<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
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 Rule 14a-11(c) or Rule 14a-12
EMC INSURANCE GROUP INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
EMC INSURANCE GROUP INC.
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) 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:
- --------------------------------------------------------------------------------
<PAGE> 2
EMC Insurance Group Inc. Letterhead
April 22, 1997
Dear Stockholder,
I am pleased to extend to you my personal invitation to attend the 1997
Annual Meeting of Stockholders of EMC Insurance Group Inc. (the "Company") on
May 20, 1997, at 10:00 A.M. at the offices of the Company at 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 1996 performance and its plans for
1997. Certain members of the Company's Board of Directors and Officers of the
Company, as well as representatives of KPMG Peat Marwick LLP, the Company's
independent certified public accountants, will be available to answer any
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
be 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,
Bruce G. Kelley
Bruce G. Kelley
President, Treasurer and CEO
<PAGE> 3
EMC INSURANCE GROUP INC.
NOTICE OF
1997 ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
TO THE STOCKHOLDERS OF EMC INSURANCE GROUP INC.:
Notice is hereby given that the Annual Meeting of the Stockholders of EMC
Insurance Group Inc. (the "Company"), an Iowa corporation, will be held on
Tuesday, May 20, 1997 at 10:00 a.m. local time, at the Company's offices, 700
Walnut Street, Des Moines, Iowa for the following purposes:
1. To elect a Board of Directors;
2. To amend Employers Mutual Casualty Company's 1993 Incentive Stock Option
Plan to increase the number of shares subject thereto;
3. To ratify the appointment of KPMG Peat Marwick LLP as the Company's
independent certified public accountants for the current fiscal year;
and
4. To transact such other business as may 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, 1997 will be entitled to notice of and to vote at the meeting. The
stock transfer books of the Company will not be closed.
April 22, 1997
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.
<PAGE> 4
EMC INSURANCE GROUP INC.
717 MULBERRY STREET
DES MOINES, IOWA 50309
PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 1997
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 1997 Annual Meeting of Stockholders to be held on May 20,
1997, and at any adjournment thereof (the "Annual Meeting").
The Company's 1996 Annual Report to Stockholders was sent to the Company's
stockholders on or about April 4, 1997. This proxy statement, along with the
accompanying form of proxy, will be sent to the Company's stockholders on or
about April 22, 1997.
The accompanying proxy may be revoked by the person giving it at any time
prior to its being 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, 1997 are entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 2, 1997, there were 11,146,635 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 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 are 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
shareholders for a vote and will not affect the outcome of any matter.
1
<PAGE> 5
ELECTION OF DIRECTORS
NOMINEES
At the Annual Meeting, the stockholders will elect a board of seven
directors to serve for terms extending until the 1998 Annual Meeting of
Stockholders 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 POSITION WITH
NAME AGE SINCE THE COMPANY
- ---- --- -------- -------------
<S> <C> <C> <C>
George C. Carpenter III................... 69 1981 Director
Elwin H. Creese........................... 65 1994 Director
David J. Fisher........................... 60 1985 Director
Bruce G. Kelley........................... 43 1991 President, Treasurer, Chief Executive
Officer and Director
George W. Kochheiser...................... 71 1974 Chairman of the Board
Raymond A. Michel......................... 71 1981 Director
Fredrick A. Schiek........................ 62 1994 Executive Vice President, Chief Operating
Officer and 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 had 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 had been employed by Employers Mutual since 1984.
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 also serves as a member of the Board of Directors of Liberty Savings Bank
and Chairman of Cental Iowa Health System.
Bruce G. Kelley has been President and Chief Executive Officer of the
Company and of Employers Mutual since 1992 and Treasurer of both organizations
since 1996. 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 with Employers Mutual
since 1985 and has been a director of that company since 1984. He is a director
of Brenton Bank.
George W. Kochheiser has been Chairman of the Board since 1994, and was
President and Chief Operating Officer of the Company and of Employers Mutual
from 1982 until his retirement in 1991.
