Document

PRE 14A 1 a2022preliminaryproxystate.htm PRE 14A Document

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

SCHEDULE 14A

(RULE 14a-101)

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES EXCHANGE ACT OF 1934

Filed by the Registrant ☒ Filed by a Party other than the Registrant ☐

Check the appropriate box:

☒ Preliminary proxy statement

☐ Confidential, for use of the Commission only (as permitted by Rule 14a-6(e)(2))

☐ Definitive proxy statement

☐ Definitive additional materials

☐ Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12

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):

☐ No fee required

☐ Fee paid previously with preliminary materials.

☒ Fee computed on table in exhibit required by Item 25(b) per Exchange Act Rules 14a-6(i)(1) and 0-11.

661 East Davis Street, Elba, Alabama 36323

THE NATIONAL SECURITY GROUP, INC.,

A DELAWARE CORPORATION

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To be held on May 23, 2022

______________________

To the Stockholders of The National Security Group, Inc.:

NOTICE IS HEREBY GIVEN that a Special Meeting of the Stockholders (as defined below) of The National Security Group, Inc., a Delaware corporation (the “Company”), will be held on May 23, 2022 at 10:00 a.m., Central Daylight Time, at the principal executive offices of the Company, 661 East Davis Street, Elba, Alabama, and any adjournment thereof (the “Special Meeting”).

The purpose of the Special Meeting is to consider and vote for the following proposals:

•To approve and adopt the Agreement and Plan of Merger dated January 26, 2022, (“Plan of Merger”), by and among the Company, VR Insurance Holdings, Inc., a Delaware corporation (“Parent”), and VR Insurance Merger Sub, Inc., a Delaware corporation and wholly-owned subsidiary of Parent (“Merger Sub”), and the transactions contemplated thereby. Pursuant to the terms of the Plan of Merger, and subject to the conditions thereof, Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of Parent (the “Merger”) and with the shares of common stock of the Company being converted into cash at a price of $16.35 per share (subject to adjustment);

•To approve, on an advisory (non-binding) basis, the compensation that may be paid or become payable to the Company’s named executive officers that is based on or otherwise relates to the Plan of Merger and the transactions contemplated by the Plan of Merger (the “Compensation Proposals”). See “Interests of the Company’s Directors and Executive Officers in the Merger; Golden Parachute Proposal” on page __ of this proxy statement and the Golden Parachute Compensation table therein; and

•If necessary or appropriate, to adjourn the Special Meeting to solicit additional proxies if there are insufficient votes at the time of the meeting to approve and adopt the Plan of Merger (the “Adjournment Proposal”).

The Company’s Board of Directors (the “Board”) has established April 26, 2022 as the Record Date for the Special Meeting. Only holders of shares of common stock of the Company (“Stockholders”) on the Record Date are entitled to notice of the Special Meeting and to vote at the Special Meeting or any adjournment, postponement or other delay thereof.

The Company’s Board, unanimously recommends, on behalf of the Company, that you vote: (1) “FOR” the adoption of the Plan of Merger; (2) “FOR” the approval, on an advisory (non-binding) basis, of the Compensation Proposals; and (3) “FOR” the Adjournment Proposal, if applicable.

Approval of the Plan of Merger Proposal is a condition to the consummation of the Merger. If such proposal is not approved, the Merger will not be consummated.

YOUR VOTE IS IMPORTANT. IF YOU ARE A STOCKHOLDER ON THE RECORD DATE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON, PLEASE MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY TO THE COMPANY IN THE ENCLOSED POSTAGE PAID REPLY ENVELOPE.

Proxies are valid only if the proxy card is properly executed and received by the Secretary of the Company prior to the commencement of the Special Meeting. If you attend the Special Meeting, you may vote personally whether or not you have previously submitted a proxy card and such vote shall be in lieu of your previously submitted proxy card.

In addition to voting by a proxy card, you may use the Internet to transmit your voting instructions. Online voting is available at www.proxyvote.com. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form to transmit your voting instructions up until 10:59 p.m., Central Daylight Time, on May 20, 2022. Telephone voting is available by calling 1-800-690-6903. Use any touch-tone telephone to transmit your voting instructions up until 10:59 p.m., Central Daylight Time, on May 20, 2022. Please have your proxy card in hand when you call or access the web page and then follow the instructions.

FOR INFORMATION REGARDING THE PROPOSALS, CONTACT:

The National Security Group, Inc.

661 East Davis Street

Elba, Alabama 36323

Attention: Laura Jordan

You will not be charged for any of the documents that you request.

To receive documents in advance of the Special Meeting, please make a request for such documents no later than _____________, 2022.

You may also obtain such documents through the SEC website at www.sec.gov. Information included on such website is not incorporated by reference into this proxy statement. We are providing the information about how you can obtain certain documents at this website only for your convenience.

By Order of the Board of Directors

Laura Williams Jordan

Secretary

_____, 2022

Elba, Alabama

661 East Davis Street, Elba, Alabama 36323

Proxy Statement

For Special Meeting of Stockholders

May 23, 2022

This Proxy Statement (the “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 Special Meeting of Stockholders of the Company to be held at 10:00 a.m., Central Daylight Time, on May 23, 2022, at the principal executive offices of the Company, 661 East Davis Street, Elba, Alabama, for the purposes set forth in the accompanying Notice of Special Meeting of Stockholders (“Special Meeting”). Any reference to “the Group” or any use of the terms “Company,” “we,” “us” or “our” in this proxy statement refers to The National Security Group, Inc. This Proxy Statement, dated ____, 2022, is being mailed to holders of the Company Common Stock on or about April 29, 2022.

The Board of Directors has fixed April 26, 2022, as the record date for the determination of Stockholders who are entitled to notice of, and to vote at the Special Meeting and any adjournments thereof. On the record date, the Company had outstanding ________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 Broadridge Financial Solutions, Inc. to assist in the distribution of proxy materials and solicitation of votes. The Company bears all costs associated with the distribution and solicitation.

At the Special Meeting, the Stockholders of the Company will vote on matters noted in the proxy. The affirmative vote of the holders of more than fifty-percent (50%) of the total number of votes entitled to be cast in respect of all of the shares entitled to vote on the Plan of Merger will be required to approve the Plan of Merger. The approval of the Compensation Proposals and Adjournment Proposal requires an affirmative majority of the total votes cast “FOR” and “AGAINST” the proposals at the meeting.

Whether or not you attend the Special Meeting, your vote is important. Accordingly, you are asked to sign and return the accompanying proxy card, regardless of the number of shares you own. Shares of common stock represented by a properly executed and returned proxy card will be treated as present at the Special Meeting for purposes of determining a quorum without regard to whether the proxy card is marked as casting a vote for or against or abstaining with respect to a particular matter. If the enclosed proxy card is properly signed and returned, your shares will be voted on all matters that properly come before the Special Meeting for a vote. If instructions are specified in your signed proxy card with respect to matters being voted upon, your shares will be voted in accordance with your instructions. If no instructions are so specified, the shares represented by such proxy card will be voted in accordance with the recommendation of the Board of Directors. So far as is now known, there is no business to be acted upon at the Special Meeting other than as set forth above, and it is not anticipated that other matters will be brought before the Special Meeting. If, however, other appropriate matters are duly brought before the Special Meeting, the persons appointed as proxy agents will have discretion to vote or act thereon according to their own judgment.

In addition to voting by your proxy card, you may use the Internet to transmit your voting instructions. Online voting is available at www.proxyvote.com. Have your proxy card in hand

when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form to transmit your voting instructions up until 10:59 p.m., Central Daylight Time, on May 20, 2022. Telephone voting is available by calling 1-800-690-6903. Use any touch-tone telephone to transmit your voting instructions up until 10:59 p.m., Central Daylight Time, on May 20, 2022. Please have your proxy card in hand when you call or access the web page and then follow the instructions.

The failure of any Stockholder of record to submit a signed proxy card, grant a proxy electronically or to vote by ballot at the Special Meeting will have the same effect as a vote “AGAINST” the Plan of Merger but will not have any effect on the other proposals. Abstentions will have the same effect as a vote “AGAINST” the Plan of Merger, but will not have any effect on the other proposals.

If your shares are held in street name by your bank, brokerage firm or other nominee, your bank, brokerage firm or other nominee, as applicable, will not be permitted to vote your shares without instructions from you on any of the proposals, and the failure to instruct your broker, bank or other nominee on how to vote your shares will have the same effect as a vote “AGAINST” the Plan of Merger but will not have any effect on the other proposals. You should instruct your bank, brokerage firm or other nominee as to how to vote your shares by following the procedures provided by your bank, brokerage firm or other nominee. You also will not be able to vote your shares in person at the Special Meeting or any adjournment thereof unless you obtain a legal proxy form from your broker, bank or other nominee.

You should carefully read and consider the entire proxy statement and its annexes, including, but not limited to, the Plan of Merger, along with all of the documents incorporated by reference into the accompanying proxy statement, as they contain important information about, among other things, the Merger and how it affects you. If you have any questions concerning the Plan of Merger, the Merger, the Special Meeting or the accompanying proxy statement, would like additional copies of the accompanying proxy statement or need help voting your shares of common stock, please contact our proxy solicitor:

Broadridge Financial Solutions

51 Mercedes Way

Edgewood, NY 11717

1-800-690-6903

TABLE OF CONTENTS

Page


SUMMARY			3
QUESTIONS AND ANSWERS ABOUT THE MERGER			15
FORWARD-LOOKING STATEMENTS			22
THE SPECIAL MEETING			24
Date, Time and Place			24
Purpose of the Special Meeting			24
Shares Entitled to Vote; Record Date; Quorum			24
Adjournments			24
Copies of Proxy Statement			24
Voting and Proxies			25
Shares Held by the Company’s Directors and Executive Officers			25
Solicitation of Proxies			25
Revocation of Proxies			26
Vote Required for Approval			26
THE MERGER			27
Overview			27
Parties Involved in the Merger			27
The National Security Group, Inc.			27
VR Insurance Holdings, Inc. and VR Merger Sub, Inc.			27
Background and Reasons for the Merger			27
Recommendation of the Board			36
Opinion of the Company’s Financial Advisor			38
Appraisal Rights			48
Vote on the Plan of Merger			51
Stockholder Support Agreements			51
Governmental Approvals			52
Effective Time of the Merger			52
Distributions to the Stockholders			53
Interests of the Company’s Directors and Executive Officers in the Merger; Golden Parachute Proposal			53
PRINCIPAL TERMS OF THE AGREEMENT AND PLAN OF MERGER			57
Structure of the Merger			57
Formation of Merger Sub			57
Funding of Plan of Merger			57
Merger Consideration and Adjustments to Merger Consideration			57
Representations and Warranties			58
Conduct of the Company’s Business Pending the Closing			59


Conduct of Parent’s Business Pending the Closing			61
No Solicitation			61
Financing Covenants and Conditions			62
Management of Surviving Entity			62
Efforts to Use to Close the Merger			63
Other Covenants and Agreements			63
Directors’ and Officers’ Indemnification and Insurance			64
Conditions to Closing			64
Governmental Approvals			66
Amendment of the Agreement and Plan of Merger			66
Limitation of Remedies; Specific Performance			66
Termination of the Agreement and Plan of Merger			66
The Termination Fee			67
Expenses of the Merger			67
Merger Effective Time			67
Governing Law			67
Distribution of Merger Consideration			68
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			69
CERTAIN FEDERAL INCOME TAX CONSEQUENCES			71
OTHER MATTERS			71
APPENDIX 1			1-1
APPENDIX 2			2-1
APPENDIX 3			3-1
PROXY CARD

SUMMARY

This summary highlights selected information from the Proxy Statement and may not contain all information that may be important to you. Accordingly, we encourage you to carefully read this entire Proxy Statement and its appendices. The Plan of Merger is attached as Appendix 1 to this proxy statement. You should carefully read and consider the entire Plan of Merger, which is the legal document that governs the Merger.

