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:
[x] Preliminary proxy statement
[ ] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
Security Federal Corporation
- ------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Security Federal Corporation
- ------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
[x] No fee required.
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] 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
- ------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
N/A
- ------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:
N/A
- ------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
N/A
- ------------------------------------------------------------------------------
[ ] 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
- ------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
N/A
- ------------------------------------------------------------------------------
(3) Filing party:
N/A
- ------------------------------------------------------------------------------
(4) Date filed:
N/A
<PAGE>
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June 19, 1998
Dear Fellow Stockholder:
It is with great pleasure that I invite you to attend the Company's
Annual Meeting of Stockholders, to be held on July 21, 1998 at the University
of South Carolina - Aiken, in Room 116 of the Business and Educational
Building, 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, 1998, 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 stockholder vote on
corporate business items. I urge you to exercise your voting rights as a
stockholder 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,
T. Clifton Weeks
Chairman
<PAGE>
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SECURITY FEDERAL CORPORATION
1705 Whiskey Road South
Aiken, South Carolina 29803
(803) 641-3000
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on July 21, 1998
Notice is hereby given that the Annual Meeting of Stockholders
("Meeting") of Security Federal Corporation ("Company") will be held at the
University of South Carolina - Aiken, in Room 116 of the Business and
Educational Building, Aiken, South Carolina, on July 21, 1998, 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 two directors of the Company;
2. The approval of a proposal to change the Company's state of
incorporation from Delaware to South Carolina through a merger
of the Company with a newly formed, wholly owned South
Carolina subsidiary;
3. The ratification of an amendment to the Company's corporate
charter to increase the number of authorized shares of common
stock; and
4. Such other matters as may properly come before the Meeting or
any adjournments thereof.
NOTE: The Board of Directors is not aware of any other business to
come before the Meeting.
Any action may be taken on the foregoing proposals at the Meeting on the
date specified above, or on any date or dates to which, by original or later
adjournment, the Meeting may be adjourned. Stockholders of record as of the
close of business on June 15, 1998 are the stockholders entitled to receive
notice of and to vote at the Meeting, and any adjournments thereof.
A complete list of stockholders entitled to vote at the Meeting is
available for the examination by any stockholder, 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, for a period of 20 days prior to 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
Robert E. Johnson
Secretary
Aiken, South Carolina
June 19, 1998
- ------------------------------------------------------------------------------
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.
- ------------------------------------------------------------------------------
<PAGE>
<PAGE>
PROXY STATEMENT
SECURITY FEDERAL CORPORATION
1705 Whiskey Road South
Aiken, South Carolina 29803
(803) 641-3000
ANNUAL MEETING OF STOCKHOLDERS
July 21, 1998
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 Stockholders of the Company
("Meeting"), which will be held at the University of South Carolina - Aiken,
in Room 116 of the Business and Educational Building, Aiken, South Carolina,
on July 21, 1998, at 2:00 p.m., Eastern time, and all adjournments of the
Meeting. The accompanying Notice of Annual Meeting of Stockholders and this
Proxy Statement are first being mailed to stockholders on or about June 19,
1998. Certain of the information provided herein relates to Security Federal
Bank ("Bank"), a wholly owned subsidiary and the predecessor of the Company.
Voting and Proxy Information
- ----------------------------
Stockholders of record as of the close of business on June 15, 1998
("Record Date"), will be entitled to one vote for each share of common stock
of the Company ("Company Common Stock") then held. As of the close of
business on the Record Date, there were 421,060 shares of Company Common Stock
issued and outstanding. A majority of the shares of Company Common Stock,
present in person or represented by proxy, shall constitute a quorum for
purposes of the Meeting. Broker non-votes will be counted for purposes of the
existence of a quorum.
All shares of Company 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 proposals set forth in this Proxy Statement.
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 judgement.
If a stockholder 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 Company
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 Company Common
Stock allocated to the participant's plan account are to be voted.
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. Stockholders are not entitled to cumulate their votes in the
election of directors. Broker non-votes have no effect on the election of
directors. The approval of the change in the Company's state of incorporation
from Delaware to South Carolina requires the affirmative vote of a majority of
the outstanding shares of Company Common Stock entitled to vote at the
Meeting. Abstentions and broker non-votes are not affirmative votes and,
therefore, will have the same effect as a vote against the proposal. Approval
of the amendment to the Company's corporate charter to increase the number of
authorized shares of Company Common Stock will require the affirmative vote of
a majority of the outstanding shares of Company Common Stock entitled to vote
at the Meeting. Abstentions on the proposal will have the same effect as a
vote against such proposal, while broker non-votes will have no effect on the
voting.
1
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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.
Security Ownership of Certain Beneficial Owners and Management
- --------------------------------------------------------------
Persons and groups who beneficially own in excess of 5% of Company 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 Company Common Stock. Management knows of no persons other than those set
forth below who owned more than 5% of the outstanding shares of Company 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 Company Common Stock beneficially owned by each director, the "named
executive officer" of the Company, and all executive officers and directors of
the Company as a group.
Shares Beneficially Percent
Beneficial Owners Owned(1) of Class
- ----------------- -------- --------
Beneficial Owners of More Than 5%
T. Clifton Weeks(2)(3) 50,305 11.95%
P.O. Box 941
Aiken, SC 29802
Mr. and Mrs. Robert E. Scott, Sr.(4) 35,400 8.41
4 Inverness West
Aiken, SC 29803
Thomas W. Weeks(5) 32,886 7.81
P.O. Box 365
Barnwell, SC 29812
Timothy W. Simmons(3)(6) 26,941 6.40
P.O. Box 277
Aiken, SC 29802
Directors
Gasper L. Toole III(7) 17,700 4.20
Thomas L. Moore 1,014 0.24
Harry O. Weeks, Jr. 14,024 3.33
Robert E. Alexander 500 0.12
William Clyburn 344 0.08
All directors and executive
officers as a group (10 persons) 118,318(8) 28.10%
(footnotes on following page)
2
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_______________
(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
and investment power.
(2) T. Clifton Weeks, the Chairman of the Board of the Company and the
Bank, is the father-in-law of Timothy W. Simmons. Includes 992 shares
held directly and 49,313 held indirectly through a partnership over
which Mr. Weeks has sole voting and dispositive power.
(3) On February 3, 1993, Messrs. T. Clifton Weeks and Simmons and certain
members of their families received approval from the Office of Thrift
Supervision ("OTS") with respect to their ownership of a total of
117,567 shares of Company Common Stock.
(4) Mr. and Mrs. Scott have shared voting and dispositive power with
respect to the shares held jointly.
(5) Thomas W. Weeks is the brother of H. O. Weeks, Jr., a Director of the
Company. The amount disclosed includes 7,600 shares held by his wife.
(6) Mr. Simmons is President, Chief Executive Officer and a Director of
the Company and the Bank. Includes 13,751 shares held directly,
11,441 shares held by his wife; and 1,749 shares allocated to Mr.
Simmons' account under the Company's ESOP. Under SEC regulation, the
term "named executive officer" includes the chief executive officer,
regardless of compensation level, and the four most highly compensated
executive officers, other than the chief executive officer, whose
total annual salary and bonus for the last completed fiscal year
exceeded $100,000. Mr. Simmons was the Company's only "named
executive officer" for the fiscal year ended March 31, 1998.
(7) Includes 3,000 shares held by his wife. On December 14, 1992, Mr.
Toole and certain members of his family received approval from the OTS
with respect to their ownership of a total of 59,537 shares of Company
Common Stock.
(8) Includes 2,088 shares allocated to individual accounts of executive
officers pursuant to the ESOP.
PROPOSAL I -- ELECTION OF DIRECTORS
-----------------------------------
The Company's Board of Directors consists of seven 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.
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 two 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.
Director of Term
Positions Held in the Company to
Name Age Company and the Bank Since(1) Expire
---- --- -------------------- -------- ------
NOMINEES
--------
Gasper L. Toole III 72 Director and Vice President 1958 2001(2)
of the Company and the Bank
Thomas L. Moore 48 Director of the Company and 1990 2001(2)
the Bank
(table continued on following page)
3
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Director of Term
Positions Held in the Company to
Name Age Company and the Bank Since(1) Expire
---- --- -------------------- -------- ------
CONTINUING DIRECTORS
--------------------
Harry O. Weeks, Jr. 58 Director of the Company and 1978 1999
the Bank
Robert E. Alexander 58 Director of the Company and 1988 1999
the Bank
William Clyburn 57 Director of the Company and 1993 1999
the Bank
Timothy W. Simmons 52 President, Chief Executive 1983 2000
Officer and Director of the
Company and the Bank
T. Clifton Weeks 71 Chairman of the Board of the 1958 2000
Company and the Bank
_______________
(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 such time, he was a partner
in such 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.
Harry O. Weeks, Jr. is an Insurance Agent and Business Development
Officer with Hutson-Etherredge Companies, a position he has held since May
1995. Mr. Weeks was President of Lyon-Croft-Weeks & Hunter Insurance, Inc.
until May 1995. He also served on the Board of Directors of Lyon-Croft-Weeks,
a real estate and property management company, until March 1992 (when the
company closed).
Robert E. Alexander is the Chancellor of the University of South
Carolina at Aiken, South Carolina.
William Clyburn is employed as an Advisor for Community Alliances with
Westinghouse Savannah River Company, a U.S. 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 1985 to June 1994.
Timothy W. Simmons has been President of the Company since 1987 and
Chief Executive Officer since June 1994. Mr. Simmons was elected as President
and Chief Operating Officer of the Bank in January 1987 and has served in
these capacities since March 1987. In May 1988, Mr. Simmons became Chief
Executive Officer of the Bank. Mr. Simmons served as Executive Vice President
of Lyon-Croft-Weeks from 1980 until March 1992 (when the company closed) and
has served as a director of Lyon-Croft-Weeks & Hunter Insurance, Inc. and
L-C-W Corp., a finance company, from 1980 to 1995.
4
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<PAGE>
T. Clifton Weeks has been Chairman of the Board of the Company since
1987 and was Chief Executive Officer of the Company from 1987 until June 1994.
Mr. Weeks has served as Chairman of the Board of the Bank since January 1987
and was Chief Executive Officer from 1987 until May 1988. Prior thereto he
served as President and Managing Officer of the Bank beginning in 1958. In
addition, Mr. Weeks served as Chairman of the Board of Lyon-Croft-Weeks until
March 1992 (when the company closed) and L-C-W Corp. and L-C-W Development
Corp. (a wholly owned subsidiary of L-C-W Corp.), a real estate development
company that owns commercial real estate, and Chairman of the Board of
Lyon-Croft-Weeks & Hunter Insurance, Inc. until May 1995.
Executive Officers Who Are Not Directors of the Company or the Bank
- -------------------------------------------------------------------
The following information as to the principal occupation(s) during the
past five years is supplied with respect to executive officers of the Bank 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.
Richard O. Garcia, age 53, has been Senior Vice President - Mortgage
Lending since May 1992. Prior to joining the Bank, Mr. Garcia was President,
Broker-in-Charge and owner of AREA Appraisal and Real Estate Associates, Inc.
from June 1990 to May 1992, and Senior Vice President of Mortgage Lending for
Palmetto Federal Savings Bank of South Carolina, Aiken, South Carolina, from
October 1982 to June 1990.
Thomas C. Clark, age 41, has been Senior Vice President - Loan
Administration since January 1, 1994. He held the position of Vice President
- - Consumer/Commercial Loans from July 1992 to January 1994. Prior to joining
the Bank, Mr. Clark was employed by South Carolina National Bank from 1979 to
1993 and was the City Executive of its Aiken, South Carolina office from 1988
to 1993.
Roy G. Lindburg, age 37, has been Treasurer and Chief Financial Officer
of the Company and the Bank since January 1995. Prior to joining the Company,
Mr. Lindburg was Vice President and Chief Financial Officer of Keokuk
Bancshares, Inc. and First Community Bank, FSB located in Keokuk, Iowa from
May 1986 to December 1994 and Vice President and a Director at Galva Federal
Savings located in Galva, Illinois from March 1984 to April 1986.
