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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
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)).
[X] Definitive Proxy Statement.
[ ] Definitive Additional Materials.
[ ] Soliciting Material Pursuant to Section 240.14a-12
EMC INSURANCE 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):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
2) Aggregate number of securities to which transaction applies:
- --------------------------------------------------------------------------------
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
- --------------------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
5) Total fee paid:
- --------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
- --------------------------------------------------------------------------------
2) Form, Schedule or Registration Statement No.:
- --------------------------------------------------------------------------------
3) Filing Party:
- --------------------------------------------------------------------------------
4) Date Filed:
- --------------------------------------------------------------------------------
PERSONS WHO POTENTIALLY ARE TO RESPOND TO THE COLLECTION OF INFORMATION
CONTAINED IN THIS FORM ARE NOT REQUIRED TO RESPOND UNLESS THE FORM DISPLAYS A
CURRENTLY VALID OMB CONTROL NUMBER.
SEC 1913 (02-02)
[EMC INSURANCE GROUP INC. LETTERHEAD]
April 17, 2003
Dear Stockholder:
I am pleased to extend to you my personal invitation to attend the 2003
Annual Meeting of Stockholders of EMC Insurance Group Inc. on May 20, 2003, at
10:00 a.m., at the offices of Employers Mutual Casualty Company, 700 Walnut
Street, Des Moines, Iowa 50309.
The accompanying Notice of Annual Meeting and Proxy Statement contains a
description of the formal business to be acted upon by the stockholders. At the
meeting, I intend to discuss the Company's 2002 performance and its plans for
2003. Certain members of the Company's Board of Directors and Officers of the
Company, as well as representatives of Ernst & Young LLP, the Company's
independent auditors, will be available to answer questions you may have.
While I am looking forward to seeing you at the meeting, it is very
important that those of you who cannot personally attend assure that your shares
are represented. I urge you, therefore, to sign and date the enclosed form of
proxy and return it promptly in the accompanying envelope. If you attend the
meeting, you may, if you wish, withdraw any proxy previously given and vote your
shares in person.
Sincerely,
/s/ BRUCE G. KELLEY
Bruce G. Kelley
President and CEO
EMC INSURANCE GROUP INC.
NOTICE OF
2003 ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2003
TO THE STOCKHOLDERS OF EMC INSURANCE GROUP INC.:
Notice is hereby given that the Annual Meeting of Stockholders of EMC
Insurance Group Inc. (the "Company"), an Iowa corporation, will be held on
Tuesday, May 20, 2003 at 10:00 a.m. local time, at Employers Mutual Casualty
Company's office, 700 Walnut Street, Des Moines, Iowa, for the following
purposes:
1. To elect a Board of Directors;
2. To ratify the appointment of Ernst & Young LLP as the Company's
independent auditors for the current fiscal year; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Each share of the Company's common stock will be entitled to one vote upon
all matters described above. Stockholders of record at the close of business on
April 2, 2003 will be entitled to notice of and to vote at the meeting. The
stock transfer books of the Company will not be closed.
April 17, 2003
BY ORDER OF THE BOARD OF DIRECTORS
DONALD D. KLEMME, Secretary
PLEASE VOTE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY. AN
ENVELOPE, WHICH REQUIRES NO POSTAGE IF MAILED IN THE UNITED STATES, IS ENCLOSED
FOR YOUR CONVENIENCE.
EMC INSURANCE GROUP INC.
717 MULBERRY STREET
DES MOINES, IOWA 50309
PROXY STATEMENT
2003 ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2003
GENERAL INFORMATION
This proxy statement is furnished in connection with the solicitation by
the Board of Directors of EMC Insurance Group Inc. (the "Company") of proxies
from the holders of the Company's $1.00 par value common stock (the "Common
Stock") for use at the 2003 Annual Meeting of Stockholders to be held on May 20,
2003, and at any adjournment thereof (the "Annual Meeting").
The Company's 2002 Annual Report to Stockholders was sent to the Company's
stockholders on or about April 4, 2003. This proxy statement, along with the
accompanying form of proxy, was sent to the Company's stockholders on or about
April 17, 2003.
The accompanying proxy may be revoked by the person giving it at any time
before it is voted; such revocation may be accomplished by a letter, or by a
properly signed proxy bearing a later date, filed with the Secretary of the
Company prior to the Annual Meeting. If the person giving the proxy is present
at the meeting and wishes to vote in person, he or she may withdraw his or her
proxy at that time.
The Company has borne all costs of solicitation of proxies. In addition to
solicitation by mail, there may be incidental personal solicitations made by
directors and officers of the Company, its parent, Employers Mutual Casualty
Company ("Employers Mutual") and their subsidiaries. The cost of solicitation,
including payments to nominees who at the request of the Company mail such
material to their customers, will be borne by the Company.
