<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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 Section 240.14a-11(c) or Section 240.14a-12
MERCURY GENERAL CORPORATION
- --------------------------------------------------------------------------------
(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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
-------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
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(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):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
[LOGO OF MERCURY
GENERAL CORPORATION] MERCURY GENERAL CORPORATION
4484 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90010
----------------
NOTICE OF ANNUAL MEETING OF
SHAREHOLDERS AND PROXY STATEMENT
To The Shareholders of
Mercury General Corporation
Notice is hereby given that the Annual Meeting of Shareholders of MERCURY
GENERAL CORPORATION (the "Company") will be held at the Radisson Wilshire
Plaza Hotel, 3515 Wilshire Boulevard, Los Angeles, California on May 13, 1998
at 10:00 a.m., for the following purposes:
1. To elect nine directors for the ensuing year to serve until the next
Annual Meeting of Shareholders and until their successors are elected and
have qualified.
2. To approve the adoption of the Mercury General Corporation Senior
Executive Incentive Bonus Plan (the "Incentive Plan").
3. To consider and vote upon the recommendation of the Board of Directors
that KPMG Peat Marwick be appointed auditors of the Company for 1998.
4. To transact such other business as may properly come before the
meeting.
The Board of Directors has fixed the close of business on March 16, 1998 as
the record date for the determination of shareholders entitled to notice of
and to vote at the meeting.
Accompanying this Notice of Annual Meeting is a proxy. WHETHER OR NOT YOU
EXPECT TO BE AT THE MEETING, PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED PROXY
AND RETURN IT PROMPTLY.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Judy A. Walters
Judy A. Walters, Secretary
Los Angeles, California
March 30, 1998
<PAGE>
MERCURY GENERAL CORPORATION
4484 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90010
----------------
PROXY STATEMENT
The Board of Directors of the Company is soliciting the enclosed proxy for
use at the Annual Meeting of Shareholders of the Company to be held at 10:00
a.m. May 13, 1998, at the Radisson Wilshire Plaza Hotel, 3515 Wilshire
Boulevard, Los Angeles, California. This Proxy Statement was first mailed to
shareholders on March 30, 1998.
All shareholders who find it convenient to do so are cordially urged to
attend the meeting in person. In any event, please complete, sign, date and
return the proxy in the enclosed envelope.
A proxy may be revoked by written notice to the Secretary of the Company at
any time prior to the voting of the proxy, or by executing a later proxy or by
attending the meeting and voting in person. Unrevoked proxies will be voted in
accordance with the instructions indicated in the proxies, or if there are no
such instructions, such proxies will be voted for the election of the Board of
Directors' nominees for directors and for the two other proposals to be
submitted to the shareholders. Shares represented by proxies that reflect
abstentions or include "broker non-votes" will be treated as present and
entitled to vote for purposes of determining the presence of a quorum.
Shareholders of record at the close of business on March 16, 1998 will be
entitled to vote at the meeting. As of that date 55,219,513 shares of common
stock, without par value ("Common Stock"), of the Company were outstanding.
Each share of Common Stock is entitled to one vote. A majority of the
outstanding shares of the Company, represented in person or by proxy at the
meeting, constitutes a quorum.
The costs of preparing, assembling and mailing the Notice of Annual Meeting,
Proxy Statement and proxy will be borne by the Company.
VOTING
In voting for the election of directors of the Company under the California
General Corporation Law, if, prior to the commencement of voting, any
shareholder has given notice of his intention to cumulate his votes at the
meeting, then all shareholders may cumulate their votes in the election of
directors for any nominee if the nominee's name was placed in nomination prior
to the voting. Under cumulative voting, each shareholder is entitled in the
election of directors to one vote for each share held by him multiplied by the
number of directors to be elected, and he may cast all such votes for a single
nominee for director or may distribute them among any two or more nominees as
he sees fit. If no such notice is given, there will be no cumulative voting.
In the absence of cumulative voting, each shareholder may cast one vote for
each share held by him multiplied by the number of directors to be elected,
but may not cast more votes than the number of shares owned for any candidate
and therefore a simple majority of the shares voting will elect all of the
directors. Under either form of voting, the candidates receiving the highest
number of votes, up to the number of directors to be elected, will be elected.
Abstentions and broker non-votes will have no effect on the outcome of the
election of directors.
In the event of cumulative voting, the proxy solicited by the Board of
Directors confers discretionary authority on the proxies to cumulate votes so
as to elect the maximum number of nominees. The proxy may not be voted for
more than nine persons.
The affirmative vote of the holders of a majority of the shares present in
person or represented by proxy and entitled to vote at the meeting is required
to approve the adoption of the Incentive Plan and to appoint the auditors.
Abstentions will be considered shares entitled to vote in the tabulation of
votes cast on these proposals, and will have the same effect as negative
votes. Broker non-votes are not counted for any purpose in determining whether
a matter has been approved, and therefore will not have the effect of a
negative vote with respect to the approval of the adoption of the Incentive
Plan and the appointment of the auditors.