Except as otherwise specifically noted in this proxy statement, the terms “Company,” “Surviving Corporation,” “we,” “our,” “ours” and “us” refer to The National Security Group, Inc. and the term “you” refers to each beneficial owner of shares of common stock of the Company. Throughout the proxy statement, we refer to VR Insurance Holdings, Inc. as “Parent” and VR Insurance Merger Sub, Inc. as “Merger Sub.” In addition, throughout this proxy statement we refer to the Agreement and Plan of Merger, dated January 26, 2022, by and among the Company, Parent and Merger Sub as the “Plan of Merger.” Unless indicated otherwise, any other capitalized term used herein but not otherwise defined herein has the meaning assigned to such term in the Plan of Merger.


Proposed Transaction or “Merger” See “The Merger” on p. __.			The Company and Parent and its subsidiary Merger Sub have entered into the Plan of Merger which provides for the acquisition of the Company by Parent, by the merger of Merger Sub with and into the Company, with the Company surviving the Merger and thereby becoming a wholly-owned subsidiary of Parent.
The Parties involved in the Merger			The National Security Group, Inc. Headquartered in Elba, Alabama, the Company, through its property & casualty and life insurance subsidiaries, is a specialty underwriter of property, casualty, life, accident and health insurance in ten states. The Company’s property and casualty insurance subsidiary writes primarily personal lines property coverage including dwelling fire and windstorm, homeowners, and mobile homeowners’ products. The Company’s life insurance subsidiary also offers life, accident and health, supplemental hospital and cancer insurance products. The principal executive offices of the Company are located at 661 East Davis Street, Elba, Alabama 36323, and its telephone number is 334-897-2273. VR Insurance Holdings, Inc. VR Insurance Holdings, Inc. (“Parent”) is a Delaware corporation and wholly owned subsidiary of VR Insurance SPV, LLC, a Delaware limited liability company owned by Vivek Ranadivé and a group of family office and strategic investors. VR Insurance Merger Sub, Inc. VR Insurance Merger Sub, Inc. is a Delaware corporation and wholly owned subsidiary of VR Insurance Holdings, Inc. Merger Sub was formed to facilitate the Merger and will merge with the Company upon the closing of the Merger.


Structure of the Merger See “The Merger” on p. __, and “Principal Terms of the Agreement and Plan of Merger” on p. __.			The Plan of Merger requires Merger Sub, a newly formed subsidiary of Parent, to merge with and into the Company, with the Company surviving the Merger. Parent will provide the funds to be distributed for the Merger Consideration pursuant to the Plan of Merger. The Closing or the Effective Time for the Merger is expected to occur in the second or third quarter of 2022. At the Effective Time, as a result of the Merger and without any action on the part of Parent, Merger Sub, or the Company or the holder of any capital stock of Parent, Merger Sub, or the Company, each share of Company Common Stock issued and outstanding immediately prior to the Effective Time (other than the shares of Company Common Stock that are owned by Parent or the Company (as treasury stock or otherwise) or any of their respective direct or indirect wholly-owned subsidiaries as of immediately prior to the Effective Time (“Cancelled Shares”)) will be converted into the right to receive cash, without interest, in the amount of $16.35 per share subject to adjustments in Section 2.06 of the Plan of Merger and as detailed in Principal Terms of the Agreement and Plan of Merger, p. ___ (the “Merger Consideration”). At or immediately prior to the closing of the Merger, Parent will deposit, or cause to be deposited, sufficient funds to pay the aggregate Merger Consideration with the Paying Agent for payment of each share of common stock owned by each stockholder. After the Merger is completed, you will have the right to receive the Merger Consideration, but you will no longer have any rights as a stockholder (except that stockholders who properly exercise their appraisal rights may have the right to receive payment for the “fair value” of their shares determined (“Dissenting Shares”) pursuant to an appraisal proceeding, as contemplated by Section 262 of the Delaware General Corporation Law (“DGCL”)). At the Effective Time, each share of common stock of Merger Sub issued and outstanding immediately prior to the Effective Time shall be converted into and become one newly issued, fully paid, and non-assessable share of common stock of the Surviving Corporation with the same rights, powers, and privileges as the shares so converted and shall constitute the only outstanding shares of capital stock of the Surviving Corporation.


Stockholder Support Agreement See “The Merger – Stockholder Support Agreements” on p. __.			On the same date as the execution of the Plan of Merger, certain directors who are Stockholders (individually and with respect to shares over which such person may have sole voting control), entered into separate Stockholder Support Agreements (the “Support Agreements”), pursuant to which and subject to the terms thereof, among other things, each such Stockholder, individually, agreed to vote the shares owned by him in favor of the approval of the Merger and Plan of Merger, and to take certain other actions in furtherance of the transactions contemplated by the Plan of Merger. Such Stockholders did not receive any additional consideration for entering into the Support Agreement. The execution of the Support Agreements was not a condition to the execution of the Plan of Merger nor the consummation of the transactions pursuant to the Plan of Merger. The Support Agreement by its terms does not limit the Stockholder from fulfilling his fiduciary duties as a director of the Company and voting shares consistent with such fiduciary duty.
The Special Meeting See “The Special Meeting” on p. __.			Place, Date and Time. The Special Meeting of Stockholders will be held on May 23, 2022 at 10:00 a.m., Central Daylight Time, at the principal executive offices of the Company, 661 East Davis Street, Elba, Alabama. Who is Eligible to Vote. If you were the record owner of shares of common stock of the Company on the Record Date, you are eligible to vote at the Special Meeting. If your shares are held in “street name,” you may direct your nominee how to vote your shares if your nominee owned the shares on the record date and you follow the instructions provided by your nominee. Purpose. Stockholders will be asked to consider and vote upon a proposal to approve the Plan of Merger and a proposal to, if necessary or appropriate, adjourn the Special Meeting to solicit additional proxies if there are insufficient votes at the time of the meeting to approve the Plan of Merger. In addition, Stockholders will be asked to consider and vote, on an advisory basis, upon a Compensation Proposal. Record Date. The Board of the Company has established April 26, 2022 as the Record Date for the Special Meeting. As of the Record Date, there were __________ Shares outstanding. Vote Required for Approval of the Plan of Merger. Each Stockholder is entitled to one vote for each share on each of the matters to be voted on at the Special Meeting. The affirmative vote of the holders of more than fifty percent (50%) of the total number of votes entitled to be cast in respect of all of the shares entitled to vote on the Plan of


See “The Merger - Background of the Merger” on p. ___ and “Recommendation of the Board” on p. __.			Merger will be required to approve the Plan of Merger. If you do not vote at the Special Meeting, your failure to vote will have the same effect as a vote against the Merger. Vote Required for Compensation Proposals. The votes cast in favor of the Compensation Proposals must exceed the votes cast against the Compensation Proposals. Your vote on this item is advisory and will not be binding on the Company. Therefore, if the Plan of Merger is approved by the Company Stockholders, the Compensation Proposals will still be paid to those contemplated if and to the extent required or allowed under applicable law even if Company Stockholders do not approve the Compensation Proposals. For more information regarding the Compensation Proposals, see Interests of the Company’s Directors and Executive Officers in the Merger; Golden Parachute Proposal, p. __. Vote Required for Adjournment. The votes cast in favor of adjournment must exceed the votes cast against the adjournment. Procedure for Voting. If you are a record owner of the Company Common Stock, you may vote your shares by attending the meeting and voting in person or you may appoint a proxy to vote your shares on matters properly presented at the Special Meeting in any of the three following ways: (i) by signing and returning the enclosed proxy card in the enclosed envelope; (ii) by using the internet in accordance with instructions on the enclosed proxy card; or (iii) by using the internet in accordance with instructions on the enclosed proxy card. If you hold shares in “street name” (that is, through a bank, broker, or other nominee), your shares must be voted in accordance with instructions provided by the nominee. If your shares are held in the name of a nominee and you would like to attend the Special Meeting and vote in person, you may contact the person in whose name your shares are registered and obtain a proxy from that person and bring it to the Special Meeting. A Stockholder may revoke its proxy at any time before the vote is taken at the Special Meeting. You may revoke your proxy prior to the Special Meeting by either (i) submitting to the Company a properly executed proxy bearing a later date; (ii) by providing different telephone or internet instructions at a later date; or (iii) by giving written notice of revocation to the Secretary of the Company. The mailing address of the Company is 661 East Davis Street, Elba, Alabama 36323. You may also revoke your proxy by voting your shares at the Special Meeting. Merely attending the Special Meeting without voting will not constitute revocation of an earlier proxy.


