<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)
- --------------------------------------------------------------------------------
(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:
- --------------------------------------------------------------------------------
<PAGE> 2
EMC Insurance Group Inc. Letterhead
April 19, 2000
Dear Stockholder:
I am pleased to extend to you my personal invitation to attend the 2000
Annual Meeting of Stockholders of EMC Insurance Group Inc. on May 25, 2000, at
10:00 a.m., at the offices of Employers Mutual Casualty 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 1999 performance and its plans for
2000. Certain members of the Company's Board of Directors and Officers of the
Company, as well as representatives of KPMG LLP, the Company's independent
certified public accountants, 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,
Bruce G. Kelley
Bruce G. Kelley
President, Treasurer and CEO
<PAGE> 3
EMC INSURANCE GROUP INC.
NOTICE OF
2000 ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2000
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
Thursday, May 25, 2000 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 KPMG LLP as the Company's independent
certified public accountants for the current fiscal year; and
3. 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 3, 2000 will be entitled to notice of and to vote at the meeting. The
stock transfer books of the Company will not be closed.
April 19, 2000
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
2000 ANNUAL MEETING OF STOCKHOLDERS
MAY 25, 2000
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 2000 Annual Meeting of Stockholders to be held on May 25,
2000, and at any adjournment thereof (the "Annual Meeting").
The Company's 1999 Annual Report to Stockholders was sent to the Company's
stockholders on or about April 6, 2000. This proxy statement, along with the
accompanying form of proxy, was sent to the Company's stockholders on or about
April 19, 2000.
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 3, 2000 are entitled to notice of and to vote at the Annual Meeting. At
the close of business on April 3, 2000, there were 11,286,459 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 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 2001 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 POSITION WITH
NAME AGE SINCE THE COMPANY
---- --- -------- -------------
<S> <C> <C> <C>
George C. Carpenter III................... 72 1981 Director
Elwin H. Creese........................... 68 1994 Director
David J. Fisher........................... 63 1985 Director
Bruce G. Kelley........................... 46 1991 President, Treasurer, Chief Executive
Officer and Director
George W. Kochheiser...................... 74 1974 Chairman of the Board
Raymond A. Michel......................... 74 1981 Director
Fredrick A. Schiek........................ 65 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 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 Iowa State Board of Regents and is a Director of Liberty
Bank. He also serves as a member of the Federal Reserve Bank of Chicago's
Advisory Council on Small Business.
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 by Employers Mutual
since 1985 and has been a director of that company since 1984.
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 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 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 by
Employers Mutual since 1959.
INFORMATION ABOUT THE BOARD OF DIRECTORS AND ITS COMMITTEES
During the year ended December 31, 1999, the Board of Directors of the
Company held four regular meetings. In 1999, 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 four standing committees: the
Executive Committee, the Audit Committee, the Investment Committee and the
Inter-Company Committee. The Board of Directors of the Company does not have a
nominating committee or a compensation committee. The functions of the
nominating committee are carried out by the Board of 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.
The Executive Committee members are Bruce G. Kelley, Fredrick A. Schiek and
George W. Kochheiser. The Executive Committee did not meet during the year ended
December 31, 1999. 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 members of the Audit Committee are George C. Carpenter III, David J.
Fisher and Raymond A. Michel. The Audit Committee held two meetings in 1999. 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 Investment Committee members 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 1999.
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 Audit Committee also serve as the members of the
Inter-Company Committee. Employers Mutual is represented on the Inter-Company
3
<PAGE> 7
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 did not meet during 1999.
DIRECTORS' COMPENSATION
In 1999, 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. If two or more committee meetings are
held on one day, the maximum fee permitted is $900, 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 $900.
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 1999, four
of the Company's directors participated in the plan and exercised options for
702, 1,000, 1,973 and 1,208 shares of Common Stock at fair market prices of
$9.50, $11.19, $11.00 and $9.94, respectively.