1
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of March 1, 1998, by (i) each
shareholder known by the Company to be a beneficial owner of more than 5% of
any class of the Company's voting securities, (ii) each director and nominee
for director of the Company, (iii) each executive officer named in the Summary
Compensation Table on page 6 and (iv) executive officers and directors of the
Company as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE
NATURE OF OF
BENEFICIAL OUTSTANDING
NAME OF BENEFICIAL OWNER OWNERSHIP(1) SHARES
------------------------ ------------ -----------
<S> <C> <C>
George Joseph.............................. 18,857,210(2) (3) 34.2%
Director and Named Executive Officer
Gloria Joseph.............................. 9,161,600(2) (4) 16.6
Director
Nicholas Company, Inc...................... 5,236,792(5) 9.5
Michael D. Curtius......................... 121,790 *
Director and Named Executive Officer
Bruce E. Norman............................ 52,806(6) *
Named Executive Officer
Joanna Y. Moore............................ 22,664 *
Named Executive Officer
Kenneth G. Kitzmiller...................... 37,669 *
Named Executive Officer
Charles E. McClung......................... 26,000 *
Director
Donald P. Newell........................... 4,200(7) *
Director
Donald R. Spuehler......................... 4,114 *
Director
Nathan Bessin.............................. 5,500 *
Director
Bruce A. Bunner............................ 2,000 *
Director
Richard E. Grayson......................... 2,000 *
Director
All Executive Officers and Directors....... 28,449,248 51.5
</TABLE>
- --------
* Less than 1.0% of the outstanding Common Stock.
(1) As to each person or group in the table, the table includes the following
shares issuable upon exercise of options which are exercisable within 60
days from March 1, 1998; Michael Curtius, 110,600; Joanna Moore, 22,000;
Bruce Norman, 8,000; Kenneth Kitzmiller, 27,000; all executive officers
and directors as a group, 171,600.
(2) As of October 7, 1985, George Joseph, Gloria Joseph and the Company
entered into an agreement with respect to the ownership by George and
Gloria Joseph of the Company's Common Stock. The agreement provides, among
other things, that the shares of Common Stock held jointly were halved and
transferred into the separate names of George Joseph and Gloria Joseph
under their individual and independent control. In addition, Gloria Joseph
has certain rights to have her shares registered for sale pursuant to the
Securities Act of 1933. The registration rights provided to Gloria Joseph
will terminate at such time as she ceases to hold at least 5% of the then
outstanding shares of the Company's Common Stock.
(3) George Joseph's business address is c/o Mercury General Corporation, 4484
Wilshire Boulevard, Los Angeles, California 90010.
2
<PAGE>
(4) Gloria Joseph's business address is c/o Mercury General Corporation, 4484
Wilshire Boulevard, Los Angeles, California 90010. Includes 1,600 shares
held in trust for Gloria Joseph's daughter, Ellen Joseph.
(5) The address of Nicholas Company, Inc. is 700 Water Street, Milwaukee,
Wisconsin 53202. Includes 5,045,600 shares held by Nicholas Fund, Inc. and
400,000 shares held individually by Albert O. Nicholas, the president,
director and majority shareholder of Nicholas Company, Inc., which were
reported on a joint Schedule 13G filed with the Company dated January 22,
1998. According to the Schedule 13G, Nicholas Company, Inc. has sole or
shared voting power over no shares and has sole dispositive power over
5,236,792 shares, Nicholas Fund, Inc. has sole voting power over 5,045,600
shares and Mr. Nicholas has sole voting and sole dispositive power over
400,000 shares.
(6) Does not include 18,140 shares held by Mr. Norman's wife, as to which Mr.
Norman disclaims ownership.
(7) Such 4,200 shares are owned by Donald P. Newell as custodian for the
benefit of his children.
3
<PAGE>
PROPOSAL 1:
ELECTION OF DIRECTORS
The Board of Directors of the Company has nominated and recommends for
election as directors the following nine persons to serve until the next
Annual Meeting of Shareholders and until their respective successors shall
have been duly elected and shall qualify. All of the nominees are presently
directors of the Company. The enclosed proxy will be voted in favor of the
persons nominated unless otherwise indicated. If any of the nominees should be
unable to serve or should decline to do so, the discretionary authority
provided in the proxy will be exercised by the present Board of Directors to
vote for a substitute or substitutes to be designated by the Board of
Directors. The Board of Directors has no reason to believe that any substitute
nominee or nominees will be required.
The table below indicates the position with the Company, tenure as director
and age of each nominee as of March 15, 1998.
<TABLE>
<CAPTION>
POSITION WITH THE DIRECTOR
NAME COMPANY AGE SINCE
---- ----------------- --- --------
<C> <S> <C> <C>
George Joseph Chairman of the Board 76 1961(1)
and Chief Executive Officer
of the Company
Michael D. Curtius President and Chief Operating Officer 48 1996
and Director of the Company
Gloria Joseph Director 74 1961(1)
Donald P. Newell Director 60 1979(1)
Charles E. McClung Director 83 1961(1)
Donald R. Spuehler Director 63 1985
Nathan Bessin Director 72 1991
Bruce A. Bunner Director 64 1991
Richard E. Grayson Director 68 1985
</TABLE>
- --------
(1) Date shown is the date elected a director of Mercury Casualty Company, a
predecessor of the Company. Each of these individuals was elected a
director of the Company in 1985.
Directors are elected at each annual meeting of the shareholders for one
year and hold office until their successors are elected and qualified.
Executive officers serve at the pleasure of the Board of Directors.
George Joseph, Chief Executive Officer of the Company and Chairman of its
Board of Directors, has served in those capacities since 1961. He has more
than 45 years experience in all phases of the property and casualty insurance
business.
