SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 2003 Commission File Number: 0-9341
- ------------------------------------ ------------------------------
SECURITY NATIONAL FINANCIAL CORPORATION
Exact Name of Registrant.
UTAH 87-0345941
- ------------------------------ -------------------------
(State or other jurisdiction IRS Identification Number
of incorporation or organization)
5300 South 360 West, Salt Lake City, Utah 84123
- ----------------------------------------- ------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including Area Code (801) 264-1060
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class A Common Stock, $2.00 par value 4,284,012
- ------------------------------------- ----------------------------------
Title of Class Number of Shares Outstanding as of
September 30, 2003
Class C Common Stock, $.20 par value 6,094,950
- ------------------------------------ ----------------------------------
Title of Class Number of Shares Outstanding as of
September 30, 2003
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
FORM 10-Q
QUARTER ENDED SEPTEMBER 30, 2003
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1 Financial Statements Page No.
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Consolidated Statement of Earnings - Nine and three
months ended September 30, 2003 and 2002 (unaudited).........3
Consolidated Balance Sheet - September 30, 2003 (unaudited)
and December 31, 2002 .......................................4-5
Consolidated Statement of Cash Flows -
Nine months ended September 30, 2003
and 2002 (unaudited).........................................6
Notes to Consolidated Financial Statements...................7-10
Item 2 Management's Discussion and Analysis.........................11-14
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Item 3 Quantitative and Qualitative Disclosure of Market Risk.......14
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Item 4 Controls and Procedures......................................15
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PART II - OTHER INFORMATION
Other Information............................................15-17
Signature Page...............................................18
Certifications...............................................19-21
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF EARNINGS
(Unaudited)
Nine Months Ended Three Months Ended
September 30, September 30,
Revenues: 2003 2002 2003 2002
- -------- ---- ---- ---- ----
Insurance premiums and other considerations $17,342,353 $10,319,892 $5,752,258 $3,627,683
Net investment income 13,630,206 8,504,297 5,264,666 3,052,659
Net mortuary and cemetery sales 8,026,021 7,954,592 2,730,776 2,717,806
Realized gains on investments and other assets (2,207) 746,021 (2,207) 27,205
Mortgage fee income 76,979,168 34,828,830 24,067,019 15,988,606
Other 245,893 415,292 62,468 106,325
------------- ------------- ------------- -------------
Total revenues 116,221,434 62,768,924 37,874,980 25,520,284
------------- ------------- ------------- -------------
Benefits and expenses:
Death benefits 9,768,115 4,298,196 2,725,055 1,325,095
Surrenders and other policy benefits 1,573,695 1,442,718 472,603 372,618
Increase in future policy benefits 4,921,318 3,628,655 2,113,665 1,569,539
Amortization of deferred policy acquisition costs
and cost of insurance acquired 3,622,216 2,334,477 1,353,437 565,708
General and administrative expenses:
Commissions 55,435,397 26,554,414 16,215,158 12,591,644
Salaries 10,378,702 8,308,534 3,421,014 2,925,397
Other 16,260,51 10,320,968 6,076,615 3,955,599
Interest expense 3,130,982 1,013,868 1,331,544 491,072
Cost of goods and services sold
of the mortuaries and cemeteries 1,699,005 1,515,575 575,267 535,029
------------- ------------- ------------- -------------
Total benefits and expenses 106,789,942 59,417,405 34,284,358 24,331,701
------------- ------------- ------------- -------------
Earnings before income taxes 9,431,492 3,351,519 3,590,622 1,188,583
Income tax expense (3,065,751) (825,614) (1,145,524) (294,796)
Minority interest (income) loss of subsidiary 17,219 18,263 31,625 3,898
------------- ------------- ------------- -------------
Net earnings $6,382,960 $2,544,168 $2,476,723 $897,685
============= ============= ============= =============
Net earnings per common share $1.24 $.54 $.49 $.19
===== ==== ==== ====
Weighted average outstanding common shares 5,165,311 4,680,665 5,034,832 4,684,250
============= ============= ============= =============
Net earnings per common share-assuming dilution $1.19 $.51 $.47 $.18
===== ===== ===== =====
Weighted average outstanding common shares
assuming-dilution 5,378,996 5,013,965 5,252,132 5,083,126
============= ============= ============= =============
See accompanying notes to consolidated financial statements
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
September 30, 2003 December 31,
(Unaudited) 2002
------------------ ------------
Assets:
- -------
Insurance-related investments:
Fixed maturity securities held
to maturity, at amortized cost $33,509,058 $33,015,097
Fixed maturity securities available
for sale, at market 17,841,657 18,514,943
Equity securities available for sale,
at market 3,033,204 2,642,093
Mortgage loans on real estate 25,041,443 21,016,008
Real estate, net of accumulated
depreciation and allowances for losses 8,863,328 9,331,248
Policy, student and other loans 10,924,403 10,974,165
Short-term investments 4,677,926 5,335,478
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Total insurance-related
investments 103,891,019 100,829,032
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Restricted assets of cemeteries and mortuaries 5,310,865 5,332,736
------------ -------------
Cash 30,294,277 38,199,041
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Receivables:
Trade contracts 9,786,737 11,358,027
Mortgage loans sold to investors 107,255,174 89,455,105
Receivable from agents 1,441,923 2,054,071
Receivable from officers 46,540 70,290
Other 1,593,581 1,131,977
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Total receivables 120,123,955 104,069,470
Allowance for doubtful accounts (4,817,755) (2,385,309)
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Net receivables 115,306,200 101,684,161
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Policyholder accounts on deposit
with reinsurer 6,822,334 6,955,691
Land and improvements held for sale 8,573,388 8,429,215
Accrued investment income 1,316,052 928,287
Deferred policy and pre-need acquisition costs 16,879,934 15,917,257
Property, plant and equipment, net 11,004,751 10,921,635
Cost of insurance acquired 15,229,005 16,330,711
Excess of cost over net assets
of acquired subsidiaries 683,191 683,191
Other 887,548 945,805
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Total assets $316,198,564 $307,156,762
============= =============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
September 30, 2003 December 31,
(Unaudited) 2002
------------------ ------------
Liabilities:
- -----------
Future life, annuity, and other
policy benefits $218,603,200 $215,980,207
Unearned premium reserve 1,945,307 1,914,700
Bank loans payable 14,986,969 16,113,227
Notes and contracts payable 3,430,279 3,160,009
Potential stock redemption 1,800,000 --
Deferred pre-need cemetery and funeral
contracts revenues and estimated future
cost of pre-need sales 10,559,213 10,002,396
Accounts payable 1,290,172 1,553,777
Funds held under reinsurance treaties 1,304,981 1,334,964
Other liabilities and accrued expenses 10,843,157 10,182,382
Income taxes 11,036,256 8,103,882
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Total liabilities 275,799,534 268,345,544
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Commitments and Contingencies -- --
Minority interest 3,963,890 4,297,807
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Stockholders' Equity:
Common stock:
Class A: $2.00 par value, authorized 10,000,000
shares, issued 5,561,233 shares in 2003
and 5,794,492 shares in 2002 11,122,466 11,588,984
Class C: $0.20 par value, authorized
7,500,000 shares, issued 6,166,699
shares in 2003 and 6,182,669
shares in 2002 1,233,340 1,236,533
------------- -------------
Total common stock 12,355,806 12,825,517
Additional paid-in capital 10,316,658 11,280,842
Accumulated other comprehensive income
(loss) and other items, net of
deferred taxes (846,100) 1,191,863
Retained earnings 18,134,598 11,992,542
Treasury stock at cost (1,277,221 Class A
shares and 1,749 Class C shares in
2003; 1,151,811 Class A shares
and 71,749 Class C shares in 2002, held by
affiliated companies) (3,525,822) (2,777,353)
------------- -------------
Total stockholders' equity 36,435,140 34,513,411
------------- -------------
Total liabilities and stockholders' equity $316,198,564 $307,156,762
============= =============
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended September 30,
2003 2002
---- ----
Cash flows from operating activities:
Net cash provided by operating
activities $4,097,189 $12,523,692
------------ -----------
Cash flows from investing activities:
Securities held to maturity:
Purchase - fixed maturity securities (8,080,087) (4,062,931)
Calls and maturities - fixed
maturity securities 7,607,038 7,122,717
Securities available for sale:
Calls and maturities - fixed
maturity securities 360,000 3,301,497
Purchases of equity securities (51,921) (367)
Purchases of short-term investments (15,608,535) (8,334,285)
Sales of short-term investments 16,661,402 7,425,705
Purchases of restricted assets 41,009 (147,552)
Mortgage, policy, and other loans made (17,258,017) (4,707,046)
Payments received for mortgage,
real estate, policy, and other loans 12,861,203 4,648,685
Purchases of property, plant,
and equipment (1,215,617) (1,160,274)
Purchases of real estate (1,012,284) (1,501,405)
Sale of real estate 1,230,802 --
------------ ------------
Net cash (used in) provided by
investing activities (4,465,007) 2,584,744
------------ ------------
Cash flows from financing activities:
Annuity receipts 4,422,489 6,153,617
Annuity withdrawals (8,061,431) (8,325,543)
Repayment of bank loans and notes and
contracts payable (3,174,736) (1,659,228)
Stock options exercised 25,200 --
Proceeds from borrowings on bank loans
and notes and contracts payable -- 186,594
Purchase of Treasury Stock (748,468) --
Sale of Treasury Stock -- 37,824
Other -- --
------------ ------------
Net cash (used in) provided by
financing activities (7,536,946) (3,606,736)
------------ ------------
Net change in cash (7,904,764) 11,501,700
Cash at beginning of period 38,199,041 8,757,246
------------ ------------
Cash at end of period $30,294,277 $20,258,946
============ ============
Non cash investing and financial activities
- -----------------------------------------------
During the nine months ended September 30, 2003, the Company entered into a
potential stock redemption agreement (see Note 7). As a result, the Company
reclassified $1,800,000 of common stock and additional paid-in capital to a
liability.
See accompanying notes to consolidated financial statements.
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003, (Unaudited)
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements. In
the opinion of management, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been included.
Operating results for the three and nine months ended September 30, 2003, are
not necessarily indicative of the results that may be expected for the year
ending December 31, 2003. For further information, refer to the consolidated
financial statements and footnotes thereto for the year ended December 31, 2002,
included in the Company's Annual Report on Form 10-K (file number 0-9341).
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
The estimates susceptible to significant change are those used in determining
the liability for future policy benefits and claims, those used in determining
valuation allowances for mortgage loans on real estate, and those used in
determining the estimated future costs for pre-need sales. Although some
variability is inherent in these estimates, management believes the amounts
provided are adequate.
2. Comprehensive Income
For the nine months ended September 30, 2003 and 2002, total comprehensive
income amounted to $4,344,997 and $2,357,975, respectively.
