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. )
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Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
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MGIC INVESTMENT CORP.
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MGIC
INVESTMENT
CORPORATION
---------------------------
NOTICE
OF 2003
ANNUAL
MEETING
AND
PROXY
STATEMENT
---------------------------
2002
ANNUAL
REPORT
TO
SHAREHOLDERS
MGIC INVESTMENT CORPORATION
CURT S. CULVER
Chief Executive Officer
March 27, 2003
Dear Shareholder:
On behalf of the Board of Directors of MGIC Investment Corporation, it is
my pleasure to invite you to attend the Annual Meeting of Shareholders to be
held on Thursday, May 8, 2003, at the Marcus Center for the Performing Arts in
Milwaukee, Wisconsin.
At the meeting, shareholders will be asked to elect four directors, approve
performance goals for restricted stock awards, and ratify the appointment of
PricewaterhouseCoopers LLP as the company's independent accountants for 2003. We
will also report on our business.
Your vote is important. Even if you plan to attend, to be sure that your
shares are represented at the meeting, we encourage you to sign the enclosed
card designating the proxies to vote your shares. Please read the Proxy
Statement for more information about the matters to be considered at the meeting
and the voting process.
Our Annual Report to Shareholders follows the Proxy Statement in this
booklet.
Sincerely,
/s/ CURT S. CULVER
Curt S. Culver
Chief Executive Officer
MGIC INVESTMENT CORPORATION
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON
MAY 8, 2003
To the Shareholders of
MGIC Investment Corporation:
The Annual Meeting of Shareholders of MGIC Investment Corporation, a
Wisconsin corporation, will be held at the Marcus Center for the Performing
Arts, 929 North Water Street, Milwaukee, Wisconsin, on May 8, 2003, at 9:00
a.m., to vote on the following matters:
(1) Election of a class of four directors to serve a three-year term
expiring at the 2006 Annual Meeting;
(2) Approval of performance goals for restricted stock awards;
(3) Ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for 2003; and
(4) Any other matters that may be properly brought before the meeting.
The Board of Directors has fixed the close of business on March 12, 2003,
as the record date to determine the shareholders entitled to notice of and to
vote at the meeting.
By Order of the Board of Directors
Jeffrey H. Lane, Secretary
Milwaukee, Wisconsin
March 27, 2003
YOUR VOTE IS IMPORTANT
PLEASE PROMPTLY COMPLETE, SIGN, DATE AND RETURN YOUR PROXY CARD
MGIC INVESTMENT CORPORATION P.O. BOX 488, MGIC PLAZA, MILWAUKEE, WI 53201
PROXY STATEMENT
This Proxy Statement and the accompanying proxy are first being mailed to
shareholders on or about March 27, 2003, in connection with the solicitation of
proxies on behalf of the Board of Directors of MGIC Investment Corporation (the
"Company"), a Wisconsin corporation, for use at the Annual Meeting of
Shareholders to be held at 9:00 a.m., Thursday, May 8, 2003. The Annual Meeting
will be held at the Marcus Center for the Performing Arts, 929 North Water
Street, Milwaukee, Wisconsin.
VOTING MATTERS
RECORD DATE INFORMATION
You are entitled to one vote for each share of Common Stock registered in
your name in the Company's records on March 12, 2003. On that date, 98,794,257
shares of the Company's Common Stock were outstanding and entitled to vote.
VOTING BY PROXIES
The enclosed proxy card is solicited by the Board of Directors of the
Company. Your shares will be voted at the meeting by the named proxies in
accordance with the choices you specify on the proxy card. If you sign and
return a proxy card without giving specific choices, your shares will be voted
as follows:
FOR -- Election to the Board of the four individuals nominated by the Board
of Directors;
FOR -- Approval of performance goals for restricted stock awards;
FOR -- Ratification of the appointment of PricewaterhouseCoopers LLP as
independent accountants for the year ending December 31, 2003; and
On such other matters as properly come before the meeting, in the best
judgment of the named proxies.
If your shares are held in the name of a broker, bank or other nominee, or
in the Company's Profit Sharing and Savings Plan and Trust, you should be
receiving with this Proxy Statement instructions from them on how you can vote
your shares.
HOW TO REVOKE A PROXY
You may revoke your proxy instructions at any time before your shares have
been voted by advising the Secretary of the Company in writing or by signing and
delivering a proxy card with a later date. If you attend the meeting, you may
withdraw your proxy and vote shares registered in your name in person. If your
shares are held in the name of a broker or other nominee, or in the Company's
Profit Sharing and Savings Plan and Trust, you must follow their instructions on
how to revoke your vote.
HOW VOTES ARE COUNTED
A quorum is necessary to hold the meeting and will exist if a majority of
the outstanding shares of Common Stock entitled to vote are represented at the
meeting. Votes cast by proxy or in person at the meeting will be counted at the
meeting by representatives of Wells Fargo Bank Minnesota, N.A., the transfer
agent and registrar of the Company's Common Stock, which has been appointed by
the Company to act as inspector of election for the meeting. Abstentions will be
counted for purposes of determining the presence of a quorum, but do not
constitute a vote "for" or "against" any matter and will be disregarded in the
calculation of "votes cast."
A "broker non-vote" occurs when a broker or other nominee does not have
authority to vote on a particular matter without instructions from the
beneficial owner of the shares and has not received such instructions. Broker
non-vote shares will be counted for purposes of determining the presence of a
quorum, but will be disregarded in the calculation of "votes cast."
ANNUAL REPORT TO SHAREHOLDERS
The Company's Annual Report to Shareholders for the fiscal year ended
December 31, 2002, follows this Proxy Statement. The Annual Report to
Shareholders is a separate report and should not be considered a part of this
Proxy Statement.
STOCK OWNERSHIP
The following table gives information about shareholders who were
beneficial owners of more than 5% of the Common Stock as of December 31, 2002,
based on information filed with the Securities and Exchange Commission. The
table also shows the Common Stock beneficially owned by each executive officer
of the Company named in the Summary Compensation Table of this Proxy Statement,
and by all directors and executive officers as a group (the "Group"). Unless
otherwise noted, the persons listed in the table have sole voting and investment
power over their shares, and information regarding persons in the Group is given
as of February 15, 2003.
SHARES BENEFICIALLY PERCENT
NAME OWNED OF CLASS
---- ------------------- --------
Legg Mason, Inc.
100 Light Street
Baltimore, Maryland 21202 (1)............................. 14,625,831 14.59%
Janus Capital Management LLC
100 Fillmore Street
Denver, Colorado 80206 (2)................................ 12,186,080 12.16%
Curt S. Culver (3).......................................... 458,880 *
J. Michael Lauer (3)........................................ 207,306 *
James S. MacLeod (3)........................................ 158,913 *
Lawrence J. Pierzchalski (3)................................ 129,075 *
John D. Fisk (3)............................................ 16,800 *
All directors and executive officers as a group (17 persons)
(3)(4).................................................... 1,263,553 1.26%
---------------
* Less than 1%
(1) For all shares listed voting and investment power are shared. Includes
9,313,981 shares as to which accounts managed by Legg Mason Funds Management,
Inc., a registered investment adviser and subsidiary of Legg Mason, Inc., have
shared voting and investment power. Legg Mason Value Trust, Inc., a registered
investment company managed by Legg Mason Funds Management, Inc., manages
8,000,000 of such shares.
(2) Includes 146,300 shares for which voting and investment power are shared and
7,006,360 shares beneficially owned by Janus Fund, a registered investment
company as to which Janus Capital Management LLC, a registered investment
adviser, provides investment advice.
(3) Includes shares which the named executive officers had the right to acquire
on, or within 60 days after, February 15, 2003, under stock options granted to
executive officers as follows: Mr. Culver -- 376,800; Mr. Lauer -- 170,600; Mr.
MacLeod -- 114,600; Mr. Pierzchalski -- 110,600; Mr. Fisk -- 6,000; and the
Group -- 898,031. Also includes shares held in the Company's Profit Sharing and
Savings Plan and Trust as follows: Mr. Culver -- 12,300; Mr. Lauer -- 10,278;
Mr. MacLeod -- 18,723; and the Group -- 41,301. Also includes restricted shares
over which the named executive officer has sole voting power but no investment
power as follows: Mr. Culver -- 50,654; Mr. Lauer -- 18,132; Mr.
MacLeod -- 17,516; Mr. Pierzchalski -- 17,557; and Mr. Fisk -- 10,800. Also
includes shares for which voting and investment power are shared as follows: Mr.
Lauer -- 2,400; and the Group -- 8,797. Excludes shares, beneficial ownership of
which is disclaimed, which are held as custodian for children or owned by
spouses or trusts as follows: Mr. Lauer -- 2,000; and the Group -- 66,000.
(4) Includes an aggregate of 31,085 share units held under the Deferred
Compensation Plan over which there is neither investment nor voting power. See
"The Board of Directors and Its Committees -- Compensation of
Directors -- Deferred Compensation Plan." Also includes an aggregate of 147,256
restricted shares held by the Group. The beneficial owners have sole voting
power but no investment power over these shares.
2
ITEM 1 -- ELECTION OF DIRECTORS
THE BOARD OF DIRECTORS
The Board of Directors is divided into three classes, with the directors of
each class serving for a term of three years. The term of office of one class of
directors expires each year in rotation so that one class is elected at each
Annual Meeting for a three-year term. If a nominee for director is not available
for election, the proxies will vote for another person proposed by the Board of
Directors, or as an alternative, the Board of Directors may reduce the number of
directors to be elected at the Annual Meeting.
Under the Company's Bylaws, written notice of nominations by shareholders
for election to the Board must have been received by the Secretary no later than
February 1, 2003. No notice of any such nominations was received. As a result,
no other nominations for election to the Board of Directors may be made by
shareholders at the Annual Meeting.
NOMINEES FOR DIRECTOR
The Board of Directors, upon the recommendation of the Board's Management
Development, Nominating and Governance Committee, has nominated four incumbent
directors for re-election to serve a three-year term of office ending at the
2006 Annual Meeting:
Karl E. Case
Curt S. Culver
William A. McIntosh
Leslie M. Muma
Mr. Culver is the Company's Chief Executive Officer. The Corporate
Governance Guidelines of the Board of Directors (see "The Board of Directors and
Its Committees") provide that a director who is an officer of the Company and
leaves the Company shall resign from the Board. The principal occupation,
business experience for at least the past five years and committee assignments
of the nominees and the directors continuing in office are described below.
SHAREHOLDER VOTE REQUIRED
Each nominee who receives a plurality of the votes cast at the meeting will
be elected a director. Only votes cast for a nominee will be counted. Votes cast
include votes under proxies which are signed and do not have contrary voting
instructions. Broker non-votes, abstentions and instructions on the proxy card
to withhold authority to vote for one or more of the nominees will be
disregarded in the calculation of a plurality of the votes cast.
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE NOMINEES NAMED ABOVE.
PROXIES WILL BE VOTED FOR THE NOMINEES UNLESS A SHAREHOLDER GIVES OTHER
INSTRUCTIONS ON THE PROXY.
