Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of
1934
Filed by the registrant [x]
Filed by a party other than the registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement
[x] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
SECURITY BANCORP, INC.
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(Name of Registrant as Specified in Its Charter)
SECURITY BANCORP, INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
N/A
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(2) Aggregate number of securities to which transactions applies:
N/A
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
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(4) Proposed maximum aggregate value of transaction:
N/A
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[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11 (a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount previously paid:
N/A
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(2) Form, schedule or registration statement no.:
N/A
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(3) Filing party:
N/A
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(4) Date filed:
N/A
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[Security Bancorp, Inc. Letterhead]
March 14, 2002
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Security Bancorp, Inc. ("Company"), the holding company for Security Federal
Savings Bank of McMinnville, TN. The meeting will be held at the Savings
Bank's main office located at 306 West Main Street, McMinnville, Tennessee, on
Wednesday, April 17, 2002, at 2:00 p.m., Central Time.
The Notice of Annual Meeting of Stockholders and Proxy Statement
appearing on the following pages describe the formal business to be transacted
at the meeting. During the meeting, we will also report on the operations of
the Company. Directors and officers of the Company, as well as a
representative of Housholder, Artman and Associates, P.C., the Company's
independent auditors, will be present to respond to appropriate questions of
stockholders.
It is important that your shares are represented at this meeting, whether
or not you attend the meeting in person and regardless of the number of shares
you own. To ensure that your shares are represented, we urge you to complete
and mail the enclosed proxy card. If you attend the meeting, you may vote in
person even if you have previously mailed a proxy card.
We look forward to seeing you at the meeting.
Sincerely,
/s/Joe H. Pugh
Joe H. Pugh
President and Chief Executive Officer
SECURITY BANCORP, INC.
306 WEST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
(931) 473-4483
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON APRIL 17, 2002
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NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of
Security Bancorp, Inc. ("Company") will be held at the main office of Security
Federal Savings Bank of McMinnville, TN located at 306 West Main Street,
McMinnville, Tennessee, on Wednesday, April 17, 2002, at 2:00 p.m., Central
Time, for the following purposes:
1. To elect three directors to serve for a term of three years;
2. To approve the appointment of Housholder, Artman and Associates,
P.C. as the Company's independent auditors for the fiscal year
ending December 31, 2002; and
3. To act upon such other matters as may properly come before the
meeting or any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to come
before the meeting.
Any action may be taken on the foregoing proposals at the meeting on the
date specified above or on any date(s) to which, by original or later
adjournment, the meeting may be adjourned. Only stockholders of record at the
close of business on March 1, 2002 are entitled to notice of and to vote at
the meeting and any adjournments or postponements thereof.
You are requested to complete and sign the enclosed form of proxy, which
is solicited by the Board of Directors, and to mail it promptly in the
enclosed envelope. The proxy will not be used if you attend the meeting and
vote in person.
BY ORDER OF THE BOARD OF DIRECTORS
/s/EARL H. BARR
EARL H. BARR
SECRETARY
McMinnville, Tennessee
March 14, 2002
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IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM. A SELF-ADDRESSED
ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF MAILED
IN THE UNITED STATES.
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PROXY STATEMENT
OF
SECURITY BANCORP, INC.
306 WEST MAIN STREET
MCMINNVILLE, TENNESSEE 37110
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ANNUAL MEETING OF STOCKHOLDERS
APRIL 17, 2002
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This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Security Bancorp, Inc. ("Company"), the
holding company for Security Federal Savings Bank of McMinnville, TN ("Savings
Bank"), to be used at the Annual Meeting of Stockholders ("Meeting") of the
Company. The Meeting will be held at the Savings Bank's main office located
at 306 West Main Street, McMinnville, Tennessee, on Wednesday, April 17, 2002,
at 2:00 p.m., Central Time. This Proxy Statement and the enclosed proxy card
are being first mailed to stockholders on or about March 14, 2002.
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VOTING AND PROXY PROCEDURE
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Stockholders Entitled to Vote at Meeting. Only stockholders of record at
the close of business on March 1, 2002 ("Voting Record Date") are entitled to
vote at the Meeting and are entitled to one vote for each share of common
stock ("Common Stock") of the Company then held. As of the close of business
on the Voting Record Date, the Company had 424,919 shares of Common Stock
issued and outstanding. The Common Stock is the only outstanding class of
securities of the Company.
As provided in the Company's Charter, record holders of the Company's
Common Stock who beneficially own, either directly or indirectly, in excess of
10% of the Company's outstanding shares are not entitled to any vote in
respect of the shares held in excess of the 10% limit.
If you are a beneficial owner of Company Common Stock held by a broker,
bank or other nominee (i.e., in "street name"), you will need proof of
ownership to be admitted to the Meeting. A recent brokerage statement or
letter from a bank or broker are examples of proof of ownership. If you want
to vote your shares of Company Common Stock held in street name in person at
the Meeting, you will have to get a written proxy in your name from the
broker, bank or other nominee who holds your shares.
Quorum Requirement. The presence, in person or by proxy, of at least a
majority of the total number of outstanding shares of Common Stock entitled to
vote is necessary to constitute a quorum at the Meeting. Abstentions and
broker non-votes will be counted as shares present and entitled to vote at the
Meeting for purposes of determining the existence of a quorum.