For the three months ended September 30, 2003 and 2002, total comprehensive
income amounted to $2,339,192 and $807,461, respectively.
3. Stock-Based Compensation
The Company accounts for stock-based compensation under the recognition and
measurement principles of APB Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations. The Company has adopted SFAS No. 123,
"Accounting for Stock-Based Compensation". In accordance with the provisions of
SFAS 123, the Company has elected to continue to apply Accounting Principles
Board Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB Opinion
No. 25"), and related interpretations in accounting for its stock option plans.
In accordance with APB Opinion No. 25, no compensation cost has been recognized
for these plans. Had compensation cost for these plans been determined based
upon the fair value at the grant date consistent with the methodology prescribed
under SFAS No. 123, the Company's net earnings for three months ended September
30, 2003, and 2002 would not have been effected. Net earnings for the nine
months ended September 30, 2003 and 2002 would have been reduced by the
following:
Nine Months Ended September 30,
2003 2002
---- ----
Net earnings as reported $6,382,960 $2,544,168
Deduct: Total stock-based employee
compensation expense determined
under fair value based method for
all awards, net of related
tax effects (133,000) --
----------- ----------
Pro forma net earnings $6,249,960 $2,544,168
========== ==========
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003 (Unaudited)
Nine Months Ended September 30,
2003 2002
---- ----
Net earnings per common share:
Basic - as reported $1.24 $.54
Basic - pro forma $1.21 $.54
Diluted - as reported $1.19 $.51
Diluted - pro forma $1.16 $.51
4. Earnings Per Share In accordance with SFAS 128, the basic and diluted
earnings per share amounts were calculated as follows:
Nine Months Ended September 30,
2003 2002
---- ----
Numerator:
Net income $6,382,960 $2,544,168
========== ==========
Denominator:
Denominator for basic earnings per share-
weighted-average shares 5,165,311 4,680,665
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Effect of dilutive securities:
Employee stock options 208,961 305,041
Stock appreciation rights 4,724 28,259
------------ ------------
Dilutive potential common shares 213,685 333,300
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Denominator for diluted earnings
per share-adjusted
weighted-average shares and
assumed conversions 5,378,996 5,013,965
=========== ===========
Basic earnings per share $1.24 $.54
===== ====
Diluted earnings per share $1.19 $.51
===== ====
Three Months Ended September 30,
2003 2002
---- ----
Numerator:
Net income $2,476,723 $ 897,685
========== ============
Denominator:
Denominator for basic earnings
per share-weighted-average
shares 5,034,832 4,684,250
---------- -----------
Effect of dilutive securities:
Employee stock options 212,541 314,024
Stock appreciation rights 4,759 84,852
---------- ----------
Dilutive potential common shares 217,300 398,876
------------ -----------
Denominator for diluted earnings
per share-adjusted weighted-
average shares and assumed
conversions 5,252,132 5,083,126
=========== ===========
Basic earnings per share $.49 $.19
==== ====
Diluted earnings per share $.47 $.18
==== ====
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003, (Unaudited)
5. Business Segment
Life Cemetery/ Reconciling
Insurance Mortuary Mortgage Items Consolidated
For the Nine Months Ended
September 30, 2003
- --------------------------
Revenues from
external customers $ 22,137,919 $ 8,880,150 $85,203,365$ -- $116,221,434
Intersegment revenues 7,379,515 -- -- (7,379,515) --
Segment profit 1,114,422 135,785 8,181,285 -- 9,431,492
Identifiable assets 296,676,591 43,828,908 19,512,932 (43,819,867) 316,198,564
For the Nine Months Ended
September 30, 2002
- -------------------------
Revenues from
external customers $ 14,844,979 $ 9,454,018 $38,469,927$ -- $ 62,768,924
Intersegment revenues 3,474,189 -- -- (3,474,189) --
Segment profit 563,976 1,221,538 1,566,005 -- 3,351,519
Identifiable assets 203,071,749 41,053,996 10,180,717 (34,485,755) 219,820,707
For the Three Months Ended
September 30, 2003
- --------------------------
Revenues from
external customers $ 7,363,273 $ 3,051,572 $27,460,135$ -- $ 37,874,980
Intersegment revenues 2,675,710 -- -- (2,675,710) --
Segment profit 511,322 225,413 2,853,887 -- 3,590,622
For the Three Months Ended
September 30, 2002
- --------------------------
Revenues from
external customers $ 5,083,781 $ 3,005,034 $17,431,469$ -- $ 25,520,284
Intersegment revenues 1,186,158 -- -- (1,186,158) --
Segment profit 59,282 195,121 934,180 -- 1,188,583
SECURITY NATIONAL FINANCIAL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
September 30, 2003, (Unaudited)
6. Recent Acquisition
On December 23, 2002, the Company completed an asset purchase transaction with
Acadian Life Insurance Company, a Louisiana domiciled life insurance company
("Acadian Life"), in which it acquired from Acadian Life $75,000,000 in assets
and $75,000,000 in insurance reserves through its wholly owned subsidiary,
Security National Life Insurance Company, a Utah domiciled life insurance
company. The acquired assets consist primarily of approximately 275,000 funeral
insurance policies in force in the state of Mississippi. The assets were
originally acquired by Acadian Life from Gulf National Life Insurance Company
("GNLIC") on June 6, 2001, consisting of all of GNLIC's insurance policies in
force and in effect on June 1, 2001.
7. Potential Stock Redemption
The Company entered into an agreement with a stockholder in August 2003 wherein
it purchased 124,000 shares of Class A Common Stock from this stockholder for
$6.00 per share. The purchase of these shares is reflected in treasury stock as
of September 30, 2003.
Also under the terms of this agreement, this stockholder has agreed not to
purchase or control, directly or indirectly, any additional shares of Class A or
Class C common stock through August 2007, and on August 27, 2004, 2005 and 2006,
this stockholder may request, but is not obligated to request, the Company to
purchase an additional 100,000 shares of Class A common stock held by this
stockholder for $6.00 per share. In accordance with the Statement of Financial
Accounting Standards ("SFAS") No. 150, the Company has recorded $1,800,000 as a
liability under the assumption that the stockholder could request the Company to
purchase these shares, and has reduced stockholders' equity for the same amount.
This amount has not been recorded at its present value because the discount is
not material. The Company is not aware of the intention of the stockholder to
exercise his right in the future. In the event that the stockholder does not
exercise his right, the amount recorded as a liability will be reduced and
stockholders' equity will be increased.
8. Recent Accounting Pronouncements
In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. SFAS No. 149 amends and clarifies
financial accounting and reporting for derivative instruments, including certain
derivative instruments embedded in other contracts (collectively referred to as
derivatives) and for hedging activities under SFAS No. 133, Accounting for
Derivative Instruments and Hedging Activities. This Statement is effective for
contracts entered into or modified after June 30, 2003, with certain exceptions,
and for hedging relationships designated after September 30, 2003. We are
currently evaluating the effect that the adoption of SFAS No. 149 will have on
our results of operations and financial position.
In January 2003, the FASB issued SFAS No. 46, "Consolidation of Variable
Interest Entities." SFAS No. 46 is currently effective for periods beginning
after December 15, 2003. SFAS No. 46 clarifies the application of Accounting
Research Bulletin No. 51, "Consolidated Financial Statements," to certain
entities in which equity investors do not have the characteristics of a
controlling financial interest or do not have sufficient equity at risk for the
entity to finance its activities without additional subordinated financial
support from a separate enterprise. Such entities are identified as Variable
Interest Entities. The objective of SFAS No. 46 is to improve financial
reporting by those separate enterprises involved with variable interest
entities. If those separate enterprises have a controlling financial interest in
a variable interest entity, the assets, liabilities, and results of the
activities of the variable interest entity should be included in the financial
statements with those of the business enterprise. Management does not believe
the adoption of SFAS No. 46 will have a material effect on the Company's
financial position or results of operations. SFAS No. 46 further requires the
disclosure of certain information related to variable interest entities in which
the Company holds a significant variable interest. The Company does not believe
that it owns any such interests that require disclosure at this time.
Item 2. Management's Discussion and Analysis
Overview
The Company's operations over the last several years generally reflect three
trends or events which the Company expects to continue: (i) increased attention
to "niche" insurance products, such as the Company's funeral plan policies and
traditional whole-life products; (ii) emphasis on cemetery and mortuary
business; and (iii) capitalizing on lower interest rates by originating and
refinancing mortgage loans.
During the nine months ended September 30, 2003, Security National Mortgage
Company ("SNMC") experienced increases in revenue and expenses due to the
increase in loan volume of its operations. SNMC is a mortgage lender
incorporated under the laws of the State of Utah. SNMC is approved and regulated
by the Federal Housing Administration (FHA), a department of the U.S. Department
of Housing and Urban Development (HUD), to originate mortgage loans that qualify
for government insurance in the event of default by the borrower. SNMC obtains
loans primarily from independent brokers and correspondents. SNMC funds the
loans from internal cash flows and lines of credit from financial institutions.
SNMC receives fees from the borrowers and other secondary fees from third party
investors who purchase the loans from SNMC. SNMC sells all of its loans to third
party investors and does not retain servicing to these loans. SNMC pays the
brokers and correspondents a commission for loans that are brokered through
SNMC. SNMC originated and sold 14,487 ($2,125,995,000) and 7,403
($1,075,229,000) loans respectively for the nine months ended September 30, 2003
and 2002.
On December 23, 2002, the Company completed an asset purchase transaction with
Acadian Life Insurance Company, a Louisiana domiciled life insurance company, in
which it acquired from Acadian Life $75,000,000 in assets and $75,000,000 in
insurance reserves through its wholly owned subsidiary, Security National Life
Insurance Company, a Utah domiciled life insurance company. The acquired assets
consist primarily of approximately 275,000 funeral insurance policies in force
in the state of Mississippi. The assets were originally acquired by Acadian Life
from Gulf National Life Insurance Company ("GNLIC") on June 6, 2001, consisting
of all of GNLIC's insurance policies in force and in effect on June 1, 2001.
Results of Operations
Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30,
2002
Total revenues increased by $53,452,000, or 85.2%, to $116,221,000 for the nine
months ended September 30, 2003, from $62,769,000 for the nine months ended
September 30, 2002. Contributing to this increase in total revenues was a
$42,150,000 increase in mortgage fee income, a $7,022,000 increase in insurance
premiums and other considerations, and a $5,126,000 increase in net investment
income.
Insurance premiums and other considerations increased by $7,022,000, or 68.0%,
to $17,342,000 for the nine months ended September 30, 2003, from $10,320,000
for the comparable period in 2002. This increase was primarily due to the
additional insurance premiums from the policies acquired in the asset purchase
transaction with Acadian Life.
Net investment income increased by $5,126,000, or 60.3%, to $13,630,000 for the
nine months ended September 30, 2003, from $8,504,000 for the comparable period
in 2002. This increase was primarily attributable to the additional investment
income from the assets acquired in the asset purchase transaction with Acadian
Life.
