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
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
Security Federal Corporation
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
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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(5) Total fee paid:
N/A
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[ ] Fee paid previously with preliminary materials:
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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June 18, 2004
Dear Fellow Shareholder:
It is with great pleasure that I invite you to attend the Company's
Annual Meeting of Shareholders, to be held on July 22, 2004 at the City of
Aiken Municipal Conference Center, 215 The Alley, Aiken, South Carolina at
2:00 p.m., Eastern time. This meeting will include management's report to you
on the Company's financial and operating performance during the fiscal year
ended March 31, 2004, as well as an update on the progress we've made in
achieving our longer term corporate goals.
A critical aspect of the annual meeting is the shareholder vote on
corporate business items. I urge you to exercise your voting rights as a
shareholder and participate. All the materials you need to vote via the mail
are enclosed in this package. Please look them over carefully. Then MARK,
DATE, SIGN AND PROMPTLY RETURN YOUR PROXY in the envelope provided so that
your shares can be voted at the meeting in accordance with your instructions.
Your Board of Directors and management are committed to the continued
success of the Company and to the enhancement of your investment. As your
Chairman, I want to express my appreciation for your confidence and support.
Sincerely,
/s/ T. Clifton Weeks
T. Clifton Weeks
Chairman
SECURITY FEDERAL CORPORATION
1705 Whiskey Road South
Aiken, South Carolina 29803
(803) 641-3000
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held on July 22, 2004
Notice is hereby given that the Annual Meeting of Shareholders
("Meeting") of Security Federal Corporation ("Company") will be held at the
City of Aiken Municipal Conference Center, 215 The Alley, Aiken, South
Carolina, on July 22, 2004, at 2:00 p.m., Eastern time. A Proxy Card and a
Proxy Statement for the Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of three directors of the Company;
2. The approval of the adoption of the Security Federal
Corporation 2004 Employee Stock Purchase Plan; and
3. Such other matters as may properly come before the Meeting or
any adjournments or postponements 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 proposal at the Meeting on the
date specified above, or on any date or dates to which the Meeting may be
adjourned or postponed. Shareholders of record as of the close of business on
June 14, 2004 are the shareholders entitled to receive notice of and to vote
at the Meeting, and any adjournments or postponements thereof.
A complete list of shareholders entitled to vote at the Meeting is
available for examination by any shareholder, for any purpose germane to the
Meeting, between 9:00 a.m. and 5:00 p.m., Eastern time, Monday through Friday,
at the main office of the Company located at 1705 Whiskey Road South, Aiken,
South Carolina, from the date of this proxy statement through the Meeting.
You are requested to fill in and sign the enclosed form of Proxy, which
is solicited on behalf of 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/ Robert E. Johnson
Robert E. Johnson
Secretary
Aiken, South Carolina
June 18, 2004
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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 AT THE MEETING. 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
SECURITY FEDERAL CORPORATION
1705 Whiskey Road South
Aiken, South Carolina 29803
(803) 641-3000
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ANNUAL MEETING OF SHAREHOLDERS
July 22, 2004
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This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Security Federal Corporation
("Company"), to be used at the Annual Meeting of Shareholders of the Company
("Meeting"), which will be held at the City of Aiken Municipal Conference
Center, 215 The Alley, Aiken, South Carolina, on July 22, 2004, at 2:00 p.m.,
Eastern time, and all adjournments or postponements of the Meeting. The
accompanying Notice of Annual Meeting of Shareholders and this Proxy Statement
are first being mailed to shareholders on or about June 18, 2004. Certain of
the information provided herein relates to Security Federal Bank ("Bank"), a
wholly owned subsidiary and the predecessor of the Company.
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VOTING AND PROXY PROCEDURE
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Shareholders Entitled to Vote. Shareholders of record as of the close of
business on June 14, 2004 ("Record Date") will be entitled to one vote for
each share of common stock of the Company ("Common Stock") then held. As of
the close of business on the Record Date, there were 2,533,291 shares of
Common Stock issued and outstanding.
If you are a beneficial owner of 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 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. A majority of the shares of Common Stock, present in
person or represented by proxy and entitled to vote, shall constitute a quorum
for purposes of the Meeting. Abstentions and broker non-votes will be counted
as shares present and entitled to vote for purposes of the existence of a
quorum.
Voting. Directors shall be elected by a plurality of the votes present
in person or represented by proxy at the Meeting and entitled to vote on the
election of directors. Shareholders are not entitled to cumulate their votes
in the election of directors. Votes that are withheld and broker non-votes
will have no effect on the election of directors.
Approval of the adoption of the 2004 Employee Stock Purchase Plan will
require the affirmative vote of a majority of the outstanding shares of Common
Stock present in person or by proxy at the Meeting and entitled to vote.
Abstentions will be counted and will have the same effect as a vote against
the proposal; broker non-votes will be disregarded and will have no effect on
the outcome of the proposal.
Proxies; Proxy Revocation Procedures. All shares of Common Stock
represented at the Meeting by properly executed and dated proxies received
prior to or at the Meeting, and not revoked, will be voted at the Meeting in
accordance with the instructions thereon. If no instructions are indicated,
properly executed and dated proxies will be voted FOR the election of the
director nominees named in this Proxy Statement and FOR the adoption of the
2004 Employee Stock Purchase Plan. The Company does not know of any matters,
other than as described in the Notice of Annual Meeting, that are to come
before the Meeting. If any other matters are properly presented at the
Meeting for action, the persons named in the enclosed form of proxy and acting
thereunder will have the discretion to vote on such matters in accordance with
their best judgment.
If your 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 instruction 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.
A proxy given pursuant to the solicitation may be revoked at any time
before it is voted. Proxies may be revoked by: (i) filing with the Secretary
of the Company at or before the Meeting a written notice of revocation bearing
a later date than the proxy; (ii) duly executing a subsequent proxy relating
to the same shares and delivering it to the Secretary of the Company at or
before the Meeting; or (iii) attending the Meeting and voting in person
(although attendance at the Meeting will not in and of itself constitute
revocation of a proxy). Any written notice revoking a proxy should be
delivered to Robert E. Johnson, Secretary, Security Federal Corporation, 1705
Whiskey Road South, Aiken, South Carolina 29803.
Participants in the Security Federal Corporation ESOP. If a shareholder
is a participant in the Security Federal Corporation Employee Stock Ownership
Plan ("ESOP"), the proxy card represents a voting instruction to the trustees
of the ESOP as to the number of shares of Common Stock 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.
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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 Common
Stock are required to file certain reports with the Securities and Exchange
Commission ("SEC"), and provide a copy to the Company, regarding such
ownership pursuant to the Securities Exchange Act of 1934, as amended
("Exchange Act"). Based upon such reports, the following table sets forth, as
of the close of business on the 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 owned more than 5% of the outstanding shares of Common Stock as of
the close of business on the Record Date. The table also sets forth, as of
the close of business on the Record Date, information as to the shares of
Common Stock beneficially owned by each director, the "named executive
officers" of the Company, and all executive officers and directors of the
Company as a group.
Beneficial Owner Shares Beneficially Owned (1) Percent of Class
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Beneficial Owners of More
Than 5%
T. Clifton Weeks (2) 301,830 11.92%
P.O. Box 941
Aiken, SC 29802
Mr. and Mrs. Robert E.
Scott, Sr. (3) 216,066 8.53
4 Inverness West
Aiken, SC 29803
Thomas W. Weeks (4) 197,316 7.80
P.O. Box 365
Barnwell, SC 29812
Timothy W. Simmons (5) 163,216 6.44
P.O. Box 277
Aiken, SC 29802
2
Beneficial Owner Shares Beneficially Owned (1) Percent of Class
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Directors
Gasper L. Toole, III (6) 100,600 3.98
Thomas L. Moore (7) 6,084 *
Harry O. Weeks, Jr. (8) 76,798 3.03
Robert E. Alexander (9) 3,600 *
William Clyburn (10) 2,214 *
J. Chris Verenes (11) 3,825 *
All directors and executive
officers as a group (11
persons) (12) 698,891 27.59
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* Less than one percent of shares outstanding.
(1) Includes shares held directly, as well as indirectly by spouses, minor
children and corporations owned by such individuals, shares held in
retirement accounts of such individuals' family members over which shares
the respective individuals may be deemed to have sole voting or
investment power.
(2) T. Clifton Weeks, the Chairman of the Board of the Company and Director
of the Bank, is the father-in-law of Timothy W. Simmons. Includes 5,952
shares held directly and 295,878 held indirectly through a partnership
over which Mr. Weeks has sole voting and dispositive power.
(3) Mr. and Mrs. Scott have shared voting and dispositive power with respect
to the shares held jointly.
(4) Thomas W. Weeks is the brother of Harry O. Weeks, Jr., a Director of the
Company. The amount disclosed includes 45,600 shares held by his wife.
(5) Includes 82,506 shares held directly, 68,646 shares held by his wife and
12,064 shares allocated to Mr. Simmons' account under the Company's ESOP.