3
SHARES
BENEFICIALLY
NOMINEES FOR DIRECTOR OWNED(1)
TERM ENDING 2006 ------------
[CASE PHOTO] KARL E. CASE, 56, a Director since 1991, is the Katharine
Coman and A. Barton Hepburn Professor of Economics at
Wellesley College where he has taught since 1976. Dr. Case
has been Visiting Scholar at the Federal Reserve Bank of
Boston since 1985. He is a Director of Century Bank & Trust,
the Lincoln Institute of Land Policy and the New England
Economic Project, Inc. Dr. Case is Chairman of the Risk
Management Committee of the Board of Directors. 10,981(2)(3)
[CULVER PHOTO] CURT S. CULVER, 50, a Director since 1999, has been Chief
Executive Officer of the Company since January 2000. Mr.
Culver has been President of the Company and Chief Executive
Officer of Mortgage Guaranty Insurance Corporation ("MGIC")
since January 1999, President of MGIC since May 1996, and
held senior executive positions with MGIC for more than five
years before then. Mr. Culver is a member of the Executive
Committee of the Board of Directors. 458,880(4)
[MCINTOSH PHOTO] WILLIAM A. MCINTOSH, 63, a Director since 1996, has been
adjunct professor of finance at Howard University,
Washington, D.C. since August 1998. Mr. McIntosh served as
an adjunct faculty member of Wellesley College from January
through May 2000. He was an executive committee member and a
managing director at Salomon Brothers Inc, an investment
banking firm, when he retired in 1995 after 35 years of
service. He is a Director of Comdisco Holding Company, Inc.
and Mason Street Funds, Inc. Mr. McIntosh is a member of the
Securities Investment Committee of the Board of Directors. 11,470(2)(3)
4
SHARES
BENEFICIALLY
OWNED(1)
------------
[Muma Photo] LESLIE M. MUMA, 58, a Director since 1995, has been Chief
Executive Officer of Fiserv, Inc., a financial industry
automation products and services firm, since March 1999. Mr.
Muma has been President of Fiserv since 1984. Mr. Muma is a
member of the Executive Committee and the Management
Development, Nominating and Governance Committee of the
Board of Directors. 20,937(2)(3)
DIRECTORS CONTINUING IN OFFICE
TERM ENDING 2005
[Bush Photo] MARY K. BUSH, 54, a Director since 1991, has been President
of Bush International, a financial advisory firm, since
1991. Ms. Bush was Managing Director and Chief Operating
Officer of the Federal Housing Finance Board, a U.S.
government agency, from 1989 to 1991, Vice
President-International Finance of the Federal National
Mortgage Association, a secondary mortgage institution, from
1988 to 1989, and served the President of the United States
as a member of the Board of the International Monetary Fund
from 1984 to 1988. She is a Director of Brady Corporation,
Millennium Chemicals Inc. and RJR Tobacco Holdings, Inc., a
Trustee of Pioneer Funds and a member of the Advisory Board
of Washington Mutual Investors Fund. Ms. Bush is Chairperson
of the Audit Committee of the Board of Directors. 6,085(2)(3)
[Engelman Photo] DAVID S. ENGELMAN, 65, a Director since 1993, has been a
private investor for more than five years, having served as
President and Chief Executive Officer, on an interim basis,
of Fleetwood Enterprises, Inc., a manufacturer of
recreational vehicles and manufactured housing, from
February to August 2002. He is a Director of Fleetwood
Enterprises, Inc., Quaker City Bancorp, Inc. and its banking
subsidiary Quaker City Bank. Mr. Engelman is a member of the
Risk Management Committee and the Securities Investment
Committee of the Board of Directors. 11,706(2)(3)(5)
5
SHARES
BENEFICIALLY
OWNED(1)
------------
[Jastrow Photo] KENNETH M. JASTROW, II, 55, a Director since 1994, has been
Chairman and Chief Executive Officer of Temple-Inland Inc.,
a holding company with interests in paper, forest products
and financial services, since January 2000. He served as
President and Chief Operating Officer of Temple-Inland Inc.
from 1998 to 2000 and held senior executive positions with
that company and its subsidiaries for more than five years
before then. He is a Director of KB Home. Mr. Jastrow is a
member of the Management Development, Nominating and
Governance Committee of the Board of Directors. 14,254(2)(3)
[Kearney Photo] DANIEL P. KEARNEY, 63, a Director since 1999, is a business
consultant and private investor. Mr. Kearney served as
Executive Vice President and Chief Investment Officer of
Aetna, Inc., a provider of health and retirement benefit
plans and financial services, from 1991 to 1998. He was
President and Chief Executive Officer of the Resolution
Trust Corporation Oversight Board from 1990 to 1991, a
principal of Aldrich, Eastman & Waltch, Inc., a pension fund
advisor, from 1988 to 1989, and a managing director at
Salomon Brothers Inc, an investment banking firm, from 1977
to 1988. He is a Director of Fiserv, Inc., Great Lakes REIT
and MBIA, Inc. Mr. Kearney is a member of the Audit
Committee and Chairman of the Securities Investment
Committee of the Board of Directors. 8,681(3)
DIRECTORS CONTINUING IN OFFICE
TERM ENDING 2004
[Abbott Photo] JAMES A. ABBOTT, 63, a Director since 1989, has been
Chairman and a principal of American Security Mortgage
Corp., a mortgage banking firm, since June 1999. He served
as President and Chief Executive Officer of First Union
Mortgage Corporation, a mortgage banking company, from
January 1980 to December 1994. Mr. Abbott is a member of the
Risk Management Committee of the Board of Directors. 12,252(2)(3)
6
SHARES
BENEFICIALLY
OWNED(1)
------------
[Hagerty Photo] THOMAS M. HAGERTY, 40, a Director since 2001, has been a
managing director with Thomas H. Lee Company, a private
investment firm ("THL"), since 1992 and has been with THL
since 1988. Mr. Hagerty previously was in the Mergers and
Acquisitions Department of Morgan Stanley & Co.
Incorporated. He is a Director of ARC Holdings, Conseco,
Inc., Cott Corporation, Metris Companies Inc. and Syratech
Corporation. In an attempt to preserve the value of an
investment in Conseco, Inc. by an affiliate of THL, Mr.
Hagerty served as the interim chief financial officer of
Conseco, Inc. from July 2000 until April 2001. In December
2002, Conseco, Inc. filed a petition under the federal
bankruptcy code. Mr. Hagerty is a member of the Securities
Investment Committee of the Board of Directors. 6,551(3)
[Lehman Photo] MICHAEL E. LEHMAN, 52, a Director since 2001, served as
Executive Vice President of Sun Microsystems, Inc., a
provider of computer systems and professional support
services from July 2000 to September 2002, as Chief
Financial Officer from February 1994 to July 2002, and held
senior executive positions with Sun Microsystems, Inc. for
more than five years before then. He is a Director of
Echelon Corporation, Mercator Software, Inc., NetIQ
Corporation and Sun Microsystems, Inc. Mr. Lehman is a
member of the Audit Committee of the Board of the Directors. 3,766(3)
[Lubar Photo] SHELDON B. LUBAR, 73, a Director since 1991, has been
Chairman of Lubar & Co. Incorporated, a private investment
and management firm, since 1977. Mr. Lubar is a Director of
C2, Inc., Crosstex Energy, L.P., Grant-Prideco, Inc. and
Weatherford International, Inc. Mr. Lubar is Chairman of the
Management Development, Nominating and Governance Committee
and a member of the Executive Committee of the Board of
Directors. 44,304(2)(3)(6)
---------------
(1) Ownership information is for shares of Common Stock as of February 15, 2003
and for non-employee directors includes share units held under the Deferred
Compensation Plan. See "The Board of Directors and Its
Committees -- Compensation of Directors -- Deferred Compensation Plan." Unless
otherwise noted, all directors have sole voting and investment power with
respect to the shares. Common Stock beneficially owned by each director
represents less than 1% of the total number of shares outstanding.
(2) Includes 2,000 shares held under the Company's 1993 Restricted Stock Plan
for Non-Employee Directors. The directors have sole voting power and no
investment power over these shares.
7
(3) Includes shares held under the Deposit Share Program for Non-Employee
Directors under the Company's 1991 Stock Incentive Plan as follows: Mr.
Abbott -- 5,726; Ms. Bush -- 4,085; Dr. Case -- 5,005; Mr. Engelman -- 5,869;
Mr. Hagerty -- 644; Mr. Jastrow -- 4,513; Mr. Kearney -- 2,951; Mr.
Lehman -- 467; Mr. Lubar -- 4,721; Mr. McIntosh -- 5,955; and Mr. Muma -- 3,762.
Directors have sole voting power and no investment power over these shares. Also
includes share units (referred to in note (1) above), over which the directors
have neither voting nor investment power, as follows: Dr. Case -- 2,249; Mr.
Hagerty -- 907; Mr. Jastrow -- 6,830; Mr. Kearney -- 2,230; Mr. Lehman -- 799;
Mr. Lubar -- 12,539; and Mr. Muma -- 5,531.
(4) Includes 376,800 shares which Mr. Culver had the vested right to acquire as
of February 15, 2003, or which become vested within sixty days thereafter
pursuant to options granted under the Company's 1991 Stock Incentive Plan;
12,300 shares held in the Company's Profit Sharing and Savings Plan and Trust;
and 50,654 restricted shares awarded under the Company's 1991 and 2002 Stock
Incentive Plans, over which Mr. Culver has sole voting power but no investment
power.
(5) Includes 6,397 shares for which voting and investment power are shared.
(6) Excludes 4,000 shares owned by a trust of which Mr. Lubar's wife is a
co-trustee; 12,000 shares owned by Mr. Lubar's wife; and an aggregate of 48,000
shares owned by Mr. Lubar's four adult children. Mr. Lubar disclaims beneficial
ownership of all these shares.
THE BOARD OF DIRECTORS AND ITS COMMITTEES
The Board of Directors has adopted Corporate Governance Guidelines which
are included as Exhibit A to this Proxy Statement. Among other provisions, under
the Guidelines,
- A substantial majority of the Board members will be independent
directors, as determined under the Guidelines.
- A director who retires from his principal employment or joins a new
employer should offer to resign from the Board.
- A director who is an officer of the Company and leaves the Company must
resign from the Board.
- A director should not be nominated by the Board for reelection if the
director would be 70 or more at the date of the Annual Meeting of
Shareholders.
- At the January and October Board meetings and at any additional times
determined by the Board, the Board will meet in executive session without
the presence of any member of the Company's management; the Chairman of
the Management Development, Nominating and Governance Committee will
preside at these sessions.
- Members of the Company's senior management should generally be present at
Board meetings (other than executive sessions) and Board committee
meetings; directors may communicate directly with members of senior
management.
- All members of the Audit Committee and the Management Development,
Nominating and Governance Committee must be independent directors, with
no member of the Audit Committee receiving compensation from the Company
other than as a director.
- A meaningful portion of the compensation of directors should consist of
longer-term common equity in the Company.
- The Board may retain outside advisors in its discretion.
- The Board will conduct a self-assessment annually.
