THE NATIONAL SECURITY GROUP, INC.
661 EAST DAVIS STREET
ELBA, ALABAMA 36323
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
APRIL 19, 2001
Notice is hereby given of the Annual Meeting of Stockholders of The National
Security Group, Inc., a Delaware corporation (the "Company"), to be held at the
principal executive offices of the Company in Elba, Alabama, on Thursday, April
19, 2001 at 10:00 a.m. (Central Time) for the following purposes:
1. To elect three (3) members to the Board of Directors, to serve for three year
terms, and until their successors are duly elected and qualified;
2. To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Only Stockholders of record at the close of business on March 19, 2001 shall be
entitled to notice of and to vote at the Annual Meeting. Stockholders are
cordially invited to attend the Annual Meeting in person.
BY ORDER OF THE BOARD OF
DIRECTORS
Bette Ham
Secretary
Elba, Alabama
March 19, 2001
THE NATIONAL SECURITY GROUP, INC.
661 East Davis Street
Elba, Alabama 36323
PROXY STATEMENT
This document, which constitutes a Proxy Statement for The National
Security Group, Inc., (the "Company") is being furnished to the holders of the
common stock of the Company in connection with the solicitation of proxies by
the Board of Directors of the Company for use at the Annual Meeting of
Stockholders of the Company to be held at 10:00 a.m. (Central Time) on April 19,
2001 at the principal executive offices of the Company (the "Annual Meeting").
At the Annual Meeting, the Company's stockholders will vote to elect three
directors to serve for three year terms, and until their successors are duly
elected and qualified.
All costs in connection with the solicitation of the enclosed proxy will be
paid by the Company.
The date of this Proxy Statement is March 19, 2001.
GENERAL
This Proxy Statement is being mailed to holders of the Company Common Stock
on or about March 19, 2001, in connection with the solicitation by the Board of
Directors of the Company of proxies to be used at the Annual Meeting to be held
at the Company's principal executive offices, 661 East Davis Street, Elba,
Alabama 36323, on Thursday, April 19, 2001, at 10:00 a.m. (Central Time).
At the Annual Meeting, the stockholders of the Company will elect three
directors to serve for three year terms. If the enclosed proxy is properly
signed and returned, your shares will be voted on all matters that properly come
before the Annual Meeting for a vote. If instructions are specified in your
signed proxy with respect to matters being voted upon, your shares will be voted
in accordance with your instructions. If no instructions are so specified, your
shares will be voted "FOR" the election of the persons nominated as directors in
the proxy statement. So far as is now known, there is no business to be acted
upon at the Annual Meeting other than as set forth above, and it is not
anticipated that other matters will be brought before the Annual Meeting. If,
however, other appropriate matters are duly brought before the Annual Meeting,
the persons appointed as proxy agents will have discretion to vote or act
thereon according to their own judgment. A proxy may be revoked if written
notice of such revocation is received by Mrs. Bette Ham, Secretary, The National
Security Group, Inc., 661 East Davis Street, Elba, Alabama 36323, at any time
before the taking of the vote at the Annual Meeting.
Whether or not you attend the Annual Meeting, your vote is important.
Accordingly, you are asked to sign and return the accompanying proxy, regardless
of the number of shares you own. Shares can be voted at the Annual Meeting only
if the holder is present or represented by proxy. The Board of Directors has
fixed the close of business on March 19, 2001, as the record date for the
determination of stockholders who are entitled to notice of, and to vote at the
Annual Meeting and any adjournments thereof. On the record date, the Company had
outstanding 2,055,811 shares of Company Stock, the holders of which are entitled
to one vote per share. No shares of any other class of Company stock are issued
or outstanding.