Net mortuary and cemetery sales increased by $71,000, or 0.9%, to $8,026,000 for
the nine months ended September 30, 2003, from $7,955,000 for the comparable
period in 2002. This increase was primarily due to increased sales of cemetery
properties.
Realized gains on investments and other assets decreased by $748,000 or 100.3%,
to $(2,000) for the nine months ended September 30, 2003, from $746,000 for the
comparable period in 2002. The realized gains on investments and other assets in
2002 were from the sale of property at Lake Hills Cemetery.
Mortgage fee income increased by $42,150,000, or 121.0%, to $76,979,000 for the
nine months ended September 30, 2003, from $34,829,000 for the comparable period
in 2002. This increase was primarily attributable to a greater number of loan
originations during the nine months of 2003 due to lower interest rates
resulting in more borrowers refinancing their mortgage loans.
Total benefits and expenses were $106,790,000, or 91.9%, of total revenues for
the nine months ended September 30, 2003, as compared to $59,417,000, or 94.7%,
of total revenues for the comparable period in 2002.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $6,893,000, or 73.6%, to
$16,263,000 for the nine months ended September 30, 2003, from $9,370,000 for
the comparable period in 2002. This increase was primarily due to the additional
death benefits, surrenders and other policy benefits from the policies acquired
in the asset purchase transaction with Acadian Life.
Amortization of deferred policy acquisition costs and cost of insurance acquired
increased by $1,288,000, or 55.2%, to $3,622,000 for the nine months ended
September 30, 2003, from $2,334,000 for the comparable period in 2002. This
increase was primarily due to the additional amortization of deferred policy
acquisition costs and cost of insurance acquired from the additional policies
acquired in the asset purchase transaction with Acadian Life.
General and administrative expenses increased by $36,891,000, or 81.6%, to
$82,075,000 for the nine months ended September 30, 2003, from $45,184,000 for
the comparable period in 2002. This increase primarily resulted from an increase
in commissions and other expenses due to additional mortgage loan originations
having been made by the Company's mortgage subsidiary during the nine months of
2003.
Interest expense increased by $2,117,000, or 208.8%, to $3,131,000 for the nine
months ended September 30, 2003, from $1,014,000 for the comparable period in
2002. This increase was primarily due to additional warehouse lines of credit
required for the additional mortgage loan originations by the Company's mortgage
subsidiary.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$184,000, or 12.1%, to $1,699,000 for the nine months ended September 30, 2003,
from $1,515,000 for the comparable period in 2002. This increase was primarily
due to increased costs of funeral products.
Third Quarter of 2003 Compared to Third Quarter of 2002
Total revenues increased by $12,355,000, to $37,875,000 for the three months
ended September 30, 2003, from $25,520,000 for the three months ended September
30, 2002. Contributing to this increase in total revenues was a $8,078,000
increase in mortgage fee income, a $2,124,000 increase in insurance premiums and
other considerations, and a $2,212,000 increase in net investment income.
Insurance premiums and other considerations increased by $2,124,000, or 58.6%,
to $5,752,000 for the three months ended September 30, 2003, from $3,628,000 for
the comparable period in 2002. This increase was primarily due to the additional
insurance premiums from the policies acquired in the asset purchase transaction
with Acadian Life.
Net investment income increased by $2,212,000, or 72.5%, to $5,265,000 for the
three months ended September 30, 2003, from $3,053,000 for the comparable period
in 2002. This increase was primarily attributable to the additional investment
income from the assets acquired in the asset purchase transaction with Acadian
Life.
Net mortuary and cemetery sales increased by $13,000, or .5%, to $2,731,000 for
the three months ended September 30, 2003, from $2,718,000 for the comparable
period in 2002. This increase was primarily due to increased sales of cemetery
properties.
Mortgage fee income increased by $8,078,000, or 50.5 %, to $24,067,000 for the
three months ended September 30, 2003, from $15,989,00 for the comparable period
in 2002. This increase was primarily attributable to a greater number of loan
originations during the third quarter of 2003, due to lower interest rates
resulting in more borrowers refinancing their mortgage loans.
Total benefits and expenses were $34,284,000, or 90.5%, of total revenues for
the three months ended September 30 2003, as compared to $24,332,000, or 95.3%,
of total revenues for the comparable period in 2002.
Death benefits, surrenders and other policy benefits, and increase in future
policy benefits increased by an aggregate of $2,044,000, or 62.6%, to $5,311,000
for the three months ended September 30, 2003, from $3,267,000 for the
comparable period in 2002. This increase was primarily due to the additional
death benefits, surrenders and other policy benefits from the policies acquired
in the asset purchase transaction with Acadian Life.
Amortization of deferred policy acquisition costs and cost of insurance acquired
increased by $787,000 or 139.2%, to $1,353,000 for the three months ended
September 30, 2003, from $566,000 for the comparable period in 2002. This
increase was primarily due to the additional amortization of deferred policy
acquisition costs and cost of insurance acquired from the additional policies
acquired in the asset purchase transaction with Acadian Life.
General and administrative expenses increased by $6,240,000, or 32.0%, to
$25,713,000 for the three months ended September 30, 2003, from $19,473,000 for
the comparable period in 2002. This increase primarily resulted from an increase
in commissions and other expenses due to additional mortgage loan originations
having been made by the Company's mortgage subsidiary during the second quarter
of 2003.
Interest expense increased by $840,000, or 171.2%, to $1,332,000 for the three
months ended September 30, 2003, from $491,000 for the comparable period in
2002. This increase was primarily due to additional warehouse lines of credit
required for the additional mortgage loan originations by the Company's mortgage
subsidiary.
Cost of goods and services sold of the mortuaries and cemeteries increased by
$40,000, or 7.5%, to $575,000 for the three months ended September 30, 2003,
from $535,000 for the comparable period in 2002. This increase was primarily due
to the increase in the cost of merchandise of funeral products.
Liquidity and Capital Resources
The Company's life insurance subsidiaries and cemetery and mortuary subsidiaries
realize cash flow from premiums, contract payments and sales on personal
services rendered for cemetery and mortuary business, from interest and
dividends on invested assets, and from the proceeds from the maturity of
held-to-maturity investments, or sale of other investments. The mortgage
subsidiary realizes cash flow from fees generated by originating and refinancing
mortgage loans and interest earned on mortgages sold to investors. The Company
considers these sources of cash flow to be adequate to fund future policyholder
and cemetery and mortuary liabilities, which generally are long-term, and
adequate to pay current policyholder claims, annuity payments, expenses on the
issuance of new policies, the maintenance of existing policies, debt service,
and operating expenses.
The Company attempts to match the duration of invested assets with its
policyholder and cemetery and mortuary liabilities. The Company may sell
investments other than those held-to-maturity in the portfolio to help in this
timing; however, to date, that has not been necessary. The Company purchases
short-term investments on a
temporary basis to meet the expectations of short-term requirements of the
Company's products. The Company's investment philosophy is intended to provide a
rate of return, which will persist during the expected duration of policyholder
and cemetery and mortuary liabilities regardless of future interest rate
movements.
The Company's investment policy is to invest predominantly in fixed maturity
securities, mortgage loans, and warehouse mortgage loans on a short-term basis
before selling the loans to investors in accordance with the requirements and
laws governing the life insurance subsidiaries. Bonds owned by the life
insurance subsidiaries amounted to $51,351,000 as of September 30, 2003,
compared to $51,530,000 as of December 31, 2002. This represents 49% and 51% of
the total insurance-related investments as of September 30, 2003, and December
31, 2002, respectively. Generally, all bonds owned by the life insurance
subsidiaries are rated by the National Association of Insurance Commissioners.
Under this rating system, there are six categories used for rating bonds. At
September 30, 2003 and December 31, 2002, 3% ($1,785,000) and 4% ($1,903,000) of
the Company's total investment in bonds were invested in bonds in rating
categories three through six, which are considered non-investment grade.
The Company has classified certain of its fixed income securities, including
high-yield securities, in its portfolio as available for sale, with the
remainder classified as held to maturity. However, in accordance with Company
policy, any such securities purchased in the future will be classified as held
to maturity. Business conditions, however, may develop in the future which may
indicate a need for a higher level of liquidity in the investment portfolio. In
that event the Company believes it could sell short-term investment grade
securities before liquidating higher-yielding longer-term securities.
The Company has a substantial portion of its assets invested in cash, short-term
investments and mortgage loans sold to investors. If market conditions were to
change so that rates for these investments were to decline or if these
investments and higher yielding long-term investments were not available, the
Company's interest rate spread (excess interest earned over interest credited to
policyholders) would be adversely affected and could result in significant
decreases in the Company's overall profitability or losses.
The Company is subject to risk based capital guidelines established by statutory
regulators requiring minimum capital levels based on the perceived risk of
assets, liabilities, disintermediation, and business risk. At September 30,
2003, and December 31, 2002, the life insurance subsidiary exceeded the
regulatory criteria.
The Company's total capitalization of stockholders' equity and bank debt and
notes payable was $54,852,000 as of September 30, 2003, as compared to
$53,787,000 as of December 31, 2002. Stockholders' equity as a percent of
capitalization increased to 66% as of September 30, 2003, from 64% as of
December 31, 2002.
Lapse rates measure the amount of insurance terminated during a particular
period. The Company's lapse rate for life insurance in 2002 was 10.7% as
compared to a rate of 13.2% for 2001. The 2003 lapse rate has been approximately
the same as 2002.
At September 30, 2003, $23,355,000 of the Company's consolidated stockholders'
equity represents the statutory stockholders' equity of the Company's life
insurance subsidiaries. The life insurance subsidiaries cannot pay a dividend to
its parent company without the approval of insurance regulatory authorities.
Item 3. Quantitative and Qualitative Disclosure of Market Risk
There have been no significant changes since the annual report Form 10-K filed
for the year ended December 31, 2002.
Item 4. Controls and Procedures
The Company's Chief Executive Officer and its Chief Financial Officer (the
"Certifying Officers"), are responsible for establishing and maintaining
disclosure controls and procedures for the Company. The Certifying Officers have
concluded (based on their evaluation of these controls and procedures as of a
date within 90 days of the filing of this report) that the design and operation
of the Company's disclosure controls and procedures (as defined in Rule
13a-14(c) under the Securities Exchange Act of 1934) are effective. No
significant changes were made in the Company's internal controls or in other
factors that could significantly affect those controls subsequent to the date of
the evaluation, including any corrective actions with regard to significant
deficiencies and material weaknesses.