In addition to serving as a Director, Mr. Simmons is the President and
Chief Executive Officer of the Company, and Chairman of the Board and
Chief Executive Officer of the Bank.
(6) Includes 25,600 shares held by his wife.
(7) Includes 2,280 shares held by his wife.
(8) Includes 3,540 shares held by his wife and 5,200 shares held in trust for
his daughter, Allison Weeks.
(9) Includes 3,000 shares held by his son.
(10) Includes 2,064 shares held jointly with his wife.
(11) Includes 300 shares held jointly with his wife. In addition to serving
as a Director, Mr. Verenes is also President and a Director of the Bank.
(12) Includes 13,777 shares allocated to individual accounts of executive
officers pursuant to the ESOP.
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PROPOSAL 1 - ELECTION OF DIRECTORS
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The Company's Board of Directors consists of eight directors. Each
member of the Company's Board of Directors is also a director of the Bank.
Approximately one-third of the directors are elected annually. Directors of
the Company are elected to serve for a three-year period or until their
respective successors shall have been elected and shall qualify. Three
directors will be elected at the meeting to serve for a term of three years or
until their respective successors have been elected and qualified. The
nominees for election this year are Gasper L. Toole, III, Thomas L. Moore and
J. Chris Verenes, each of whom is a current member of the Board of Directors
of the Company and of the Bank.
The following table sets forth information as of the close of business on
the Record Date regarding each director nominee and each director whose term
of office will continue after the Meeting. The Board of Directors intends to
vote the proxies solicited on its behalf (other than proxies in which the vote
is withheld as to one or more nominees) for the three candidates nominated by
the Board of Directors and standing for election at the Meeting. If any
nominee is unable to serve, the shares represented by all such proxies will be
voted for the election of such substitute as the Board of Directors may
recommend. At this time the Board of Directors knows of no reason why any
nominee might be unavailable to serve. Except as disclosed herein, there are
no arrangements or understandings between any nominee and any other person
pursuant to which such nominee was selected.
3
The Board of Directors recommends a vote "FOR" the election of Messrs.
Toole, Moore and Verenes.
Positions Held in the Director Term to
Name Age Company and the Bank Since (1) Expire
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NOMINEES
Gasper L. Toole, III 78 Director and Vice
President of the Company
and the Bank 1958 2007 (2)
Thomas L. Moore 54 Director of the Company
and the Bank 1990 2007 (2)
J. Chris Verenes 48 Director of the Company
and President and Director
the Bank 2002 2007 (2)
CONTINUING DIRECTORS
Harry O. Weeks Jr. 64 Director of the Company
and the Bank 1978 2005
Robert E. Alexander 64 Director of the Company
and the Bank 1988 2005
William Clyburn 63 Director of the Company
and the Bank 1993 2005
Timothy W. Simmons 58 President, Chief Executive
Officer and Director of
the Company, and Chairman
of the Board and Chief
Executive Officer of
the Bank 1983 2006
T. Clifton Weeks 77 Chairman of the Board of
the Company and Director
of the Bank 1958 2006
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(1) Includes service on the Board of Directors of the Bank.
(2) Assuming re-election at the Meeting.
The principal occupation of each of the directors during the last five
years is as follows:
Gasper L. Toole, III is of counsel to the law firm of Toole & Toole, a
position he has held since March 1991. Prior to that time, he was a partner
in the firm. He has also served as Vice President of the Company since July
1987 and of the Bank since August 1958.
Thomas L. Moore is a member of the South Carolina Senate, a position he
has held since 1981. He is also President of Boiler Efficiency, Inc., a
mechanical contracting company located in Clearwater, South Carolina, a
position he has held since 1978.
J. Chris Verenes was elected President of the Bank effective January 26,
2004. Prior to that, he held a variety of management positions with
Washington Group International, an engineering and construction company that
manages and operates major government sites throughout the United States for
the Department of Energy. He was Director of Planning and Administration from
2001 to January 2004, Chief of Staff during 2001, Director of Strategic
Programs for the business unit from 2000 to 2001 and Deputy Manager of
Business from 1996 to 2000. Prior to his employment by Washington Group
International, Mr. Verenes served as Controller for Riegel Textile
Corporation, as Director of Control Data and Business and Technology Center,
and as Executive Director of the South Carolina Democratic Party.
Harry O. Weeks Jr. is an Insurance Broker and Business Development
Officer with Hutson-Etherredge Companies, a position he has held since May
1995. Prior to that, Mr. Weeks was President and Chief Executive Officer of
Lyon, Croft, Weeks & Hunter Insurance Agency from May 1965 to May 1995.
4
Robert E. Alexander is the Chancellor Emeritus of the University of South
Carolina - Aiken. He served as Chancellor from 1983 to June 2000. He
continues to assist the University in special development activities through
teaching undergraduate seminars. Dr. Alexander is Chair of the Board of
Governors of Aiken Regional Medical Centers, a wholly-owned subsidiary of
Universal Health Services. He serves as Vice Chair of the Board of Directors
of ACTS (Area Churches Together Serving), an interdenominational organization
that provides emergency and long-term assistance to people in distress. He
serves as Treasurer and member of the Board of Managers of the Bishop Gravatt
Episcopal Retreat Center. Other board of director memberships include The
Aiken Preparatory School and The Lambda Chi Alpha National Fraternity,
Indianapolis, Indiana. In addition, Dr. Alexander regularly serves as a
consultant for architectural firms on a national and a regional basis in the
fields of higher education and health care facilities.
William Clyburn is employed as an Advisor for Community Alliances with
Westinghouse Savannah River Company, a United States Department of Energy
contractor located in Aiken, South Carolina, a position he has held since
September 1994. He previously served as an Administrative Law Judge with the
South Carolina Workers Compensation Commission from July 1986 to June 1994.
Mr. Clyburn serves in the South Carolina House of Representatives.
Timothy W. Simmons has been President of the Company since 1987 and Chief
Executive Officer since June 1994. Mr. Simmons was elected President and
Chief Operating Officer of the Bank in January 1987 and served in these
capacities from March 1987 to December 2001. In May 1988, Mr. Simmons became
Chief Executive Officer of the Bank and in January 2002, he was elected
Chairman of the Bank's Board of Directors.
T. Clifton Weeks has been Chairman of the Board of the Company since July
1987 and was Chief Executive Officer of the Company from July 1987 until June
1994. Mr. Weeks served as Chairman of the Board of the Bank from January 1987
until January 2002 and was Chief Executive Officer of the Bank from 1987 until
May 1988. Prior thereto, he served as President and Managing Officer of the
Bank beginning in 1958.
Executive Officers Who Are Not Directors of the Company or the Bank
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The following information as to the principal occupations during the past
five years is supplied with respect to the Company's executive officers who do
not serve on the Company's or the Bank's Board of Directors. There are no
arrangements or undertakings between the persons named and any other person
pursuant to which such officers were selected.
Frank M. Thomas, age 57, was named Senior Vice President - Commercial
Loans and Business Development in January 2002. He previously served as
Senior Vice President - Mortgage Lending from March 1999 to January 2002.
From September 1994 to March 1999, Mr. Thomas served as Vice President -
Commercial Loans and Business Development as well as Banking Center
Coordinator from January 1996 to April 1998.
Roy G. Lindburg, age 43, has been Treasurer and Chief Financial Officer
of the Company and the Bank since January 1995.
Floyd Blackmon, age 63, was named Senior Vice President - Chief Operating
Officer of the Bank in January 2002. He previously served as Senior Vice
President - Operations from March 1999 until January 2002 and prior to that as
Vice President of that department from January 1998. Prior to joining the
Bank, Mr. Blackmon was Senior Vice President of Operations for ComSouth
Bankshares, Inc., Columbia, South Carolina from March 1989 to July 1997.
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MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
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Meetings and Committees of the Company. During the fiscal year ended
March 31, 2004, the Board of Directors of the Company held 12 meetings. No
director attended fewer than 75% of the meetings held by the Board of
Directors and all committees on which he served. The Company's Board of
Directors has standing Executive, Audit, Compensation, Proxy and Nominating
Committees.
5
The Executive Committee, comprised of Director T. Clifton Weeks as
Chairman and Directors Toole, Alexander, Simmons and Verenes, meets on an as
needed basis to handle matters arising between Board meetings. This Committee
met three times during fiscal 2004.
The Audit Committee, comprised of Director Harry O. Weeks Jr. as Chairman
and Directors Moore and Clyburn, assists the Board in fulfilling its oversight
responsibilities. The Committee is responsible for reviewing the Company's
annual audited financial statements and any financial statements submitted to
the public, appointment of the independent auditors and monitoring the
independence and performance of the Company's independent auditors and
internal auditing department. The Board of Directors has determined that
there is no "audit committee financial expert," as defined by the Securities
and Exchange Commission ("SEC"). The Board believes that the current members
of the Audit Committee are qualified to serve based on their collective
experience and background. Each member of the Audit Committee is
"independent," as defined, in the case of the Company, under The Nasdaq Stock
Market Rules. This Committee met four times during fiscal 2004.
