alternative to up to 150,000 shares of Class A common stock. The 2014 Director Plan was approved by stockholders at the annual stockholders meeting held on July 2, 2014, which reserved 150,000 shares of Class A common stock for issuance thereunder. The 2013 Plan was amended by the stockholders at the annual stockholders meeting held on July 1, 2015 to authorize an additional 450,000 shares of Class A common stock to be available for issuance under the Plan, of which up to 200,000 Class C common shares may be issued as an alternative to up to 200,000 shares of Class A common stock. The 2013 Plan was further amended by the stockholders at the annual stockholders meeting held on June 29, 2017 to authorize an additional 500,000 shares of Class A common stock to be available for issuance under the Plan, of which up to 250,000 Class C common shares may be issued as an alternative to up to 250,000 shares of Class A common stock. The 2013 Plan was further amended by the stockholders at the annual stockholders meeting held on June 26, 2020 to authorize an additional 500,000 shares of Class A common stock to be available for issuance under the Plan, of which up to 350,000 Class C common stock may be issued as an alternative to up to 350,000 shares of Class A common stock. The 2014 Director Plan was amended by the stockholders at the annual stockholders meeting held on June 26, 2020 to authorize an additional 100,000 shares of Class A common stock to be available for issuance under the Plan. | |
| (2) | The weighted average exercise prices reflect solely the shares of Class A common stock that will be issued upon exercise of outstanding options. | |
| (3) | This number includes 201,113 shares of Class A common stock available for future issuance under the 2013 Plan, and 47,952 shares of Class A common stock available for future issuance under the 2014 Director Plan. |
Employment Agreement with Scott M. Quist
On December 4, 2012, the Company entered into an employment agreement with Scott M. Quist, Chairman of the Board, President, and Chief Executive Officer of the Company. The agreement was for a six-year term beginning on December 4, 2012 and ending on December 4, 2018. Under the terms of the Agreement, the Board of Directors may, in its sole discretion, extend the term of the agreement for an additional four-year term provided that Mr. Quist has continued to perform his duties with usual and customary care, diligence and prudence commensurate with his position with the Company. In addition, Mr. Quist is required to perform such additional duties as may be assigned to him from time to time by the Company’s Board of Directors.
| -17- |
Effective December 4, 2018, the Board members approved a motion to extend Mr. Quist’s employment agreement for an additional four-year term ending December 2022. Mr. Quist abstained from voting on the motion to extend his employment agreement for the additional four-year term. Under the terms of the agreement, Mr. Quist is to devote his full time to the Company, serving as Chairman of the Board, President and Chief Executive Officer at not less than his current salary and benefits. The Company also agrees to maintain a group term life insurance policy of not less than $1,000,000 and a whole life insurance policy in the amount of $500,000 on Mr. Quist’s life. In the event of disability, Mr. Quist’s salary would be continued for up to five years at 75% of its current level of compensation.
In the event of a sale or merger of the Company and Mr. Quist is not retained in his current position, the Company would be obligated to continue paying Mr. Quist’s current compensation and benefits for seven years following the merger or sale. The employment agreement further provides that Mr. Quist is entitled to receive annual retirement benefits beginning (i) one month from the date of his retirement (to commence no sooner than age 65), (ii) five years following complete disability, or (iii) upon termination of his employment without cause. These retirement benefits are to be paid for a period of twenty years in annual installments in the amount equal to 75% of his then current level of compensation. In the event that Mr. Quist dies prior to receiving all retirement benefits thereunder, the remaining benefits are to be paid to his heirs. The Company expensed $900,000 and $900,000 during the years ended December 31, 2021 and 2020, respectively, to cover the present value of anticipated retirement benefits under the employment agreement. The liability accrued was $7,556,363 and $6,656,363 as of December 31, 2021 and 2020, respectively.
Independent Director Compensation
Independent directors of the Company (but not including directors who are employees) are currently paid a director’s fee of $36,000 per year ($3,000 monthly) by the Company for their services and are reimbursed for their expenses in attending board and committee meetings. An additional fee of $750 is paid to each audit committee member for each audit committee meeting attended. Each independent director is provided with an annual grant of stock options to purchase 1,000 shares of Class A common stock. During 2021 each independent director was granted additional stock options to purchase 5,000 shares of Class A common stock. Upon retirement from the board, each independent director will receive “retirement compensation” equal to one month director’s fee for every year of service.
In 1995, the Company’s Board of Directors adopted a 401(k) Retirement Savings Plan. Under the terms of the 401(k) plan, effective as of January 1, 1995, the Company made discretionary employer matching contributions to its employees who choose to participate in the plan. The plan allowed the board to determine the amount of the contribution at the end of each year. During the period from January 1, 1995 to December 31, 2007 the Board had adopted a contribution formula specifying that such discretionary employer matching contributions would equal 50% of the participating employee’s contribution to the plan to purchase the Company’s stock up to a maximum discretionary employee contribution of 1/2 of 1% of participating employees’ compensation, as defined by the plan.
All persons who have completed at least one year’s service with the Company and satisfy other plan requirements are eligible to participate in the 401(k) plan. All Company matching contributions are invested in the Company’s Class A common stock. Also, the Company may contribute at the discretion of the Company’s Board of Directors an Employer Profit Sharing Contribution to the 401(k) plan. The Employer Profit Sharing Contribution is to be divided among three different classes of participants in the plan based upon the participant’s title in the Company. All amounts contributed to the plan are deposited into a trust fund administered by an independent trustee.
| -18- |
Beginning January 1, 2008, the Company elected to be a “Safe Harbor” Plan for its matching 401(k) contributions. The Company will match 100% of up to 3% of an employee’s total annual compensation and 50% of 4% to 5% of an employee’s annual compensation. The match is in shares of the Company’s Class A common stock. The Company’s contribution for 2021 and 2020 was $2,820,315 and $1,690,568 respectively, under the “Safe Harbor” plan.
Stock Repurchase Plan
In September 2018, the Board of Directors of the Company approved a Stock Repurchase Plan that authorized the repurchase of 300,000 shares of the Company’s Class A Common Stock in the open market. The Company amended the Stock Repurchase Plan on December 4, 2020. The amendment authorized the repurchase of a total of 1,000,000 shares of the Company’s Class A Common Stock in the open market. The repurchased shares of Class A common stock will be held as treasury shares to be used as the Company’s employer matching contribution to the Employee 401(k) Retirement Savings Plan and for shares held in the Deferred Compensation Plan.
Employee Stock Ownership Plan (ESOP)
On November 25, 2019, the Company distributed a notice of intent to terminate the ESOP Plan to all current plan participants. The Company also filed Form 5310, an application for determination for terminating plan, with the IRS on December 6, 2019. The IRS approved the ESOP termination on April 8, 2021, and the Company had until September 5, 2021, to distribute the ESOP assets and terminate the ESOP. The Company distributed the ESOP assets and terminated the ESOP, filing its final Form 5500 for the ESOP with the IRS on December 6, 2021.