- Directors who are independent directors will not solicit the Company to
make substantial charitable contributions to organizations with which the
director has a material relationship.
The Board of Directors has determined that a substantial majority of
members of the Board are independent directors under the Guidelines. The Board
of Directors met five times during 2002. Each incumbent director attended at
least 75% of the meetings of the Board and committees of the Board on which he
or she served that were held while he or she was a director. The committees of
the Board of Directors include the Audit Committee and the
8
Management Development, Nominating and Governance Committee. The Board of
Directors has determined that each member of these committees is an independent
director as provided in the Guidelines. The Board has also determined that the
members of the Audit Committee are independent as that term is used in the rules
of the New York Stock Exchange pertaining to audit committees.
AUDIT COMMITTEE
The members of the Audit Committee are Ms. Bush, Mr. Kearney and Mr.
Lehman. The Audit Committee held six meetings during 2002. The restated Audit
Committee Charter, as approved by the Board of Directors and effective May 1,
2003, is included as Exhibit B to this Proxy Statement.
REPORT OF THE AUDIT COMMITTEE
The Audit Committee assists the oversight by the Board of Directors of the
integrity of the Company's financial statements, the qualifications,
independence and performance of the independent accountants, the performance of
the Company's internal audit function, and the Company's compliance with legal
and regulatory requirements. As provided in the Audit Committee's Charter, the
ultimate responsibility for the integrity, completeness and fairness of the
Company's financial statements rests with the Company's management. The Charter
provides that the independent accountants are intended to be the primary check
on management's performance in this regard. The ultimate responsibility for the
Company's compliance with legal and regulatory requirements also rests with the
Company's management.
The Audit Committee reviewed and discussed with management and
PricewaterhouseCoopers LLP ("PwC"), the Company's independent accountants, the
Company's audited financial statements for the year ended December 31, 2002. The
Audit Committee discussed with PwC the matters required to be discussed by
Statement on Auditing Standards No. 61 (Communication with Audit Committees).
The Audit Committee also received from PwC the written disclosures required by
the Independence Standards Board's Standard No. 1 (Independence Discussions with
Audit Committees) and discussed with PwC their independence from the Company and
its management. None of the officers of the Company having responsibility for
finance or accounting matters is a former partner or employee of PwC.
In reliance on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2002, which is to be filed with the Securities and
Exchange Commission. These are the same financial statements that appear in the
Company's Annual Report to Shareholders.
MEMBERS OF THE AUDIT COMMITTEE:
Mary K. Bush, Chairperson
Daniel P. Kearney
Michael E. Lehman
AUDIT AND OTHER FEES
During the year ended December 31, 2002, PwC billed the Company fees for
services of the following types:
Audit Fees.................. $422,500
All Other Fees.............. $393,267
"Audit Fees" includes PwC's review of the Company's quarterly financial
statements. "All Other Fees" does not include services for designing or
implementing hardware or software systems underlying the financial statements or
generating information that is significant to the Company's financial statements
taken as a whole. There were no such fees for 2002. A majority of the fees
included in "All Other Fees" was for services related to employee benefit plans.
The Audit Committee considered whether the services included within "All Other
Fees" were compatible with maintaining PwC's independence and concluded that
they were.
MANAGEMENT DEVELOPMENT, NOMINATING AND GOVERNANCE COMMITTEE
The members of the Management Development, Nominating and Governance
Committee are Messrs. Jastrow, Lubar and Muma. The Committee held three meetings
during 2002. The Committee oversees the compensation program for the CEO and
other members of the Company's senior management, oversees the CEO succession
planning process, identifies new director candidates, recommends to the Board
its nominees for directors and committee members and reviews the Company's
Corporate Governance Guidelines. The Management Development, Nominating and
Governance Committee Charter is included as Exhibit C to this Proxy Statement.
The Management Development, Nominating and Governance Committee will
consider nominees to the
9
Board of Directors who are recommended by shareholders. Recommendations must be
submitted in writing to the Committee, in care of the Secretary of the Company,
by December 1 of the year preceding the applicable Annual Meeting of
Shareholders and must include a description of the proposed nominee's
qualifications, background information and his or her consent to serve as a
director.
COMPENSATION OF DIRECTORS
Annual and Meeting Fees: Directors who are employees of the Company or any
of its subsidiaries are not compensated for their service on the Board. In 2003,
directors who are not employees of the Company receive an annual fee for their
services of $32,000, plus $3,000 for each Board of Directors meeting attended,
and $2,000 for all committee meetings attended on any one day. A director who
also serves as chairperson of a Board committee receives an additional $4,000
annual fee. The Company reimburses directors, and for meetings not held on
Company premises, their spouses, for travel, lodging and related expenses
incurred in connection with attending Board of Directors and committee meetings.
Deferred Compensation Plan: Under the Company's Deferred Compensation Plan
for Non-Employee Directors, an eligible director may elect to defer payment of
all or part of the annual and meeting fees until the director's death,
disability, termination of service as a director or to another date specified by
the director. A director who participates in this plan may elect to have his or
her deferred compensation account either credited quarterly with interest
accrued at an annual rate equal to the six-month U.S. Treasury Bill rate
determined at the closest preceding January 1 and July 1 of each year or to have
the fees deferred during a quarter translated into share units. Each share unit
is equal in value to a share of the Company's Common Stock and is ultimately
distributed in cash only. If a director defers fees into share units, dividend
equivalents in the form of additional share units are credited to the director's
account as of the date of payment of cash dividends on the Company's Common
Stock. Mr. Culver, because of his employment by the Company, is not eligible to
participate in this plan.
Deposit Share Program: Under the Deposit Share Program, an eligible
director may purchase shares of Common Stock from the Company at fair market
value which are then held by the Company. The amount that may be used to
purchase shares cannot exceed the annual and meeting fees for the preceding
year. The Company matches each of these shares with one and one-half shares of
restricted Common Stock ("Restricted Stock"). A director who had deferred annual
and meeting fees during the preceding year into share units (see "Deferred
Compensation Plan" above) may reduce the amount that would otherwise be required
to be used to purchase Common Stock by the amount so deferred. For matching
purposes, the amount so deferred is treated as if shares had been purchased and
one and one-half shares of Restricted Stock are awarded for each such share.
The Restricted Stock generally vests on the third anniversary of the award
unless a director chooses an extended vesting date. Except for gifts to family
members, the shares may not be transferred prior to vesting. If the shares have
not vested when a director's service on the Board of Directors ends, they will
be forfeited unless service as a director ends on account of the director's
death or certain events specified in the agreement relating to the Restricted
Stock or the Management Development, Nominating and Governance Committee waives
the forfeiture. If a director chooses an extended vesting date, forfeiture will
not occur due to the director's leaving the Board on or after the third
anniversary of the award unless the director voluntarily left the Board or
voluntarily did not stand for re-election. All of the director's shares of
Restricted Stock vest on death. The shares of Restricted Stock will immediately
become vested upon a change in control of the Company, as defined by the
agreement relating to the Restricted Stock. The Board has authority to modify
the Deposit Share Program. Mr. Culver is not eligible to participate in the
program.
Former Restricted Stock Plan: Non-employee directors elected to the Board
of Directors before 1997 were each awarded, on a one-time basis, 2,000 shares of
Common Stock under the Company's 1993 Restricted Stock Plan for Non-Employee
Directors. The shares are restricted from transfer until the director ceases to
be a director of the Company by reason of death, disability or retirement, as
defined by the agreement relating to the shares, and are forfeited if the
director leaves the Board for another reason unless the forfeiture is waived by
the plan administrator. In 1997, the Board decided that no new awards of Common
Stock will be made under the plan.
Other: The Company also pays premiums for directors and officers liability
insurance under which the directors are insureds.
10
REPORT OF THE MANAGEMENT DEVELOPMENT, NOMINATING AND GOVERNANCE COMMITTEE OF THE
BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
The Management Development, Nominating and Governance Committee
("Committee") of the Board of Directors submits this report on the compensation
of the Company's senior management for 2002.
EXECUTIVE COMPENSATION PROGRAM
The Company's executive compensation program is designed to attract,
retain, motivate and reward high-quality professionals. The Committee's approach
to executive compensation emphasizes pay for performance over fixed salary, plus
compensation linked to shareholder value in the form of restricted stock and
stock options. The principal objectives of the program are to:
- link executive compensation to Company performance;
- align the interests of management and shareholders by providing a
substantial portion of an executive's compensation opportunity in the
form of Company stock; and
- maintain competitive pay levels to attract and retain high-quality
executives.
The key components of the Company's executive compensation program are base
salary, annual performance bonus, restricted stock and stock options. The
Committee reviews compensation levels of the Company's executives each year,
using compensation survey data prepared by independent consultants. The
Committee believes that the Company's peer group for executive talent is not
limited to the companies included in the Standard & Poor's industry index used
for the performance graph comparison of shareholder return. Therefore, the
compensation survey data obtained by the Committee cover a variety of publicly-
traded financial guaranty and insurance companies.
BASE SALARY
The Committee reviews the salary ranges and base salaries of the senior
executives each January, comparing the compensation levels of the Company's
executives to comparable positions in the companies represented in the survey
data. Salary ranges of the Company's senior executives are targeted at the
median compensation levels for comparable positions within the comparative group
of companies. The decision to set salary range midpoints at the 50th percentile
of competitive pay levels reflects the Committee's belief that a substantial
portion of the senior executives' annual pay should be linked to the Company's
performance and increases in shareholder value.
Mr. Culver's compensation is addressed under "Compensation of the Chief
Executive Officer" below. For 2002, the Committee increased the salary range
midpoints of the other senior executives who were with the Company during the
prior year by 3.5%, representing the average salary range movement reflected in
the compensation survey data, and increased the salaries of those executives in
this group who were below their adjusted salary midpoints to approximate the new
midpoint of their respective positions. The salaries shown for the named
officers in this group in the Summary Compensation Table which follows this
report reflect payment for the first three months of the year at the salary
rates in effect prior to the adjustments, which became effective in April 2002.
ANNUAL PERFORMANCE BONUS
Annual bonuses are awarded to senior executives in January of each year
based upon Company and individual performance. Under the executive compensation
program, the Committee determines the bonus awards for senior executives based
upon an assessment of the business environment, the Company's financial plan for
the year and the Company's earnings. In order for senior executives to be
eligible for maximum bonus awards, the Company's net income must exceed a target
amount established by the Committee in January of the prior year. For 2002, the
Committee set the target at an amount equal to the net income projected in the
Company's 2002 financial plan.
The Committee has established five tiers applicable to bonus opportunities,
with maximums ranging from 60% to 200% of base salary in effect at the time of
bonus award. For 2002, an executive could elect to receive up to one-third of
his or her bonus in the form of shares of restricted stock with an equivalent
market value. If restricted stock was elected, the Company awarded one and
one-half matching shares for each restricted shared elected. The balance of the
annual bonus was paid in cash. Full ownership of the restricted shares for up to
one-third of the bonus vests one year from the date of award.
11
Full ownership of the matching restricted shares vests three years from the date
of the award.