Michael D. Curtius has served as President and Chief Operating Officer of
the Company since May 1995 and as a director of the Company since February
1996. He served as Vice President and Chief Claims Officer from October 1987
until May 1995.
Gloria Joseph served as Vice President of the Company from 1961 until 1985.
Charles E. McClung has been the president and principal shareholder of
McClung Insurance Agency, Inc., an insurance agency located in Montebello,
California, for more than five years.
Donald P. Newell has been a partner of the law firm of Latham & Watkins of
San Diego, California for more than five years. He is also a director of SCPIE
Holdings Inc., an insurance holding company.
4
<PAGE>
Donald R. Spuehler has been retired since February 1995. From February 1992
through January 1995, Mr. Spuehler was of counsel to the law firm of O'Melveny
& Myers of Los Angeles, California. For more than the prior five years, Mr.
Spuehler was a partner of O'Melveny & Myers.
Nathan Bessin has been the Managing Partner of J. Arthur Greenfield & Co.,
Certified Public Accountants, for more than five years. He has been a director
of Williams-Sonoma, Inc., since 1983.
Bruce A. Bunner has been President of Financial Structures, Limited, a
Bermuda based insurance company and a subsidiary of Pitney Bowes, Inc. since
January 1996. From April 1994 to April 1995, Mr. Bunner served as Director of
External Affairs of Zurich Centre Advisors, Inc., a consulting company
specializing in insurance and reinsurance risk arrangements. From January 1991
to April 1994, he served as Chairman of the Board of Centre Reinsurance
Company of New York, a reinsurance company. Mr. Bunner was a partner in the
firm of KPMG Peat Marwick LLP, Certified Public Accountants, from 1974 to
1990, except during the period from 1983 to 1986 when he served as Insurance
Commissioner of the State of California. Mr. Bunner is currently a director of
American Progressive Life and Health Insurance Company, a subsidiary of
Universal American Financial Corp, a publicly-held corporation, and a director
of Amwest Insurance Group.
Richard E. Grayson has been retired since January 1995. For more than five
years prior to such time, Mr. Grayson was Vice President of Union Bank of Los
Angeles, California and President and Director of Current Income Shares, Inc.,
a publicly-held closed end investment company.
INFORMATION CONCERNING THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES THEREOF
The Board of Directors held four meetings during the last fiscal year and
will meet quarterly during the current fiscal year. In 1997, each director
attended at least 75% of the aggregate of all meetings held by the Board of
Directors and all meetings held by all committees of the Board on which such
director served. Directors are paid $2,500 per quarter plus $2,500 per meeting
attended and reimbursement for their out-of-pocket expenses incurred in
attending such meetings.
The Company has an Audit Committee currently consisting of Nathan Bessin,
Donald P. Newell and Donald R. Spuehler, with Nathan Bessin acting as Chairman
of such Committee. The Audit Committee held two meetings in 1997. The Audit
Committee's responsibilities include, among other things, recommending the
selection of the Company's independent certified public accountants and
meeting with the accountants regarding their management letters and the annual
audit. Members of the Audit Committee receive $500 per meeting attended plus
reimbursement of their out-of-pocket expenses incurred in attending such
meetings.
The Company has a Compensation Committee currently consisting of Donald R.
Spuehler, Bruce A. Bunner and Richard E. Grayson, with Donald R. Spuehler
acting as Chairman of such Committee. The Compensation Committee held two
meetings in 1997 and held numerous telephonic consultations with the Company
regarding executive compensation and administration of the Company's stock
option plan. The responsibilities of the Compensation Committee include, among
other things, reviewing, approving and reporting to the Board the Company's
compensation policies with respect to its executive officers, reviewing the
Company's overall compensation policy and making recommendations with respect
thereto, and administering the Company's stock option plan. Members of the
Compensation Committee receive $500 per meeting attended plus reimbursement of
their out-of-pocket expenses incurred in attending such meetings. The Chairman
of the Compensation Committee also receives compensation based upon the number
of additional hours spent on committee matters.
The Board of Directors has not designated a nominating committee.
RECOMMENDATION OF THE BOARD OF DIRECTORS
The Board of Directors unanimously recommends that shareholders vote FOR the
slate of nominees set forth above. Proxies solicited by the Board of Directors
will be so voted unless shareholders specify otherwise on their proxy cards.
5
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth, for the periods indicated, the compensation
of the Company to its Chief Executive Officer and each of the four most highly
compensated executive officers other than the Chief Executive Officer.