Part II Other Information:
Item 1. Legal Proceedings
An action was brought against the Company in May 2001, by Glenna Brown Thomas
individually and as personal representative of the Estate of Lynn W. Brown in
the Third Judicial Court, Salt Lake County, Utah. The action asserts that
Memorial Estates delivered to Lynn W. Brown six stock certificates representing
2,000 shares in 1970 and 1971. Mr. Brown died in 1972. It is asserted that at
the time the 2,000 shares were issued and outstanding, such represented a 2%
ownership of Memorial Estates. It is alleged Mr. Brown was entitled to
preemptive rights and that after the issuance of the stock to Mr. Brown there
were further issuances of stock without providing written notice to Mr. Brown or
his estate with respect to an opportunity to purchase more stock. It is asserted
among other things that the plaintiff "has the right to a transfer of Brown's
shares to Thomas on defendants' (which includes Security National Financial
Corporation as well as Memorial Estates, Inc.) books and to restoration of
Brown's proportion of share ownership in Memorial at the time of his death by
issuance and delivery to Thomas of sufficient shares of defendant's publicly
traded and unrestricted stock in exchange for the 2,000 shares of Memorial stock
and payment of all dividends from the date of Thomas's demand, as required by
Article XV of the Articles of Incorporation." The formal discovery cutoff is
January 15, 2004. Based on present information, the Company intends to
vigorously defend the matter, including an assertion that the statute of
limitations bars the claims.
An action was brought against Southern Security Life Insurance Company by
National Group Underwriters, Inc. ("NGU") in state court in the State of Texas.
The case was removed by the Company to the United States District Court for the
Northern District of Texas, Fort Worth Division, with Civil No. 4:01-CV-403-E.
An Amended Complaint was filed on or about July 18, 2001. The Amended Complaint
asserted that NGU had a contract with the Company wherein NGU would submit
applications for certain policies of insurance to be issued by the Company. It
alleged that disputes had arisen between NGU and the Company with regard to the
calculation and payment of certain advanced commissions as well as certain
production bonuses.
NGU alleged that it had been damaged far in excess of the $75,000 minimum
jurisdictional limits of the Federal Court. NGU also sought attorney's fees and
costs as well as prejudgment and postjudgment interest. A second amended
complaint and a third amended complaint, which included a fraud claim, were
filed. A motion was filed by the Company to dismiss the third amended complaint,
including the fraud claim. The court denied the motion. The Company
counterclaimed for what it claimed to be a debit balance owing to it pursuant to
the relationship between the parties with said counterclaim seeking such from
NGU (the amount subject to reduction as premiums are received). The Company also
sought to recover attorney's fees and costs, as well as punitive damages on
three of its causes of action. Certain discovery took place. The federal case
was dismissed per stipulation. The matter was refiled in Texas state court,
Tarrant County, Case No. 348 195490 02. The claims of the respective parties are
essentially the same as set forth above, which claims against Southern Security
Life Insurance Company include fraudulent inducement relative to entering into a
contract, fraud, breach of contract, breach of duty of good faith and fair
dealing, attorneys' fees and exemplary damages. Certain depositions have been
taken since the filing again in state court and further discovery is
anticipated. The Company intends to vigorously defend the matter as well as
prosecute its counterclaim. A trial is presently set for July, 2004.
The Company is not a party to any other legal proceedings outside the ordinary
course of the Company's business or to any other legal proceedings, which, if
adversely determined, would have a material adverse effect on the Company or its
business.
Item 2. Changes in Securities
NONE
Item 3. Defaults Upon Senior Securities
NONE
Item 4. Submission of Matters to a Vote of Security Holders
At the annual stockholders meeting held on July 11, 2003, the
following matters were acted upon: (i) seven directors consisting
of George R. Quist, J. Lynn Beckstead, Jr., Scott M. Quist,
Charles L. Crittenden, Dr. Robert G. Hunter, H. Craig Moody and
Norman G. Wilbur were elected to serve until the next annual
stockholders meeting or until their respective successors are
elected and qualified (for George R. Quist, Class A and Class C
shares, 9,065,935 votes were cast in favor of election, no votes
were cast against election and there were 13,542 abstentions; for
J. Lynn Beckstead, Jr., Class A shares only, 3,594,399 votes were
cast in favor of election, no votes were cast against election
and there were 87,757 abstentions; for Scott M. Quist, Class A
and Class C shares, 9,066,826 votes were cast in favor of
election, no votes were cast against election and there were
12,651 abstentions; for Charles L. Crittenden, Class A shares
only, 3,675,477 votes were cast in favor of election and no votes
were cast against election and there were 6,552 abstentions; for
Dr. Robert G. Hunter, Class A and Class C shares, 9,067,239 votes
were cast in favor of election, no votes cast against election
and there were 12,238 abstentions; for H. Craig Moody, Class A
and C shares, 9,067,174 votes were cast in favor of election, no
votes cast against election and there were 12,303 abstentions;
for Norman G. Wilbur, Class A and Class C shares, 9,067,239 votes
were cast in favor of election, no votes were cast against
election and there were 12,238 abstentions; (ii) the appointment
of Tanner + Co., as the Company's independent accountants for the
fiscal year ended December 31, 2003, was ratified (with 9,039,595
votes cast for appointment, 9,173 votes against appointment and
24,207 abstentions); and (iii) adoption of the 2003 Stock Option
Plan and the reservation of 500,000 shares of Class A Common
Stock and 1,000,000 shares of Class C Common Stock was ratified
(with 7,772,537 votes cast for adoption, 300,330 votes cast
against adoption and 15,071 abstentions).
Item 5. Other Information
NONE
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1. Articles of Restatement of Articles of Incorporation (8)
3.2. Amended Bylaws
4.1. Specimen Class A Stock Certificate (1) 4.2. Specimen Class C Stock
Certificate (1)
4.3 Specimen Preferred Stock Certificate and Certificate of Designation
of Preferred Stock (1)
10.1 Restated and Amended Employee Stock Ownership Plan and Trust
Agreement (1)
10.2 1993 Stock Option Plan (3)
10.3 2000 Director Stock Option Plan (5)
10.4 2003 Stock Option Plan (10)
10.5 Deferred Compensation Agreement with George R. Quist (2)
10.6 Employment Agreement with Scott M. Quist. (4)
10.7 Promissory Note with George R. Quist (6)
10.8 Deferred Compensation Plan (7)
10.9 Coinsurance Agreement between Security National Life and
Acadian (8)
10.10 Assumption Agreement among Acadian, Acadian Financial Group,
Inc., Security National Life and the Company (8)
10.11 Asset Purchase Agreement between Acadian, Acadian Financial
Group, Inc., Security National Life and the Company (8)
10.12 Promissory Note with Key Bank of Utah (9)
10.13 Loan and Security Agreement with Key Bank of Utah (9)
10.14 Stock Purchase and Sale Agreement with Ault Glazer & Co.
Investment Management LLC
31.1 Certification pursuant to 18 U.S.C. Section 1350 as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification pursuant to 18 U.S.C. Section 1350 as enacted by
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Incorporated by reference from Registration Statement on Form
S-1, as filed on June 29, 1987.
(2) Incorporated by reference from Annual Report on Form 10-K, as
filed on March 31, 1989.
(3) Incorporated by reference from Annual Report on Form 10-K, as
filed on March 31, 1994.
(4) Incorporated by reference from Annual Report on Form 10-K, as
filed on March 31, 1998.
(5) Incorporated by reference from Schedule 14A Definitive
Proxy Statement, filed August 29, 2000, relating to the
Company's Annual Meeting of Shareholders.
(6) Incorporated by reference from Annual Report on Form 10-K,
as filed on April 16, 2001.
(7) Incorporated by reference from Annual Report on Form 10-K, as
filed on April 3, 2002.
(8) Incorporated by reference from Report on Form 8-K-A as filed
on January 8, 2003.
(9) Incorporated by reference from Annual Report on Form 10-K, as
filed on April 15, 2003.
(10) Incorporated by reference from Schedule 14A Definitive
Proxy Statement, Filed on June 5, 2003, relating to the
Company's Annual Meeting of Shareholders.
Subsidiaries of the Registrant
(b) Reports on Form 8-K:
No Current Report on Form 8-K was filed by the Company during the
quarter ended September 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT
SECURITY NATIONAL FINANCIAL CORPORATION
Registrant
DATED: November 14, 2003 By: George R. Quist,
----------------
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
DATED: November 14, 2003 By: Stephen M. Sill
---------------
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ENACTED BY SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, George R. Quist, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Security National
Financial Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly report is
being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: November 14, 2003 By: George R. Quist
Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer)
EXHIBIT 31.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ENACTED BY SECTION 302 OF
THE SARBANES-OXLEY ACT OF 2002
I, Stephen M. Sill, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Security National
Financial Corporation.
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our supervision, to
ensure that material information relating to the small business issuer,
including its consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this quarterly report is
being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
(c) Disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the registrant's most
recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant's internal control over financial reporting;
and
5. The registrant's other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or
operation of internal controls over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process,
summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal control over
financial reporting.
Date: November 14, 2003 By: Stephen M. Sill
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and
Accounting Officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10Q for the period ending September 30,
2003, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, George R. Quist, Chief Executive Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and (2) the information
contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
George R. Quist
Chief Executive Officer
November 14, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Security National Life Insurance
Company and will be retained by Security National Life Insurance Company and
furnished to the Securities and Exchange Commission or its staff upon request.
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. ss. 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Security National Financial
Corporation (the "Company") on Form 10Q for the period ending September 30,
2003, as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), I, Stephen M. Sill, Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge and belief:
(1) the Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and (2) the information
contained in the Report fairly presents, in all material respects, the
financial condition and result of operations of the Company.
Stephen M. Sill
Chief Financial Officer
November 14, 2003
A signed original of this written statement required by Section 906, or other
document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement
required by Section 906, has been provided to Security National Life Insurance
Company and will be retained by Security National Life Insurance Company and
furnished to the Securities and Exchange Commission or its staff upon request.
AMENDED BYLAWS
OF
SECURITY NATIONAL FINANCIAL CORPORATION
AMENDED BYLAWS OF
SECURITY NATIONAL FINANCIAL CORPORATION
Table Of Contents
Page
ARTICLE 1 CORPORATE OFFICES.........................................1
1.1 Business Office...........................................1
1.2 Registered Office.........................................1
ARTICLE 2 SHAREHOLDERS..............................................1
2.1 Annual Meeting............................................1
2.2 Special Meetings..........................................1
2.3 Place of Meetings.........................................1
2.4 Notice of Meetings........................................2
2.5 Fixing of Record Date.....................................2
2.6 Voting List...............................................2
2.7 Shareholder Quorum and Voting Requirements................2
2.8 Proxies...................................................3
2.9 Voting Shares.............................................3
2.10 Shareholder Action Without a Meeting......................3
2.11 Waiver....................................................3
ARTICLE 3 BOARD OF DIRECTORS........................................3
3.1 General Powers............................................3
3.2 Number of Directors and Qualification.....................4
3.3 Election and Term of Office...............................4
3.4 Chairman of the board of directors........................4
3.5 Regular Meetings..........................................4
3.6 Special Meetings..........................................4
3.7 Notice....................................................4
3.8 Quorum....................................................5
3.9 Manner of Acting..........................................5
3.10 Vacancies and Newly-Created Directorships.................5
3.11 Fees and Compensation.....................................5
3.12 Presumption of Assent.....................................5
3.13 Resignations..............................................6
3.14 Action by Written Consent.................................6
3.15 Meetings by Telephone Conference Call.....................6
3.16 Removal of Directors......................................6
i
Table of Contents, Con't.