Proxies; Proxy Revocation Procedures. The Board of Directors solicits
proxies so that each stockholder has the opportunity to vote on the proposals
to be considered at the Meeting. When a proxy card is returned properly
signed and dated, the shares represented thereby will be voted in accordance
with the instructions on the proxy card. Where a proxy card is properly
signed and dated but no instructions are indicated, proxies will be voted FOR
the nominees for directors set forth in the following pages, and FOR the
approval of the appointment of independent auditors. If a stockholder attends
the Meeting, he or she may vote by ballot.
Stockholders who execute proxies retain the right to revoke them at any
time. Proxies may be revoked by written notice delivered in person or mailed
to the Secretary of the Company or by filing a later dated proxy before a vote
being taken on a particular proposal at the Meeting. Attendance at the
Meeting will not automatically revoke a proxy, but a stockholder in attendance
may request a ballot and vote in person, thereby revoking a prior granted
proxy.
If your Company Common Stock is held in street name, you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker or bank may allow you to deliver
your voting instructions via the telephone or the Internet. Please see the
instruction form that accompanies this proxy statement. If you wish to change
your voting instructions after you have returned your voting instruction form
to your broker or bank, you must contact your broker or bank.
Participants in the Security Federal Savings Bank of McMinnville, TN
ESOP. If a stockholder is a participant in the Security Federal Savings Bank
of McMinnville, TN Employee Stock Ownership Plan ("ESOP"), the proxy card
represents a voting instruction to the trustees of the ESOP as to the number
of shares in the participant's plan account. Each participant in the ESOP may
direct the trustees as to the manner in which shares of Common Stock allocated
to the participant's plan account are to be voted. Unallocated shares of
Common Stock held by the ESOP and allocated shares for which no voting
instructions are received will be voted by the trustees in the same proportion
as shares for which the trustees have received voting instructions. As of the
Voting Record Date, 15,710 shares have been allocated to participants'
accounts. The trustees of the ESOP are Messrs. Pugh, Collette and Newman. The
deadline for returning your voting instructions to the trustees is April 15,
2002.
Vote Required. The three directors to be elected at the Meeting will be
elected by a plurality of the votes cast by stockholders present in person or
by proxy and entitled to vote. Stockholders are not permitted to cumulate
their votes for the election of directors. Votes may be cast for or withheld
from each nominee for election as directors. Votes that are withheld and
broker non-votes will have no effect on the outcome of the election because
directors will be elected by a plurality of votes cast.
With respect to the other proposal to be voted upon at the Meeting,
stockholders may vote for or against the proposal or may abstain from voting.
Approval of the appointment of independent auditors requires the affirmative
vote of a majority of the shares of Common Stock present in person or by proxy
and entitled to vote. Broker non-votes will have no effect on the outcome of
this proposal. Abstentions, however, will have the same effect as a vote
against this proposal.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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Persons and groups who beneficially own in excess of 5% of the Company's
Common Stock are required to file certain reports with the Securities and
Exchange Commission ("SEC"), and provide a copy to the Company, disclosing
such ownership pursuant to the Securities Exchange Act of 1934, as amended
("Exchange Act"). Based on such reports, the following table sets forth, as
of the close of business on the Voting Record Date, certain information as to
those persons who were beneficial owners of more than 5% of the outstanding
shares of Common Stock. Management knows of no persons other than those set
forth below who beneficially owned more than 5% of the outstanding shares of
Common Stock at the close of business on the Voting Record Date. The table
also sets forth, as of the close of business on the Voting Record Date,
certain information as to shares of Common Stock beneficially owned by the
Company's directors, "named executive officer" and all directors and executive
officers as a group.
Number of Shares Percent of Shares
Name Beneficially Owned(1) Outstanding
- ---- --------------------- -----------
Beneficial Owners of More Than 5%
Joe H. Pugh(2)(3) 30,766 7.24%
161 Florence Street
McMinnville, Tennessee 37110
(table continued on following page)
2
Number of Shares Percent of Shares
Name Beneficially Owned(1) Outstanding
- ---- --------------------- -----------
DIRECTORS
Earl H. Barr 19,321 4.55%
Robert W. Newman 18,181 4.28
Dr. R. Neil Schultz 19,906 4.68
Dr. John T. Mason, III 6,181 1.45
Donald R. Collette 8,081 1.90
Dr. Franklin J. Noblin 13,847 3.26
NAMED EXECUTIVE OFFICER(2)
Kenneth W. Smith 3,964 0.93
All Executive Officers and
Directors as a Group (12 persons) 142,341 33.50
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(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed
to be the beneficial owner, for purposes of this table, of any shares of
Common Stock if he or she has voting or investment power with respect
to such security. The table includes shares owned by spouses, other
immediate family members in trust, shares held in retirement accounts or
funds for the benefit of the named individuals, and other forms of
ownership, over which shares the persons named in the table may possess
voting and/or investment power. Shares held in accounts under the
Savings Bank's ESOP, as to which the holders have voting power but not
investment power, are included as follows: Mr. Pugh, 2,798 shares; Mr.
Smith, 655 shares; and all executive officers and directors as a group,
8,935 shares. Shares of restricted stock granted under the Company's
Management Recognition and Development Plan, as to which the holders have
voting power but not investment power, are included as follows: Mr. Barr,
351 shares; Mr. Newman, 351 shares; Dr. Schultz, 351 shares; Dr. Mason,
351 shares; Mr. Collette, 351 shares; Dr. Noblin, 351 shares; Mr. Pugh,
1,748 shares; and Mr. Smith, 699 shares; and all executive officers and
directors as a group, 6,655 shares. The amounts shown also include the
following amounts of Common Stock which the indicated individuals have
the right to acquire within 60 days of the Voting Record Date through the
exercise of stock options granted pursuant to the Company's stock option
plans: Mr. Barr, 1,308 shares; Mr. Newman, 1,308 shares; Dr. Schultz,
1,308 shares; Dr. Mason, 1,308 shares; Mr. Collette, 1,308 shares; Dr.