2
<PAGE> 6
Mr. Kochheiser also serves as a director of Employers Mutual and had been an
employee of that company since 1949.
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 has been Executive Vice President and Chief Operating
Officer of the Company and of Employers Mutual since 1992. He was Vice President
of Employers Mutual from 1983 until 1992. Mr. Schiek has been employed with
Employers Mutual since 1959.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1996, the Board of Directors of the
Company held four regular meetings. In 1996, 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 has an Executive Committee and the members are Bruce
G. Kelley, Fredrick A. Schiek and George W. Kochheiser. The Executive Committee
did not meet during the year ended December 31, 1996. The Executive Committee
has authority to exercise all of the authority of the Board of Directors when
the Board is not in session, with the exception of certain actions which, under
Iowa law and the Company's By-Laws, require Board action; 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 By-Laws.
The Board has an Audit Committee, the members of which are George C.
Carpenter III, David J. Fisher and Raymond A. Michel. The Audit Committee held
two meetings in 1996. The Committee met with management and the independent
auditors in connection with its review of matters relating to the Company's
annual financial statements and the Company's system of internal accounting
controls. The Committee met with the Company's independent auditors and internal
auditors, with and without management present, to discuss appropriate matters.
The Board has an Investment Committee, the members of which are Bruce G.
Kelley, Elwin H. Creese and George W. Kochheiser. The Committee has the
authority to monitor the investments of the Company and to make decisions on the
appropriateness of the types of securities held and the amount of Company funds
to be allocated to each. The Investment Committee held one meeting during 1996.
There is an Inter-Company Committee which was established by mutual
agreement of the Boards of Directors of the Company and Employers Mutual. The
three members of the Board's 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 between the
two entities. The Inter-Company Committee held one meeting during 1996.
The Board of Directors does not have a standing nominating committee or a
compensation committee. The functions that would normally be performed by the
nominating committee are carried out by the Board of
3
<PAGE> 7
Directors as a whole. The functions of the compensation committee are carried
out by the Employers Mutual Board of Directors or one of its committees.
DIRECTORS' COMPENSATION
In 1996, each member of the Company's Board of Directors who was not an
officer or employee of the Company was entitled to $850 for each board meeting
or committee meeting attended, plus expenses, and an $8,500 annual fee payable
irrespective of attendance at meetings. If two or more committee meetings are
held on one day, the maximum fee permitted is $850, except in the event of an
Audit Committee meeting and an Inter-Company Committee meeting being held on the
same day in which case two meeting fees are paid. Also, when a committee meeting
is held on the same day as a board meeting, the maximum fee paid is $850.
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
- -------- ------------------- ----------------- --------
<S> <C> <C> <C>
Common Employers Mutual Casualty Company........................ 7,479,495(1) 67.1%
717 Mulberry Street
Des Moines, Iowa 50309
Common FBL Investment Advisory Services, Inc.................... 1,031,650(2) 9.3%
5400 University Avenue
West Des Moines, Iowa 50266
</TABLE>
- ---------------
(1) On April 2, 1997, Employers Mutual owned 7,479,495 shares 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 11, 1997,
filed with the Securities and Exchange Commission by FBL Investment Advisory
Services, Inc. ("FBL"), a registered investment advisor. FBL reported sole
voting power and sole disposition power with respect to all of the shares.
4
<PAGE> 8
SECURITY OWNERSHIP OF MANAGEMENT
The following information is furnished as to the Common Stock of the
Company owned beneficially as of April 2, 1997, by each of the Company's
directors and nominees and by each named executive officer of Employers Mutual.
