k893010.htm
UNITED
STATES
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SECURITIES
AND EXCHANGE COMMISSION
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Washington,
D.C. 20549
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FORM
8-K
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CURRENT
REPORT
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Pursuant
to Section 13 or 15 (d) of the Securities Exchange Act of
1934
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Date
of Report (Date of earliest event reported): September 29,
2010
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SECURITY
FEDERAL CORPORATION
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(Exact
name of registrant as specified in its charter)
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South
Carolina
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0-16120
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57-0858504
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(State
or other jurisdiction
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(Commission
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(IRS
Employer
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of
incorporation)
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File
Number)
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Identification
No.)
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238
Richland Avenue West, Aiken, South Carolina
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29801
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant's
telephone number (including area code): (803)
641-3000
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Check
the appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions.
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[
] Written communications pursuant to Rule 425 under the
Securities Act (17 CFR 230.425)
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[
] Soliciting material pursuant to Rule 14a-12 under the
Exchange Act (17 CFR 240.14a-12)
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[
] Pre-commencement communications pursuant to Rule
14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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[
] Pre-commencement communications pursuant to Rule
13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
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Item 1.01 Entry into a Material
Definitive Agreement
On
September 29, 2010, Security Federal Corporation (the “Company”) entered into a
Letter Agreement (including the Exchange Agreement – Standard Terms incorporated
by reference therein, the “Exchange Agreement”) with the U.S. Department of
the Treasury (the “Treasury”) in connection with the Company’s participation in
the Community Development Capital Initiative (the “CDCI”) established by the
Treasury pursuant to the Troubled Asset Relief Program (“TARP”). That
same day, pursuant to the
Exchange Agreement, all 18,000 shares of the Company’s Fixed Rate Cumulative
Perpetual Preferred Stock, Series A, liquidation preference amount $1,000 per
share (“Series A Preferred Stock”), previously sold to the Treasury on December
19, 2008 pursuant to the TARP Capital Purchase Program, were
exchanged for 18,000 shares of the Company’s newly designated Fixed Rate
Cumulative Perpetual Preferred Stock, Series B, liquidation preference amount
$1,000 per share (“Series B Preferred Stock”).
In
connection with the Company’s participation in the CDCI, on September 29, 2010,
the Company also entered into a Letter Agreement (including the Securities
Purchase Agreement – Standard Terms incorporated by reference therein, the
“Purchase Agreement”) with the Treasury, pursuant to which the Company sold an
additional 4,000 shares of Series B Preferred Stock to the Treasury that same
day at a price of $4.0 million. As a result of the Company’s
participation in the CDCI and the transactions under the Exchange Agreement and
the Purchase Agreement, the Treasury now holds 22,000 shares of the Company’s
Series B Preferred Stock, with an aggregate liquidation preference amount of
$22.0 million.
The
additional capital received by the Company from the Treasury pursuant to the
Purchase Agreement was contingent upon the Company’s completion of a separate
stock offering of the same amount, as required by the Company’s primary
regulator, the Office of Thrift Supervision. In satisfaction of this
requirement, on September 29, 2010, the Company sold 400,000 shares of its
common stock, par value $0.01 per share (“Common Stock”), in a private offering
to Timothy W. Simmons, President and Chief Executive Officer of the Company, at
a price of $10.00 per share, for gross proceeds of $4.0
million. Together with the gross proceeds of the sale of Series B
Preferred Stock to the Treasury pursuant to the Purchase Agreement, the Company
raised $8.0 million of capital in the aggregate.
Mr.
Simmons is an “accredited investor,” as defined in Rule 501 of Regulation D
under the Securities Act of 1933, as amended (the “Securities
Act”). The sale of the Common Stock to Mr. Simmons is exempt from
registration under the Securities Act pursuant to the exemption for transactions
by an issuer not involving any public offering under Section 4(2) of the
Securities Act and Regulation D thereunder. The 400,000 shares of
Common Stock sold to Mr. Simmons have not been registered under the Securities
Act or any state securities laws and may not be offered or sold in the United
States absent such registration or an applicable exemption from such
registration requirements.
The
issuances of the Series B Preferred Stock pursuant to the Exchange Agreement and
the Purchase Agreement were exempt from registration under the Securities Act
pursuant to Section 4(2) of the Securities Act. Under the terms of the
Exchange Agreement and the Purchase Agreement, the Company may under certain
circumstances be required to register the Series B Preferred Stock for resale
under the Securities Act. In addition, the Company may be required by
the Treasury to seek the listing of the Series B Preferred Stock on a national
securities exchange.
The
Series B Preferred Stock will qualify as Tier 1 capital and will pay cumulative
dividends at a rate of 2% per annum through November 14, 2018 and 9% per annum thereafter,
except as described below. The Series A Preferred Stock paid
cumulative dividends at a rate of 5% per annum through February 14, 2014 and 9%
per annum thereafter. As a result of the exchange of the Series A
Preferred Stock for the Series B
Preferred
Stock pursuant to the Exchange Agreement and the issuance of the additional
shares of Series B Preferred Stock pursuant to the Purchase Agreement, the
Company’s dividend payments to the Treasury will be reduced from $900,000 to
$630,000 for the 2011 fiscal year and from $900,000 to $360,000 for the 2012
fiscal year. This amount does not include the additional $4.0 million
of Series B Preferred Stock the Company issued to the Treasury and the interest
payment on this additional amount will be approximately $80,000 per
year.