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
----------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
- --------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
George Joseph 1997 $492,000 $560,500 $39,066
Chairman and Chief Executive Officer 1996 492,000 352,579 26,130
1995 492,000 214,580 24,762
Michael D. Curtius 1997 $327,866 $608,045 $43,816
President and Chief Operating Officer 1996 308,750 345,204 30,630
1995 268,750 206,580 13,382
Bruce E. Norman 1997 $156,240 $384,510 $24,316
Vice President--Marketing 1996 148,800 255,259 6,863
1995 140,016 102,874 9,751
Joanna Y. Moore 1997 $156,300 $256,725 $24,316
Vice President and Chief Claims Officer 1996 147,600 172,339 12,630
1995 132,000 103,040 13,382
Kenneth G. Kitzmiller 1997 $129,600 $255,400 $24,316
Vice President--Underwriting 1996 120,000 155,000 12,630
1995 103,981 101,372 13,382
</TABLE>
- --------
(1) Amounts shown include the Company's contributions under its profit sharing
plan for Company employees, the Company's matching contributions under a
401(k) option to the profit sharing plan, the year-end value of stock
contributed under the ESOP feature of the profit sharing plan and, for
George Joseph and Michael Curtius only, director fees. Those amounts,
expressed in the same order as above, for the named executive officers for
1997 are as follows: George Joseph--$2,396, $0, $17,170, $19,500; Michael
Curtius--$2,396, $4,750, $17,170, $19,500; Bruce Norman--$2,396, $4,750,
$17,170; Joanna Moore--$2,396, $4,750, $17,170; and Kenneth Kitzmiller--
$2,396, $4,750, $17,170.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END OPTION VALUE TABLE
The Company has a stock option plan for key executives. The following table
sets forth information regarding the exercise of stock options during 1997 by
the named executive officers and the value of unexercised stock options as of
December 31, 1997. No stock options were granted to the named executive
officers in 1997.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
DECEMBER 31, 1997 DECEMBER 31, 1997
------------------------- -------------------------------
SHARES ACQUIRED VALUE
NAME ON EXERCISE REALIZED(1) EXERCISABLE UNEXERCISABLE EXERCISABLE(2) UNEXERCISABLE(2)
---- --------------- ----------- ----------- ------------- -------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Michael D. Curtius...... -- -- 110,600 60,000 $5,197,365 $2,358,750
Bruce E. Norman......... -- -- 4,000 16,000 $ 123,375 $ 493,500
Joanna Y. Moore......... 6,000 $122,258 18,000 16,000 $ 716,375 $ 632,500
Kenneth G. Kitzmiller... 3,000 $ 84,930 20,000 20,000 $ 766,375 $ 654,250
</TABLE>
- --------
(1) Fair market value of underlying securities at exercise minus the exercise
price.
(2) The value of unexercised options represents the difference between the
closing price of the Common Stock on December 31, 1997, which was $55.25
per share, and the exercise price of the options.
6
<PAGE>
George Joseph, the Chief Executive Officer and principal shareholder of the
Company, has not been granted options under the Company's plan.
REPORT OF THE COMPENSATION COMMITTEE
The duty of the Compensation Committee on an ongoing basis is to review,
approve and report to the Board of Directors the compensation policies of the
Company with respect to its executive officers. The Committee also reviews in
detail with the Board of Directors its recommendations of the factors and
criteria upon which the Company's Chief Executive Officer's compensation is
based and the level of compensation recommended. The Committee has been
delegated this same responsibility with respect to the compensation of the
President.
In general, pursuant to the policy of the Board of Directors embodied in a
standing resolution adopted at the Board of Directors' January 31, 1986
meeting, Mr. Joseph, as President and Chief Executive Officer of the Company,
was given authority to establish compensation for all other executive
officers. With Mr. Curtius' appointment as President, Mr. Joseph retains this
authority except with respect to the compensation of the President. Mr. Joseph
has periodically reported key executive appointments and key decisions as to
executive compensation to the Board of Directors and this information has been
recorded in Board of Directors minutes from time to time.
Executive Officers Other Than the Chief Executive Officer
The compensation policy of the Company adopted by Mr. Joseph for all
executive officers other than the President, in effect for calendar 1997, has
been reviewed and endorsed by the Compensation Committee and the Compensation
Committee expects, as described in this report, that such policy will be
continued in 1998.
The Compensation Committee approved an increase in base compensation for Mr.
Curtius as President effective June 1, 1997 and has approved an increase in
the percentage to be used in computing his formula bonus.
The basic strategy of the Company is that executive officers subject to Mr.
Joseph's review should be compensated in general above the median for
executives in like positions in comparable insurance companies, as determined
by him based on his experience in the industry and continuing surveillance of
industry practice. Further, the policy of the Company is that certain key
executives should receive a substantial portion of their annual compensation
based on performance in areas which they control.
The executive officers responsible for underwriting and claims have, since
the Company became publicly held in 1985 and for a substantial prior period,
received a yearly bonus pursuant to a formula based on underwriting results.
The executive officer responsible for marketing has received a bonus in that
same period based on a formula which takes into account underwriting results
and net premiums written. Smaller bonuses, not formula-based, are paid to the
remaining executive officers based on the judgment of the Chief Executive
Officer as to each officer's overall contribution to performance. This general
bonus structure was continued in 1997 and, with modification as determined by
the Chief Executive Officer, will be continued in 1998.
Salaries for executive officers are reviewed on a yearly basis. Salary
increases take into account the same factors used with respect to formula
bonuses--underwriting results and revenues and the successful attainment of
goals set by the Chief Executive Officer and the President. Also taken into
account are factors reflecting the ability of the individual executive to
manage direct and indirect costs as the volume of business varies, turnover
and morale with respect to employees under the executive's management, the
expense of adjusting claims, and prevailing salaries in the industry, with all
factors taken into account over appropriate cycles of rates, premiums and
profitability of the Company and the industry.
In addition to the nondiscriminatory tax-qualified profit sharing plan and
tax deferred Section 401(k) option to that plan maintained for employees, the
Company maintains a stock option plan under which key employees are granted
options at 100% of fair market value of Company Common Stock on the date of
grant. The overall policy of the Company, as approved by the Board of
Directors and Compensation Committee and embodied in
7
<PAGE>
awards made by the Compensation Committee, is that key officers and managers
responsible for the success of the Company should be granted options in
Company Common Stock under that program. In 1997, options on 45,000 shares of
Company Common Stock were granted to eight optionees who were not named
executive officers. Such grants were made effective February 7, 1997 at 100%
of then fair market value. No named executive officers were granted options in
1997.