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
- ---- ----------------- --------
<S> <C> <C>
George C. Carpenter III..................................... 4,198 *
Elwin H. Creese............................................. 17,613 *
Raymond W. Davis............................................ 17,540(2) *
David J. Fisher............................................. 1,382 *
Ronald W. Jean.............................................. 15,390(3) *
Bruce G. Kelley............................................. 212,062(4) 1.9%
George W. Kochheiser........................................ 51,427 *
Raymond A. Michel........................................... 4,000 *
Fredrick A. Schiek.......................................... 40,214(5) *
John D. Isenhart............................................ 15,080(6) *
All Directors and Executive Officers as a Group (15 persons,
including those listed above)............................. 432,802 3.9%
</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 6,000 shares of Common Stock and has
presently exercisable options to purchase 11,540 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
(3) Ronald W. Jean directly owns 5,455 shares of Common Stock and has presently
exercisable options to purchase 9,935 shares, which shares are included in
the table. See "Compensation of Management -- Stock Options."
(4) Bruce G. Kelley owns 15,677 shares of Common Stock directly and 124,592
shares indirectly. Of the 124,592 shares indirectly owned, 103,500 are owned
by a limited partnership of which he is a general partner, 1,500 are owned
by his spouse, and 19,592 are owned by his children. In addition, he owns
presently exercisable options to purchase 71,793 shares of Common Stock,
which shares are included in the table. See "Compensation of Management --
Stock Options."
(5) Fredrick A. Schiek directly owns 10,564 shares of Common Stock and has
presently exercisable options to purchase 29,650 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
(6) John D. Isenhart directly owns 10,825 shares of Common Stock and has
presently exercisable options to purchase 4,255 shares, which shares are
included in the table. See "Compensation of Management -- Stock Options."
5
<PAGE> 9
COMPENSATION OF MANAGEMENT
The Company has no employees of its own and, consequently, it has no
payroll, no employee benefit plans and no compensation committee of its Board.
Therefore, all compensation and all benefits reported on in this proxy statement
are established by the Employers Mutual Board of Directors or by one or another
of its Committees. Approximately 15 employees of Employers Mutual devote a
portion of their time performing administrative duties for the Company.
The Company's three property and casualty insurance subsidiaries; Dakota
Fire Insurance Company, EMCASCO Insurance Company and Illinois EMCASCO Insurance
Company, and two subsidiaries of Employers Mutual, are parties to reinsurance
pooling agreements with Employers Mutual (collectively, the "Pooling
Agreement"). The compensation of Employers Mutual's officers during 1996 was
shared by the Company's property and casualty companies in accordance with their
interests in the pool. Likewise, the compensation of the officers of the
Company's property and casualty insurance subsidiaries was charged as an expense
to the Pooling Agreement and as such was shared by all of the parties to the
Pooling Agreement in accordance with their interests in the pool. The
compensation paid to officers of Farm and City Insurance Company, EMC
Reinsurance Company and EMC Underwriters, Ltd. was not allocated to the Pooling
Agreement and was consequently borne entirely by the Company.
The participation of the Company's property and casualty insurance
subsidiaries in the Pooling Agreement during 1996 was 22 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, and subsequently approved by
the full Board of Directors of Employers Mutual.
6
<PAGE> 10
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, 1996.
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)
- ------------------ ---- ------ ----- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley.................. 1996 318,957 105,180 6,000 2,243
President, Treasurer 1995 289,072 130,583 10,000 2,299
& CEO 1994 245,237 110,781 10,000 2,294
Fredrick A. Schiek............... 1996 206,675 60,556 -- 6,361
Executive Vice 1995 191,733 76,954 36,500 6,137
President & COO 1994 182,265 73,152 6,000 5,884
John D. Isenhart................. 1996 144,120 36,942 -- 3,696
Sr. Vice President 1995 138,310 48,565 -- 3,705
1994 133,026 46,708 1,000 3,596
Ronald W. Jean................... 1996 135,836 34,818 -- 2,266
Vice President
Raymond W. Davis................. 1996 125,676 32,211 200 2,649
Vice President
</TABLE>
- ---------------
(1) Compensation deferred at election of executive includable in category and
year earned.
(2) Total of other annual compensation for each of the named executives did not
exceed the reporting thresholds during the three years covered in the table.