			Determination and Recommendation of the Board on the Merger. On January 26, 2022, the Board, including all of the disinterested members of the Board, unanimously approved the Plan of Merger. The Board believes the Merger will benefit the Company and the Stockholders. The Board recommends that the Stockholders vote “FOR” the approval of the Plan of Merger and “FOR” the approval, on an advisory basis, of the Compensation Proposals. Additionally, the Board recommends that the Stockholders vote “FOR” the adjournment of the Special Meeting, if necessary or appropriate to solicit additional proxies. Therefore, if you are a Stockholder and are in favor of the Plan of Merger, you are encouraged to vote in favor of the Plan of Merger either in person or by proxy at the Special Meeting. If you do not vote at the Special Meeting, your failure to vote will have the same effect as a vote against the Merger.
The Plan of Merger See “Principal Terms of the Agreement and Plan of Merger” on p. __.			The Plan of Merger provides for Merger Sub, a newly formed Parent subsidiary, to be merged into Company with Company surviving the merger. At the Merger Effective Time, the shares of the Merger Sub will be converted into shares of Common Stock of the Surviving Corporation so that the Surviving Corporation will become a wholly owned subsidiary of Parent. Upon the Effective Time, the Surviving Corporation shall amend and restate its certificate of incorporation as provided for in the Certificate of Merger and make all other filings or recordings required by Delaware law in connection with the Merger. Merger Effective Time. The Merger will be effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware (or at such later time as may be agreed by the Company and Parent and specified in the Certificate of Merger). Merger Consideration. At the Merger Effective Time, all shares of Common Stock of the Company (other than the Cancelled or Dissenting Shares and referred to as “Shares”) will be canceled and converted into the right to receive cash in the amount of $16.35 per shares. The Merger Consideration is subject to a downward adjustment if the combined statutory capital and surplus of the Company’s insurance subsidiaries is less than $43,000,000 according to the financial statements most recently filed with the insurance regulators prior to closing. If the combined statutory capital and surplus is less than $43,000,000 and not less than $38,700,000, the per share price will be subject to a downward adjustment in an amount up to 10% of the per


			share price. In such event, the Merger Consideration will be an amount equal to $16.35 multiplied by a fraction in which the sum of the combined statutory capital and surplus is the numerator and $43,000,000 is the denominator. If the combined statutory capital and surplus is less than $38,700,000, the Merger Consideration will not be reduced below 90% of $16.35, but Parent will have the right to terminate the Plan of Merger.
Effect of the Merger			Upon the terms and subject to the conditions of the Plan of Merger, Merger Sub will merge with and into the Company, with the Company continuing as the Surviving Corporation and a wholly owned subsidiary of Parent. As a result of the Merger, the Company’s common stock will no longer be publicly traded, and will be delisted from NASDAQ. In addition, the Company’s common stock will be deregistered under the Securities Exchange Act of 1934, as amended, and the Company will no longer file periodic reports with the United States Securities and Exchange Commission. If the Merger is completed, you will not own any shares of the capital stock of the Surviving Corporation.
Interests of Directors and Executive Officers in the Merger See “Interest of Directors and Executive Officers in the Merger; Golden Parachute Proposal” on p. __.			Certain of the Company’s executive officers and directors may have interests in the merger that may be different from or in addition to those of the Stockholders generally. The Company’s Board was aware of and considered these interests to the extent such interests existed at the time, among other matters, in evaluating and negotiating the Plan of Merger, in approving the Plan of Merger and the Merger and in recommending that the Plan of Merger be approved by the Stockholders. As described in more detail below, these interests potentially include: •Payments Following Change in Control. ▪Certain executive officers and directors are entitled to supplemental retirement payments pursuant to a Supplemental Executive Retirement Plan if there is a change in control. The change in control payments under the Supplemental Executive Retirement Plan are described later in this proxy statement. ▪Certain executive officers and directors are entitled to accelerated payments under the Company’s Non-Qualified Deferred Compensation Plan on a change of control as described later in this proxy statement.


			•Employment and Consulting Arrangements. In connection with the Plan of Merger, the Company’s subsidiary, National Security Insurance Company, entered into an employment agreement with each of Brian McLeod and Jack Brunson and an independent contractor agreement with W.L. Brunson, Jr. (the “Employment and Consulting Arrangements”). The Employment and Consulting Arrangements will be effective upon the closing of the Merger. •Indemnification and Insurance. The Plan of Merger requires that the Company continue to provide for certain indemnification arrangements for the Company’s current and former officers and directors and the continuation of certain director and officer insurance arrangements for the benefit of the Company’s current and former officers and directors for six years after the completion of the transaction.
Opinion of the Company’s Financial Advisor See “The Merger - Opinion of the Company’s Financial Advisor” on p. __ and Appendix 2 to this Proxy Statement.			Piper Sandler & Co. (“PSC”) delivered its opinion, dated January 26, 2022, to the Board to the effect that, as of the date of the opinion and based upon and subject to the factors, considerations, qualifications, limitations and assumptions set forth therein, the Merger Consideration to be received by Stockholders in the Merger pursuant to the Plan of Merger was fair to such holders, from a financial point of view. The full text of the written opinion of PSC, which sets forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinion, is attached as Appendix 2 to this proxy statement. The Stockholders should read the opinion in its entirety, as well as the section of this Proxy Statement entitled “The Merger – Opinion of the Company’s Financial Advisor” beginning on page __. PSC’s opinion is included in this proxy statement solely because it was considered by the Board in connection with its approval of the Plan of Merger. The opinion was solely for the information of, and directed to, the Board (solely in its capacity as such) for its information and assistance in connection with its consideration of the financial terms of the Merger and is not to be relied upon by any Stockholder or any other person or entity or used for any other purpose. The opinion does not constitute a recommendation to the Board as to how the Board should vote on any aspect of the Merger or to any Stockholder as to how any such Stockholder should vote at any Stockholders’ meeting at which the Merger is considered.


Regulatory Approvals See “The Merger - Governmental Approvals” on p. __ and “Principal Terms of the Agreement and Plan of Merger – Governmental Approvals” on p. __.			The transactions contemplated by the Plan of Merger are subject to the approval of the Commissioner of Insurance of Alabama as required under the Alabama Insurance Holding Company System Regulatory Act. Parent and Merger Sub will be required to file a Form A and other required regulatory filings with the Alabama Department of Insurance. The Commissioner must hold a public hearing on the Form A before making his determination on the approval of the Merger. We currently expect the hearing to occur in the second quarter of 2022, with an expectation of the approval occurring late in the second quarter or early third quarter of 2022.
Transaction Expenses			The Company is responsible only for those expenses incurred in connection with the Plan of Merger. In addition, the Surviving Corporation shall pay the charges and expenses, including those of the Paying Agent, in connection with the exchange of shares of Company Common Stock for the Merger Consideration.
Material Federal Income Tax Consequences See “Certain Federal Income Tax Consequences” on p. __.			Stockholders receiving cash in the Merger will be treated as receiving sale proceeds from the sale of their shares of stock in the Company. The Company will not recognize any gain or loss for federal income tax purposes as a result of the Merger. Stockholders should consult their own tax advisers for their specific Federal Income Tax Consequences of the transaction.
Appraisal Rights See “The Merger – Appraisal Rights” on p. __.			The Stockholders who do not wish to approve the Plan of Merger will have appraisal rights under the DGCL with respect to the Shares to be converted into cash pursuant to the Plan of Merger. In order to exercise your appraisal rights, you must follow the requirements set forth in Section 262 of the DGCL, a copy of which is included as Appendix 3 to this Proxy Statement (the “Appraisal Rights Statute”). Under the DGCL, Stockholders of record who continuously hold shares of the Company common stock through the Effective Time and do not vote in favor of the approval of the Plan of Merger will have the right to seek appraisal of the “fair value” of their shares as determined by the Delaware Court if the Merger is completed. Appraisal rights will only be available to Stockholders who properly deliver, and do not properly withdraw, a written demand for an appraisal to the Company prior to the vote on the proposal to approve the Plan of Merger at the Special Meeting and who comply with the procedures and requirements set forth in Section 262 of the DGCL. The appraisal amount could be more than, the same as or less than the amount a stockholder would be entitled to receive under the terms of the Plan of Merger. Your failure to follow exactly the procedures specified under the Appraisal Rights Statute will result in loss of your rights of dissent.


Conditions to the Merger See “Principal Terms of the Agreement and Plan of Merger - Conditions to Closing” on p. __.			The Plan of Merger is subject to the satisfaction of the following conditions prior to the Closing Date: •the Plan of Merger must have been approved by the holders of more than 50 percent of the Shares entitled to vote at the special meeting; •government or regulatory approvals must have been obtained; •no order, injunction or decree issued by any governmental entity of competent jurisdiction or other legal restraint or prohibition preventing the consummation of any of the transactions contemplated by this Plan of Merger shall be in effect; •the Company, Parent and Merger Sub must have performed in all material respects all obligations that each is required to perform prior to the Closing Date under the terms of the Plan of Merger; •the respective representations and warranties of the Company, Parent and Merger Sub contained in the Plan of Merger must be true in all respects as of the Closing Date in the manner described in the Plan of Merger, except as would not have a Material Adverse Effect (as defined in the Plan of Merger); •the Company shall not have suffered a Material Adverse Effect, as defined in the Plan of Merger (a “Material Adverse Effect”), and there shall have been no occurrence, circumstance or combination thereof (whether arising on or after the date hereof), which, as of the Closing Date, is reasonably likely to result in a Material Adverse Effect on the Company; •the Employment and Consulting Arrangements shall be in full force and effect as of the Closing; and •Parent shall have deposited the Merger Consideration in trust with the Paying Agent for the benefit of the Stockholders of the Company as required by the Plan of Merger. The Closing Date may be delayed if more time is required for the satisfaction of these conditions.


Negotiations with Other Parties See “Principal Terms of the Agreement and Plan of Merger - No Solicitation” on p. __.			The Plan of Merger provides that so long as the Plan of Merger remains in effect and no notice of termination has been given under the Plan of Merger, the Company shall not authorize or knowingly permit any of its Representatives, directly or indirectly, to initiate, entertain, solicit, encourage, engage in, or participate in, negotiations with any person or any group of persons other than Parent or any of its affiliates concerning any Acquisition Proposal, as defined in the Plan of Merger, other than as expressly provided in the Plan of Merger. If the Company receives an Acquisition Proposal or there is a public announcement of an Acquisition Proposal from the date of the Plan of Merger until thirty (30) days following, the Plan of Merger allows the Board to furnish information to, or enter into discussions or negotiations with, any person or group of persons regarding any such Acquisition Proposal, or approve and recommend to the Company’s Stockholders any such Acquisition Proposal from any person or group of persons, if the Board determines in good faith, after consultation with the Company’s financial advisors and outside legal counsel if necessary for purposes of the Company Board’s fiduciary duty to the Stockholders, that such Acquisition Proposal constitutes a Superior Proposal (or could reasonably be expected to lead to a Superior Proposal) and that such action is appropriate in furtherance of the best interests of the Stockholders and in order for the Company Board to comply with its fiduciary obligation to its Stockholders. “Acquisition Proposal” means (i) any proposal pursuant to which any person or group of persons, other than the Parent or the Company, would acquire or participate in a merger, consolidation, or other business combination involving the Company, directly or indirectly; (ii) any proposal by which any person or group of persons, other than the Parent or the Company, would acquire a substantial equity interest in the Company, including the right to vote 5% or more of the capital stock entitled to vote for the election of directors; (iii) any acquisition of 5% or more of the assets of the Company, other than in the ordinary course of business; (iv) any acquisition in excess of 5% of the outstanding capital stock of the Company, other than as contemplated by this Agreement; (v) any acquisition of control (as defined under the Insurance Laws) of the Company; or (vi) any transaction similar to the foregoing. “Superior Proposal” means a bona fide written Acquisition Proposal (except the references therein to “5%” shall be replaced by “50%”) that did not result from a breach by the Company of the Plan of Merger, and that the Board of the Company determines in good faith, after consultation with the Company’s financial advisors and outside legal counsel