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...................... 8,296,757(1) 73.5%
717 Mulberry Street
Des Moines, Iowa 50309
Common Dimensional Fund Advisors Inc.......................... 593,200(2) 5.3%
1299 Ocean Avenue
Santa Monica, California 90401
</TABLE>
- ---------------
(1) On April 3, 2000, Employers Mutual owned 8,296,757 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, 2000,
filed with the Securities and Exchange Commission by Dimensional Fund
Advisors Inc., a registered investment advisor. Dimensional Fund Advisors
Inc. 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 3, 2000, by each of the Company's
directors and nominees and by each executive officer of the Company. 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>
Margaret A. Ball............................................ 16,648(2) *
George C. Carpenter III..................................... 6,141 *
Elwin H. Creese............................................. 20,852 *
David J. Fisher............................................. 1,575 *
John D. Isenhart............................................ 14,506(3) *
Ronald W. Jean.............................................. 13,323(4) *
Bruce G. Kelley............................................. 179,411(5) 1.6%
George W. Kochheiser........................................ 55,000 *
Raymond A. Michel........................................... 5,000 *
Fredrick A. Schiek.......................................... 43,376(6) *
All Directors and Executive Officers as a Group (15 persons,
including those listed above)............................. 432,948 3.8%
</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) Margaret A. Ball directly owns 5,648 shares of Common Stock and has
presently exercisable options to purchase 11,000 shares, which shares are
included in the table.
(3) John D. Isenhart directly owns 11,756 shares of Common Stock and has
presently exercisable options to purchase 2,750 shares, which shares are
included in the table.
(4) Ronald W. Jean directly owns 8,091 shares of Common Stock and has presently
exercisable options to purchase 5,232 shares, which shares are included in
the table.
(5) Bruce G. Kelley owns 80,370 shares of Common Stock directly and 24,241
shares indirectly. Of the 24,241 shares indirectly owned, 1,500 are owned by
his spouse and 22,741 are owned by his children. In addition, he owns
presently exercisable options to purchase 74,800 shares of Common Stock,
which shares are included in the table.
(6) Fredrick A. Schiek directly owns 20,245 shares of Common Stock and has
presently exercisable options to purchase 23,131 shares, which shares are
included in the table.
5
<PAGE> 9
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. 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. Approximately 15 employees of Employers Mutual devote a portion of
their time performing administrative duties for the Company.
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 1999 was shared by the Company's property
and casualty insurance subsidiaries in accordance with the terms of the Pooling
Agreement. Likewise, the compensation of the employees of the Illinois EMCASCO
Insurance Company were charged as an expense to the Pooling Agreement and as
such were shared by all of the parties to the Pooling Agreement. The
compensation paid to the employees of Employers Mutual who perform duties for
EMC Reinsurance Company and EMC Underwriters, LLC is not allocated to the
Pooling Agreement.
The aggregate participation of the Company's property and casualty
insurance subsidiaries in the Pooling Agreement during 1999 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
<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, 1999.
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................... 1999 379,863 -- -- -- 5,724
President, Treasurer 1998 355,011 -- -- -- 3,914
& CEO 1997 338,096 -- -- 10,000 3,914
Fredrick A. Schiek................ 1999 252,935 -- -- -- 11,614
Executive Vice 1998 240,886 -- -- -- 8,114
President & COO 1997 219,157 -- -- -- 8,114
John D. Isenhart.................. 1999 164,539 -- -- 1,000 7,822
Sr. Vice President 1998 156,709 -- -- -- 6,871
1997 149,967 -- -- -- 6,685
Ronald W. Jean.................... 1999 160,307 -- -- 1,000 5,934
Sr. Vice President 1998 151,952 -- -- 1,000 3,922
1997 141,360 -- -- -- 4,005
Margaret A. Ball.................. 1999 148,999 -- -- 1,000 7,216
Sr. Vice President 1998 139,671 -- -- 1,000 6,033
1997 130,668 -- -- 1,000 5,065
</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.
(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") and excess group life insurance premiums. During 1999,
contributions to the 401(k) Plan on behalf of each of Mr. Kelley, Mr.
Schiek, Mr. Isenhart, Mr. Jean, and Mrs. Ball were $4,800, $4,800, $4,800,
$4,800 and $4,545, respectively. Excess life insurance premiums paid during
1999 on behalf of Mr. Kelley, Mr. Schiek, Mr. Isenhart, Mr. Jean, and Mrs.