(3) All stock options granted were at option prices equal to the fair market
value of the 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 401-K Plan and excess group life
insurance premiums. During 1996, contributions to the 401-K Plan on behalf
of Messrs. Kelley, Schiek, Isenhart, Jean and Davis, respectively, were
$1,500, $1,500, $1,500, $1,500 and $1,500. Excess life insurance premiums
paid during 1996 on behalf of Messrs. Kelley, Schiek, Isenhart, Jean and
Davis were $743, $4,861, $2,196, $766 and $1,149, respectively.
7
<PAGE> 11
STOCK OPTIONS
The following table sets forth details regarding stock options granted to
the named executive officers during 1996. In addition, the table shows the
hypothetical gain, or "option spreads", that would exist for the respective
options. The gains are based on assumed rates of annual compound stock
appreciation of five and ten percent over the full term of the options. The
stock option plans utilize the Common Stock of the Company, with the Company
receiving the full fair market value at the date of exercise for all stock
issued under the plans.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES BASED ON
NUMBER ASSUMED RATES OF
OF % OF STOCK PRICE
OPTIONS/ TOTAL EXERCISE APPRECIATION (2)
GRANTED OPTIONS PRICE EXPIRATION --------------------
NAME (#) (1) GRANTED ($/SH) DATE 5% ($) 10% ($)
---- -------- ------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley.......................... 6,000 10.9 13.25 2/1/06 49,980 126,720
Fredrick A. Schiek....................... -- -- -- -- -- --
John D. Isenhart......................... -- -- -- -- -- --
Ronald W. Jean........................... -- -- -- -- -- --
Raymond W. Davis......................... 200 .3 13.25 2/1/06 1,666 4,224
</TABLE>
- ---------------
(1) All stock options granted were at option prices equal to the fair market
value of the 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
<PAGE> 12
The following table sets forth information with respect to the named
executive officers concerning the exercise of stock options during 1996, the
realized gains from those exercises, the number of unexercised options held as
of December 31, 1996 and the amount of unrealized gains represented by 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
VALUE YEAR END (#) YEAR END ($)
SHARES ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) (1) UNEXERCISABLE UNEXERCISABLE (2)
- ---- --------------- -------- ------------- -----------------
<S> <C> <C> <C> <C>
Bruce G. Kelley......................... -- -- 69,493/34,400 226,283/70,228
Fredrick A. Schiek...................... -- -- 20,150/38,600 46,938/83,966
John D. Isenhart........................ -- -- 3,855/ 1,420 11,048/ 3,901
Ronald W. Jean.......................... -- -- 9,265/ 2,780 29,219/ 6,744
Raymond W. Davis........................ 4,000 14,626 11,040/ 2,960 33,721/ 6,475
</TABLE>
- ---------------
(1) Value realized is the 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 market value of the stock at year-end. The year-end market
value was $12.00.
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 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>
ASSUMED YEARS OF SERVICE AT NORMAL RETIREMENT DATE
ANNUAL --------------------------------------------
EARNINGS 15 20 25 30
- -------- -- -- -- --
<S> <C> <C> <C> <C>
$150,000................................................ 41,246 54,995 68,743 82,492
200,000................................................ 56,246 74,995 93,743 112,492
250,000................................................ 71,246 94,995 118,743 142,492
300,000................................................ 86,246 114,995 143,743 172,492
350,000................................................ 101,246 134,995 168,743 202,492
400,000................................................ 116,246 154,995 193,743 232,492
450,000................................................ 131,246 174,995 218,743 262,492
500,000................................................ 146,246 194,995 243,743 292,492
550,000................................................ 161,246 214,995 268,743 322,492
600,000................................................ 176,246 234,995 293,743 352,492
</TABLE>
The Employers Mutual Retirement Annuity Plan (the "Pension Plan") is a cash
balance form of defined benefit plan and it covers all employees of Employers
Mutual and its subsidiaries and of the subsidiaries of the
9
<PAGE> 13
Company. Under the plan, each individual participant's retirement benefit is
expressed as an account balance, similar to that of a defined contribution plan.