A proxy may be revoked at any time prior to its exercise (i) by filing with
the Secretary of the Company either an instrument revoking the proxy or a duly
executed proxy bearing a later date or (ii) by attending the Annual Meeting and
voting in person. Attendance at the Annual Meeting by itself will not
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revoke aproxy. Shares of Common Stock represented by a properly executed and
returned proxy will be treated as present at the Annual Meeting for purposes of
determining a quorum without regard to whether the proxy is marked as casting a
vote for or against or abstaining with respect to a particular matter. In
addition, shares of Common Stock represented by "broker non-votes" (i.e., shares
of Common Stock held in record name by brokers or nominees as to which (i)
instructions have not been received from the beneficial owners or persons
entitled to vote, (ii) the broker or nominee does not have discretionary voting
power or (iii) the record holder has indicated that it does not have authority
to vote such shares on the matter) generally will be treated as present for the
purposes of determining a quorum. The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock of the Company present in
person or represented by proxy at the Annual Meeting and entitled to vote
thereon is required for the election of the nominees to the Board of Directors.
With respect to this matter, an abstention will have the same effect as a
negative vote, but because shares held by brokers will not be considered
entitled to vote on matters as to which brokers would hold authority, a broker
non-vote will have no effect on the vote.
ELECTION OF DIRECTORS
The Bylaws of the Company provide that the Board of Directors shall be
divided into three classes as nearly equal in number as possible. The term of
each director is three years and the terms are staggered to provide for the
election of one class of directors each year. Three directors will be elected at
the Annual Meeting. Lewis Avinger, Carolyn Brunson and James B. Saxon (the
"Nominees") have been nominated by the Board of Directors for election, to serve
for a term of three years. All of the nominees are currently serving as
directors of the Company.
The persons named in the enclosed proxy intend to vote "FOR" the election
of the Nominees unless the proxy is marked to indicate that such authorization
is expressly withheld. Should any of the Nominees be unable to accept nomination
or election (which the Board of Directors does not expect) or should any other
vacancy have occurred in the Board, it is the intention of the persons named in
the enclosed proxy to vote for the election of the person or persons whom the
Board of Directors recommends.
The following tables set forth the names and certain information concerning
the Nominees and each other director who will continue to serve (the "Continuing
Directors") as a director of the Company after the Annual Meeting:
NOMINEES
Positions Held Age at Director
Name with the Company Dec.31,2000 Since*
Lewis Avinger Director 78 1984
Carolyn Brunson Director 73 1978
James B. Saxon Director 66 1982
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
THE ELECTION OF THE ABOVE NOMINEES AS DIRECTORS.
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Continuing Directors
Age at Director End of
Name Dec.31,2000 Since* Present Term
Winfield Baird 68 1964 2002
J. E. Brunson 44 1999 2003
J. R. Brunson 72 1962 2003
W. L. Brunson, Jr. 42 1999 2002
Fred Clark, Jr. 40 1996 2002
D. M. English 82 1947 2003
M. L. Murdock 58 1976 2002
Walter Wilkerson 53 1984 2003
*In 1990 National Security Insurance Company was reorganized as a holding
company system pursuant to a plan of exchange whereby The National Security
Group, Inc., (the "Company"),became the holding company for National Security
Insurance Company (the "Life Company"), and its prior subsidiaries, National
Security Fire & Casualty Company (the "Casualty Company"), and NATSCO, Inc.,
("NATSCO"). References to tenure with the Company (in the above table and in the
following biographical section) include the individual's tenure with the Life
Company prior to the reorganization.
BIOGRAPHICAL INFORMATION
The business experience of each of the Nominees and Continuing Directors is
set forth below.
Nominees
LEWIS AVINGER is a retired Savings and Loan executive from Montgomery,
Alabama.
CAROLYN BRUNSON presently serves as the Managing Partner of Brunson
Properties (formerly the W. L. Brunson Estate), a family partnership
engaged in investments.
JAMESB. SAXON is a retired executive of Anderson Products, Square D
Company, Leeds, Alabama.
Continuing Directors
WINFIELD BAIRD is currently a Financial Advisor with UBS Paine Webber Stock
Brokerage Firm Inc. of Birmingham, Alabama.
J. E. BRUNSON has served as President of the Fire and Casualty Company
since 1997. He also serves on the Board of Directors of the Casualty
Company, the Life Company and Omega One.
J. R. BRUNSON served as President and Chief Executive Officer of the
Company from 1978 through 1999. He previously held the position of
Senior Vice President. He joined the Company in 1953.