The Chief Executive Officer
Mr. Joseph's base compensation has not been increased since its approval at
the current level by the Board of Directors on August 3, 1990 and has been at
substantially the same level since 1985.
Additional compensation paid to Mr. Joseph in 1997 included director fees
and a bonus equivalent to one-half month's pay which is the level of bonus
awarded to all employees. In addition, a bonus based on 1997 underwriting
results was accrued in 1997 to be paid in 1998. This bonus was accrued under
the same formula used in determining the bonuses payable to executive officers
responsible for underwriting and claims. Mr. Joseph does not hold any options
under the Company's stock option plan.
The Company has experienced an increase of more than 1000% in net premiums
written and an increase of more than 1500% in net income from 1984 through
1997. Discussions of the Compensation Committee with Mr. Joseph have explored
in depth the issue of the stability of Mr. Joseph's compensation compared to
the Company's performance. Because of Mr. Joseph's substantial stock ownership
in the Company, the success he has achieved as Chief Executive Officer
responsible for the Company's overall achievement has been reflected directly
in the value of his equity in the Company. Following past practice, Mr.
Joseph's base compensation was continued at the 1996 level in 1997.
The Compensation Committee has reviewed 1996 compensation of executives in
certain selected California and comparable insurance companies as publicly
available in proxy statements. The Compensation Committee has also reviewed a
1997 summary of executive compensation practices in financial companies
prepared by a branch of the Company's auditors. Taking into account this and
related information, the Compensation Committee believes that the level of Mr.
Joseph's compensation is, without taking into account his equity interest in
the Company, well below the median for comparable companies.
The Compensation Committee has had preliminary discussions with Mr. Joseph
as to whether an increase in his base compensation is desirable given his
continuing responsibilities and compensation being paid to executives in
comparable positions. The Compensation Committee plans to study the issue. If
an increase is found to be desirable it would in all likelihood be made,
together with adjustment of the President's compensation, effective June 1,
1998, the date when adjustments in the President's compensation would
ordinarily be effective.
Internal Revenue Code 162(m)
The Compensation Committee has considered the potential impact of Section
162(m) ("Section 162(m)") of the Internal Revenue Code adopted under the
federal Revenue Reconciliation Act of 1993. Section 162(m) disallows a tax
deduction for any publicly-held corporation for individual compensation
exceeding $1 million in any taxable year for any of the named executive
officers, other than compensation that is performance-based under a plan which
is approved by the shareholders of the corporation and which meets certain
other technical requirements. Under the formula bonus which was part of the
compensation policy approved by the Compensation Committee for 1997, Mr.
Joseph's base and bonus compensation exceeded the $1 million limit in 1997. No
retroactive adjustment to his salary has been recommended by the Compensation
Committee. Further, to appropriately recognize the contribution of the
Company's executive officers to the Company and its shareholders and to exempt
bonuses paid to such officers from the $1 million limit of Section 162(m), the
Compensation Committee is recommending the adoption by the Board of a
performance-based incentive plan in 1998 which would base bonus compensation
on objective performance criteria and the presentation of such plan to the
stockholders for approval. Such bonus plan would be in addition to the 1995
Stock Option Plan of Mercury
8
<PAGE>
General Corporation which the Compensation Committee has concluded already
meets the requirements for a performance-based plan under the regulation
interpreting Section 162(m).
March 23, 1998 The Compensation Committee
Donald R. Spuehler, Chair
Bruce A. Bunner
Richard E. Grayson
PERFORMANCE GRAPH
The graph below compares the cumulative total shareholder return on the
shares of Common Stock of the Company (MCY) for the last five years with the
cumulative total return on the Standard and Poor's 500 Index and a peer group
comprised of selected property and casualty insurance companies over the same
period (assuming the investment of $100 in the Company's Common Stock, the S&P
500 Index and the peer group on January 1, 1993 and the reinvestment of all
dividends).
COMPARATIVE FIVE-YEAR CUMULATIVE TOTAL RETURNS
MERCURY GENERAL CORP., S&P 500 INDEX AND PEER GROUP INDEX
PERFORMANCE GRAPH APPEARS HERE
<TABLE>
<CAPTION>
MERCURY
Measurement Period GENERAL S&P
(Fiscal Year Covered) CORP. 500 INDEX PEER GROUP
- --------------------- ------- --------- ----------
<S> <C> <C> <C>
Measurement Pt- 1992 $100 $100 $100
FYE 1993 $110.09 $110.08 $ 99.21
FYE 1994 $108.08 $111.54 $ 94.96
FYE 1995 $183.45 $153.45 $135.17
FYE 1996 $205.92 $188.69 $164.68
FYE 1997 $439.83 $251.64 $244.47
</TABLE>
ASSUMES $100 INVESTED ON JAN. 1, 1993
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1997
The peer group consists of those companies that are included in the
Property/Casualty Insurance Group in the Value Line Investment Survey: Ace
Limited, 20th Century Industries, AllState Corporation, American Financial
Group, Capsure Holdings, Chubb Corporation, Cincinnati Financial Corporation,
Fremont General Corporation, Frontier Insurance Group, GAINSCO, INC., General
Re Corp., Hartford Steam Boiler Inspection and Insurance Company, Hartford
Financial Services Group, NAC Re Corp., Ohio Casualty Corp., Old Republic
International Corp., Orion Capital Corporation, Progressive Corporation of
Ohio, SAFECO Corporation, Selective Insurance Group, Inc., St. Paul Companies,
Inc., Transatlantic Holdings, Inc., USF&G Corporation, and The W.R. Berkley
Corp.