Page
ARTICLE 4 COMMITTEES................................................6
4.1 Committees................................................6
4.2 Procedures, Meetings and Quorum...........................7
ARTICLE 5 OFFICERS..................................................7
5.1 Officers..................................................7
5.2 Appointment, Term of Office and Qualification.............7
5.3 Resignations..............................................7
5.4 Removal...................................................8
5.5 Vacancies and Newly-Created Offices.......................8
5.6 President.................................................8
5.7 Vice Presidents...........................................8
5.8 Secretary.................................................8
5.9 Treasurer.................................................9
5.10 Assistant Secretaries and Treasurers......................9
5.11 Salaries..................................................9
5.12 Surety Bonds..............................................9
ARTICLE 6 EXECUTION OF INSTRUMENTS, BORROWING OF MONEY
AND DEPOSIT OF CORPORATE FUNDS 10
6.1 Instruments.............................................10
6.2 Loans...................................................10
6.3 Deposits................................................10
6.4 Checks, Drafts, etc.....................................10
6.5 Bonds and Debentures....................................10
6.6 Sale, Transfer, etc., of Securities.....................11
6.7 Proxies.................................................11
ARTICLE 7 CAPITAL STOCK...........................................11
7.1 Stock Certificates......................................11
7.2 Shares Without Certificates.............................12
7.3 Transfer of Stock.......................................12
7.4 Restrictions on Transfer or Registration of Shares......12
7.5 Regulations.............................................12
7.6 Transfer Agents and Registrars..........................12
7.7 Lost or Destroyed Certificates..........................13
7.8 Consideration for Shares................................13
ARTICLE 8 INDEMNIFICATION.........................................13
8.1 Indemnification.........................................13
8.2 Certain Restrictions on Indemnification.................13
ii
Table of Contents, Con't
Page
8.3 Mandatory Indemnification...............................13
8.4 Determination...........................................14
8.5 General Indemnification.................................14
8.6 Advances................................................14
8.7 Scope of Indemnification................................14
8.8 Insurance...............................................15
ARTICLE 9 FISCAL YEAR.............................................15
ARTICLE 10 DIVIDENDS...............................................15
ARTICLE 11 AMENDMENTS..............................................15
ARTICLE 12 CONTROL SHARES ACQUISITIONS ACT.........................16
12.1 Shares Subject to Redemption............................16
12.2 Dissenter's Rights......................................16
iii
AMENDED BYLAWS
OF
SECURITY NATIONAL FINANCIAL CORPORATION
ARTICLE 1
CORPORATE OFFICES
1.1 Business Office . The principal office of the Corporation shall be located
at such place within the state of Utah, as may be determined by the Board of
Directors. The Corporation may have such other offices, either within or without
the state of Utah as the Board of Directors may designate or as the business of
the Corporation may require from time to time.
1.2 Registered Office . The registered office of the Corporation shall be
located within the state of Utah and may be, but need not be, identical with the
principal office (if located within the state of Utah). The address of the
registered office may be changed from time to time by the Board of Directors.
ARTICLE 2
SHAREHOLDERS
2.1 Annual Meeting . The annual meeting of shareholders shall be held each year
on a date and at a time designated by the Board of Directors. At the meeting,
directors shall be elected and any other proper business may be transacted. If
the election of directors shall not be held on the day designated for the annual
meeting of the shareholders, or at any adjournment thereof, the Board of
Directors shall cause the election to be held at a special meeting of the
shareholders.
2.2 Special Meetings . Special meetings of the shareholders may be called at any
time by the chairman of the board, by the President, or by the Board of
Directors. Special meetings of the shareholders may also be called by the
holders of shares representing at least ten percent of all the votes entitled to
be cast on any issue proposed to be considered at the proposed special meeting
by delivery of one or more signed and dated written demands for the meeting,
stating the purpose or purposes for which it is to be held to the Corporation's
Secretary or other designated officer.
2.3 Place of Meetings . Meetings of shareholders may be held at any place within
or outside the state of Utah as designated by the Board of Directors. In the
absence of any such designation, meetings shall be held at the principal office
of the Corporation.
1
2.4 Notice of Meetings . Written or printed notice stating the place, date, and
hour of the meeting, and in case of a special meeting, the purpose or purposes
for which the meeting is called, shall be given not less than ten nor more than
60 days before the date of the meeting, either personally, by facsimile, mail,
or express courier by or at the direction of the chairman of the Board of
Directors, the President, the Secretary, or the officer or person(s) calling the
meeting, to each shareholder of record entitled to vote at such meeting or to
any other shareholder entitled by the Utah Revised Business Corporation Act (the
"Revised Act") or the Corporation's articles of incorporation to receive notice
of the meeting.
2.5 Fixing of Record Date . For the purpose of determining shareholders of any
voting group entitled to notice of or to vote at any meeting of shareholders, or
shareholders entitled to take action without a meeting, or shareholders entitled
to receive payment of any distribution or dividend, or in order to make a
determination of shareholders for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. Such record date shall
not be more than 70 days prior to the date on which the particular action
requiring such determination of the shareholders is to be taken. If no record
date is so fixed by the Board of Directors, the record date for determination of
such shareholders shall be determined in accordance with the Revised Act.
2.6 Voting List . Unless otherwise directed by the Board of Directors, the
Secretary of the Corporation shall prepare a list of the names of all of the
shareholders who are entitled to be given notice of the meeting. The list shall
be arranged by voting group, and within each voting group by class or series of
shares. The list shall be alphabetical within each class or series and must show
the address of, and the number of shares held by, each shareholder. The
shareholder list must be made available for inspection by any shareholder in
accordance with the Revised Act.
2.7 Shareholder Quorum and Voting Requirements. If the Corporation's articles of
incorporation or the Revised Act provide for voting by a single voting group on
a matter, action on that matter is taken when voted upon by that voting group.
If the articles of incorporation or the Revised Act provide for voting by two or
more voting groups on a matter, action on that matter is taken only when voted
upon by each of those voting groups counted separately. One voting group may
vote on a matter even though another voting group entitled to vote on the matter
has not voted.
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to that
matter. Unless the articles of incorporation, these amended bylaws or the
Revised Act provide otherwise, a majority of the votes entitled to be cast on
the matter by the voting group constitutes a quorum of that voting group for
action on that matter.
Once a share is represented for any purpose at a meeting, including the
purpose of determining that a quorum exists, it is deemed present for quorum
purposes for the remainder of the meeting and for any adjournment of that
meeting unless a new record date is or must be set for the adjourned meeting.
If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action, unless the
articles of incorporation, these amended bylaws, or the Revised Act require a
greater number of affirmative votes.
2
2.8 Proxies . At all meetings of shareholders, a shareholder may vote in person,
or vote by a proxy that is executed by the shareholder or that is executed by
the shareholder's duly authorized agent or attorney-in-fact, or by an electronic
transmission containing or accompanied by information that indicates that the
shareholder, or the shareholders duly authorized agent or attorney-in-fact
authorized the transmission. Such proxy shall be filed with the Secretary of the
Corporation, the inspector of election, or any other person authorized to
tabulate votes before or at the time of the meeting. No proxy shall be valid
after eleven months from the date of its execution unless otherwise provided in
the proxy.
2.9 Voting Shares . Each outstanding share, regardless of class, and except as
otherwise required by the Revised Act, shall be entitled to one vote, and each
fractional share is entitled to a corresponding fractional vote, on each matter
submitted to a vote at a meeting of the shareholders, except to the extent that
the voting rights of the shares of any class or classes are limited or denied by
the articles of incorporation of this Corporation as permitted by the Revised
Act.
Redeemable shares are not entitled to vote after notice of redemption is
mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company, or other financial institution under an
irrevocable obligation to pay the holders the redemption price upon surrender of
the shares.
Unless the articles of incorporation of this Corporation provide otherwise,
at each election for directors, every shareholder entitled to vote at such
election shall have the right to vote, in person or by proxy, all of the votes
to which the shareholder's shares are entitled for as many persons as there are
directors to be elected and for whose election such shareholder has a right to
vote.
2.10 Shareholder Action Without a Meeting . Any action required to be taken at a
meeting of the shareholders, or any other action that may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken, is signed by all the shareholders entitled to
vote with respect to the subject matter thereof.
2.11 Waiver. A shareholder may waive any required notice in accordance with the
Revised Act.
ARTICLE 3
BOARD OF DIRECTORS1
3.1 General Powers . All corporate powers shall be exercised by or under the
authority of, and the business and affairs of the Corporation shall be managed
under the direction of, the Board of Directors, subject to any limitation set
forth in the articles of incorporation or in a shareholder's agreement
authorized under the Revised Act.
3
3.2 Number of Directors and Qualification . The initial authorized number of
directors shall be not less than five nor more than twelve unless otherwise
specified from time to time by resolution of the Board of Directors, but shall
not be less than three unless the number of shareholders of the Corporation is
less than three, in which event the Corporation may have a number of directors
equal to or greater than the number of shareholders. Directors need not be
residents of the state of Utah. Every person elected to be a director who, after
such election, shall cease to be a shareholder, shall cease to be a director and
his office shall then become vacant.
3.3 Election and Term of Office . Directors shall be elected at each annual
meeting of the shareholders to hold office until the next succeeding annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which elected and until a
successor has been elected and qualified. No decrease in the authorized number
of directors shall have the effect of shortening the term of any incumbent
director.
3.4 Chairman of the Board of Directors . The Board of Directors may elect a
Chairman of the Board of Directors, which person shall at all times be a
director. The Chairman of the Board of Directors, if such a person is elected,
shall, if present, preside at meetings of the Board of Directors and exercise
and perform such other powers and duties as may from time to time be assigned to
him by the Board of Directors or as may be prescribed by these amended bylaws.
Unless otherwise restricted by law, the Chairman of the Board of Directors may
also be given the duties of an officer of the Corporation, as well as serve as
an officer, as determined by the Board of Directors. The period(s) of service by
the Chairman of the Board of Directors shall be determined by the Board of
Directors. In the absence of the Chairman of the Board of Directors, if elected,
the Board of Directors may appoint another member of the Board of Directors to
conduct the meeting(s) of the Board of Directors.
3.5 Regular Meetings . The Board of Directors may provide by resolution the time
and place, either within or without the state of Utah, for the holding of
regular meetings without notice other than such resolution.