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W. L. BRUNSON, JR. is President and Chief Executive Officer and Director
of the Company, effective January 1, 2000. He previously held the
position of President of the Life Company. He joined the Company in
1983. Mr. Brunson is also a Director of the Casualty Company, NATSCO,
the Life Company and Omega One.
FRED D. CLARK, JR. is currently President of The Clark Company, LLC in
Montgomery, Alabama, and serves as Executive Director of the Electric
Cities of Alabama. He was formerly Executive Director of the Alabama
Farmers Federation, President of Alabama Rural Electric Association of
Cooperatives, Montgomery, Alabama, State Director for U.S. Senator
Richard Shelby, Legislative Representative for National Rural Electric
Cooperative Association, and Legislative Assistant to U.S. Senator
Howell Heflin.
D.M. ENGLISH is a retired urban renewal administrator. He became a Director
of the Company upon its founding in 1947 and served as Chairman of the
Board from 1987 to 1998.
M.L. MURDOCK , has served as Senior Vice President, Chief Financial Officer
and Treasurer of the Company since 1982. Prior to that time he served
as Vice President and Controller of the Company. He joined the Company
in 1970. Mr. Murdock is also a director of the Life Company, the Fire
Company, Omega One Insurance Company, Inc., and NATSCO, Inc.
WALTER WILKERSON is a certified public accountant and partner in the firm
Barr, Brunson, Wilkerson and Bowden in Enterprise, Alabama.
BOARD COMMITTEES AND MEETINGS
During the last full fiscal year the Board of Directors of the Company held
four regularly scheduled and special meetings. All directors attended at least
75% of the meetings of the Board of Directors and the committees on which they
served during fiscal year 2000.
Compensation Committee. The Compensation Committee, whose members have been
appointed annually by the Board of Directors, is currently composed of Walter
Wilkerson, James B. Saxon and Lewis Avinger. The Committee is responsible for
recommending officers, the salaries of officers, directors fees and officer
bonuses to the Board of Directors for full consideration. The Compensation
Committee met once in fiscal year 2000.
Audit Committee. The Audit Committee is comprised of James B. Saxon,
Winfield Baird, Lewis Avinger and Walter P. Wilkerson. The principal functions
of the Audit Committee include making recommendations to the Board of Directors
concerning the selection of independent auditors, approval of proposed
independent audit fees, review of internal, independent, and regulatory audit
results, review of proposed corrective actions and results thereof with senior
management, review and approval of internal audit functions and controls and
obtaining assurances of regulatory compliance from independent auditors. The
Audit Committee met twice in fiscal year 2000.
Nominating Committee. The Nominating Committee is comprised of Walter P.
Wilkerson, J. E. Brunson, and J. R. Brunson. This committee is responsible for
the nomination of directors. No procedure has been established by the committee
for considering nominations by the stockholders. The Nominating Committee met
once in fiscal year 2000.
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DIRECTORS' REMUNERATION
Remuneration of directors is usually adjusted annually. Directors are
currently paid an annual fee of $3,300 ($4,622 for the Chairman), plus $635 per
meeting attended and mileage reimbursement of $.31 per mile. In addition,
directors receive $250 per year for each Board committee on which he or she
serves, the total not to exceed $500.
The Company has established an "Unfunded Plan of Deferred Compensation"
which allows Directors to defer fees otherwise payable to them for attending
Board meetings or serving on committees. Participating directors may, at their
option, elect to have the deferred fees credited to either a cash account, which
accrues interest quarterly at a prime interest rate, or to a stock account,
under which such deferred amounts are treated as if they had been invested in
shares of the Company's common stock. Stock accounts may only be distributed in
their equivalent value in cash. All accounts under the plan are unfunded and do
not represent claims against specific assets of the Company.
STOCK OWNERSHIP OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth information as of December 31, 2000, as to
the number of shares of Company Common Stock beneficially owned by (a) each of
the Company's directors, (b) the nominees for director and (c) the directors and
executive officers of the Company as a group.