The maximum bonus level for each senior executive was determined by the
Committee in January 2002, based upon Mr. Culver's recommendations. Mr. Culver's
recommendations generally reflected his subjective judgment as to the ability of
each senior executive to influence the Company's competitiveness and
profitability. Actual bonus amounts paid to the senior executives were
determined in January 2003, based upon the Committee's assessment of the
Company's earnings compared to the net income target established a year earlier,
the competitive environment and Mr. Culver's recommendations for bonus awards
for the other senior executives. Mr. Culver's recommendations were based upon,
in general, his subjective evaluation of each executive's performance during the
year and contributions to the Company's success.
STOCK OPTIONS
Under the Company's stock incentive plans, stock options are granted at the
market value on the date of grant. As a result, senior executives will realize a
gain from the options only if the price of the Company's Common Stock increases
in the future.
The Committee currently awards stock options to senior executives on an
annual basis. The options awarded in 1994 and 1997 (all of which vested before
2002) and in 2000 provided for vesting during the first five years after the
grant based on achievement of corporate performance goals established by the
Committee. Any portion of these options that had not vested by the fifth
anniversary of the grant, vested on the ninth anniversary of the grant if the
executive was still employed at that time. The performance goal for options
awarded in 1994, 1997 and 2000 was based on a five-year aggregate earnings per
share target and an annual increase in earnings per share of at least 10%. In
2002, earnings per share did not increase by at least 10% and no portion of the
options granted in 2000 vested. The options granted in 2001 and 2002 vest over a
five-year period on the basis of continuing employment. The number of options
granted is within the discretion of the Committee. Information on the stock
option grants during 2002 to Mr. Culver and the other named executive officers
is set forth in the table under "Executive Compensation -- Option Grants in
2002."
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
Mr. Culver's base salary was adjusted by the Committee in January 2002 by
9.1% to $600,000, an amount slightly below the salary range midpoint for the
Chief Executive Officer position. For 2002, the Committee assigned Mr. Culver to
the bonus tier with the highest bonus opportunity, 200% of his base salary. The
Committee's decision to assign Mr. Culver to this bonus category was based on a
subjective evaluation of his ability to influence the Company's profitability
and reflected the Committee's desire to make Mr. Culver's performance bonus
competitive with bonus opportunities available to CEOs in the peer group of
companies reflected in the compensation survey data.
In January 2003, based upon the Committee's subjective evaluation of Mr.
Culver's performance during a highly competitive market and in acknowledgement
of the Company's 2002 net income, return on equity and growth in primary
insurance in force, the Committee awarded Mr. Culver a performance bonus of
$630,000, an amount equal to 105% of his base salary and 52.5% of his maximum
bonus opportunity. Two-thirds of the bonus, or $420,240, was paid in cash, and
pursuant to Mr. Culver's election to receive one-third of his bonus in
restricted stock (as described under "Annual Performance Bonus" above), Mr.
Culver was awarded 4,800 shares of restricted Company stock, representing
one-third of his bonus, and 7,200 additional shares representing the matching
shares awarded on account of Mr. Culver's election. All of the restricted stock
was valued at the then current market price ($43.70) per share. The shares
representing one-third of Mr. Culver's bonus will vest in one year and the
remaining shares will vest in three years.
Mr. Culver was granted stock options on 120,000 shares in January 2002. The
options have a term of ten years and vest at a rate of 20% each year over the
next five years (subject to acceleration under certain circumstances) based on
continued employment. The options are exercisable at $63.80 per share, the
closing price of the Common Stock on the New York Stock Exchange on the date of
the grant.
12
TAX DEDUCTIBILITY LIMIT
Under the Internal Revenue Code, certain compensation in excess of $1
million paid during a year to any of the executive officers named in the Summary
Compensation Table for that year is not deductible. The Committee believes that
the effect of such compensation on income tax expense for 2002 was not material
to the Company and that the effect of such compensation awarded for 2002 on
future income tax expense will not be material. The Committee believes it is in
the Company's interest to preserve flexibility to pay some compensation that
will not qualify for the income tax deduction because it is based on subjective
factors. Shareholders are being asked at the Annual Meeting to approve
performance goals that will enable compensation resulting from the vesting of
restricted stock awarded in the future that is subject to satisfaction of such
goals to be deductible.
MEMBERS OF THE MANAGEMENT DEVELOPMENT, NOMINATING AND GOVERNANCE COMMITTEE:
Sheldon B. Lubar, Chairman
Kenneth M. Jastrow, II
Leslie M. Muma
------------------------------------------------------
PERFORMANCE GRAPH
The following graph compares the cumulative total stockholder return on the
Company's Common Stock for the last five fiscal years with the cumulative total
return on the Standard & Poor's 500 Stock Index and the Standard & Poor's 500
Insurance (Property-Casualty) Index (the peer group index which has included the
Company since November, 1998). The graph assumes $100 was invested on December
31, 1997, in each of the Company's Common Stock, the Standard & Poor's 500 Stock
Index and the Standard & Poor's 500 Insurance (Property-Casualty) Index, and
that all dividends were reinvested. The subsequent year-end values are shown in
the table below the graph.
[PERFORMANCE GRAPH]
1998 1999 2000 2001 2002
---- ---- ---- ---- ----
S&P 500 129 156 141 125 97
S&P 500 Insurance (Property-Casualty) 93 70 108 100 89
MGIC Investment Corporation 60 91 102 94 63
13
EXECUTIVE COMPENSATION
The following tables provide information concerning compensation, stock
option awards and aggregated stock option exercises as they relate to the Chief
Executive Officer and the four other most highly compensated executive officers
of the Company or MGIC in 2002 as determined under the rules of the Securities
and Exchange Commission. The Company's retirement benefits are also described
below.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------- -------------------------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING ALL OTHER
COMPENSATION AWARDS STOCK COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($)(1) ($)(2) OPTIONS(#) ($)(3)
--------------------------- ---- --------- -------- ------------ ---------- ------------ ------------
Curt S. Culver 2002 588,462 420,240 -0- 524,400 120,000 60,463
President and Chief 2001 532,697 566,983 -0- 707,542 75,000 59,008
Executive Officer 2000 463,482 633,339 1,230 316,661 150,000 59,105
J. Michael Lauer 2002 305,385 165,451 -0- 206,351 40,000 30,072
Executive Vice President 2001 287,697 222,488 -0- 277,530 25,000 28,715
and Chief Financial 2000 277,710 280,046 979 139,954 50,000 28,974
Officer
James S. MacLeod 2002 285,769 265,500 -0- -0- 60,000 54,541
Executive Vice President- 2001 251,077 228,748 -0- 161,223 25,000 53,082
Field Operations 2000 235,692 238,057 475 118,943 50,000 53,120
Lawrence J. Pierzchalski 2002 283,077 154,782 -0- 193,023 40,000 11,600
Executive Vice President- 2001 256,538 199,472 -0- 248,820 25,000 32,749
Risk Management 2000 243,846 245,026 417 122,474 50,000 33,621
John D. Fisk* 2002 253,846 195,000 -0- -0- 30,000 1,600
Executive Vice President-
Strategic Planning
---------------
* Mr. Fisk joined the Company in February 2002.
(1) The amounts shown in this column for 2000 represent reimbursements for the
payment of taxes related to income imputed in connection with the
Supplemental Executive Retirement Plan referred to below. Other Annual
Compensation for the years shown in the table does not include perquisites
and other personal benefits because the aggregate amount of such
compensation for each of the named individuals in each year did not exceed
the disclosure threshold of the rules of the Securities and Exchange
Commission.
(2) For 2002, the amounts shown in this column are the New York Stock Exchange
closing price on the date of the award of $43.70, multiplied by the number
of shares as follows: Mr. Culver -- 12,000; Mr. Lauer -- 4,722; and Mr.
Pierzchalski -- 4,417. For 2001 and 2000, the amounts shown are the New York
Stock Exchange closing price on the date of award ($63.80 and $57.88,
respectively) multiplied by the number of shares. At December 31, 2002, the
number of restricted shares held and their value based on the year-end
closing price of the Common Stock on the New York Stock Exchange was as
follows: Mr. Culver -- 11,090, $458,017; Mr. Lauer -- 4,350, $179,655; Mr.
MacLeod -- 2,527, $104,365; and Mr. Pierzchalski -- 3,900, $161,070. For
2002 and 2001, 40% of the shares vest on the first anniversary of the award
and the remainder vest on the third anniversary. For 2000, all shares vested
on the first anniversary of the award. Dividends are paid on the restricted
shares.
14
(3) The 2002 amounts included in All Other Compensation consist of:
VALUE OF SPLIT
PROFIT MATCHING DOLLAR LIFE
SHARING 401(K) INSURANCE TOTAL OTHER
NAME CONTRIBUTIONS CONTRIBUTIONS PREMIUMS(A) COMPENSATION(B)
---- ------------- ------------- -------------- ---------------
Curt S. Culver $10,000 $1,600 $46,396 $60,463
J. Michael Lauer 10,000 1,600 18,472 30,072
James S. MacLeod 10,000 1,600 42,941 54,541
Lawrence J. Pierzchalski 10,000 1,600 -0- 11,600
John D. Fisk -0- 1,600 -0- 1,600
---------------
(a) The amount shown represents the full dollar amount paid by or on behalf of
MGIC for the whole life portion of the split-dollar life insurance. The premium
attributed to the term portion of such insurance was paid by the named executive
officers. MGIC will be reimbursed for premiums paid upon the officer's
termination of employment. All premiums paid by MGIC were paid before July 30,
2002, the effective date of the Sarbanes-Oxley Act of 2002. This Act has been
interpreted to prohibit a public company's payment of split dollar life
insurance premiums when the insured is an executive officer.
(b) Includes supplemental long term disability insurance premiums paid on behalf
of Mr. Culver of $2,467.
--------------------------------------------------------------------------------
OPTION GRANTS IN 2002
INDIVIDUAL GRANTS(1)
--------------------------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO GRANT DATE
OPTIONS EMPLOYEES IN EXERCISE PRICE EXPIRATION PRESENT
NAME GRANTED(#) FISCAL YEAR ($/SHARE) DATE VALUE(2)($)
---- ----------- ------------ -------------- ---------- -----------
Curt S. Culver 120,000 14.67 63.80 01/23/2012 3,255,960
J. Michael Lauer 40,000 4.89 63.80 01/23/2012 1,085,320
James S. MacLeod 60,000 7.33 63.80 01/23/2012 1,627,980
Lawrence J. Pierzchalski 40,000 4.89 63.80 01/23/2012 1,085,320
John D. Fisk 30,000 3.67 65.40 02/25/2012 829,350
---------------
(1) The options have a term of ten years and vest on each of the next five
anniversaries of the grant date (subject to acceleration under certain
circumstances) based on continued employment. The option grant date was January
23, 2002 for Messrs. Culver, Lauer, MacLeod and Pierzchalski and February 25,
2002 for Mr. Fisk.
(2) Grant date present values were determined under the Black Scholes option
pricing model using the following assumptions: expected stock price volatility
of 41.96%; all options are exercised at the end of the fifth year of the option
term; an expected dividend yield of 0.24%; and a risk-free rate of return of
4.52% (4.36% for Mr. Fisk), which was the yield at the grant date on a U.S.