			if necessary for purposes of the Company Board’s fiduciary duty to the Stockholders, is reasonably likely to be consummated in accordance with its terms taking into account all legal, regulatory and financing aspects of the proposal and, if consummated, would be more favorable from a financial point of view to the Company’s Stockholders than the Merger (taking into account (A) any proposed changes to the Plan of Merger made or proposed in writing by Parent and (B) all legal, regulatory, financial (including any termination fee amounts and conditions), timing, financing and other aspects of such proposal).
Termination of the Plan of Merger See “Principal Terms of the Agreement and Plan of Merger - Termination of the Agreement and Plan of Merger” on p. __.			The Plan of Merger may be terminated at any time prior to the Closing: •by mutual written agreement of Parent and the Company; •by either Parent or the Company if the Closing shall not have occurred on or before August 31, 2022 (the “Outside Date”); provided, that if, as of the Outside Date, all conditions have been satisfied or waived other than the required regulatory approvals then either the Company or Parent may extend the Outside Date until the date that is three months from the initial Outside Date by providing written notice to the other party; provided, however, that the right to terminate the Plan of Merger shall not be available to a party whose failure to fulfill any obligation under the Plan of Merger materially contributed to the failure of the Effective Time to occur on or before such date; •by either Parent or the Company if any governmental entity shall have enacted, issued, promulgated, enforced or entered any injunction, order, decree or ruling or taken any other action which, in either such case, has the effect of making consummation of the Merger illegal or otherwise preventing or prohibiting consummation of the Merger, which Governmental Order (as defined in the Plan of Merger) shall have become final and non-appealable; •by either Parent or the Company if the Plan of Merger is not approved by the Stockholders; •by Parent, if (a) the Company Board is unwilling or unable to recommend the approval of the Plan of Merger due to receiving a Superior Proposal; or (b) after recommending the approval and adoption of


			the Plan of Merger, the Company Board shall have withdrawn, modified or amended such recommendation due to a Superior Proposal (a “Company Recommendation Event”); •by the Company upon the occurrence of a Company Recommendation Event or the Company authorizes, recommends, approves or enters into an agreement with any person to effect a Superior Proposal (an “Acquisition Event”); and •by Parent, if the combined statutory capital and surplus of the Company’s insurance subsidiaries is less than $38,700,000.
Termination Fee See “Principal Terms of the Agreement and Plan of Merger - Termination Fee” on p. __			In the event that the Company terminates the Plan of Merger due the occurrence of a Company Recommendation Event or an Acquisition Event, the Company has agreed to pay Parent a termination fee of $1,242,256.00 within ten business days following termination.

QUESTIONS AND ANSWERS ABOUT
THE MERGER

What is the Purpose of this Proxy Statement?

We are furnishing this Proxy Statement to all Stockholders to provide information on the terms of the Plan of Merger. Since the Merger is not an ordinary course proposal for our Special Meeting, we are providing additional, basic information regarding the Merger in the form of questions and answers below.

What is included in this mailing package?

This mailing package includes this Proxy Statement which describes the details of the Merger, as well as the appendices hereto, including copies of the Plan of Merger, the PSC opinion and the Appraisal Rights Statute. It also includes a proxy card and postage prepaid envelope that a Stockholder can use to appoint proxies to vote on your behalf at the Special Meeting pursuant to the choice indicated on the proxy card. We urge you to read this Proxy Statement carefully and in its entirety before voting on the Plan of Merger.

What matters will be voted on at the Special Meeting?

You will be asked to consider and vote on the following proposals:

•to approve and adopt the Plan of Merger;

•to approve and adopt, on a non-binding advisory basis, the Compensation Proposals; and

•if necessary or appropriate, to adjourn the Special Meeting to solicit additional proxies if there are insufficient votes at the time of the meeting to approve and adopt the Plan of Merger.

How does the Board of the Company recommend that I vote on the proposals?

The Board of the Company unanimously recommends that you vote:

•“FOR” the proposal to approve and adopt the Plan of Merger;

•“FOR” the Compensation Proposals; and

•“FOR” the proposal to adjourn the Special Meeting, if necessary or appropriate, to solicit additional proxies if there are insufficient votes at the time of the Special Meeting to approve and adopt the Plan of Merger.

You should read The Merger - Background of the Merger beginning on page __ and The Merger - Recommendation of the Board beginning on page __ for a discussion of the factors that the Board considered in deciding to recommend the approval of the Merger and adoption of the Plan of Merger. In considering the proposed Merger, you should be aware that some of the Company’s executive officers and directors have interests in the Merger that are different from, or in addition to, the interests of the Stockholders generally. See Principal Terms of the Agreements With and Payments to Certain Members of Management of the Company beginning on page __.

Who are the parties to the Merger?

Parent, its wholly owned subsidiary Merger Sub, and the Company have agreed to a plan for the acquisition of all of the outstanding stock in the Company in exchange for a cash payment pursuant to the terms of an Agreement and Plan of Merger dated January 26, 2022.

The Company is headquartered in Elba, Alabama, the Company, through its property & casualty and life insurance subsidiaries, is a specialty underwriter of property, casualty, life, accident and health insurance in ten states. The Company’s property and casualty insurance subsidiary writes primarily personal lines property coverage including dwelling fire and windstorm, homeowners, and mobile homeowners’ products. The Company’s life insurance subsidiary also offers life, accident and health, supplemental hospital and cancer insurance products.

Parent is a Delaware corporation and wholly owned subsidiary of VR Insurance SPV, LLC, a Delaware limited liability company beneficially owned by Vivek Ranadivé and a group of family office and strategic investors.

The Merger Sub is a Delaware corporation and wholly owned subsidiary of Parent. It was formed to facilitate the Merger and will merge with the Company upon the closing of the Merger.

Following the completion of the Merger, what will happen to the operations of the Company and its employees?

As a result of the Merger, the Company will become a wholly owned subsidiary of Parent. The Plan of Merger provides that the Merger Sub’s directors will become directors of the Surviving Corporation upon completion of the Merger and the officers of the Company will continue to be the officers of the Surviving Corporation. In addition, Ross Aron, who is currently the chief executive officer of Parent, will become the chief executive officer of the Surviving Corporation. Parent currently intends to avoid unnecessary disruptions in the operations of the Company and intends to keep the existing operations in Elba, Alabama. The Parent further expects that Company employees will continue their employment with the Company or any affiliate thereof in the near future.

What are the benefits of the Merger?

The Merger will provide certainty of value and liquidity to all Stockholders, enabling you to realize value created at the Company in recent years, while eliminating long-term business risks. The Board believes the Merger is the most favorable available alternative for the Company in light of the consideration of the risks and uncertainty of achieving greater value for the Stockholders by pursuing alternatives to the Merger (including continuing to execute on the Company’s current business plan), relative to the benefits of the Merger.

How will the Company and its Stockholders be affected if the Merger is not approved?

If the Merger is not approved, the Company’s operations will continue in Elba, Alabama and the Company will continue as a public company for the foreseeable future. However, the Company will potentially face continued challenges of low trading volume, lack of liquidity for Stockholders, and a public share price that may not reflect the true economic value of the Company.

What do I need to do in order to receive consideration in the Merger?

Upon approval by Stockholders and completion of the Merger, your shares will be automatically converted into a right to receive cash pursuant to the transactions contemplated by the Plan of

Merger. At the Effective Time, you will no longer own shares or have any rights of a Stockholder, unless you exercise your rights under the Appraisal Rights Statute.

What amount of consideration will Stockholders receive?

Upon completion of the Merger, you will be entitled to receive the Merger Consideration of $16.35 in cash, subject to any adjustments pursuant to the Plan of Merger and without interest thereon and after giving effect to any required tax withholdings, for each share of the Company common stock that you own immediately prior to the Effective Time, upon the surrender of (i) certificates representing your shares of the Company common stock and (ii) uncertificated shares of your Company common stock. If you properly exercise your appraisal rights under the Appraisal Rights Statute, your shares will not be automatically converted into a right to receive the Merger Consideration and you will be entitled to have the value of your shares determined in accordance with the Appraisal Rights Statute, which may or may not be less than the amount you would receive as Merger Consideration.

The Merger Consideration is subject to downward adjustment if the combined statutory capital and surplus of the Company’s insurance subsidiaries is less than $43,000,000 according to the financial statements most recently filed with the insurance regulators prior to closing. If the combined statutory capital and surplus is less than $43,000,000 and not less than $38,700,000, the per share price will be subject to a downward adjustment in an amount up to 10% of the per share price. In such event, the Merger Consideration will be an amount equal to $16.35 multiplied by a fraction in which the sum of the combined statutory capital and surplus is the numerator and $43,000,000 is the denominator. If the combined statutory capital and surplus is less than $38,700,000, the Merger Consideration will not be reduced below 90% of $16.35, but Parent will have the right to terminate the Merger.

What are my appraisal rights if I do not approve the Merger and exercise my appraisal rights under the Appraisal Rights Statute in lieu of receiving the cash Merger Consideration?

Stockholders who do not wish to approve the Plan of Merger will have appraisal rights under the DGCL with respect to the Shares to be converted into cash pursuant to the Plan of Merger. In order to exercise your appraisal rights, you must follow the requirements set forth in the Appraisal Rights Statute, a copy of which is included as Appendix 3 to this Proxy Statement. Stockholders of record who continuously hold shares of the Company common stock through the Effective Time and do not vote in favor of the approval of the Plan of Merger will have the right to seek appraisal of the “fair value” of their shares as determined by the Delaware Court if the Merger is completed. Appraisal rights will only be available to Stockholders who properly deliver, and do not properly withdraw, a written demand for an appraisal to the Company prior to the vote on the proposal to approve the Plan of Merger at the Special Meeting and who comply with the procedures and requirements set forth in the Appraisal Rights Statute. The appraisal amount could be more than, the same as or less than the amount a Stockholder would be entitled to receive under the terms of the Plan of Merger.