Non-Qualified Deferred Compensation Plan
In 2001, the Company’s Board of Directors adopted a Non-Qualified Deferred Compensation Plan and this plan was amended in 2005 and later amended in 2019. Under the terms of the plan, the Company will provide deferred compensation for a select group of management or highly compensated employees, within the meaning of Sections 201(2), 301(a)(3), and 401(a)(1) of the Employee Retirement Income Security Act of 1974, as amended. The Board has appointed a committee of the Company to be the plan administrator and to determine the employees who are eligible to participate in the plan. The employees who participate may elect to defer a portion of their compensation into the plan. The Company may contribute into the plan at the discretion of the Company’s Board of Directors. The Company did not make any contributions for 2021 or 2020. The investment committee of the Company’s Non-Qualified Deferred Compensation Plan consists of Scott M. Quist, Stephen C. Johnson, and Garrett S. Sill.
| -19- |
NON-QUALIFIED DEFERRED COMPENSATION
The following table sets forth the balances of the non-qualified deferred compensation account of the Named Executive Officers in fiscal 2021 and the aggregate balance of deferred compensation of the Named Executive Officers at December 31, 2021.
| Executive | Registrant | Aggregate | Aggregate | Aggregate | ||||||||||||||||
| Contributions | Contributions | Earnings | Withdrawals | Balance | ||||||||||||||||
| In Last FY | In Last FY | in last FY | Distributions | at last FYE | ||||||||||||||||
| Name | ($) | ($) | ($) | ($) | ($) | |||||||||||||||
| Scott M. Quist | — | — | — | — | $ | 1,006,572 | (1) | |||||||||||||
| Garrett S. Sill | — | — | — | — | 94,254 | (2) | ||||||||||||||
| Stephen C. Johnson | — | — | — | — | 155,912 | (3) | ||||||||||||||
| S. Andrew Quist | — | — | — | — | — | |||||||||||||||
| Jeffrey R. Stephens | — | — | — | — | — | |||||||||||||||
| |
| (1) | Includes 109,410 shares of the Company’s Class A common stock, based on the closing price of $9.20 at December 31, 2021. | |
| (2) | Includes 10,245 shares of the Company’s Class A common stock, based on the closing price of $9.20 at December 31, 2021. | |
| (3) | Includes 16,947 shares of the Company’s Class A common stock, based on the closing price of $9.20 at December 31, 2021. |
2013 Stock Option and Other Equity Incentive Awards Plan
On August 24, 2013, the Company adopted the Security National Financial Corporation 2013 Stock Option Plan (the “2013 Plan”), which reserved 450,000 shares of Class A common stock to be made available for issuance thereunder, of which up to 150,000 shares of Class C common stock could be issued as an alternative to up to 150,000 shares of Class A common stock. The 2013 Plan provides for the grant of options and the award or sale of stock to officers, directors, and employees of the Company. Both “incentive stock options,” as defined under Section 422A of the Internal Revenue Code of 1986 and “non-qualified options” may be granted under the 2013 Plan. The 2013 Plan was approved by the stockholders at the Company’s Annual Meeting, which was held on July 12, 2013.
On July 1, 2015, the stockholders approved an amendment to the 2013 Plan to authorize an additional 450,000 shares of Class A common stock under the 2013 Plan, of which up to 200,000 shares of Class C common stock may be issued as an alternative to up to 200,000 shares of Class A common stock. On June 29, 2017, the stockholders approved an amendment to the 2013 Plan to authorize an additional 500,000 shares of Class A common stock to be available for issuance under the plan, of which up to 250,000 shares of Class C common stock may be issued as an alternative to up to 250,000 shares of Class A Common Stock. On June 26, 2020, the stockholders approved an amendment to the 2013 Plan to authorize an additional 500,000 shares of Class A common stock under the 2013 Plan, of which up to 350,000 shares of Class C common stock may be issued in place of up to 350,000 shares of Class A common stock.
The 2013 Plan is to be administered by the Board of Directors or by a committee designated by the Board. The terms of options granted or stock awards or sales affected under the 2013 Plan are to be determined by the Board of Directors or its committee. No options may be exercised for a term of more than ten years from the date of the grant. Options intended as incentive stock options may be issued only to employees, and must meet certain conditions imposed by the Internal Revenue Code, including a requirement that the option exercise price be no less than the fair market value of the option shares on the date of grant. The 2013 Plan provides that the exercise price for non-qualified options will not be less than at least 50% of the fair market value of the stock subject to such option as of the date of grant of such options, as determined by the Company’s Board of Directors.
| -20- |
The 2013 Plan also provides that if the shares of common stock shall be subdivided or combined into a greater or smaller number of shares or if the Company shall issue any shares of common stock as a stock dividend on its outstanding common stock, the number of shares of common stock deliverable upon the exercise of options shall be increased or decreased proportionately and an appropriate adjustment shall be made in the purchase price to reflect such subdivision, combination or stock dividend. In addition, the number of shares of common stock reserved for purposes of the 2013 Plan shall be adjusted by the same proportion. No options may be exercised for a term of more than ten years from the date of grant.
The 2013 Plan further provides that an option shall be exercised by giving written notice to the Company. Such notice shall identify the option being exercised and specify the number of shares as to which such option is being exercised, accompanied by payment of the purchase price. The purchase price may be made either in cash or by check or, at the discretion of the Board, through delivery of shares of common stock having a fair market value equal as of the date of the exercise to the cash exercise price of the option or, at the discretion of the Board, through the use of some of the shares for which the option is being exercised (a cashless transaction), or by any combination of the foregoing means of payment.
On December 4, 2015, the Board of Directors approved a resolution to amend the 2013 Plan to include additional equity incentive awards. These additional incentive awards under the plan consist of Stock Appreciation Rights (SARs), Restricted Stock Units (RSUs), and Performance Share Awards. Stock Appreciation Rights are awards that entitle the recipient to receive cash or stock equal to the excess of the Company’s stock price on the date the SAR is exercised over the Company’s stock price on the date the SAR was granted times the number of shares of stock with respect to which the SAR is exercised. Restricted Stock Units entitle the recipient to receive RSUs that require the Company on the distribution dates to transfer to the recipient one unrestricted, fully transferable share of stock for each RSU scheduled to be paid out on that date. Performance Share Awards entitle the recipient to receive stock based on the Company meeting certain performance goals. As amended, the 2013 Plan is now entitled, the “Security National Financial Corporation Amended and Restated 2013 Stock Option and Other Equity Incentive Awards Plan.”
The 2013 Plan has a term of ten years. The Board of Directors may amend or terminate the 2013 Plan at any time, from time to time, subject to approval of certain modifications to the 2013 Plan by the stockholders of the Company as may be required by law or the 2013 Plan.
2014 Director Stock Option Plan
On May 16, 2014, the Company adopted the Security National Financial Corporation 2014 Director Stock Option Plan (the “2014 Director Plan”). The 2014 Director Plan was approved by the stockholders at the Company’s Annual Meeting on July 2, 2014 and replaced the Company’s 2006 Director Stock Option Plan. The 2014 Director Plan provides for the grant by the Company of stock options to directors who are not employees or paid consultants (the “Outside Directors”) to purchase shares of Class A common stock made available for issuance under the plan. The 2014 Director Plan also provides that annually each Outside Director is automatically eligible to receive options to purchase 1,000 shares of the Company’s Class A common stock. On December 1, 2017, the 2014 Director Plan was amended to authorize the Board of Directors to establish, each year, the effective date of such automatic grants.
