UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy
Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
(Amendment
No.
)
Filed by the
Registrant
x
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Filed by a Party other than the
Registrant
o
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Check the appropriate box:
o
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Preliminary Proxy Statement
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o
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Confidential, for Use of the Commission
Only
(as permitted by
Rule 14a-6(e)(2))
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x
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Definitive Proxy Statement
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o
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Definitive Additional Materials
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o
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Soliciting Material Pursuant to §240.14a-12
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The
National Security Group, Inc.
(Name
of Registrant as Specified In Its Charter)
(Name
of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
o
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Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
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(1)
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Title of each class of securities to which transaction
applies:
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(2)
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Aggregate number of securities to which transaction
applies:
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(3)
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Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
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(4)
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Proposed maximum aggregate value of transaction:
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o
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Fee paid previously with preliminary materials.
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o
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Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
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(1)
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Amount Previously Paid:
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(2)
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Form, Schedule or Registration Statement No.:
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- 1
-
661 East Davis Street, Elba, Alabama
36323
NOTICE
OF
ANNUAL
MEETING
OF
STOCKHOLDERS
MAY
1
,
2008
To the
Stockholders of The National Security Group, Inc.:
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, 661 East Davis Street, Elba, Alabama, on Thursday, May 1, 2008, at 10:00 a.m.
for the purpose of considering and acting upon the following:
1.
|
To elect four (4) members to the Board of Directors to serve
three-year terms and one (1) member of the Board of Directors to serve a
one-year term until their successors are duly elected and qualified;
|
2.
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To ratify selection of independent auditors;
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3.
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To transact such other business as may properly come before the
Annual Meeting or any adjournment thereof.
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The
close of business on March 13, 2008, has been fixed as the record date for determination of
stockholders entitled to notice of and to vote at the Annual Meeting of Stockholders.
Stockholders are cordially invited to attend the Annual Meeting in person.
The
Company’s Proxy Statement is submitted herewith, together with the Annual Report for
the year ended December 31, 2007.
BY ORDER OF THE BOARD OF DIRECTORS
|
|
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/s/ Bette Ham
|
|
Bette Ham
Secretary
|
Elba,
Alabama
March 31,
2008
YOUR
VOTE
IS
IMPORTANT
WHETHER
OR
NOT
YOU
EXPECT
TO
ATTEND
IN
PERSON,
WE
URGE
YOU
TO
VOTE
YOUR
SHARES
AT
YOUR
EARLIEST
CONVENIENCE.
THIS
WILL
ENSURE
THE
PRESENCE
OF
A
QUORUM
AT
THE
MEETING.
AN
ADDRESSED
ENVELOPE
FOR
WHICH
NO
POSTAGE
IS
REQUIRED
IF
MAILED
IN
THE
UNITED
STATES
IS
ENCLOSED
IF
YOU
WISH
TO
VOTE
BY
MAIL.
EARLY
SUBMITTAL
OF
YOUR
PROXY
WILL
NOT
PREVENT
YOU
FROM
VOTING
YOUR
SHARES
IN
PERSON
IF
YOU
DESIRE
TO
ATTEND,
AS
YOUR
PROXY
IS
REVOCABLE
AT
YOUR
OPTION.
- 2
-
661 East Davis Street, Elba, Alabama
36323
PROXY
STATEMENT
FOR
ANNUAL
MEETING
OF
STOCKHOLDERS
TO
BE
HELD
MAY
1
,
2008
This
Proxy Statement is furnished in connection with the solicitation of proxies by the Board of
Directors of The National Security Group, Inc. (the “Company”), to be voted at
the Annual Meeting of the stockholders of the Company to be held at 10:00 a.m. (Central
Time) on May 1, 2008, at the Conference Center located adjacent to the principal executive
offices of the Company, for the purposes set forth in the accompanying Notice of Annual
Meeting of Stockholders (“Annual Meeting”). This Proxy Statement, dated March
31, 2008, is being mailed to holders of the Company common stock on or about March 13,
2008.
At the
Annual Meeting, the stockholders of the Company will vote on matters noted in the proxy. 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
and
“FOR”
the ratification
of selection of independent auditors.
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.
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.
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.
The
Board of Directors has fixed the close of business on March 13, 2008, 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 2,466,600 shares of common stock, the holders of which are entitled to one vote
per share. No shares of any other class of common stock are issued or
outstanding.
The
Company has retained Registrar and Transfer Company to assist in the distribution of proxy
materials and solicitation of votes. The Company bears all costs associated with the
distribution and solicitation.
REVOCABILITY
OF
PROXY
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 revoke a proxy.
- 3
-
ITEM
1
:
ELECTION
OF
DIRECTORS
AND
MANAGEMENT
INFORMATION
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. A
total of five Directors will be elected at the Annual Meeting. Four “Nominees”
have been nominated by the Board of Directors for election to serve three-year terms: W.L.