Board of Directors' Meetings and Committees
- -------------------------------------------
Meetings and Committees of the Company. During the fiscal year ended
March 31, 1998, 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 or all committees on which he served. The Company has standing
Executive, Audit, Stock Option and Incentive Plan Administrative and Proxy
committees.
The Executive Committee, comprised of Directors T. Clifton Weeks, Toole,
Alexander and Simmons, meets on an as needed basis to handle matters arising
between Board meetings. This Committee met one time during fiscal 1998.
The Audit Committee, comprised of Directors H.O. Weeks, Moore and
Clyburn, meets on an as needed basis to review the audit report of the Company
and oversee other matters related to the annual audit. This Committee met one
time during fiscal 1998.
The Stock Option and Incentive Plan Administrative Committee is composed
of Directors Harry O. Weeks, Jr., Toole and Alexander, who are non-employee
directors of the Company and are not eligible to receive awards under the
Company's Stock Option Plan. This Committee did not meet during fiscal 1998.
5
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The Proxy Committee, which is composed of the entire Board of Directors,
is responsible for voting the proxies of the Company's stockholders. The
Committee met one time during fiscal 1998.
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, 1998. During fiscal 1998, no director attended fewer
than 75% of the total number of meetings held by the Board of Directors or all
committees of the Board of Directors on which he served. The Board of
Directors has standing Executive, Audit and Compensation committees.
The Executive Committee of the Board of Directors of the Bank is
composed of T. Clifton Weeks as Chairman and Directors Toole, Alexander and
Simmons. 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. The Executive Committee also serves as the
Loan Committee for the Bank. All actions of this Committee are reviewed and
ratified by the entire Board. The Executive Committee met 21 times during
fiscal 1998.
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 Directors Harry O. Weeks, Jr.,
Moore and Clyburn. The Audit Committee met 11 times during fiscal 1998.
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, Simmons, Toole and Alexander. This Committee met seven times during
fiscal 1998.
Compensation of Directors
- -------------------------
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 $625 per month. Members of the Executive Committee receive $740 per
month for membership on this Committee. Members of the Audit Committee
receive $108 per meeting attended. No fee is paid for membership on the
Bank's Compensation Committee.
Compensation of Executive Officers
- ----------------------------------
The Company has not paid any compensation to its executive officers
since its formation. Certain executive officers of the Company also currently
hold the same positions with the Bank, and have received compensation from the
Bank.
6
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Summary Compensation Table. The following table sets forth for the last
three fiscal years, the compensation paid by the Bank to or accrued for the
benefit of Mr. Simmons.
Annual Compensation
---------------------------------------------
Other Annual All Other
Salary Bonus Compensation Compensation
Name and Position Year ($)(1) ($) ($)(2) ($)(3)
- ----------------- ---- ------ ----- ------------ ------------
Timothy W. Simmons 1998 $103,723 -- -- $9,790
President, Chief 1997 101,456 -- -- 7,502
Executive Officer 1996 97,675 -- -- 8,846
and Director of
the Company and
the Bank
- ----------------
(1) Salary includes Board fees of $7,275, $6,282 and $5,850 for fiscal 1998,
1997 and 1996, respectively.
(2) Does not include perquisites which did not exceed the lesser of $50,000
or 10% of salary and bonus.
(3) All other compensation during fiscal 1998 represents deferred
compensation pursuant to the Company's 401(k) Plan of $6,527, and an
employer contribution to the 401(k) Plan of $3,263.
Option Exercise/Value Table. The following table sets forth information
concerning the number of options exercised during fiscal year 1998 and value
of unexercised stock options held by Mr. Simmons at March 31, 1998.
Number of
Securities Underlying Value of Unexercised
Shares Unexercised Options In-the-Money Options
Acquired at Fiscal Year End(#) at Fiscal Year End($)
on Value --------------------- ---------------------
Exer- Real- Exer- Unexer- Exer- Unexer-
Name cise(#) ized($) cisable cisable cisable cisable
---- ------- ------- ------- ------- ------- --------
Timothy W.
Simmons 3,938 $133,931 -0- -0- -0- -0-
Salary Continuation Agreement. The Company and the Bank have entered
into a salary continuation agreement with Timothy W. Simmons. 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
employee by the disinterested members of the Board of Directors. The
agreement with Mr. Simmons provides for payment of 120% of current
compensation in monthly installments until the earlier of: (i) the employee's
reaching age 72, or (ii) 36 months after the employee's resignation or
termination, where the employee 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 employee 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 employee at the time such 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, 1998, the aggregate amount due and payable to Mr. Simmons would have been
approximately $379,080.
7
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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, 1998, loans to all employees, officers and directors of the Bank totalled
$1,886,420, or 10.44% of the Company's total stockholders' equity.
Director T. Clifton Weeks and the wife of Mr. 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 $24,885
in rent, none of which represents property taxes from the Bank during fiscal
1998. 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.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------
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
the shares of Company Common Stock, to file reports of beneficial ownership
and changes in beneficial ownership with the SEC and the Company. Based
solely on a review of the reports and written representations provided to the
Company by the persons, the Company believes that all filing requirements
applicable to its reporting officers, directors and greater than ten percent
beneficial owners were properly and timely complied with during the fiscal
year ended March 31, 1998, except for certain transactions by Mr. Timothy W.
Simmons, President and Chief Executive Officer of the Company and the Bank,
and Mr. Floyd Blackmon, Vice President of the Company and the Bank. Mr.
Simmons inadvertently failed to report his exercise of options for 3,938
shares of Company Common Stock at $10.00 per share in October 1997. Mr.
Simmons subsequently reported the option exercise on November 26, 1997. Mr.
Blackmon, a new officer of the Company and the Bank as of January 1998 and who
owns no Company Common Stock, inadvertently failed to file his initial
statement of beneficial ownership on Form 3 to indicate his status as a
reporting person. Mr. Blackmon subsequently reported his filing status on
April 15, 1998.
PROPOSAL II -- REINCORPORATION IN THE STATE OF SOUTH CAROLINA
-------------------------------------------------------------
For the reasons set forth below, the Board of Directors believes that
the best interests of the Company and its stockholders will be served by
changing the Company's state of incorporation from Delaware to South Carolina
("Reincorporation"). The Board of Directors has approved the Reincorporation,
which would be accomplished by merging the Company with and into a newly
formed South Carolina subsidiary ("South Carolina Corporation").
The sole factor in the Board of Directors' recommendation of the
Reincorporation is that the Company's franchise fees will be substantially
less in South Carolina than in Delaware. Considering the proposed increase in
authorized shares, the Company expects to save approximately $22,000 annually
on state franchise tax and filing fees as a result of the Reincorporation.
Furthermore, the Company's headquarters are located in South Carolina.
Plan of Merger
The Company will be merged with and into the South Carolina Corporation
pursuant to the terms of the proposed Agreement and Plan of Merger ("Merger
Agreement"), a copy of which is attached as Exhibit A to this Proxy Statement.
Upon the completion of the merger, the owner of each outstanding share of
Company Common Stock will automatically own one share of common stock of the
South Carolina Corporation ("South Carolina Corporation Common Stock"). Each
outstanding certificate representing a share or shares of Company Common Stock
will continue to represent the same number of shares of South Carolina
Corporation Common Stock (i.e., a
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certificate representing one share of Company Common Stock will then equal one
share of South Carolina Corporation Common Stock). IT WILL NOT BE NECESSARY
FOR STOCKHOLDERS OF THE COMPANY TO EXCHANGE THEIR EXISTING STOCK CERTIFICATES.
The South Carolina Corporation's Articles of Incorporation and Bylaws
will be the Articles of Incorporation and Bylaws of the surviving corporation
of the merger. The South Carolina Corporation's Articles of Incorporation are
attached hereto as Exhibit B. The discussion regarding the Reincorporation
contained in this Proxy Statement is qualified in its entirety by reference to
Exhibits A and B.
Effect of Reincorporation and Merger
The Reincorporation and the merger will effect a change in the legal
domicile of the Company and other changes of a legal nature, the most
significant of which are described in this Proxy Statement. The
Reincorporation and merger will not result in any change in the business,
management, location of the Company's principal executive offices, assets,
liabilities, net worth or accounting practices.
Principal Differences in Corporate Charters
The South Carolina Corporation's Articles of Incorporation differ from
the Company's Certificate of Incorporation in certain technical aspects.
Specific articles have been included so as to minimize differences in
corporate governance before and after the Reincorporation. A majority vote
requirement in the case of mergers is provided for (which is the same as the
Delaware General Corporation Law ("DGCL") requirement for mergers). Although
the South Carolina Corporation's Articles of Incorporation and the Company's
Certificate of Incorporation contain similar language to the effect that a
director will not be liable for monetary damages for conduct as a director to
the full extent that each entity's respective state's law permits, the South
Carolina Business Corporation Act ("SCBCA") and the DGCL have different
director liability provisions. Various differences also exist between the
South Carolina Corporation's Bylaws and the Company's Bylaws, but none of
these provisions are expected to have a material effect on the Company's
governance.
Certain Differences in Corporate Laws
The DGCL currently governs the rights of the Company's stockholders.
After the merger, the rights of stockholders will be governed by the SCBCA.
The following discussion summarizes certain significant differences between
the provisions of the DGCL and the SCBCA, as applicable to a public company.
Amendment of Articles/Certificate of Incorporation. The SCBCA
authorizes a corporation's board of directors to make various changes of an
administrative nature to its articles of incorporation including deleting the
names and addresses of its initial directors, deleting the name and address of
its initial registered agent or registered office, changing each issued and
unissued authorized share of an outstanding class into a greater number of
whole shares if the corporation has only one share of that class outstanding;
and certain changes of corporate name. Other amendments to a corporation's
articles of incorporation must be recommended to the stockholders by the board
of directors, unless the board determines that because of a conflict of
interest or other special circumstances, it should make no recommendation, and
must be approved by a majority of all votes entitled to be cast by each voting
group which has a right to vote on the amendment. Under the DGCL, all
amendments to a corporation's certificate of incorporation require the
approval of stockholders holding a majority of the voting power of the
corporation unless a greater proportion is specified in the certificate of
incorporation.
Provisions Affecting Acquisitions and Business Combinations. The SCBCA
imposes restrictions on certain transactions between a corporation and certain
interested stockholders. South Carolina's "fair price" statute restricts
certain business combinations (e.g., mergers and dispositions of assets of a
corporation or any subsidiary having an aggregate market value of 10% or more
of the total market value of the corporation's outstanding stock) between a
corporation and an interested stockholder (e.g., a beneficial owner of 10% or
more of the voting power
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of the outstanding shares of a corporation). The fair price statute generally
precludes a corporation from engaging in any business combination with an
interested stockholder within two years after the acquisition pursuant to
which the stockholder became an interested stockholder, unless either the
business combination or the acquisition pursuant to which the interested
stockholder became interested was approved by the board of directors before
the acquisition, (ii) the business combination is approved by the affirmative
vote of the holders of a majority of the outstanding shares not beneficially
owned by the interested stockholder or his affiliates or associates at a
meeting called for that purpose at least two years after the acquisition
pursuant to which the interested stockholder became interested, or (iii)
certain minimum price criteria are satisfied.
South Carolina's "fair price" statue was intended to ensure that all
stockholders of a South Carolina corporation would receive comparable prices
per share for stock sold to an interested stockholder in a business
combination. The statute was designed to eliminate coercive "two-tiered"
pricing arrangements to gain control of corporations, whereby a tender offer
is initiated as the first step in a business combination, with a higher price
per share being offered to those stockholders who initially tender their
shares to the potential acquiror, and a lower price to the minority of
stockholders who initially elect not to tender their stock. The statute
addresses this potential for unequal treatment of minority stockholders by
imposing special voting requirements on business combinations involving an
interested stockholder.