Your failure to follow exactly the procedures specified under the Appraisal Rights Statute will result in loss of your rights of appraisal and you will in turn receive the Merger Consideration. See Appraisal Rights beginning on page __

What will be the material federal income tax consequences of the Merger to the Company and Stockholders?

Because special rules may apply to you in your particular circumstances, we recommend that you consult a tax or benefit advisor to fully understand the income tax consequences. Merger

Consideration received by Stockholders will generally be taxable to them as proceeds from the sale of their stock in the Company.

Unless you are an entity exempt from the Form 1099 reporting for a U.S. person (such as a corporation), you will be provided a Form 1099 with respect to any cash consideration you receive.

A tax information form will be sent to Stockholders with the letter of transmittal from the Exchange Agent after the Merger Effective Time. Regardless of whether you choose to vote on the Merger, you should complete and return the tax information form. Otherwise, your failure to complete and return the tax information form may result in the Exchange Agent withholding and remitting to the IRS 24% for a U.S. person of any cash payment (so-called backup withholding) against any potential federal income tax liability you may have.

The Company will not recognize any gain or loss for federal income tax purposes as a result of the Merger. See Certain Federal Income Tax Consequences beginning on page __.

Are the Company directors or officers receiving compensation under the Plan of Merger?

Directors and officers will receive payments to which they are entitled as Stockholders. Certain of the directors and officers have elected to defer their prior compensation from the Company and the deferred compensation will be payable at the Effective Time of the Merger. Certain of the officers who are also directors will be employed by the Company after the Effective Time of the Merger. For information with respect to payments to be made to certain officers and directors of the Company as a result of the Merger, see Interests of the Company’s Directors and Executive Officers in the Merger beginning on page __.

What steps must take place for the Merger to occur?

For the Merger to occur, a number of steps must be taken, including the following key steps:

•The Plan of Merger and the transactions contemplated thereby were required to be adopted by the Board. This adoption occurred on January 26, 2022;

•Parent and Merger Sub must file with the Alabama Department of Insurance an application on Form A for approval of the change of control contemplated by the Plan of Merger and the Alabama Commissioner of Insurance must approve the Plan of Merger after a public hearing on the Form A; and

•The Plan of Merger must be submitted to a vote of Stockholders of the Company, and the holders of more than fifty percent (50%) of the shares held by the Stockholders on the Record Date must approve the Plan of Merger. The Stockholders will vote on the Plan of Merger at the Special Meeting.

In addition, in order for the Merger to become effective, the conditions to the closing of the Plan of Merger must be satisfied. These conditions are discussed in Principal Terms of the Agreement and Plan of Merger – Conditions to Closing beginning on page __ of this Proxy Statement.

When and where is the Special Meeting?

The Special Meeting of Stockholders of the Company will be held on May 23, 2022, at 10:00 a.m., Central Daylight Time, at the principal executive offices of the Company, 661 East Davis Street, Elba, Alabama.

Who is entitled to vote at the Special Meeting?

Only Stockholders who own shares of common stock on the Record Date are eligible to vote at the Special Meeting. Each holder of common stock is entitled to cast one vote on each matter properly brought before the Special Meeting for each share of common stock that such holder owned as of the close of business on the Record Date. If you hold shares in “street name” (that is, through a bank, broker, or other nominee), your shares must be voted in accordance with instructions provided by the nominee.

What vote is required for the Company’s Stockholders to approve and adopt the Plan of Merger?

The affirmative vote of more than fifty percent (50%) of the shares held by the Stockholders on the Record Date is required to approve the Plan of Merger.

What vote is required to approve the proposal to adjourn the Special Meeting, if necessary, to solicit additional proxies?

If there are insufficient votes to approve the Plan of Merger, the Stockholders may vote on the adjournment of the Special Meeting. The adjournment is approved if the votes cast in favor of the adjournment exceed the votes cast against the adjournment.

Who is soliciting my vote?

This proxy solicitation is being made by the Company Board. Our directors, officers and employees may also solicit proxies by personal interview, mail, e-mail, telephone, facsimile or by other means of communication. These persons will not be paid additional remuneration for their efforts.

What do I need to do now?

Please carefully review the information contained in the Proxy Statement. Even if you plan to attend the Special Meeting, please vote promptly by signing and returning the enclosed proxy card to the Company by mail in the enclosed prepaid envelope, or by hand at 661 East Davis Street, Elba, AL 36323. In addition to voting by your proxy card, you may use the Internet to transmit your voting instructions. Online voting is available at www.proxyvote.com. Have your proxy card in hand when you access the website and follow the instructions to obtain your records and to create an electronic voting instruction form to transmit your voting instructions up until 10:59 p.m., Central Daylight Time, on May 20, 2022. Telephone voting is also available by calling 1-800-690-6903. Use any touch-tone telephone to transmit your voting instructions up until 10:59 p.m., Central Daylight Time, on May 20, 2022. Please have your proxy card in hand when you call or access the web page and then follow the instructions.

If you are a Stockholder on the Record Date and desire to have your shares converted into the right to receive the Merger Consideration, you are encouraged to vote in favor of the Plan of Merger. If you do not vote in person or by proxy at the Special Meeting, your failure to vote will have the same effect as a vote against the Merger.

If you return an executed proxy card that does not indicate your vote, the Board has instructed the proxies to vote in favor of the Plan of Merger.

How do I cast my vote in person at the Special Meeting?

If you are a Stockholder on the Record Date, you may vote at the Special Meeting whether or not you have delivered your proxy card or voted by telephone or internet. If your shares are held in

the name of a nominee and you would like to attend the Special Meeting and vote in person, you may contact the person in whose name your shares are registered and obtain a proxy from that person and bring it to the Special Meeting.

Can I change my vote after I have delivered my proxy?

Yes. You may revoke your proxy in one of the following three ways:

•by notifying us in writing at 661 East Davis Street, Elba, Alabama 36323 Attention: Secretary;

•by attending the Special Meeting and voting in person (your attendance at the meeting will not, by itself, revoke your proxy; you must vote in person at the meeting);

•by submitting a new proxy card executed after the date of the proxy card being revoked; or

•by providing different telephone or internet instructions at a later date.

When is the Merger expected to be completed?

The anticipated Closing Date is in the second or third quarter of 2022.

When will I receive the consideration due to me under the Plan of Merger?

If you are a Stockholder your Merger Consideration will be distributed to you in accordance with the procedures under the Plan of Merger. Promptly after the Effective Time, the Paying Agent will send you a letter of transmittal and instructions, which you will be required to return in order to receive your Merger Consideration. The payment of your Merger Consideration will be conditioned upon your return of a properly completed and executed letter of transmittal to the Paying Agent.

Should I send in my stock certificates now?

No. After the Merger is completed, the Paying Agent will send each Stockholder a letter of transmittal and written instructions describing how you should surrender your shares of Company common stock for the Merger Consideration. If your shares of Company common stock are held in “street name” by your bank, brokerage firm or other nominee, you will receive instructions from your bank, brokerage firm or other nominee as to how to effect the surrender of your “street name” shares of Company common stock in exchange for the Merger Consideration. Please do NOT return your stock certificate(s) with your proxy.

What should I do if I have lost my stock certificate?

If you have lost your stock certificate, please contact our transfer agent, Computershare, at 1-800-368-5948 or P.O. Box 505000, Louisville, KY 40233 to obtain replacement certificates.

Should I surrender my book-entry shares now?

No. After the Merger is completed, the Paying Agent will send each holder of record a letter of transmittal and written instructions that explain how to exchange shares of common stock represented by such holder’s book-entry shares for Merger Consideration.

Who can help answer my questions?

If you have any questions regarding the Merger or how to exercise your voting rights, please contact Laura Jordan, Secretary. Laura may be contacted in writing at 661 East Davis Street, Elba, AL 36323, or by email at investors@nsgcorp.com. If you need additional copies of this Proxy Statement or the enclosed proxy card or voting instructions, you may obtain them by contacting Laura at the same mailing address and email.

FORWARD-LOOKING STATEMENTS

This proxy statement, and any documents to which the Company refers to in this proxy statement, including all documents incorporated by reference in this proxy statement, as well as information included in oral statements or other written statements made or to be made by us, contains not only historical information, but also forward-looking statements, including all statements relating directly or indirectly to the timing or likelihood of completing the Merger, litigation and other information with respect to our plans and strategies, made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent the Company’s current expectations or beliefs concerning future events, including but not limited to the expected completion and timing of the proposed transaction, expected benefits and costs of the proposed transaction, management plans and other information relating to the proposed transaction, strategies and objectives of the Company for future operations and other information relating to the proposed transaction. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “forecasts,” “should,” “estimates,” “contemplate,” “future,” “goal,” “potential,” “predict,” “project,” “projection,” “target,” “seek,” “may,” “will,” “could,” “should,” “would,” “assuming,” and similar expressions are intended to identify forward-looking statements. Stockholders are cautioned that any forward-looking statements are not guarantees of future performance and may involve significant risks and uncertainties, and that actual results may vary materially from those in the forward-looking statements. These risks and uncertainties include, but are not limited to, the risks detailed in our filings with the SEC, including in our most recent filings on Forms 10-K and 10-Q, factors and matters described or incorporated by reference in this proxy statement, and the following factors:

•the risk that the transaction may not be completed in a timely manner or at all;

•the ability to secure regulatory approvals on the terms expected in a timely manner or at all;

•the effect of the announcement or pendency of the transaction on our business relationships, results of operations and business generally;

•the risk that the proposed transaction disrupts current plans and operations;

•the possibility that alternative acquisition proposals may or may not be made;

•the risk of litigation and/or regulatory actions related to the proposed transaction;

•the occurrence of any event, change or other circumstances that could give rise to the termination of the Plan of Merger;

•the effect of the announcement of the proposed transaction on Company’s relationships with its customers and agents, operating results and business generally; and

•the effects of the COVID‐19 pandemic and associated government actions on Company’s operations and financial performance, as well as the response to any of the aforementioned factors.

The foregoing review of important factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements that are included herein and elsewhere, including the risk factors included in Company’s most recent Annual Report on Form 10‐K and Quarterly Report on Form 10‐Q and other documents of the Company on file with the SEC. Any forward‐looking statements made in this material are qualified by these cautionary statements,

and there can be no assurance that the actual results or developments anticipated by Company and/or Parent will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Company or its business or operations.

THE SPECIAL MEETING

Date, Time and Place

This Proxy Statement is being furnished to Stockholders in connection with the solicitation of proxies by and on behalf of the Board for use at the Special Meeting to be held on May 23, 2022 at 10:00 a.m., Central Daylight Time, at the principal executive offices of the Company, 661 East Davis Street, Elba, Alabama, and any adjournments or postponements thereof.