3.6 Special Meetings . Special meetings of the Board of Directors for any
purpose or purposes may be called at any time by or at the request of the
Chairman of the Board of Directors, the President, or any two directors. The
person or persons authorized to call special meetings of the Board of Directors
may fix any place, either within or without the state of Utah, as the place for
holding any special meeting of the Board of Directors.
3.7 Notice . Notice of the date, time, and place of any special meeting of the
Board of Directors shall be delivered personally or by telephone to each
director or sent by mail, express courier, or facsimile, charges prepaid,
addressed to each director at that director's address as it is shown on the
records of the Corporation. If the notice is mailed, it shall be deposited in
the United States mail at least five days before the time of the holding of the
meeting. If the notice is delivered personally, by express courier, or by
telephone, facsimile, telegraph or electronic mail, it shall be delivered at
least 48 hours before the meeting begins. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the
office of the director who the person giving notice has reason to believe will
promptly communicate it to the director. Any director may waive notice of any
meeting by delivering a written waiver to the Corporation to file in its
corporate records, and attendance of a director at a meeting shall constitute a
waiver of notice of such meeting, except where the director attends a meeting
for the express purpose of objecting to the transaction of any business because
the meeting is not lawfully called or convened and does not thereafter vote for
or consent to action taken at the meeting. Neither the business to be transacted
at, nor the purpose of, any regular or special meeting of the Board of Directors
needs to be specified in the notice or waiver of notice of such meeting.
4
3.8 Quorum . A majority of the authorized number of directors as fixed in
accordance with these amended bylaws shall constitute a quorum for the
transaction of business at any meeting of the Board of Directors, but if less
than a majority is present at a meeting, a majority of the directors present may
adjourn the meeting from time to time without further notice until a quorum
shall be present.
3.9 Manner of Acting . The act of a majority of the directors present at a
meeting at which a quorum is present shall, unless the act of a greater number
of directors is required by the articles of incorporation of the Corporation or
these amended bylaws, be the act of the Board of Directors.
3.10 Vacancies and Newly-Created Directorships . Any vacancy occurring in the
Board of Directors may be filled by the affirmative vote of a majority of the
remaining directors, though less than a quorum, or by the affirmative vote of
the majority of shares entitled to vote for directors. A director elected to
fill a vacancy shall be elected for the unexpired term of his predecessor in
office. The term "vacancy" includes any directorship authorized under Section
3.2 but not filled by shareholders at the annual meeting, whether or not such
directorship had a prior encumbrance.
3.11 Fees and Compensation . Directors may receive such compensation, if any,
for their services and such reimbursement of expenses as may be fixed or
determined by resolution of the Board of Directors. This section shall not be
construed to preclude any director from serving the Corporation in any other
capacity as an officer, agent, employee, or otherwise and receiving compensation
for those services.
3.12 Presumption of Assent . A director who is present at a meeting of the Board
of Directors when corporate action is taken is considered to have consented to
the action taken at the meeting unless the director objects at the beginning of
the meeting, or promptly upon arrival, to holding the meeting or transacting
business at the meeting and does not thereafter vote for or consent to any
action taken at the meeting, or the director contemporaneously requests his
dissent or abstention as to any specific action to be entered into the minutes
of the meeting, or the director causes written notice of a dissent or abstention
as to a specific action to be received by the presiding officer of the meeting
before adjournment of the meeting or by the Corporation promptly after
adjournment of the meeting.
5
3.13 Resignations . A director may resign at any time by giving a written notice
of resignation to either the Chairman of the Board of Directors, the President,
a Vice President, or the Secretary or Assistant Secretary, if any. Unless
otherwise provided in the resignation, the resignation shall become effective
when the notice is received by an officer or director of the Corporation. If the
resignation is effective at a future time, the Board of Directors may elect a
successor to take office when the resignation becomes effective.
3.14 Action by Written Consent . Any action required to be taken at a meeting of
the Board of Directors of the Corporation or any other action that may be taken
at a meeting of the Board of Directors, may be taken without a meeting if a
consent in writing, setting forth the action so taken, is signed by all of the
directors. Such consent shall have the same legal effect as a unanimous vote of
all the directors and may be described as such in any document or instrument.
Action taken pursuant to this Section is effective when the last director signs
a writing describing the action taken, unless the Board of Directors establishes
a different effective date.
3.15 Meetings by Telephone Conference Call. Members of the Board of Directors,
or any committee designated by the Board of Directors, may participate in a
meeting of the Board of Directors or committee, as the case may be, by means of
conference telephone call or similar communications equipment by which all
persons participating in the meeting can hear each other throughout the meeting.
Participation in such a meeting shall constitute presence in person at such
meeting.
3.16 Removal of Directors. The shareholders may remove one or more directors at
a meeting called for that purpose if notice has been given that a purpose of the
meeting is such removal. The removal may be with or without cause unless the
articles of incorporation provide that directors may only be removed with cause.
If a director is elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove such
director. A director may be removed only if the number of votes cast to remove
such director exceeds the number of votes cast not to remove such director.
ARTICLE 4
COMMITTEES
4.1 Committees. The Board of Directors shall by resolution adopted by a majority
of the Board of Directors designate from among its members an audit committee
and may from time to time by resolution adopted by a majority of the Board of
Directors designate from among its members one or more committees in addition to
an audit committee, including, but not limited to, a compensation committee and
an executive committee, each of which shall have such authority of the Board of
Directors as may be specified in the resolution of the Board of Directors
designating such committee; provided, however, that any such committee so
designated shall not have any powers not allowed under the Revised Act. The
chairman of any such committee shall be designated by the Board of Directors.
Each committee must have at least three directors as members. The Board of
Directors shall have power at any time to change the members of any such
committee, designate alternate members of any such committee, and fill all
vacancies therein. Any such committee shall serve at the pleasure of the Board
of Directors.
6
4.2 Procedures, Meetings and Quorum. Meetings of any committee designated by the
Board of Directors may be held at such times and places as the chairman of such
committee shall from time to time determine. Notice of such meetings shall be
given within the same times and by the same means as set forth in these amended
bylaws for meetings of the Board of Directors. At every meeting of any such
committee, the presence of a majority of all of the members of such committee
shall be necessary for the transaction of business, and the action of any such
committee must be authorized by the affirmative vote of a majority of the
members present at such meeting at which a quorum is present. Any such committee
shall keep minutes of its proceedings, and all action by such committee shall be
reported to the Board of Directors at its meeting next succeeding such action.
ARTICLE 5
OFFICERS
5.1 Officers. Except as provided otherwise by a resolution of the Board of
Directors, the officers of the Corporation shall be a President, one or more
Vice Presidents as may be determined by resolution of the Board of Directors, a
Secretary and a Treasurer. The principal officers of the Corporation shall be
the President, Treasurer and Secretary and such offices shall be held by three
separate natural persons. The Corporation may also have, at the discretion of
the Board of Directors, one or more assistant secretaries, one or more assistant
Treasurers, and such other officers as may be appointed by the Board of
Directors. Officers need not be shareholders of the Corporation.
5.2 Appointment, Term of Office and Qualification. The officers of the
Corporation shall be appointed by, and serve at the pleasure of, the Board of
Directors, subject to any rights of an officer under any contract of employment.
Appointment of officers shall take place annually or at such other intervals as
the Board of Directors may determine, and may be made at regular or special
meetings of the Board of Directors or by the written consent of the directors.
Each officer shall hold office until his successor shall have been duly
appointed and qualified or until such officer's death, resignation, or removal
in the manner provided in these amended bylaws. No officer provided for in this
Article 5 need be a director of the Corporation nor shall any such officer be a
director unless elected a director in accordance with these amended bylaws.
5.3 Resignations. Any officer may resign at any time by delivering a written
resignation to the Board of Directors, the President, or the Secretary. Unless
otherwise specified therein, such resignation shall take effect upon such
delivery of the resignation; and, unless otherwise specified in the resignation,
the acceptance of the resignation shall not be necessary to make it effective.
Any resignation is without prejudice to the rights, if any, of the Corporation
under any contract to which the officer is a party.
7
5.4 Removal. Any officer may be removed by the Board of Directors or by a
committee, if any, if so authorized by the Board of Directors, whenever in its
judgment the best interests of the Corporation would be served thereby, but such
removal shall be without prejudice to the contract rights, if any, of the person
so removed.
5.5 Vacancies and Newly-Created Offices. A vacancy in any office may be filled
by the Board of Directors at any regular or special meeting or by the unanimous
written consent of the directors.
5.6 President. Unless the Board of Directors shall otherwise determine, the
President shall be the chief executive officer of the Corporation, and, if so
designated by resolution of the Board of Directors, shall also have the title
chief executive officer, and shall, subject to the control of the Board of
Directors, have general supervision, direction, and control of the business,
officers, employees, and agents of the Corporation. The President shall, when
present, preside at meetings of the shareholders. The President shall have the
general powers and duties of management usually vested in the office of
President of a Corporation, and shall have such other powers and duties as may
be prescribed by the Board of Directors or these amended bylaws.
5.7 Vice Presidents. In the absence or disability of the President, the Vice
Presidents, in order of their rank as fixed by the Board of Directors or, if not
ranked, a Vice President designated by the Board of Directors, shall perform all
the duties of the President and, when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the President. The Vice Presidents
shall have such other powers and perform such other duties as may from time to
time be prescribed for them by the Board of Directors, these amended bylaws, the
President, or the chairman of the Board of Directors and, unless otherwise so
prescribed, the powers and duties customarily vested in the office of Vice
President of a Corporation.
5.8 Secretary. The Secretary shall keep or cause to be kept, at the principal
executive office of the Corporation or such other place as the Board of
Directors may direct, a book of minutes of the proceedings of all meetings of,
and a record of all actions taken by, the Board of Directors or any committees
of the Board of Directors. The Secretary shall cause all notices of meetings to
be duly given in accordance with the provisions of these amended bylaws and as
required by the Revised Act.
The Secretary shall be the custodian of the corporate records and of the
seal, if any, of the Corporation. Unless otherwise required by law or by the
Board of Directors, the adoption or use of a corporate seal is not required. The
Secretary shall see that the books, reports, statements, certificates, and other
documents and records required by the Revised Act are properly kept and filed.
The Secretary shall have charge of the stock books of the Corporation and
cause the stock and transfer books to be kept in such manner as to show at any
time the amount of the stock of the Corporation of each class issued and
outstanding, the manner in which and the time when such stock was paid for, the
alphabetically arranged names and addresses of the holders of record thereof,
the number of shares held by each holder, and the time when each became a holder
of record. The Secretary shall exhibit at all reasonable times to any director,
upon application, the original or duplicate stock register. The Secretary shall
cause the stock ledger to be kept and exhibited at the principal office of the
Corporation in the manner and for the purposes provided by these amended bylaws
and the Revised Act.