The Compensation Committee, which also serves as the Stock Option
Committee, is comprised of Director T. Clifton Weeks as Chairman and Directors
Toole and Alexander. This Committee meets on an as needed basis and makes
recommendations to the Board regarding annual contributions to certain benefit
plans and salaries for officers and employees. This Committee also determines
certain minor administrative matters related to certain employee plans. This
Committee met four times during fiscal 2004.
The Proxy Committee, which is composed of the entire Board of Directors,
is responsible for voting the proxies of the Company's shareholders. The
Committee met once during fiscal 2004.
The Nominating Committee, consisting of Directors T. Clifton Weeks as
Chairman and Directors Toole and Alexander, was formed to assure that the
Company maintains the highest standards and best practices in all critical
areas relating to the management of the business of the Company. The
Committee also selects nominees for the election of directors and develops a
list of nominees for board vacancies. The Nominating Committee has a charter
which specifies its obligations. A copy of the Charter is attached to this
proxy statement as Appendix A and will be available on the Company's website.
Each member of the Committee is "independent," in accordance with the
requirements for companies quoted on The Nasdaq Stock Market, with the
exception of Mr. Weeks. This Committee did not meet during the year ended
March 31, 2004, as it was formed in May 2004.
The Nominating Committee met on May 20, 2004 to nominate directors for
election at the Meeting. Only those nominations made by the Committee or
properly presented by shareholders will be voted upon at the Meeting. In its
deliberations for selecting candidates for nominees as director, the
Nominating Committee considers the candidate's knowledge of the banking
business and involvement in community, business and civic affairs, and also
considers whether the candidate would provide for adequate representation of
its market area. Any nominee for director made by the Committee must be
highly qualified with regard to some or all these attributes. In searching
for qualified director candidates to fill vacancies in the Board, the
Committee solicits its current Board of Directors for names of potentially
qualified candidates. Additionally, the Committee may request that members of
the Board of Directors pursue their own business contacts for the names of
potentially qualified candidates. The Committee would then consider the
potential pool of director candidates, select the candidate the Committee
believes best meets the then-current needs of the Board, and conduct a
thorough investigation of the proposed candidate's background to ensure there
is no past history that would cause the candidate not to be qualified to serve
as a director of the Company. The Committee will consider director candidates
recommended by the Company's shareholders. If a shareholder submits a
proposed nominee, the Committee would consider the proposed nominee, along
with any other proposed nominees recommended by members of the Company's Board
of Directors, in the same manner in which the Committee would evaluate its
nominees for director. For a description of the proper procedure for
shareholder nominations, see "Shareholder Proposals and Nominations" in this
proxy statement.
Meetings and Committees of the Bank. The Bank, as principal subsidiary
of the Company, has certain standing committees of its Board of Directors.
Meetings of the Bank's Board of Directors are generally held on a monthly
basis. The Board of Directors held a total of 12 meetings during the fiscal
year ended March 31, 2004. During fiscal 2004, no director attended fewer
than 75% of the total number of meetings held by the Board of Directors and
all committees
6
of the Board of Directors on which he served. The Bank's Board of Directors
has standing Executive, Audit, Compensation and Loan Committees.
The Executive Committee of the Board of Directors of the Bank is composed
of Director Simmons as Chairman and Directors T. Clifton Weeks, Toole,
Alexander and Verenes. To the extent authorized by the Board of Directors and
by the Bank's Bylaws, this Committee exercises all of the authority of the
Board of Directors between Board meetings and formulates recommendations for
presentation to the full Board. All actions of this Committee are reviewed
and ratified by the entire Board. The Executive Committee met 31 times during
fiscal 2004.
The Loan Committee of the Board of Directors of the Bank is composed of
T. Clifton Weeks as Chairman and Directors Toole, Alexander, Simmons and
Verenes. The Loan Committee is responsible for and oversees the Bank's loan
activities. All actions of this Committee are reviewed and ratified by the
entire Board. This Committee met 31 times during fiscal 2004.
The Audit Committee of the Bank reviews audit reports, reevaluates audit
performance and handles relations with the Bank's independent auditors to
ensure effective compliance with regulatory and internal policies and
procedures. Members of this Committee are Director Harry O. Weeks Jr. as
Chairman and Directors Moore and Clyburn. The Audit Committee met 12 times
during fiscal 2004.
The Compensation Committee of the Bank makes recommendations to the Board
regarding the amount of the Bank's annual contribution to certain benefit
plans and salaries for the Bank's officers and employees. This Committee also
determines certain minor administrative matters related to certain employee
plans. Members of this Committee are Directors T. Clifton Weeks as Chairman
and Directors Toole and Alexander. This Committee met six times during fiscal
2004.
Board Policies Regarding Communications with the Board of Directors and
Attendance at Annual Meetings
The Board of Directors maintains a process for shareholders to
communicate with the Board of Directors. Shareholders wishing to communicate
with the Board of Directors should send any communication to the Secretary,
Security Federal Corporation, P.O. Box 810, Aiken, South Carolina 29802. Any
communication must state the number of shares beneficially owned by the
shareholder making the communication. The Secretary will forward such
communication to the full Board of Directors or to any individual director or
directors to whom the communication is directed unless the communication is
unduly hostile, threatening, illegal or similarly inappropriate, in which case
the Secretary has the authority to discard the communication or take
appropriate legal action. The Company does not have a policy regarding Board
member attendance at annual meetings of shareholders. All members of the
Board of Directors attended the 2003 Annual Meeting of Shareholders.
Corporate Governance
The Company and the Bank are committed to establishing and maintaining
high standards of corporate governance. The Board of Directors is cognizant
of its responsibility to comply with the provisions contained in the
Sarbanes-Oxley Act of 2002 and the rules and regulations of the SEC adopted
thereunder. The Board and its committees will continue to evaluate and
improve the Company's and the Bank's corporate governance principles and
policies as necessary and as required.
Code of Ethics. On August 21, 2003, the Board of Directors adopted the
Code of Ethics for Principal Executive Officer and Senior Financial Officers.
The Code is applicable to the Company's principal executive officer and senior
financial officers, and requires individuals to maintain the highest standards
of professional conduct. A copy of the Code of Ethics is available upon
request from the Company. Requests should be made to: Secretary, Security
Federal Corporation, P.O. Box 810, Aiken, South Carolina 29802.
7
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DIRECTORS COMPENSATION
- -----------------------------------------------------------------------------
The Company does not compensate the members of its Board of Directors for
service on the Board or committees. The Directors of the Bank receive fees of
$1,000 per month. Members of the Executive Committee receive $1,000 per month
for membership on this Committee, with the exception of Messrs. Simmons and
Verenes, who do not receive a fee for service on this Committee. Members of
the Audit Committee receive $400 per meeting attended. No fee is paid for
service on the Bank's Compensation or Loan Committees.
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EXECUTIVE COMPENSATION
- -----------------------------------------------------------------------------
Summary Compensation Table. The Company has not paid any compensation to
its executive officers since its formation. The following table sets forth
for the last three fiscal years the compensation paid by the Bank to, or
accrued for the benefit of, the Chief Executive Officer of the Company and the
Bank. No other executive officer received salary and bonus in excess of
$100,000 during the fiscal year ended March 31, 2004.
Annual Compensation
-------------------
All Other
Name and Position Year Salary (1) Compensation (2)
- --------------------------------- ---- ------------------- ---------------
Timothy W. Simmons 2004 $169,000 $27,218
President, Chief Executive 2003 144,840 22,350
Officer and Director 2002 127,883 16,626
of the Company, and Chairman
of the Board and Chief Executive
Officer of the Bank
- -------------------
(1) Includes board fees of $12,750, $10,740 and $10,080 for fiscal 2004, 2003
and 2002, respectively.
(2) All other compensation during fiscal 2004 represents deferred
compensation pursuant to the Company's 401(k) Plan of $14,474 and
employer contributions to the 401(k) Plan of $8,711 and to the ESOP of
$4,033.
Option Grant Table. There were no options granted to Mr. Simmons in
fiscal 2004.
Option Exercise/Value Table. The following table sets forth information
with respect to the number and value of stock options held at March 31, 2004
by Mr. Simmons.
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-the-Money Options
Shares at Fiscal Year End at Fiscal Year End (1)
Acquired Value --------------------------- ---------------------------
Name On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- ----------------- ----------- -------- ----------- -------------- ----------- -------------
<s> <c> <c> <c> <c> <c> <c>
Timothy W. Simmons
Nonqualified - $ - - $ 3,000 $ - $12,990
Incentive Stock
Options - - 6,000 - 16,020 -
- ------------
(1) Represents the difference between the price of the Common Stock at March 31, 2004 and the exercise
price of the option. Options are in-the-money if the market value of the shares covered by the options
is greater than the option exercise price.
Equity Compensation Plan Information. The following table sets forth
certain information with respect to securities to be issued under the
Company's equity compensation plans as of March 31, 2004. The table does not
include securities issuable under the 2004 Employee Stock Purchase Plan being
submitted for shareholder approval at this year's Meeting.