SHARES OF
COMMON STOCK
BENEFICIALLY PERCENT OF
NAMES OWNED 1 COMMON STOCK
Lewis Avinger 1,000 .05%
Winfield Baird 98,258 4.78%
Carolyn E. Brunson 324,3132 15.78%
J. E. Brunson 9,3521 .45%
J. R. Brunson 113,555 5.52%
W. L. Brunson, Jr. 70,2613 3.42%
Fred Clark, Jr. 89,0864 4.33%
D. M. English 91,814 4.47%
M. L. Murdock 1,202 .06%
James B. Saxon 19,260 .94%
Walter P. Wilkerson 5,695 .28%
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Directors and Officers
(as a group, 13 persons
including persons named 831,798 40.46%
above)
Other closely held stock
(as a group, numbering 30
including immediate family
members of some
directors, emeritus directors,
affiliated entities, and employee
retirement plan) 579,756 28.20%
1 For purposes of this table, an individual is considered to "beneficially
own" any shares of the Company if he or she directly or indirectly has or shares
(I) voting power, which includes power to vote or direct voting of the shares;
or (ii) investment power, which includes the power to dispose or direct the
disposition of the shares. All amounts include stock held in a spouse's name.
2 Includes stock held in Brunson Properties, a partnership (W.L. Brunson
Estate), Carolyn E. Brunson and William L. Brunson, Jr., Managing Partners.
3 Includes 63,995 shares held by Estate of Jerry B. Brunson, W. L. Brunson,
Jr. and Sara Brunson, co-executors.
4 Includes 88,086 shares held in Trust for Fred Clark, Sr. Estate
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The family relationships, not more remote than first cousin, which exist
among the directors and nominees are as follows:
Mrs. Carolyn Brunson is the widow of the deceased brother of J.R. Brunson,
and mother of William L. Brunson, Jr., President and Chief Executive Officer of
the Company, and President of the Life Company. Mr. J.R. Brunson, Mr. D. M.
English and Mr. James B. Saxon are first cousins . Mr. J. R. Brunson is the
father of Jack E. Brunson, President of the Casualty Company. See also the
discussion under the heading "Compensation Committee Interlocks and Insider
Participation."
INDEPENDENT ACCOUNTANTS
The firm of Barfield, Murphy, Shank & Smith, P.C., certified public
accountants, is the independent accountant for the Company and its subsidiaries
and has performed the audit function for the year ending December 31, 2000. The
independent accountant is appointed by the Board of Directors after receiving
the recommendation of the Audit Committee. Such appointment is customarily made
in July of each year. Consequently, the independent accountant for the fiscal
year ending December 31, 2001 has not yet been appointed. No plans have been
made for a representative of Barfield, Murphy, Shank & Smith, P.C. to be present
at the Annual Meeting.
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EXECUTIVE COMPENSATION
The following table sets forth the remuneration paid by the Company and its
subsidiaries during the fiscal year ended December 31, 2000, to each of its
executive officers whose annual compensation exceeds $100,000.
SUMMARY COMPENSATION TABLE
Name Other Restricted
and Principal Position Base Annual Stock Options All Other
Year Salary Bonus Comp. Award (s) SARs LTIP Payouts Comp.*
($) ($)
- ------------------------- ------ ------------ ---------------- ----------- ----------- --------- ---------------- ----------------
- ------------------------- ------ ------------ ---------------- ----------- ----------- --------- ---------------- ----------------
W.L.Brunson,Jr.
President & CEO
The National Security 2000 $114,637 17,166 $12,494
Group - 0 - - 0 - - 0 - - 0 -
M.L. Murdock,
Senior Vice President
The National Security
Group 2000 $110,584 24,324 $14,615
1999 $109,226 $0 - 0 - - 0 - - 0 - - 0 - $14,742
1998 $107,071 7,766 - 0 - - 0 - - 0 - - 0 - $10,052
J. E. Brunson
President, National
Security Fire and 2000 $89,579 18,763 $10,979
Casualty Company
*"All Other Compensation" includes the following for W. L.Brunson, Jr. for
the year 2000 Contributions to the 401 (K) Retirement Plan of $6,590, Directors
Fees of $5,515, and other employee benefits of $389; Mr. Murdock totals for the
years 2000, 1999, and 1998 for 401(K) Retirement Plan contributions $6,745,
$7,822, and $3,272, Deferred Directors Fees of $6340, $6,725, and $6,340, and
other employee benefits of $1,530, $195, and $440. For Mr. J. E. Brunson for the
year 2000, for the 401(K) Retirement Plan contributions of $5,417, Directors
Fees of $5,265 and other employee benefits of $297.