Noblin, 1,308 shares; Mr. Pugh, 6,546 shares; Mr. Smith, 436 shares; and
all executive officers and directors as a group, 20,498 shares.
(2) SEC regulations define the term "named executive officer" to include the
chief executive officer, regardless of compensation level, and the four
most highly compensated executive officers, other than the chief
executive officer, whose total annual salary and bonus for the last
completed fiscal year exceeded $100,000. Messrs. Pugh and Smith are the
Company's only "named executive officers" for the fiscal year ended
December 31, 2001.
(3) Mr. Pugh is also a director of the Company.
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PROPOSAL I -- ELECTION OF DIRECTORS
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The Company's Board of Directors consists of seven members as required by
the Company's Bylaws. In accordance with the Company's Charter, the Board of
Directors is divided into three classes with three-year staggered terms, with
approximately one-third of the directors elected each year. Three directors
will be elected at the Meeting to serve for the respective term set forth in
the following table, or until their respective successors have been elected
and qualified. The nominees for election this year are Robert W. Newman,
Donald R. Collette and Dr. Franklin J. Noblin, each of whom is a current
member of the Board of Directors of the Company and of the Savings Bank.
3
It is intended that the proxies solicited by the Company's Board of
Directors will be voted for the election of the above named nominees. If any
nominee is unable to serve, the shares represented by all valid proxies will
be voted for the election of such substitute nominee as the Board of Directors
may recommend, or the Board of Directors may adopt a resolution to amend the
Bylaws and reduce the size of the Board. At this time the Board of Directors
knows of no reason why any nominee might be unavailable to serve.
The Board of Direc tors recommends a vote "FOR" the election of Messrs.
Newman, Collette and Noblin.
The following table sets forth certain information regarding the nominees
for election at the Meeting as well as information regarding those directors
continuing in office after the Meeting.
Year First Elected Term to
Name Age (1) Director (2) Expire
---- ------- ------------ ------
BOARD NOMINEES
Robert W. Newman 50 1992 2005(3)
Donald R. Collette 65 1994 2005(3)
Dr. Franklin J. Noblin 63 1993 2005(3)
DIRECTORS WHOSE TERM CONTINUES
Earl H. Barr 64 1992 2003
Dr. John T. Mason, III 63 1986 2003
Joe H. Pugh 45 1992 2004
Dr. R. Neil Schultz 65 1992 2004
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(1) As of December 31, 2001.
(2) Includes prior service on the Board of Directors of the Savings Bank.
(3) Assuming the individual is elected.
The present principal occupation and other business experience during the
last five years of each nominee for election and for each continuing director
is set forth below:
Robert W. Newman is a partner with the law firm Galligan & Newman in
McMinnville, Tennessee. He is a member of the McMinnville Breakfast Rotary
Club.
Donald R. Collette is a retired General Manager of McMinnville Electric
System in McMinnville, Tennessee. He presently serves as President of
Collette & Associates, an executive search firm. He is past president of the
McMinnville Chamber of Commerce and a member of the McMinnville Noon Rotary
Club.
Dr. Franklin J. Noblin is a retired general dentist and a retired Colonel
in the United States Army Reserve-Chief of Professional Services and Brigade
Dental Surgeon. He is a member of the McMinnville Breakfast Rotary Club.
Earl H. Barr is the owner and manager of Barr's Inc., a retail furniture
store, in McMinnville, Tennessee. He is the past Chairman of, and currently
serves as a director of, the Board of the McMinnville Chamber of Commerce, and
is a member of the Board of the McMinnville Housing Authority. Mr. Barr is a
past director of the American Heart Association Board, and a member of the
McMinnville Noon Rotary Club, the Warren County Homebuilders Association and
the Community Advisory Board of Bridgestone/Firestone.
4
Dr. John T. Mason, III is a retired Colonel in the United States Army, a
retired Associate Dean of Engineering and Professor of Chemical Engineering of
Tennessee Technological University, and a retired real estate appraiser.
Joe H. Pugh has been employed by the Savings Bank since 1978. Mr. Pugh
has served as President and Chief Executive Officer of the Savings Bank since
1993 and President and Chief Executive Officer of the Company since its
inception in 1997. He is a past member of the McMinnville Chamber of Commerce
Board, and a member of the McMinnville Noon Rotary Club and the Community
Advisory Board of Bridgestone/Firestone. Mr. Pugh also serves as a trustee of
the Motlow State Community College.
Dr. R. Neil Schultz, a retired orthodontist, is a member of the
McMinnville Noon Rotary Club and past president of the Tennessee Association
of Orthodontists. Dr. Schultz serves as the Chairman of the Board of the
Directors of the Company and the Savings Bank.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
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The Boards of Directors of the Company and the Savings Bank conduct their
business through meetings of the Boards and through their committees. During
the fiscal year ended December 31, 2001, the Board of Directors of the Company
held 12 meetings, and the Board of Directors of the Savings Bank held 12
meetings. No director of the Company or the Savings Bank attended fewer than
75% of the total meetings of the Boards and committees on which such person
served during the 2001 fiscal year.