Purpose of the Special Meeting

At the Special Meeting, Stockholders will be asked (a) to approve and adopt the Plan of Merger, (b) if necessary or appropriate, to adjourn the meeting to obtain additional proxies to vote on the Plan of Merger, and (c) to vote, on an advisory basis, in favor the Compensation Proposals. The Board does not intend to bring any other matters before the Stockholders at the Special Meeting, and the Company does not know of any other matters to be brought before the Stockholders at the Special Meeting by others. If any other matters properly come before the Stockholders at the Special Meeting and authorization is given on the accompanying proxy, it is the intention of the persons named in the accompanying proxy to vote such proxy in accordance with their best judgment.

Shares Entitled to Vote; Record Date; Quorum

Stockholders who own shares on the Record Date are eligible to vote on the matters to be voted upon at the Special Meeting. Each Stockholder will have one vote per share on each matter voted upon at the Special Meeting. The Company Board established April 26, 2022 as the Record Date for the Special Meeting. As of the Record Date, there were _____ shares outstanding.

The holders of a majority of the stock issued and outstanding and entitled to vote at the Special Meeting, present virtually or represented by proxy, will constitute a quorum at the Special Meeting. As of the Record Date, there were ________ shares of common stock outstanding and entitled to vote at the Special Meeting, meaning that ________ shares of common stock must be represented virtually or by proxy at the Special Meeting to have a quorum. In the event that a quorum is not present at the Special Meeting, it is expected that the meeting will be adjourned to solicit additional proxies to approve the proposal to adopt the Plan of Merger.

Adjournments

Although it is not currently expected, the Special Meeting may be adjourned to a later date or dates, including for the purpose of soliciting additional proxies, if there are insufficient votes at the time of the Special Meeting to approve the proposal to adopt the Plan of Merger or if a quorum is not present at the Special Meeting. Other than an announcement to be made at the Special Meeting of the time, date and place of an adjourned meeting, an adjournment generally may be made without notice. Any adjournment of the Special Meeting for the purpose of soliciting additional proxies will allow the Stockholders who have already sent in their proxies to revoke them at any time prior to their use at the Special Meeting, as adjourned.

Copies of Proxy Statement

This Proxy Statement and the accompanying proxy card are being mailed to all Stockholders. Any Stockholder who needs an additional copy of the Proxy Statement or proxy card may obtain one by contacting Laura Jordan at The National Security Group, Inc., 661 East Davis Street, Elba, AL 36323, email: investor@nsgcorp.com.

Voting and Proxies

Any Stockholder may vote by (i) appearing at the Special Meeting and voting in person, or (ii) returning the executed and dated proxy card to the Company by mail to The National Security Group, Inc., 661 East Davis Street, Elba, Alabama 36323, Attention: Secretary. In addition to voting on the enclosed proxy card, a Stockholder may use the Internet to transmit voting instructions to the persons named as proxies on the proxy card. Online voting is available at www.proxyvote.com until 10:59 p.m., Central Daylight Time, on May 20, 2022. Telephone voting is available by calling 1-800-690-6903. A Stockholder may use any touch-tone telephone to transmit voting instructions up until 10:59 p.m., Central Daylight Time, on May 20, 2022. Please have your proxy card in hand when you call or access the web page and then follow the instructions.

The votes of all Stockholders represented at the Special Meeting by proxies properly appointed prior to the commencement of the Special Meeting, and not duly and timely revoked, will be voted at the Special Meeting in accordance with the instructions indicated on such proxies. If no instructions are given on properly appointed proxies timely received by the Company, such proxies will be voted at the Special Meeting “FOR” the Plan of Merger, “FOR” the Compensation Proposals and “FOR” the adjournment of the meeting if necessary or appropriate to obtain additional proxies. If conflicting instructions are given to a proxy, such proxy will not be counted as a vote cast either for or against any of the matters subject to the vote.

Shares Held by the Company’s Directors and Executive Officers

As of the Record Date, the Company’s directors and executive officers beneficially owned and were entitled to vote, in the aggregate, _______ shares of common stock, representing approximately __% of the shares of common stock outstanding on the Record Date.

Our directors and executive officers have informed us that they currently intend to vote all of their respective shares of common stock (i) “FOR” the adoption of the Plan of Merger; (ii) “FOR” the approval, on an advisory (non-binding) basis, of the Compensation Proposals; and (iii) “FOR” the approval of the Adjournment Proposal.

In addition, certain directors who beneficially own a total of 930,983 shares (individually and with respect to shares over which such person may have sole voting control), entered into Stockholder Support Agreements pursuant to which and subject to the terms thereof, among other things, such Stockholders agreed to vote the shares owned by them in favor of the approval of the Merger and Plan of Merger, and to take certain other actions in furtherance of the transactions contemplated by the Plan of Merger. The shares subject to the Support Agreements represent approximately 36.76% of the shares of common stock outstanding on the Record Date. Such Stockholders did not receive any additional consideration for entering into the Support Agreements. The execution of the Support Agreements was not a condition to the execution of the Plan of Merger nor the consummation of the transactions pursuant to the Plan of Merger. The Support Agreement by its terms does not limit a Stockholder from fulfilling his fiduciary duties as a director of the Company and voting shares consistent with such fiduciary duty. See The Merger – Stockholder Support Agreements beginning on Page __ of this Proxy Statement.

Solicitation of Proxies

The expense of soliciting proxies will be borne by the Company. The Company may reimburse banks, brokers and other nominees representing beneficial owners of shares for their expenses in forwarding soliciting materials to such beneficial owners. Proxies may also be solicited by our directors, officers and employees, personally or by telephone, email, fax, over the Internet or other means of communication. No additional compensation will be paid for such services.

Revocation of Proxies

Any proxy given pursuant to this solicitation may be revoked by the person giving such proxy at any time before such proxy is voted. Proxies may be revoked before taking of the vote at the Special Meeting by (i) delivering to the Company a written notice of revocation bearing a later date than the proxy; (ii) duly executing a later dated proxy and delivering it to the Company prior to the commencement of the Special Meeting; (iii) providing different telephone or internet instructions at a later date; or (iv) attending the Special Meeting and voting in person (although attendance at the Special Meeting will not in and of itself constitute revocation of a proxy). Any written notice of revocation or subsequent proxy must be mailed or delivered by hand to The National Security Group, Inc., 661 East Davis Street, Elba, Alabama 36323 Attention: Secretary, or by email to investors@nsgcorp.com. A subsequent proxy should be received by the Company prior to the commencement of the Special Meeting, and a notice of revocation should be received prior to the vote being taken at the Special Meeting. Stockholders may obtain a new proxy card by written request to The National Security Group, Inc., 661 East Davis Street, Elba, Alabama 36323 Attention: Secretary.

Vote Required for Approval

The affirmative vote of the holders of more than fifty percent (50%) of the total number of votes entitled to be cast in respect of all of the shares entitled to vote on the Plan of Merger will be required in order for the Plan of Merger to be approved and the transactions contemplated thereby to be consummated. If you do not vote at the Special Meeting, your failure to vote will have the same effect as a vote against the Merger. The Compensation Proposals and the Adjournment Proposal will be approved if the votes cast in favor of the proposals at the Special Meeting exceed the votes cast against the proposals.

THE MERGER

Overview

Parent proposes to acquire the Company pursuant to the terms and conditions of the Plan of Merger. On January 26, 2022, the Board unanimously adopted the Plan of Merger and recommended that the Stockholders vote in favor of the Plan of Merger. Under the Plan of Merger, the Stockholders will receive a cash payment for their shares held of record at the Effective Time.

Parties Involved in the Merger

The National Security Group, Inc.

The National Security Group, Inc., is headquartered in Elba, Alabama. The Company, which has been doing business since 1947, is an insurance holding company. It owns all of the shares of National Security Insurance Company, an Alabama domiciled life insurance company, and National Security Fire and Casualty Company, an Alabama domiciled property and casualty insurance company.

Additional information about the Company can be found on its website, https://www.nationalsecuritygroup.com.

VR Insurance Holdings, Inc. and VR Merger Sub, Inc.

VR Insurance Holdings, Inc. (“Parent”) is a Delaware corporation organized for the purpose of acquiring the Company and potentially other insurance and financial services businesses. Parent is a wholly owned subsidiary of VR Insurance SPV, LLC, a Delaware limited liability company beneficially owned by Vivek Ranadivé and a group of family office and strategic investors. Merger Sub is a Delaware corporation and wholly owned subsidiary of Parent.

Mr. Ranadivé has been the Founder and Managing Director of Bow Capital Management LLC and its affiliated funds since 2016 and Chairman, Chief Executive Officer and Governor of the Sacramento Kings since 2013. He founded his first company, Teknekron Software Systems, Inc. (“Teknekron”), in 1986 to develop and apply software to financial trading floors. After selling Teknekron to Reuters PLC in 1994, he then went on to found and spin-out TIBCO as a separate company in 1997. TIBCO completed its initial public offering in 1999 and was subsequently sold to Vista Equity Partners in 2014 for $4.3 billion. As Chairman and Chief Executive Officer, Mr. Ranadive built TIBCO into a leading provider of middleware software that became the central data nervous system for many of the world’s largest companies and government agencies. Mr. Ranadivé holds a B.S. and M.A. degree in Electrical Engineering from the Massachusetts Institute of Technology and an MBA from Harvard Business School where he graduated as a Baker Scholar.

Background of the Merger

The following is a description of the material aspects of the Merger. While the Company believes that the following description covers the material terms of the Merger, the description may not contain all of the information that is important to the Company’s stockholders. The Company encourages you to carefully read this entire proxy statement, including the appendices, for a more complete understanding of the Merger.

As part of its ongoing evaluation of business and strategic planning, the Company Board, from time to time, has discussed and reviewed the Company’s strategic goals and alternatives. These reviews have included a full range of strategic alternatives, including consideration of potential acquisitions, business combinations and capital raises, as well as the Company’s stand-alone business plans and prospects.

During the fall of 2020, in connection with an assessment of the Company’s strategic position and opportunities, the Company’s management began to assess with investment bankers and financial advisors familiar with the Company’s industry, the possibility of engaging in a range of strategic alternatives, including the possible sale of the Company. During this time, PSC and the Company engaged in several conversations around possible strategic alternatives for the Company and its stockholders. Representatives of PSC met with the Board in October 2020 and January 2021 and facilitated discussions of potential strategic alternatives available to the Company. At the January 2021 meeting the Board and representatives of PSC discussed preliminary valuations of various transactions involving the sale of all or part of the Company together with an analysis of the potential advantages and disadvantages of the various alternatives.