Brunson, Jr., Fred Clark, Jr., Mickey L. Murdock, and Paul Wesch. One “Nominee”
has been nominated by the Board of Directors for election to serve a one-year term:
Winfield Baird. 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
Name
|
Positions Held with the Company
|
Age at December 31, 2007
|
Director/Advisory Board Since*
|
Winfield Baird
|
Director
|
75
|
1964
|
W. L. Brunson, Jr.
|
President/CEO/Director
|
49
|
1999
|
Fred Clark, Jr.
|
Director
|
47
|
1996
|
Mickey L. Murdock
|
SR VP NSIC/ Director
|
65
|
1976
|
Paul Wesch
|
Director
|
53
|
2002
|
THE
BOARD
OF
DIRECTORS
UNANIMOUSLY
RECOMMENDS
A
VOTE
"FOR"
THE
ELECTION
OF
THE
ABOVE
NOMINEES
AS
DIRECTORS.
CONTINUING
DIRECTORS
Name
|
Age at December 31, 2007
|
Director Since*
|
End of Present Term
|
Fleming G. Brooks
|
62
|
2004
|
2009
|
Jack E. Brunson
|
52
|
1999
|
2009
|
Walter Wilkerson
|
60
|
1984
|
2009
|
Carolyn Brunson
|
81
|
1978
|
2010
|
Frank B. O'Neil
|
54
|
2004
|
2010
|
Donald Pittman
|
47
|
2002
|
2010
|
L. Brunson White
|
51
|
2002
|
2010
|
*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 "Fire Company"), and
NATSCO, Inc. ("NATSCO"). Subsequently Omega One, Inc. (“Omega One”) was formed
as a wholly owned subsidiary of the Fire Company. 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.
- 4
-
Nominees
WINFIELD
BAIRD is a Chartered Financial Analyst, and currently a financial advisor with Baird
Financial Management in Birmingham, Alabama. He previously served as President of
Investment Counselors of Alabama, Inc. He was formerly a partner and manager at the
Birmingham office of J. C. Bradford & Company.
W. L.
BRUNSON, JR., has served as a director since 1999 and as President and Chief Executive
Officer of the Company since 2000. He also holds the position of President of the Life
Company. He joined the Company in 1983. Mr. Brunson is also a Director of the Fire Company,
NATSCO, the Life Company, and Omega One. Mr. Brunson is a member of the Alabama State
Bar.
FRED
CLARK, JR. is currently President and Chief Executive Officer of Alabama Municipal Electric
Authority in Montgomery, Alabama and President of the Clark Company, LLC. He was formerly
Executive Director of The Electric Cities of Alabama and 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.
MICKEY
L. MURDOCK has served as a director since 1976 and as Chief Operating Officer and Senior
Vice President. From 1982 to 2002 he served as Chief Financial Officer and Treasurer of the
Company. 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, and NATSCO. Mr. Murdock is a Certified Public Accountant.
PAUL
WESCH currently serves on the Board of Directors and is General Counsel and Executive Vice
President of The Mitchell Company, Inc., a southeastern real estate development firm in
Mobile, Alabama. He is a member of the Mobile County, State of Alabama and American Bar
Associations.
Continuing Non-Employee Directors
FLEMING
G. BROOKS is Chairman of the Board of Brooks Peanut Company, Inc. of Samson, Alabama and
various affiliates of that Company. He either serves currently or has served in the past,
various positions with associations of the agricultural community.
CAROLYN
BRUNSON presently serves as the Managing Partner of Brunson Properties (formerly the W. L.
Brunson Estate), a family partnership engaged in investments.
FRANK B.
O’NEIL is Senior Vice President, Corporate Communications and Investor Relations and
Assistant Corporate Secretary of ProAssurance Corporation of Birmingham, Alabama. He is a
member of National Investor Relations Institute and the American Society of Corporate
Secretaries and is a member of the Board of Directors of the Alabama Insurance Planning
Commission.
DONALD
PITTMAN has been in the private practice of law since June of 1988, in Enterprise, Alabama.
He is a member of the Coffee County, State of Alabama and American Bar
Associations.
WALTER
WILKERSON is a certified public accountant and partner in the firm of Brunson, Wilkerson,
Bowden & Associates, P.C. in Enterprise, Alabama
L.
BRUNSON WHITE is Vice President and Chief Information Officer of Energen Corporation, a
diversified energy company, based in Birmingham, Alabama. Mr. White has worked for Energen
Corporation for 28 years in the areas of planning, development and technology.
Continuing Employee Director
JACK E.
BRUNSON, has served as a director since 1999 and as President of the Fire Company since
1997. He also serves on the Boards of Directors of the Fire Company and Omega One. He
joined the Company in 1982. Mr. Brunson is a Chartered Property and Casualty
Underwriter.
- 5
-
INFORMATION
ABOUT
THE
BOARD
AND
ITS
COMMITTEES
Corporate Governance
The
system of governance followed by the Company is codified in the Policy on Corporate
Governance, Senior Financial Officers’ Code of Ethics and the charters of the
Nominating and Audit Committees of the Board of Directors. The guidelines provided in these
documents are intended to give surety that the Board will have the necessary power and
practices in place to review and evaluate the Company’s business operations and to
make decisions that are independent of the Company’s management.