Delaware has enacted a business combination statute that is contained in
Section 203 of the DGCL providing that any person who acquires 15% or more of
a corporation's voting stock (thereby becoming an "interested stockholder")
may not engage in certain "business combinations" with the target corporation
for a period of three years following the time the person became an interested
stockholder, unless (i) the board of directors of the corporation has
approved, prior to that acquisition time, either the business combination or
the transaction that resulted in the person becoming an interested
stockholder, (ii) upon consummation of the transaction that resulted in the
person becoming an interested stockholder, that person owns at least 85% of
the corporation's voting stock outstanding at the time the transaction is
commenced (excluding shares owned by persons who are both directors and
officers and shares owned by employee stock plans in which participants do not
have the right to determine confidentially whether shares will be tendered in
a tender or exchange offer), or (iii) the business combination is approved by
the board of directors and authorized by the affirmative vote (at an annual or
special meeting and not by written consent) of at least 66% of the outstanding
voting stock not owned by the interested stockholder.
For purposes of determining whether a person is the "owner" of 15% or
more of a corporation's voting stock for purposes of Section 203, ownership is
defined broadly to include the right, directly or indirectly, to acquire the
stock or to control the voting or disposition of the stock. A business
combination is also defined broadly to include (i) mergers and sales or other
dispositions of 10% or more of the assets of a corporation with or to an
interested stockholder, (ii) certain transactions resulting in the issuance or
transfer to the interested stockholder of any stock of the corporation or its
subsidiaries, (iii) certain transactions which would result in increasing the
proportionate share of the stock of a corporation or its subsidiaries owned by
the interested stockholder, and (iv) receipt by the interested stockholder of
the benefit (except proportionately as a stockholder) of any loans, advances,
guarantees, pledges or other financial benefits.
These restrictions placed on interested stockholders by Section 203 do
not apply under certain circumstances, including, but not limited to, the
following: (i) if the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203 or
(ii) if the corporation, by action of its stockholders, adopts an amendment to
its bylaws or certificate of incorporation expressly electing not to be
governed by Section 203, provided that such an amendment is approved by the
affirmative vote of not less than a majority of the outstanding shares
entitled to vote and that such an amendment will not be effective until 12
months after its adoption (except for limited circumstances where
effectiveness will occur immediately) and will not apply to any business
combination with a person who became an interested stockholder at or prior to
such adoption.
Mergers, Acquisitions and Other Transactions. Under the SCBCA, a
merger, consolidation, sale of all or substantially all of a corporation's
assets other than in the regular course of business, or dissolution of a
public
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corporation must be approved by the affirmative vote of at least two-thirds of
the directors when a quorum is present, and by two-thirds of all votes
entitled to be cast by each voting group entitled to vote as a separate group,
unless another proportion is specified in the articles of incorporation. The
South Carolina Corporation's Articles of Incorporation provide that the
corporate transactions specified above may be approved by two-thirds of the
outstanding shares entitled to vote. Under the DGCL, a merger, consolidation,
sale of all or substantially all of a corporation's assets other than in the
regular course of business or dissolution of a corporation must be approved by
a majority of the outstanding shares entitled to vote.
Action Without a Meeting. Under the SCBCA, stockholder action may be
taken without a meeting if written consents setting forth such action are
signed by all holders of outstanding shares entitled to vote thereon. The
DGCL authorizes stockholder action without a meeting if consents are received
from holders of a majority of the outstanding shares. Although the South
Carolina Corporation's Articles of Incorporation and Bylaws do not restrict
the ability of stockholders to act by written consent, because such a consent
must be signed by all holders of outstanding shares entitled to vote on the
action, it is highly unlikely that any stockholder action would be taken by
written consent.
Class Voting. Under the SCBCA, the articles of incorporation may
authorize one or more classes of shares that have special, conditional or
limited voting rights, including the right to vote on certain matters as a
group. The articles of incorporation may not limit the rights of holders of a
class to vote as a group with respect to certain amendments to the articles of
incorporation and certain mergers that adversely affect the rights of holders
of that class. The DGCL requires voting by separate classes only with respect
to amendments to the certificate of incorporation that adversely affect the
holders of those classes or that increase or decrease the aggregate number of
authorized shares or the par value of the shares of any of those classes.
Transactions With Officers or Directors. The SCBCA and the DGCL provide
that contracts or transactions between a corporation and one or more of its
officers or directors or an entity in which they have an interest is not void
or voidable solely because of such interest or the participation of the
director or officer in a meeting of the board or a committee which authorizes
the contract or transaction if: (i) the material facts as to the relationship
or interest and as to the contract or transaction are disclosed or are known
to the board or the committee, and the board or the committee in good faith
authorizes the contract or transaction by the affirmative vote of a majority
of disinterested directors; (ii) the material facts as to the relationship or
interest and as to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract or transaction is
specifically approved or ratified in good faith by a vote of the stockholders;
or (iii) the contract or transaction is fair as to the corporation as of the
time it is authorized, approved or ratified by the board of directors, a
committee thereof, or the stockholders.
Appraisal or Dissenters' Rights. Under the SCBCA a stockholder is
entitled to dissent from and, upon perfection of his or her appraisal right,
to obtain fair value of his or her shares in the event of certain corporate
actions, including certain mergers, consolidations, share exchanges, sales of
substantially all assets of the corporation, and amendments to the
corporation's articles of incorporation that materially and adversely affect
stockholder rights.
Under Section 262 of the DGCL, appraisal rights are available only in
connection with certain mergers or consolidations, unless otherwise provided
in the corporation's certificate of incorporation. Even in the event of those
mergers or consolidations, unless the certificate of incorporation otherwise
provides, the DGCL does not provide appraisal rights (i) if the shares of the
corporation are listed on a national securities exchange, designated as a
national market system security on an inter dealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 stockholders (as long as in the merger the stockholders
receive shares of the surviving corporation or any other corporation the
shares of which are listed on a national securities exchange or held of record
by more than 2,000 stockholders) or (iii) if the corporation is the surviving
corporation and no vote of its stockholders is required for approval of the
merger.
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Because the Company is not listed on any national securities exchange
and consummation of the merger requires the vote of the Company's
stockholders, stockholders have the right to dissent from the merger and to
receive payment in cash for the "fair value" of their Company Common Stock.
Company stockholders electing to exercise dissenters' rights must comply with
the provisions of Section 262 in order to perfect their rights. The Company
will require strict compliance with the statutory procedures. A copy of
Section 262 is attached as Exhibit C and the summary hereof is qualified in
its entirety by Exhibit C.
The following is intended as a brief summary of the material provisions
of the Delaware statutory procedures required to be followed by a stockholder
in order to dissent from the Reincorporation and perfect the stockholder's
dissenters' rights. This summary, however, is not a complete statement of all
applicable requirements and is qualified in its entirety by reference to
Section 262 of the DGCL, the full text of which is set forth in Exhibit C
hereto.
Section 262 of the DCGL requires that stockholders be notified not less
than 20 days in advance of the submission to a stockholder vote of a merger
with respect to which dissenters' appraisal rights will be available that such
rights will be available to such stockholders and a copy of Section 262 must
be included with such notice. This Proxy Statement constitutes the Company's
notice to its stockholders of the availability of dissenters' rights in
connection with the Reincorporation in compliance with the requirements of
Section 262. Any Company stockholder who may wish to consider exercising such
dissenters' rights should carefully review the text of Section 262 set forth
as Exhibit C hereto because failure timely and properly to comply with the
requirements of Section 262 will result in the loss of such rights under
Delaware law.
If any Company stockholder elects to demand appraisal of his or her
shares, the stockholder must satisfy each of the following conditions:
(i) the stockholder must deliver to the Company a written demand
for appraisal of his or her shares before the vote with respect to the
Reincorporation is taken (this written demand for appraisal must be in
addition to and separate from any proxy or vote abstaining from or
against the Reincorporation; voting against or failing to vote for the
Reincorporation by itself does not constitute a demand for appraisal
within the meaning of Section 262); and
(ii) the stockholder must not vote in favor of the Reincorporation
(an abstention or failure to vote will satisfy this requirement, but a
vote in favor of the Reincorporation, by proxy or in person, will
constitute a waiver of the stockholder's dissenters' rights in respect
of the shares so voted and will nullify any previously filed written
demands for appraisal).
If any stockholder fails to comply with either of these conditions and
the Reincorporation becomes effective, the stockholder will be entitled to
receive an equal number of shares of South Carolina Corporation Common Stock
for his or her shares of Company Common Stock as provided for in the Merger
Agreement, but will have no dissenters' rights with respect to his or her
shares of Company Common Stock.
All demands for appraisal should be addressed to the Corporate
Secretary, P.O. Box 810, Aiken, South Carolina 29802, before the vote on the
Reincorporation is taken at the Meeting, and should be executed by, or on
behalf of, the record holder of the shares of Company Common Stock. The
demand must reasonably inform the Company of the identity of the stockholder
and the intention of the stockholder to demand appraisal of his or her shares.
To be effective, a demand for appraisal by a holder of Company Common
Stock must be made by or in the name of such registered stockholder, fully and
correctly, as the stockholder's name appears on his or her stock
certificate(s) and cannot be made by the beneficial owner if he or she does
not also hold the shares of record. The beneficial holder must, in such
cases, have the registered owner submit the required demand in respect of such
shares.
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If shares are owned of record in a fiduciary capacity, such as by a
trustee, guardian or custodian, execution of a demand for appraisal should be
made in such capacity; and if the shares are owned of record by more than one
person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including one for
two or more joint owners, may execute the demand for appraisal for a
stockholder of record; however, the agent must identify the record owner or
owners and expressly disclose the fact that, in executing the demand, he or
she is acting as agent for the record owner. A record owner, such as a
broker, who holds shares as a nominee for others, may exercise his or her
right of appraisal with respect to the shares held for one or more beneficial
owners, while not exercising this right for other beneficial owners. In such
case, the written demand should state the number of shares as to which
appraisal is sought. Where no number of shares is expressly mentioned, the
demand will be presumed to cover all shares held in the name of such record
owner.
Persons who hold their shares of Company Common Stock in brokerage
accounts or in other nominee forms and who wish to exercise appraisal rights
should consult with their brokers or such other nominees to determine the
appropriate procedures for the making of a demand for appraisal by such
nominee.
Within ten days after the effective date of the Reincorporation, the
Company must give written notice that the Reincorporation has become effective
to each Company stockholder who has properly filed a written demand for
appraisal and who did not vote in favor of the Reincorporation. Within 120
days after the effective date, but not thereafter, either the Company or any
stockholder who has complied with the requirements of Section 262 of the DGCL
may file a petition in the Delaware Court of Chancery ("Court") demanding a
determination of the fair value of the shares held by all stockholders
entitled to appraisal. The Company does not presently intend to file such a
petition in the event there are dissenting stockholders and has no obligation
to do so. Accordingly, the failure of a stockholder to file such a petition
within the period specified could nullify such stockholder's previously
written demand for appraisal.
At any time within 60 days after the effective date, any stockholder who
has demanded appraisal has the right to withdraw the demand and to accept an
equal number of shares of South Carolina Corporation Common Stock for his or
her shares of Company Common Stock pursuant to the Merger Agreement. If a
petition for appraisal is duly filed by a stockholder and a copy thereof is
delivered to the Company, the Company will then be obligated within 20 days
thereafter to provide the Court with a duly verified list containing the names
and addresses of all stockholders who have demanded an appraisal of their
shares. After notice to such stockholders, the Court is empowered to conduct
a hearing upon the petition, to determine those stockholders who have complied
with Section 262 of the DGCL and who have become entitled to the appraisal
rights provided thereby. The Court may require the stockholders who have
demanded payment for their shares to submit their stock certificates to the
Register in Chancery for notation thereon of the pendency of the appraisal
proceedings; and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to appraisal of their
shares of Company Common Stock, the Court will appraise the shares,
determining their fair value exclusive of any element of value arising from
the accomplishment or expectation of the Reincorporation. When the value is
so determined, the Court will direct the payment of such value, with interest
thereon accrued during the pendency of the proceeding if the Court so
determines, to the stockholders entitled to receive the same, upon surrender
by such holders of the certificates representing such shares.