VOTING SECURITIES
All stockholders of record of the Common Stock at the close of business on
April 2, 2003 are entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 2, 2003, there were 11,425,814 shares of
outstanding Common Stock, each entitled to one vote per share on all matters to
be voted upon at the Annual Meeting. The Company's stockholders do not have
cumulative voting rights. Shares of Common Stock of the Company present in
person or represented by proxy at the Annual Meeting will be tabulated for
determination of whether or not a quorum is present. A quorum will be present if
a majority of the outstanding shares entitled to vote is represented at the
Annual Meeting. If a quorum exists, directors will be elected by a majority of
the votes cast by the shares entitled to vote in the election and action on
other matters, including appointment of auditors, will be approved if the votes
cast favoring the action exceed the votes cast opposing the action. Votes
withheld for any director, abstentions and broker non-votes will be treated as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum, but will not be counted as votes cast with respect to any
matter submitted to the stockholders for a vote and will not affect the outcome
of any matter.
1
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, the stockholders will elect a board of seven
directors to serve for terms extending until the 2004 Annual Meeting and until
their respective successors are duly elected and qualified. Proxies in the
accompanying form which are received by management of the Company in response to
this solicitation will, unless contrary instructions are given therein, be voted
in favor of the seven nominees for director listed in the table below. The Board
of Directors of the Company has no reason to believe that any of such nominees
may not be available to serve or will not serve as a director if elected;
however, if any nominee is not so available at the time of the election, the
proxies may be voted in the discretion of the persons named therein for the
election of a substitute nominee.
The table below contains certain information with respect to the Board of
Directors' nominees for election as directors.
<Table>
<Caption>
DIRECTOR
NAME AGE SINCE POSITION WITH THE COMPANY
- ---- --- -------- -------------------------
George C. Carpenter III............. 75 1981 Director
Elwin H. Creese..................... 71 1994 Director
David J. Fisher..................... 66 1985 Director
Bruce G. Kelley..................... 49 1991 President, Chief Executive Officer
and Director
George W. Kochheiser................ 77 1974 Chairman of the Board
Raymond A. Michel................... 77 1981 Director
Fredrick A. Schiek.................. 68 1994 Director
</Table>
George C. Carpenter III was Executive Director of Iowa Public Television
from November 1985 until his retirement in 1993. Prior to that he served as Vice
President of Palmer Communications and as Vice President and General Manager of
WHO Broadcasting Company, a division of Palmer Communications. He was employed
by WHO Broadcasting Company for 20 years.
Elwin H. Creese was Senior Vice President and Treasurer of the Company and
of Employers Mutual from 1993 until his retirement on April 1, 1996. He was Vice
President and Treasurer of the Company and of Employers Mutual from 1985 until
1993. Mr. Creese was employed by Employers Mutual from 1984 to 1996.
David J. Fisher has been Chairman of the Board and President of Onthank
Company, a Des Moines based wholesale distributor of floor, window and wall
covering products, since 1978 and has been employed by that firm since 1962. Mr.
Fisher serves on the State of Iowa Board of Regents.
Bruce G. Kelley has been President and Chief Executive Officer of the
Company and of Employers Mutual since 1992 and was Treasurer of Employers Mutual
from 1996 until 2000, and of the Company from 1996 until 2001. He was President
and Chief Operating Officer of the Company and of Employers Mutual from 1991 to
1992 and was Executive Vice President of both companies from 1989 to 1991. Mr.
Kelley has been employed by Employers Mutual since 1985 and has been a director
of that company since 1984.
George W. Kochheiser has been Chairman of the Board of the Company since
1994, and was President and Chief Operating Officer of the Company and of
Employers Mutual from 1982 until his retirement in 1991.
2
Mr. Kochheiser also serves as a director of Employers Mutual and was an employee
of that company from 1949 to 1991.
Raymond A. Michel is a member of the Board of Directors of Koss
Construction Company, a highway and airport construction firm, and was its
Chairman and Chief Executive Officer from 1972 until his retirement in 1989. He
has been affiliated with that company in one capacity or another since 1955.
Fredrick A. Schiek was Executive Vice President and Chief Operating Officer
of the Company and of Employers Mutual from 1992 until his retirement on March
1, 2001. He was Vice President of Employers Mutual from 1983 until 1992 and has
served as a director of Employers Mutual since 1998. Mr. Schiek was employed by
Employers Mutual from 1959 to 2001.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 2002, the Board of Directors of the
Company held four regular meetings. In 2002, each member of the Board of
Directors attended at least 75 percent of the aggregate of (i) the total number
of meetings of the Board of Directors held and (ii) the total number of meetings
held by all committees of the Board of Directors on which they served.