The
corporate governance documents, including committee charters, are reviewed periodically and
updated when necessary to reflect changes in practice and regulatory requirements. The
Board has five committees: an Audit Committee, a Compensation Committee, a Dividend
Committee, a Nominating Committee and an Executive Committee. The corporate governance
policy and code ethics are both posted on the Company’s website at
www.nationalsecuritygroup.com/investor. If you would like to receive a copy of the
corporate governance documents, send your request in writing to The National Security
Group, Inc., Office of the Corporate Secretary, 661 East Davis Street, Elba, AL
36323.
Meetings and Executive Sessions of the Board
The
Board of Directors holds regularly scheduled quarterly meetings. The table below provides
current membership and meeting information for each of the Board committees for the
calendar year.
Name
|
Audit
|
|
Compensation
|
|
Dividend
|
|
Nominating
|
|
Executive
|
Winfield Baird
|
|
|
|
|
|
|
X
|
|
X
|
Fleming G. Brooks
|
|
|
|
|
X
|
|
X
*
|
|
|
Carolyn E. Brunson
|
|
|
|
|
X
*
|
|
|
|
X
|
J. E. Brunson
|
|
|
|
|
X
|
|
|
|
|
W. L. Brunson, Jr.
|
|
|
|
|
|
|
|
|
X
|
Fred Clark, Jr.
|
|
|
X
|
|
|
|
X
|
|
X
|
Mickey L. Murdock
|
|
|
|
|
|
|
|
|
|
Frank B. O'Neil
|
|
|
X
|
|
|
|
|
|
|
Donald Pittman
|
X
*
|
|
|
|
|
|
|
|
|
Paul C. Wesch
|
|
|
X
*
|
|
|
|
|
|
|
L. Brunson White
|
X
|
|
|
|
|
|
|
|
|
Walter P. Wilkerson
|
X
|
|
|
|
|
|
|
|
X
|
Total meetings in calendar year 2007
|
7
|
|
3
|
|
4
|
|
1
|
|
0
|
|
|
|
|
|
|
|
|
|
|
* Committee Chairperson
|
|
|
|
|
|
|
|
|
|
During
the last full calendar year, the Board of Directors of the Company held four regularly
scheduled and no special meetings. Executive sessions of independent directors followed
each regularly scheduled board meeting. All directors attended at least 75% of the meetings
of the Board of Directors and the committees on which they served during calendar year
2007. The Company has not adopted a formal policy regarding Board members’ attendance
at the Company’s annual shareholder meetings; however, the Company encourages all
Board members to attend the annual shareholder meetings. Each of the Company’s
directors attended the 2007 Annual Meeting of Shareholders.
The
following provides a description of each committee of the Board of Directors. Each of the
committees has authority to engage legal counsel or other experts or consultants at its
discretion when it is believed the services of said persons are necessary to carry out the
committee’s responsibilities. The Board of Directors has determined that each member
of each committee meets the standards of independence under the NASDAQ listing
standards.
- 6
-
Compensation Committee
The
primary responsibilities of the Compensation Committee include: responsibility for
recommending officers, setting the salaries of officers, director’s fees and officer
bonuses to the Board of Directors for full consideration.
Audit Committee
The
Audit Committee assists the Board in its supervisory function, specifically in the
oversight of the quality and integrity of the accounting, auditing, and reporting practices
of the Company. Responsibilities include overseeing the Company’s internal accounting
function as well as compliance with applicable legal, ethical and regulatory requirements.
The Committee is also charged with the appointment, compensation, retention and oversight
of the Company’s independent auditor. The Committee has confidence in the expertise
and knowledge of management and the independent auditor. The Committee relies on management
and the independent auditor in carrying out the duties with which it is charged. The
Committee’s duties are described in detail in the Audit Committee Charter. The Board
has designated Walter P. Wilkerson as the audit committee financial expert as defined by
the Securities and Exchange Commission rules.
Dividend Committee
The key
responsibility of the Dividend Committee is to determine the amount of dividends paid to
shareholders and recommend such payments for consideration to the full Board.
Nominating Committee
The key
responsibilities of the Nominating Committee are to determine the slate of director
nominees for election to the Company’s Board of Directors and identify and propose
candidates to fill vacancies occurring between annual shareholder meetings. No procedure
has been established by the committee for considering nominations by the
stockholders.
Executive Committee
The
Executive Committee is empowered by the by-laws to act with the authority of the full board
when necessary should events arise in which the full board is unavailable. There have been
no meetings of the Executive Committee.
Independent Directors
The
Board evaluates the independence of each director in accordance with applicable laws and
regulations, the listing standards of the NASDAQ Stock Market and the standards set forth
in the Policy on Corporate Governance. The Board has determined that the following
directors are considered independent based on the aforementioned guidelines: Winfield
Baird, Fleming G. Brooks, Fred Clark, Jr., Frank B. O’Neil, Donald L. Pittman, Paul
C. Wesch, L. Brunson White and Walter P. Wilkerson.
Shareholder Communications with
Directors
A
shareholder who would like to communicate directly with the Board, a committee of the
Board, the non-employee directors as a group or with an individual director, should send
the communication to:
The National Security Group, Inc.
Office of the Corporate Secretary
Board of Directors [or committee name, the non-employee directors as a group
or director’s name, as appropriate]
661 East Davis Street
Elba, Alabama 36323
All
communications will be compiled by the Corporate Secretary of the Company and submitted to
the Board on a periodic basis.