On February 4, 2021, the Company signed an engagement letter with PSC to act as financial advisor to the Company and help the Board evaluate strategic alternatives including a potential sale of all or parts of the Company. Following the execution of the engagement letter, representatives of PSC conducted detailed due diligence on the Company and began working with the Company’s management and counsel to draft a Confidential Information Memorandum (“CIM”) that highlighted the Company’s strengths, financial results and objectives with respect to a potential transaction. On March 30, 2021, the Board authorized representatives of PSC to begin its outreach to potential buyers in pursuit of a range of strategic alternatives, including a sale of all or parts of the Company.

On April 30, 2021, representatives of PSC, at the direction of the Board, began its initial outreach to potential buyers that included a broad universe of P&C insurance companies, life insurance companies, insurance distribution companies and financial sponsors. In total, PSC contacted 58 potential buyers, executed 34 Non-Disclosure Agreements (“NDA”) on behalf of the Company and distributed 34 CIMs to those potential buyers who had signed NDAs. The Company and PSC subsequently held a number of conference calls and virtual meetings to respond to initial questions from potential buyers following their review of the CIM.

On May 27, 2021, representatives of PSC, at the direction of the Board, began distributing process letters to all potential buyers that signed an NDA and received a CIM. The process letter instructed interested potential buyers to submit initial proposals by June 18, 2021 and summarize key terms related to purchase price, consideration, transaction structure (i.e., whole company, P&C business only, life business only or P&C renewal rights), source of financing, strategic rationale, plans for current management and due diligence requirements. The initial process letter outlined the information needed in order for the Board, the Company’s management and PSC to compare any initial proposals received and to assist the Board in identifying parties interested in pursuing a potential sale transaction.

On June 3, 2021, representatives of PSC, at the Board’s direction, distributed the Company’s most recent actuarial appraisal of the Life Segment, dated June 1, 2021, to all potential buyers who received a CIM and expressed an interest in purchasing only the Life Segment (“Life Appraisal”). The Life Appraisal was produced by a third-party actuarial consulting firm and was meant to estimate the potential value of inforce and new business policies of the Life Segment as of September 30, 2020.

In connection with its outreach to potential buyers, representatives of PSC contacted a regional property and casualty insurance company who had expressed interest in acquiring the Company in 2016 (“Strategic Buyer A”). On June 4, 2021, representatives of PSC held a conference call with a senior executive of Strategic Buyer A, who expressed possible interest in acquiring the Company, but conveyed a lack of interest in purchasing the Company’s Life Segment. At the conclusion of this conversation, representatives of PSC encouraged Strategic Buyer A to submit an initial proposal outlining their preferred transaction structure.

On June 11, 2021, representatives of PSC, at the Board’s direction, distributed a supplemental set of materials to all potential buyers that received a CIM (“Supplemental

Materials”). The Supplemental Materials contained responses to questions received from potential buyers concerning the Company’s operations and mix of business and the then latest financial information of the Company.

Between June 18, 2021 and June 23, 2021, the Company and PSC received eleven (11) total initial proposals comprised of: two (2) proposals to purchase the whole company; two (2) proposals to purchase only the P&C Segment; five (5) proposals to purchase only the Life Segment; and two (2) proposals to purchase renewal rights of the Company’s P&C business. Despite continuing discussions, Strategic Buyer A did not submit an initial proposal. Of the eleven initial proposals received, the whole company proposals ranged in value from an estimated $13.83 to $14.50 per share; proposals to purchase the P&C Segment ranged in value from an estimated $37 million to $51 million; proposals to purchase the Life Segment ranged in value from an estimated $10 million to $17 million; and proposals to purchase renewal rights of the P&C Segment ranged in value from an estimated $4 million to $9 million.

On June 23, 2021, representatives of PSC held a conference call with a private equity-backed managing general agent (“MGA”) of property and casualty insurance products who had a strategic relationship with a major homeowners insurance carrier in markets where the Company operates (referred to herein as “MGA Buyer A”). On the call, representatives of PSC and MGA Buyer A discussed their rights proposal. MGA Buyer A also advised representatives of PSC that if the Board decided that their proposal was not competitive enough relative to other proposals then MGA Buyer A would consider submitting a proposal to purchase the whole company.

On June 28, 2021, representatives of PSC held a conference call to present a summary of the initial proposals to the Chairman of the Board and Company management. Attendees of the conference call discussed and considered the full range of transaction alternatives, including a sale of the whole company, separate sales of the P&C and Life Segments and a sale of renewal rights of the P&C Segment. In connection with this review of transaction alternatives, representatives of PSC prepared a sum-of-the-parts analysis to compare proposals for separate sales of the P&C and Life Segments with a sale of the whole company to a single buyer. In connection with the sum-of-the-parts analysis, the Board considered that the Company would need to use the proceeds of the separate sale transactions to repay any outstanding debt (approximately $14 million of outstanding debt as of 9/30/2021) and pay all of its transaction expenses (estimated at $3 million) if the Company pursued separate sales of the insurance subsidiaries. This would ultimately reduce net proceeds to Stockholders. Additionally, any distribution of the net proceeds of the sale would be subject to taxation at both the Company and Stockholder levels, effectively reducing the value to be received by the Stockholders. In contrast, a sale of the whole company in a single transaction would result in the buyer assuming any outstanding debt and funding any deficit at the holding company resulting from the payment of transaction expenses, and if structured as a stock sale, there would be no tax at the Company level.

At the conclusion of the discussion, the Chairman of the Board and Company management advised representatives of PSC to continue exploring separate sales of the P&C and Life Segments and a sale of the whole company to a single buyer. In addition, the Company authorized representatives of PSC to facilitate meetings between Company management and potential buyers who submitted proposals to purchase the whole company, potential buyers who submitted proposals to purchase the P&C Segment, MGA Buyer A and Strategic Buyer A. With respect to the five proposals to purchase only the Life Segment, the Board instructed representatives of PSC to inform those potential buyers that the Company was evaluating whole company sale alternatives or a sale of the P&C Segment. In the event that the Company decided to pursue separate sales of the P&C and Life Segments, representatives of PSC would be directed by the Company Board to contact the life insurance-only buyers to pursue further discussions with respect to a sale of the Life Segment. At approximately that time, the potential buyer who had indicated interest in acquiring the Life Segment at a $17 million purchase price withdrew its initial proposal. The remaining proposals for the Life Segment only ranged in value from $10 million to $13 million.

On July 8, 2021, representatives of the Company’s management met with executives from Strategic Buyer A at Strategic Buyer A’s offices to discuss transaction objectives, potential growth opportunities and other key diligence topics related to the Company’s existing operations. As part of this meeting, Company management reviewed selected pages from the CIM and discussed the opportunity for Strategic Buyer A to acquire the Company and integrate its operations into Strategic Buyer A’s operations.

On July 19, 2021, the Company held virtual management meetings with three potential buyers. The first meeting was with MGA Buyer A, whose initial proposal was to purchase renewal rights of the Company’s P&C Segment. The second meeting was with the family investment office of a New York-based investor, whose initial proposal was to purchase the whole company for $14.50 per share (referred to herein as “Investor A”). The third meeting was with another managing general agency with a program specializing in homeowners and property insurance products (“MGA Buyer B”), whose initial proposal was to purchase the P&C Segment. At the meetings, the parties focused the discussions on their key diligence topics, including but not limited to: business operations, information technology, finance and accounting, underwriting results, claims, reinsurance and rating agency discussions.

On July 20, 2021, MGA Buyer A, who originally submitted a proposal to purchase renewal rights of the Company’s P&C Segment, submitted a revised proposal to purchase the whole company at a price estimated to equal approximately $15.04 per share.

On July 20, 2021, Company management met in person with a private equity-backed homeowners insurance company (referred to herein as “P&C Buyer A”). P&C Buyer A’s initial proposal was to purchase only the P&C Segment for approximately $46 million to $51 million (based on GAAP book value of the P&C Segment plus $5 million to $10 million subject to further due diligence).

On July 21, 2021, Investor A informed representatives of PSC that they were not willing to move forward in the sale process without the right to negotiate on an exclusive basis with the Company. The Company authorized representatives of PSC to decline Investor A’s request for exclusivity given that their proposal was not sufficiently compelling compared to other proposals received to date. In response, Investor A refused to increase their initial purchase price of approximately $14.50 per share. Investor A informed representatives of PSC that they would no longer participate in the sale process.

On July 21, 2021, representatives of PSC held a conference call with a private equity-backed property and casualty insurance company (referred to herein as “P&C Buyer B”), who submitted a proposal to purchase the whole company for $35 million. P&C Buyer B informed representatives of PSC that they would not meet with Company management, and that they would withdraw from the sale process due to concerns about the competitiveness of their proposal.

On July 23, 2021, representatives of PSC presented to the Board an updated summary of the initial proposals, feedback from the potential buyers as part of the management meetings and other recent developments related to potential strategic alternatives. At the conclusion of the meeting, the Board authorized representatives of PSC to invite three parties to the next phase of the process: MGA Buyer A, MGA Buyer B and P&C Buyer A. The three parties were granted access to a Virtual Data Room (“VDR”) containing information related to the Company’s operations, financial results and legal structure. The Company granted access to the VDR to allow the three parties to conduct further due diligence.

Following the Board meeting, on July 23, 2021, representatives of PSC received a phone call from representatives of Parent. Representatives of Parent indicated to representatives of PSC that it had a strong interest in acquiring a P&C insurance company from which the Parent might build a broader insurance and financial services company that leveraged technology to

make operations and distribution more efficient. Additionally, the Parent representatives advised that they would be working with Ross Aron, a seasoned insurance professional and investor, to assist with executing the potential transaction and ultimately to be a part of the investor group that would potentially purchase the Company. Based on this thesis, the Company authorized representatives of PSC to invite Parent into the process and Parent subsequently signed an NDA and received the CIM.

Additionally, on July 23, 2021, as instructed by the Board, representatives of PSC held a conference call with Strategic Buyer A to discuss the possibility of submitting an initial proposal. On the conference call, Strategic Buyer A expressed concern over the Company’s underwriting results with respect to the P&C Segment. In response, on July 27, 2021, representatives of PSC, at the direction of the Board, shared with Strategic Buyer A a detailed analysis of the Company’s property & casualty historical underwriting and expense results and a comparison of those results with the underwriting results of Strategic Buyer A. In contrast to Strategic Buyers A’s concerns, the Company believes that the analysis showed that the P&C Segment’s underwriting results had been consistent with, and in some respects better than, the underwriting results of Strategic Buyer A. Over the next several weeks, Strategic Buyer A did not respond to multiple phone calls and emails from PSC to continue the discussion. Eventually, representatives of PSC and the Company concluded that Strategic Buyer A did not have interest in pursuing further discussions.