9
<PAGE>
CERTAIN TRANSACTIONS
Ellen Joseph, the daughter of George and Gloria Joseph, is the beneficial
owner of Metro West Insurance Services, Inc., a California insurance agency.
In 1997 the Company paid commissions to that agency in accordance with the
Company's standard agency contract of $549,735. Louise Toney, George Joseph's
sister, acts as manager for the agency and receives as compensation a portion
of those commissions.
Charles E. McClung, a director of the Company, is the principal shareholder
of McClung Insurance Agency, Inc. which has been an independent agent of the
Company since 1962. In 1997 the Company paid commissions to that agency of
$563,895.
Donald P. Newell, a director of the Company, is a partner of Latham &
Watkins, a law firm the Company retained to perform certain legal services in
1997 and 1998.
PROPOSAL 2:
APPROVAL OF THE ADOPTION OF THE COMPANY'S SENIOR EXECUTIVE
INCENTIVE BONUS PLAN
The following description of the Incentive Plan is qualified in its entirety
by reference to the Incentive Plan itself, a copy of which is attached hereto
as Annex A. Copies of the Incentive Plan can also be obtained by making
written request to the Company's Secretary.
GENERAL
On March 23, 1998, the Company's Board of Directors adopted, subject to
shareholder approval, the Incentive Plan, an annual bonus plan under which
designated executive officers of the Company ("Covered Executives") are
eligible to receive bonus payments. The Incentive Plan is intended to provide
an incentive for superior work, to motivate Covered Executives toward even
higher achievement and business results, to tie their goals and interests to
those of the Company and its shareholders and to enable the Company to attract
and retain highly qualified senior executives. The Incentive Plan has been
adopted and is being submitted to the Company's shareholders for approval so
that bonuses payable by the Company to its senior executives are fully
deductible for federal income tax purposes. The Incentive Plan and its
performance goals are subject to shareholder approval before any bonuses will
be paid thereunder.
ADMINISTRATION
The Incentive Plan will be administered by a committee (the "Bonus
Committee") consisting of at least two members of the Company's Board of
Directors who qualify as "outside directors" under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code"), and the regulations
and interpretations promulgated thereunder. Initially, the Compensation
Committee will serve as the Bonus Committee. The Bonus Committee will have the
sole discretion and authority to administer and interpret the Incentive Plan
and to designate from time to time the Covered Executives.
BONUS DETERMINATIONS
A Covered Executive may receive a bonus payment based upon the attainment of
performance objectives established by the Bonus Committee and related to one
or more of the following corporate performance goals (the "Performance
Goals"): the Company's underwriting results, net premiums written, pre-tax
income, operating income, cash flow, earnings per share, return on equity,
return on invested capital or assets, funds from operations, appreciation in
the fair market value of the Company's stock, or earnings before any one or
more of the following items: interest, taxes, depreciation or amortization, or
savings or cost reductions.
10
<PAGE>
The actual amount of future bonus payments under the Incentive Plan is not
presently determinable. However, the Incentive Plan provides that the maximum
bonus for any Covered Executive shall not exceed $1,000,000 with respect to
any fiscal year of the Company.
The Incentive Plan is designed to ensure that annual bonuses paid thereunder
to Covered Executives of the Company are deductible by the Company, without
limit under Section 162(m) of the Code. Section 162(m), which was added to the
Code in 1993, places a limit of $1,000,000 on the amount of compensation that
may be deducted by the Company in any taxable year with respect to each
"covered employee," within the meaning of Section 162(m). However, certain
performance-based compensation is not subject to the deduction limit. The
Incentive Plan is designed to provide this type of performance-based
compensation to Covered Executives.
Bonuses paid to Covered Executives will be based upon bonus formulas that
tie the bonuses to one or more objective performance standards. Bonus formulas
for Covered Executives will be adopted in each performance period by the Bonus
Committee no later than the latest time permitted by Code Section 162(m) of
the Code (generally, for performance periods of one year or more, no later
than 90 days after the commencement of the performance period). No bonuses
will be paid to Covered Executives unless and until the Bonus Committee makes
a certification in writing with respect to the attainment of the objective
performance standards as required by Section 162(m) of the Code; and, although
the Bonus Committee may in its sole discretion reduce a bonus payable to a
Covered Executive, the Bonus Committee has no discretion to increase the
amount of a Covered Executive's bonus under the Incentive Plan.
The effective date of the Incentive Plan is January 1, 1998. The Bonus
Committee has (i) designated the Company's 1998 fiscal year (calendar year
1998) as the first performance period under the Incentive Plan,
(ii) designated the Company's Chief Executive Officer and President as Covered
Executives for such performance period and (iii) established objective bonus
formulas relating to the Company's underwriting results during 1998 for such
Covered Executives for such performance period.
REASONS FOR ADOPTION OF THE INCENTIVE PLAN
The Board believes the Incentive Plan will provide an incentive for superior
work and motivate Covered Executives toward even higher achievement and
business results. The Board also believes the Incentive Plan will further tie
the Covered Executives' goals and interests to those of the Company and its
shareholders, and will enable the Company to attract and retain highly
qualified senior Executives. Payment of bonuses under the Incentive Plan will
also provide for their deductibility under the Code without regard to Section
162(m) thereof.