On March 27, 2020, the Board approved an amendment to the 2014 Director Plan to provide for the cashless exercise of stock options. Prior to the approval of the amendment, the consideration for the shares to be issued upon the exercise of a stock option under the 2014 Director Plan included cash, check, or at the discretion of the Board, through the delivery of shares of common stock having a fair market value equal to the cash exercise price of the option, or a combination of the foregoing. As amended, at the discretion of the Board, the consideration for exercising the option may also include the use of some or all of the shares for which the option is exercised (cashless exercise of the option), or by any combination of the foregoing methods of payment. As a result of the amendment, the 2014 Director Plan is now entitled, “Security National Financial Corporation Amended and Restated 2014 Director Stock Option Plan.” On June 26, 2020, the stockholders approved an amendment to the 2014 Director Plan to authorize an additional 100,000 shares of Class A common stock to be made available for issuance under the plan, thereby increasing the total number of available shares from 150,000 to 250,000.
| -21- |
The stock options granted to Outside Directors shall vest in four equal quarterly installments over a one-year period from the date of grant, until such shares are fully vested. The primary purposes of the 2014 Director Plan are to enhance the Company’s ability to attract and retain well-qualified persons for service as directors and to provide incentives to such directors to continue their association with the Company.
In the event of a merger of the Company with or into another company, or a consolidation, acquisition of stock or assets, or other change in control transaction involving the Company, each option granted under the 2014 Director Plan becomes exercisable in full, unless such option is assumed by the successor company. In the event the transaction is not approved by a majority of the “Continuing Directors” (as defined in the 2014 Director Plan), each option becomes fully vested and exercisable in full immediately prior to the consummation of such transaction, whether or not assumed by the successor corporation.
Stock Purchase Plan
On September 11, 2015, the Board of Directors approved the Company’s Stock Purchase Plan for the mutual benefit of the Company and its stockholders. Under the terms of the Stock Purchase Plan, the Company has the option to purchase shares of Class A common stock from its officers and directors who exercise the stock options granted to them under any of the Company’s stock option plans with the proceeds from such purchases to be used to pay the taxes owed by such officers and directors as a result of the exercise of their stock options. Additionally, the officers and directors who exercise their stock options may, in their discretion, request that the Company purchase shares of their Class A common stock with the proceeds from such sale to be used to pay the taxes owed by such officers and directors as a result of the exercise of their stock options.
The Company is authorized under the Stock Purchase Plan to purchase no more than 60,000 shares of Class A common stock in any calendar year to pay the taxes owed by the officers and directors who exercise their stock options under the Stock Purchase Plan. The Company’s purchase price for the Class A common stock under the Stock Purchase Plan shall be equal to the closing sales price of the Company’s Class A common stock as reported by The Nasdaq National Market on the day that the applicable stock options are exercised by such officers and directors. Under the Stock Purchase Plan, the Company may only purchase shares of Class A common stock from the officers and directors exercising their stock options during a “Trading Window” as defined in the Company’s Insider Trading Policy and Guidelines.
| -22- |
Director Compensation
The table below sets forth the compensation of the Company’s non-employee directors for fiscal 2021.
| Name | Fees
Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings | All Other Compensation ($) | Total
($) | |||||||||||||||||||||
| John L. Cook (1) | $ | 31,050 | — | $ | 17,963 | — | — | — | $ | 49,013 | ||||||||||||||||||
| Gilbert A. Fuller (2) | 31,050 | — | 17,963 | — | — | — | 49,013 | |||||||||||||||||||||
| Robert G. Hunter, M.D. (3) | 28,800 | — | 17,963 | — | — | — | 46,763 | |||||||||||||||||||||
| Ludmya B. Love (4) | 18,750 | — | 17,963 | — | — | — | 36,713 | |||||||||||||||||||||
| Shital A. Mehta (5) | 18,750 | — | 17,963 | — | — | — | 36,713 | |||||||||||||||||||||
| H. Craig Moody (6) | 31,050 | — | 17,963 | — | — | — | 49,013 | |||||||||||||||||||||
(1) Mr. Cook has options to purchase 61,201 shares of the Company’s Class A common stock.
(2) Mr. Fuller has options to purchase 61,201 shares of the Company’s Class A common stock.
(3) Dr. Hunter has options to purchase 70,744 shares of the Company’s Class A common stock.
(4) Ms. Love has options to purchase 6,000 shares of the Company’s Class A common stock.
(5) Ms. Mehta has options to purchase 6,000 shares of the Company’s Class A common stock.
(6) Mr. Moody has options to purchase 70,744 shares of the Company’s Class A common stock.
Outside Director Compensation
Outside Directors of the Company are currently paid a director’s fee of $36,000 per year ($3,000 monthly) by the Company for their services and are reimbursed for their expenses in attending Board and committee meetings. An additional director fee of $750 is paid to each Audit Committee member for each Audit Committee meeting attended. Each Outside Director is provided with an automatic annual grant of stock options to purchase 1,000 shares of Class A common stock. In 2021, each Outside Director was also granted additional stock options to purchase 5,000 shares of Class A common stock. Upon retirement from the Board, each Outside Director will receive “retirement compensation” equal to one month director’s fee for every year of service.
Delinquent Section 16(a) Reports
Compliance with Section 16(a) of the Securities Exchange Act of 1934 Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the Company’s executive officers, directors and persons who own more than 10% of a registered class of the Company’s equity securities to file reports of ownership and periodic changes in ownership of the Company’s shares of Class A and Class C common stock with the Securities and Exchange Commission. Such persons are also required to furnish the Company with copies of all Section 16(a) reports they file.
Based solely on its review of the copies of stock reports received by the Company with respect to fiscal 2021, or written representations from certain reporting persons, the Company believes that its directors, executive officers, and greater than 10% beneficial owners complied with all Section 16(a) filing requirements applicable to them, except that Craig Moody, Norman Wilbur, Stephen Johnson, Jeffrey Stephens and Adam Quist each failed to timely file a Form 4 in fiscal 2021, each with respect to a single transaction, but each made the filing after the deadline.
| -23- |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
The table below sets forth security ownership information of the Company’s Class A and Class C common stock as of March 31, 2022, (i) for persons who own beneficially more than 5% of the Company’s outstanding Class A or Class C common stock, (ii) for each director of the Company, and (iii) for all executive officers and directors of the Company as a group.