The formula for determination of the retirement benefit of participants 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 plan defined percentage of their covered compensation for
the year and 2) interest on the prior year-end account balance at the rate
established by the Pension Benefit Guaranty Corporation (PBGC). The
participant's account balance is "defined" annually based on these factors
without regard to the actual investment performance of the plan's funds.
Employers Mutual also sponsors a defined contribution plan, the Employers
Mutual Casualty Company 401-K Savings Plan (the "401-K Plan"). This plan is
available to all employees of Employers Mutual and the subsidiary companies of
it and of the Company. Under the 401-K Plan, the employer matches 50 percent of
the first two percent that an employee defers. With the exception of the highly
compensated group, the employee participants can make tax qualified deferrals of
up to 19 percent of their covered compensation to this plan.
Employers Mutual also has two non-qualifying supplemental retirement plans,
the Excess Retirement Benefit Agreement and the Supplemental Executive
Retirement Plan (the "SERP"), the purpose of which is to restore retirement
benefits to those employees who are prevented from receiving full benefits from
the Pension Plan because of their deferral of bonus income or 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 plans
are unfunded and any payments made to participants will be from the general
accounts of the sponsoring companies.
All of the individuals named in the Summary Compensation Table are
participants in the Pension Plan, the 401-K Plan and the SERP. For retirement
benefit purposes, during 1996 the number of full years of service accrued and
the compensation for Messrs. Kelley, Schiek, Isenhart, Jean and Davis were 11
and $451,127, 37 and $289,359, 33 and $194,881, 17 and $182,374, and 17 and
$168,500 respectively. For 1996, pursuant to the requirements of the Internal
Revenue Code, as amended, compensation crediting under the Pension Plan and the
401-K Plan was limited to $150,000.
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 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.
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<PAGE> 14
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 subsidiary companies collectively had assets that
totaled $1,451,019,234 at year-end 1996 and had written premiums of $594,018,148
for the year.
EXECUTIVE COMPENSATION COMPONENTS
The compensation of Employers Mutual executives is primarily provided
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.
Through the use of an annual incentive bonus program, the executives have
the opportunity to gain additional compensation based upon the overall
performance of Employers Mutual and its subsidiaries. That bonus program
measures performance as compared to that of the property and casualty insurance
industry as a whole with respect to such specific areas as combined loss and
expense ratio and the growth in surplus as regards policyholders for the program
year. 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,
and with three 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 drafted 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, in addition to providing
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 1996, the Committee recommended that the base salary of Bruce G.
Kelley, Chief Executive Officer, be increased to $320,180, an increase of 10.3
percent over the base salary paid him during 1995. 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
bonus paying insurance industry and peer group companies, and upon the very good
results attained by Employers Mutual for 1995. The full Board of Directors of
Employers Mutual approved that recommendation.
Under the bonus program, Mr. Kelley has received a bonus of $105,180 for
1996 performance. In addition, the Committee and the Board of Directors approved
a grant of 6,000 incentive stock options for him, the particulars of which are
expanded upon in the foregoing Summary Compensation and Stock Option tables.
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<PAGE> 15
Based on published preliminary results for the countrywide property and
casualty industry during 1996, the combined loss and expense ratio for Employers
Mutual and all of its property and casualty insurance subsidiaries was 2.2
points better than the industry. For the year, there was an addition to the
companies' statutory surplus of $55,524,588 and net premiums written increased
to $594,018,148 as compared with $586,502,641 for 1995.
Senior Executive Compensation and Stock Option Committee of Employers Mutual:
Blaine A. Briggs
Richard W. Booth
Lanning Macfarland, Jr.
Philip T. Van Ekeren
Bruce G. Kelley, ex officio
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
William H. Brenton, who served as Chairman of the Committee until March of
1996, is Chairman of the Executive Committee and Vice Chairman of the Board of
Brenton Banks, Inc. and a member of the Board of Directors of Brenton Bank.