8
Number of
securities
remaining
available for
future issuance
under equity
Number of securities compensation
to be issued upon Weighted-average plans (excluding
exercise of exercise price of securities
outstanding options, outstanding options, reflected
Plan category warrants and rights warrants and rights in column (a))
- --------------- ------------------- ------------------- ----------------
(a) (b) (c)
Equity compensation
plans approved by
security holders 131,639 $18.23 23,000
Equity compensation
plans not approved
by security holders N/A N/A N/A
------- ------ ------
Total 131,639 $18.23 23,000
======= ====== ======
Salary Continuation Agreement. The Company and the Bank have entered
into a salary continuation agreement ("Agreement") with Mr. Simmons
("Executive"). The Agreement is for a term of one year. However, upon the
expiration of each one-year term, the Agreement may be extended for an
additional term upon approval by the Board of Directors following a formal
performance evaluation of the Executive by the disinterested members of the
Board of Directors. The Agreement provides for payment of 120% of current
compensation in monthly installments until the earlier of: (i) his reaching
age 72, or (ii) 36 months after his resignation or termination, where he is
terminated or resigns at any time following a "Change in Duties or Salary" in
connection with a "Change in Control" of the Company.
For purposes of the Agreement, the term "Change in Control" means a
change in control of the Company where an entity, corporation or group of
persons acting in concert (other than the members of the Board of Directors of
the Company as of January 1, 1993) acquire a majority of the voting stock of
the Company entitling them to elect a majority of the Board of Directors of
the Company. A "Change in Duties or Salary" shall include any of the
following: (a) a change in duties and responsibilities of the Executive from
those in effect at the time of a Change in Control, which change results in
the assignment of duties and responsibilities inferior to those duties and
responsibilities of the Executive at the time the Change in Control occurs;
(b) a reduction in rate of annual salary from such rate in effect at the time
of a Change in Control; or (c) a change in the place of assignment of employee
from Aiken, South Carolina, to any location that is located further than 25
miles from Aiken, South Carolina. Assuming a Change of Control occurred on
March 31, 2004, the aggregate amount due and payable to Mr. Simmons would have
been approximately $630,000.
- -----------------------------------------------------------------------------
AUDIT COMMITTEE MATTERS
- -----------------------------------------------------------------------------
Audit Committee Charter. The Audit Committee operates pursuant to a
written 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.
Report of the Audit Committee. The Audit Committee reports as follows
with respect to the Company's audited financial statements for the year ended
March 31, 2004:
* The Audit Committee has completed its review and discussion of the
Company's 2004 audited financial statements with management;
* The Audit Committee has discussed with the independent auditors
(Elliott Davis, LLC) the matters required to be discussed by
Statement on Auditing Standards ("SAS") No. 61, Communication with
9
Audit Committees, as amended by SAS No. 90, Audit Committee
Communications, including matters related to the conduct of the
audit of the Company's financial statements;
* The Audit Committee has received written disclosures, as required
by Independence Standards Board Standard No. 1, Independence
Discussions with Audit Committee, indicating all relationships, if
any, between the independent auditor and its related entities and
the Company and its related entities which, in the auditors'
professional judgment, reasonably may be thought to bear on the
auditors' independence, and the letter from the independent
auditors confirming that, in its professional judgment, it is
independent from the Company and its related entities, and has
discussed with the auditors the auditors' independence from the
Company; and
* The Audit Committee has, based on its review and discussions with
management of the Company's 2004 audited financial statements and
discussions with the independent auditors, recommended to the
Board of Directors that the Company's audited financial statements
for the year ended March 31, 2004 be included in the Company's
Annual Report on Form 10-K.
Audit Committee: Harry O. Weeks Jr., Chairman
Thomas L. Moore
William Clyburn
- -----------------------------------------------------------------------------
COMPENSATION COMMITTEE MATTERS
- -----------------------------------------------------------------------------
Notwithstanding anything to the contrary set forth in any of the
Company's previous filings under the Securities Act of 1933, as amended, or
the Exchange Act that might incorporate future filings, including this Proxy
Statement, in whole or in part, the following Report of the Compensation
Committee and Performance Graph shall not be incorporated by reference into
any such filings.
Report of the Compensation Committee. Under rules established by the
SEC, the Company is required to provide certain data and information in regard
to the compensation and benefits provided to the Company's Chief Executive
Officer and other executive officers. The disclosure requirements for the
Chief Executive Officer and other executive officers include the use of tables
and a report explaining the rationale and considerations that led to the
fundamental executive compensation decisions affecting those individuals. The
Compensation Committee of the Board of Directors of the Company is responsible
for establishing and monitoring compensation policies of the Company and for
reviewing and ratifying the actions of the Compensation Committee of the Board
of Directors of the Bank. Performance is evaluated and salaries are set by
the Compensation Committee of the Bank.
General. The Bank's Compensation Committee's duties are to recommend and
administer policies that govern executive compensation. The Committee
evaluates individual executive performance, compensation policies and
salaries. The Committee is responsible for evaluating the performance of the
Chief Executive Officer of the Bank while the Chief Executive Officer of the
Bank evaluates the performance of other senior officers of the Bank and makes
recommendations to the Committee regarding compensation levels.
Compensation Policies. The executive compensation policies of the Bank
are designed to establish an appropriate relationship between executive pay
and the Company's and Bank's annual performance, to reflect the attainment of
short- and long-term financial performance goals and to enhance the ability of
the Company and the Bank to attract and retain qualified executive officers.
The principles underlying the executive compensation policies include the
following:
* To attract and retain key executives who are vital to the long-term
success of the Company and the Bank and are of the highest caliber;
* To provide levels of compensation competitive with those offered
throughout the financial industry and consistent with the Company's
and the Bank's level of performance;
10
* To motivate executives to enhance long-term stockholder value by
building their equity interest in the Company; and
* To integrate the compensation program with the Company's and the
Bank's annual and long-term strategic planning and performance
measurement processes.
The Committee considers a variety of subjective and objective factors in
determining the compensation package for individual executives, including: (1)
the performance of the Company and the Bank as a whole with emphasis on annual
performance factors and long-term objectives; (2) the responsibilities
assigned to each executive; and (3) the performance of each executive of
assigned responsibilities as measured by the progress of the Company and the
Bank during the year.
Base Salary. The Bank's current compensation plan involves a combination
of salary, employer contributions to 401(k) and ESOP Plans, and deferred
compensation. The salary levels of executive officers are designed to be
competitive within the banking and financial services industries. In setting
competitive salary levels, the Compensation Committee continually evaluates
current salary levels by surveying similar institutions in the Southeast and
the United States. The Compensation Committee's peer group analysis focuses
on asset size, nature of ownership, type of operation and other common
factors. Specifically, the Compensation Committee annually reviews the South
Carolina Banker's Association Compensation and Benefits Survey, the Bank
Administration Institute Cash Compensation Survey, and the America's Community
Banker's Survey of Salaries which covers over 500 financial institutions
nationwide.
Long Term Incentive Compensation. The Company, with shareholder
approval, adopted the 1987 Stock Option Plan, the 1999 Stock Option Plan and
the 2002 Stock Option Plan. Under the plans, non-employee directors,
executive officers and other employees may receive grants and awards. The
Company believes that stock ownership by the Company's and the Bank's
executives is a significant factor in aligning the interests of the executives
with those of stockholders. Stock options and awards under such plans were
allocated based upon regulatory practices and policies, and the practices of
other publicly traded financial institutions as verified by external surveys
and were based upon the executive officers' level of responsibility and
contributions to the Company and the Bank.
Compensation of the Chief Executive Officer. During the fiscal year
ended March 31, 2004, Mr. Simmons' salary was $169,000, including board fees
of $12,750. In addition, he was credited with $27,218 in other compensation
(comprised of ESOP contribution of $4,033, employer 401(k) contribution of
$8,711 and deferred compensation pursuant to the Company's 401(k) plan of
$14,474) as set forth in the preceding Summary Compensation Table. This
resulted in total compensation of $196,218, which represents a 17.4% increase
from the previous year. The Committee believes that Mr. Simmons' compensation
is appropriate based on the Company's overall compensation policy, on the
basis of the Committee's consideration of peer group data, and the superior
financial performance of the Company during the fiscal year.
Compensation Committee of
the Board of Directors: T. Clifton Weeks, Chairman
Gasper L. Toole, III
Robert E. Alexander
Compensation Committee Interlocks and Insider Participation. No members
of the Compensation Committee were officers or employees of the Company or any
of its subsidiaries during the year ended March 31, 2004 or had any
relationships otherwise requiring disclosure. Mr. Weeks served as Chief
Executive Officer of the Company from 1987 until 1994.
11
Performance Graph. The following graph compares the cumulative total
shareholder return on the Company's Common Stock with the cumulative total
return on the S&P 500 (U.S. Stock) Index and a peer group of the SNL All
Thrift Index. Total return assumes the reinvestment of all dividends and that
the value of Common Stock and each index was $100 on March 31, 1999.