The Board of Directors of the Company has three standing committees: the
Executive Committee, the Audit Committee, and the Inter-Company Committee. The
Board of Directors of the Company does not have a nominating committee,
investment committee or a compensation committee. The functions of the
nominating committee and investment committee are carried out by the Board of
Directors as a whole. As the officers of the Company are employees of Employers
Mutual, the functions of the compensation committee are carried out by the
Employers Mutual Board of Directors or one of its committees.
The Executive Committee members are Bruce G. Kelley, Fredrick A. Schiek and
George W. Kochheiser. This Committee has authority to exercise all of the
authority of the Board of Directors when the Board of Directors is not in
session, with the exception of certain actions which, under Iowa law and the
Company's Bylaws, require action by the Board of Directors; these include
amending the Company's Articles of Incorporation, declaring dividends, adopting
a plan of merger or consolidation of the Company, appointing or removing
executive officers, designating candidates for election as directors or filling
director vacancies, approving or recommending to the Company's stockholders a
voluntary dissolution or revocation of its Charter, or amending the Company's
Bylaws. The Executive Committee did not meet during the year ended December 31,
2002.
The members of the Audit Committee are George C. Carpenter III, David J.
Fisher and Raymond A. Michel. The functions performed by this Committee are
detailed in the Audit Committee Charter. Their duties are to assist the Board of
Directors in its general oversight of the Company's financial reporting,
internal control and audit functions. The Audit Committee held four meetings in
2002.
The Inter-Company Committee was established by mutual agreement of the
Boards of Directors of the Company and Employers Mutual. The three members of
the Audit Committee also serve as the members of the Inter-Company Committee.
Employers Mutual is represented on the Inter-Company Committee by three members
of its Board of Directors. The primary responsibility of the Inter-Company
Committee is to review all major transactions and ensure those transactions are
equitable between the two entities. The Inter-Company Committee met one time
during 2002.
3
DIRECTORS' COMPENSATION
In 2002, each member of the Company's Board of Directors who was not an
officer or employee of the Company was entitled to $900 for each board meeting
or committee meeting attended, plus expenses, and a $9,000 annual fee payable
irrespective of attendance at meetings. Non-employee directors of the Company
are also eligible to participate in Employers Mutual's Non-Employee Director
Stock Purchase Plan. Under this plan, directors are granted an option to
purchase Common Stock in an amount up to 100 percent of their annual fee at an
option price equal to 75 percent of the fair market value of the Common Stock on
the option exercise date. During 2002, none of the Company's directors
participated in this plan.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding those persons
known to the Company who own beneficially more than five (5) percent of the
Company's Common Stock:
<Table>
<Caption>
AMOUNT AND NATURE
TITLE OF NAME AND ADDRESS OF BENEFICIAL PERCENT
CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- -------- -------------------------------------------------------- ----------------- --------
Common Employers Mutual Casualty Company....................... 9,143,474(1) 79.8%
717 Mulberry Street
Des Moines, Iowa 50309
Common Dimensional Fund Advisors Inc........................... 603,900(2) 5.3%
1299 Ocean Avenue
Santa Monica, California 90401
</Table>
- ---------------
(1) On April 2, 2003, Employers Mutual owned 79.8% of the outstanding Common
Stock of the Company. Employers Mutual intends to retain ownership of a
majority of the Company's Common Stock at all times in the future. This
majority stock ownership will give Employers Mutual the right to determine
whether or not all of the proposals presented at the Annual Meeting are
carried and will give it the right to elect all of the directors of the
Company. The Company's operations are interrelated with the operations of
Employers Mutual and are largely dependent upon a continuing relationship
with Employers Mutual. The Company does not anticipate any disruptions in
this relationship.
(2) The information shown is based upon a Schedule 13G, dated February 3, 2003,
filed with the Securities and Exchange Commission by Dimensional Fund
Advisors Inc., a registered investment advisor. Dimensional Fund Advisors
Inc. reported it possessed voting and/or investment power with respect to
all of the shares.
4
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The following information is furnished as to the Common Stock of the
Company owned beneficially as of April 2, 2003, by each of the Company's
directors and named executive officers individually and the directors and
executive officers of the Company as a group. The information concerning
beneficial ownership has been furnished by the persons listed below or was
determined by the Company from reports filed by such persons with the Securities
and Exchange Commission regarding such ownership.
<Table>
<Caption>
AMOUNT AND NATURE
OF BENEFICIAL PERCENT
NAME OWNERSHIP (1) OF CLASS
- ---- ----------------- --------
George C. Carpenter III..................................... 5,490 *
Elwin H. Creese............................................. 10,185 *
Raymond W. Davis............................................ 16,285(2) *
David J. Fisher............................................. 1,800 *
John D. Isenhart............................................ 13,076(3) *
Ronald W. Jean.............................................. 17,864(4) *
Bruce G. Kelley............................................. 164,236(5) 1.4%
George W. Kochheiser........................................ 55,000 *
Raymond A. Michel........................................... 5,000 *
William A. Murray........................................... 23,980(6) *
Fredrick A. Schiek.......................................... 12,765 *
All Directors and Executive Officers as a Group (15 persons,
including those listed above)............................. 394,297 3.4%
</Table>
- ---------------
* Less than one percent
(1) All named holders of the Common Stock listed in this table have sole voting
and investment power with respect to the shares held, except as stated
otherwise below.