REQUIRED VOTE
The affirmative vote of the holders of a majority of the shares of Common
Stock represented at the Annual Meeting is required to approve the adoption of
the Incentive Plan.
The Board of Directors unanimously recommends a vote FOR the approval of the
adoption of the Incentive Plan and its Performance Goals.
PROPOSAL 3:
APPROVAL OF AUDITORS
Proposal 3 concerns the recommendation of the Audit Committee and the Board
of Directors that KPMG Peat Marwick will be appointed auditors for 1998, which
is being presented to the shareholders for approval. Representatives of KPMG
Peat Marwick will be present at the meeting, will be available to respond to
questions and may make a statement if they so desire.
The Board of Directors unanimously recommends that shareholders vote FOR the
appointment of KPMG Peat Marwick as auditors for 1998.
11
<PAGE>
SECTION 16(a) REPORTING
Each director, executive officer of the Company, and person who owns more
than 10% of a registered class of the Company's equity securities is required
by Section 16(a) of the Securities Exchange Act of 1934 to report to the
Securities and Exchange Commission (the "SEC") by a specified date his or her
transactions in the Company's securities. Regulations promulgated by the SEC
require the Company to disclose in this Proxy Statement any reporting
violations with respect to the 1997 fiscal year, which came to the Company's
attention based on a review of the applicable filings required by the SEC to
report such status as an officer or director or such changes in beneficial
ownership as submitted to the Company. Based solely on its review of such
forms received by it, Donald R. Spuehler and Richard A. Grayson are the only
reporting persons to have made a late filing under Section 16(a). Mr. Spuehler
filed a Form 4 on July 14, 1997 to report a disposition of shares of the
Company's Common Stock in June 1997, which Form 4 should have been filed by
July 10, 1997. Mr. Spuehler also filed a Form 5 in March 1998, to report a
gift of shares of the Company's Common Stock in July 1997, which Form 5 should
have been filed by February 15, 1998. Mr. Grayson inadvertently filed a Form 3
instead of a Form 4 to report a purchase of shares of the Company's Common
Stock in October 1997. A Form 4 was filed to correct the mistake in February
1998.
SHAREHOLDER PROPOSALS
Any proposal of a shareholder of the Company intended to be presented at the
next Annual Meeting of Shareholders of the Company must be received by the
Secretary of the Company not later than November 30, 1998, to be considered
for inclusion in the Company's proxy statement and form of proxy relating to
that meeting.
OTHER MATTERS
The Company does not know of any business other than that described herein
which will be presented for consideration or action by the shareholders at the
meeting. If, however, any other business shall properly come before the
meeting, shares represented by proxies will be voted in accordance with the
best judgment of the persons named therein or their substitutes.
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders is being mailed with the Proxy
Statement to shareholders of record on March 16, 1998. Upon request the
Company will furnish the Annual Report to any shareholder.
BY ORDER OF THE BOARD OF DIRECTORS,
/s/ Judy A. Walters
Judy A. Walters, Secretary
Los Angeles, California
March 30, 1998
12
<PAGE>
ANNEX A
MERCURY GENERAL CORPORATION SENIOR EXECUTIVE INCENTIVE BONUS PLAN
1. Purpose
This Senior Executive Incentive Bonus Plan (the "Incentive Plan") is
intended to provide an incentive for superior work and to motivate eligible
executives of Mercury General Corporation and its subsidiaries (Mercury
General Corporation and together with its subsidiaries, the "Company") toward
even higher achievement and business results, to tie their goals and interests
to those of the Company and its shareholders and to enable the Company to
attract and retain highly qualified executives. The Incentive Plan is for the
benefit of Covered Executives (as defined below). The Incentive Plan is
designed to ensure the bonuses paid hereunder to Covered Executives are
deductible without limit under Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations and interpretations
promulgated thereunder.
2. Covered Executives
From time to time, the Bonus Committee (as described below) may select
certain key executives who are or who at some future date may be "covered
employees" as defined in Section 162(m)(3) of the Code (the "Covered
Executives") to be eligible to receive bonuses hereunder.
3. The Bonus Committee
The "Bonus Committee" shall be appointed by the Board of Directors of
Mercury General Corporation (the "Board") and consist of at least two members
of who shall qualify as "outside directors" under Section 162(m) of the Code.
The Compensation Committee of the Board shall initially constitute the Bonus
Committee. The Bonus Committee shall have the sole discretion and authority to
administer and interpret the Incentive Plan.
4. Bonus Determinations
A Covered Executive may receive a bonus payment under the Incentive Plan
based upon the attainment of performance objectives which are established by
the Bonus Committee and relate to one or more of the following corporate
performance goals (the "Performance Goals"): the Company's underwriting
results, net premiums written, pre-tax income, operating income, cash flow,
earnings per share, return on equity, return on invested capital or assets,
funds from operations, appreciation in the fair market value of the Company's
stock, or earnings before any one or more of the following items: interest,
taxes, depreciation or amortization, or savings or cost reductions.