[GRAPH APPEARS HERE]
Period Ending
---------------------------------------------------------
Index 3/31/99 3/31/00 3/31/01 3/31/02 3/31/03 3/31/04
- ---------------- ------- ------- ------- ------- ------- -------
Security Federal
Corporation $100.00 $133.73 $134.11 $145.65 $136.16 $142.06
S&P 500 100.00 118.36 92.60 92.94 69.91 94.60
NASDAQ - Total U.S. 100.00 186.24 75.12 75.58 55.20 82.45
SNL Thrift Index 100.00 79.28 131.59 152.26 169.72 252.11
- -----------------------------------------------------------------------------
PROPOSAL 2 - APPROVAL OF THE 2004 EMPLOYEE STOCK PURCHASE PLAN
- -----------------------------------------------------------------------------
General
The Company's Board of Directors adopted the Security Federal Corporation
2004 Employee Stock Purchase Plan ("ESPP") on May 20, 2004, subject to
approval by the Company's shareholders. The objective of the ESPP is to
advance the Company's interest by enabling eligible employees of the Company
and its affiliates to acquire a larger personal proprietary interest in the
Company through purchases of the Company's common stock at a discounted price.
The following summary is a brief description of the material features of
the ESPP. This summary is qualified in its entirety by reference to the ESPP,
a copy of which is attached as Appendix B.
12
Summary of the ESPP
ESPP Benefit. The ESPP grants eligible employees with the option of
purchasing common stock of the Company from the Company at a discount. The
ESPP permits the purchase of common stock through payroll deduction as
follows: (a) the ESPP provides for quarterly periods during which payroll
deductions will be accumulated ("offering period"); (b) eligible employees may
choose the percentage of their gross compensation up to a maximum of ten
percent to be deducted and applied to purchase shares of common stock under
the ESPP; (c) at the beginning of the offering period, the eligible employees
obtain stock options to purchase common stock under the ESPP at a 15% discount
from the lower of the market value on the first day of the offering period or
the last day of the offering period; and (d) at the end of the offering
period, the eligible employees are deemed to exercise these options to the
extent of their payroll deductions. No fractional shares will be issued.
The ESPP provides that employees may withdraw by giving written notice to
the Company, and may withdraw all (but not less than all) payroll deductions
credited to the employee's account and not yet used to exercise an option.
Upon ceasing to be an employee, the payroll deductions credited to the
employee's account but not yet used to exercise an option will be returned to
the participant.
Neither the options provided to the employee pursuant to the ESPP nor
accumulated payroll deductions may be transferred, assigned, or sold to
anyone, except by will or the laws of descent and distribution. After purchase
and a one-year mandatory holding period, the employee may freely transfer,
assign or sell the stock, subject to compliance with applicable federal and
state securities and taxation laws.
Administration. The ESPP is administered by the Board of Directors or a
committee of the Board, which, subject to the rules contained in the ESPP, has
complete authority, in its discretion, to interpret and apply the terms of the
ESPP, to determine eligibility and to adjudicate all disputed claims filed
under the ESPP.
Participants; Limitations on Purchases. All employees of the Company who
have been continuously employed by the Company or a subsidiary of the Company
for at least six consecutive months, and who are scheduled to work at least 20
hours per week, are eligible to participate in the ESPP. On April 30, 2004,
the number of eligible participants was approximately 143. No employee will
be permitted to participate in the ESPP if immediately after a grant under the
ESPP, the employee would own or hold five percent or more of the voting stock
of the Company or five percent or more of the value of all the Company's
shares. No employee will be permitted to accrue the right at any time to
purchase more than $25,000 worth of the Company's stock through the ESPP each
calendar year.
Number of Shares of Common Stock Available. The Company has reserved
50,000 shares of its common stock for sale under the ESPP in connection with
the exercise of awards. The maximum number of shares may be adjusted for
stock dividends, stock splits, stock conversions, exchanges, reclassifications
or substitutions. Shares of common stock subject to the ESPP may be newly
issued by the Company or purchased by the Company on the open market or
otherwise.
Termination; Amendment. The Board of Directors may terminate the ESPP at
any time; provided, however, that no such termination will affect options
outstanding at the time of termination. The ESPP will terminate in any case
ten years after its effective date. If at any time, the shares of common
stock reserved for the ESPP are available for purchase but not in sufficient
number to satisfy all the then unfilled purchase requirements, the available
shares will be apportioned among the participants in proportion to their
options and the ESPP will terminate. The Board of Directors may amend the
ESPP after adoption, subject to the requirements of Section 423 of the
Internal Revenue Code ("Code") relating to the requisite approval of the
Company's shareholders. The Company also intends to seek shareholder approval
as needed under Section 16(b) of the Exchange Act for any amendments to the
ESPP.
Tax Consequences of the ESPP. An option granted under the ESPP is
intended to qualify as an option granted under an employee stock purchase plan
as defined in Section 423 of the Code, and is taxed in accordance with
Sections 421 and 423 of the Code and the regulations issued thereunder.
The following summary of the effect of federal income taxation upon the
employee and the Company with respect to participants in the ESPP does not
purport to be complete and reference is made to the applicable provisions
13
of the Code. The summary does not address other taxes that may affect an
individual such as state and local income taxes, federal and state estate,
inheritance and gift taxes and foreign taxes. Furthermore, the tax
consequences are complex and subject to change, and a taxpayer's personal
situation may be such that some variation of the described rules applies.
Participants should consult their own tax advisors with respect to the tax
consequences to them of the grant and exercise of the options and the sale of
shares acquired upon such exercise.
1. If the requirements of Section 423 are satisfied, the employee will
not realize taxable income either at the time the options are granted pursuant
to the ESPP or at the time the employee purchases shares pursuant to the ESPP.
2. If the employee disposes of shares of common stock after the later of
two years after the grant of the option or one year from the date of transfer
of the stock pursuant to the option, then upon such disposition the employee
will recognize as ordinary income an amount equal to the lesser of:
(a) the excess of the fair market value of the shares of common
stock on the date of disposition over the amount the employee paid for
the shares under the options; or
(b) the excess of the fair market value of the shares at the time
the option was granted over the option price.
The employee will also recognize a long-term capital gain or loss in an
amount equal to the difference between (i) the amount realized upon the sale
of the common stock and (ii) the sum of the amount the employee paid for the
shares plus the amount, if any, taxed to the employee as ordinary income under
(a) or (b) above.
3. If the employee disposes of shares of common stock before the later
of two years after the grant of the option or one year from the date of
transfer of the stock pursuant to the option, then upon this disposition, the
employee will recognize as ordinary income an amount equal to the excess of
the fair market value of the shares of common stock on the date the employee
purchased them over the amount the employee paid for the shares. The employee
will also recognize a capital gain or loss in an amount equal to the
difference between (i) the amount realized upon the sale of the shares of
common stock and (ii) the sum of the amount the employee paid for the shares
plus the amount, if any taxed to the employee as ordinary income. If the
employee holds the shares for more than one year, this gain or loss will be a
long-term capital gain or loss.
4. Generally, the Company will not receive any deduction for federal
income tax purposes with respect to the options or the shares of common stock
issued upon their exercise. If, however, the employee disposes of stock
acquired by exercise of an option under a stock purchase plan before the later
of two years after the grant of the option or one year from the date of
transfer of the stock upon exercise of the option, the Company will be
entitled to a deduction in an amount equal to the amount which is considered
ordinary income.
New Plan Benefits. As employees will participate in the ESPP
voluntarily, the benefits or amounts to be received by officers or employees
of the Company are not determinable at this time. In addition, future
purchase prices for all offering periods are not determinable as of the date
of this proxy statement, because they are based upon fair market value of our
common stock on either the first or last day of each offering period.
The Board of Directors recommends a vote "FOR" the adoption of the ESPP
attached as Appendix B.
- -----------------------------------------------------------------------------
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
- -----------------------------------------------------------------------------
Section 16(a) of the Exchange Act requires certain officers of the
Company and its directors, and persons who beneficially 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 and the Company. Based solely
on a review of the reports and written representations provided to the Company
by these persons, the Company believes that all filing requirements applicable
to its reporting officers, directors and greater than 10% beneficial owners
were properly and timely complied with during the fiscal year ended March 31,
2004, except for the filing of Form 3, Initial Statement of Beneficial
Ownership of Securities, by each of James Bristow, Audrey Varn, Marian Shapiro
and Janice Hauerwas, and Form 4, Statement of
14
Changes of Beneficial Ownership of Security, on one occasion by each of James
Bristow and J. Chris Verenes, all of which were subsequently filed.
- -----------------------------------------------------------------------------
CERTAIN TRANSACTIONS
- -----------------------------------------------------------------------------
Applicable law and 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
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 Bank has adopted a policy to this effect. At March
31, 2004, loans to all employees, officers and directors of the Bank totalled
$2.2 million, or 6.51% of the Company's total shareholders' equity.