(2) Raymond W. Davis directly owns 11,785 shares of Common Stock and has
presently exercisable options to purchase 4,500 shares, which shares are
included in the table.
(3) John D. Isenhart directly owns 12,476 shares of Common Stock and has
presently exercisable options to purchase 600 shares, which shares are
included in the table.
(4) Ronald W. Jean directly owns 10,305 shares of Common Stock and has presently
exercisable options to purchase 7,559 shares, which shares are included in
the table.
(5) Bruce G. Kelley owns 93,238 shares of Common Stock directly and 26,198
shares indirectly. Of the 26,198 shares indirectly owned, 1,500 are owned by
his spouse and 24,698 are owned by his children. In addition, he owns
presently exercisable options to purchase 44,800 shares, which shares are
included in the table.
(6) William A. Murray directly owns 5,000 shares of Common Stock and has
presently exercisable options to purchase 18,980 shares, which shares are
included in the table.
5
COMPENSATION OF MANAGEMENT
EMC Insurance Group Inc. has no employees of its own and, consequently, has
no payroll, no employee benefit plans and no compensation committee of its Board
of Directors. Approximately 15 employees of Employers Mutual devote a portion of
their time performing administrative duties for the Company. All compensation
and all benefits reported in this proxy statement are established by the
Employers Mutual Board of Directors or by one of its committees.
The Company's four property and casualty insurance subsidiaries (Dakota
Fire Insurance Company, EMCASCO Insurance Company, Farm and City Insurance
Company and Illinois EMCASCO Insurance Company) and two subsidiaries and an
affiliate of Employers Mutual, are parties to reinsurance pooling agreements
with Employers Mutual (collectively, the "Pooling Agreement"). The compensation
of Employers Mutual's employees during 2002 was shared by the Company's property
and casualty insurance subsidiaries in accordance with the terms of the Pooling
Agreement. The compensation paid to the employees of Employers Mutual who
perform duties for EMC Reinsurance Company and EMC Underwriters, LLC, the other
two subsidiaries of the Company, is not allocated to the Pooling Agreement and
is charged directly to those subsidiaries.
The aggregate participation of the Company's property and casualty
insurance subsidiaries in the Pooling Agreement during 2002 was 23.5 percent and
this percentage represents the portion of the compensation expenses described
below which were allocated to the Company during the year.
The compensation of the executive officers of Employers Mutual is initially
determined by a Senior Executive Compensation and Stock Option Committee
composed of four members of its Board of Directors, with subsequent approval by
its full Board of Directors.
6
The following table sets forth information with respect to compensation
paid by Employers Mutual to its Chief Executive Officer and the other four most
highly compensated executive officers serving as such on December 31, 2002.
SUMMARY COMPENSATION TABLE
<Table>
<Caption>
ANNUAL COMPENSATION(1)
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND SALARY BONUS COMPENSATION OPTIONS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($)(2) (#)(3) ($)(4)
- ------------------ ---- ------- ------- ------------ ---------- ------------
Bruce G. Kelley................ 2002 452,388 391,004 -- 4,000 30,136
President & CEO 2001 426,782 -- -- -- 5,730
2000 398,856 -- -- 10,000 5,730
Ronald W. Jean................. 2002 240,634 191,799 -- 10,000 18,647
Executive Vice President for 2001 219,813 -- -- -- 6,066
Corporate Development 2000 186,267 -- -- 17,500 5,937
William A. Murray.............. 2002 239,475 190,874 66,852 10,000 20,078
Executive Vice President & COO 2001 211,104 -- -- 8,200 6,906
2000 108,855 32,580 -- 17,500 4,489
John D. Isenhart............... 2002 187,571 137,077 -- 2,000 10,470
Sr. Vice President 2001 178,811 -- -- -- 7,514
2000 170,301 -- -- -- 7,389
Raymond W. Davis............... 2002 173,943 127,118 -- 2,000 12,244
Sr. Vice President & 2001 164,263 -- -- -- 6,196
Treasurer 2000 154,976 -- -- 7,000 5,837
</Table>
- ---------------
(1) Compensation deferred at election of executive includable in category and
year earned.
(2) The total dollar value of perquisites and other personal benefits for the
named executive officer was less than the reporting thresholds established
by the Securities and Exchange Commission for everyone except Mr. Murray.
During 2002, Mr. Murray received reimbursement of $65,643 in expenses
associated with the sale of his home in Charlotte, NC and his move to Des
Moines, IA.