In determining fair value, the Court is required to take into account
all relevant factors. Stockholders considering seeking appraisal should be
aware that the fair value of their shares as determined under Section 262
could be more, the same, or less than the value that they are entitled to
receive pursuant to the Merger Agreement if they do not seek appraisal of
their shares.
Costs of the appraisal proceeding may be imposed upon the parties
thereto (i.e., the Company and the stockholders participating in the appraisal
proceeding) by the Court as the Court deems equitable in the circumstances.
Upon the application of a stockholder, the Court may order all or a portion of
the expenses incurred
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by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorneys' fees and the fees and expenses of
experts, to be charged pro rata against the value of all shares entitled to
appraisal. Any stockholder who had demanded appraisal rights will not, after
the effective date, be entitled to vote shares subject to such demand for any
purpose or to receive payments of dividends or any other distribution with
respect to such shares (other than with respect to payment as of a record date
prior to the effective date) or to receive an equal number of shares of South
Carolina Corporation Common Stock for shares of Company Common Stock pursuant
to the Merger Agreement; however, if no petition for appraisal is filed within
120 days after the effective date, or if such stockholder delivers a written
withdrawal of his or her demand for appraisal and an acceptance of the
Reincorporation within 60 days after the effective date then the right of such
stockholder to appraisal will cease and such stockholder will be entitled to
receive an equal number of shares of South Carolina Corporation Common Stock
for shares of his or her Company Common Stock pursuant to the Merger
Agreement. Any withdrawal of a demand for appraisal made more than 60 days
after the effective date of the Reincorporation may only be made with the
written approval of the surviving corporation and must, to be effective, be
made within 120 days after the effective date.
In view of the complexity of Section 262 of the DGCL, stockholders of
the Company who may wish to dissent from the Reincorporation and pursue
appraisal rights should consult their legal advisors.
Indemnification of Directors and Officers. Under the SCBCA, a
corporation may indemnify a director if he has met the standard of conduct set
forth in the SCBCA and such determination is made by: (i) the board of
directors by a majority vote of a quorum consisting of directors not at the
time parties to the proceeding or, if a quorum cannot be obtain, by a majority
vote of a committee duly designated by the board of directors consisting
solely of two or more directors not at the time parties to the proceeding;
(ii) by special legal counsel; and (iii) by stockholders.
Under the DGCL, indemnification of directors and officers is authorized
to cover judgments, amounts paid in settlement, and expenses arising out of
non-derivative actions where the director or officer acted in good faith and
in or not opposed to the best interests of the corporation. Indemnification
is required to the extent of a director's or officer's successful defense.
Additionally, under the DGCL, a corporation may reimburse directors and
officers for expenses incurred in a derivative action.
The Company has included undertakings in various registration statements
filed with the SEC that in the event a claim for indemnification is asserted
by a director or officer relating to liabilities under the Securities Act of
1933, as amended, the Company will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether indemnification would be
against public policy and will be governed by any final adjudication of such
issue.
Filing Fees. Delaware imposes annual franchise tax fees on all
corporations incorporated in Delaware. The annual fee ranges from a nominal
fee to a maximum of $150,000, based on an equation consisting of the number of
shares authorized, the number of shares outstanding and the net assets of the
corporation. The Company would be subject to Delaware annual franchise tax
and filing fees of approximately $26,000 when including the proposed increase
in authorized shares. South Carolina charges corporations incorporated in
South Carolina nominal annual corporate license renewal fees, and does not
impose any franchise tax fee.
Federal Income Tax Consequences
Breyer & Aguggia LLP, counsel to the Company, will issue an opinion with
respect to the Reincorporation to the effect that, for federal income tax
purposes:
1. The merger of the Company with and into the South Carolina Corporation
will qualify as a reorganization under section 368(a)(1) of the Internal
Revenue Code of 1986, as amended;
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2. The Company will recognize no gain or loss as a result of the merger;
3. A stockholder of the Company will recognize no gain or loss upon the
deemed exchange of shares of Company Common Stock for shares of the
South Carolina Corporation Common Stock;
4. The aggregate basis of the shares of the South Carolina Corporation
Common Stock deemed received by a stockholder as a result of the merger
will equal the aggregate basis of the shares of Company Common Stock
deemed exchanged therefor; and
5. The holding period of the shares of the South Carolina Corporation
Common Stock deemed received by a stockholder in the merger will include
the holding period of the shares of Company Common Stock deemed
exchanged therefor, provided that such Company Common Stock is held as a
capital asset by the stockholder at the effective time of the merger.
The opinion of Breyer & Aguggia LLP is subject to certain assumptions
and qualifications and will be based upon the accuracy of certain
representations contained in the officers' certificates delivered to Breyer &
Aguggia LLP by the parties to the Reincorporation in connection with the
delivery of the tax opinion by Breyer & Aguggia LLP. No ruling from the
Internal Revenue Service ("IRS") will be applied for with respect to the
federal income tax consequences of the Reincorporation. Thus, there can be no
assurance that the IRS will agree with the conclusions set forth herein
regarding the federal income tax consequences of the Reincorporation.
The federal income tax discussion set forth above is based upon current
law. Although this discussion is intended to cover the material federal
income tax consequences of the Reincorporation, it may not address issues that
are material to a stockholder because of his or her particular tax situation.
It does not address foreign, state or local tax consequences. Each
stockholder is urged to consult his or her own tax advisor concerning the
specific tax consequences of the merger to such stockholder, including the
applicability and effect of federal, state, local and other tax laws.
Vote Required and Board Recommendation
The affirmative vote of a majority of the outstanding shares of Company
Common Stock entitled to vote at the Meeting is required to approve the
Reincorporation.
The Board of Directors believes that the Reincorporation is in the best
interests of the Company and its stockholders and, consequently, recommends a
vote "FOR" approval of the Reincorporation.
PROPOSAL III -- RATIFICATION OF AN
AMENDMENT TO THE COMPANY'S CORPORATE CHARTER
--------------------------------------------
The Board has unanimously approved and proposed for stockholder approval
an amendment to the Company's corporate charter to increase the Company's
authorized Common Stock from 1,000,000 to 5,000,000 shares. If the
Reincorporation of the Company as a South Carolina corporation is approved by
stockholders, this proposal will be submitted to stockholders for approval of
an amendment to the Company's South Carolina Articles of Incorporation. In
the event stockholders do not approve the Reincorporation of the Company as a
South Carolina corporation, this proposal will be submitted to stockholders
for approval of an amendment to the Company's Delaware Certificate of
Incorporation, as amended.
The Company's Delaware Certificate of Incorporation, as amended,
currently authorizes the issuance of 1,000,000 shares of Common Stock and
200,000 shares of preferred stock. As of the close of business on the Record
Date, 421,060 shares of Company Common Stock were issued and outstanding and
4,489 shares of Company Common Stock were reserved for issuance under the
Company's stock option plans. If the proposed change in
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authorized capital is approved by stockholders, the Company will have
4,578,940 shares of unissued and unreserved shares of Company Common Stock
available for issuance in the future.
The Board of Directors believes that this proposed amendment is in the
best interests of the Company and its stockholders. The proposed increase in
the number of authorized shares would give the Board the necessary flexibility
to issue Company Common Stock in connection with stock dividends and splits,
acquisitions, financing and employee benefits and for general corporate
purposes without the expense and delay incidental to obtaining stockholder
approval of an amendment to the Company's corporate charter increasing the
number of authorized shares at the time of such action, except as may be
required for a particular issuance by applicable law or by the rules of any
stock exchange on which the Company's securities may then be listed.
The proposed increase in the number of authorized shares of Company
Common Stock may enable the Board of Directors to render more difficult or
discourage an attempt by another person or entity to obtain control of the
Company. Although the Board of Directors has no present intention of issuing
additional shares for such purposes, such additional shares could be issued by
the Board in a public or private sale, merger or similar transaction,
increasing the number of outstanding shares and thereby diluting the equity
interest and voting power of a party attempting to obtain control of the
Company. The amendment is not being proposed in response to any known effort
to acquire control of the Company.
If the Reincorporation is approved by stockholders, and the amendment of
the South Carolina Corporation's Articles of Incorporation is approved, the
first sentence of the first paragraph of Article VI of the Articles of
Incorporation would read as follows:
"The aggregate number of shares of all classes of capital stock
which the Corporation has authority to issue is five million, two
hundred thousand (5,200,000), of which five million (5,000,000)
shall be common stock, par value $.01 per share, amounting in the
aggregate to fifty thousand dollars ($50,000), and of which two
hundred thousand (200,000) shall be serial preferred stock, par
value $.01 per share, amounting in the aggregate to two thousand
dollars ($2,000)."
The remaining text of Article VI of the South Carolina Corporation's
Articles of Incorporation would remain unchanged.
If the Reincorporation is not approved by stockholders, and the
amendment of the Company's Delaware Certificate of Incorporation, as amended,
is approved, the first paragraph of Section 4 of the Company's Delaware
Certificate of Incorporation, as amended, would read as follows:
"Section 4. Capital Stock. The total number of capital stock which
the Company has authority to issue shall be five million two
hundred thousand (5,200,000), of which five million (5,000,000)
shall be common stock, par value $.01 per share, amounting in the
aggregate to fifty thousand dollars ($50,000), and two hundred
thousand (200,000) of which shall be preferred stock, par value
$.01 per share, amounting in the aggregate to two thousand dollars
($2,000) with rights and preferences to be determined by the board
of directors upon issuance."
The remaining text of Section 4 of the Company's Delaware Certificate of
Incorporation, as amended, would remain unchanged.
The amendment to the Company's corporate charter to increase the number
of authorized shares of Company Common Stock requires the affirmative vote of
a majority of the outstanding shares of Company Common Stock entitled to vote
at the Meeting. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE APPROVAL OF THE AMENDMENT TO THE COMPANY'S CORPORATE CHARTER.
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STOCKHOLDER PROPOSALS
---------------------
In order to be eligible for inclusion in the Company's proxy
solicitation materials for the next year's Annual Meeting of Stockholders, any
stockholder 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 22, 1999. Any such proposals shall be subject to the
requirements of the proxy solicitation rules adopted under the Exchange Act.
OTHER MATTERS
-------------
Representatives of Elliot Davis & Company, LLP, the Company's
independent auditors, are expected to attend the Meeting to respond to
appropriate questions and to make a statement if they so desire.
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.
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 Company 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 Stockholders, including consolidated
financial statements, accompanies this Proxy Statement. Any stockholder 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-KSB
-----------
A copy of the Annual Report on Form 10-KSB as filed with the SEC will be
furnished without charge to stockholders 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
Robert E. Johnson
Secretary
Aiken, South Carolina
June 19, 1998
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER ("Merger Agreement") is made as of
__________ __, 1998 by and between Security Federal Corporation, a Delaware
corporation ("Security-Delaware"), and Security Federal Corporation, a South
Carolina corporation ("Security-South Carolina"). Security-Delaware and
Security-South Carolina are sometimes referred to herein as the "Constituent
Corporations."
The authorized capital stock of Security-Delaware consists of 1,000,000
shares of common stock, $0.01 par value per share, of which _______ are issued
and outstanding as of the date hereof, and 200,000 shares of serial preferred
stock, $0.01 par value per share, none of which are issued and outstanding as
of the dated hereof.
The authorized capital stock of Security-South Carolina consists of
1,000,000 shares of common stock, $0.01 par value per share, none of which are
issued and outstanding as of the date hereof, and 200,000 shares of serial
preferred stock, $0.01 par value per share, none of which are issued and
outstanding as of the date hereof.
The directors of the Constituent Corporations have approved this Merger
Agreement and deem it advisable and to the advantage of said corporations that
Security-Delaware merge into Security-South Carolina upon the terms and
conditions herein provided.