Class A Common Stock | Class C Common Stock | Class A and Class C Common Stock | ||||||||||||||||||||||
| Amount | Percent | Amount | Percent | Amount | Percent | |||||||||||||||||||
| Beneficially | of | Beneficially | of | Beneficially | of | |||||||||||||||||||
| Name and Address (1) | Owned | Class | Owned | Class | Owned | Class | ||||||||||||||||||
| 401(k) Retirement Savings Plan (2) | 2,925,736 | 16.6 | % | 212,710 | 7.7 | % | 3,138,446 | 15.4 | % | |||||||||||||||
| George R. and Shirley C. Quist Partnership, Ltd. (3) | 1,101,379 | 6.2 | % | 1,087,212 | 39.4 | % | 2,188,591 | 10.7 | % | |||||||||||||||
| M3 Funds, LLC (4) | 1,754,690 | 10.0 | % | - | - | 1,754,690 | 8.6 | % | ||||||||||||||||
| Non-Qualified Deferred Compensation Plan (5) | 1,663,325 | 9.4 | % | - | - | 1,663,325 | 8.1 | % | ||||||||||||||||
| Scott M. and Lisa J. Quist Family Trust (6) | - | * | 1,327,872 | 48.2 | % | 1,327,872 | 6.5 | % | ||||||||||||||||
| Scott M. Quist (7)(8)(9)(10)(11) | 568,720 | 3.2 | % | 203,527 | 7.1 | % | 772,247 | 3.7 | % | |||||||||||||||
| Jason G. Overbaugh (12) | 263,925 | 1.5 | % | 128,274 | 4.4 | % | 392,199 | 1.9 | % | |||||||||||||||
| S. Andrew Quist (7)(13) | 220,581 | 1.2 | % | 157,837 | 5.4 | % | 378,418 | 1.8 | % | |||||||||||||||
| Associated Investors (14) | 90,782 | * | 142,983 | 5.2 | % | 233,765 | 1.1 | % | ||||||||||||||||
| Garrett S. Sill (9)(10)(15) | 102,534 | * | 105,077 | 3.7 | % | 207,611 | 1.0 | % | ||||||||||||||||
| Estate of George R. Quist | 137,458 | * | 51,447 | 1.9 | % | 188,905 | * | |||||||||||||||||
| Adam G. Quist (7)(16) | 41,141 | * | 134,641 | 4.7 | % | 175,782 | * | |||||||||||||||||
| Jeffrey R. Stephens (17) | 165,358 | * | - | - | 165,358 | * | ||||||||||||||||||
| Stephen C. Johnson (9)(10)(18) | 126,901 | * | - | - | 126,901 | * | ||||||||||||||||||
| Robert G. Hunter, M.D. (19) | 89,839 | * | - | - | 89,839 | * | ||||||||||||||||||
| H. Craig Moody (20) | 89,638 | * | - | - | 89,638 | * | ||||||||||||||||||
| Gilbert A. Fuller (21) | 57,865 | * | - | - | 57,865 | * | ||||||||||||||||||
| John L. Cook (22) | 56,701 | * | - | - | 56,701 | * | ||||||||||||||||||
| Ludmya B. Love (23) | 1,500 | * | - | - | 1,500 | * | ||||||||||||||||||
| Shital A. Mehta (24) | 1,500 | * | - | - | 1,500 | * | ||||||||||||||||||
| All directors and executive officers (13 persons) | 1,786,203 | 9.7 | % | 729,356 | 21.4 | % | 2,515,559 | 11.5 | % | |||||||||||||||
| (1) | Unless otherwise indicated, the address of each listed stockholder is c/o Security National Financial Corporation, 433 West Ascension Way, 6th Floor, Salt Lake City, Utah 84123. | |
| (2) | The investment committee of the 401(k) Retirement Savings Plan consists of Scott M. Quist, Stephen C. Johnson and Garrett S. Sill, who exercise shared voting and investment powers with respect to such shares. | |
| (3) | This stock is owned by the George R. and Shirley C. Quist Partnership, Ltd., of which Scott M. Quist is the managing general partner and, accordingly, exercises sole voting and investment powers with respect to such shares. | |
| (4) | Based solely on the Schedule 13G/A filed on February 14, 2022, Jason A. Stock, Manager of M3 Partners, LP, a Delaware limited partnership, and M3 Funds, LLC, a Delaware limited liability company, General Partner of M3 Partners, LP; Jason A. Stock, Manager of M3 Funds, LLC; Jason A. Stock, Managing Director of M3F, Inc., a Utah corporation; Jason A. Stock, individually, and William C. Waller, individually, exercise shared voting and investment powers with respect to 1,754,690 shares of the Company’s Class A common stock, or 10.0% of the outstanding shares of the Company’s Class A common stock. The address of all entities and individuals filing the Schedule 13G/A is 10 Exchange Place, Suite 510, Salt Lake City, Utah 84111. | |
| (5) | The investment committee of the Company’s Non-Qualified Deferred Compensation Plan consists of Scott M. Quist, Stephen C. Johnson, and Garrett S. Sill, who exercise shared voting and investment powers with respect to such shares. | |
| (6) | This stock is owned by the Scott M. and Lisa J. Quist Family Trust, of which S. Andrew Quist, Amanda J. Nelson and Adam G. Quist are the trustees and, accordingly, exercise shared voting and investment powers with respect to such shares. | |
| (7) | Does not include 1,327,872 shares of Class C common stock owned by the Scott M. Quist and Lisa J. Quist Family Trust, of which S. Andrew Quist, Amanda J. Nelson and Adam G. Quist are the trustees and, accordingly, exercise shared voting and investment powers with respect to such shares. | |
| (8) | Mr. Scott Quist is the Company’s Chairman of the Board, President, and Chief Executive Officer. Includes options to purchase 176,502 shares of Class A common stock and 122,817 shares of Class C common stock that are currently exercisable. Mr. Quist’s options to purchase 122,817 shares of Class C common stock may also, at Mr. Quist’s election, consist of options to purchase 122,817 shares of Class A common stock, or any combination thereof. Mr. Quist has elected to purchase Class C common shares with such options to the extent there are sufficient authorized but unissued Class C common shares available for issuance with respect to such options. Otherwise, Mr. Quist will elect to purchase shares of Class A common stock with respect to such options. |
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| (9) | Does not include 2,919,244 shares of Class A common stock and 212,710 shares of Class C common stock owned by the Company’s 401(k) Retirement Savings Plan, of which Scott M. Quist, Stephen C. Johnson and Garrett S. Sill are members of the investment committee and, accordingly, exercise shared voting and investment powers with respect to such shares. | |
| (10) | Does not include 1,620,881 shares of Class A common stock owned by the Company’s Non-Qualified Deferred Compensation Plan, of which Scott M. Quist, Stephen C. Johnson and Garrett S. Sill are members of the investment committee and, accordingly, exercise shared voting and investment powers with respect to such shares. | |
| (11) | Does not include 90,782 shares of Class A common stock and 142,983 shares of Class C common stock owned by Associated Investors, a Utah general partnership, of which Scott M. Quist is the managing partner and, accordingly, exercises sole voting and investment powers with respect to such shares. | |
| (12) | Mr. Overbaugh is the Company’s Vice President, National Marketing Director of Life Insurance, and a director. Includes options to purchase 53,638 shares of Class A common stock and options to purchase 128,274 shares of Class C common stock that are currently exercisable. The options to purchase 128,274 shares of Class C common stock may also, at Mr. Overbaugh’s election, consist of options to purchase 128,274 shares of Class A common stock, or any combination thereof. Mr. Overbaugh has elected to purchase Class C common shares with such options to the extent there are sufficient authorized but unissued Class C common shares available for issuance with respect to such options. Otherwise, Mr. Overbaugh will elect to purchase shares of Class A common stock with respect to such options. | |
| (13) | Mr. Andrew Quist is the Company’s Vice President, General Counsel, and a director. Includes options to purchase 112,052 shares of Class A common stock and options to purchase 157,837 shares of Class C common stock that are currently exercisable. The options to purchase 157,837 shares of Class C common stock may also, at Mr. Quist’s election, consist of options to purchase 157,837 shares of Class A common stock, or any combination thereof. Mr. Andrew Quist has elected to purchase Class C common shares with such options to the extent there are sufficient authorized but unissued Class C common shares available for issuance with respect to such options. Otherwise, Mr. Quist will elect to purchase shares of Class A common stock with respect to such options. | |
| (14) | The managing general partner of Associated Investors is Scott M. Quist, who exercises sole voting and investment powers with respect to such shares. | |