Director T. Clifton Weeks and the wife of Director Simmons, who are
father and daughter, are co-owners of the Franclif Company, which rents office
space to the Bank for its Laurens Street branch. Franclif Company received
$29,670 in rent, none of which represents property taxes from the Bank, during
fiscal 2004. This lease was made in the ordinary course of business on
substantially the same terms as those of comparable transactions prevailing at
the time and does not present any unfavorable features.
- -----------------------------------------------------------------------------
SHAREHOLDER PROPOSALS AND NOMINATIONS
- -----------------------------------------------------------------------------
In order to be eligible for inclusion in the Company's proxy solicitation
materials for the next year's Annual Meeting of Shareholders, any shareholder
proposal to take action at such meeting must be received at the Company's main
office at 1705 Whiskey Road South, Aiken, South Carolina, no later than
February 18, 2005. Any such proposals shall be subject to the requirements of
the proxy solicitation rules adopted under the Exchange Act.
The Company's Articles of Incorporation provide that in order for a
shareholder to make nominations for the election of directors or proposals for
business to be brought before a meeting of shareholders, a shareholder must
deliver written notice of such nominations and/or proposals to the Secretary
not less than 30 nor more than 90 days prior to the date of the meeting;
provided that if less than 45 days' notice of the meeting is given to
shareholders, such notice must be delivered not later than the close of the
15th day following the day on which notice of the meeting was mailed to
shareholders. As specified in the Articles of Incorporation, 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 shareholder giving such notice. The notice with respect to
business proposals to be brought before the Meeting must state the
shareholder'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 shareholder in
the proposal.
- -----------------------------------------------------------------------------
AUDITORS
- -----------------------------------------------------------------------------
Elliott Davis, LLC served as the Company's independent auditors for the
fiscal year ended March 31, 2004. The Audit Committee of the Board of
Directors has appointed Elliott Davis, LLC as independent auditors for the
fiscal year ending March 31, 2005.
The following table sets forth the aggregate fees billed to the Company
by Elliott Davis, LLC for professional services rendered for the fiscal years
ended March 31, 2004 and 2003.
15
Year Ended March 31,
----------------------
2004 2003
-------- --------
Audit Fees $41,875 $44,720
Audit-Related Fees - -
Tax Fees 7,870 6,710
All Other Fees 3,975 2,245
The Audit Committee will establish general guidelines for the permissible
scope and nature of any permitted non-audit services to be provided by the
independent auditors in connection with its annual review of its Charter.
Pre-approval may be granted by action of the full Audit Committee or by
delegated authority to one or more members of the Audit Committee. If this
authority is delegated, all approved non-audit services will be presented to
the Audit Committee at its next meeting. In considering non-audit services,
the Audit Committee or its delegate will consider various factors, including
but not limited to, whether it would be beneficial to have the service
provided by the independent auditors and whether the service could compromise
the independence of the independent auditors.
Representatives of Elliot Davis, LLC are expected to be present at the
Meeting to respond to appropriate questions from shareholders and will have
the opportunity to make a statement should they desire to do so.
- -----------------------------------------------------------------------------
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 holders of the proxies will act in accordance with their best
judgment.
- -----------------------------------------------------------------------------
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 sending proxy
materials to the beneficial owners of Common Stock. In addition to
solicitation by mail, directors, officers and regular employees of the Company
and the Bank may solicit proxies personally or by telephone, without
additional compensation.
The Company's Annual Report to Shareholders, including consolidated
financial statements, accompanies this Proxy Statement. Any shareholder who
has not received a copy of such Annual Report may obtain a copy by writing to
the Company. Such Annual Report is not to be treated as part of the proxy
solicitation materials, or as having been incorporated herein by reference.
- -----------------------------------------------------------------------------
FORM 10-K
- -----------------------------------------------------------------------------
A copy of the Annual Report on Form 10-K as filed with the SEC will be
furnished without charge to shareholders as of the close of business on the
Record Date upon written request to Robert E. Johnson, Secretary, Security
Federal Corporation, P.O. Box 810, Aiken, South Carolina 29802.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ Robert E. Johnson
Robert E. Johnson
Secretary
Aiken, South Carolina
June 18, 2004
16
Appendix A
----------
SECURITY FEDERAL CORPORATION
Nominating Committee Charter
I. Purpose
The Nominating Committee (the "Committee") is appointed by the Board of
Directors (the "Board") of Security Federal Corporation (the "Company"):
* to assist the Board, on an annual basis, by identifying individuals
qualified to become Board members, and to nominate the director
nominees for the elections to be held at the next annual
meeting of shareholders;
* to assist the Board in filling any vacancy that may arise on the
Board by identifying individuals qualified to become Board members,
and to recommend to the Board qualified individuals to fill any
such vacancies; and
* to lead the Board in its periodic evaluation of the performance of
the Board.
II. Composition and Qualifications
The Committee shall be comprised of three (3) or more directors as
determined by the Board, all of whom shall be independent non-executive
directors, who are not employees of the Company, its subsidiaries or
affiliates, and meet the "independent" definition of the NASD (Rule 4200).
Members of the Committee shall be appointed and removed only by the Board.
The Board shall appoint one member of the Committee as its Chair. A majority
of the members of the Committee present at any of its meetings shall
constitute a quorum.
III. Meetings
The Committee shall meet at least once annually, and at such other times
as it deems necessary to fulfill its responsibilities and duties set forth in
this Charter.
IV. Responsibilities and Duties
The Committee shall have the primary responsibility to develop the
criteria for the selection of new directors to the Board, including, but not
limited to skills, experience, diversity, age, time availability, and such
other criteria set forth in corporate policies or as the Committee shall
determine to be relevant at the time. The Committee shall have the authority
to apply such criteria in connection with the identification of individuals to
be Board members, as well as to apply all applicable federal laws and the
underlying purpose and intent thereof in connection with such identification
process.
In addition, the Committee is responsible for establishing and
administering the necessary processes associated with nominating potential
directors, including, but not limited to, applications, screening, and
interviewing prospective candidates; and finalizing its slate of candidates
for recommendation to the Board. These processes will apply to the filling of
vacancies that may occur on the Board from time to time, and the election of
directors at the annual meeting of shareholders.
The Committee is also responsible for the development and administration
of the internal evaluation of the Board's performance and any related
individual Board member performance. Such evaluations shall be used by the
Committee in carrying out its nominating responsibilities.
A-1
Duties
- ------
1. When Board vacancies occur, or otherwise at the direction of the Board,
the Committee shall actively identify, recruit, interview, and evaluate
individuals whom the Committee determines meet its criteria and standards
for recommendation to the Board.
2. The Committee shall be responsible for reviewing all candidates nominated
by shareholders, and determining whether or not to include the candidate
as a nominee in the Company's proxy materials.
3. The Committee shall nominate, on an annual basis, nominees for election
as directors for the next annual meeting of shareholders and shall be
responsible for administering the Company's compliance with the election
provisions of its Articles of Incorporation, Bylaws, and related
policies.
4. The Committee shall monitor the independence of the Board, to the extent
that its nomination process ensures that the majority of the Board
consists of independent directors as set forth in the Company's policies.
5. The Committee will establish, or identify and provide access to,
appropriate orientation programs, sessions, or materials for newly
elected directors of the Company for their benefit either prior to or
within a reasonable period of time after their nomination or election as
a director.
6. The Committee will provide a report of the Company's nomination process,
activities, and resulting nominations in connection with the proxy
materials associated with the Company's annual meeting of
shareholders.
7. The Committee shall annually review its own performance, as well as the
adequacy of this Charter and related corporate policies. Any proposed
changes shall be recommended to the Board for approval.
8. Minutes of each meeting will be provided to the Board of Directors on a
timely basis. In addition, the Committee will make from time-to-time,
special presentations to the Board of Directors on topics related to
Committee activities or responsibilities.
V. Authority
The Committee has the authority to implement the provisions of this
Charter. Furthermore, the Committee shall have the authority to retain any
outside advisors at the Company's expense, as the Committee may deem
appropriate in its sole discretion, to assist it in carrying out its
responsibilities and duties.
* * * *
Date Approved: May 20, 2004
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Appendix B
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SECURITY FEDERAL CORPORATION
2004 Employee Stock Purchase Plan
1. Purpose. The purpose of the Plan is to provide employees of the
Corporation and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Corporation through accumulated payroll deductions. It is
the intention of the Corporation to have the Plan qualify as an "Employee
Stock Purchase Plan" under Section 423 of the Internal Revenue Code of 1986,
as amended. The provisions of the Plan, accordingly, shall be construed so as
to extend and limit participation in a manner consistent with the requirements
of Section 423 and related sections of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Common Stock" shall mean the common stock of the Corporation.
(d) "Compensation" shall mean all base straight time gross earnings, as
determined in accordance with the personnel policies of the Corporation,
except that base pay for employees who receive commission income shall include
their commission income. Compensation excludes payments for overtime, shift
premiums, incentive compensation, incentive payments, bonuses, awards and
other compensation.
(e) "Corporation" shall mean Security Federal Corporation, a South
Carolina corporation.
(f) "Designated Subsidiary" shall mean a Subsidiary which the Board has
designated from time to time in its sole discretion as eligible to participate
in the Plan.