- 7
-
DIRECTORSPURVI1#146;
REMUNERATION
Non-employee directors are currently paid an annual fee of $17,000 ($20,000
for the Chairman), plus $1,000 per meeting attended and mileage reimbursement of $.345 per
mile. In addition the following committee fees will be paid for each Board Committee on
which he/she serves: (1) telephonic meetings - $250, (2) meetings held before/after a
regular Board meeting - $250, (3) meetings other than (1) and (2) above, requiring travel
and physical presence - $500 plus travel. Employee directors are excluded from
compensation.
Effective January 1, 2006, a new deferred compensation plan was adopted.
This plan allows the director to defer from 1% to 100% of the otherwise cash compensation
into an elective account for investment into selected mutual funds. All accounts under the
plan are funded with the director’s quarterly compensation 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, 2007, 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
OWNED
Winfield Baird
|
118,409
|
|
|
4.80%
|
Carolyn E. Brunson
|
389,175
|
2
|
|
15.78%
|
J. E. Brunson
|
67,015
|
3
|
|
2.72%
|
W. L. Brunson, Jr.
|
81,876
|
4
|
|
3.32%
|
Fred Clark, Jr.
|
121,077
|
5
|
|
4.91%
|
Mickey L. Murdock
|
23,238
|
|
|
0.94%
|
Donald Pittman
|
33,006
|
|
|
1.34%
|
James B. Saxon
*
|
23,112
|
|
|
0.94%
|
Paul C. Wesch
|
10,302
|
|
|
0.42%
|
L. Brunson White
|
14,676
|
|
|
0.60%
|
Walter P. Wilkerson
|
6,834
|
|
|
0.28%
|
Fleming G. Brooks
|
15,950
|
|
|
0.65%
|
Frank B. O'Neil
|
1,000
|
|
|
0.04%
|
|
|
|
|
|
Directors and Officers (as a group, 15 persons including persons
named above)
|
918,765
|
6
|
|
37.26%
|
Other closely held stock (as a group, numbering 38 including
immediate family members of some directors and officers)
|
474,679
|
|
|
19.25%
|
|
|
|
|
|
*Mr. Saxon retired from the Board in April 2004, and continues
to serve in the capacity of director emeritus (non-voting member of the
board)
|
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 W. L.
Brunson, Jr., Managing Partners.
|
3
Includes 45,641 shares held in
Jack R. Brunson Estate. Jack E. Brunson and Barbara A. Brunson
co-trustees.
|
4
Includes 71,490 shares held by
the Jerry B. Brunson Marital Trust and the Jerry B. Brunson Family Trust. Sara
B. Brunson and W. L. Brunson, Jr. co-trustees. W. L. Brunson, Jr. disclaims
beneficial ownership of these shares.
|
5
Includes 119,877 shares held
in Trust by Clark’s Investment Group, Ltd.
|
|
|
|
|
6
Includes 36,140 units held in
401-K plan.
|
|
|
|
|
-8
-
CERTAIN
RELATIONSHIPS
AND
RELATED
TRANSACTIONS
The
family relationships, not more remote than first cousin, which exist among the directors
and nominees as of December 31, 2007, are as follows:
Mrs.
Carolyn Brunson is the mother of W. L. Brunson, Jr.; W. L. Brunson, Jr., Donald Pittman and
J. E. Brunson are first cousins. Mr. James Saxon (Director Emeritus) is the uncle of L.
Brunson White. See also the discussion under the heading "Compensation Committee Interlocks
and Insider Participation."
ITEM
2
:
RATIFICATION
OF
COMPANY
INDEPENDENT
AUDITORS
The
Audit Committee of the Board of Directors has selected Barfield, Murphy, Shank & Smith,
PC as the Company’s independent auditors for the calendar year ending December 31,
2008, and has further directed that management submit the selection of independent auditors
for ratification by the stockholders at the Annual Meeting. They have audited the
Company’s financial statements since 2000. Representatives of the firm are expected
to be present at the Annual Meeting, will have an opportunity to make a statement if they
so desire and will be available to respond to appropriate questions.
Stockholder ratification of the selection of Barfield, Murphy, Shank &
Smith, PC, as the Company’s independent auditors is not required by the
Company’s Bylaws or otherwise. However, the Board is submitting the selection of
Barfield, Murphy, Shank & Smith, PC to the stockholders for ratification as a matter of
good corporate practice. If the stockholders fail to ratify the selection, the Audit
Committee will reconsider whether or not to retain that firm. Even if the selection is
ratified, the Audit Committee in its discretion may direct the appointment of a different
independent auditing firm at any time during the year if it determines that such a change
would be in the best interests of the Company and its stockholders.
The
affirmative vote of a majority of the votes cast at the Annual Meeting at which a quorum
representing a majority of all outstanding shares of common stock of the Company is present
and voting, either in person or by proxy, is required for approval of this proposal.
Abstentions and broker non-votes will each be counted as present for purposes of
determining the presence of a quorum but will not have any effect on the outcome of the
proposal.