As a
condition to the Company’s participation in CDCI, each of the Company and
Security Federal Bank must satisfy the eligibility criteria to be a Community
Development Financial Institution (“CDFI”) under Treasury
regulations. Should either the Company or Security Federal Bank fail
to maintain eligibility as a CDFI, the annual dividend rate on the Series B
Preferred Stock will increase to 5% if this failure is not corrected within 180
days and will further increase to 9% if the failure remains uncorrected after
270 days. The Series B Preferred Stock has no maturity date, and
ranks senior to the Common Stock with respect to dividends and upon liquidation,
dissolution, or winding up.
The Exchange Agreement and the Purchase
Agreement and the terms of the Series B Preferred Stock contain limitations on
the payment of dividends on the Common Stock and on the Company’s ability to
repurchase its Common Stock, and the Company will remain subject to the
compensation and corporate governance requirements and limitations included in
the Emergency Economic Stabilization Act of 2008 (“EESA”) and the Treasury
regulations thereunder. As a condition to the closing of the CDCI
Transaction, each of the Company’s Senior Executive Officers (as defined in the
Exchange Agreement and the Purchase Agreement) (the “SEOs”) affirmed previously
executed waivers (“Waivers”) and the Most Highly Compensated Employees (as
defined in the Exchange Agreement and the Purchase Agreement) (“MHCEs”) executed
Waivers which voluntarily waived any claim against the Treasury or the Company
for any changes to such SEO’s and MHCE’s compensation or benefits that are
required to comply with the compensation limitations of EESA and the Treasury
regulations thereunder
The
description of the Exchange Agreement and the Purchase Agreement contained
herein is a summary and is qualified in its entirety by reference to the full
text of the Exchange Agreement and the Purchase Agreement attached hereto as
Exhibits 10.1 and 10.2, respectively, which are incorporated herein by
reference. The description of the Series B Preferred Stock contained
herein is a summary and is qualified in its entirety by reference to the full
text of the Certificate of Designations for the Series B Preferred Stock, which
is included in the amendment to the Company’s Articles of Incorporation attached
hereto as Exhibit 3.1 and incorporated herein by reference.
Item 3.02. Unregistered Sales of Equity
Securities
The information set forth under
“Item 1.01 Entry into a Material Definitive Agreement” is incorporated
herein by reference into this Item 3.02.
Item 3.03. Material Modification to
Rights of Security Holders
The information set forth under
“Item 1.01 Entry into a Material Definitive Agreement” is incorporated
herein by reference into this Item 3.03.
Item 5.02. Departure of Directors or
Certain Officers; Election of Directors; Appointment of Certain Officers;
Compensatory Arrangements of Certain Officers
The
information concerning executive compensation set forth under “Item 1.01
Entry into a Material Definitive Agreement” is incorporated herein by reference
into this Item 5.02.
Item 5.03.
Amendments to Articles
of Incorporation or Bylaws; Change in Fiscal Year.
On
September 28, 2010, the Company filed with the Secretary of State of the State
of South Carolina, a Certificate of Designations for the purpose of amending its
Articles of Incorporation to establish the preferences, limitations and relative
rights of the Series B Preferred Stock. The amendment to the Company’s Articles
of Incorporation containing the Certificate of Designations for the Series B
Preferred Stock was effective September 29, 2010 and is included as Exhibit 3.1
to this Form 8-K and is incorporated by reference herein.
Item 7.01 Regulation FD
Disclosure
On
September 29, 2010, the Company issued a press release announcing the exchange
of its $18.0 million of its Series A Preferred Stock held by Treasury for an
equivalent amount of the Company’s newly designated Series B Preferred Stock,
the private offering of $4.0 million of its Common Stock, and the receipt of an
additional $4.0 million from Treasury for the sale of additional shares of the
Company’s Series B Preferred Stock under the CDCI. A copy of this
press release is furnished as Exhibit 99.1 to the Current Report on Form
8-K. The information in this press release shall not be deemed filed
for purposes of Section 18 of the Securities Exchange Act of 1934, as
amended, nor shall it be deemed incorporated by reference in any filing under
the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934,
as amended, except as shall be expressly set forth by specific
reference.
Item 9.01. Financial Statements and
Exhibits
(d) Exhibits
The
following exhibits are being filed or furnished herewith and this list shall
constitute the exhibit index.
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3.1.
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Amendment
to Articles of Incorporation Containing the Certificate of Designations
for the Series B Preferred Stock
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4.1 Form
of Certificate for the Series B Preferred Shares
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10.1
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Letter
Agreement dated September 29, 2010 between Security Federal Corporation
and the United States Department of the Treasury, including the Exchange
Agreement – Standard Terms, with respect to the exchange of the
Series A Fixed Rate Cumulative Perpetual Preferred Stock for the
Series B Fixed Rate Cumulative Perpetual Preferred
Stock.
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10.2
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Letter
Agreement dated September 29, 2010 between Security Federal Corporation
and the United States Department of the Treasury, including the Securities
Purchase Agreement – Standard Terms, with respect to the
purchase of the Series B Fixed Rate Cumulative Perpetual Preferred
Stock.
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99.1
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Press
Release dated September 29, 2010
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SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, hereunto
duly authorized.
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SECURITY
FEDERAL CORPORATION
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Date:
September 30, 2010
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By:
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/s/Timothy
W. Simmons |
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Timothy
W. Simmons
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President
and Chief Executive Officer
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