The Secretary shall perform all duties incident to the office of Secretary
and such other duties as are given to him or her by law or these amended bylaws
or as from time to time may be assigned by the Board of Directors.
8
5.9 Treasurer. The Treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct books and records of accounts of the properties
and business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The Treasurer shall deposit all monies and other valuables in the name and
to the credit of the Corporation with such depositories as may be designated by
the Board of Directors. The Treasurer shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and the Board of Directors, whenever they request it, an account of
all of transactions taken as Treasurer and of the financial condition of the
Corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or these amended bylaws.
5.10 Assistant Secretaries and Treasurers. Any assistant secretaries or
assistant Treasurers elected by the Board of Directors shall perform such of the
duties of the Secretary or the Treasurer, respectively, as may be assigned to
them by the officers they are elected to assist, or as may otherwise be
prescribed for them by the Board of Directors.
5.11 Salaries. The salaries or other compensation of the officers of the
Corporation shall be fixed from time to time by the Board of Directors, except
that the Board of Directors may delegate to any person or group of persons the
power to fix the salaries or other compensation of any officers. No officer
shall be prevented from receiving any such salary or compensation by reason of
the fact that he is also a director of the Corporation.
5.12 Surety Bonds. In the event the Board of Directors shall so require, any
officer or agent of the Corporation shall provide the Corporation with a bond,
in such sum and with such surety or sureties as the Board of Directors may
direct, conditioned upon the faithful performance of his or her duties to the
Corporation, including responsibility for negligence and for the accounting of
all property, monies, or securities of the Corporation that may come under his
or her responsibility.
9
ARTICLE 6
EXECUTION OF INSTRUMENTS, BORROWING OF MONEY
AND DEPOSIT OF CORPORATE FUNDS
6.1 Instruments. The Board of Directors may authorize any officer, agent, or
agents, to enter into any contract or execute and deliver any instrument in the
name of, and on behalf of, the Corporation, and such authority may be general or
confined to specific instances.
6.2 Loans . No loan to the Corporation shall be contracted, no negotiable paper
or other evidence of its obligation under any loan to the Corporation shall be
issued in its name, and no property of the Corporation shall be mortgaged,
pledged, hypothecated, transferred, or conveyed as security for the payment of
any loan, advance, indebtedness, or liability of the Corporation, unless and
except as authorized by the Board of Directors. Any such authorization may be
general or confined to specific instances.
6.3 Deposits. All monies of the Corporation not otherwise employed shall be
deposited from time to time to its credit in such banks or trust companies or
with such bankers or other depositories as the Board of Directors may select, or
as from time to time may be selected by any officer or agent authorized so to do
by the Board of Directors.
6.4 Checks, Drafts, etc. All checks, drafts, acceptances, notes, endorsements,
and, subject to the provisions of these amended bylaws, evidences of
indebtedness of the Corporation shall be signed by such officer or officers or
such agent or agents of the Corporation and in such manner as the Board of
Directors from time to time may determine. Endorsements for deposit to the
credit of the Corporation in any of its duly authorized depositories shall be in
such manner as the Board of Directors from time to time may determine.
6.5 Bonds and Debentures . Every bond or debenture issued by the Corporation
shall be evidenced by an appropriate instrument signed by the President or a
Vice President and by the Secretary. Where such bond or debenture is
authenticated with the manual signature of an authorized officer of the
Corporation or other trustee designated by the indenture of trust or other
agreement under which such security is issued, the signature of any of the
Corporation's officers named thereon may be a facsimile. In case any officer who
signed, or whose facsimile signature has been used on any such bond or
debenture, shall cease to be an officer of the Corporation for any reason before
the same has been delivered by the Corporation, such bond or debenture may
nevertheless be adopted by the Corporation and issued and delivered as though
the person who signed it or whose facsimile signature has been used thereon had
not ceased to be such officer.
10
6.6 Sale, Transfer, etc., of Securities. Sales, transfers, endorsements, and
assignments of shares of stock, bonds, and other securities owned by or standing
in the name of the Corporation and the execution and delivery on behalf of the
Corporation of any and all instruments in writing incident to any such sale,
transfer, endorsement, or assignment, shall be effected by the President, or by
any Vice President, together with the Secretary, or by any officer or agent
thereunto authorized by the Board of Directors.
6.7 Proxies. Proxies to vote with respect to shares of stock of other
Corporations owned by or standing in the name of the Corporation shall be
executed and delivered on behalf of the Corporation by the President or any Vice
President and the Secretary of the Corporation or by any officer or agent
thereunto authorized by the Board of Directors.
ARTICLE 7
CAPITAL STOCK
7.1 Stock Certificates. The shares of the Corporation may, but need not be,
represented by certificates. If the shares are represented by certificates, the
certificates shall be signed by two officers as designated by the Board of
Directors, or in the absence of such designation, any two of the following
officers: the President, any Vice President, the Secretary, or any assistant
Secretary of the Corporation. The signatures of the designated officers upon a
certificate may be facsimiles if the certificate is countersigned by a transfer
agent, or registered by a registrar, other than the Corporation itself or an
employee of the Corporation. In case any officer who has signed or whose
facsimile signature has been placed upon such certificate shall have ceased to
be such officer before such certificate is issued, it may be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue.
If the Corporation is authorized to issue different classes of shares or a
different series within a class, the designations, preferences, limitations, and
relative rights applicable to each class, the variations in preferences,
limitations, and relative rights determined for each series, and the authority
of the Board of Directors to determine variations for any existing or future
class or series, must be summarized on the front or back of each share
certificate. Alternatively, each certificate may state conspicuously on its
front or back that the Corporation will furnish the shareholder this information
on request in writing, without charge.
Each certificate representing shares shall also state upon the face thereof:
(a) The name of the issuing Corporation and that it is organized under the
laws of the state of Utah.
(b) The name of the person to whom the certificate is issued.
(c) The number and class of shares, and the designation of the series, if
any, which such certificate represents.
There shall be entered upon the stock transfer books of the Corporation at
the time of issuance of each share, the number of the certificate issued, the
name and address of the person owning the shares represented thereby, the number
and kind, class, or series of such shares, and the date of issuance thereof.
Every certificate exchanged or returned to the Corporation shall be marked
"Cancelled" with the date of cancellation. Unless otherwise required by the
Revised Act, or by the Board of Directors in accordance with applicable law, the
foregoing with respect to shares does not affect shares already represented by
certificates.
11
7.2 Shares Without Certificates . The Board of Directors may authorize the
issuance of some or all of the shares of any or all of the classes or series of
the Corporation's stock without certificates. The authorization does not affect
shares already represented by certificates until they are surrendered to the
Corporation. Within a reasonable time after the issuance or transfer of shares
without certificates, the Corporation shall send the shareholder a written
statement of the information required on certificates as stated in Section 7.1
of these amended bylaws.
7.3 Transfer of Stock . Transfers of stock shall be made only upon the stock
transfer books of the Corporation kept at the principal office of the
Corporation or by the transfer agent(s) designated to transfer shares of the
stock of the Corporation. Except where a certificate is issued in replacement of
a lost or destroyed certificate as provided in these amended bylaws, an
outstanding certificate for the number of shares involved shall be surrendered
for cancellation before a new certificate is issued therefor. Except as
otherwise provided by law, the Corporation and the transfer agent(s) and
registrar(s), if any, shall be entitled to treat the holder of record of any
share or shares of stock as the absolute owner thereof for all purposes and,
accordingly, shall not be bound to recognize any legal, equitable, or other
claim to or interest in such share or shares on the part of any other person
whether or not it or they shall have express or other notice thereof.
7.4 Restrictions on Transfer or Registration of Shares . The Board of Directors
may, as they may deem expedient, impose restrictions on the transfer or
registration of transfer of shares of the Corporation. The restriction does not
affect shares issued before the restriction was adopted unless the holders of
the shares are parties to the restriction agreement or voted in favor of the
restriction or otherwise consented to the restriction.
The restriction on the transfer or registration of transfer of shares is
valid and enforceable against the holder or a transferee of the holder, if the
restriction is authorized by the Revised Act and its existence is noted
conspicuously on the front or back of the certificate, or if the restriction is
contained in the information statement that is sent to shareholders whose shares
are not represented by certificates pursuant to Section 7.2 of these amended
bylaws.
7.5 Regulations . Subject to the provisions of these amended bylaws and of the
articles of incorporation, the Board of Directors may make such rules and
regulations as it may deem expedient concerning the issuance, transfer,
redemption, and registration of certificates for shares of the stock of the
Corporation.
7.6 Transfer Agent(s) and Registrar(s). The Board of Directors may appoint one
or more transfer agent(s) and one or more registrar(s) with respect to the
certificates representing shares of stock of the Corporation, and may require
all such certificates to bear the signature of either or both. The Board of
Directors may from time to time define the respective duties of such transfer
agent(s) and registrar(s).
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7.7 Lost or Destroyed Certificates. In the event of the loss or destruction of
any certificate of stock, another may be issued in its place pursuant to such
regulations as the Board of Directors may establish concerning proof of such
loss, theft, or destruction and concerning the giving of a satisfactory bond or
bonds of indemnity.
7.8 Consideration for Shares. The Board of Directors may authorize the issuance
of shares for consideration consisting of any tangible or intangible property or
benefit to the Corporation, including cash, promissory notes, services
performed, contracts or arrangements for services to be performed, or other
securities of the Corporation. The terms and conditions of any tangible or
intangible property or benefit to be provided in the future to the Corporation,
including contracts or arrangements for services to be performed, shall be set
forth in writing. The Corporation may place in escrow shares issued in
consideration for contracts, arrangements for future services or benefits, or in
consideration of a promissory note, or make other arrangements to restrict
transfer of the shares issued for any such consideration, and may credit
distributions in respect of the shares against the purchase price until the
services are performed, the note is paid, or the benefits are received. If the
specified future services are not performed, the note is not paid, or the
benefits are not received, the shares escrowed or restricted and the
distributions credited may be cancelled in whole or in part.
ARTICLE 8
INDEMNIFICATION
8.1 Indemnification. Except as provided in Section 8.2 of these amended bylaws,
the Corporation may, to the maximum extent and in the manner permitted by the
Revised Act, indemnify an individual made a party to a proceeding because he is
or was a director, against liability incurred in the proceeding if his conduct
was in good faith, he reasonably believed that his conduct was in, or not
opposed to, the Corporation's best interests, and in the case of any criminal
proceeding, he had no reasonable cause to believe his conduct was unlawful.
Termination of the proceeding by judgment, order, settlement, conviction, upon a
plea of nolo contendere or its equivalent, is not, of itself, determinative that
the director did not meet the standard of conduct described in this section.
8.2 Certain Restrictions on Indemnification. The Corporation may not indemnify a
director under Section 8.1 of these amended bylaws, in connection with a
proceeding by or in the right of a Corporation in which the director was
adjudged liable to the Corporation, or in connection with any other proceeding
charging that the director derived an improper personal benefit, whether or not
involving action in his official capacity, in which proceeding he was adjudged
liable on the basis that he derived an improper personal benefit.