Employers Mutual and certain of its subsidiaries, including the Company,
maintain a number of accounts in banks owned by Brenton Banks, Inc. and its
subsidiaries. Bruce G. Kelley also serves as a member of the Board of Directors
of Brenton Bank.
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<PAGE> 16
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 262 over a
five-year period beginning December 31, 1991 and ending December 31, 1996. 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
<TABLE>
<CAPTION>
MEASUREMENT PERIOD EMC INDUSTRY NASDAQ
(FISCAL YEAR COVERED) INSURANCE INDEX MARKET INDEX
GROUP INC.
<S> <C> <C> <C>
1991 100 100 100
1992 94.60 117.91 100.98
1993 111.53 120.77 121.13
1994 118.01 119.61 127.17
1995 178.60 171.54 164.96
1996 163.19 206.09 204.98
</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 1996 Annual Report
to Stockholders.
EMC Reinsurance Company ("EMC Re"), the Company's reinsurance subsidiary,
has an agreement with Employers Mutual whereby EMC Re accepts a 95 percent quota
share of Employers Mutual's assumed reinsurance business, exclusive of certain
reinsurance contracts. Under the agreement, EMC Re receives 95 percent of the
premiums and assumes 95 percent of all related loss and settlement expenses of
the business. Since 1993, losses in excess of $1,000,000 per event are retained
by Employers Mutual. Employers Mutual retained $166,573 of losses and settlement
expense under this agreement in 1996. EMC Re paid $1,892,710 to
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<PAGE> 17
Employers Mutual for this additional protection. EMC Re also paid 95 percent of
the outside reinsurance protection Employers Mutual purchases to protect itself
from catastrophic losses on its assumed book of business. The cost is recorded
as a reduction to premiums written and amounted to $1,315,750 in 1996.
During 1996, EMC Re assumed a total of $36,051,617 in reinsurance premiums
from Employers Mutual and, in return, paid Employers Mutual $10,092,782 as
reimbursement for its acquisition expenses.
EMC Re has an aggregate excess of loss treaty with Employers Mutual which
provides protection against losses resulting from multiple catastrophes. The
coverage provided by this treaty is $2,000,000 in excess of $3,000,000 of losses
retained by EMC Re, excess of $200,000 per single catastrophe. The maximum
recovery under this treaty in any one year is $2,000,000. During 1996, EMC Re
did not recover any losses under this agreement. Total premiums paid to
Employers Mutual during the year under this treaty amounted to $500,000.
Effective January 1, 1997, several changes were made to the reinsurance
program between Employers Mutual and EMC Re. The quota share agreement was
increased from 95% to 100%, the cap on losses per event was increased from
$1,000,000 to $1,500,000 and the aggregate catastrophe cover between Employers
Mutual and EMC Re was canceled.
In addition to amounts paid pursuant to the Pooling Agreement, the Company
paid Employers Mutual $539,845 in 1996 to cover administrative overhead incurred
by Employers Mutual in providing investment services. The allocation of charges
to the Company is based on both the number of the Company's investment
transactions and the dollar value of the Company's investment portfolio in
relation to the corresponding number of transactions in, and value of, the
investment portfolios of Employers Mutual and all of its property and casualty
subsidiaries. Based on this allocation, the Company believes such fees to be
reasonable.
PROPOSAL TO AMEND THE 1993 EMPLOYERS MUTUAL
CASUALTY COMPANY INCENTIVE STOCK OPTION PLAN
In November 1996, the Boards of Directors of Employers Mutual and the
Company approved an amendment to the 1993 Employers Mutual Casualty Company
Incentive Stock Option Plan (the "Plan"), subject to the approval of Employers
Mutual's policyholders and the Company's stockholders. The policyholders of
Employers Mutual approved the amendment to the Plan on March 12, 1997.