Ball were $924, $6,814, $3,022, $1,134 and $2,671, respectively.
7
<PAGE> 11
STOCK OPTIONS
The following table sets forth details regarding stock options granted to
the named executive officers during 1999. In addition, the table shows the
hypothetical gain, or "option spread", that would exist for the respective
options. The gains are based on assumed rates of annual compound stock
appreciation of five and ten percent over the full term of the options. The
stock option plans utilize the Common Stock of the Company, with the Company
receiving the full fair market value at the date of exercise for all stock
issued under the plans.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUES BASED ON
NUMBER ASSUMED RATES OF
OF % OF STOCK PRICE
OPTIONS TOTAL EXERCISE APPRECIATION(2)
GRANTED OPTIONS PRICE EXPIRATION ---------------------
NAME (#)(1) GRANTED ($/SH) DATE 5% ($) 10% ($)
---- ------- ------- -------- ---------- ------- --------
<S> <C> <C> <C> <C> <C> <C>
Bruce G. Kelley.......................... -- -- -- -- -- --
Fredrick A. Schiek....................... -- -- -- -- -- --
John D. Isenhart......................... -- -- -- -- -- --
Ronald W. Jean........................... 1,000 1.4 12.69 2/1/09 7,980 20,022
Margaret A. Ball......................... 1,000 1.4 12.69 2/1/09 7,980 20,022
</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
<PAGE> 12
The following table sets forth information with respect to the named
executive officers concerning the exercise of stock options during 1999, the
realized gains from those exercises, the number of unexercised options held as
of December 31, 1999 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
SHARES VALUE YEAR END (#) YEAR END ($)
ACQUIRED REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE(#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
---- -------------- -------- ------------- ----------------
<S> <C> <C> <C> <C>
Bruce G. Kelley....................... -- -- 85,600/10,400 26,535/--
Fredrick A. Schiek.................... 20,245 61,358 15,831/ 7,300 381/--
John D. Isenhart...................... 1,725 7,215 2,550/ 1,000 --/--
Ronald W. Jean........................ 3,468 15,072 4,562/ 2,070 10/--
Margaret A. Ball...................... 1,900 5,730 11,000/ 3,750 2,484/--
</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 $9.13.
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>
YEARS OF SERVICE AT NORMAL RETIREMENT DATE
-------------------------------------------------------
ASSUMED ANNUAL EARNINGS 15 20 25 30
- ----------------------- -- -- -- --
<S> <C> <C> <C> <C> <C>
$150,000..................................... 40,974 54,632 68,290 81,948
200,000..................................... 55,974 74,632 93,290 111,948
250,000..................................... 70,974 94,632 118,290 141,948
300,000..................................... 85,974 114,632 143,290 171,948
350,000..................................... 100,974 134,632 168,290 201,948
400,000..................................... 115,974 154,632 193,290 231,948
450,000..................................... 130,974 174,632 218,290 261,948
500,000..................................... 145,974 194,632 243,290 291,948
550,000..................................... 160,974 214,632 268,290 321,948
600,000..................................... 175,974 234,632 293,290 351,948
650,000..................................... 190,974 254,632 318,290 381,948
------- ------- ------- -------
</TABLE>
The Employers Mutual Casualty Company Retirement Plan (the "Pension Plan")
is a cash balance form of defined benefit plan which covers all employees of
Employers Mutual, its subsidiaries and the subsidiaries
9
<PAGE> 13
of the Company. Under the Pension Plan, each individual participant's retirement
benefit is expressed as an account balance, similar to that of a defined
contribution plan.
The formula for determining 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 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. The participant's account balance is
"defined" annually based on these factors without regard to the actual
investment performance of the Pension Plan's funds. In addition to the above,
those employees employed prior to January 1, 1989, were eligible for a
grandfathered benefit based on a traditional defined benefit formula. As of
January 1, 2000, those employees hired before January 1, 1989, and who were 50
years old or older on January 1, 2000, will continue with the traditional
defined benefit formula.