REPORT OF COMPENSATION COMMITTEE
The Compensation Committee of the Board of Directors is currently comprised
of Walter P. Wilkerson, James B. Saxon and Lewis Avinger, all of whom are
outside directors of the Company. The Committee has oversight of the
compensation paid to officers and employees of the Company and its subsidiaries,
whether by salary or under the Company bonus plan. This Committee also is
responsible for recommending officers to the Board of Directors for full
consideration and recommending directors fees. The committee members receive
director fees as described in this Proxy Statement and do not receive any other
compensation from the Company. The Compensation Committee has provided the
following report:
The objectives of the Company Compensation Policy are 1) to create
compensation packages for management which will attract and retain in the
Company employment persons of excellent managerial ability and 2) to reward
management for corporate performance as measured by the Companys financial
results and business achievements and provide incentives for management to make
material contributions to the success of the Company, its policyholders, and its
shareholders. The Committee strives to maintain an appropriate relationship
between executive pay and Company performance. The Companys total compensation
structure is comprised of annual base salary and
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annual cash bonus payments under the Companys Bonus Plan. The structure
provides for moderate base salaries, but offers opportunities for executives and
supervisors to earn incentive compensation based on Company results. The Company
does not presently utilize stock options, rights, or other forms of long-term
incentives in its compensation scheme, but such may be considered in the future.
The Committee is aware of the provisions of the Internal Revenue Code which
restrict deductibility of executive compensation and can confirm that
compensation has been and will continue to be tax-deductible as no executive
officer will earn in excess of the dollar limitations imposed by such applicable
provisions.
The Committee believes that base salaries should be competitive as
determined by geographic region, salaries within insurance companies of similar
size or lines of business, and the type skills that a position requires. The
Committee and management review formal surveys of regional compensation levels
as well as conducting informal surveys of surrounding business and industry. It
is an objective of the policy that base salaries should be kept on the low to
medium range of the scale, with compensation supplemented by cash bonuses when
financial results warrant. The bonus plan for management and supervisory level
employees is based on profits and growth, and requires as a precondition that
Company results for a given year reach a threshold level of return on
shareholders equity. The threshold is determined by the Compensation Committee
and takes into consideration a number of factors including current financial
markets and historic patterns of Company operations.
Bonuses awarded in a given year are based on the previous years results.
Bonuses awarded in 2000 were based on results for 1999. With results for 2000
very similar to 1999, it is anticipated that bonuses of a similar amount will be
awarded in 2001 to the Companys executive officers and supervisory personnel.
Contributions to executive officers under the Companys 401(K) Retirement
Plan are made on the same basis as are contributions to all other participants
in the Plan.
The Committee continues to review the Companys Compensation Policy in an
effort to ensure that it continues to accomplish the intended objectives. While
the Company has not and does not currently integrate long-term incentives in its
structure, certain forms of long-term incentives are being considered and may be
implemented in the future to continue to provide appropriate incentives for
management to maximize the Companys long term financial results for the benefit
of the stockholders. The Committee believes that the Companys salary and
incentive compensation programs are competitive and appropriate for National
Security. Walter P. Wilkerson, James B. Saxon, Lewis Avinger.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors is currently comprised
of Walter Wilkerson, James B. Saxon and Lewis Avinger, all of whom are outside
directors. The Committee members receive director fees as described in this
Proxy Statement and do not receive any other compensation from the Company.
During 2000, Mr. Wilkersons Director compensation was deferred in the amount of
$6,340.00, Mr. Saxon received Director compensation of $5,515.00, and Mr.