The amendment being submitted for stockholder approval would increase the
number of shares of Common Stock reserved for issuance under the Plan from
500,000 to 1,000,000. The Boards of Directors of Employers Mutual and the
Company believe that the existing plan has been effective in attracting and
retaining executives and key employees for Employers Mutual, the Company and
their subsidiaries.
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<PAGE> 18
The table below is a summary of the awards that were granted February 1,
1997 for the 1996 year.
PLAN BENEFITS
1993 EMPLOYERS MUTUAL CASUALTY COMPANY
INCENTIVE STOCK OPTION PLAN
<TABLE>
<CAPTION>
NAME AND POSITION DOLLAR VALUE(1) NUMBER OF UNITS
- ----------------- --------------- ---------------
<S> <C> <C>
Bruce G. Kelley............................................. -- 10,000
President, Treasurer & CEO
Fredrick A. Schiek.......................................... -- --
Executive Vice President & COO
John D. Isenhart............................................ -- --
Senior Vice President
Ronald W. Jean.............................................. -- --
Vice President
Raymond W. Davis............................................ -- 1,500
Vice President
All Current Executive Officers as a Group................... -- 37,750(2)
Non-Executive Directors as a Group.......................... -- --
Non-Executive Officer Employees as a Group.................. -- 50,300
</TABLE>
- ---------------
(1) The value of the Common Stock as of February 1, 1997 was $12.25 per share
which was the same as the grant price.
(2) This category includes the grants to the five named executives.
A general description of the principal terms of the Plan is set forth
below, but such description is qualified in its entirety by the terms of the
Plan, as proposed to be amended, a copy of which is available to any shareholder
upon request.
PURPOSE OF THE PLAN
The purpose of the Plan is to promote the interests of the stockholders of
the Company, of Employers Mutual, its subsidiaries and its policyholders, and of
the Company and its subsidiaries, by strengthening the ability of such companies
to attract and retain valuable employees by encouraging such employees to
acquire or to increase their ownership of the Company's Common Stock, thereby
maintaining their personal interest in the continued success and progress of the
Company, Employers Mutual and their subsidiaries.
SHARES SUBJECT TO THE PLAN
The total amount of stock on which options may be granted under the Plan
shall not exceed 1,000,000 shares. This number is subject to adjustment to
reflect the payment of any stock dividends, a subdivision or combination of
shares of stock, a stock split or a reclassification of stock or any merger or
consolidation in which the Company is the surviving corporation.
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<PAGE> 19
ELIGIBLE EMPLOYEES
Approximately 63 persons are presently eligible to participate in the Plan,
being key employees and certain officers of Employers Mutual, the Company and
their subsidiaries.
ADMINISTRATION OF THE PLAN
The Senior Executive Compensation and Stock Option Committee (the
"Committee") of Employers Mutual's Board of Directors will be the administrator
of the Plan and will select the individuals to whom options will be granted and
the number of shares of Common Stock for which options will be granted.
As administrator of the Plan, the Committee has the authority to establish
such rules and regulations with respect to the Plan as it deems appropriate and
to interpret and implement such rules and regulations. If at any time the
Committee consists of any individuals who are eligible to participate in the
Plan, all authority to administer the Plan will pass to such other committee as
may be appointed by the Board of Employers Mutual.
The Board of Directors of Employers Mutual may at any time terminate, amend
or modify the Plan, provided that no amendment, modification or termination of
the Plan may affect any option right previously granted to an optionee under the
Plan without the consent of the optionee.
GRANT OF OPTIONS
Options under the Plan may be granted any time through December 31, 2002.
Generally, the Plan provides for the exercise of options commencing one year
after the date such option was granted, with vesting in increments of two,
three, four or five years. At the discretion of the Committee, options may be
granted with terms of two or more years, not to exceed ten years.
OPTION PRICE
The option price per share of Common Stock granted under the Plan must not
be less than 100% of the fair market value of the Company's Common Stock on the
date of grant, fair market value being the mean between the high and low price
published in The Wall Street Journal for such date.