NOW, THEREFORE, the parties hereto agree as follows:
1. Merger. Security-Delaware shall be merged with and into
Security-South Carolina ("Merger"), and Security-South Carolina shall be the
surviving corporation ("Surviving Corporation"), effective upon the date when
this Merger Agreement is made effective in accordance with applicable law
("Effective Time").
2. Directors, Officers and Governing Documents. The directors of
Security-Delaware immediately prior to the Effective Time shall be the
directors of the Surviving Corporation until the next annual meeting of
stockholders and until their successors shall be duly elected and qualified.
The officers of Security-Delaware immediately prior to the Effective Time
shall be the officers of the Surviving Corporation, each to hold office in
accordance with the Bylaws of the Surviving Corporation. The Articles of
Incorporation of Security-South Carolina, as in effect immediately prior to
the Effective Time, shall continue to be the Articles of Incorporation of the
Surviving Corporation until it shall thereafter be duly altered, amended or
repealed. The Bylaws of Security-South Carolina, as in effect immediately
prior to the Effective Time, shall be the Bylaws of the Surviving Corporation
without change or amendment until thereafter amended in accordance with the
provisions thereof and applicable laws.
3. Succession. At the Effective Time, Security-South Carolina shall
succeed to Security-Delaware in the manner and as more fully set forth in
Section 33-11-106 of the South Carolina Business Corporation Act, as amended.
4. Further Assurances. From time to time, as and when required by
the Surviving Corporation or by its successors and assigns, there shall be
executed and delivered on behalf of Security-Delaware such deeds and other
instruments, and there shall be taken or caused to be taken by or on behalf of
Security-Delaware such further and other action as shall be appropriate or
necessary to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation the title to and possession of all the property,
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Security-Delaware, and otherwise to carry out the purposes of
this Merger Agreement, and the officers and directors of Security-South
Carolina are fully authorized in the name and on behalf of Security-
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Delaware or otherwise to take any and all such action and to execute and
deliver any and all such deeds and other instruments.
5. Stock and Stock Certificates. At the Effective Time:
(a) each share of Security-Delaware common stock outstanding
immediately prior to the Effective Time, by virtue of the Merger and without
any action on the part of the holder thereof, shall be changed and converted
into one fully paid and nonassessable share of Security-South Carolina common
stock;
(b) all shares of Security-Delaware common stock presently
issued and outstanding in the name of Security-Delaware, by virtue of the
Merger and without any action on the part of Security-Delaware shall be
cancelled and retired and resume the status of authorized and unissued shares
of Security-Delaware common stock; and no shares of Security-Delaware common
stock or other securities of Security-South Carolina shall be issued in
respect thereof.
6. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of Security-Delaware common stock shall be deemed for all
purposes to evidence ownership of, and to represent, shares of Security-South
Carolina common stock into which the shares of Security-Delaware common stock
formerly represented by such certificates have been converted as herein
provided. The registered owner on the books and records of Security-Delaware
or its transfer agent of any such outstanding stock certificate shall, until
such certificate shall have been surrendered for transfer or otherwise
accounted for to Security-South Carolina or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to and to
receive any dividends and other distributions upon the shares of
Security-Delaware common stock, evidenced by such outstanding certificate as
above provided.
7. Condition to Merger. The Merger shall have received the requisite
approval of the holders of Security-Delaware common stock pursuant to the
Delaware Business Corporation Act, as amended ("DBCA"). The holders of
Security-Delaware common stock shall have approval rights pursuant to Section
262 of the DBCA.
8. Options. At the Effective Time, each option to purchase shares of
Security-Delaware common stock granted under the Security Federal Bank 1987
Stock Option and Incentive Plan ("Plan"), which is outstanding immediately
prior to the Effective Time, shall be converted into and become an option to
purchase the same number of shares of Security-South Carolina common stock at
the same option price per share, upon the same terms and subject to the same
conditions set forth in the option and in the Plan as in effect at the
Effective Time. The same number of shares of Security-South Carolina Common
Stock shall be reserved for purposes of the Plan as is equal to the number of
shares of Security-Delaware Common Stock so reserved as of the Effective Time.
As of the Effective Time, Security-South Carolina will assume the Plan and all
obligations of Security-Delaware under the Plan, including the outstanding
options granted pursuant to the Plan.
9. Other Employee Benefit Plans. At the Effective Time,
Security-South Carolina will assume any and all other employee benefit plans
(and all obligations of Security-Delaware thereunder) in effect as of the
Effective Time or with respect to which employee rights or accrued benefits
are outstanding as of the Effective Time.
10. Amendment. Subject to applicable laws, this Merger Agreement may
be amended by written agreement of the parties hereto at any time prior to the
Effective Time.
11. Abandonment. At any time prior to the Effective Time, this Merger
Agreement may be terminated and abandoned by the unilateral action of the
Board of Directors of Security-Delaware.
* * * * *
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SECURITY FEDERAL CORPORATION
(a Delaware Corporation)
ATTEST:
By:
------------------------------
Robert E. Johnson, Secretary Timothy W. Simmons, President
SECURITY FEDERAL CORPORATION
(a South Carolina corporation)
ATTEST:
By:
------------------------------
Robert E. Johnson, Secretary Timothy W. Simmons, President
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EXHIBIT B
ARTICLES OF INCORPORATION
OF
SECURITY FEDERAL CORPORATION
ARTICLE I
Corporate Title
The name of the corporation is Security Federal Corporation
(hereinafter, the "Corporation").
ARTICLE II
Purpose and Powers
The purpose or purposes for which the Corporation is organized are to
engage in any lawful act or activity for which corporations may be organized
under the South Carolina Business Corporation Act of 1988, as amended
(hereinafter, the "Act").
ARTICLE III
Duration
The duration of the Corporation is perpetual.
ARTICLE IV
Registered Office and Agent
The street address of the Corporation's registered office is 1705
Whiskey Road South, Aiken, South Carolina. The name of the Corporation's
registered agent at that office is Timothy W. Simmons, P.O. Box 810, Aiken,
South Carolina 29802.
ARTICLE V
Incorporator
The name and mailing address of the incorporator is as follows:
Timothy W. Simmons
P.O. Box 810
Aiken, South Carolina 29802
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ARTICLE VI
Capital Stock
The aggregate number of shares of all classes of capital stock which the
Corporation has authority to issue is one million, two hundred thousand
(1,200,000), of which one million (1,000,000) shall be common stock, par value
$.01 per share, amounting in the aggregate to ten thousand dollars ($10,000),
and of which two hundred thousand (200,000) shall be serial preferred stock,
par value $.01 per share, amounting in the aggregate to two thousand dollars
($2,000). The shares may be issued by the Corporation from time to time as
approved by its Board of Directors without the approval of its stockholders.
The consideration for the issuance of the shares shall be paid in full before
issuance and shall not be less than the par value per share. Neither
promissory notes nor future services shall constitute payment or part payment
for the issuance of the shares of the Corporation. The consideration for the
shares shall be cash, services actually performed for the Corporation,
personal property (tangible or intangible), real property, leases of real
property or any combination of the foregoing. In the absence of actual fraud
in the transaction, the judgment of the Board of Directors as to the value of
such consideration shall be conclusive. Upon payment of such consideration
such shares shall be deemed to be fully paid and nonassessable.
Nothing contained in this Article VI (or in any resolution or
resolutions adopted by the Board of Directors pursuant hereto) shall entitle
the holders of any class or series of capital stock to more than one vote per
share.
A description of the different classes and series of the Corporation's
capital stock, and a statement of the designations, powers, preferences and
rights, and the qualifications, limitations and restrictions, of the shares of
each class of and series of capital stock are as follows:
A. Common Stock. Except as provided in this Article VI (or in any
resolution or resolutions adopted by the Board of Directors pursuant hereto),
the holders of the common stock shall exclusively possess all voting power.
Each holder of shares of common stock shall be entitled to one vote for each
share held by such holder, including the election of directors. There shall
be no cumulative voting rights in the election of directors.
Whenever there shall have been paid, or declared and set aside for
payment, to the holders of the outstanding shares of any class of stock having
preference over the common stock as to the payment of dividends, the full
amount of dividends and of sinking fund or retirement fund or other retirement
payments, if any, to which such holders are respectively entitled in
preference to the common stock, then dividends may be paid on the common stock
and on any class or series of stock entitled to participate therewith as to
dividends, out of any assets legally available for the payment of dividends;
but only when and as declared by the Board of Directors of the Corporation.
In the event of any liquidation, dissolution or winding up of the
Corporation, after there shall have been paid or declared and set aside for
the holders of any class having preferences over the common stock in the event
of liquidation, dissolution or winding up the full preferential amounts of
which they are respectively entitled, the holders of the common stock, and of
any class or series of stock entitled to participate therewith, in whole or in
part, as to distribution of assets, shall be entitled, after payment or
provision for payment of all debts and liabilities of the Corporation, to
receive the remaining assets of the Corporation available for distribution, in
cash or in kind.
Each share of common stock shall have the same relative rights as
and be identical in all respects with all the other shares of common stock.
B. Serial Preferred Stock. Except as provided in this Article VI, the
Board of Directors is authorized, by resolution or resolutions from time to
time adopted and by filing a certificate pursuant to the applicable law of the
State of South Carolina, to provide for the issuance of serial preferred stock
in series and to fix and state the powers, designations, preferences and
relative, participating, optional or other special rights of the shares of
each such series, and the qualifications, limitations or restrictions thereof
to the full extent now or hereafter permitted by the Act. Without limiting
the generality of the grant of authority contained in the preceding sentence,
the Board of
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Directors is authorized to determine any or all of the following, and the
shares of each series may vary from the shares of any other series in any or
all of the following respects:
(1) the distinctive serial designation and the number of shares
constituting such series;
(2) the dividend rate or the amount of dividends to be paid on
the shares of such series, whether dividends shall be cumulative and, if so,
from which date or dates, the payment date or dates for dividends, and the
participating or other special rights, if any, with respect to dividends;
(3) the voting powers, full or limited, if any, of the shares of
such series;
(4) whether the shares of such series shall be redeemable and, if
so, the price or prices at which, and the terms and conditions upon which such
shares may be redeemed;
(5) the amount or amounts payable upon the shares of such series
in the event of voluntary or involuntary liquidation, dissolution or winding
up of the Corporation;
(6) whether the shares of such series shall be entitled to the
benefit of a sinking or retirement fund to be applied to the purchase or
redemption of such shares, and, if so entitled, the amount of such fund and
the manner of its application, including the price or prices at which such
shares may be redeemed or purchased through the application of such fund;
(7) whether the shares of such series shall be convertible into,
or exchangeable for, shares of any other class or classes or any other series
of the same or any other class or classes of stock of the Corporation and, if
so convertible or exchangeable, the conversion price or prices, or the rate or
rates of exchange, and the adjustments thereof, if any, at which such
conversion or exchange may be made, and any other terms and conditions of such
conversion or exchange;
(8) the price or other consideration for which the shares of such
series shall be issued; and
(9) whether the shares of such series which are redeemed or
converted shall have the status of authorized but unissued shares of serial
preferred stock and whether such shares may be reissued as shares of the same
or any other series of serial preferred stock.
Dividends on outstanding shares of preferred stock shall be paid, or
declared and set apart for payment, before any dividends shall be paid or
declared and set apart for payment on the common stock with respect to the
same dividend period.
If upon any voluntary or involuntary liquidation, dissolution or winding
up of the Corporation, the assets available for distribution to holders of
shares of preferred stock of all series shall be insufficient to pay such
holders the full preferential amount to which they are entitled, then such
assets shall be distributed ratably among the shares of all series of
preferred stock in accordance with the respective preferential amounts
(including unpaid cumulative dividends, if any) payable with respect thereto.
Each share of each series of serial preferred stock shall have the same
relative powers, preferences and rights as, and shall be identical in all
respects with, all the other shares of the same series.