Avinger received director compensation of $5,515.00.
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EMPLOYEE BENEFITS
401 (K) Plan
The Company contributes an amount equal to twice the employees salary
deferral amounts, not exceeding 5% of total compensation of all eligible
employees, to a Retirement Savings Plan established under 401(K) of the Internal
Revenue Service Code of 1986 (the "Company 401 (K) Plan"). All full - time
employees who have completed 1,000 hours of service on either January 1 or July
1 are eligible to participate. The Company contributions are annually allocated
among the participants' plan accounts based on compensation received during the
year for which contribution is made. Amounts allocated vest as scheduled in the
Company 401 (K) Plan. Benefits are generally payable only upon termination,
retirement, disability or death.
COMPANY PERFORMANCE
The following graph shows a five year comparison of cumulative returns for
the Company, the NASDAQ STOCK MARKET INDEX (U.S.), Standard & Poors 500 Index
and the NASDAQ Insurance Stocks Index. The cumulative total return is based on
change in the year - end stock price plus reinvested dividends for each of the
periods shown.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
NASDAQ NASDAQ
Measurement period NATIONAL STOCK MARKET INSURANCE
(Fiscal year Covered) SECURITY (U.S.) INDEX STOCK INDEX S&P 500
1995 100.00 100.00 100.00 100.00
1996 107.30 123.04 113.99 123.18
1997 155.54 150.69 167.21 164.36
1998 125.17 212.51 148.98 212.07
1999 105.97 394.92 114.88 256.84
2000 191.82 237.62 145.12 233.95
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STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth those persons who beneficially owned, as of
December 31, 2000, five percent or more of the Company Common Stock. Unless
otherwise noted, each beneficial owner has sole voting and investment powers.
Amount and Nature
of Beneficial Percentage
Ownership of of
Name and Address Company Common Stock Class
Brunson Properties, a partnership 305,371 14.85%
(W.L. Brunson Estate)
Elba, Alabama 36323
SunTrust Bank as Trustee, 200,551 9.76%
National Security Retirement Savings Plan,
Chattanooga, Tennessee 37402
J.R. Brunson 113,555 5.52%
1192 Pine Circle
Elba, Alabama 36323
DIRECTOR AND OFFICER SECURITIES REPORTS
The Federal Securities laws require the Company's directors and executive
officers to file with the Securities and Exchange Commission initial reports of
ownership and reports of changes in ownership of the Company's common stock. To
the best of the Company's knowledge, all persons subject to these reporting
requirements filed the required reports on a timely basis.
STOCKHOLDERS' PROPOSALS
In order for a proposal by a stockholder of the Company to be eligible to
be included in the proxy statement and proxy form for the Annual Stockholders'
Meeting to be held in 2002, the proposal must be received by the Company at its
headquarters, 661 E. Davis Street, Elba, Alabama 36323, on or before January 12,
2002. The Board of Directors will review any stockholder proposals that are
filed to determine whether such proposals meet applicable criteria for inclusion
in the 2002 Proxy Statement for consideration at the 2001 Annual Meeting.
TRANSFER AGENT AND REGISTRAR
The Company is the Transfer Agent and Registrar for the Company Common
Stock.
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ANNUAL REPORTS AND FINANCIAL STATEMENT
A copy of the Company's Annual Report to Stockholders for the fiscal year
ended December 31, 2000 accompanies this Proxy Statement. Additional copies of
the Company's Annual Report to Stockholders, and/or a copy of the Company's
annual report on Form 10-K filed with the Securities and Exchange Commission may
be obtained by written request to the Chief Financial Officer of the Company at
the address indicated above.
OTHER MATTERS
The Board of Directors of the Company does not know any other matters to be
brought before the meeting. If any other matters, not now known, properly come
before the Meeting or any adjournments thereof, the persons named in the
enclosed proxy, or their substitutes, will vote the proxy in accordance with
their judgment in such matters.
Date: March 19, 2001
THE NATIONAL SECURITY
GROUP, INC.
W L. Brunson, Jr.
President
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