Neither the Company nor Employers Mutual will receive any payment from the
optionee at the time the option is granted. Payment for options exercised by an
optionee must be made in full in cash or by surrendering to the Company shares
of the Company's Common Stock already owned by the optionee at the time of
exercise.
SPECIAL PLAN PROVISIONS
The Plan prohibits grants of incentive stock options to any one employee
which would permit the employee to receive options which are exercisable for the
first time in any one calendar year which exceed $100,000 in aggregate fair
market value, determined as of the date of grant. The Plan does not contain any
restriction on the total number of options which may be granted to any one
employee under the Plan, although incentive stock options generally may not be
granted to any individual owning more than 10 percent of the combined voting
power of such person's employer and its parent and subsidiaries. No individuals
possessed such voting power as of April 2, 1997.
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<PAGE> 20
No option may be transferred by an optionee other than by will or the laws
of descent and distribution, and during an optionee's lifetime, options granted
to an employee may be exercised only by such employee.
The plan has special provisions concerning the exercise of options in the
event of the termination of employment, death or disability of an optionee, but
in no event may options be exercised more than twelve months after the
occurrence of any such event.
TAX CONSEQUENCES OF THE PLAN
The Federal income tax consequences incident to the issuance and exercise
of options pursuant to the Plan are as follows: no tax consequences result from
the grant of an incentive stock option nor from the exercise of an incentive
stock option by the optionee. When the stock is sold or exchanged after
completion of the holding period (that is, after the stock has been held to a
date that is both two years after the date on which the option was granted and
one year after the date of exercise of the option), the optionee will recognize,
as capital gains income (or loss), the difference between the sale price and the
basis of the stock (normally the option price). Neither the Company nor
Employers Mutual will receive any deduction with respect to stock acquired
pursuant to the exercise of an incentive stock option except for a disposition
prior to the end of the holding period.
If the stock acquired through the exercise of an incentive stock option is
sold before the end of the required holding period, the optionee would
recognize, as compensation, the amount of the spread between the option price
and the fair market value of the stock at the time of the exercise of the
option. This compensation income is then added to the stock basis in determining
the gain or loss on the sale. The amount which the optionee recognizes as income
is deductible by the participating company as compensation and will be allocated
among the Company and Employers Mutual and its subsidiaries and affiliates in
the same manner as any other deduction. Although the exercise of an incentive
stock option does not result in taxable income, the spread between the option
price and the fair market value at the time of exercise is an item of tax
preference for alternative minimum tax purposes.
STOCKHOLDER APPROVAL
Any increase in the maximum number of shares available under the Plan will
be conditional upon the subsequent approval by the stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE PROPOSED
AMENDMENT TO THE PLAN. PROXIES SOLICITED BY THE BOARD OF DIRECTORS WILL BE SO
VOTED IN THE ABSENCE OF DIRECTION TO THE CONTRARY.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
KPMG Peat Marwick LLP, independent certified public accountants, audited
the accounts of the Company for the year ended December 31, 1996. The Board of
Directors has selected KPMG Peat Marwick LLP as auditors for 1997 and the
stockholders are asked to ratify that selection. During 1996, in connection with
its audit function, KPMG Peat Marwick LLP 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.
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<PAGE> 21
A representative of KPMG Peat Marwick LLP will be present at the Annual
Meeting, and will be given an opportunity to make a statement and 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 CONTRARY.
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 1998 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement for
the 1998 Annual Meeting of Stockholders must be received by the Company not
later than December 26, 1997. The person submitting the proposal must have been
a record or beneficial owner of the Company's Common Stock for at least one
year, and the securities so held must have a market value of at least $1,000.
Any such proposal will be included in the Proxy Statement for the 1998 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
rules promulgated by the Securities and Exchange Commission.
April 22, 1997
BY ORDER OF THE BOARD OF DIRECTORS
DONALD D. KLEMME, Secretary
18