(3) All stock options granted were at option prices equal to the fair market
value of the Common Stock on the date of grant, have a term of ten years and
vest at a rate of 20 percent per year commencing in the second year of the
term.
(4) The amounts shown for all other compensation include employer matching
contributions to the Employers Mutual Casualty Company 401(k) Savings Plan
(the "401(k) Plan"), employer matching contributions to the Employers Mutual
Casualty Company Executive Non Qualified Excess Plan, a recognition payment
for professional education designation awards and excess group life
insurance premiums. During 2002, contributions to the 401(k) Plan and the
Executive Non Qualified Excess Plan on behalf of each of Messrs. Kelley,
Jean, Murray, Isenhart and Davis were $28,458, $17,681, $17,693, $5,113 and
$9,578, respectively. During 2002, there was a payment for the recognition
of professional education designation awards. Messrs. Kelley and Davis each
received $1,144 and Messrs. Murray and Isenhart each received $610.00.
Excess life insurance premiums paid during 2002 on behalf of Messrs. Kelley,
Jean, Murray, Isenhart and Davis were $534, $966, $1,775, $4,747 and $1,522,
respectively.
7
STOCK OPTIONS
The following table sets forth details regarding stock options granted to
the named executive officers during 2002. In addition, the table shows the
hypothetical gain, or "option spread", that would exist for the respective
options based on assumed rates of annual compound stock appreciation of five and
ten percent over the full term of the options. Employers Mutual grants the stock
options which are utilized to purchase the Common Stock of the Company. Upon the
exercise of these options, Employers Mutual pays to the Company the spread
between the fair market value and the exercise price.
OPTION GRANTS IN LAST FISCAL YEAR
<Table>
<Caption>
POTENTIAL REALIZABLE
VALUES BASED ON
ASSUMED RATES OF
NUMBER OF % OF STOCK PRICE
OPTIONS TOTAL EXERCISE APPRECIATION(2)
GRANTED OPTIONS PRICE EXPIRATION ---------------------
NAME (#)(1) GRANTED ($/SH) DATE 5% ($) 10% ($)
- ---- --------- ------- -------- ---------- --------- ---------
Bruce G. Kelley..................... 4,000 6.1 18.30 2/1/12 46,035 116,662
Ronald W. Jean...................... 10,000 15.2 18.30 2/1/12 115,088 291,655
William A. Murray................... 10,000 15.2 18.30 2/1/12 115,088 291,655
John D. Isenhart.................... 2,000 3.0 18.30 2/1/12 23,018 58,331
Raymond W. Davis.................... 2,000 3.0 18.30 2/1/12 23,018 58,331
</Table>
- ---------------
(1) All stock options granted were at option prices equal to the fair market
value of the Common Stock on the date of grant, have a term of ten years and
vest at a rate of 20 percent per year commencing in the second year of the
term.
(2) The potential realizable values indicated are based on the assumption that
the stock price appreciates at the annual rate shown from the date of grant
until the expiration date. These numbers do not reflect the historical
increase in the price of the stock and do not represent the Company's
estimate of future appreciation in the stock price.
8
The following table sets forth information with respect to the named
executive officers concerning the exercise of stock options during 2002, the
realized gains from those exercises, the number of unexercised options held as
of December 31, 2002, and the amount of unrealized gains attributed to them on
that date.
AGGREGATED OPTION EXERCISES IN THE LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<Table>
<Caption>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES VALUE YEAR END(#) YEAR END($)
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- ---- -------------- -------- ------------- ----------------
Bruce G. Kelley........................ 4,000 33,500 74,000/10,000 570,130/51,720
Ronald W. Jean......................... -- -- 5,159/21,100 38,816/93,420
William A. Murray...................... 3,178 34,179 14,840/27,860 106,167/172,577
John D. Isenhart....................... 600 3,853 0/2,400 0/2,073
Raymond W. Davis....................... 2,700 18,900 3,600/7,000 22,688/40,150
</Table>
- ---------------
(1) Value realized is the fair market value on the date(s) of exercise less the
exercise price(s).
(2) The value of unexercised options is calculated by subtracting the exercise
price(s) from the fair market value of the stock at year-end. The year-end
fair market value was $17.87.
9
RETIREMENT PLANS
The following table reflects the estimated annual retirement benefit that
will be available to the executives named in the Summary Compensation Table. It
assumes that all retirement plans remain in effect as they are currently
structured and a normal retirement age of 65. The assumed annual earnings is an
average of the five consecutive pay years out of all pay years, which give the
highest average. The assumed annual earnings shown have been computed to reflect
a range adequate to cover the current salaries of the named executives with
provision for reasonable increases in future compensation.