Committees of the Company's Board. The Company's Board of Directors has
established Executive, Audit and Nominating Committees, among others.
The Company's Executive Committee, consisting of Directors Mason, Pugh,
Barr and Schultz, acts on behalf of the full Board of Directors in its
absence. The Committee has the same authority as the full Board of
Directors. This Committee did not meet during the 2001 fiscal year.
The Company's Audit Committee, consisting of Directors Newman, Collette,
Noblin and Schultz, is responsible for reviewing the internal auditors'
reports and results of their examination prior to review by and with the
entire Board of Directors and retains and establishes the scope of engagement
of the Company's independent auditors. This Committee met one time during the
2001 fiscal year.
The Company's Nominating Committee, consisting of the full Board of
Directors is responsible for the annual selection of nominees for election as
directors of the Company. The full Board of Directors met once in its
capacity as Nominating Committee during the 2001 fiscal year.
Committees of the Savings Bank's Board. The Savings Bank's Board of
Directors has established Executive, Personnel and Nominating Committees,
among others.
The Executive Committee consists of Directors Mason, Schultz, Barr and
Pugh. This Committee meets on an as-needed basis and acts on behalf of the
full Board of Directors in its absence. This Committee has the same authority
as the full Board of Directors. This Committee met ten times during the 2001
fiscal year.
The Personnel Committee (which also serves as a Compensation Committee)
consists of Directors Newman, Collette and Pugh. This Committee meets on an
as-needed basis and is responsible for reviewing the Savings Bank's personnel
to determine if and when additional personnel are needed. The Committee is
also involved in the interview process for new personnel. This Committee met
13 times during the 2001 fiscal year.
5
The full Board of Directors acts as a Nominating Committee for the annual
selection of nominees for election as directors of the Savings Bank. The full
Board of Directors met once in its capacity as Nominating Committee during the
2001 fiscal year.
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DIRECTORS' COMPENSATION
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Members of the Savings Bank's Board of Directors receive fees of $500 per
Board meeting attended, except for the Chairman of the Board who receives a
fee of $600 per Board meeting attended. Outside directors receive $100 per
committee meeting attended and committee chairmans receive an annual $300
committee chairman fee. Outside directors also receive a $1,200 annual
retainer fee. Total fees paid to directors during the year ended December 31,
2001 were $68,600. No separate fees are paid for service on the Company's
Board of Directors.
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EXECUTIVE COMPENSATION
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Summary Compensation Table
The following information is presented for Messrs. Pugh and Smith.
Long-term
Compensation
Annual Compensation(1) Awards
--------------------------------- ---------------------
Other All Other
Annual Restricted Number Annual
Name and Compen- Stock of Compen-
Position Year Salary(2) Bonus sation(3) Awards(4) Options(5) sation(6)
- -------- ---- --------- ----- --------- --------- ---------- ---------
Joe H. Pugh 2001 $ 99,500 $12,500 $6,000 $ -- -- $5,186
President 2000 94,500 8,950 6,000 -- -- 4,740
1999 89,500 7,750 6,000 -- -- 4,452
Kenneth W.
Smith 2001 108,346 -- -- -- -- 2,848
Senior Vice 2000 86,977 -- -- 13,532 2,182 2,641
President 1999 67,317 -- -- -- -- 1,090
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(1) All compensation is paid by the Savings Bank.
(2) For Mr. Smith includes commissions related to the Savings Bank's Trust
Department operations of $51,141, $33,950 and $16,532 for the years ended
December 31, 2001, 2000 and 1999, respectively.
(3) For Mr. Pugh, consists of directors' fees. The aggregate amount of
perquisites and other personal benefits was less than 10% of the total
annual salary and bonus reported.
(4) Pursuant to the Management Recognition and Development Plan, 4,364 shares
of restricted stock were awarded on July 1, 1998 to Mr. Pugh, and 873
shares of restricted stock were awarded on July 1, 2000 to Mr. Smith.
Dividends are paid on such awards if and when declared and paid by the
Company on the Common Stock. The value of the unvested awards at December
31, 2001 for Mr. Pugh (which vest pro rata over the remaining two year
period) was approximately $29,716 (1,748 shares at $17.00 per share), and
for Mr. Smith (which vest pro rata over the remaining four year period)
was approximately $11,883 (699 shares at $17.00 per share).
(5) Pursuant to the Stock Option Plan, 10,911 options were granted on July 1,
1998 to Mr. Pugh, and 2,182 options were granted on July 1, 2000 to Mr.
Smith. The options vest at a rate of 20% per year over a five year
period. At December 31, 2001, a total of 4,365 options and 1,746 options
remain unvested for Messrs. Pugh and Smith, respectively.
(6) Consists of employer 401(k) plan contributions.
6
Option Exercise/Value Table. The following information is provided for
Messrs. Pugh and Smith.
Number of
Securities Value of
Underlying Unexercised
Unexercised In-the-Money
Options Options
at Fiscal at Fiscal
Year End(#) Year End($)(1)
Shares ---------------- ----------------
Acquired on Value Exer- Unexer- Exer- Unexer-
Name Exercise (#) Realized($) cisable cisable cisable cisable
---- ------------ ----------- ------- ------- ------- -------
Joe H. Pugh -- -- 6,546 4,365 -- --
Kenneth W.