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ARTICLE VII
Preemptive Rights
Holders of the capital stock of the Corporation shall not be entitled to
preemptive rights with respect to any shares or other securities of the
Corporation which may be issued or any securities convertible into any such
shares, including, without limitation, warrants, subscription rights and
options to acquire shares.
ARTICLE VIII
Meetings of Stockholders
A. Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws of the Corporation, no action required to be taken
or which may be taken at any annual or special meeting of stockholders of the
Corporation may be taken without a meeting, and the power of stockholders to
consent in writing, without a meeting, to the taking of any action is
specifically denied.
B. Special meetings of stockholders may be called at any time, but
only by the Chairman of the Board, the President, a majority of the Board of
Directors or as otherwise required by law.
C. Meetings of stockholders may be held within or without the State of
South Carolina, as the Bylaws may provide.
ARTICLE IX
Nominations and Business at Annual Meetings
A. Nominees. Only persons who are nominated in accordance with the
procedures set forth in this paragraph shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors may
be made at an annual meeting of stockholders by or at the direction of the
Board of Directors or by any stockholder entitled to vote for the election of
directors at the meeting who complies with the notice procedures set forth in
this paragraph. Such nominations, other than those made by or at the
direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary. To be timely, a stockholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than 30 days nor more than 90 days prior to the annual
meeting; provided, however, that in the event that less than 45 days' notice
or prior public disclosure of the date of the annual meeting is given or made
to stockholders, notice by the stockholder to be timely must be so received
not later than the close of business on the 15th day following the day on
which such notice of the date of the annual meeting was mailed or such public
disclosure was made. Such stockholder's notice shall set forth (i) as to each
person whom the stockholder proposes to nominate for election as a director,
(a) the name, age, business address and residence address of such person, (b)
the principal occupation or employment of such person, (c) the class and
number of shares of the Corporation's capital stock which are beneficially
owned by such person, and (d) any other information relating to such person
that is required to be disclosed in solicitations or proxies for election of
directors, or is otherwise required, in each case pursuant to Regulation 14A,
or any successor regulation, under the Securities Exchange Act of 1934, as
amended (hereinafter, the "Exchange Act") (including without limitation such
person's written consent to being named in the proxy statement as a nominee
and to serving as a director if elected); and (ii) as to the stockholder
giving notice, (a) the name and address, as they appear on the Corporation's
books, of such stockholder and (b) the class and number of shares of the
Corporation's capital stock which are beneficially owned by such stockholder.
At the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary that
information required to be set forth in a stockholder's notice of nomination
which pertains to the nominee. No person shall be eligible for election as a
director unless nominated in accordance with the procedures set forth in this
paragraph. The Chairman of the annual meeting shall, if the facts warrant,
determine and declare
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to the annual meeting that a nomination was not made in accordance with
procedures prescribed by these Articles of Incorporation, and if he should so
determine, he shall so declare to the annual meeting and the defective
nomination shall be disregarded.
B. Business at Annual Meetings. At an annual meeting of stockholders,
only such business shall be conducted as shall have been properly brought
before the meeting. To be properly brought before an annual meeting, business
must be (i) specified in the notice of meeting (or any supplement thereto)
given by or at the direction of the Board of Directors, (ii) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors, or (iii) otherwise properly brought before the meeting by a
stockholder.
For business to be properly brought before an annual meeting by a
stockholder, the stockholder must have given timely notice thereof in writing
to the Secretary. To be timely, a stockholder's notice must be delivered to
or mailed and received at the principal executive offices of the Corporation
not less than 30 days nor more than 90 days prior to the meeting; provided,
however, than in the event that less than 45 days' notice or prior public
disclosure of the date of the meeting is given or made to stockholders, notice
by the stockholder to be timely must be so received not later than the close
of business on the 15th day following the day on which such notice of the date
of the annual meeting was mailed or such public disclosure was made. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (i) a brief
description of the business desired to be brought before the annual meeting
and the reasons for conducting such business at the annual meeting, (ii) the
name and address, as they appear on the Corporation's books, of the
stockholder proposing such business, (iii) the class and number of shares of
the Corporation's capital stock which are beneficially owned by the
stockholder and (iv) any material interest of the stockholder in such
business. Notwithstanding anything in these Articles of Incorporation to the
contrary, no business shall be conducted at an annual meeting except in
accordance with the procedures set forth in this paragraph. The Chairman of
an annual meeting shall, if the facts warrant, determine and declare to the
annual meeting that a matter of business was not properly brought before the
meeting in accordance with the provisions of these Articles of Incorporation,
and if he should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
ARTICLE X
Directors
A. Number; Vacancies. Except as provided in this Article X, the Board
of Directors of the Corporation shall consist of not less than seven (7) or
more than fifteen (15) directors. The number of directors with this range
shall be as provided from time to time in or in accordance with the Bylaws of
the Corporation, provided that no decrease in the number of directors shall
have the effect of shortening the term of any incumbent director, and provided
further that no action shall be taken to decrease or increase the number of
directors from time to time unless at least two-thirds of the directors then
in office shall concur in said action. Any vacancy in the Board of Directors,
including any vacancy created by reason of an increase in the number of
directors, shall be filled by a vote of a majority of the directors then in
office, whether or not a quorum, and any director so chosen shall hold office
until the next stockholders' meeting at which directors are elected and until
such director's successor shall have been elected and qualified. Directors
need not be residents of any particular state, country or other jurisdiction.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one
or more directors, the Board of Directors shall consist of said directors so
elected in addition to the number of directors fixed as provided in this
Article.
B. Classified Board. Except as otherwise provided by Section 33-8-106
of the Act, the Board of Directors of the Corporation shall be divided into
three classes of directors which shall be designated Class I, Class II and
Class III. The members of each class shall be elected for a term of three
years and until their successors are elected and qualified. Such classes
shall be as nearly equal in number as the then total number of directors
constituting the entire board of directors shall permit, with the terms of
office of all members of one class expiring each year. At
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the first annual meeting of stockholders, directors in Class I shall be
elected to hold office for a term expiring at the next succeeding annual
meeting thereafter, directors of Class II shall be elected to hold office for
a term expiring at the second succeeding meeting thereafter, and directors of
Class III shall be elected to hold office for a term expiring at the third
succeeding annual meeting thereafter. Thereafter, at each succeeding annual
meeting, directors whose term shall expire at any annual meeting shall
continue to serve until such time as his successor shall have been duly
elected and shall have qualified unless his position on the Board of Directors
shall have been abolished by action taken to reduce the size of the Board of
Directors prior to said meeting.
Should the number of directors of the Corporation be reduced, the
directorship(s) eliminated shall be allocated among classes as appropriate so
that the number of directors in each class is as specified in the immediately
preceding paragraph. The board of directors shall designate, by the name of
the incumbent(s), the position(s) to be abolished. Notwithstanding the
foregoing, no decrease in the number of directors shall have the effect of
shortening the term of any incumbent director. Should the number of directors
of the Corporation be increased, the additional directorships shall be
allocated among classes as appropriate so that the number of directors in each
class is as specified in the immediately preceding paragraph.
Whenever the holders of any one or more series of preferred stock of the
Corporation shall have the right, voting separately as a class, to elect one
or more directors of the Corporation, the Board of Directors shall consist of
said directors so elected in addition to the number of directors fixed as
provided above in this Article X. Notwithstanding the foregoing, and except
as otherwise may be required by law, whenever the holders of any one or more
series of preferred stock of the Corporation shall have the right, voting
separately as a class, to elect one or more directors of the Corporation, the
terms of the director or directors elected by such holders shall expire at the
next succeeding annual meeting of stockholders.
ARTICLE XI
Initial Directors
The names of the individuals who shall serve as the Board of Directors
of the Corporation until the first annual meeting of stockholders, at which
time they may stand for re-election, are Gasper L. Toole III, Thomas L. Moore,
Harry O. Weeks, Jr., Robert E. Alexander, William Clyburn, Timothy W. Simmons
and T. Clifton Weeks. The address of each such individual is 1705 Whiskey
Road South, Aiken, South Carolina 29803.
ARTICLE XII
Removal of Directors
Notwithstanding any other provision of these Articles of Incorporation
or the Bylaws of the Corporation, no director may be removed except for cause
and then only by the affirmative vote of the holders of at least two-thirds of
the outstanding shares of capital stock entitled to vote generally in the
election of directors (considered for this purpose as one class) cast at a
meeting of the stockholders called for that purpose. At least 30 days prior
to such meeting of stockholders, written notice shall be sent to the director
or directors whose removal will be considered at such meeting.
Notwithstanding the foregoing, whenever the holders of any one or more series
of preferred stock shall have the right, voting separately as a class, to
elect one or more directors, the preceding provisions of this Article XII
shall not apply with respect to the director or directors elected by such
holders of preferred stock.
ARTICLE XIII
Limitations on Directors' Liability
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
other than liability (i) for the breach of the director's duty of loyalty to
the
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Corporation or its stockholders, (ii) for acts or omissions not in good faith
or which involve gross negligence, intentional misconduct or a knowing
violation of law, (iii) imposed under Section 33-8-330 of the Act (pertaining
to liability for unlawful distributions), or (iv) for any transaction from
which the director derived an improper personal benefit. If the Act is
amended after the effective date of these Articles of Incorporation to further
eliminate or limit the personal liability of directors, then the liability of
a director shall be eliminated or limited to the fullest extent permitted by
the Act.
Any repeal or modification of the foregoing paragraph by the
stockholders of the Corporation shall not adversely affect any right or
protection of a director existing at the time of such repeal or modification.
ARTICLE XIV
Indemnification
A. Persons. The Corporation shall indemnify, to the extent provided
in paragraphs B or D:
(1) any person who is or was a director, officer, employee,
trustee or agent of the Corporation; and
(2) any person who serves or served at the Corporation's request
as a director, officer, employee, partner, trustee or agent of another
corporation, partnership, joint venture, trust or other enterprise.
B. Extent. In case of a threatened, pending or completed suit, action
or proceeding (whether civil, criminal, administrative or investigative), and
any appeal therein, against a person named in paragraph A by reason of his
holding a position named in paragraph A, the Corporation shall, unless
prohibited by law, indemnify him if he satisfies the standard in paragraph C,
against all expenses (including attorneys' fees), judgments, fines, penalties
and amounts paid in settlement which are actually and reasonably incurred by
him in connection with such suit, action or proceeding.
C. Standard. Subject to paragraph D, a person named in paragraph A
shall be indemnified only if he acted in good faith in the transaction which
is the subject of the suit, action or proceeding and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Corporation,
including, but not limited to, the taking of any and all actions in connection
with the Corporation's response to any tender offer or any offer or proposal
of another party to engage in a Business Combination (as defined in Article
XVI) not approved by the Board of Directors, and, with respect to any criminal
suit, action or proceeding, he had no reasonable cause to believe his conduct
was unlawful. The termination of a suit, action or proceeding by judgment,
order, settlement, conviction or upon a plea of nolo contendere or its
equivalent shall not, in itself, create a presumption that the person failed
to satisfy the standard of this paragraph.
D. Authorization of Indemnification. Any indemnification under this
Article XIV (unless ordered by a court) shall be made by the Corporation only
as authorized in the specific case upon a determination that indemnification
of the director, officer, employee, trustee, or agent is proper in the
circumstances because such person has met the applicable standard of conduct
set forth in paragraph C. Such determination shall be made (i) by the Board
of Directors by a majority vote of a quorum consisting of directors who were
not parties to such suit, action or proceeding, (ii) if a quorum of
disinterested directors so directs by independent legal counsel in a written
opinion or (iii) by the stockholders. Such determination also may be made as
to some matters but not as to others, and amounts to be indemnified may be
reasonably prorated. To the extent, however, that a director, officer,
employee, trustee or agent of the Corporation has been successful on the
merits or otherwise in defense of any suit, action or proceeding described
above, or in defense of any claim, issue or matter therein, he shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith, without the necessity of
authorization in the specific case. No director, officer, employee, trustee
or agent of the Corporation
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shall be entitled to indemnification in connection with any suit, action or
proceeding voluntarily initiated by such person unless the suit, action or
proceeding was authorized by a majority of the entire Board of Directors.