| (15) | Mr. Sill is the Company’s Chief Financial Officer and Treasurer. Includes options to purchase 23,367 shares of Class A common stock and options to purchase 105,077 shares of Class C common stock that are currently exercisable. The options to purchase 105,077 shares of Class C common stock may also, at Mr. Sill’s election, consist of options to purchase 105,077 shares of Class A common stock, or any combination thereof. Mr. Sill has elected to purchase Class C common shares with such options to the extent there are sufficient authorized but unissued Class C common shares available for issuance with respect to such options. Otherwise, Mr. Sill will elect to purchase shares of Class A common stock with respect to such options. | |
| (16) | Mr. Adam Quist is the Vice President — Memorial Services, Assistant Secretary, General Counsel, and a director of the Company. Includes options to purchase 17,203 shares of Class A common stock and options to purchase 134,641 shares of Class C common stock that are currently exercisable. The options to purchase 134,641 shares of Class C common stock may also, at Mr. Quist’s election, consist of options to purchase 134,641 shares of Class A common stock, or any combination thereof. Mr. Adam Quist has elected to purchase Class C common shares with such options to the extent there are sufficient authorized but unissued Class C common shares available for issuance with respect to such options. Otherwise, Mr. Quist will elect to purchase shares of Class A common stock with respect to such options. | |
| (17) | Mr. Stephens is the Company’s Senior General Counsel and Secretary. Includes options to purchase 57,784 shares of Class A common stock granted to Mr. Stephens that are currently exercisable. | |
| (18) | Mr. Johnson is the Company’s Vice President of Mortgage Operations. Includes options to purchase 70,497 shares of Class A common stock granted to Mr. Johnson that are currently exercisable. | |
| (19) | Dr. Hunter is a director of the Company. Includes options to purchase 58,292 shares of Class A common stock granted to Dr. Hunter that are currently exercisable. | |
| (20) | Mr. Moody is a director of the Company. Includes options to purchase 66,244 shares of Class A common stock granted to Mr. Moody that are currently exercisable. | |
| (21) | Mr. Fuller is a director of the Company. Includes options to purchase 56,701 shares of Class A common stock granted to Mr. Fuller that are currently exercisable. | |
| (22) | Mr. Cook is a director of the Company. Includes options to purchase 56,701 shares of Class A common stock granted to Mr. Cook that are currently exercisable. | |
| (23) | Ms. Love is a director of the Company. Includes options to purchase 1,500 shares of Class A common stock granted to Ms. Love that are currently exercisable. | |
| (24) | Ms. Mehta is a director of the Company. Includes options to purchase 1,500 shares of Class A common stock granted to Ms. Mehta that are currently exercisable. |
The Company’s executive officers and directors, as a group, own beneficially approximately 11.5% of the outstanding shares of the Company’s Class A and Class C common stock.
Certain Relationships and Related Transactions and Director Independence
The Company’s Board of Directors has a written procedure, which requires disclosure to the Board of any material interest or any affiliation on the part of any of its officers, directors or employees that is in conflict or may be in the conflict with the interests of the Company.
REPORT OF THE COMPENSATION COMMITTEE
Compensation Discussion and Analysis
Under rules established by the Securities and Exchange Commission (the “Commission”), the Company is required to provide certain data and information in regard to the compensation and benefits provided to its Chief Executive Officer, Chief Financial Officer, and the three other most highly compensated executive officers. In fulfillment of this requirement, the Compensation Committee, at the direction of the Board of Directors, has prepared the following report for inclusion in this Proxy Statement.
Executive Compensation Philosophy. The Compensation Committee of the Board of Directors is composed of six directors, all of whom are independent, outside directors. The Compensation Committee is responsible for setting and administering the policies and programs that govern both annual compensation and stock ownership programs for the executive officers of the Company. The Company’s executive compensation policy is based on principles designed to ensure that an appropriate relationship exists between executive pay and corporate performance, while at the same time motivating and retaining executive officers.
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Executive Compensation Components. The key components of the Company’s compensation program are base salary, an annual incentive award, and equity participation. These components are administered with the goal of providing total compensation that is competitive in the marketplace, rewards successful financial performance, and aligns executive officers’ interests with those of stockholders. The Compensation Committee reviews each component of executive compensation on an annual basis.
Base Salary. Base salaries for executive officers are set at levels believed by the Compensation Committee to be sufficient to attract and retain qualified executive officers. Base pay increases are provided to executive officers based on an evaluation of each executive’s performance, as well as the performance of the Company as a whole. In establishing base salaries, the Compensation Committee not only considers the financial performance of the Company, but also the success of the executive officers in developing and executing the Company’s strategic plans, developing management employees and exercising leadership. The Compensation Committee believes that executive officer base salaries for 2021 were reasonable as compared to amounts paid by companies of similar size.
Annual Incentive. The Compensation Committee believes that a significant proportion of total cash compensation for executive officers should be subject to attainment of specific Company financial performance. This approach creates a direct incentive for executive officers to achieve desired performance goals and places a significant percentage of each executive officer’s compensation at risk. Consequently, each year the Compensation Committee establishes potential bonuses for executive officers based on the Company’s achievement of certain financial performance. The Compensation Committee believes that executive officer annual bonuses for 2021 were reasonable as compared to amounts paid by companies of similar size.
Stock Options. The Compensation Committee believes that equity participation is a key component of its executive compensation program. Stock options are granted to executive officers primarily based on the officer’s actual and potential contribution to the Company’s growth and profitability and competitive marketplace practices. Option grants are designed to retain executive officers and motivate them to enhance stockholder value by aligning the financial interests of executive officers with those of stockholders. Stock options also provide an effective incentive for management to create stockholder value over the long term since the full benefit of the compensation package cannot be realized unless an appreciation in the price of the Company’s Class A common stock occurs over a number of years.
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Compensation of Chief Executive Officer. Consistent with the executive compensation policy and components described above, the Compensation Committee determined the salary, bonus and stock options received by Scott M. Quist, Chairman of the Board, President, and Chief Executive Officer of the Company, for services rendered in 2021. Mr. Quist had received a base salary of $588,950 for 2021. Under the Compensation Committee’s rules, the Chief Executive Officer may not be present during voting or deliberations related to his compensation.
| COMPENSATION COMMITTEE | |
| H. Craig Moody, Chairman | |
| Gilbert A. Fuller | |
| John L. Cook | |
| Ludmya B. Love | |
| Shital A. Mehta | |
| Robert G. Hunter, M.D. |
The Company has an Audit Committee consisting of five non-management directors: John L. Cook, H. Craig Moody, Ludmya B. Love, Shital A. Mehta and Gilbert A. Fuller (Chairman of the committee). Each member of the Audit Committee is considered independent and qualified in accordance with applicable independent director and audit committee listing standards.