DISCLOSURE
OF
AUDIT
FEES
Aggregate fees for professional services rendered for the Company by
Barfield, Murphy, Shank & Smith, PC billed for the years ended December 31, 2007 and
2006, were as follows:
Year Ended December 31
|
|
2007
|
%
|
|
2006
|
%
|
Audit Fees
(1)
|
$
|
136,854
|
80%
|
$
|
121,926
|
87%
|
Audit-Related
Fees
(2)
|
|
11,835
|
7%
|
|
7,700
|
6%
|
Tax Fees
(3)
|
|
9,626
|
6%
|
|
8,799
|
6%
|
All Other Fees
(4)
|
|
12,796
|
7%
|
|
1,328
|
1%
|
Total
|
$
|
171,111
|
100%
|
$
|
139,753
|
100%
|
(1)
|
A
udit Fees were for professional services
rendered in connection with the review and audit of the Company’s annual
financial statements for the year ended December 31, 2007 and same period for
the prior year as well as for the review of the Company’s interim
financial statements included in quarterly reports on Form 10-Q during the year
ended December 31, 2007 and same period for the prior year.
|
(2)
|
Audit-Related Fees were for professional services rendered in
connection with employee benefit plan audits.
|
(3)
|
Tax Fees were for tax related services and totaled approximately
$8,799. The audit committee does not consider the tax related fees of $10,563
to impair the auditor’s independence.
|
(4)
|
All Other Fees were for meetings with management regarding the
Company’s SOX work in 2007 and for assistance with inquiries during a
recent Alabama Department of Insurance routine examination in 2006.
|
- 9
-
AUDIT
COMMITTEE
PRE-APPROVAL
POLICES
AND
PROCEDURES
The
Audit Committee of the Board of Directors believes its policies and procedures should
remain flexible in order to: best react to changing conditions; to ensure to the directors
and stockholders that the corporate accounting and reporting practices of the corporation
are in accordance with all requirements; and to ensure that the corporate accounting and
reporting practices of the corporation are of the highest quality. In carrying out its
responsibilities, the audit committee pre-approves audit fees as well as reviews and
approves the scope of the proposed audit, audit procedures, and other services to be
performed.
COMPENSATION
DISCUSSION
AND
ANALYSIS
EXECUTIVE
COMPENSATION
The
primary oversight of the Company’s executive compensation plan rests with the
Compensation Committee of the Board of Directors which is composed entirely of independent
directors.
The
primary objective of the Compensation Committee in setting compensation levels for
executive officers is to provide competitive benefits relative to the size and geographic
location of the Company in order to attract and retain talented individuals to fill
executive positions. The current compensation plan consists of two elements, base salary
and short term cash incentive compensation. Base salaries are set by the Compensation
Committee, including any annual increases, and are reviewed by the full Board of Directors.
The Compensation Committee considers factors such as industry surveys, particularly
focusing those companies of similar size and business focus, individual performance and
changes in job duties of named executives in any material adjustments in individual
compensation levels.
The
Compensation Committee reviews salary levels annually relative to published insurance
industry executive compensation surveys, particularly those which provide composite
information for the Company’s applicable size category, as determined by annual
insurance premium revenue, provided by the survey as part of an annual compensation review.
Due to other considerations such as geographic location of the Company, base compensation
levels for the executive officers of the Company are typically at or below median levels
for each of the applicable job classifications provided in the executive compensation
surveys.
The
objective of the bonus incentive plan provided to executive officers is to reward
executives for financial performance on an annual basis and consists of two primary
components. The first component is a fixed bonus percentage based on an absolute return on
equity. The bonus percentages under this component range from 15% to 35% of base
compensation for the CEO and 10% to 30% for other named executive officers. No bonus is
paid under this component for a return on equity of less than 8%. The second component
consists of a bonus percentage based on performance relative to a peer group of companies
with the maximum bonus payable under this component being 50% of base compensation. The
maximum bonus payable under both components of the plan is fixed at 70% of base
compensation for the CEO and 60% for other named executive officers. The Compensation
Committee reserves the right to withhold bonuses for the CEO or any named executive for
personal performance during a year, regardless of the Company’s overall performance.
The Compensation Committee has approved payments under the bonus incentive plan as
disclosed in the summary compensation table for each executive officer of the Company for
the year 2007. These bonus incentive plan payments total $277,981 and were paid in the
first quarter of 2008.
We do
not currently offer retirement plans for the exclusive benefit of executive officers and we
do not offer a defined benefit retirement pension plan.
We do
offer a defined contribution 401(k) plan under which all employees may defer a portion of
compensation, subject to IRS limits for 2007 of $15,000 per year and over age 50
“catch-up” contributions for 2007 of $5,000 per year. After six months of
employment, the Company will match employee deferrals on a dollar for dollar basis up to 5%
of compensation. During 2007, the Company match for all executive officers totaled
$40,722.
The
Company offers its executive officers and directors a non-qualified deferred compensation
(NQDC) plan. Executives have the option of deferring up to 25% of base pay and 100% of
bonus into the NQDC plan. Participants in the NQDC plan may select from a group of
externally managed investment options, none of which contain equity components tied to
Company stock performance. The Company also does not guarantee returns for any component of
funds deferred in the NQDC plan. The Compensation Committee may recommend to the Board of
Directors, discretionary contributions to the NQDC plan for named executives. However, no
such discretionary contributions were made for 2007.