Smith -- -- 436 1,746 $ 654 $ 2,619
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(1) Value of unexercised in-the-money stock options equals the market value
of shares covered by in-the-money options on December 31, 2001 less the
option exercise price. Options are in-the-money if the market value of
shares covered by the options is greater than the exercise price. The
exercise price on the option grant date was $17.25 and $15.50 for Messrs.
Pugh and Smith, respectively. The price of the Common Stock at December
31, 2001 was $17.00.
Employment and Severance Agreements
Employment Agreement. The Company and the Savings Bank (collectively,
the "Employers") have entered into a three-year employment agreement
("Employment Agreement" or "Agreement") with Mr. Pugh. Under the Employment
Agreement, the current base salary for Mr. Pugh is $99,500, which is paid by
the Savings Bank and may be increased at the discretion of the Board of
Directors or an authorized committee of the Board of Directors of the Savings
Bank. Mr. Pugh's salary may not be decreased during the term of the
Employment Agreement without his prior written consent. On the anniversary of
the commencement date of the Agreement, the term of the Agreement may be
extended by the Board of Directors for an additional year unless a termination
notice is given by Mr. Pugh. The Agreement is terminable by the Employers for
just cause at any time or in certain events specified by federal regulations.
The Agreement provides for a severance payment and other benefits if
employment is terminated following a change in control. This severance
payment and benefits, which will be made promptly after any change in control,
will have a value equal to 2.99 times the average annual compensation paid to
Mr. Pugh during the five years immediately preceding the change in control.
Under the Agreement, a "change in control" is deemed to occur if, at anytime
during the term of the Agreement, a person other than the Company purchases
shares of common stock pursuant to a tender or exchange offer for such shares,
any person (as such term is used in Sections 13(d) and 14(d)(2) of the
Exchange Act) is or becomes the beneficial owner, directly or indirectly, of
securities of the Company representing 25% or more of the combined voting
power of the Company's then outstanding securities, the membership of the
Board of Directors changes as the result of a contested election, or
stockholders of the Company approve a merger, consolidation, sale or
disposition of all or substantially all of the Company's assets, or a plan of
partial or complete liquidation has occurred. Assuming that a change in
control had occurred at December 31, 2001, Mr. Pugh would be entitled to a
severance payment, excluding the value of any other employee benefits which
may be payable, with a value of approximately $302,000.
Severance Agreement. The Employers entered into a two-year severance
agreement ("Severance Agreement" or "Agreement") with Kenneth W. Smith
("Executive") effective December 15, 1998. Under the Severance Agreement, the
Board of Directors has extended the Agreement for each additional year
following the Agreement's effective date, commencing on the first anniversary
date of the Agreement and continuing at each anniversary date thereafter.
Under the Severance Agreement, the current base salary for Mr. Smith is
$57,205, which is paid by the Company and the Savings Bank and may be
increased at the discretion of the Board of Directors or an authorized
committee of the Board of Directors of the Savings Bank. The Agreement is
terminable by the Employers for just cause at any time or in certain events
specified by federal regulations.
7
The Agreement provides for severance payments and other benefits if the
Executive's employment is terminated following a change in control. The
severance payment, which will be made no later than 30 days after any change
in control, will have a value equal to two times the Executive's taxable
compensation, including salary, bonuses and commissions, for the 12 month
period ending on the last day of the month preceding the Executive's date of
termination. The Executive also will be entitled to benefits substantially
identical to those benefits he received prior to his severance for a period of
24 months from the date of Executive's termination. Under the Agreement, a
"change in control" is deemed to occur if, at anytime during the term of the
Agreement, a person other than the Company purchases shares of Common Stock
pursuant to a tender or exchange offer for such shares, any person (as such
term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 25% or more of the combined voting power of the Company's then
outstanding securities, the membership of the Board of Directors changes as
the result of a contested election, or stockholders of the Company approve a
merger, consolidation, sale or disposition of all or substantially all of the
Company's assets, or a plan of partial or complete liquidation has occurred.
Assuming that a change in control had occurred at December 31, 2001, Mr. Smith
would be entitled to a severance payment, excluding the value of any other
employee benefits which may be payable, with a value of approximately
$217,000.
The Employers have also entered into employment and severance agreements
with other senior officers of the Company and/or the Savings Bank on
substantially similar terms.
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AUDIT COMMITTEE MATTERS
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Audit Committee Charter. The Audit Committee operates pursuant to a
Charter approved by the Company's Board of Directors. The Audit Committee
reports to the Board of Directors and is responsible for overseeing and
monitoring financial accounting and reporting, the system of internal controls
established by management and the audit process of the Company. The Audit
Committee Charter sets out the responsibilities, authority and specific duties
of the Audit Committee. The Charter specifies, among other things, the
structure and membership requirements of the Audit Committee, as well as the
relationship of the Audit Committee to the independent accountants, the
internal audit department, and management of the Company. A copy of the
Audit Committee Charter is filed as Appendix A hereto.
Audit Committee Report. The Company's Audit Committee has issued the
following report with respect to the audited financial statements of the
Company for the fiscal year ended December 31, 2001:
o The Audit Committee has reviewed and discussed with the Company's
management the Company's fiscal 2001 audited financial statements;
o The Audit Committee has discussed with the Company's independent
auditors (Housholder, Artman and Associates, P.C.) the matters
required to be discussed by Statement on Auditing Standards No.
