SECURITIES
AND
EXCHANGE COMMISSION
Washington,
D.C. 20549
______________________
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of
Report (Date of Earliest Event Reported): December 20, 2007
SECURITY
NATIONAL FINANCIAL
CORPORATION
(Exact
name of registrant as specified in this Charter)
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Utah
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0-9341
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87-0345941
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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5300
South 360
West, Salt Lake City, Utah
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84123
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
Telephone Number, Including Area Code: (801)
264-1060
Does
Not
Apply
(Former
name or former address, if changed since last report)
ITEM
1.01.Other Events.
Completion
of Acquisition of Capital Reserve Life Insurance Company
On
December 20, 2007, Security National
Financial Corporation, through its wholly owned subsidiary, Security National
Life Insurance Company ("Security National Life"), completed a stock purchase
transaction with Capital Reserve Life Insurance Company, a Missouri domiciled
insurance company ("Capital Reserve"), and its shareholders to purchase all
of
the outstanding shares of common stock of Capital Reserve from its
shareholders. Under the terms of the stock purchase agreement among
Security National Life, Capital Reserve, and the shareholders of Capital
Reserve, Security National Life paid the shareholders of Capital Reserve
at
closing purchase consideration equal to the capital and surplus of Capital
Reserve as of September 30, 2007 in the amount of $1,274,000, plus the interest
maintenance reserve in the amount of $31,000 and the asset valuation reserve
in
the amount of $209,000 as of September 30, 2007, plus $1,037,967,
less certain
adjustments. The adjustments consist of any losses related to two
litigation matters involving Capital Reserve and the difference in the amount
of
Capital Reserve's adjusted capital and surplus at closing compared to the
amount
of Capital Reserve's adjusted capital and surplus on September 30,
2007.
At
the closing of the transaction, the
shareholders of Capital Reserve deposited $2,100,000 of the purchase
consideration into an escrow account. The funds are to remain in
escrow until a lawsuit brought by Darlene Russell ("Russell"), a former employee
of Capital Reserve, is resolved. The litigation involves an action by
Russell against Capital Reserve in the Circuit Court of Cole County, Missouri
(the "Russell Litigation") for unpaid bonuses allegedly due her in the amount
of
$1,486,045. If Capital Reserve or any of its officers, directors,
employees or agents is determined to be liable in the Russell Litigation
or if
Capital Reserve settles the Russell Litigation, the escrow agent shall pay
from
funds in the escrow account any amounts owing to Russell as a result of such
judgment or settlement, including interest, attorney's fees, and related
expenses.
Also
at the closing, an escrow
agreement was entered into among Security National Life, Capital Reserve,
the
shareholders of Capital Reserve, and Mackey Price Thompson & Ostler as
escrow agent. Under the terms of the escrow agreement, the escrow
agent is instructed to pay any remaining amounts from the $2,100,000 deposit
in
the escrow account to the shareholders of Capital Reserve on a pro rata basis
to
the number of shares of Capital Reserve common stock held by the shareholders,
after (i) the payment of any judgment or settlement in the Russell Litigation,
(ii) the payment of the costs in defending Capital Reserve in the Russell
Litigation, including attorney's fees and related expenses, and (iii) the
payment of the amount in which Capital Reserve's adjusted capital and surplus
on
September 30, 2007 exceeds Capital Reserve's adjusted capital and surplus
on the closing date of the transaction.
The
shareholders of Capital Reserve
also delivered a signed indemnification agreement to Security National Life
and
Capital Reserve at closing. Under the terms of the indemnification
agreement, the shareholders agree to indemnify Security National Life and
Capital Reserve (A) for any payments made by Capital Reserve following the
closing relating to any judgment or settlement in the Russell Litigation,
(B)
for any attorney's fees and related expenses incurred by Capital Reserve
in
defending itself in the Russell Litigation, and (C) for the amount in which
Capital Reserve's adjusted capital and surplus on September 30, 2007 exceeds
the
adjusted capital and surplus of Capital Reserve on the closing
date. The shareholders additionally agree to be solely responsible
for the Russell Litigation following the closing, including all decisions
related to defending Capital Reserve in the litigation.