E. Good Faith Defined. For purposes of any determination under
paragraph D, a person shall be deemed to have acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal suit, action or proceeding,
to have had no reasonable cause to believe his conduct was unlawful, if his
action is based on the records or books of account of the Corporation or
another enterprise, or on information supplied to him by the officers of the
Corporation or another enterprise in the course of their duties, or on the
advice of legal counsel for the Corporation or another enterprise or on
information or records given or reports made to the Corporation or another
enterprise by an independent certified public accountant or by an appraiser or
other expert selected with reasonable care by the Corporation or another
enterprise. The term "another enterprise" as used in this paragraph shall
mean any other corporation or any association, partnership, joint venture,
trust or other enterprise of which such person is or was serving at the
request of the corporation as a director, officer, employee, partner trustee
or agent. The provisions of this paragraph shall not be deemed to be
exclusive or to limit in any way the circumstances in which a person may be
deemed to have met the applicable standard of conduct set forth in paragraph
C, as the case may be.
F. Advance Payment of Expenses. The Corporation may pay in advance
any expenses (including attorneys' fees) which may become subject to
indemnification under paragraphs A-E if the person receiving the payment
furnishes the Corporation a written affirmation of his good faith belief that
he has met the standard of conduct described in paragraph C and undertakes in
writing to repay the same if it is ultimately determined that he is not
entitled to indemnification by the Corporation under paragraphs A-E and if a
determination is made that the facts then known to those making the
determination would not preclude indemnification.
G. Nonexclusive. The indemnification and advancement of expenses
provided by paragraphs A-F or otherwise granted pursuant to South Carolina law
shall not be exclusive of any other rights to which a person may be entitled
by law, bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
H. Continuation. The indemnification and advance payment provided by
paragraphs A-F shall continue as to a person who has ceased to hold a position
named in paragraph A and shall inure to his heirs, executors and
administrators.
I. Insurance. The corporation may purchase and maintain insurance on
behalf of any person who holds or who has held any position named in paragraph
A, against any liability incurred by him in any such position, or arising out
of his status as such, whether or not the Corporation would have power to
indemnify him against such liability under paragraphs A-F.
J. Meaning of "Corporation" for Purposes of this Article. For
purposes of this Article XIV, references to "the Corporation" shall include,
in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power
and authority to indemnify its directors, officers and employees or agents, so
that any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such
constituent as a director, officer, employee, partner, trustee or agent of
another corporation, association partnership, joint venture, trust or other
enterprise,shall stand in the same position under the provisions of this
Article XIV with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation if its separate existence
had continued.
K. Savings Clause. If this Article XIV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director, officer, employee and
agent of the Corporation as to costs, charges, expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement with respect to any
suit, action or proceeding, whether civil criminal, administrative or
investigative, including an action by or in the right of the corporation to
the full extent permitted by any
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applicable portion of this Article XIV that shall not have been invalidated
and to the full extent permitted by applicable law.
ARTICLE XV
Limitations on Acquisition of Capital Stock
No person shall acquire or offer to acquire ownership of any capital
stock of the Corporation otherwise than as limited by this Article XV.
A. Approval by Stockholders or Board of Directors Required Prior to
Acquisition of Beneficial Ownership of 15% of Voting Stock. No person shall
acquire beneficial ownership of 15% or more of the voting stock, unless such
acquisition has been approved prior to its consummation by the affirmative
vote of the holders of at least two-thirds of the outstanding shares of the
voting stock at a duly constituted meeting of stockholders called for such
purpose or by the affirmative vote of at least two-thirds of the directors
then in office at a duly constituted meeting called for such purpose.
B. Approval by Regulatory Authorities Required Prior to Acquisition of
Beneficial Ownership of 10% of Voting Stock. No person shall acquire
beneficial ownership of 10% or more of the voting stock without obtaining
prior thereto all regulatory approvals required under applicable federal and
state statutes and in the manner provided by all applicable regulations
adopted thereunder. In the event that any person acquires beneficial
ownership of 10% or more of the voting stock without obtaining all such
regulatory approvals, such acquisition shall constitute a violation of this
Article XV, and the Corporation shall be entitled to institute a private right
of action to enforce such statutory and regulatory provisions.
C. Approval by Board of Directors or Regulatory Authorities Required
Prior to Offers to Acquire Beneficial Ownership of 10% of Voting Stock. No
person shall make any offer to acquire beneficial ownership of 10% or more of
the voting stock, unless such person has received prior approval to make such
offer by complying with either of the following procedures:
(1) The offer shall have been approved by the affirmative vote of
two-thirds of the directors then in office at a duly constituted meeting
called for such purpose, or
(2) The person proposing to make such offer shall have:
(a) obtained all required federal and state regulatory
approvals; and
(b) furnished to the Board of Directors, concurrently with
such person's filing thereof with federal and state regulatory authorities, a
complete copy of all notices, submissions and documents (including all
exhibits thereto) and other information filed by such person pursuant to
applicable federal and state law and regulations.
D. Certain Definitions. For purposes of this Article XV:
(1) "Person" includes an individual, a group acting in concert, a
corporation, a partnership, an association, a joint stock company, a trust, an
unincorporated organization or similar company, a syndicate or any other group
formed for the purpose of acquiring, holding or disposing of securities of the
Corporation.
(2) "Offer" includes every offer to buy or otherwise acquire,
solicitation of an offer to sell, tender offer for, or request for invitation
for tenders of, a security or interest in a security for value.
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(3) "Acquire" includes every type of acquisition, whether
effected by purchase, exchange, operation of law or otherwise.
(4) "Acting in concert" includes (i) knowing participation in a
joint activity or conscious parallel action towards a common goal whether or
not pursuant to an express agreement, and (ii) a combination or pooling of
voting or other interest in the Corporation's outstanding shares for a common
purpose, pursuant to any contract, understanding, relationship, agreement or
other arrangement, whether written or otherwise; however, a group "acting in
concert" shall not include the Board of Directors in its solicitation, holding
and voting of proxies obtained by it.
(5) "Beneficial ownership" shall have the meaning defined in Rule
13d-3 of the General Rules and Regulations under the Exchange Act, as in
effect on the date of filing of these Articles of Incorporation; however, the
solicitation, holding and voting of proxies obtained by the Board of Directors
pursuant to a solicitation under Regulation 14A of the General Rules and
Regulations under the Exchange Act shall not constitute beneficial ownership
in violation of this Article XV.
(6) "Voting Stock" means the then outstanding shares of capital
stock entitled to vote generally in the election of directors.
E. Inapplicability to Public Offering, Tax-Qualified Employee Stock
Benefit Plans and Certain Business Relationships. This Article XV shall not
apply to:
(1) the purchase of securities of the Corporation by underwriters in
connection with a public offering of such securities;
(2) the purchase of such securities by a tax-qualified employee stock
benefit plan of the Corporation or any of its subsidiaries; or
(3) the purchase of such securities by directors and officers of the
Corporation or any of its subsidiaries or by members of their
"immediate family;" provided, however, that such purchase is
approved in advance by the affirmative vote of at least two-thirds
of the disinterested directors then in office at a duly constituted
meeting called for such purpose; and provided, further, that all
applicable regulatory approvals with respect to such purchase shall
have been received. For such purpose, the term "immediate family"
shall mean, with respect to any natural person: (i) such person's
spouse, father, mother, children, brothers, sisters, and
grandchildren, (ii) the father, mother, brothers, and sisters of
such person's spouse and (iii) the spouse of a child, brother, or
sister of such person.
F. Grandfathering. This Article XV shall not apply to the acquisition
of securities of the Corporation prior to the effective date of these Articles
of Incorporation.
G. Construction of this Article. The majority of the Continuing
Directors, as defined in Article XVI (provided a Continuing Director Quorum is
present) shall have the power to construe and apply the provisions of this
Article XV and to make all determinations necessary or desirable to implement
such provisions, including, but not limited to, matters with respect to (i)
the number of shares beneficially owned by any person, (ii) whether a person
has an agreement, arrangement, or understanding with another as to the matters
referred to in the definition of beneficial ownership, (iii) the application
of any other definition or operative provision of this Article XV to the given
facts, or (iv) any other matter relating to the applicability or effect of
this Article XV. Any construction, application or determination made by the
Continuing Directors pursuant to this Article XV in good faith and on the
basis of such information and assistance as was then reasonably available for
such purpose shall be conclusive and binding upon the Corporation and its
stockholders.
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ARTICLE XVI
Approval of Certain Business Combinations
A. In addition to an other requirement imposed by law, the stockholder
vote required to approve Business Combinations (as hereinafter defined) shall
be set forth in this Article XVI.
(1) In addition to any other affirmative vote required by law or
these Articles of Incorporation, and except as otherwise expressly provided in
this Article, the affirmative vote of the holders of (i) at least two-thirds
of the outstanding shares entitled to vote thereon (and, if any class or
series of shares is entitled to vote thereon separately, the affirmative vote
of the holders of at least two-thirds of the outstanding shares of each such
class or series), and (ii) at least two-thirds of the outstanding shares
entitled to vote thereon, not including shares deemed beneficially owned by a
Related Person (as hereinafter defined), shall be required in order to
authorize any of the following:
(a) any merger or consolidation of the Corporation with or
into a Related Person (as hereinafter defined);
(b) any sale, lease, exchange, transfer or other
disposition other than in the usual and regular course of business (in one
transaction or a series of transactions in any twelve-month period), including
without limitation, a mortgage, or any other security device, of all or any
Substantial Part (as hereinafter defined) of the assets of the Corporation
(including without limitation any voting securities of a subsidiary) or of a
subsidiary, to a Related Person;
(c) any merger or consolidation of a Related Person with or
into the Corporation or a subsidiary of the Corporation;
(d) any sale, lease, exchange, transfer or other
disposition of all or any Substantial Part of the assets of a Related Person
to the Corporation or a subsidiary of the Corporation;
(e) the issuance or transfer by the Corporation or a
subsidiary of the Corporation (in one transaction or a series of transactions)
of any equity securities of the Corporation or any subsidiary having an
aggregate Market Value of five percent or more of the total Market Value of
the outstanding shares of the Corporation to a Related Person, except pursuant
to the exercise of warrants, rights or options to subscribe for or purchase
securities offered, issued or granted pro rata to all holders of shares of
capital stock entitled to vote generally in the election of directors or any
other method affording substantially proportionate treatment to the holders of
such capital stock.
(f) the acquisition by the Corporation or a subsidiary of
the Corporation of any securities of a Related Person;
(g) any reclassification of the securities of the
Corporation (including any reverse stock split), or any recapitalization
involving the common stock of the Corporation; and
(h) any agreement, contract or other arrangement providing
for any of the transactions described in this Article XVI.
(2) Such affirmative vote shall be required notwithstanding any
other provision of these Articles of Incorporation any provision of law, or
any agreement with any regulatory agency, national or affiliated securities
association or national securities exchange which might otherwise permit a
lesser vote or no vote.
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(3) The term "Business Combination" as used in this Article XVI
shall mean any transaction which is referred to any one or more of
subparagraphs (a) through (h) above.
B. The provisions of paragraph A shall not be applicable to any
particular Business Combination, and such Business Combination shall require
only such affirmative vote as is required by any other provision of these
Articles of Incorporation, any provision of law, or any agreement with any
regulatory agency, national or affiliated securities association or national
securities exchange, if the Business Combination shall have been approved by
the affirmative vote of two-thirds of the Continuing Directors (as hereinafter
defined); provided, however, that such approval shall only be effective if
obtained at a meeting at which a Continuing Director Quorum (as hereinafter
defined) is present.