<Table>
<Caption>
YEARS OF SERVICE AT NORMAL RETIREMENT DATE
-----------------------------------------------------------
ASSUMED ANNUAL EARNINGS 15 20 25 30
- ----------------------- -- -- -- --
$250,000........................... $ 69,777 $ 93,041 $116,290 $139,554
300,000........................... 84,777 113,042 141,289 169,554
350,000........................... 99,777 133,043 166,288 199554
400,000........................... 114,777 153,044 191,287 229,554
450,000........................... 129,777 173,045 216,286 259,554
500,000........................... 144,777 193,046 241,285 289,554
550,000........................... 159,777 213,047 266,284 319,554
600,000........................... 174,777 233,048 291,283 349,554
650,000........................... 189,777 253,049 316,282 379,554
700,000........................... 204,777 273,050 341,281 409,554
750,000........................... 219,777 293,051 366,280 439,554
800,000........................... 234,777 313,052 391,279 469,554
850,000........................... 249,777 333,053 416,278 499,554
900,000........................... 264,777 353,054 441,277 529,554
950,000........................... 279,777 373,055 466,276 559,554
1,000,000........................... 294,777 393,056 491,275 589,554
1,050,000........................... 309,777 413,057 516,274 619,554
</Table>
The Employers Mutual Casualty Company Retirement Plan (the "Pension Plan")
covers all employees of Employers Mutual and its subsidiaries. Within the
pension plan there are two formulas for arriving at an employee's benefit,
depending on their age and date of employment.
Employees employed prior to January 1, 1989 and who were 50 years old, or
older, on January 1, 2000 will continue to have their benefits calculated under
a traditional defined benefit formula. This formula is based on years of
service, the highest average pay for five consecutive years and the employee's
age at the time of retirement. Retirement benefits for all other employees will
be determined under a cash balance formula.
The formula for determining the benefits earned under the cash balance
formula is similar to that of a defined contribution plan. The formula is based
on a combination of covered compensation and interest paid on a participant's
accumulated account balance. Each year a participant's account is credited with
(1) a defined percentage of their covered compensation for the year and (2)
interest on the prior year-end account balance at the 30 year treasury rate
(GATT Rate). The participant's account balance is defined annually based on
these factors without regard to the actual investment performance of the pension
plan's assets.
10
Employers Mutual also sponsors a defined contribution plan, the 401(k)
Plan. This plan is available to all employees of Employers Mutual and its
subsidiaries. Under the 401(k) Plan, Employers Mutual matches 50 percent of the
first six percent of covered compensation that an employee defers. With the
exception of the highly compensated group, the employee participants can make
tax qualified deferrals of up to 50 percent of their covered compensation to
this plan. Beginning in 2001 a new plan, the Executive Non Qualified Excess Plan
(ENQEP), was created for the highly compensated group who were limited in their
401(k) deferral percentage. This plan allows the highly compensated to defer up
to 25% of their salary between the 401(k) Plan and the ENQEP. Employers Mutual
matches 100 percent of the first five percent of covered compensation under the
ENQEP.
In addition to the ENQEP, Employers Mutual has two other non-qualified
supplemental retirement plans, the Excess Retirement Benefit Agreement and the
Supplemental Executive Retirement Plan. These plans restore retirement benefits
to those employees who are prevented from receiving full benefits from the
Pension Plan because of their deferral of bonus income and the restrictions
imposed on the amount of covered compensation that can be credited to, and the
maximum benefits that can be received from, qualified pension plans. These three
plans are unfunded and any payments made to participants will be from the
general accounts of Employers Mutual.
All of the individuals named in the Summary Compensation Table are
participants in each of these plans. For retirement benefit purposes, during
2002 the number of full years of service accrued and the compensation for
Messrs. Kelley, Jean, Murray, Isenhart and Davis were 17 and $456,535, 23 and
$243,787, 17 and $243,237, 39 and $193,096 and 23 and $176,778, respectively.
For 2002, pursuant to the requirements of the Internal Revenue Code, as amended,
compensation credited under the qualified Pension Plan and the 401(k) Plan was
limited to $200,000.
EXECUTIVE COMPENSATION REPORT
The compensation of the executive officers of Employers Mutual is initially
determined by the Senior Executive Compensation and Stock Option Committee (the
"Committee") of the Board of Directors of Employers Mutual, with subsequent
approval by its full Board of Directors.
COMPENSATION PHILOSOPHY
The general intent of Employers Mutual is to provide an executive
compensation structure that will allow for a level of compensation that is
competitive within the insurance industry and, more particularly, with a peer
group of companies within the property and casualty insurance industry. That
peer group, some of which are included in the industry index used in the
performance graph appearing later in this report, is comprised of companies
which are similar in size, have comparable insurance products and which have
been identified as the competition with respect to such things as the quality of
the products and services provided, and which tend to compete in the same
targeted markets as does Employers Mutual.