Moreover,
an amount equal to $316,649
of the purchase consideration was paid to the shareholders of Capital Reserve
at
closing in the form of real estate and improvements thereon located at 812
and
820 Madison Street, Jefferson City, Missouri, which is listed as an asset
on
Capital Reserve's financial statements. Title to the real estate was
transferred to the shareholders at closing and the purchase consideration
was
reduced by $316,649, the book value of the real estate as reflected on Capital
Reserve's financial statements.
The
shareholders of Capital Reserve
represented and acknowledged in the stock purchase agreement that on October
31,
2005, Capital Reserve filed an action against James E. Warden, a former
President and Chief Executive Officer of Capital Reserve, and his wife Linda
Warden in the Circuit Court of Cole County, Missouri (the "Warden
Litigation"). The complaint claims damages in excess of $25,000 for
breach of fiduciary duty by Joseph Warden and misappropriation of funds by
Joseph Warden and Linda Warden. On July 9, 2007, a judgment was
entered against Joseph and Linda Warden in the amount of $551,342. At
closing, Capital Reserve transferred and assigned to the shareholders of
Capital
Reserve all of the interest in and rights to the Warden Litigation, including
the right to reserve the proceeds from the judgment, together with all payments
of interest, attorney's fees and related expenses of the litigation, said
proceeds to be paid to the shareholders on a pro rata basis to the number
of
shares of Capital Reserve common stock held by such shareholders. The
shareholders further agreed to be responsible for the payment of any costs
associated with legal representation of Capital Reserve in the Warden Litigation
subsequent to the closing, including but not limited to any attorney's fees
and
related expenses.
As
of December 31, 2006, Capital
Reserve had 10,851 policies in force and approximately 30 agents. For
the year ended December 31, 2006, Capital Reserve had revenues of $5,663,000
and
a net loss of $244,000. As of December 31, 2006, the statutory assets
and the capital and surplus of Capital Reserve were $24,084,000 and $1,960,000,
respectively.
Finally,
at closing, Security National
Life and Capital Reserve entered into a reinsurance agreement to reinsure
the
majority of the in force business of Capital Reserve, as reinsurer, to the
extent permitted by the Missouri Department of Insurance. Under the
terms of the reinsurance agreement, Security National Life paid a ceding
commission to Capital Reserve in the amount of $1,738,000. In
addition, following the payment of the ceding commission, Capital Reserve
declared a dividend to Security National Life in the amount of
$1,738,000. The Missouri Insurance Department approved both the
reinsurance agreement and the dividend payment. The dividend payment
was approved subject to Capital Reserve maintaining capital and surplus of
at
least $1,500,000.
As
a result of the reinsurance
agreement, certain insurance business and operations of Capital Reserve were
transferred to Security National Life, including all policies in force as
of the
effective date thereof. Any future business by Capital Reserve is
covered by this reinsurance agreement. Consequently, except for
capital and surplus of $1,500,000, $23,500,000 in assets and liabilities
were
transferred from Capital Reserve to Security National Life pursuant to the
reinsurance agreement. Following the closing of the transaction,
Capital Reserve will continue to sell and service life insurance, annuity
products, accident and health insurance, and funeral plan
insurance.
ITEM
9.01. Financial
Statements and Exhibits
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10.1
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Stock
Purchase Agreement among Security National Life Insurance Company,
Capital
Reserve Life Insurance Company, and the shareholders of Capital
Reserve
Life Insurance Company(1).
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10.2
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Indemnification
Agreement among Security National Life Insurance Company, Capital
Reserve
Life Insurance Company, and the shareholders of Capital Reserve
Life
Insurance Company.
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10.3
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Escrow
Agreement among Security National Life Insurance Company, Capital
Reserve
Life Insurance Company, the shareholders of Capital Reserve Life
Insurance
Company, and Mackey Price Thompson & Ostler as Escrow Agent.
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10.4
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Reinsurance
Agreement between Security National Life Insurance Company and
Capital
Reserve Life Insurance Company.
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_______________________
(1) Incorporated
by reference from Report in Form 8-K, as filed on November 2, 2007.
SIGNATURES
Pursuant
to the requirements of the
Securities Exchange Act of 1934, the registrant has duly caused this report
to
be signed on its behalf by the undersigned hereunto duly
authorized.
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SECURITY
NATIONAL FINANCIAL CORPORATION
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(Registrant)
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Date:
January 9, 2008
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By:
/s/
Scott M.
Quist
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Scott
M. Quist, President
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