On July 28, 2021, the Company held a conference call with an advisor who was working on behalf of a multi-billion dollar private equity firm (“Investor B”). Investor B inquired of the Company’s sale process and expressed interest in exploring a possible acquisition of the Company. Shortly thereafter, Investor B signed the NDA and received the CIM and Supplemental Materials.

On August 2, 2021, Company management held a virtual management meeting with Parent, highlighting its interest in exploring an acquisition of the Company. Representatives of Parent and the Company’s management discussed the Company’s organization, growth plans, potential for new product offerings and the status of key relationships with reinsurers, rating agencies and regulators. Representatives of Parent expressed strong interest in continuing the dialogue with the Company’s management.

On August 9, 2021, representatives of Company management held a conference call with MGA Buyer A to discuss diligence items primarily related to reinsurance, finance and accounting topics.

On August, 12, 2021, MGA Buyer A informed representatives of PSC that they no longer had an interest purchasing the whole company, but would still be open to considering a renewal rights transaction. Given the Board’s preference for a sale of the entire Company or the sale of one or more subsidiaries, MGA Buyer A concluded that a renewal rights transaction would no longer be competitive and informed representatives of PSC that they would withdraw from the sale process.

Additionally, on August 12, 2021, representatives of Company management held a virtual demonstration of the Company’s claims system with MGA Buyer B.

On August 15, 2021, representatives of PSC, at the Board’s direction, distributed a revised bid instruction letter and a list of key issues for a potential definitive agreement to purchase the whole company or the P&C Segment referred to herein as the “Legal Issues List”) to MGA Buyer B, P&C Buyer A, Investor B and Parent. The Company’s outside counsel prepared the Legal Issues List, in consultation with Company management, to outline the key legal terms on which the Company would pursue a range of sale transaction alternatives. The bid instruction letter provided recipients with instructions to submit a proposal by August 27, 2021 including terms related to the identity of purchaser and proposed transaction structure, purchase price, expected impact on existing management, employees and the Company’s headquarters in Elba, AL, diligence requirements, approval process and any required changes to the Legal Issues

List. The Legal Issues List described the Company’s preferred position on a range of contractual issues, including break-up fee, termination provisions, terms of indemnification and key contractual definitions.

On August 18, 2021, Parent submitted an initial proposal to purchase the whole company for $16.00 per share. In conjunction with their proposal, Parent submitted an initial markup of the Legal Issues List.

On August 27, 2021, the Company received two additional proposals from MGA Buyer B and P&C Buyer A, both of which expressed interested in acquiring the Company’s P&C Segment. Investor B indicated verbally that it would be interested in acquiring the Company at the then current trading price of approximately $10.50 to $11.00 per share. Representatives of PSC informed Investor B that such a proposal would not be competitive with the other alternatives actively under consideration by the Board. MGA Buyer B and P&C Buyer A’s updated proposals to purchase the P&C Segment represented aggregate consideration of approximately $40 million and $47 million (based on the GAAP book value of the P&C Segment plus an amount equal to 10% of inforce premium), respectively. In connection with their proposal, P&C Buyer A submitted a markup of the Legal Issues List, while MGA Buyer B did not submit a markup of the Legal Issues List. PSC and Company management reviewed each proposal and held follow up discussions with each interested party to understand each proposal in more detail. As part of these follow up discussions, MGA Buyer B informed representatives of PSC that their proposal was contingent on their ability to complete a capital raise expected to close in October 2021. Separately, P&C Buyer A informed PSC of their interest to re-domicile the P&C Segment to P&C Buyer A’s home state of domicile. In addition, P&C Buyer A explained that the reduction in price from their initial proposal of up to $51 million to their updated proposal of $47 million reflected a more refined view of the underwriting performance of the P&C Segment and access to sufficient reinsurance.

On August 31, 2021, the Board held a special meeting to discuss the three remaining proposals. During the special meeting, the Board, Company management and representatives of PSC discussed the potential advantages and disadvantages of the alternatives available to the Board. Those alternatives included a sale of the Company in one transaction; the sale of the P&C and Life Segments in separate transactions; and the sale of renewal rights of the P&C Segment, the sale of the Life Segment and then the subsequent run-off of the P&C Segment’s balance sheet. Company management and representatives of PSC discussed an updated version of the sum-of-the-parts analysis previously discussed during the Board meeting held June 28, 2021. As part of the sum-of-the-parts analysis, Company management and representatives of PSC discussed the estimated tax liability related to separate sales of the Life and P&C Segments or related sale of renewal rights and run-off of the P&C Segment’s balance sheet. To estimate the value of a sale of the Life Segment, the analysis assumed that the Company could sell the Life Segment for a value equal to the average of the values contained in the Life Segment-only initial proposals. Representatives of PSC and Company management estimated a range of per share values using a range of assumptions related to the separate sales of the P&C and Life Segments, the related tax impact of such transactions and the subsequent repayment of the Company’s indebtedness.

The Board concluded that a sale of the Company in one transaction was more likely to maximize stockholder value, particularly in light of the values placed on the P&C and Life Segments by potential buyers of those stand-alone business units. The Board drew this conclusion due in part to the need to pay taxes on the separate sale transactions and related transaction costs and repay indebtedness out of the proceeds of those sale transactions. In addition, the Board concluded that MGA Buyer B’s financing contingency carried too much risk in completing a transaction, and that P&C Buyer A’s reduced offer, combined with the complexity of selling the P&C and Life Segments separately, was inferior to a sale of the Company’s common stock in a single transaction at $16.00 per share or potentially higher. Based on this review, the Board ultimately decided that a sale of the whole company in a single transaction would be the best means of maximizing stockholder value. At the conclusion of the

special meeting, the Board authorized the Company’s management and representatives of PSC to explore Parent’s proposal in greater detail and assess whether Parent would be willing to increase its initial proposal of $16.00 per share to $16.75 per share.

On September 1, 2021, representatives of PSC held a conference call with representatives from Parent to deliver the Board’s message and present a counteroffer of $16.75 per share. Following this conversation, representatives of the Company and PSC worked with Parent as they conducted their operational, technology, legal and financial due diligence on the Company. Parent and their advisors provided several diligence request lists focusing on: the Company’s outlook for the remainder of the 2021 hurricane season; the Company’s accounting practices; performance of the investment portfolio; claims activity; reinsurance; and strength of loss and LAE reserves. Company management began providing detailed responses to Parent’s requests.

Additionally, on September 1, 2021, representatives of PSC held a conference call with P&C Buyer A to discuss potentially increasing their proposed purchase price for the P&C Segment. P&C Buyer A informed representatives of PSC that they would not be willing to increase the purchase price of their latest proposal. Furthermore, P&C Buyer A acknowledged that it may be difficult for them to compete with another buyer willing to purchase the entire Company.

On September 7, 2021, representatives from Parent informed PSC during a conference call that Parent would be willing to increase its offer to $16.25 per share. On the same conference call, representatives of PSC asked Parent to increase its offer to $16.50 per share in an effort to reach a satisfactory conclusion to the price negotiations. Parent responded that it would discuss internally and follow up with a final offer.

On September 20, 2021, after continued review, Parent submitted a Letter of Intent (“LOI”) with its final offer to purchase the common stock of the Company for $16.35 per share.

On September 29, 2021, the Board held a special meeting where the Board approved Buyer’s revised offer of $16.35 per share and authorized the Company to enter into exclusive negotiations with Parent subject to finalizing language in the Letter of Intent (“LOI”). In anticipation of the Board meeting, upon request of the Board, Vivek Ranadivé provided PSC evidence of his individual ability to finance the proposed transaction. Around this time, representatives of PSC informed MGA Buyer B and P&C Buyer A that the Company had selected another party to pursue a whole company sale transaction.

In early October 2021, the Company and Parent began negotiating the Letter of Intent (“LOI”), a non-binding agreement which outlined price, terms, remaining due diligence and a three-week period for the parties to negotiate exclusively (the “Exclusivity Period”). On October 6, 2021, the Company and its legal advisor, Burr & Forman, LLP distributed a Legal Issues List, which outlined the Company’s concerns with Parent’s LOI. On October 12, 2021, the Company and Burr & Forman shared the initial draft of the Plan of Merger with Parent and its legal advisor, Morris, Manning & Martin LLP (referred to herein as “MMM”). The Plan of Merger reflected the key terms of the Legal Issues List, including the break-up fee, basic terms of indemnification and a mechanism for adjusting the price downward in the event of a sudden loss of statutory capital and surplus at the Company’s Insurance Subsidiaries.

Negotiations on the LOI and Legal Issues List continued until October 20, 2021, when the Company and Parent executed the finalized LOI. By executing the LOI, the Company and the Buyer agreed to the Exclusivity Period. The Company further agreed to reimburse Parent for up to $250,000 of diligence-related expenses if the Company were to terminate the discussions in favor of a higher proposal from another party. Parent used the Exclusivity Period primarily for further due diligence, including an in-person visit to the Company’s headquarters on October 28, 2021, when representatives of Parent and management discussed the Company’s operations, financial results, outlook and personnel.

On November 3, 2021, the Parent and MMM provided the Company and Burr & Forman with a revised draft of the Plan of Merger. During the ensuing period, Burr & Forman and representatives of the Company negotiated the terms of the Plan of Merger with representatives of Parent and MMM. On November 15, 2021, MMM responded with further comments on Burr & Forman’s draft.

On November 17, 2021, the Company notified Parent of its willingness to extend the Exclusivity Period through December 3, 2021. Additionally, on November 17, 2021, Burr & Forman provided to the Company a list of disclosure schedules related to the Plan of Merger (referred to herein as “Disclosure Schedules”) and a list of the remaining outstanding issues in the Plan of Merger. Immediately following, the Company began to collect the appropriate information needed to draft the Disclosure Schedules.

On November 22, 2021, representatives of Parent provided Company management with a preview of a presentation that Parent had drafted for a preliminary meeting with the Alabama Department of Insurance (referred to herein as the “ALDOI”). The presentation highlighted the Parent’s business plan for the Company and provided a summary of the proposed transaction terms. Parent expressed a desire to share a final version of this presentation at a subsequent in-person meeting with the ALDOI.

On November 29, 2021, MMM returned a markup of the Plan of Merger to Burr & Forman incorporating MMM’s latest set of proposed changes. In addition, MMM sent Burr & Forman an initial draft of the support agreement to be executed by certain directors in their capacities as principal stockholders evidencing their agreement to vote their shares in favor of the transactions contemplated by the Plan of Merger subject to their fiduciary duties to the Company(referred to herein as the “

SEC Form PRE 14A filed by National Security Group Inc.