The
Company currently does not have a long term incentive compensation plan or any stock based
compensation arrangements. These compensation arrangements, while not currently offered,
may be considered by the Compensation Committee as a future element of executive
compensation. Even though the Company does not currently offer long term incentive
compensation or stock based compensation as a component of executive compensation, the
Compensation Committee does believe that the long term interests of the executives are tied
to the Company as the executive group and immediate family members of certain executives
own, through various direct and indirect ownership arrangements, in excess of 25% of the
total outstanding common stock of the Company.
- 10
-
We do
not offer any perquisites to any of our executive officers with an aggregate value greater
than $10,000.
All
forms of executive compensation, with the exception of amounts deferred under NQDC plans,
are currently deductible by the Company under Federal Income Tax laws. The Compensation
Committee does not believe that the deductibility limitations of Section 162(m) of the
Internal Revenue Code of 1986 as amended applies to the Company as no individual of the
Company received more than $1 million in compensation.
The
Company currently has no security ownership requirements or guidelines regarding the
hedging of economic risk of security ownership for executive officers.
None of
the executive officers are currently under written employment agreements or other written
agreement providing for severance or change in control benefits.
Summary Compensation Table
|
|
Name and Principle Position
|
Year
|
Salary
|
Bonus*
|
Stock Awards
|
Option Awards
|
Non-Equity Incentive Plan Compensation
|
Change in Pension Value and Non-qualified Deferred Plan
Compensation
|
All Other Compensation**
|
Total
|
|
William L. Brunson, Jr.
|
2007
|
|
181,125
|
90,205
|
-
|
-
|
-
|
836
|
16,684
|
288,850
|
President and CEO
|
2006
|
|
171,531
|
65,749
|
-
|
-
|
-
|
299
|
13,872
|
251,451
|
The National Security Group, Inc.
|
|
Mickey L. Murdock
|
2007
|
|
160,684
|
71,991
|
-
|
-
|
-
|
26,992
|
15,303
|
274,970
|
SR VP, National
|
2006
|
|
153,983
|
51,324
|
-
|
-
|
-
|
30,377
|
11,793
|
247,477
|
Security Insurance Company
|
|
Jack E. Brunson
|
2007
|
|
129,886
|
58,192
|
-
|
-
|
-
|
1,671
|
11,785
|
201,534
|
President, National
|
2006
|
|
124,470
|
41,487
|
-
|
-
|
-
|
45
|
11,186
|
177,188
|
Security Fire and Casualty
|
|
Brian R. McLeod
|
2007
|
|
128,547
|
57,592
|
-
|
-
|
-
|
638
|
13,171
|
199,948
|
Chief Financial Officer
|
2006
|
|
123,187
|
41,059
|
-
|
-
|
-
|
118
|
8,076
|
172,440
|
The National Security Group, Inc.
|
*Bonus
is for the year ended December 31, 2007, and was paid during the first quarter of
2008.
**"All
Other Compensation" includes the following for W. L. Brunson, Jr. for the year 2007:
contributions to the 401 (K) Retirement Plan of $12,536, and other employee benefits of
$3,848; M. L. Murdock total for the year 2007 includes: 401(K) Retirement Plan
contributions of $10,803, and other employee benefits of $4,050; J. E. Brunson total for
the year 2007 includes: 401(K) Retirement Plan contributions of $ 8,700 and other employee
benefits of $2,635; Brian R. McLeod total for the year 2007 includes: 401(K) Retirement
Plan contributions of $ 8,682 and other employee benefits of $4,039. For 2007, all other
compensation also included $450 each for spouse travel for Mickey L. Murdock, Jack E.
Brunson and Brian R. McLeod and $300 for William L. Brunson.
Non-Qualified Deferred Compensation
Table
|
|
|
|
|
|
|
|
|
Name
|
Executive Contributions in Last FY
|
Registrant Contributions in Last FY
|
Aggregate Earnings in Last FY
|
Aggregate Withdrawals/Distributions
|
Aggregate Balance at Last FY
|
|
|
|
|
|
|
|
|
William L. Brunson, Jr.
|
3,287
|
-
|
836
|
-
|
9,076
|
|
Mickey L. Murdock
|
25,000
|
-
|
26,992
|
-
|
342,614
|
*
|
Jack E. Brunson
|
10,372
|
-
|
1,671
|
-
|
15,501
|
|
Brian R. McLeod
|
4,106
|
-
|
638
|
-
|
7,444
|
|
*The
aggregate balance includes the increases in value of the discontinued non-qualified
deferred compensation plan established in 1987 for Directors.
-
11-
DIRECTOR
COMPENSATION
The
Compensation Committee periodically reviews levels of director compensation for
non-employee directors of the Company. The goal of the compensation review is to provide a
median level of director compensation relative to peer group
companies to attract and retain individuals to provide independent oversight
to management and bring diverse business ideas in order to provide input into strategic
plans and objectives of the organization.