Government Zero Coupon Bond with a maturity equal to the expected term of the
grant. No adjustments are made for risk of forfeiture or non-transferability.
Determining the grant date present value by use of this model is permitted by
rules of the Securities and Exchange Commission. The inclusion of the model's
determination in the table is not an endorsement or acknowledgement that the
model can accurately determine the value of these options. The actual value
realized from an option will be measured by the difference between the stock
price and the exercise price on the date the option is exercised.
15
AGGREGATED OPTION EXERCISES IN 2002 AND YEAR-END OPTION VALUES
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS
DECEMBER 31, 2002 AT DECEMBER 31, 2002(2)
SHARES ACQUIRED VALUE --------------------------- ---------------------------
ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
NAME DURING 2002(#) (1)($) (#) (#) ($) ($)
---- --------------- --------- ----------- ------------- ----------- -------------
Curt S. Culver 75,000 2,247,188 337,800 307,200 1,356,563 -0-
J. Michael Lauer 40,000 2,255,000 157,600 102,400 1,416,000 -0-
James S. MacLeod 20,000 588,250 97,600 122,400 291,750 -0-
Lawrence J. Pierzchalski 33,000 1,348,075 97,600 102,400 291,750 -0-
John D. Fisk -0- -0- -0- 30,000 -0- -0-
---------------
(1) Value realized is the market value at the close of business on the date
immediately preceding the date of exercise less the exercise price.
(2) Value is based on the closing price of $41.30 for the Common Stock on the
New York Stock Exchange at year-end 2002, less the exercise price.
--------------------------------------------------------------------------------
PENSION PLAN
The Company maintains a Pension Plan for the benefit of substantially all
employees of the Company and maintains a Supplemental Executive Retirement Plan
(the "Supplemental Plan") for designated employees, including executive
officers. The Supplemental Plan provides benefits that cannot be provided by the
Pension Plan because of limitations in the Internal Revenue Code on benefits
that can be provided by a qualified pension plan, such as the Company's Pension
Plan.
Under the Pension Plan and the Supplemental Plan taken together, each
executive officer named above earns an annual pension credit for each year of
employment equal to 2% of the officer's eligible cash compensation for that
year. At retirement, in general, the annual pension credits are added together
to determine the employee's accrued pension benefit. However, the annual pension
credits for service prior to 1998 for each employee with at least five years of
vested service on January 1, 1998 will generally be equal to 2% of the
employee's average eligible compensation for the five years ended December 31,
1997. Eligible employees with credited service for employment prior to October
31, 1985 also receive a past service benefit, which is generally equal to the
difference between the amount of pension the employee would have been entitled
to receive for service prior to October 31, 1985 under the terms of a prior plan
had such plan continued, and the amount the employee is actually entitled to
receive under an annuity contract purchased when the prior plan was terminated.
Retirement benefits vest on the basis of a graduated schedule over a
seven-year period of service. Full pension benefits are payable upon retirement
at or after age 65 (age 62 if the employee has completed at least seven years of
service), and reduced benefits are payable beginning at age 55. The estimated
annual benefits payable upon retirement at age 62 to Messrs. Culver, Lauer,
MacLeod, Pierzchalski, and Fisk under the Pension Plan and the Supplemental Plan
taken together, based on pension benefits earned through December 31, 2002, and
an annual compensation increase of 3%, are $505,822, $147,372, $184,141,
$252,274 and $126,437, respectively.
CHANGE OF CONTROL AND SEVERANCE AGREEMENTS
Each of Messrs. Culver, Lauer, MacLeod, Pierzchalski and Fisk is a party to
a Key Executive Employment and Severance Agreement with the Company (a "KEESA").
If a change in control of the Company occurs and the executive's employment is
terminated within three years after the change in control (this three-year
period is referred to as the "employment period"), other than for cause or
disability, or if the executive terminates his employment for good reason, the
executive is entitled to a lump sum termination payment equal to twice the sum
of his annual base salary, his maximum bonus award and an amount for pension
accruals and profit sharing and matching contributions. If the
16
employment termination occurs during the employment period but more than three
months after the change in control, the termination payment is reduced. The
executive is also entitled to certain other benefits and the continuation of
medical and other specified employee benefits during the remainder of the
employment period. The KEESA provides that all unvested stock options and
restricted stock become fully vested at the date of the change in control. If
the excise tax under Section 280G of the Internal Revenue Code would apply to
the benefits provided under the KEESA, the executive is entitled to receive a
payment so that he is placed in the same position as if the excise tax did not
apply.
While the executive is employed during the employment period, the executive
is entitled to a base salary no less than the base salary in effect prior to the
change in control and to a bonus opportunity of no less than 75% of the maximum
bonus opportunity in effect prior to the change in control. The executive is
also entitled to participate in medical and other specified benefits.
The terms "change in control of the Company," "cause," "disability" and
"good reason" are defined in the KEESA. The Company has entered into the same or
similar agreements with 41 other officers.
The Company is a party to a Non-Competition, Confidentiality and Severance
Agreement with Mr. Fisk. The agreement provides that Mr. Fisk is entitled to
continued payment of his base salary of $300,000 for one year after termination
if his employment terminates before February 25, 2004. These continuation
payments are not made if his employment termination is due to his death,
disability, voluntary resignation, other than as a result of a meaningful
reduction in his job responsibilities, or in the case of certain terminations by
the Company. Mr. Fisk is also entitled to continuation of medical and other
specified employee benefits during the period in which he receives continuation
of his base salary. The foregoing severance provisions of this agreement do not
apply if Mr. Fisk is entitled to a termination payment under his KEESA. The
agreement also restricts Mr. Fisk from competing with the Company after the
termination of his employment and contains restrictions on Mr. Fisk's disclosure
of confidential information.
OTHER INFORMATION
During 2002, MGIC, other subsidiaries of the Company and joint ventures
provided mortgage insurance and other services to, or received services from,
unaffiliated companies of which certain non-employee directors were executive
officers, directors or 10% or greater equity owners. These transactions were
made in the ordinary course of business, represented less than 2% of the
consolidated revenues of the Company and these other companies (2% of
consolidated assets in the case of loans to joint ventures) and are not
considered material to the Company. Similar transactions are expected in 2003.
During 2002, Credit-Based Asset Servicing and Securitization LLC
("C-BASS"), a joint venture in which the Company has an equity interest of
approximately 46%, purchased in six separate transactions (some which closed at
different times) mortgage loans having an unpaid principal balance plus unpaid
interest of $475.9 million from a subsidiary of Conseco, Inc. for an aggregate
purchase price of $498.5 million. Mr. Hagerty is a director of Conseco, Inc. An
affiliate of THL, of which Mr. Hagerty is a managing director, beneficially owns
preferred stock of Conseco, Inc. convertible into 7.5% of the common stock of
Conseco, Inc. During 2002, Sherman Financial Group LLC ("Sherman"), a joint
venture in which the Company had an equity interest of approximately 46%,
purchased in 11 separate transactions past due accounts receivable having a
principal balance of $2.136 billion from a subsidiary of Metris Companies Inc.
for an aggregate purchase price of $40.7 million. Mr. Hagerty is a director of
Metris Companies Inc. Affiliates of THL beneficially own preferred stock of
Metris Companies Inc. convertible into an aggregate of 38.5% of the common stock
of Metris Companies Inc. or a combination of such common stock and a series of
preferred stock. The purchase price and other terms of the transactions
described in this paragraph were initiated and negotiated at arms' length
directly between the management of C-BASS and the Conseco, Inc. subsidiary or
directly between the management of Sherman and the Metris Companies Inc.
subsidiary. It is possible that additional purchases by C-BASS or Sherman could
occur in the future.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and
17
directors, and persons who beneficially own more than ten percent of the
Company's Common Stock (other than certain investment advisers with respect to
shares held for third parties), to file reports of their beneficial ownership of
Company stock and changes in stock ownership with the Securities and Exchange
Commission and the New York Stock Exchange. Based in part on statements by the
persons subject to Section 16(a), the Company believes that all Section 16(a)
forms were timely filed in 2002.
ITEM 2 -- APPROVAL OF PERFORMANCE GOALS FOR RESTRICTED STOCK AND RESTRICTED
STOCK UNITS AWARDED UNDER 2002 STOCK INCENTIVE PLAN
INTRODUCTION
At the 2002 Annual Meeting, shareholders approved the Company's 2002 Stock
Incentive Plan (the "Plan"). The Plan provides for the award of stock options
("options"), stock appreciation rights ("SARs"), restricted stock and restricted
stock units. At this year's Annual Meeting, the Company is asking shareholders
to approve performance goals the achievement of which will be a condition to the
vesting of restricted stock or restricted stock units awarded under the Plan in
the future that have such performance conditions to vesting. Shareholder
approval is required so that the compensation expense resulting from the vesting
of future awards of restricted stock or restricted stock units with such
performance conditions to vesting is not subject to the limitation on income tax
deductibility by the Company under Section 162(m) of the Internal Revenue Code
of 1986, as amended (the "Code"). Under Section 162(m), the Company may not
deduct compensation in excess of $1 million paid in a year to the Chief
Executive Officer and the next four highest paid executive officers named in the
summary compensation table in the Company's proxy statement for that year unless
the compensation is payable solely on account of the achievement of
preestablished, objective performance goals. If shareholders do not approve the
performance goals, compensation expense resulting from the vesting of future
grants of restricted stock or restricted stock units with such performance
conditions to vesting will not be deductible by the Company.
The purpose of the Plan is to provide the benefits of additional incentive
inherent in ownership of the Company's Common Stock by executive officers,
including the Chief Executive Officer, other key employees of the Company and
non-employee directors. On March 12, 2003, the last reported sale price of the
Common Stock on the New York Stock Exchange was $35.80. There are currently
about 150 persons eligible to receive awards under the Plan, of whom 11 are
non-employee directors.
The maximum number of shares of Common Stock which may be issued under the
Plan is 10,000,000 shares plus an additional amount of shares that is the total
of two components. The first component is the number of shares covered by awards
under the Company's 1991 Stock Incentive Plan that were outstanding on March 1,
2002 but are subsequently forfeited. The second component is the number of
shares that must be purchased at a purchase price of not less than the fair
market value of the shares as a condition to the award of restricted stock under
the Plan. While the Common Stock is listed on an exchange, fair market value is
the last reported sale price on the exchange. Shares issued under the Plan that
are subsequently forfeited will not count against the limit on the maximum
number of shares that may be issued under the Plan.
The material features of the Plan are summarized below. The Plan has not
been amended since it was approved by shareholders at the 2002 Annual Meeting.
ADMINISTRATION
The Plan is administered by a Committee of the Board. The Plan provides
that each member of the Committee must be an "outside director" for purposes of
Section 162(m) of the Code. Among other functions, the Committee has power (a)
to select the participants to whom awards are made from among the persons
eligible to receive awards, (b) to determine the number of shares covered by
awards, and (c) within the limits of the Plan, to set the terms of awards,
including whether the achievement of performance goals will be a condition to
vesting of restricted stock and restricted stock units.