It is also the intention of Employers Mutual to provide a level of
compensation that will allow it to attract and retain highly qualified,
motivated executives who will enhance the ability of Employers Mutual to
continue its long history of steady growth and financial strength. Employers
Mutual and its non-life insurance subsidiary companies collectively had assets
that totaled $2,067,497,320 at December 31, 2002 and had written premiums of
$1,089,297,388 for the year.
11
EXECUTIVE COMPENSATION COMPONENTS
The compensation of Employers Mutual executives is determined primarily
through the use of three major components in its compensation structure. Each of
those components is designed to achieve a particular result and to allow for
measurement of individual and collective executive performance.
The basic component of executive compensation is base salary. On an annual
basis, the Committee reviews the salary of each individual executive officer,
using as a guideline the average base pay of other industry and peer company
executives with like positions, and with strong reliance upon the Chief
Executive Officer's report on the overall performance and progress of each
executive during the past year.
The executives also have an incentive bonus program based upon the overall
performance of Employers Mutual and its subsidiaries. The bonus program measures
performance based on production increases compared to goal, the amount of
increase in statutory surplus and the statutory combined loss and expense ratio
of Employers Mutual and its insurance subsidiaries compared to goal and to the
industry. The Committee reviews the bonus program on an annual basis and makes
changes to it if and when such changes are deemed to be appropriate.
Employers Mutual has also made available a long-term incentive compensation
opportunity for its senior executives through the use of incentive stock option
grants. The Common Stock of the Company is utilized for those grants. Because of
the Pooling Agreement that Employers Mutual has with two of its subsidiaries, an
affiliate and four subsidiaries of the Company, the Committee believes that
superior performance by the senior executives of Employers Mutual will have a
significant impact on the performance of the Common Stock of the Company,
thereby providing long-term appreciation in the value of the options held by the
executives. The Committee has formal guidelines for granting stock options to
eligible executives. Those guidelines provide for base option award ranges for
executives based upon their level of authority and responsibility and also
provide for the granting of discretionary option awards to executives based upon
such factors as individual performance, attainment of agreed goals and
objectives and other contributions to overall results.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
For 2002, the Committee recommended that the base salary of Bruce G.
Kelley, Chief Executive Officer, be increased to $454,128, an increase of 6.0
percent over the base salary paid him during 2001. The Committee arrived at that
figure as an appropriate salary for the position based upon a salary range
imputed from surveys of base salaries being paid to Chief Executive Officers of
peer group companies. The full Board of Directors of Employers Mutual approved
the salary recommendation.
The incentive bonus program is based upon a number of factors for Employers
Mutual and its property and casualty insurance subsidiaries, as described above.
Mr. Kelley's bonus will be paid over two installments during 2003.
The members of the Senior Executive Compensation and Stock Option Committee
of Employers Mutual are as follows:
Blaine A. Briggs -- Chairman
Gale L. Griffin
Lanning Macfarland, Jr.
Philip T. Van Ekeren
12
AUDIT COMMITTEE REPORT
As reported earlier, the Audit Committee of the Board of Directors is
composed of three members. All members of the Audit Committee are independent
and do not have a relationship with the Company which would interfere with the
exercise of their judgment in carrying out their responsibilities. The Audit
Committee's responsibilities are described in a written charter initially
adopted by the Board of Directors on May 25, 2000, with minor modifications to
such charter being approved by the Board on February 28, 2001.
The Audit Committee has reviewed the Company's audited consolidated
financial statements and discussed such statements with management. The Audit
Committee has also discussed with Ernst & Young LLP (E&Y), the Company's
independent auditors during the 2002 fiscal year, the matters required to be
discussed by Statement of Auditing Standards No. 61 and No. 90. Based on these
reviews, nothing came to the attention of the Audit Committee that would cause
them to believe that the audited financial statements contain any materially
misleading statements or omit any material financial information.
The Audit Committee has received from E&Y the written disclosures required
by Independence Standards Board Standard No. 1. Based on these reviews and
discussions, the Audit Committee recommended to the Board of Directors that the
audited financial statements for the fiscal year 2002 be included in the
Company's annual report on Form 10-K filed with the Securities and Exchange
Commission.
The members of the Audit Committee are as follows:
David J. Fisher, Chairman
George C. Carpenter III
Raymond A. Michel
AUDIT FEES
The aggregate fees incurred by the Company for the performance of the audit
and the review of the Companies' financial statements by E&Y during 2002 were
$123,849.
ALL OTHER FEES
During 2002, E&Y had other non-audit fees that totaled $40,077, primarily
related to tax work. There were no fees paid to E&Y associated with financial
systems design and implementation. The Audit Committee considered and confirmed
that the non-audit fees paid were compatible with E&Y maintaining its
independence.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During 2002, there were two occasions when Form 4 was not filed on a timely
basis for directors of Employers Mutual Casualty Company. In both instances, the
information was inadvertently sent late to the Company and the filings were not
made on a timely basis. Mr. Lanning Macfarland, Jr. sold 2,000 shares in March
and Dr. John Kelley sold 6,782 shares in May. The Form 4 on these two
transactions were filed nine days and eleven days late, respectively. The
Company has taken the appropriate steps that should prevent this from happening
in the future.