C. For the purposes of this Article XVI the following definitions
apply:
(1) The term "Related Person" means and includes (a) any
individual, corporation, partnership or other person or entity which together
with its "affiliates" (as that term is defined in Rule 12b-2 of the General
Rules and Regulations under the Exchange Act), "beneficially owns" (as that
term is defined in Rule 13d-3 of the General Rules and Regulations under the
Exchange Act) in the aggregate 10% or more of the outstanding shares of the
common stock of the Corporation; and (b) any "affiliate" (as that term is
defined in Rule 12b-2 under the Exchange Act) of any such individual,
corporation, partnership or other person or entity. Without limitation, any
shares of the common stock of the Corporation which any Related Person has the
right to acquire pursuant to any agreement, or upon exercise or conversion
rights, warrants or options, or otherwise, shall be deemed "beneficially
owned" by such Related Person.
(2) The term "Substantial Part" means more than 25% of the total
assets of the Corporation, as of the end of its most recent fiscal year ending
prior to the time the determination is made.
(3) The term "Continuing Director" means any member of the Board
of Directors who is unaffiliated with the Related Person and was a member of
the Board prior to the time that the Related Person became a Related Person,
and any successor of a Continuing Director who is unaffiliated with the
Related Person and is recommended to succeed a Continuing Director by a
majority of Continuing Directors then on the Board.
(4) The term "Continuing Director Quorum" means two-thirds of the
Continuing Directors capable of exercising the powers conferred on them.
(5) The term "Market Value" means:
(a) in the case of stock, the highest closing sale price
during the 30-day period immediately preceding the date in question of a share
of such stock on the composite tape for New York Stock Exchange-listed stock
or, if such stock is not quoted on the composite tape, on the New York Stock
Exchange or, if such stock is not listed on such exchange, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934 on which such stock is listed, or, if such stock is not listed on any
such exchange, the highest closing sales price or bid quotation with respect
to a share of such stock during the 30-day period preceding the date in
question on the National Association of Securities Dealers, Inc. Automated
Quotation System or any system then in use, or if no such quotations are
available, the fair market value of a share of such stock on the date in
question as determined by the Board of Directors in good faith; and
(b) in the case of property other than cash or stock, the
fair market value of such property on the date in question as determined by a
majority of the Board of Directors in good faith.
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ARTICLE XVII
Criteria for Evaluation of Business Combinations
In connection with the exercise of its judgment in determining what is
in the best interests of the Corporation and of the stockholders, when
evaluating a Business Combination (as defined in Article XVI) or a tender or
exchange offer, the Board of Directors shall, in addition to considering the
adequacy of the amount to be paid in connection with any such transaction,
give due consideration to all of the following factors and any other factors
which it deems relevant (i) the social and economic effects of the transaction
on the Corporation and its subsidiaries, employees, depositors, loan and other
customers, creditors and other elements of the communities in which the
Corporation and its subsidiaries operate or are located; (ii) the business and
financial condition and earnings prospects of the acquiring person or entity,
including, but not limited to, debt service and other existing financial
obligations, financial obligations to be incurred in connection with the
acquisition, and other likely financial obligations of the acquiring person or
entity, and the possible effect of such conditions upon the Corporation and
its subsidiaries and the other elements of the communities in which the
Corporation and it subsidiaries operate or are located; and (iii) the
competence, experience, and integrity of the acquiring person or entity and
its or their management.
ARTICLE XVIII
Amendment of Bylaws
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, repeal, alter, amend
and rescind the Bylaws of the Corporation by the affirmative vote of two-
thirds of the directors then in office at a duly constituted meeting called
for such purpose. Notwithstanding any other provision of these Articles of
Incorporation or the Bylaws (and notwithstanding the fact that some lesser
percentage may be specified by law), the Bylaws shall not be made, repealed,
altered, amended or rescinded by the stockholders except by the vote of the
holders of not less than two-thirds of the outstanding shares of capital stock
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders called for that
purpose (provided that notice of such proposed adoption, repeal, alteration,
amendment or rescission is included in the notice of such meeting) or, as set
forth above, by the Board of Directors.
ARTICLE XIX
Amendment of Articles of Incorporation
Except as set forth in this Article XIX or as otherwise specifically
required by law, no provision of these Articles of Incorporation shall be
repealed, altered, amended or rescinded unless such repeal, alteration,
amendment or recision has been first proposed by the Board of Directors upon
the affirmative vote of at least two-thirds of the directors then in office at
a duly constituted meeting of the Board of Directors called for such purpose
and thereafter approved by the stockholders by the affirmative vote of the
holders of at least a majority of the shares entitled to vote thereon at a
duly called annual or special meeting of stockholders; provided, however, that
the provisions set forth in Articles VII, VIII, IX, X, XII, XIII, XIV, XV,
XVI, XVII, XVIII and this Article XIX may not be repealed, altered, amended or
rescinded in any respect unless the same is approved by the affirmative vote
of the holders of not less than two-thirds of the outstanding shares of
capital stock entitled to vote thereon, rather than a majority, cast at a
meeting of the stockholders called for that purpose (provided that notice of
such proposed amendment is included in the notice of such meeting), unless
approved by the affirmative vote of two-thirds of the Continuing Directors (as
defined in Article XVI) at a meeting at which a Continuing Director Quorum (as
defined in Article XVI) is present, in which case only such affirmative vote
as is required by another provision of these Articles of Incorporation, any
provision of law, or any agreement with any regulatory agency, national or
affiliated securities association, or national securities exchange; and
provided further, that the provision set forth in Article I may be altered or
amended solely upon the affirmative vote of at least two-thirds of the
directors then in office at a duly constituted meeting of the Board of
Directors called for such purpose.
* * *
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Executed this day of 1998.
--------------------
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Timothy W. Weeks
Incorporator
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EXHIBIT C
Section 262 of the Delaware General Corporation Law
262 APPRAISAL RIGHTS. -(a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who
continuously holds such shares through the effective date of the merger or
consolidation, who has otherwise complied with subsection (d) of this section
and who has neither voted in favor of the merger or consolidation nor
consented thereto in writing pursuant to Section 228 of this title shall be
entitled to an appraisal by the Court of Chancery of the fair value of the
stockholder's shares of stock under the circumstances described in subsections
(b) and (c) of this section. As used in this section, the word "stockholder"
means a holder of record of stock in a stock corporation and also a member of
record of a nonstock corporation; the words "stock" and "share" mean and
include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely
of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to Section 251, Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock which stock,
or depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or consolidation,
were either (i) listed on a national securities exchange or designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc. or (ii) held of record by
more than 2,000 stockholders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the vote of
the stockholders of the surviving corporation as provided in subsection (f) of
Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to Sections 251,
252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock (or depository receipts in respect
thereof) or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or held of
record by more than 2,000 stockholders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts described
in the foregoing subparagraphs a., b. and c. of this paragraph.
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(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its
certificate of incorporation, any merger or consolidation in which the
corporation is a constituent corporation or the sale of all or substantially
all of the assets of the corporation. If the certificate of incorporation
contains such a provision, the procedures of this section, including those set
forth in subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting
of stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for such
meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand.
A stockholder electing to take such action must do so by a separate written
demand as herein provided. Within 10 days after the effective date of such
merger or consolidation, the surviving or resulting corporation shall notify
each stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for any
or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section; provided
that, if the notice is given on or after the effective date of the merger or
consolidation, such notice shall be given by the surviving or resulting
corporation to all such holders of any class or series of stock of a
constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the effective
date of the merger or consolidation or (ii) the surviving or resulting
corporation shall send such a second notice to all such holders on or within
10 days after such effective date; provided, however, that if such second
notice is sent more than 20 days following the sending of the first notice,
such second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to give
either notice that such notice has been given shall, in the absence of fraud,
be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if the
notice is
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given on or after the effective date of the merger or consolidation, the
record date shall be such effective date. If no record date is fixed and the
notice is given prior to the effective date, the record date shall be the
close of business on the day next preceding the day on which the notice is
given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise entitled
to appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the
merger or consolidation, any stockholder who has complied with the
requirements of subsections (a) and (d) hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting
from the consolidation a statement setting forth the aggregate number of
shares not voted in favor of the merger or consolidation and with respect to
which demands for appraisal have been received and the aggregate number of
holders of such shares. Such written statement shall be mailed to the
stockholder within 10 days after his written request for such a statement is
received by the surviving or resulting corporation or within 10 days after
expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the
addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail
and by publication shall be approved by the Court, and the costs thereof shall
be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled
to appraisal rights. The Court may require the stockholders who have demanded
an appraisal for their shares and who hold stock represented by certificates
to submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as
to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger
or consolidation, together with a fair rate of interest, if any, to be paid
upon the amount determined to be the fair value. In determining such fair
value, the Court shall take into account all relevant factors. In determining
the fair rate of interest, the Court may consider all relevant factors,
including the rate of interest which the surviving or resulting corporation
would have had to pay to borrow money during the pendency of the proceeding.
Upon application by the surviving or resulting corporation or by any
stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, permit discovery or other pretrial proceedings and may
proceed to trial upon the appraisal prior to the final determination of the
stockholder entitled to an appraisal. Any stockholder whose name appears on
the list filed by the surviving or resulting corporation pursuant to
subsection (f) of this section and who has submitted his certificates of stock
to the Register in Chancery, if such is required, may participate fully in all
proceedings until it is finally determined that he is not entitled to
appraisal rights under this section.
C-3
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as the
Court may direct. Payment shall be so made to each such stockholder, in the
case of holders of uncertificated stock forthwith, and the case of holders of
shares represented by certificates upon the surrender to the corporation of
the certificates representing such stock. The Court's decree may be enforced
as other decrees in the Court of Chancery may be enforced, whether such
surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances.
Upon application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation);
provided, however, that if no petition for an appraisal shall be filed within
the time provided in subsection (e) of this section, or if such stockholder
shall deliver to the surviving or resulting corporation a written withdrawal
of his demand for an appraisal and an acceptance of the merger or
consolidation, either within 60 days after the effective date of the merger or
consolidation as provided in subsection (e) of this section or thereafter with
the written approval of the corporation, then the right of such stockholder to
an appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
* * * * *
C-4
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REVOCABLE PROXY
SECURITY FEDERAL CORPORATION
ANNUAL MEETING OF STOCKHOLDERS
July 21, 1998
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 Company Common Stock which the undersigned is entitled to
vote at the Annual Meeting of Stockholders ("Meeting"), to be held at the
University of South Carolina - Aiken, in Room 116 of the Business and
Educational Building, Aiken, South Carolina, on July 21, 1998, at 2:00 p.m.,
Eastern time, and at any and all adjournments thereof, as follows:
VOTE
FOR WITHHELD
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1. The election as directors of the
nominee listed below (except as
marked to the contrary below). [ ] [ ]
Gasper L. Toole III
Thomas L. Moore
INSTRUCTION: To withhold your vote for any
individual nominee, write that nominee's name
on the line below.
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VOTE
FOR AGAINST ABSTAIN
--- ------- -------
2. The approval of a proposal to change [ ] [ ] [ ]
the Company's state of incorporation
from Delaware to South Carolina through
a merger of the Company with a newly
formed, wholly owned South Carolina
subsidiary.
3. The ratification of an amendment to [ ] [ ] [ ]
the Company's corporate charter to
increase the number of authorized
shares of common stock.
The Board of Directors recommends a vote "FOR" the above proposals.
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THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED,
THIS PROXY WILL BE VOTED FOR THE PROPOSITIONS STATED. 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 thereof and after notification to the Secretary of the Company
at the Meeting of the stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no
further force and effect.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of Notice of Annual Meeting of Stockholders, a proxy
statement for the Annual Meeting of Stockholders, and an Annual Report to
Stockholders.
Dated: , 1998
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PRINT NAME OF STOCKHOLDER
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SIGNATURE OF STOCKHOLDER
-------------------------
PRINT NAME OF STOCKHOLDER
------------------------
SIGNATURE OF STOCKHOLDER
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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