RESTRICTED STOCK AND RESTRICTED STOCK UNITS
Restricted stock is Common Stock that is not freely transferable to the
participant until specified restrictions lapse or specified conditions are met.
In this description, these restrictions and conditions are referred to together
as restrictions. A restricted stock unit is the right to receive stock in the
future, which right is subject to restrictions. The Plan authorizes the issuance
of up to a total of 1,000,000 shares of restricted stock and stock issued under
restricted stock units (subject to adjustment to prevent dilution).
18
Restricted stock that is forfeited will not count against the limit on the
maximum number of restricted shares. Restricted stock and restricted stock units
are subject to such restrictions as the Committee may impose. The maximum number
of shares covered by all awards (whether of restricted stock, restricted stock
units, options or stock appreciation rights) made to any one employee is
2,000,000 shares (subject to adjustment to prevent dilution). Unless otherwise
provided by the Committee, no award may be transferred by any participant other
than by will, by designation of a beneficiary or by the laws of descent and
distribution.
PERFORMANCE GOALS
Performance goals will be determined by the Committee at the time awards of
restricted stock or restricted stock units are made but not later than 90 days
after the beginning of the first fiscal year covered by the performance goal.
Performance goals may be the achievement of targets for earnings per share, net
income, return on equity or cash flow (which may be computed with realized gains
and extraordinary items included or excluded, as determined by the Committee).
These targets may be annual, multi-year or a combination of annual and
multi-year targets (for example, earnings per share during a year as a
percentage of a multi-year earnings per share target).
OPTIONS AND SARS
An option is the right to purchase a specified number of shares of Common
Stock at a specified exercise price. An SAR is the right to receive, in cash or
shares with equivalent value, the difference between the fair market value of a
specified number of shares of Common Stock and a specified exercise price. The
exercise price per share of Common Stock subject to an option or an SAR will be
determined by the Committee. However, the exercise price per share may not be
less than the fair market value of a share of Common Stock on the date the award
is made.
The term of an option or SAR will be determined by the Committee, but may
not be more than ten years. Options and SARs will vest on such conditions as are
determined by the Committee. Vesting means that an option or SAR may be
exercised by the participant. Conditions to vesting can include remaining as an
employee or non-employee director for a specified period or the achievement of
performance goals set by the Committee. The vesting of options that would vest
at a later date if the participant remained with the Company may be accelerated
to an earlier date if performance goals are satisfied.
Options are exercised by payment in full of the exercise price, which may
be paid in cash or by delivery of shares of Common Stock owned by the
participant having a fair market value equal to the exercise price or by a
combination of cash and shares. Options may also be exercised through sale of
the shares received on exercise with sufficient proceeds from the sale remitted
to the Company to pay the exercise price. While not required by the terms of the
Plan, it is anticipated awards will generally provide that options and SARs that
have not vested terminate upon termination of the participant's employment,
other than by reason of death. In the case of death, it is anticipated that
awards will provide options and SARs will become fully vested.
Options may be "incentive stock options" under the Code ("ISOs") or options
that are not ISOs. No more than 10,000,000 shares may be issued under options
that are ISOs.
ADJUSTMENTS AND CHANGE OF CONTROL
In the event of any corporate transaction involving the Company, including
any stock dividend, stock split, extraordinary cash dividend, recapitalization
or merger, the Committee will have the authority to adjust the number and type
of shares that may be issued under the Plan, including the limit on the number
of shares of restricted stock and stock issued under restricted stock units, and
any awards that are outstanding. Upon a change of control of the Company, as
defined by the Committee and included in the agreement that will evidence the
award, all awards become vested immediately and all restrictions will lapse.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF OPTIONS AND SARS
The grant of an option or SAR under the Plan will create no income tax
consequences to the participant or the Company. A participant who is granted an
option that is not an ISO will generally recognize ordinary income at the time
of exercise in an amount by which the fair market value of the Common Stock at
such time exceeds the exercise price. The value of the Common Stock or the
amount of cash delivered on exercise of an SAR will also generally be ordinary
income to the participant. The Company will be entitled to a deduction in the
same amount and at the same time as ordinary income is recognized by the
participant. A subsequent disposition of the Common
19
Stock will give rise to capital gain or loss to the extent the amount realized
from the sale differs from the fair market value of the Common Stock on the date
of exercise.
In general, if an ISO is awarded to an employee, the participant holds the
shares of Common Stock acquired on the exercise of the ISO for at least two
years from the date of grant and one year from the date of exercise, and the
participant remained an employee until at least three months before exercise,
the participant will recognize no income or gain as a result of the exercise,
except that the alternative minimum tax may apply. Any gain or loss realized by
the participant on the disposition of the Common Stock will be treated as a
long-term capital gain or loss. No deduction will be allowed to the Company. If
the holding period requirements described above are not satisfied, the
participant will recognize ordinary income at the time of the disposition, equal
to the lesser of (a) the gain realized on the disposition or (b) the difference
between the exercise price and the fair market value of the shares of Common
Stock on the date of exercise. The Company will be entitled to a deduction in
the same amount and at the same time as ordinary income is recognized by the
participant. Any additional gain realized by the participant over the fair
market value at the time of exercise will be treated as capital gain.
AMENDMENT AND TERMINATION
The Board or the Committee may amend the Plan at any time. However, the
approval of the shareholders is required for amendments that increase the
maximum number of shares that may be issued under the Plan; increase the maximum
aggregate number of shares of restricted stock and stock issued under restricted
stock units that may be issued under the Plan; or increase the maximum number of
shares covered by awards to any one employee (which is 2,000,000 shares). The
Board or the Committee may also terminate the Plan at any time. No amendment or
termination of the Plan will adversely affect any award outstanding without the
approval of the affected participant.
SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The table below sets forth certain information, as of December 31, 2002,
about options outstanding under the Company's 1991 Stock Incentive Plan. Other
than under this plan, no options, warrants or rights were outstanding at that
date under any compensation plan or individual compensation arrangement of the
Company. The Company has no compensation plan under which its equity securities
may be issued that has not been approved by shareholders. Share units issued
under the Deferred Compensation Plan for Non-Employee Directors (see "The Board
of Directors and Its Committees -- Compensation of Directors -- Deferred
Compensation Plan"), which have no voting power and can be settled only in cash,
are not considered to be equity securities for this purpose.
EQUITY COMPENSATION PLAN INFORMATION
NUMBER OF SECURITIES
REMAINING AVAILABLE
NUMBER OF SECURITIES TO BE WEIGHTED AVERAGE UNDER EQUITY
ISSUED UPON EXERCISE OF EXERCISE PRICE OF COMPENSATION PLANS
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, (EXCLUDING SECURITIES
WARRANTS AND RIGHTS WARRANTS AND RIGHTS REFLECTED IN COLUMN (A))
PLAN CATEGORY (A) (B) (C)
Equity compensation plans approved
by security holders 3,587,559 $49.42 10,052,621*
Equity compensation plans not
approved by security holders -0- -0- -0-
Total 3,587,559 $49.42 10,052,621*
---------------
* All of these shares are available under the Plan. The Plan provides that the
number of shares covered by awards under the 1991 Stock Incentive Plan that were
outstanding on March 1, 2002 and that are subsequently forfeited are available
under the Plan. The amount in column (c) includes such shares that had been
forfeited as of December 31, 2002. In addition, the Plan provides that the
number of shares available is increased by the number of shares that must be
purchased at a purchase price of not less than fair market value as a condition
to the award of restricted stock. The Plan limits the number of shares awarded
as restricted stock or deliverable under restricted stock units to 1,000,000
shares.
20
SHAREHOLDER VOTE REQUIRED
The affirmative vote of a majority of the votes cast on the performance
goals approval item is required for approval of the performance goals. Shares
represented by proxies that reflect abstentions and shares referred to as
"broker non-votes" will not be treated as "votes cast."
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR APPROVAL OF THE PERFORMANCE
GOALS REFERRED TO ABOVE FOR RESTRICTED STOCK AND RESTRICTED STOCK UNITS THAT MAY
BE AWARDED IN THE FUTURE UNDER THE 2002 STOCK INCENTIVE PLAN. PROXIES WILL BE
VOTED FOR APPROVAL, UNLESS INDICATED OTHERWISE ON THE PROXY.
ITEM 3 -- RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors, upon the recommendation of the Audit Committee, has
reappointed the accounting firm of PricewaterhouseCoopers LLP ("PwC") as
independent accountants of the Company for the fiscal year ending December 31,
2003. Shareholders are being asked to ratify this appointment at the Annual
Meeting. (Under the amended Audit Committee Charter, which is effective May 1,
2003, the Audit Committee has authority to appoint the independent accountants.)
A representative of PwC is expected to attend the meeting and will be given an
opportunity to make a statement and respond to appropriate questions.
SHAREHOLDER VOTE REQUIRED
The affirmative vote of a majority of the votes cast on this matter is
required for the ratification of the appointment of PwC as independent
accountants. Abstentions and "broker non-votes" will not be counted as "votes
cast."
YOUR BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF PWC AS INDEPENDENT ACCOUNTANTS. PROXIES WILL BE VOTED FOR
RATIFICATION, UNLESS INDICATED OTHERWISE ON THE PROXY.
OTHER MATTERS
SHAREHOLDER PROPOSALS
Any shareholder who wants to include a proposal in the proxy material for
the Company's 2004 Annual Meeting must submit the proposal to the Company on or
before November 28, 2003. The rules of the Securities and Exchange Commission
also establish other requirements for shareholder proposals of this type.
Under the Company's Bylaws, a shareholder who wants to bring business
before the Annual Meeting of Shareholders, other than a proposal included in the
Company's proxy material, or who wants to nominate directors at the Annual
Meeting must satisfy the following requirements: (1) be a shareholder of record
entitled to vote at the Annual Meeting and also be a shareholder of record at
the time the following notice is given; and (2) give notice to the Company's
Secretary in writing that is received at the Company's principal offices not
less than 45 days nor more than 70 days before the first anniversary of the date
set forth in the Company's proxy statement for the prior Annual Meeting as the
date on which the Company first mailed such proxy materials to shareholders. For
the 2004 Annual Meeting, the relevant dates are no later than February 11, 2004
and no earlier than January 17, 2004.
In the case of business other than nominations for directors, the notice
must, among other requirements, briefly describe such business, the reasons for
conducting the business and any material interest of the shareholder in such
business. In the case of director nominations, the notice must, among other
requirements, give various information about the nominees, including information
that would be required to be included in a proxy statement of the Company had
each such nominee been proposed for election by the Board of Directors of the
Company.
MANNER AND COST OF PROXY SOLICITATION
The cost of soliciting proxies will be paid by the Company. In addition to
soliciting proxies by mail, employees of the Company may solicit proxies by
telephone, facsimile or personal interview. The Company also has engaged D.F.
King & Co., Inc. to provide proxy solicitation services for a fee of $8,000,
plus expenses, including charges by brokers and other custodians, nominees and
fiduciaries to forward proxy soliciting material to the beneficial owners of the
Company's Common Stock.