8.3 Mandatory Indemnification . The Corporation shall indemnify a director who
was successful, on the merits or otherwise, in the defense of any proceeding, or
in the defense of any claim, issue, or matter in the proceeding, to which he was
a party because he is or was a director of the Corporation, against reasonable
expenses incurred by him in connection with the proceeding or claim with respect
to which he has been successful.
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8.4 Determination . The Corporation may not indemnify a director under Section
8.1 of these amended bylaws unless authorized and a determination has been made
in a specific case that indemnification of the director is permissible in the
circumstances because the director has met the applicable standard of conduct
set forth in Section 8.1 of these amended bylaws. Such determination shall be
made either (a) by the Board of Directors by majority vote of those present at a
meeting at which a quorum is present, and only those directors not parties to
the proceedings shall be counted in satisfying the quorum requirement, (b) if a
quorum cannot be obtained, by majority vote of a committee of the Board of
Directors designated by the Board of Directors, which committee shall consist of
two or more directors not parties to the proceeding, except that the directors
who are not parties to the proceeding may participate in the designation of
directors for the committee, (c) by special legal counsel selected by the Board
of Directors or a committee of the Board of Directors in the manner prescribed
by the Revised Act, or (d) by the shareholders, by a majority of the votes
entitled to be cast by holders of qualified shares present in person or by proxy
at a meeting. The majority of the votes entitled to be cast by the holders of
all qualified shares constitutes a quorum for purposes of action that complies
with this Section. Shareholders' action that otherwise complies with this
Section is not affected by the presence of holders, or the voting, of shares
that are not qualified shares as determined under the Revised Act.
8.5 General Indemnification . The indemnification and advancement of expenses
provided by this Article 8 shall not be construed to be exclusive of any other
rights to which a person seeking indemnification or advancement of expenses may
be entitled under the articles of incorporation, these amended bylaws, any
agreement, any vote of shareholders or disinterested directors, or otherwise,
both as to action in his official capacity and as to action in another capacity
while holding such office.
8.6 Advances . The Corporation in accordance with the Revised Act may pay for or
reimburse the reasonable expenses incurred by any director who is a party to a
proceeding in advance of final disposition of the proceeding if (a) the director
furnishes the Corporation a written affirmation of his good faith belief that he
has met the applicable standard of conduct described in Section 8.1 of these
amended bylaws, (b) the director furnishes to the Corporation a written
undertaking in the form required by the Revised Act, executed personally or on
his behalf, to repay the advance if it is ultimately determined that he did not
meet the standard of conduct, and (c) a determination is made that the facts
then known to those making a determination would not preclude indemnification
under this Article 8.
8.7 Scope of Indemnification . The indemnification and advancement of expenses
authorized by this Article 8 is intended to permit the Corporation to indemnify
to the fullest extent permitted by the laws of the state of Utah, any and all
persons whom it shall have power to indemnify under such laws from and against
any and all of the expenses, liabilities, or other matters referred to in or
covered by such laws. Any indemnification or advancement of expenses hereunder
shall, unless otherwise provided when the indemnification or advancement of
expenses is authorized or ratified, continue as to a person who has ceased to be
a director, officer, employee, or agent of the Corporation and shall inure to
the benefit of such person's heirs, executors and administrators. This Article 8
is a summary of the indemnification provisions of the Revised Act. In the event
of a conflict between the provisions of this Article 8 and the Revised Act, as
the case may be, shall control.
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8.8 Insurance . The Corporation may purchase and maintain liability insurance on
behalf of a person who is or was a director, officer, employee, fiduciary, or
agent of the Corporation, or who, while serving as a director, officer,
employee, fiduciary, or agent of the Corporation, is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
fiduciary, or agent of another foreign or domestic Corporation, or other person,
or of an employee benefit plan, against liability asserted against or incurred
by him in any such capacity or arising out of his status in any such capacity,
whether or not the Corporation would have the power to indemnify him against the
liability under the provisions of this Article 8 or the laws of the state of
Utah, as the same may hereafter be amended or modified.
ARTICLE 9
FISCAL YEAR
The fiscal year of the Corporation shall be fixed by resolution of the Board of
Directors.
ARTICLE 10
DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends on its outstanding shares in the manner and upon the terms
and conditions provided by law.
ARTICLE 11
AMENDMENTS
These amended bylaws may be amended by a two-thirds majority of the Board
of Directors at any time, except to the extent that the articles of
incorporation, these amended bylaws or the Revised Act reserve this power
exclusively to the shareholders, in whole or part. These amended bylaws may also
be amended at any time by the shareholders.
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ARTICLE 12
CONTROL SHARES ACQUISITIONS ACT
12.1 Shares Subject to Redemption. If a person proposes to make or has made a
control share acquisition, as defined under the Utah Control Shares Acquisitions
Act (the "Act"), and no acquiring person statement has been delivered to the
Corporation by such acquiring person pursuant to Section 61-6-7 of the Act, or
if the acquiring person has filed the acquiring person statement but the control
shares have not been accorded full voting rights by the shareholders, the
Corporation shall have the right to redeem, at fair market value, as defined in
the Act, the control shares of the acquiring person, as defined in Section
61-6-2 of the Act. Any such redemption hereunder shall take place within 60 days
after the last acquisition of control shares by the acquiring person. Control
shares acquired in a control share acquisition are not subject to redemption by
the Corporation after a statement by the acquiring person has been delivered to
the Corporation, unless the shares are not accorded full voting rights by the
shareholders as provided in Section 61-6-10 of the Act.
12.2 Dissenter's Rights. In the event control shares required in a control share
acquisition are accorded full voting rights pursuant to provisions of the Act,
and the acquiring person has acquired control shares with a majority or more of
the voting power, the shareholders of the Corporation shall not have dissenter's
rights as provided in Section 61-6-12 of the Act.
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STOCK PURCHASE AND SALE AGREEMENT
THIS STOCK PURCHASE AND SALE AGREEMENT (the "Agreement") is made and
entered into this 27th day of August, 2003, by and between SECURITY NATIONAL
FINANCIAL CORPORATION, a Utah corporation ("Security National") and AULT GLAZER
& CO. INVESTMENT MANAGEMENT LLC, a Delaware limited liability company, and any
related entities, whether directly or indirectly owned or controlled by Ault
Glazer & Co Investment Management LLC or Milton T. Ault, III (hereinafter
collectively referred to as "Ault Glazer").
W I T NE S S E T H:
WHEREAS, Ault Glazer either owns or controls approximately 424,000 shares
of Class A Common Stock of Security National Financial Corporation ("Security
National");
WHEREAS, Ault Glazer is desirous of reducing its holdings of Class A
Security National Common Stock; and
WHEREAS, Security National, in order to attempt to maintain an orderly
market, is willing to purchase a certain number of its shares of Class A Common
Stock held by Ault Glazer and to enter into the other covenants and obligations
relating to the purchase of shares of Class A Common Stock held by Ault Glazer;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and intending to be legally bound, the parties hereby agree as
follows:
1. Purchase and Sale of Shares. Ault Glazer agrees to sell and Security National
agrees to purchase 124,000 shares of Class A Common Stock of Security National
at $6.00 per share, the closing of said stock purchase and sale transaction to
occur within fifteen (15) days from the date of this Agreement.
2. Agreement Not to Purchase Additional Shares. Ault Glazer agrees not to
purchase or control, directly or indirectly, any additional shares of Class A or
Class C Common Stock of Security National for a period of four (4) years from
the date of this Agreement.
3. Option to Purchase and Sell Additional Shares. Security National agrees for
the next three (3) years from the date hereof, on the anniversary date of this
Agreement, that Ault Glazer may, but is not obligated, to sell 100,000 shares of
Class A Common Stock of Security National on each such anniversary date and
Security National agrees to purchase, if requested by Ault Glazer, 100,000
shares of Class A Common Stock of Security National at a price of $6.00 per
share. This paragraph is subject to the approval of the Board of Directors of
Security National, which approval Scott M. Quist, the President of Security
National, will use his best efforts to obtain (and will favorably recommend this
paragraph) at the next board meeting. If the Board of Directors of Security
National shall disapprove this paragraph, and the paragraph shall be rendered
void and of no effect, then the immediately preceding paragraph 2 of this
Agreement shall also be void and of no effect, but the remainder of this
Agreement shall remain in effect and continue to be binding upon the parties
hereto.
4. Review of Agreement by Counsel. This Agreement is subject to review and
amendment by securities counsel for Security National and Ault Glazer for
necessary disclosures in order to comply with federal and state securities laws
and regulations thereunder and otherwise in conformity with such federal and
state securities laws and regulations thereunder.
1.
5. Waiver. Any term or condition of this Agreement may be waived at any time by
the party that is entitled to benefit thereof. Such waiver must be in writing
and must be executed by an executive officer of such party. A waiver on one
occasion will not be deemed to be a waiver of the same or any other breach or
nonfulfillment on a future occasion. All remedies, either under this Agreement,
or by law or, otherwise afforded, will be cumulative and not alternative.
6. Amendment. This Agreement may be modified or amended only in writing duly
executed by all parties.
7. Counterparts. This Agreement may be executed simultaneously in any number of
counterparts, each of which will be deemed an original, but all of which, when
taken together, will constitute one and the same instrument.
8. Governing Law. This Agreement will be governed by and construed and enforced
in accordance with the laws of the State of Utah (without regard to the
principles of conflicts of law) applicable to a contract executed and
performable in such state.
9. Binding Effect. This Agreement is binding upon and will inure to the benefit
of the parties and their respective successors and permitted assigns.
10. No Assignment. Neither this Agreement nor any right or obligation hereunder
or part hereof may be assigned by any party hereto without the prior written
consent of the other party hereto (and any attempt to do so will be void).
11. Due Diligence. All parties to this Agreement hereby acknowledge that they
have received from the others all information requested and have had an adequate
opportunity to investigate all aspects of this transaction. Each party has done
its own due diligence with respect to this transaction.
12. Invalid Provision. If any provision of this Agreement is held to be illegal;
invalid, or unenforceable under any present or future law, and if the rights or
obligations under this Agreement of Security National and Ault Glazer will not
be materially and adversely affected thereby, (i) such provision will be fully
severable; (ii) this Agreement will be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part hereof;
and (iii) the remaining provisions of this Agreement will remain in full force
and effect and will not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by the respective officers authorized to act in the premises, as of the
date first written.
SECURITY NATIONAL FINANCIAL CORPORATION
By: /s/ Scott M. Quist
----------------------
Scott M. Quist, President
AULT GLAZER & CO. INVESTMENT MANAGEMENT LLC
By: /s/ Milton T. Ault
------------------
Milton T. Ault, III, Chief
Investment Officer
and Managing Director
2