Non-employee directors are currently paid an annual fee of $17,000 ($20,000
for the Chairman), plus $1,000 per meeting attended, plus travel expense reimbursement. In
addition, compensation for committee fees for telephonic meetings and supplemental meetings
held in conjunction with regularly scheduled board meetings are paid at the rate of $250.
Compensation for committee meetings requiring physical presence and held in addition to
regularly scheduled board meetings are paid at the rate of $500 plus travel expense
reimbursement. Employee directors are excluded from separate compensation as a
director.
The
Compensation Committee has recommended changes to the Board Compensation package designed
to eliminate per meeting fees while increasing the annual retainer for each director. The
Compensation Committee believes this new Board compensation package will enhance Director
involvement by allowing for more frequent Committee meetings without regard to their cost.
The proposed compensation package would:
•
|
Pay non-employee Directors a base annual retainer of $23,000.
Reflecting the additional workload of their oversight duties and Committee
assignments, The Chairman of the Board of Directors would be paid an additional
$7,000 per year ($30,000 in total); Audit Committee members would be paid an
additional $4,000 per year ($27,000 in total) and its Chairman would be paid an
additional $5,000 per year ($28,000 in total); Compensation Committee members
would be paid an additional $2,000 per year ($25,000 in total) and its Chairman
would be paid an additional $3,000 per year ($26,000 in total). These
retainers would be paid in equal quarterly installments.
|
•
|
Eliminate compensation for attendance at physical or telephonic
meetings of the Board of Directors or of any committee.
|
•
|
Require that a Director attend at least 75% of the total of all
Board of Directors meetings and committee meetings for any consecutive
twelve-month period. If this attendance standard is not met the
Director’s retainer for the following twelve-month period would be
proportionately reduced.
|
•
|
Provide full reimbursement for travel expenses associated with
Board or Committee meetings or other Company functions.
|
The
proposed compensation package will be voted on by the Board of Directors at the next board
meeting.
Directors may annually elect to defer compensation into a non-qualified
deferred compensation plan (NQDC). Participants in the NQDC plan may select from a group of
externally managed investment options, none of which contain equity components tied to
Company stock performance. The Company also does not guarantee returns for any component of
funds deferred in the NQDC plan.
- 12
-
Director Compensation Table
|
Name
|
Fees Earned or paid in Cash
|
Stock Awards
|
Option Awards
|
Non-Equity Incentive Plan Compensation
|
Change in Pension Value and Non-qualified Deferred
Compensation Earnings
|
All Other Compensation
|
Total
|
Winfield Baird
|
24,250
|
|
-
|
-
|
-
|
22,694
|
450
|
47,394
|
Fleming G. Brooks
|
22,250
|
|
-
|
-
|
-
|
4,039
|
450
|
26,739
|
Carolyn E. Brunson
|
21,000
|
|
-
|
-
|
-
|
-
|
-
|
21,000
|
Fred Clark, Jr.
|
21,500
|
|
-
|
-
|
-
|
1,099
|
300
|
22,899
|
Frank B. O'Neil
|
21,250
|
|
-
|
-
|
-
|
2,318
|
-
|
23,568
|
Donald Pittman
|
22,750
|
|
-
|
-
|
-
|
2,410
|
-
|
25,160
|
Paul C. Wesch
|
21,250
|
|
-
|
-
|
-
|
1,231
|
300
|
22,781
|
L. Brunson White
|
22,500
|
|
-
|
-
|
-
|
-
|
300
|
22,800
|
Walter P. Wilkerson
|
22,750
|
|
-
|
-
|
-
|
22,960
|
300
|
46,010
|
REPORT
OF
COMPENSATION
COMMITTEE
The
Compensation Committee is composed of independent directors, as defined by NASDAQ listing
standards. The Committee was appointed by the Board and chartered to oversee the
compensation of Company executives and directors and to review and approve all incentive
compensation awarded by the Company.
Recommendations of the Compensation Committee: We have reviewed and
discussed the Compensation Discussion and Analysis (CD&A) as required by Item 402(b) of
Regulation S-K with the Company’s management. Based on this review and these
discussions, we authorized the inclusion of the CD&A in the Company’s 2007 Annual
Report of Form 10-K and Proxy Statement to be filed in 2008.
This
report has been furnished by the Compensation Committee of the Board of
Directors.
Paul
Wesch, Chairman
Frank B.
O’Neil
COMPENSATION
COMMITTEE
INTERLOCKS
AND
INSIDER
PARTICIPATION
The
Compensation Committee of the Board of Directors is currently comprised of Paul Wesch, Fred
Clark, Jr., Paul Wesch and Frank B. O’Neil, all of whom are independent directors.
The Committee members receive director fees as described in this Proxy Statement and do not
receive any other compensation from the Company. During 2007, Mr. Wesch’s director
compensation was $21,250, Mr. Fred Clark, Jr.’s director compensation was $21,500,
Mr. Wesch’s director compensation was $21,250, and Mr. O’Neil’s director
compensation was $21,250.