OTHER BUSINESS
At the date of mailing of this Proxy Statement, the Board of Directors knew
of no other business to be presented at the Annual Meeting. Under the Company's
Bylaws as described under "Other Matters -- Shareholder Proposals," because no
notice of any other business was given to the Company, no business may be
brought before the Annual Meeting by a shareholder.
21
EXHIBIT A
MGIC INVESTMENT CORPORATION
CORPORATE GOVERNANCE GUIDELINES
I. COMPOSITION OF THE BOARD
A. NUMBER AND TERMS OF DIRECTORS
The Board will endeavor to maintain its size in a range of 10 - 14
directors. Directors are divided into three approximately equal classes, with a
three-year term of office for each class.
B. INDEPENDENT DIRECTORS
(1) Meaning of Independence
A director is independent for purposes of these Guidelines if the
requirements in (a), (b) and (c) are met.
(a) Within the last five years, neither the director nor a member of the
director's immediate family was
(i) an employee of the Company, other than an interim CEO or
Chairman, or
(ii) an employee of the firm that is serving, or within such five-year
period was serving, as the independent auditor of the Company or
any affiliate.
(b) Within the last year or such longer period as may be provided under the
rules of the New York Stock Exchange, neither the director nor a member
of the director's immediate family had a material relationship with the
Company in the sense that such relationship could reasonably call into
question whether the director is independent from the management of the
Company. Such relationships may arise as a result of the director's
being a service provider, customer, lender or through transactions
between the director and the Company or its subsidiaries. Relationships
that may impair independence may be indirect and arise through the
director's position with (other than solely as a director) or ownership
of an entity that has a relationship with the Company.
Transactions in the ordinary course of business that do not exceed 2%
of the Company's consolidated revenues for the year (2% of the
Company's consolidated assets at year-end in the case of loans to the
Company) and that do not exceed such threshold for the other person
involved in transaction shall be deemed not to impair independence.
Unless otherwise provided by the rules of the New York Stock Exchange,
a transaction exceeding these thresholds does not create any
implication or presumption that a director involved in the transaction
is not independent.
(c) A director (the "first director") is not independent if an executive
officer of the Company is a director of a company that employs the
first director. If the executive officer is or was on the compensation
committee of the first director's employer, the first director is not
independent until five years after the executive officer ceased being
on that committee.
(d) A director's immediate family consists of the director's parents,
parents-in-law, siblings, spouse, children, children-in-law, and anyone
else who shares the director's home.
(2) Number of Independent Directors
A substantial majority of the Board will consist of directors who are
independent.
C. LEAVING THE BOARD
(1) A director shall not be nominated by the Board for reelection if at the
date of the related meeting of shareholders the director would be age 70 or
more.
(2) A director who retires from his principal employment or joins a new
employer (including a director who was previously retired and returns to being
employed) should offer to resign from the Board. The Board will determine,
formally or informally, whether the resignation should be accepted after
receiving a recommendation from the Management Development, Nominating and
Governance Committee.
A-1
(3) A director who is an officer of the Company or a subsidiary and leaves
the Company shall resign from the Board.
D. OTHER DIRECTORSHIPS
A director who is the Chief Executive Officer of the Company or a
subsidiary may not serve as a director of more than one public company other
than the Company.
II. BOARD PROCESS
A. MEETINGS
Four face-to-face meetings of the Board will be held each year with an
additional telephone meeting held primarily to review the Company's Annual
Report on Form 10-K and its proxy statement. Additional meetings shall be held
if warranted. Under the current meeting schedule, the Board meets face-to-face
in January, May, July and October, with a telephone meeting in March.
B. EXECUTIVE SESSIONS
Unless another schedule is set by the Board and based on the current
face-to-face meeting schedule, during the January and October meetings, the
Board will meet without the presence of any director who is an officer of the
Company or any subsidiary. Additional executive sessions may be scheduled as
determined by the Board. The Chair of the Management Development, Nominating and
Governance Committee will preside at these meetings.
C. ACCESS TO SENIOR MANAGEMENT
(1) Members of senior management should generally attend Board meetings,
other than executive sessions. Members of senior management should also
generally attend committee meetings and any pre-Board meeting dinners.
(2) Directors may communicate directly with members of senior management
but in such communications should have due regard not to divert senior
management members from their job responsibilities. The Chief Executive Officer
should be copied on any written communications.
D. BOARD MATERIALS
For regularly scheduled meetings, materials pertinent to the meeting agenda
and the operations of the Company should be circulated to the directors a
reasonable time in advance of the meeting. Directors are expected to attend
meetings of the Board and review the materials circulated to them in advance of
the meeting.
III. COMMITTEES OF THE BOARD
A. STANDING COMMITTEES
The Board will have the following standing committees: Audit, Management
Development, Nominating and Governance (which will function as both a
compensation and a corporate governance committee), Risk Management and
Securities Investment. The Board may appoint other standing committees if it
chooses to do so as well as appoint ad hoc committees.
The charters of all committees will be approved by the Board. The members
of the Audit and Management Development, Nominating and Governance Committees
will consist entirely of independent directors. For this purpose, no member of
the Audit Committee will be independent if the member receives any compensation
from the Company other than compensation as a director.
B. COMMITTEE MEMBERSHIP AND CHAIR RECOMMENDATIONS
Membership and chairs of committees will be recommended to the Board by the
Management Development, Nominating and Governance Committee. That committee will
seek input from Board members prior to making its recommendations.
C. AUDIT COMMITTEE MEETING TIME
Meetings of the Audit Committee held in conjunction with other committee
meetings will be scheduled so as not to conflict with the other committee
meetings, thereby permitting all directors to attend the Audit Committee meeting
if they choose to do so.
IV. SUCCESSION PLANNING
The Board will review annually the succession plan for the Chief Executive
Officer and will include in the review succession that could occur as a result
of the death, disability or unexpected resignation of the Chief Executive
Officer.
A-2
V. COMPENSATION OF DIRECTORS
The Management Development, Nominating and Governance Committee will review
periodically compensation of directors, including the portion of compensation
consisting of equity in the Company. A meaningful portion of compensation should
consist of longer-term common equity in the Company or its equivalent (such as
phantom stock).
VI. OTHER MATTERS
A. DIRECTOR ORIENTATION AND CONTINUING EDUCATION
(1) Under the oversight of the Management Development, Nominating and
Governance Committee, and in conjunction with the Chief Executive Officer, there
will be a formal orientation program for new directors, including an overview of
the Company's business and presentations by senior management. All directors
will be invited to attend.
(2) On a triennial basis, or more frequently if required by the rules of
the New York Stock Exchange, directors will be reimbursed for the reasonable
costs of attending "continuing director education" programs sponsored or
approved by the New York Stock Exchange or a comparable organization, such as
Institutional Shareholder Services.
B. RETENTION OF OUTSIDE ADVISORS
The Board may retain outside advisors in its discretion. The Company shall
provide funds to pay the reasonable costs and expenses of such advisors.
C. BOARD SELF-EVALUATION
Under the oversight of the Management Development, Nominating and
Governance Committee, the Board will annually conduct a self-assessment.
In connection with making its recommendation to the Board to renominate a
director, the Management Development, Nominating and Governance Committee will
review that director's performance, including soliciting feedback from the rest
of the Board.
D. DISCLOSURE OF GUIDELINES, CHARTERS AND CODE OF BUSINESS CONDUCT
No later than the time at which the Corporate Governance Rules of the New
York Stock Exchange become effective, the Company's website will include the
text of:
(1) these Guidelines,
(2) the charters of the Audit and Management Development, Nominating and
Governance Committees, and
(3) the Company's Code of Business Conduct.
E. REVIEW OF GUIDELINES
The Management Development, Nominating and Governance Committee will review
the Guidelines on an annual basis and, if there are changes, will recommend them
to the Board.
F. MISCELLANEOUS
Directors who are independent directors shall not solicit the Company to
make substantial charitable contributions to any organization with which such
director has a material relationship.
Interested persons desiring to communicate with the non-management members
of the Board as a group, or with the Chair of the Management Development,
Nominating and Governance Committee, may do so by contacting the Company's
Secretary. The Secretary shall pass on any such communication without reviewing
it to the Chair of the Management Development, Nominating and Governance
Committee.
All interpretations of and determinations under these Guidelines are within
the good faith discretion of the Board. The Guidelines do not create legal
rights in any person.
A-3
EXHIBIT B
MGIC INVESTMENT CORPORATION
AUDIT COMMITTEE CHARTER
PURPOSE AND AUTHORITY
The purpose of the Audit Committee is to assist the oversight by the
Company's Board of Directors of:
- the integrity of the Company's financial statements,
- the qualifications, independence and performance of the independent
accountants,
- the performance of the Company's internal audit function, and
- the Company's compliance with legal and regulatory requirements.
The Committee shall also provide the report of the Committee to be included
in the Company's proxy statement under the rules of the Securities and Exchange
Commission ("SEC").
Within the scope of its purpose, the Committee shall have unrestricted
access to any of the Company's activities and personnel. Within the scope of its
purpose, the Committee has authority to retain persons from within or outside
the Company as necessary in its judgment to assist or advise the Committee, and
the Company shall provide funds to pay the reasonable costs and expenses of
persons so retained.
Notwithstanding the Committee's purpose as set forth above, the ultimate
responsibility for the integrity, completeness and fairness of the Company's
financial statements rests with the Company's management. The independent
accountants are intended to be the primary check on management's performance in
this regard. Furthermore, the ultimate responsibility for the Company's
compliance with legal and regulatory requirements also rests with the Company's
management.
STRUCTURE
The Committee shall be comprised of three or more directors, each of whom
shall be independent under Sections I. B. (Composition of the Board--Independent
Directors) and III. A. (Committees of the Board--Standing Committees) of the
Company's Corporate Governance Guidelines (the "Guidelines"). All members of the
Committee shall have the ability to read and understand fundamental financial
statements, and at least one member of the Committee shall have accounting or
related financial management expertise (which may include being or having been a
CEO or other senior officer with financial oversight responsibilities).
As contemplated by the Guidelines, the members of the Committee shall be
appointed annually by the Board, and the Board shall appoint one of the members
as Chairperson for the Committee.
DUTIES AND RESPONSIBILITIES
Subject to the considerations referred to in the final paragraph under
"Purpose and Authority" above, the Audit Committee shall perform the duties
listed below. The degree of effort the Committee devotes to the performance of
any particular duty shall be determined in the judgment of the Committee. It is
expressly recognized that, unless the Committee decides otherwise, some duties
need not be performed each year.
1. Appoint the independent accountants (subject to ratification by the
shareholders, if the Committee deems such ratification appropriate in
the circumstances), assess the performance of the independent
accountants, and, if appropriate, discharge such firm.
2. With respect to audit and non-audit services to be performed by the
independent accountants, approve the particular service prior to
engaging the independent accountants to perform it, or establish
detailed procedures under which services will be pre-approved, in each
case, giving consideration to the effect on the accountant's
independence of performing the service.