Employers Mutual also sponsors a defined contribution 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, Employers
Mutual matches 50 percent of the first six percent that an employee defers. With
the exception of the highly compensated group, the employee participants can
make tax qualified deferrals of up to 17 percent of their covered compensation
to this plan.
Employers Mutual also has two non-qualified 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 1999 the number of full years of service accrued and
the compensation for Mr. Kelley, Mr. Schiek, Mr. Isenhart, Mr. Jean and Mrs.
Ball were 14 and $381,943, 40 and $260,612, 36 and $167,561, 20 and $161,442 and
28 and $151,670, respectively. For 1999, 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 $160,000.
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
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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 $1,795,916,904 at year-end 1999 and had written premiums of
$771,615,762 for the year.
EXECUTIVE COMPENSATION COMPONENTS
The compensation of Employers Mutual executives is 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 annual 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 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 1999, the Committee recommended that the base salary of Bruce G.
Kelley, Chief Executive Officer, be increased to $381,324, an increase of 7.0
percent over the base salary paid him during 1998. 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. The full Board of
Directors of Employers Mutual approved that recommendation.
The Executive Compensation Bonus Program is based upon a number of factors
for Employers Mutual and its property and casualty insurance subsidiaries, as
described above. Mr. Kelley and the other executives earned no bonus for 1999.
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<PAGE> 15
The members of the Senior Executive Compensation and Stock Option Committee
of Employers Mutual are as follows:
Blaine A. Briggs
Richard W. Booth
Lanning Macfarland, Jr.
Philip T. Van Ekeren
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Philip T. Van Ekeren was an officer of Employers Mutual and the Company
prior to his retirement on June 1, 1996. There were no Compensation Committee
interlocks involving the members of Employers Mutual's Senior Executive
Compensation and Stock Option Committee.
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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 432 over a
five-year period beginning December 31, 1994 and ending December 31, 1999. 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
[GRAPH]
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
EMC INSURANCE GROUP INC. ................... 100.00 151.35 138.29 159.89 160.87 121.83
INDUSTRY INDEX ............................. 100.00 144.66 169.84 247.11 260.36 289.50
NASDAQ MARKET INDEX ........................ 100.00 129.71 161.18 197.16 278.08 490.46
</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 1999 Annual Report
to Stockholders.
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<PAGE> 17
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
KPMG LLP, independent certified public accountants, audited the accounts of
the Company for the year ended December 31, 1999. The Board of Directors has
selected KPMG LLP as auditors for 2000 and the stockholders are asked to ratify
that selection. During 1999, in connection with its audit function, KPMG 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.
A representative of KPMG LLP 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 2001 ANNUAL MEETING
Stockholder proposals for inclusion in the Company's Proxy Statement for
the 2001 Annual Meeting of Stockholders must be received by the Company no later
than December 20, 2000. 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 $2,000 and you
must hold the securities on the date of the meeting. Any such proposal will be
included in the Proxy Statement for the 2001 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 19, 2000
BY ORDER OF THE BOARD OF DIRECTORS
DONALD D. KLEMME, Secretary
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================================================================================
EMC INSURANCE GROUP INC.
PROXY FOR COMMON STOCK
ANNUAL MEETING OF STOCKHOLDERS-MAY 25, 2000
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. held of record by the undersigned on
April 3, 2000 at the Annual Meeting of Stockholders to be held on May 25, 2000,
or any adjournment thereof.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary to vote for all nominees listed below
below)
</TABLE>
George C. Carpenter III, Elwin H. Creese, David J. Fisher, Bruce G. Kelley,
George W. Kochheiser, Raymond A. Michel, Fredrick A. Schiek
(INSTRUCTION: To withhold authority to vote for any individual nominee,
write that name on the space provided below.)
----------------------------------------------------------------------------
2. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG 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, SPECIAL
ACTION Discontinue Annual Report Mailing for this Account [ ].
<PAGE> 19
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:________________________________2000
-----------------------------------------
Signature
-----------------------------------------
Signature if held jointly
---------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THE
PROXY CARD PROMPTLY, USING THE ENCLOSED
ENVELOPE.
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