13
STOCK PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock to the NASDAQ Total Return Index for U.S. companies and a
published Industry Index, which is the Media General Industry Group 432, over a
five-year period beginning December 31, 1997 and ending December 31, 2002. The
total stockholder return assumes $100.00 invested at the beginning of the period
in the Company's Common Stock, the NASDAQ Market Index and the Industry Index.
It also assumes reinvestment of all dividends for the period.
COMPARATIVE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG EMC INSURANCE GROUP INC., NASDAQ MARKET INDEX
AND INDUSTRY INDEX
[PERFORMANCE GRAPH]
<Table>
<Caption>
1997 1998 1999 2000 2001 2002
---- ---- ---- ---- ---- ----
EMC INSURANCE GROUP INC.................. $100.00 100.61 76.19 104.71 160.22 172.70
INDUSTRY INDEX........................... $100.00 105.36 117.15 160.84 137.55 109.15
NASDAQ MARKET INDEX...................... $100.00 141.04 248.76 156.35 124.64 86.94
</Table>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The operations of the Company are directly interrelated with the operations
of Employers Mutual. Because of this operational relationship, there are a
number of transactions between the two companies and their subsidiary companies
that occur on an ongoing basis. For a discussion of those transactions, see the
"Notes to Consolidated Financial Statements" in the Company's 2002 Annual Report
to Stockholders.
14
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
Ernst & Young LLP (E&Y) audited the financial statements of the Company for
the year ended December 31, 2002. The Board of Directors has selected E&Y as
auditors for the fiscal year ending December 31, 2003 and the stockholders are
asked to ratify that selection. During 2002, in connection with its audit
function, E&Y provided services to the Company which included the examination of
the annual consolidated financial statements, assistance with requirements of
the Securities and Exchange Commission under the Securities Exchange Act of 1934
and consultation regarding various financial and accounting matters.
A representative of E&Y will be present at the Annual Meeting, and will be
available to respond to appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THIS
APPOINTMENT. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO VOTED IN THE
ABSENCE OF DIRECTION TO THE COMPANY.
OTHER MATTERS
The Board of Directors knows of no matters other than those described above
that may come before the Annual Meeting. As to other matters, if any, that
properly may come before the Annual Meeting, the Board of Directors intends that
proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the person or persons voting the proxies.
STOCKHOLDER PROPOSALS FOR 2004 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement for
the 2004 Annual Meeting of Stockholders must be received by the Company no later
than December 18, 2003. The person submitting the proposal must have been a
record or beneficial owner of the Company's Common Stock for at least one year,
the securities so held must have a market value of at least $2,000 and the
securities must be held on the date of the meeting. Any such proposal will be
included in the Proxy Statement for the 2004 Annual Meeting if the rules of the
Securities and Exchange Commission are satisfied with respect to the timing and
form of such proposal, and if the content of such stockholder's proposal is
determined by the Company to be appropriate under the rules promulgated by the
Securities and Exchange Commission.
April 17, 2003
BY ORDER OF THE BOARD OF DIRECTORS
DONALD D. KLEMME, Secretary
15
EMC INSURANCE GROUP INC.
PROXY FOR COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS-MAY 20, 2003
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Bruce G. Kelley and George W. Kochheiser, or either of them, as Proxies, each with the power to
appoint his substitute, and hereby authorizes them to represent and to vote, as designated below, all the shares of stock of EMC
Insurance Group Inc. of record by the undersigned on April 2, 2003 at the Annual Meeting of Stockholders to be held on May 20, 2003
or any adjournment thereof.
1. ELECTION OF DIRECTORS [ ]FOR all nominees listed below [ ]WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
George C. Carpenter III, Elwin H. Creese, David J. Fisher, Bruce G. Kelley, George W. Kochheiser, Raymond A. Michel,
Fredrick A. Schiek
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, write that name on the space provided below.)
----------------------------------------------------------------------------------------------------------------------
2. PROPOSAL TO RATIFY THE APPOINTMENT OF ERNST & YOUNG LLP AS THE INDEPENDENT AUDITORS OF THE COMPANY.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. OTHER BUSINESS in their discretion, the proxies are authorized to vote upon such other business as may properly come
before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF
NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR PROPOSALS 1 AND 2.
Please sign exactly as your name appears. When
shares are held by joint tenants, both should sign.
When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such.
If a corporation, please sign in full corporate name
by President or other authorized officer. If a
partnership, please sign in partnership name by
authorized person.
DATE:_____________________________________, 2003.
___________________________________________________
Signature
___________________________________________________
Signature if held jointly
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PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY, USING THE ENCLOSED ENVELOPE.
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