During the year 2021, the Audit Committee met three times. The Audit Committee has met with management and discussed the Company’s internal controls, the quality of the Company’s financial reporting, the results of internal and external audit examinations, and the audited financial statements. In addition, the Audit Committee met with the Company’s independent registered public accountants, Deloitte & Touche LLP, and discussed all matters required to be discussed by the auditors with the Audit Committee under the Statement on Auditing Standards No. 114 (communication with audit committees). The Audit Committee reviewed and discussed with the auditors their annual written report on their independence from the Company and its management, which is made under Independence Standards Board Standard No. 1 (Independence Discussions with Audit Committees) and Public Company Accounting Oversight Board Rule No. 3526 (Communication with Audit Committees Concerning Independence), and considered with the auditors whether any non-audit services provided by them to the Company during 2021 was compatible with the auditors’ independence.
In performing these functions, the Audit Committee acts only in an oversight capacity. In its oversight role, the Audit Committee relies on the work and assurances of the Company’s management, which is responsible for the integrity of the Company’s internal controls and its financial statements and reports, and the Company’s independent auditors, who are responsible for performing an independent audit of the Company’s financial statements in accordance with generally accepted auditing standards and for issuing a report on these financial statements.
Pursuant to the reviews and discussions described above, the Audit Committee recommended to the Board of Directors that the audited financial statements be included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021 for filing with the U.S. Securities and Exchange Commission.
| AUDIT COMMITTEE | |
| Gilbert A. Fuller, Chairman | |
| H. Craig Moody | |
| John L. Cook | |
| Ludmya B. Love | |
| Shital A. Mehta |
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PROPOSAL 2 - APPROVAL OF THE COMPANY’S 2022 EQUITY
INCENTIVE PLAN
The Company’s 2013 Amended and Restated Stock Option and other Equity Incentive Awards Plan (the “2013 Plan”) and its 2014 Amended and Restated Director Stock Option Plan (the “2014 Director Plan”) have been important tools to attract and retain quality executives, directors, employees and consultants. As of March 31, 2022, only 197,113 shares remained available for issuance under the 2013 Plan and 47,952 shares remained available for issuance under the 2014 Director Plan. These amounts are insufficient for the future anticipated awards, and the Board believes that the Company should maintain an equity incentive plan with sufficient capacity to make awards which will align the interests of our employees, consultants and directors with our stockholders. We therefore ask that our stockholders approve a new 2022 Equity Incentive Plan (the “2022 Equity Incentive Plan”) in order to permit us to continue to grant equity-based awards and attract and retain quality executives, directors, employees and consultants.
The Company’s 2013 Plan was approved by the stockholders in July 2013 and reserved 450,000 shares of Class A common stock, of which 150,000 shares of Class C common stock could be issued as an alternative to up to 150,000 shares of Class A common stock. The 2013 Plan was subsequently amended three times increasing the aggregate Class A common stock shares to be issued thereunder to 1,900,000 shares, of which 950,00 shares of Class C common stock could be issued as an alternative of up to 950,000 shares of Class A common stock. The 2014 Plan was adopted in July 2014 and reserved 150,000 shares of Class A common stock for issuance thereunder. The 2014 Plan was subsequently amended in June 2020 to authorize an additional 100,000 shares of Class A common stock for issuance thereunder.
On March 25, 2022, the Board adopted the 2022 Equity Incentive Plan and is recommending it for stockholder approval. The remaining authorized but unissued awards under the 2013 Plan and the 2014 Plan will be issuable irrespective of whether the 2022 Equity Incentive Plan is adopted.
The following is a brief description of the principal features of the 2022 Equity Incentive Plan. This summary is qualified in its entirety by reference to the full text of the 2022 Equity Incentive Plan, which is included as Exhibit I to this Proxy Statement.
Outstanding Stock Options
The following tables provide information about the Company’s outstanding stock options as of March 31, 2022.
Aggregate Options Outstanding (1) | Aggregate Options Exercisable (1) | |||||||||||||||||||||||||
| Range of Exercise Prices | Number of Options Outstanding as of March 31, 2022 | Weighted Average Remaining Contractual Life (in years) | Weighted Average Exercise Price | Number of Options Exercisable as of March 31, 2022 | Weighted Average | |||||||||||||||||||||
| Under | $ | 3.58 | 400,064 | 5.07 | $ | 3.32 | 400,064 | $ | 3.32 | |||||||||||||||||
| $ | 3.59 | $ | 4.60 | 272,603 | 3.37 | 4.09 | 272,603 | 4.09 | ||||||||||||||||||
| $ | 4.61 | $ | 4.81 | 391,916 | 7.24 | 4.73 | 391,916 | 4.73 | ||||||||||||||||||
| $ | 4.82 | $ | 5.43 | 405,714 | 3.45 | 5.06 | 405,714 | 5.06 | ||||||||||||||||||
| $ | 5.44 | and above | 328,323 | 8.84 | 8.70 | 84,607 | 8.56 | |||||||||||||||||||
| 1,798,620 | 5.61 | $ | 5.12 | 1,554,904 | $ | 4.55 | ||||||||||||||||||||
(1) Adjusted for an annual stock dividend of 5% (2019, 2021) and 7.5% (2020).
The table below sets forth information about our outstanding awards and available awards under existing incentive plans as of March 31, 2022.
| Outstanding and Available Share Awards under Existing Incentive Plans as of 3/31/22 | ||||||||
| Outstanding | Available | |||||||
| 2003 Plan | 1,591 | - | ||||||
| 2006 Directors Plan | 46,518 | - | ||||||
| 2013 Plan | 1,529,000 | 197,113 | ||||||
| 2014 Directors Plan | 221,420 | 47,952 | ||||||
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Dilutive Impact of Awards under the Proposed 2022 Equity Incentive Plan and Potential Equity Overhang
A maximum of 1,000,000 shares of Class A or Class C common stock would be authorized for issuance under the 2022 Equity Incentive Plan (including pursuant to incentive awards). Awards under the 2022 Equity Incentive Plan would be subject to the discretion of the Board and the Compensation Committee. There are no projections under consideration by the Board or the Compensation Committee for future awards under the 2022 Equity Incentive Plan. As of March 31, 2022, the Company had made the following equity grants consisting of stock options under the 2013 Plan:
| Number of Equity Awards Granted Under 2013 Plan (1) | ||||
| Scott M. Quist | 827,552 | |||
| Garrett S. Sill | 175,862 | |||
| Stephen C. Johnson | 82,324 | |||
| Jeffrey R. Stephens | 67,016 | |||
| S. Andrew Quist | 314,889 | |||
| All executive officers as a group | 1,935,749 | |||
| All non-employee directors as a group | - | |||
| All non-executive officer employees as a group | 361,012 | |||
| (1) Includes an annual stock dividend of 5% (2014-2019, 2021) and 7.5% (2020) | ||||
| Total Awards in Class A Shares | 984,882 | |||
| Total Awards in Class C Shares | 1,311,879 | |||
| 2,296,761 | ||||
Assuming that all 1,000,000 awards are made under the proposed 2022 Equity Incentive Plan, that any awards of Class C Shares thereunder are converted into Class A Shares and based on the 17,685,073 Class A Shares issued and outstanding as of March 31, 2022, the potential dilutive impact on existing Class A shareholders would be as to 5.65%. Considered together with the 245,065 awards available under the 2013 Plan and 2014 Plan as of March 31, 2022, the aggregate dilutive impact would be as to 7.04% and the total equity overhang (calculated by (i) adding the 1,798,620 outstanding options as of March 31, 2022, to the potential awards under the Proposed 2022 Equity Incentive Plan and the available awards under the 2013 Plan and the 2014 Plan (equaling 1,245,065 shares) (ii) divided by the 17,685,073 Class A Shares outstanding as of March 31, 2022) would be 17.2%.