Any bonuses paid to Covered Executives under the Incentive Plan shall be
based upon objectively determinable bonus formulas that tie such bonuses to
one or more objective performance objectives relating to the Performance
Goals. Bonus formulas for Covered Executives shall be adopted in each
performance period by the Bonus Committee no later than the latest time
permitted by Section 162(m) of the Code (generally, for performance periods of
one year or more, no later than 90 days after the commencement of the
performance period). No bonuses shall be paid to Covered Executives unless and
until the Bonus Committee makes a certification in writing with respect to the
attainment of the performance objectives as required by Section 162(m) of the
Code. Although the Bonus Committee may in its sole discretion reduce a bonus
payable to a Covered Executive pursuant to the applicable bonus formula, the
Bonus Committee shall have no discretion to increase the amount of a Covered
Executive's bonus as determined under the applicable bonus formula.
The maximum bonus payable to a Covered Executive under the Incentive Plan
shall not exceed $1,000,000 with respect to any fiscal year of the Company.
A-1
<PAGE>
The payment of a bonus to a Covered Executive with respect to a performance
period shall be conditioned upon the Covered Executive's employment by the
Company on the last day of the performance period, provided, however, that the
Bonus Committee may make exceptions to this requirement, in its sole
discretion, in the case of a Covered Executive's retirement, death or
disability.
5. Amendment and Termination
Mercury General Corporation reserves the right to amend or terminate the
Incentive Plan at any time in its sole discretion. Any amendments to the
Incentive Plan shall require shareholder approval only to the extent required
by Section 162(m) of the Code.
6. Shareholder Approval
No bonuses shall be paid under the Incentive Plan unless and until the
shareholders of Mercury General Corporation shall have approved the Incentive
Plan and the Performance Goals as required by Section 162(m) of the Code. So
long as the Incentive Plan shall not have been previously terminated, it shall
be resubmitted for approval by the shareholders of Mercury General Corporation
in the fifth year after it shall have first been approved by the shareholders
of Mercury General Corporation, and every fifth year thereafter. In addition,
the Incentive Plan shall be resubmitted to the shareholders of Mercury General
Corporation for approval if it is amended in any way which materially modifies
the Performance Goals or increases the maximum bonus payable under the
Incentive Plan.
A-2
<PAGE>
[LOGO OF MERCURY GENERAL CORPORATION]
4484 Wilshire Boulevard . Los Angeles, California 90010
-------------------------------------------------------
DETACH PROXY CARD HERE
- -----------------------------------------------------------------------------
[_]
PROPOSAL 1. ELECTION OF FOR all nominees [_]
DIRECTORS listed below.
WITHHOLD AUTHORITY to vote [_] *EXCEPTIONS [_]
for all nominees listed below.
Nominees: George Joseph, Charles E. McClung, Gloria Joseph, Donald R. Spuehler,
Richard E. Grayson, Donald P. Newell, Bruce A. Bunner, Nathan Bessin, Michael D.
Curtius
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, mark
the "Exceptions" box and write that nominee's name in the space provided below.)
*Exceptions
------------------------------------------------------------------
PROPOSAL 2. To approve the adoption of the Mercury General Corporation
Senior Executive Incentive Bonus Plan.
FOR [_] AGAINST [_] ABSTAIN [_]
PROPOSAL 3. To approve KPMG Peat Marwick as auditors for the year 1998.
FOR [_] AGAINST [_] ABSTAIN [_]
In their discretion, the proxies are authorized to vote upon such other business
as may properly come before the meeting.
Change of Address and/or Comments Mark here [_]
Important: Please sign exactly as
your name appears on the Company's
Common Stock Certificate, when signing
as Attorney, Executor, Administrator,
Trustee, Guardian or otherwise give
your full title as such. Each joint
tenant should sign.
Dated: 1998
--------------------------,
-------------------------------------
Signature of Shareholder
-------------------------------------
Signature if held jointly
Votes must be indicated
[X] in black or blue ink.
<PAGE>
MERCURY GENERAL CORPORATION
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS, MAY 13, 1998
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MERCURY GENERAL CORPORATION
The undersigned Shareholder(s) of MERCURY GENERAL CORPORATION (the
"Company") hereby constitutes and appoints George Joseph, Charles E. McClung and
Michael D. Curtius, and each of them, attorneys and proxies of the undersigned,
each with full power of substitution, to attend, vote and act for the
undersigned at the Annual Meeting of Shareholders of the Company to be held on
May 13, 1998, and at any adjournment or postponement thereof, according to the
number of shares of Common Stock of the Company which the undersigned may be
entitled to vote, and with all the powers which the undersigned would possess if
personally present, as indicated on the reverse side.
The proxies are directed to vote as specified on the reverse side. Except
as specified to the contrary on the reverse side, the shares represented by this
proxy will be voted FOR all nominees listed, FOR Proposal 2 and FOR Proposal
3.
ESOP Participants: As to those Common Shares that are held for the
undersigned in the Employee Stock Ownership Plan feature of the Company's Profit
Sharing Plan, I instruct the Trustee of such plan to sign a proxy for me and to
mark the proxy as I specify on the reverse side. If I do not so specify or
return the signed proxy, I understand that the Administrative Committee of such
plan will instruct the Trustee how to vote the shares.
The undersigned revokes any prior proxy at such meeting and ratifies all
said attorneys and proxies, or any of them, may lawfully do by virtue hereof.
Receipt of the Notice of Annual Meeting of Shareholders and Proxy Statement is
hereby acknowledged.
MERCURY GENERAL CORPORATION
P.O. BOX 11379
New York, N.Y. 10203-0379
(Please sign and date on reverse side)