61;
o The Audit Committee has received the written disclosures and letter
from the independent auditors required by Independence Standards
Board No. 1 (which relates to the auditors' independence from
the Company and its related entities) and has discussed with the
auditors their independence from the Company; and
o Based on the review and discussions referred to in the three items
above, the Audit Committee recommended to the Board of Directors
that the fiscal 2001 audited financial statements be included
in the Company's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 2001.
8
Submitted by the Audit Committee of the Company's Board of Directors:
/s/Robert W. Newman
/s/Donald R. Collette
/s/Dr. R. Neil Schultz
/s/Dr. Franklin J. Noblin
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COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
- ------------------------------------------------------------------------------
Section 16(a) of the Exchange Act requires the Company's executive
officers and directors, and persons who own more than 10% of any registered
class of the Company's equity securities, to file reports of ownership and
changes in ownership with the SEC. Executive officers, directors and greater
than 10% stockholders are required by regulation to furnish the Company with
copies of all Section 16(a) forms they file.
Based solely on its review of the copies of such forms it has received
and written representations provided to the Company by the above referenced
persons, the Company believes that, during the fiscal year ended December 31,
2001, all filing requirements applicable to its reporting officers, directors
and greater than 10% stockholders were properly and timely complied with,
except for the filing of a Form 4, Statement of Change in Beneficial Ownership
of Securities, by Earl H. Barr, a director of the Company. Mr. Barr
inadvertently failed to file a Form 4, Statement of Change in Beneficial
Ownership of Securities, on August 10, 2001 for a transaction during the month
of July 2001. The Form 4 was subsequently filed on August 27, 2001.
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TRANSACTIONS WITH MANAGEMENT
- ------------------------------------------------------------------------------
Federal regulations require that all loans or extensions of credit to
executive officers and directors must be made on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons (unless the loan or extension of
credit is made under a benefit program generally available to all other
employees and does not give preference to any insider over any other employee)
and does not involve more than the normal risk of repayment or present other
unfavorable features. The Savings Bank is therefore prohibited from making
any new loans or extensions of credit to the Savings Bank's executive officers
and directors and at different rates or terms than those offered to the
general public and has adopted a policy to this effect. The aggregate amount
of loans by the Savings Bank to its executive officers and directors was
approximately $776,000 at December 31, 2001. Such loans (i) were made in the
ordinary course of business, (ii) were made on substantially the same terms
and conditions, including interest rates and collateral, as those prevailing
at the time for comparable transactions with the Savings Bank's other
customers, and (iii) did not involve more than the normal risk of
collectibility or present other unfavorable features when made.
Director Earl H. Barr owns and manages Barr's, Inc., a retail furniture
store, from which the Savings Bank has purchased furniture at a price
generally equal to 10% above cost. The Savings Bank purchased an immaterial
dollar amount of furniture during the year ended December 31, 2001.
- ------------------------------------------------------------------------------
PROPOSAL II -- APPROVAL OF APPOINTMENT OF INDEPENDENT AUDITORS
- ------------------------------------------------------------------------------
Housholder, Artman and Associates, P.C. was the Company's independent
auditors for the fiscal year ended December 31, 2001. The Board of Directors
has appointed Housholder, Artman and Associates, P.C. as independent auditors
for the fiscal year ending December 31, 2002, subject to approval by
stockholders. A representative of Housholder, Artman and Associates, P.C. is
expected to be present at the Meeting to respond to stockholders' questions
and will have the opportunity to make a statement if he so desires.
9
Audit Fees
The aggregate fees billed to the Company by Housholder, Artman and
Associates, P.C. for professional services rendered for the audit of the
Company's financial statements for fiscal 2001 and the reviews of the
financial statements included in the Company's Forms 10-QSB for that year were
$21,000.
Financial Information Systems Design and Implementation Fees
Housholder, Artman and Associates, P.C. performed no financial
information system design or implementation work for the Company during the
fiscal year ended December 31, 2001.
All Other Fees
Other than audit fees, the aggregate fees billed to the Company by
Housholder, Artman and Associates, P.C. for fiscal 2001, none of which were
financial information systems design and implementation fees, were $23,215.
The Audit Committee of the Board of Directors determined that the services
performed by Housholder, Artman and Associates, P.C. other than audit services
are not incompatible with Housholder, Artman and Associates, P.C. maintaining
its independence.
If the ratification of the appointment of the auditors is not approved by
a majority of the votes cast by shareholders at the annual meeting, other
independent public accountants will be considered by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE "FOR" THE
APPROVAL OF THE APPOINTMENT OF HOUSHOLDER, ARTMAN AND ASSOCIATES, P.C. AS
INDEPENDENT AUDITORS OF THE COMPANY FOR THE FISCAL YEAR ENDING DECEMBER 31,
2002.
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OTHER MATTERS
- ------------------------------------------------------------------------------
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matters should properly come before the Meeting, it is
intended that proxies in the accompanying form, that are properly executed and
dated, will be voted in respect thereof in accordance with the judgment of the
person or persons voting the proxies.
- ------------------------------------------------------------------------------
MISCELLANEOUS
- ------------------------------------------------------------------------------
The cost of solicitation of proxies will be borne by the Company. The
Company will reimburse brokerage firms and other custodians, nominees and
fiduciaries for reasonable expenses incurred by them in mailing proxy
solicitation materials to beneficial owners of the Common Stock. In addition
to solicitations by mail, directors, officers and regular employees of the
Company may solicit proxies personally or by telecopier or telephone without
additional compensation.