EMPLOYEE
BENEFITS
401
(K) Plan
The
Company matches employee contributions $1 for $1 up to 5% of total compensation of an
individual employee. All full - time employees who have completed 1,000 hours of service on
January 1, April 1, July 1 or October 1 are eligible to participate. The Company
contributions are made at the end of each payroll period and allocated among the
participants' plan accounts based on compensation received during the year for which
contribution is made. All Company matching contributions are 100% vested when contributed
to the plan account. Benefits are generally payable only upon termination, retirement,
disability or death.
- 13
-
AUDIT
COMMITTEE
REPORT
The
Audit Committee met and held discussions with management and/or the Independent Auditor on
seven different occasions during 2007. Management represented to the Audit Committee that
the Company’s consolidated financial statements were prepared in accordance with
generally accepted accounting principles, and the Audit Committee has reviewed and
discussed the consolidated financial statements with management and the Independent
Auditor. The Audit Committee discussed with the Independent Auditor matters required to be
discussed by Statement on Auditing Standards ?. 114 (The Auditor’s Communication with
Those Charged with Governance).
The
Audit Committee and management maintain the system’s whistleblower system for
financial compliance purposes and periodically conduct tests to assure the system’s
accuracy. The Audit Committee Charter is annually reviewed by the Audit Committee and is
displayed on the Company’s website. Management and the Independent Auditor regularly
reported to the Audit Committee the Company’s Sarbanes-Oxley compliance
progress.
The
Company’s Independent Auditor also provided to the Audit Committee the written
disclosure required by Independence Standards Board Standard ?. 1 (Independence Discussions
with Audit Committees), and the Audit Committee discussed with the Independent Auditor that
firm’s independence. The Audit Committee formally engaged the Independent Auditor for
the 2007 year and reviewed the Independent Auditor’s 2008 Audit Plan for the
Company.
Based
upon the Audit Committee’s discussion with management and the Independent Auditor and
the Audit Committee’s review of the representation of management and report of the
Independent Auditor to the Audit Committee, the Audit Committee recommended that the Board
of Directors include the audited consolidated financial statements in the Company’s
Annual Report on Form 10-K for the year ended December 31, 2007, filed with the Securities
and Exchange Commission.
Donald
S. Pittman, Chairman
L.
Brunson White, Walter P. Wilkerson
COMPANY
PERFORMANCE
The
following graph shows a five-year comparison of cumulative returns for the Company, the
NASDAQ STOCK MARKET INDEX (U.S.) and NASDAQ Insurance Stocks Index. The cumulative total
return is based on change in the yearend stock price plus reinvested dividends for each of
the periods shown.
|
|
2002
|
2003
|
2004
|
2005
|
2006
|
2007
|
|
|
|
|
|
|
|
|
|
|
$100
|
$151
|
$172
|
$138
|
$154
|
$167
|
|
|
|
|
|
|
|
|
|
|
$100
|
$150
|
$163
|
$166
|
$183
|
$198
|
|
|
|
|
|
|
|
|
|
|
$100
|
$124
|
$150
|
$168
|
$190
|
$191
|
- 14
-
STOCK
OWNERSHIP
OF
CERTAIN
BENEFICIAL
OWNERS
The
following table sets forth those persons who beneficially owned, as of December 31, 2007,
five percent or more of the Company’s common stock. Unless otherwise noted, each
beneficial owner has sole voting and investment powers.
Name and Address
|
Amount and Nature of Beneficial Ownership of Company
Stock
|
Percentage of Class
|
|
|
|
Brunson Properties, a partnership (W.L. Brunson Estate), Elba,
Alabama 36323
|
366,445
|
14.86%
|
|
|
|
|
|
|
Edna Brunson Elba, Alabama 36323
|
155,783
|
6.32%
|
SECTION
16
(A)
BENEFICIAL
OWNERSHIP
REPORTING
COMPLIANCE
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. There were no late reports
during the year ended December 31, 2007.
STOCKHOLDERSPURVI1#146;
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 2009, the
proposal must be received by the Company at its headquarters, 661 E. Davis Street, Elba,
Alabama 36323, on or before January 12, 2009. The Board of Directors will review any
stockholder proposals that are filed to determine whether such proposals meet applicable
criteria for inclusion in the 2009 Proxy Statement for consideration at the 2009 Annual
Meeting.
TRANSFER
AGENT
AND
REGISTRAR
Registrar and Transfer Company is the Transfer Agent and Registrar for the
Company’s common stock.
ANNUAL
REPORTS
AND
FINANCIAL
STATEMENT
A copy
of the Company’s Annual Report to Stockholders for the calendar year ended December
31, 2007, accompanies this Proxy Statement. We maintain a website
(www.nationalsecuritygroup.com). The National Security Group, Inc.’s Annual Reports
to Stockholders, and/or a copy of the Company’s Annual Report on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and any amendments to such reports that
we file or furnish pursuant to Section 13(a) of the Securities Exchange Act of 1934 are
available through our Internet website, free of charge, as soon as reasonably practical
upon having been electronically filed or furnished to the Securities and Exchange
Commission.
- 15
-
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 31, 2008
|
|
/s/ William L. Brunson, Jr.
|
|
THE NATIONAL SECURITY GROUP, INC.
|
W.L. BRUNSON, JR.
|
President
|
|
- 16
-
- 17
-
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