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Significant Historical Award Information
The
following table provides information regarding the grant of equity awards under our 2013 Plan and 2014 Plan over the past
three fiscal years:
| Burn Rate of Shares | ||||||||||||||||
| 2019 | 2020 | 2021 | 3-year Average | |||||||||||||
| Stock options granted (includes assumed options) (1) | 309,334 | 290,089 | 335,475 | 311,633 | ||||||||||||
| RSUs and restricted stock granted | - | - | - | - | ||||||||||||
| Total number of shares cancelled | 11,405 | 1,671 | 1,671 | 4,916 | ||||||||||||
| Weighted average common shares outstanding | 18,562,056 | 19,788,984 | 20,154,878 | 19,501,973 | ||||||||||||
| Net burn rate (2) | 1.61 | % | 1.46 | % | 1.66 | % | 1.57 | % | ||||||||
| Equity awards made to Named Executive Officers and Non-employee Directors (as a percentage of equity awards granted under the 2013 Plan and 2014 Director Plan) (1) | 86 | % | 86 | % | 89 | % | 87 | % | ||||||||
(1) Includes annual stock dividends of 7.5% (2020) and 5% (2021).
(2) Burn rate is equal to the stock options granted and RSUs awarded, minus the number of shares cancelled, divided by the weighted average of common shares outstanding.
Summary of the Proposed 2022 Equity Incentive Plan
Purpose. The purpose of the 2022 Equity Incentive Plan is to assist the Company and its subsidiaries in attracting and retaining selected individuals to serve as directors, employees, consultants and/or advisors of the Company who are expected to contribute to the Company’s success and to achieve long-term objectives which will inure to the benefit of all shareholders of the Company through the additional incentives inherent in the Awards thereunder.
Eligibility. The persons eligible to receive awards under the 2022 Equity Incentive Plan are the employees, consultants and directors of the Company and its subsidiaries. Neither the Board nor the Compensation Committee have determined who would receive awards under the 2022 Equity Incentive Plan but future grants consistent with the Company’s historical equity incentive-based compensation practices would be likely.
Administration. The administrator of the 2022 Equity Incentive Plan (the “Administrator”) would be (i) the Board; or (ii) to the extent (A) the Board has delegated such power and authority to the Compensation Committee (which delegation may be revoked by the Board at any time), or (B) otherwise required pursuant to Section 4 of the Plan, the Compensation Committee. The Administrator would have authority to interpret and construe the provisions of the 2022 Equity Incentive Plan and to make all decisions and determinations relating to the operation of the 2022 Equity Incentive Plan, including the authority and discretion to:
| (i) | select the individuals to receive awards; | |
| (ii) | determine the type or types of awards to be granted; | |
| (iii) | determine the time or times when awards will be granted and will vest; and | |
| (iv) | establish terms and conditions upon which awards may be exercised. |
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Subject to certain limitations, the Administrator may delegate to the CEO authority to make awards to employees other than executive officers and directors.
Duration. If approved by the stockholders, the 2022 Equity Incentive Plan would become effective on the date of the Annual Meeting and would continue for a term of ten years from its effective date unless sooner terminated by the Board. No further awards would be granted under the 2022 Equity Incentive Plan after that date.
Shares Subject to the Plan. A maximum of 1,000,000 shares of Class A or Class C common stock would be authorized for issuance under the 2022 Equity Incentive Plan (including pursuant to incentive awards). Any Class A or Class C common stock shares that are subject to awards of options or stock appreciation rights under the 2022 Equity Incentive Plan would be counted against the shares available for issuance under the 2022 Equity Incentive Plan (the “Share Reserve”) as one share for every one share granted. Any Class A or Class C common stock shares that are subject to awards other than options or stock appreciation rights would be counted against the Share Reserve as two shares for every one share granted. If an award under the 2022 Equity Incentive Plan is forfeited or expires, the subject shares are again available for grant under the 2022 Equity Incentive Plan (such forfeited or expired shares, the “Recycled Shares”). To the extent that a share that was subject to an award that counted as one share against the 2022 Equity Incentive Plan becomes a Recycled Share, the Share Reserve would be credited with (increased by) one share. To the extent that a share was subject to an award that counted as two shares against the 2022 Equity Incentive Plan Share Reserve becomes a Recycled Share, the Share Reserve would be credited with two shares. The following types of Class A and Class C common stock shares would not be eligible to be granted again under the 2022 Equity Incentive Plan:
| (i) | shares tendered by the participant, or withheld by the Company, to satisfy the purchase price of an option or any tax withholding obligation; | |
| (ii) | shares which the Company repurchases with option proceeds; | |
| (iii) | shares subject to a stock appreciation right that are not issued in connection with the stock settlement of the stock appreciation right on exercise thereof; | |
| (iv) | shares authorized for issuance or subject to awards under the 2013 Plan, including shares subject to awards under the 2013 Plan which are forfeited or expire unexercised under the 2013 Plan; and | |
| (v) | shares authorized for issuance or subject to awards under the 2014 Plan, including shares subject to awards under the 2014 Plan which are forfeited or expire unexercised under the 2014 Plan. |
Types of Awards. The 2022 Equity Incentive Plan provides for the following types of awards (“Awards”): (a) stock options; (b) stock appreciation rights; (c) restricted stock; (d) restricted stock units; (e) deferred stock units; and (f) other share-based awards. Awards under the 2022 Equity Incentive Plan may be granted as “performance awards” subject to conditions on exercise, vesting or payment that are tied to satisfaction of pre-determined financial or other performance goals designated by the Administrator and set forth in the applicable award agreement. Awards under the 2022 Equity Incentive Plan may be granted as “performance awards” subject to conditions on exercise, vesting or payment that are tied to satisfaction of pre-determined financial or other performance goals designated by the Administrator and set forth in the applicable award agreements.
Stock Options. The Administrator may from time to time award options to any plan participant subject to the limitations described above. Stock options give the holder the right to purchase shares of Class A or Class C common stock (as designated) within a specified time at a specified price. Two types of stock options may be granted under the 2022 Equity Incentive Plan, namely: (a) incentive stock options (“ISO’s”), which are subject to special tax treatment as described below and which are limited to employees of the Company and its subsidiaries; and (b) non-statutory options (“NSO’s”), which are available to all directors, employees, consultants and advisors of the Company and its subsidiaries.