The Company's 2001 Annual Report to Stockholders, including consolidated
financial statements, has been mailed to all stockholders of record at the
close of business on the Voting Record Date. Any stockholder who has not
received a copy of such annual report may obtain a copy by writing to the
Company. The Annual Report is not to be treated as part of the proxy
solicitation material or having been incorporated herein by reference.
A copy of the Company's Form 10-KSB for the fiscal year ended December
31, 2001, as filed with the SEC, will be furnished without charge to
stockholders of record as of the close of business on the Voting Record
10
Date upon written request to Mr. Earl H. Barr, Corporate Secretary, Security
Bancorp, Inc., P.O. Box 7027, McMinnville, Tennessee 37111.
- ------------------------------------------------------------------------------
STOCKHOLDER PROPOSALS
- ------------------------------------------------------------------------------
Proposals of stockholders intended to be presented at the Company's
annual meeting next year must be received by the Company no later than
November 15, 2002 to be considered for inclusion in the proxy solicitation
materials and form of proxy relating to such meeting. Any such proposals
shall be subject to the requirements of the proxy solicitation rules adopted
under the Exchange Act.
The Company's Charter provides that in order for a stockholder to make
nominations for the election of directors or proposals for business to be
brought before a meeting of stockholders, a stockholder must deliver written
notice of such nominations and/or proposals to the Secretary not less than 30
nor more than 60 days prior to the date of the meeting; provided that if less
than 40 days' notice of the meeting is given to stockholders, such notice must
be delivered not later than the close of the tenth day following the day on
which notice of the meeting was mailed to stockholders. As specified in the
Charter, the written notice with respect to nominations for election of
directors must set forth certain information regarding each nominee for
election as a director, including such person's written consent to being named
in the proxy statement as a nominee and to serving as a director, if elected,
and certain information regarding the stockholder giving such notice. The
notice with respect to business proposals to be brought before the Meeting
must state the stockholder's name, address and number of shares of Common
Stock held, and briefly discuss the business to be brought before the Meeting,
the reasons for conducting such business at the Meeting and any interest of
the stockholder in the proposal. A copy of the Charter may be obtained from
the Company.
BY ORDER OF THE BOARD OF DIRECTORS
/s/EARL H. BARR
EARL H. BARR
SECRETARY
McMinnville, Tennessee
March 14, 2002
11
Appendix A
Charter of the Audit Committee of the Board of Directors
I. Audit Committee Purpose
The Audit Committee is appointed by the Board of Directors to assist the
Board in fulfilling its oversight responsibilities. The Audit
Committee's primary duties and responsibilities are to:
> Monitor the integrity of the Company's financial reporting process
and systems of internal controls regarding finance, accounting, and
legal compliance.
> Monitor the independence and performance of the Company's
independent auditors.
> Provide an avenue of communications among the independent auditors,
management, and the Board of Directors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities, and it has direct access
to the independent auditors as well as anyone in the organization. The
Audit Committee has the ability to retain, at the Company's expense,
special legal, accounting, or other consultants or experts it deems
necessary in the performance of its duties.
II. Audit Committee Composition and Meetings
Audit Committee members shall meet the requirements of the Nasdaq
National Market. The Audit Committee shall be comprised of three or more
directors as determined by the Board, each of whom shall be independent
nonexecutive directors, free from any relationship that would interfere
with the exercise of his or her independent judgement. All members of
the Committee shall have a basic understanding of finance and accounting
and be able to read and understand fundamental financial statements, and
at least one member of the Committee shall have accounting or related
financial management expertise.
Audit Committee members shall be appointed by the Board on recommendation
of the Nominating Committee. If an audit committee Chair is not
designated or present, the members of the Committee may designate a Chair
by majority vote of the Committee membership.
The Audit Committee Chair shall prepare and/or approve an agenda in
advance of each meeting. The Committee should meet privately in
executive session at least annually with management, the independent
auditors, and as a committee to discuss any matters that the Committee or
each of these groups believe should be discussed. In addition, the
Committee, or at least its Chair, should communicate with management and
the independent auditors quarterly to review the Company's financial
statements and significant findings based upon the auditors limited
review procedures.
III. Audit Committee Responsibilities and Duties
Review Procedures
> Review and reassess the adequacy of this Charter at least annually.
Submit the charter to the Board of Directors for approval and have
the document published at least every three years in accordance with
SEC regulations.
> Review the Company's annual audited financial statements prior to
filing or distribution. Review should include discussion with
management and independent auditors of significant issues regarding
accounting principles, practices, and judgements.
> In consultation with the management and the independent auditors,
consider the integrity of the Company's financial reporting processes
and controls. Discuss significant financial risk exposures and the
steps management has taken to monitor, control, and report such
exposures. Review significant findings prepared by the independent
auditors together with management's responses.
A-1
> Review with financial management and the independent auditors the
Company's quarterly financial results prior to the release of
earnings and/or the Company's quarterly financial statements prior to
filing or distribution. Discuss any significant changes to the
Company's accounting principles and any items required to be
communicated by the independent auditors in accordance with SAS 61.
The Chair of the Committee may represent the entire Audit Committee
for purposes of this review.
Independent Auditors
> The independent auditors are ultimately accountable to the Audit
Committee and the Board of Directors. The Audit Committee shall
review the independence and performance of the auditors and annually
recommend to the Board of Directors the appointment of the
independent auditors or approve any discharge of auditors when
circumstances warrant.
> Approve the fees and other significant compensation to be paid to the
independent auditors.
> On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Company that could impair the auditors' independence.