(g) "Employee" shall mean any individual who is an employee of the
Corporation or a Subsidiary for purposes of tax withholding under the Code.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence authorized under Corporation or Subsidiary policies.
(h) "Enrollment Date" shall mean the first day of each Offering Period.
(i) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(j) "Exercise Date" shall mean the last day of each Offering Period.
(k) "Fair Market Value" shall mean, as of any date, the closing price of
the Corporation's Common Stock on The OTC Bulletin Board. If the Common Stock
is not traded on a national securities exchange or quoted on The Nasdaq Stock
Market or The OTC Bulletin Board, and there are not at least two brokerage
companies reporting a bid price per share on such date, then the Fair Market
Value shall be that value determined based on the weighted average of the past
six trades of the Common Stock.
(l) "Offering Period" shall mean a period of approximately three (3)
months, commencing on the first Trading Day on or after January 1, April 1,
July 1 and October 1 of each year and terminating on the last Trading Day on
or before the end of such period; provided, however, that the duration of the
first Offering Period shall be as provided in Section 4.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
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(n) "Purchase Price" shall mean an amount equal to 85% of the Fair
Market Value of a share of Common Stock on the Enrollment Date or on the
Exercise Date, whichever is lower.
(o) "Reserves" shall mean the number of shares of Common Stock covered
by each option under the Plan which have not yet been exercised and the number
of shares of Common Stock which have been authorized for issuance under the
Plan but not yet placed under option.
(p) "Securities Act" shall mean the Securities Act of 1933, as amended.
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of which
not less than 50% of the voting shares are held by the Corporation or a
Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Corporation or a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock exchanges are
open for trading.
3. Eligibility.
(a) Any Employee who has been continuously employed by the Corporation
for at least six (6) consecutive months, who is employed by the Corporation on
a given Enrollment Date, and who is scheduled to work at the rate of at least
twenty (20) hours per week or more as an Employee shall be eligible to
participate in the Plan for the Offering Period commencing with such
Enrollment Date.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) if, immediately after
the grant, such Employee (or any other person whose stock would be attributed
to such Employee pursuant to Section 424(d) of the Code) would own stock
and/or hold outstanding options to purchase stock possessing five percent (5%)
or more of the total combined voting power or value of all classes of stock of
the Corporation or of any Subsidiary of the Corporation or (ii) which permits
his or her rights to purchase stock under all employee stock purchase plans of
the Corporation and its Subsidiaries to accrue at a rate which exceeds
Twenty-Five Thousand Dollars ($25,000) worth of stock (determined at the Fair
Market Value of the shares at the time such option is granted) for each
calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive Offering
Periods with a new Offering Period commencing on the first Trading Day on or
after January 1, April 1, July 1 and October 1 of each year, or on such other
date as the Board shall determine, and continuing hereafter until terminated
in accordance with Section 19 hereof. The Board shall have the power to
change the duration of Offering Periods with respect to future offerings
without shareholder approval if such change is announced at least fifteen (15)
days prior to the scheduled beginning of the first Offering Period to be
affected.
5. Participation.
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions on such
form as the Board or a committee thereof may designate and filing it with the
Corporation's payroll department at least ten (10) business days prior to the
Enrollment Date for the Offering Period in which such participation will
commence, unless a later time for filing the subscription agreement is set by
the Board for all eligible Employees with respect to a given Offering Period.
(b) With respect to any Offering Period, payroll deductions for a
participant during such Offering Period shall commence with the first payroll
period following the Enrollment Date and shall end on the Exercise Date of the
Offering Period, unless sooner terminated by the participant as provided in
Section 10.
6. Payroll Deductions.
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during
the Offering Period in an amount not exceeding ten percent (10%) of the
Compensation which he or she receives on each pay day during the Offering
Period.
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(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and will be withheld in whole percentages
only. A participant may not make any additional payments into such account.
A participant's account shall be only a bookkeeping account maintained by the
Corporation, and neither the Corporation nor any Subsidiary shall be obligated
to segregate or hold in trust or escrow any funds in a participant's account.
Except for amounts not expended because of the Plan rule that fractional
shares shall not be purchased, no amount of accumulated payroll deductions
shall be carried over with respect to any participant from the end of one
Offering Period to the beginning of another.
(c) During an Offering Period, a participant may discontinue his or her
participation in the Plan as provided in Section 10 but no other change can be
made and, specifically, a participant may not alter the rate of his or her
payroll deductions during an Offering Period. A participant may increase or
decrease the rate of his or her payroll deductions for a future Offering
Period by filing with the Corporation a new subscription agreement authorizing
an increase or decrease in payroll deduction rate within ten (10) business
days before the commencement of the upcoming Offering Period. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) herein, a participant's
payroll deductions may be decreased to 0% of Compensation at such time during
any Offering Period which is scheduled to end during the current calendar year
(the "Current Offering Period") that the aggregate of all payroll deductions
which were previously used to purchase stock under the Plan in a prior
Offering Period which ended during that calendar year plus all payroll
deductions accumulated with respect to the Current Offering Period equal
$25,000. Payroll deductions shall recommence at the rate provided in such
participant's subscription agreement at the beginning of the first Offering
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10.
(e) At the time the option is exercised, in whole or in part, or at the
time some or all of the Corporation's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for federal, state
or other tax withholding obligations, if any, arising upon the exercise of the
option or the disposition of the Common Stock. The Corporation may, but shall
not be obligated to, withhold from the participant's compensation the amount
necessary for the Corporation to meet applicable withholding obligations
related to the participant's tax obligations, including any withholding
required to make available to the Corporation any tax deductions or benefits
attributable to sale or early disposition of Common Stock by the Employee that
my be available to it.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
eligible Employee participating in such Offering Period shall be granted an
option to purchase on the Exercise Date of such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Corporation's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date (including amounts retained in the
participant's account in accordance with Section 8) and retained in the
Participant's account as of the Exercise Date by the applicable Purchase
Price; provided that such purchase shall be subject to the limitations set
forth in Sections 3(b) and 12 hereof. Exercise of the option shall occur as
provided in Section 8, unless the participant has withdrawn pursuant to
Section 10, and shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
provided in Section 10, his or her option for the purchase of shares will be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or
her account. No fractional shares will be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account and applied toward
the purchase of shares in a subsequent Offering Period unless the participant
terminates his or her participation in the Plan as provided in Section 10.
During a participant's lifetime, a participant's option to purchase shares
hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which a
purchase of shares occurs, the Corporation shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
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10. Withdrawal; Termination of Employment.
(a) A participant may withdraw all, but not less than all, the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the
Corporation on such form as the Board or a committee thereof may designate.
All of the participant's payroll deductions credited to his or her account
will be paid to such participant promptly after receipt of notice of
withdrawal and such participant's option for the Offering Period will be
automatically terminated, and no further payroll deductions for the purchase
of shares will be made during the Offering Period. If a participant withdraws
from an Offering Period, payroll deductions will not resume at the beginning
of the succeeding Offering Period unless the participant delivers to the
Corporation a new subscription agreement.
(b) Upon a participant's ceasing to be an Employee for any reason or
upon termination of a participant's employment relationship (as described in
Section (2)(g)), the payroll deductions credited to such participant's account
during the Offering Period but not yet used to exercise the option will be
returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 14, and such participant's
option will be automatically terminated.
11. Interest. No interest shall accrue on the payroll deductions of a
participant in the Plan.
12. Stock.
(a) The maximum number of shares of the Corporation's Common Stock which
shall be made available for sale under the Plan shall be 50,000 shares,
subject to adjustment upon changes in capitalization of the Corporation as
provided in Section 18. Such shares may consist in whole or in part of
authorized and unissued or reacquired Common Stock. If on a given Exercise
Date the number of shares with respect to which options are to be exercised
exceeds the number of shares then available under the Plan, the Corporation
shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as is practicable and as it determines to be
equitable.
(b) The participant will have no interest or voting right in shares
covered by his or her option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan will be
registered in the name of the participant or in the name of the participant
and his or her spouse, as the participant designates.
13. Administration.
(a) Administrative Body. The Plan shall be administered by the Board or
a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties. Members of the Board
who are eligible Employees are permitted to participate in the Plan except to
the extent limited by Subsection (b) of this Section 13.
(b) Rule 16b-3 Limitations. Notwithstanding the provisions of
Subsection (a) of this Section 13, in the event that Rule 16b-3 promulgated
under the Exchange Act, or any successor provision ("Rule 16b-3"), provides
specific requirements for the administrators of plans of this type, the Plan
shall be only administered by such a body and in such a manner as shall comply
with the applicable requirements of Rule 16b-3. Unless permitted by Rule
16b-3, no discretion concerning decisions regarding the Plan shall be afforded
to any committee containing a person who is not a Non-Employee Director as
that term is used in Rule 16b-3.