3. Obtain a written statement annually from the independent accountants
delineating all relationships between the independent accountants and
the Company, discuss with
B-1
the independent accountants any disclosed relationships or services
that may impact the independence of the independent accountants, and
take appropriate action to satisfy itself of the independence of the
independent accountants. Review any other matters of which the
Committee becomes aware which would impair the independence of the
independent accountants.
4. After completion of the annual audit and prior to the filing of the
audited financial statements with the SEC, review with the independent
accountants the results of the audit and the financial statements and
discuss matters required to be communicated to audit committees in
accordance with SAS 61, including any difficulties encountered during
the audit and management's response. Consider the independent
accountants' judgments regarding the quality and appropriateness of the
Company's accounting principles as applied in the financial statements,
including reviewing the accountants' report of critical accounting
policies used in the audited financial statements and alternative
treatments within GAAP for material items that were discussed by the
accountants and management.
5. Appoint the actuary who will render the Statement of Actuarial Opinion
on the Company's loss and loss adjusting expense reserves. Obtain and
review the actuary's report and Statement of Actuarial Opinion.
6. Review the financial information included in the annual earnings
release with management and the independent accountants prior to
release to the public. Review a draft of the annual Management's
Discussion and Analysis with management and the independent
accountants. Recommend to the Board of Directors that the audited
financial statements be included in the Company's Annual Report on Form
10-K.
7. Review the material activities of the internal audit function,
including:
- The appointment or dismissal of the Internal Audit Director.
- Internal Audit's charter.
- Internal Audit's annual audit plan and changes thereto, and
coordination with the independent accountants.
- Any difficulties encountered in the course of their audits,
including any restrictions on the scope of work performed or access
to required information.
- Internal Audit's independence and effectiveness.
- Internal Audit's resources and expertise.
- Corrective actions taken by management to address the findings and
recommendations of the internal auditors.
8. Review with management and the independent accountants (a) significant
accounting and financial reporting developments and their impact on the
Company's financial statements, and (b) significant matters relating to
the Company's income tax filings.
9. The Chairperson will review the financial information included in the
quarterly earnings release with management prior to release to the
public. The Committee will discuss with management the types of
information to be included in the Company's earnings releases and in
any earnings guidance. The Committee will discuss with the independent
accountants and management the Company's quarterly financial statements
and will discuss with the independent auditor certain matters required
to be communicated to audit committees in accordance with SAS 61 prior
to the Company's filing of Form 10-Q. The Committee will discuss
Management's Discussion and Analysis covering the financial statements
for the first three quarters with management and the independent
accountants at the next meeting of the Committee after the Form 10-Q
containing such discussion is filed with the SEC.
10. Review the Company's processes for assessing risks (other than those
reviewed by the Risk Management and Securities Investment Committees of
the Board) and the effectiveness of the Company's system of internal
controls in place to manage the risks through a review of the reports
of the independent accountants and the internal
B-2
auditors, and discussions with management, the Internal Audit Director,
and the independent accountants.
11. Review significant reports of examinations made by regulatory agencies
and management's responses thereto
12. Review with management the adequacy of statements of policy regarding
conflicts of interest and business conduct, the means used to monitor
compliance and address exceptions, and the results of monitoring
programs.
13. Review with the Company's counsel and compliance officer the processes
for monitoring compliance with laws and regulations, and review any
legal, regulatory and compliance matters that could have a material
impact on the Company's financial statements.
14. Review the policies, procedures and audit results associated with
officers' expenses.
15. Provide the report of the Committee to be included in the Company's
proxy statement under the rules of the SEC.
16. Report after each Committee meeting a summary of the Committee's
activities to the Board of Directors.
17. Annually evaluate the performance of the Committee by completing a
self-assessment.
18. Review this charter annually. Submit any proposed changes to the
charter resulting from the review to the Board of Directors for
approval.
MEETINGS
The Committee shall seek to meet six times annually (four quarterly
meetings, one telephonic meeting to review the annual earnings release prior to
release to the public, and one telephonic meeting to review Management's
Discussion and Analysis). The Internal Audit Director will act as Committee
Secretary and prepare minutes of the meetings. After the minutes are approved by
the Committee, a copy will be sent to the Secretary of the Company for filing in
the Company's minute books. The approved minutes of the Committee, as is the
case with the minutes of all of the committees of the Board, are available for
review by any interested Director.
The internal auditors, independent accountants and representatives of
management may meet alone with the Committee and have the authority and are
expected to contact the Committee on any matters requiring its attention. As
necessary or desirable, the Chairperson may request that members of management,
the Internal Audit Director and representatives of the independent accountants
be present at Committee meetings.
B-3
EXHIBIT C
MGIC INVESTMENT CORPORATION
MANAGEMENT DEVELOPMENT, NOMINATING AND GOVERNANCE COMMITTEE CHARTER
The purpose of the Management Development, Nominating and Governance
Committee is to have oversight responsibility for three general areas:
- compensation of the Chief Executive Officer and other members of senior
management, including the report on executive compensation in the
Corporation's proxy statement; succession planning for the CEO; and
compensation of the Board of Directors;
- identifying persons qualified to become directors and recommending to the
Board its nominees for directors; and
- corporate governance, including recommending the Corporation's corporate
governance guidelines.
The Board shall appoint the members of the Committee, including the Chair
of the Committee, and may replace the members of the Committee. Each member of
the Committee shall be an independent director under the Corporation's Corporate
Governance Guidelines. The Committee may form subcommittees and delegate
specified functions to those subcommittees. The Committee will make regular
reports to the Board.
The Committee shall have authority to retain compensation consultants,
search firms and other advisers of its own choosing to assist the Committee in
performing its responsibilities, including the terms of their retention and
termination. The Committee will annually evaluate its performance in each of its
areas of oversight responsibility.
In the Committee's oversight capacity with respect to compensation and
succession matters, the Committee's responsibilities and authority are to:
1. Annually approve corporate goals relating to CEO compensation,
evaluate the CEO's performance in light of the goals and set the
CEO's compensation based on the evaluation.
2. Annually review the CEO's evaluation of the performance and
compensation of other members of senior management and approve
compensation of members of senior management.
3. Recommend to the Board incentive compensation plans and
equity-based plans for the CEO and senior management.
4. Act as the administrator under the Corporation's equity-based plans
which provide for administration by a committee of the Board,
including the authority to make awards within the terms of those
plans.
5. Oversee the CEO succession planning process.
6. Produce a report on officer compensation for the Corporation's
proxy statement as required by the rules of the Securities and
Exchange Commission.
7. Review the compensation of directors and make recommendations to
the Board.
In the Committee's oversight capacity with respect to nominations for
directors, the Committee's responsibilities and authority are to:
1. Identify new director candidates reflecting criteria established by
the Board, which include an inquiring and independent mind and
sound and considered judgment.
2. Recommend to the Board its nominees for directors, including in the
case of nominees who are on the Board, a review of the Board
performance of such directors with feedback solicited from other
members of the Board.
C-1
In the Committee's oversight capacity with respect to corporate governance
matters, the Committee's responsibilities and authority are to:
1. Recommend to the Board the members of Committees of the Board and
the Chair of each Committee.
2. Review the Corporation's Corporate Governance Guidelines on an
annual basis and recommend to the Board any changes in the
Guidelines.
3. Oversee the Board's self-evaluation process and the director
orientation program contemplated by the Corporate Governance
Guidelines.
C-2
MGIC INVESTMENT CORPORATION
ANNUAL MEETING OF SHAREHOLDERS
THURSDAY, MAY 8, 2003
9:00 A.M. CENTRAL TIME
MARCUS CENTER FOR THE PERFORMING ARTS
929 NORTH WATER STREET
MILWAUKEE, WI
[MGIC LOGO] MGIC INVESTMENT CORPORATION
P.O. BOX 488
MILWAUKEE, WI 53201 PROXY
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THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON MAY 8, 2003.
The undersigned hereby appoints CURT S. CULVER and SHELDON B. LUBAR, and either
one of them, as proxy and attorney-in-fact of the undersigned, with full power
of substitution, to represent and vote, as designated on the reverse side, all
shares of Common Stock of MGIC Investment Corporation which the undersigned is
entitled to vote at the Annual Meeting of Shareholders of such Corporation to be
held at the Marcus Center for the Performing Arts, 929 North Water Street,
Milwaukee, Wisconsin, on Thursday, May 8, 2003, at 9:00 a.m. Central Time, and
at any adjournment.
The undersigned acknowledges receipt of the Corporation's Notice of 2003 Annual
Meeting, Proxy Statement and 2002 Annual Report.
NOTICE TO PARTICIPANTS IN THE CORPORATION'S PROFIT SHARING AND SAVINGS PLAN AND
TRUST: As a participant in the MGIC Investment Corporation Profit Sharing and
Savings Plan and Trust (the "Plan"), you have the right to instruct the Plan
Trustee how to vote the shares of the Corporation's Common Stock allocated to
your account. If you sign, date and return this card in the enclosed reply
envelope and it is received by the Plan Trustee at least five days before the
Annual Meeting, shares held in your account will be voted by the Plan Trustee in
accordance with the voting choices you specify on the reverse side. You may
revoke your instructions by delivering a signed proxy card with a later date to
the Plan Trustee at least five days before the Annual Meeting. If your
instructions are not timely received or if you do not respond, shares held in
your account will be voted by the Plan Trustee in accordance with the Plan and
applicable law.
See reverse for voting instructions.
DETACH BELOW AND RETURN USING THE ENVELOPE PROVIDED
- Please detach here -
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL NOMINEES LISTED IN ITEM 1 AND FOR ITEMS 2 AND 3.
1. Election of directors: 01 Karl E. Case 03 William A. McIntosh / / Vote FOR all nominees / / Vote WITHHELD
02 Curt S. Culver 04 Leslie M. Muma (except as marked) from all nominees
_____________________________________________
(Instructions: To withhold authority to vote for any indicated nominee, | |
write the number(s) of the nominee(s) in the box provided to the right.) | |
|_____________________________________________|
2. Approve performance goals for restricted stock awards. / / For / / Against / / Abstain
3. Ratify the appointment of PricewaterhouseCoopers LLP as the independent / / For / / Against / / Abstain
accountants of the Corporation.
4. In his discretion, each Proxy is authorized to vote upon such other business as may properly come before the meeting or any
adjournment.
THIS PROXY, WHEN PROPERLY SIGNED, WILL BE VOTED IN ACCORDANCE WITH THE CHOICES SPECIFIED ABOVE BY THE UNDERSIGNED SHAREHOLDER. IF NO
CHOICES ARE SPECIFIED, THIS PROXY WILL BE VOTED FOR ALL NOMINEES LISTED IN ITEM 1 AND FOR ITEMS 2 AND 3.
Address Change? Mark Box / / Indicate changes below: Date __________________________________________
_____________________________________________
| |
| |
|_____________________________________________|
Signature(s) in Box
Please sign exactly as your name appears to the
left. Joint owners should each sign personally. A
corporation should sign full corporate name by duly
authorized officers and affix corporate seal. When
signing as attorney, executor, administrator,
trustee or guardian, give full title.