> Review the independent auditors audit plan -- discuss scope,
staffing, locations, and reliance upon management and general audit
approach.
> Prior to releasing the year-end earnings, discuss the results of the
audit with the independent auditors. Discuss certain matters required
to be communicated to audit committees in accordance with AICPA SAS
61.
> Consider the independent auditors' judgements about the quality and
appropriateness of the Company's accounting principles as applied to
its financial reporting.
Internal Audit Department and Legal Compliance
> Review the budget, plan, and changes in plan, activities,
organizational structure, as needed.
> On at least an annual basis, review with the Company's counsel, any
legal matters that could have a significant impact on the
organization's financial statements, the Company's compliance with
applicable laws and regulations, and inquiries received from
regulators or governmental agencies.
Other Audit Committee Responsibilities
> Annually prepare a report to shareholders as required by the
Securities and Exchange Commission. The report should be included in
the Company's annual proxy statement.
> Perform any other activities consistent with this Charter, the
Company's by-laws, and governing law, as the Committee or the Board
deems necessary or appropriate.
> Maintain minutes of meetings and periodically report to the Board of
Directors on significant results of the foregoing activities.
Other Optional Charter Disclosures
> Establish, review, and update periodically a Code of Ethical Conduct
and ensure that management has established a system to enforce this
Code.
> Periodically perform self-assessment of audit committee performance.
> Review financial and accounting personnel succession planning within
the Company.
> Annually review policies and procedures as well as audit results
associated with directors' and officers expense accounts and
perquisites. Annually review a summary of director and officers'
related party transactions and potential conflicts of interest.
*****
A-2
[x] PLEASE MARK VOTES REVOCABLE PROXY
AS IN THIS SAMPLE SECURITY BANCORP, INC.
With For All
For hold Except
1. The election as
ANNUAL MEETING OF STOCKHOLDERS director of the [ ] [ ] [ ]
APRIL 17, 2002 nominees listed
(except as marked to
The undersigned hereby appoints the the contrary below):
official Proxy Committee of the Board
of Directors of Security Bancorp, Inc. Robert W. Newman
("Company"), consisting of Donald R. Donald R. Collette
Collette and Joe H. Pugh, with full powers Dr. Franklin J. Noblin
of substitution to act as attorneys and
proxies for the undersigned, to vote INSTRUCTIONS: To withhold
all shares of Common Stock of the Company authority to vote for any
which the undersigned is entitled to vote individual nominee, mark 'For
at the Annual Meeting of Stockholders All Except' and write that
("Meeting"), to be held at the main nominee's name in the space
office of Security Federal Savings Bank provided below.
of McMinnville, TN, located at 306 West
Main Street, McMinnville, Tennessee, ------------------------------
on Wednesday, April 17, 2002, at For Against Abstain
2:00 p.m., Central Time, and at any 2. The approval [ ] [ ] [ ]
and all adjournments thereof, as set of the appoint-
forth to the right: ment of Hous-
holder, Artman
and Associates,
P.C. as indepen-
dent auditors
for the fiscal
year ending
December 31, 2002.
3. In their discretion, upon such
other matters as may properly
come before the meeting.
-----------
Please be sure to sign and Date The Board of Directors recommends a
date this Proxy in the Vote 'FOR' the listed proposals.
box below.
- ---------------------------------------- THIS PROXY, PROPERLY SIGNED AND
DATED, WILL BE VOTED AS DIRECTED, BUT
IF NO INSTRUCTIONS ARE SPECIFIED THIS
- ---------------------------------------- PROXY WILL BE VOTED FOR THE PROPOSALS
Stockholder sign Co-holder (if any) STATED. IF ANY OTHER BUSINESS IS PRE-
above sign above AT SUCH MEETING, THIS PROXY WILL BE
VOTED BY THE PROXY COMMITTEE OF THE
BOARD OF DIRECTORS IN ITS BEST JUDG-
MENT. PRESENTLY, THE BOARD OF
DIRECTORS KNOWS OF NO OTHER BUSINESS
TO BE PRESENTED AT THE MEETING. THIS
PROXY ALSO CONFERS DISCRETIONARY
AUTHORITY ON THE BOARD OF DIRECTORS
TO VOTE WITH RESPECT TO THE ELECTION
OF ANY PERSON AS DIRECTOR WHERE THE
NOMINEES ARE UNABLE TO SERVE OR FOR
GOOD CAUSE WILL NOT SERVE AND MATTERS
INCIDENT TO THE CONDUCT OF THE
MEETING.
- ------------------------------------------------------------------------------
Detach above card, sign, date and mail in
postage paid envelope provided.
SECURITY BANCORP, INC.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote in person at the
Meeting or at any adjournment thereof and after notification to the Secretary
of the Company at the Meeting of the stockholder's decision to terminate this
proxy, then the power of said attorneys and proxies shall be deemed terminated
and of no further force and effect.
The above-signed acknowledges receipt from the Company prior to the
execution of this proxy of the Notice of Annual Meeting of Stockholders, a
Proxy Statement for the Annual Meeting of Stockholders, and the 2001 Annual
Report to Stockholders.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, indicate your full
title. If shares are held jointly, only one registered holder need sign but
both holders should sign, if possible.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
- ------------------------------------------------------------------------------
IF YOUR ADDRESS HAS CHANGED, PLEASE CORRECT THE ADDRESS IN THE SPACE PROVIDED
BELOW AND RETURN THIS PORTION WITH THE PROXY IN THE ENVELOPE PROVIDED.
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