14. Designation of Beneficiary.
(a) A participant may file a written designation of a beneficiary who is
to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise
Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a
B-4
participant may file a written designation of a beneficiary who is to receive
any cash from the participant's account under the Plan in the event of such
participant's death prior to exercise of the option. If a participant is
married and the designated beneficiary is not the spouse, spousal consent
shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
(and his or her spouse, if any) at any time by written notice. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's
death, the Corporation shall deliver such shares and/or cash to the executor
or administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Corporation), the
Corporation, in its discretion, may deliver such shares and/or cash to the
spouse or to any one or more dependents or relatives of the participant, or if
no spouse, dependent or relative is known to the Corporation, then to such
other person as the Corporation may designate.
15. Transferability. Neither payroll deductions credited to a participant's
account nor any rights with regard to the exercise of an option or to receive
shares under the Plan may be assigned, transferred, pledged or otherwise
disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 14 hereof) by the participant. Any
such attempt at assignment, transfer, pledge or other disposition shall be
without effect, except that the Corporation may treat such act as an election
to withdraw funds from an Offering Period in accordance with Section 10.
16. Use of Funds. All payroll deductions received or held by the Corporation
under the Plan may be used by the Corporation for any corporate purpose, and
the Corporation shall not be obligated to segregate such payroll deductions.
17. Reports. Individual accounts will be maintained for each participant in
the Plan. Statements of account will be given to participating Employees at
least annually, which statements will set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
18. Adjustments Upon Changes in Capitalization; Dissolution; or Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action by the
shareholders of the Corporation, the Reserves, as well as the price per share
of Common Stock covered by each option under the Plan which has not yet been
exercised, shall be proportionately adjusted for any increase or decrease in
the number of issued shares of Common Stock resulting from a stock split,
reverse stock split, stock dividend, combination or reclassification of the
Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Corporation.
Such adjustment shall be made by the Board, whose determination in that
respect shall be final, binding and conclusive. Except as expressly provided
herein, no issue by the Corporation of shares of stock of any class, or
securities convertible into shares of stock of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or
price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of a proposed sale of all
or substantially all of the assets of the Corporation, or the merger of the
Corporation with or into another corporation, each option under the Plan shall
be assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor, unless the Board
determines, in the exercise of its sole discretion and in lieu of such
assumption or substitution, to shorten the Offering Period then in progress by
setting a new Exercise Date (the "New Exercise Date"). If the Board shortens
the Offering Period then in progress in lieu of assumption or substitution in
the event of a merger or sale of assets, the Board shall notify each
participant in writing, at least ten (10) days prior to the New Exercise Date,
that the Exercise Date for his or her option has been changed to the New
Exercise Date and that his or her option will be exercised automatically on
the New Exercise Date, unless prior to such date he or she has withdrawn from
the Offering Period as provided in Section 10. For purposes of this Section
18(b), an option granted under the Plan shall be deemed to be assumed if,
following the sale of assets or merger, the option confers the right to
purchase, for each share of option stock subject to the option immediately
prior to the sale of assets or mergers, the consideration (whether stock, cash
or other securities or property) received in the sale of assets or merger by
holders of Common Stock for each share of Common Stock held on the effective
date of the transaction (and if such holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority
of the outstanding shares of Common Stock); provided, however, that if such
consideration received in the sale of assets or merger was not solely common
stock of the successor corporation or its parent (as defined in Section 424(e)
of the Code), the Board may, with the consent of the successor corporation and
the participant, provide for the consideration to be received upon exercise of
the option
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to be solely common stock of the successor corporation or its parent equal in
fair market value to the per share consideration received by holders of Common
Stock in the sale of assets or merger.
19. Amendment or Termination.
(a) The Board of Directors of the Corporation may at any time and for
any reason terminate or amend the Plan. Except as provided in Section 18, no
such termination can affect options previously granted, provided that the
Board of Directors may terminate an Offering Period on any Exercise Date if
the Board determines that the termination of the Plan is in the best interests
of the Corporation and its shareholders. Except as provided in Section 18, no
amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Rule 16b-3 or Section 423 of the Code (or any successor rule or
provision or any other applicable law or regulation), the Corporation shall
obtain shareholder approval in such a manner and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board or its committee shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during Offering
Periods, permit payroll withholding in excess of the amount designated by a
participant in order to adjust for delays or mistakes in the Corporation's
processing of properly completed withholding elections, establish reasonable
waiting and adjustment periods and/or accounting and crediting procedures to
ensure that amounts applied toward the purchase of Common Stock for each
participant properly correspond with amounts withheld from the participant's
Compensation, and establish such other limitations or procedures as the Board
or its committee determines in its sole discretion advisable which are
consistent with the Plan.
(c) In the event that the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the
Board may, in its discretion and, to the extent necessary or desirable, modify
or amend the Plan to reduce or eliminate such accounting consequences
including, but not limited to:
(1) altering the Purchase Price for any Offering Period, including
an Offering Period underway at the time of the change in Purchase Price; or
(2) shortening any Offering Period so that the Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of
the Board action.
Such modifications or amendments shall not require shareholder approval or the
consent of any Plan participants.
20. Notices. All notices or other communications by a participant to the
Corporation under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Corporation at the
location, or by the person, designated by the Corporation for the receipt
thereof.
21. Conditions Upon Issuance of Shares. Shares shall not be issued with
respect to an option unless the exercise of such option and the issuance and
deliver of such shares pursuant thereto comply with all applicable provisions
of law, domestic or foreign, including without limitation, the Securities Act,
the Exchange, the rules and regulations promulgated thereunder and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Corporation
with respect to such compliance. As a condition to the exercise of an option,
the Corporation may require the person exercising such option to represent and
warrant at the time of any such exercise that the shares are being purchased
only for investment and without any present intention to sell or distribute
such shares if, in the opinion of counsel for the Company, such a
representation is required by any of the aforementioned applicable provisions
of law. Shares may not be sold, gifted or otherwise transferred until one
year from the Exercise Date.
22. Term of Plan. The Plan shall become effective upon its adoption by the
Board of Directors and approval by the shareholders of the Corporation. It
shall continue in effect for a term of ten (10) years unless sooner terminated
under Section 19.
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23. Additional Restrictions of Rule 16b-3. The terms and conditions of
options granted hereunder to, and the purchase of shares by, persons subject
to Section 16 of the Exchange Act shall comply with the applicable provisions
of Rule 16b-3. This Plan shall be deemed to contain, and such options shall
contain, and the shares issued upon exercise thereof shall be subject to, such
additional conditions and restrictions as may be required by Rule 16b-3 to
qualify for the maximum exemption from Section 16 of the Exchange Act with
respect to Plan transactions on behalf of such persons.
24. Shareholder Approval. Continuance of the Plan shall be subject to
approval by the shareholders of the Corporation no later than the date of the
next annual meeting of shareholders after the date the Plan is adopted.
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REVOCABLE PROXY
SECURITY FEDERAL CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
July 22, 2004
The undersigned hereby appoints the official Proxy Committee of the Board
of Directors of Security Federal Corporation ("Company") with full powers of
substitution to act as attorneys and proxies for the undersigned, to vote all
shares of Common Stock which the undersigned is entitled to vote at the Annual
Meeting of Shareholders ("Meeting"), to be held at the City of Aiken Municipal
Conference Center, 215 The Alley, Aiken, South Carolina, on July 22, 2004, at
2:00 p.m., Eastern time, and at any and all adjournments or postponements
thereof, as follows:
VOTE
FOR WITHHELD
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1. The election as directors of the nominees listed
below (except as marked to the contrary below). [ ] [ ]
Gasper L. Toole, III
Thomas L. Moore
J. Chris Verenes
INSTRUCTION: To withhold your vote for any
individual nominee, write that nominee's name
on the line below.
----------------------------------------------
FOR AGAINST ABSTAIN
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2. The adoption of the Security Federal Corporation
2004 Employee Stock Purchase Plan. [ ] [ ] [ ]
3. In their discretion, upon such other matters as
may properly come before the meeting.
The Board of Directors recommends a vote "FOR" the election of the nominees
listed above and "FOR" the above proposal.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE ELECTION OF THE NOMINEES LISTED ABOVE AND FOR
THE ABOVE PROPOSAL. IF ANY OTHER BUSINESS IS PRESENTED AT SUCH MEETING, THIS
PROXY WILL BE VOTED BY THOSE NAMED IN THIS PROXY IN THEIR BEST JUDGMENT. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE MEETING.
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment or postponement thereof and after notification to the
Secretary of the Company at the Meeting of the shareholder'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 undersigned acknowledges receipt from the Company prior to the
execution of this proxy of Notice of Annual Meeting of Shareholders, a proxy
statement for the Annual Meeting of Shareholders and an Annual Report to
Shareholders.
Dated: , 2004
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PRINT NAME OF SHAREHOLDER PRINT NAME OF SHAREHOLDER
- ------------------------------------ ----------------------------------
SIGNATURE OF SHAREHOLDER SIGNATURE OF SHAREHOLDER
Please sign exactly as your name appears on the mailing label. When signing
as attorney, executor, administrator, trustee or guardian, please give your
full title. If shares are held jointly, only one signature is required, but
each holder should sign, if possible.
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PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE.
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