The exercise price of an option cannot be less than the fair market value of the share at the time of grant. The exercise price of an ISO granted to a ten percent shareholder of the Company cannot be less than 110% of the fair market value of the share at the time of grant. The expiration dates of options cannot be more than ten years after the date of the original grant. Other than appropriate adjustments to reflect a recapitalization, the Administrator may not without the approval of the stockholders: (a) lower the exercise price of an option after it is granted; (b) cancel an option when the exercise price exceeds the fair market value of the underlying shares in exchange for another award; or (c) take any other action with respect to an option that may be treated as a repricing under the rules and regulations of Nasdaq.
| -31- |
Stock Appreciation Rights. The Administrator may grant stock appreciation rights under the 2022 Equity Incentive Plan to eligible participants. A stock appreciation right entitles the holder upon exercise to receive an amount in cash, shares of Class A or Class C common stock (as designated), other property, or a combination thereof (as determined by the Administrator), computed by reference to appreciation in the value of the share over its stated base value per share, which cannot be less than the fair market value of the share at the time of grant. The expiration dates of stock appreciation rights cannot be more than ten years after the date of the original grant.
Restricted Stock. The Administrator may grant restricted shares under the 2022 Equity Incentive Plan to such eligible participants in such amounts, and subject to such terms and conditions (including the attainment of performance criteria) as the Administrator determines in its discretion. Awards of shares may be made in exchange for services or other lawful consideration. Generally, awards of restricted shares are subject to the requirement that the shares be forfeited to the Company unless specified conditions are met. Except for certain limited situations, grants of restricted shares will have a vesting period of not less than one year. Subject to these restrictions, conditions and forfeiture provisions, any recipient of an award of restricted stock will have all the rights of a shareholder of the Company including the right to vote the shares upon grant subject to these restrictions, conditions and forfeiture provisions.
Restricted Stock Unit Awards. The Administrator may grant restricted stock units under the 2022 Equity Incentive Plan having a value equal to a designated number of shares to such eligible participants, in such amounts, and subject to such terms and conditions (including attainment of performance criteria) as the Administrator determines in its discretion. If the requirements specified by the Administrator are met, the grantee of such units will receive shares, cash, other property, or any combination thereof, equal to the fair market value of the designated number of shares. The Administrator may also grant Restricted Stock Units with a deferral feature, consistent with applicable law, including Section 409A of the Code, whereby settlement is deferred beyond the vesting date until the occurrence of a future payment date or event set forth in an award agreement.
Other Share-Based Awards. The Administrator may also make other awards measured by the value of or payable in the form of shares under the 2022 Equity Incentive Plan subject to the satisfaction of specified performance or other criteria. Other share-based awards may be paid in shares, cash, other property, or any combination thereof.
Accelerated Exercisability and Vesting Upon a Change in Control. Under the proposed 2022 Equity Incentive Plan, all then outstanding awards will automatically become fully exercisable, vested and earned upon a Change in Control of the Company. Additionally, upon such change in control, the Company may elect to cancel all or any portion of then outstanding awards under the 2022 Equity Incentive Plan in exchange for a payment equal to the fair market value of the cancelled awards. For this purpose, a Change in Control means: (a) certain changes in the majority of the Board within a 12-month period; (b) the acquisition by any person of 30% or more of the voting securities of the Company; (c) consummation of a merger or reorganization of the Company in which neither the Company nor another entity controlled by our stockholders is the surviving entity; (d) a sale or other disposition of all or substantially all of our assets to another entity that is not controlled by our shareholders; or (e) shareholder approval of a liquidation of the Company.
Recoupment/Clawback. The Company will be entitled to recoup compensation of whatever kind paid under the 2022 Equity Incentive Plan by the Company at any time to the extent required by applicable securities or other law or as provide in any recoupment policy adopted by the Company.
General Provisions. Unless authorized by the Administrator in the agreement evidencing an award granted under the 2022 Equity Incentive Plan, awards may not be transferred other than by will or the laws of descent and distribution, and may be exercised during the participant’s lifetime only by the participant or the participant’s guardian or legal representative. The Board may, from time to time, alter, amend, suspend or terminate the 2022 Equity Incentive Plan. Unless sooner terminated by the Board, the 2022 Equity Incentive Plan will automatically terminate on the tenth anniversary of its effective date. No grants may be made under the plan following the date of termination, although grants made prior to that date may remain outstanding following the termination of the 2022 Equity Incentive Plan until their scheduled expiration date.
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Certain Federal Income Tax Consequences. The following is a brief summary of certain U.S. federal income tax consequences relating to awards under the 2022 Incentive Plan. This summary is made as of the date of this Proxy Statement, is not (and is not intended to be) complete, and does not describe state, local, foreign, or other tax consequences. The tax information summarized is not tax advice.
Tax Consequences to the Company
To the extent that a participant recognizes ordinary income in the circumstances described below, the Company or the subsidiary for which the participant performs services will be entitled to a corresponding deduction for tax purposes, but only if, among other things, the income: (a) meets the test of reasonableness; (b) is an ordinary and necessary business expense; (c) is not an “excess parachute payment” within the meaning of 280G of the Code; and (d) is not disallowed by the $1 million limitation on executive compensation under Section 162(m).
Tax Consequences to Participants
| ● | Nonqualified Stock Options (NSOs). In general, for recipients of NSOs: (a) no income will be recognized by the participant at the time an NSO is granted; (b) at the time of exercise of an NSO, ordinary income will be recognized by the participant in an amount equal to the difference between the option price paid for the shares of Common Stock and the fair market value of the shares, if unrestricted, on the date of exercise; and (c) at the time of sale of shares of Common Stock acquired pursuant to the exercise of an NSO, appreciation (or depreciation) in value of the shares after the date of exercise will be treated as either short-term or long-term capital gain (or loss) depending on how long the shares have been held. For post-exercise appreciation in share value to qualify for long-term capital gain treatment, the shares must be held for more than one year from their date of issuance. |
| ● | Incentive Stock Options (ISOs). No income will be recognized by a participant upon the grant to them of an ISO. In general, no income will be recognized by the participant upon the exercise of an ISO for regular income tax purposes. However, the difference between the option price paid and the fair market value of the shares at exercise may constitute a preference item triggering alternative minimum tax on the participant. If shares of Common Stock are issued to a participant pursuant to the exercise of an ISO, and if no disqualifying disposition of such shares is made by such option holder within two years after the date of the grant or within one year after the transfer of such shares to the option holder, then upon later sale of such shares, any amount realized in excess of the option price will be taxed to the participant as long-term capital gain and any loss sustained will be a long-term capital loss. If shares of Common Stock acquired upon the timely exercise of an ISO are disposed of prior to the expiration of either holding period described above, the participant generally will recognize ordinary income in the year of disposition in an amount equal to the excess (if any) of the fair market value of such shares at the time of exercise (or, if less, the amount realized on the disposition of such shares if a sale or exchange) over the option price paid for such shares. Any further gain (or loss) realized by the participant generally will be taxed as short-term or long-term capital gain (or loss) depending on the holding period. |
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