<PAGE>
<PAGE>
Section 240.14a-101 Schedule 14A.
Information required in proxy statement.
Schedule 14A Information
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
(Amendment No. )
Filed by the Registrant [X]
Filed by a party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
FRONTIER INSURANCE GROUP, INC.
.................................................................
(Name of Registrant as Specified In Its Charter)
.................................................................
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction
applies:
............................................................
(2) Aggregate number of securities to which transaction
applies:
.......................................................
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the amount
on which the filing fee is calculated and state how it was
determined):
.......................................................
(4) Proposed maximum aggregate value of transaction:
.......................................................
(5) Total fee paid:
.......................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for
which the offsetting fee was paid previously. Identify the
previous filing by registration statement number, or the
Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................
(3) Filing Party:
.......................................................
(4) Date Filed:
.......................................................
<PAGE>
<PAGE>
[Logo]
195 LAKE LOUISE MARIE ROAD
ROCK HILL, NEW YORK 12775-8000
(914) 796-2100
May 5, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
'Annual Meeting') of Frontier Insurance Group, Inc. (the 'Company') to be held
at the Company's corporate headquarters, 195 Lake Louise Marie Road, Rock Hill,
New York 12775-8000 (located on Lake Louise Marie Road, which runs parallel to
New York State Route 17, between Exits 109 and 110 of Route 17), on Thursday,
May 28, 1998, at 10:00 a.m., local time.
At the Annual Meeting, you will be asked to consider and vote upon the
proposals to (i) elect a Board of seven directors, (ii) adopt an amendment to
Article FOURTH of the Company's Restated Certificate of Incorporation, as
amended, to increase the authorized number of shares of the Company's Common
Stock from 50,000,000 shares to 150,000,000 shares, and (iii) ratify by separate
vote the grant of a stock option to each of Messrs. Walter A. Rhulen, Harry W.
Rhulen and Peter H. Foley.
The accompanying Proxy Statement, which you are urged to read carefully,
provides important information with respect to the foregoing proposals. Whether
or not you plan to attend the Annual Meeting, please complete, date and sign the
enclosed proxy card and promptly return it in the enclosed postage-prepaid
envelope. If you attend the Annual Meeting, you may vote in person even though
you have previously returned the proxy.
On behalf of the Board of Directors,
Harry W. Rhulen
Harry W. Rhulen
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
<PAGE>
[Logo]
195 LAKE LOUISE MARIE ROAD
ROCK HILL, NEW YORK 12775-8000
(914) 796-2100
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1998
To the Stockholders of
FRONTIER INSURANCE GROUP, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the 'Annual
Meeting') of Frontier Insurance Group, Inc. (the 'Company') will be held at the
Company's corporate headquarters, 195 Lake Louise Marie Road, Rock Hill, New
York 12775-8000 (located on Lake Louise Marie Road, which runs parallel to New
York State Route 17, between Exits 109 and 110 of Route 17), on Thursday, May
28, 1998, at 10:00 a.m., local time, to consider and act upon the following
proposals:
1. To elect a Board of seven (7) directors.
2. To adopt an amendment to Article FOURTH of the Company's Restated
Certificate of Incorporation, as amended, to increase the authorized number
of shares of the Company's Common Stock from 50,000,000 shares to
150,000,000 shares.
3. To ratify the grant of a stock option, expiring December 31, 2001,
to Walter A. Rhulen, the then Chairman of the Board, President and Chief
Executive Officer of the Company, since deceased, to purchase 250,000
shares of the Company's Common Stock at $40.00 per share.
4. To ratify the grant of a stock option, expiring December 31, 2004,
to Harry W. Rhulen, the Chairman of the Board, President and Chief
Executive Officer of the Company, to purchase a total of 900,000 shares of
the Company's Common Stock, consisting of 100,000 shares at $33.00 per
share, 300,000 shares at $44.00 per share, and 500,000 shares at $55.00 per
share.
5. To ratify the grant of a stock option, expiring December 31, 2004,
to Peter H. Foley, an Executive Vice President of the Company, to purchase
a total of 450,000 shares of the Company's Common Stock, consisting of
50,000 shares at $33.00 per share, 150,000 shares at $44.00 per share, and
250,000 shares at $55.00 per share.
6. To transact such other business as may properly come before the
Annual Meeting or any adjournment or postponement thereof.
Only holders of record of the Company's Common Stock at the close of
business on March 31, 1998, the Record Date for the Annual Meeting, are entitled
to notice of and to vote at the Annual Meeting.
By Order of the Board of Directors,
Joseph P. Loughlin
Joseph P. Loughlin
Secretary
Rock Hill, New York
May 5, 1998
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE
MEETING ARE REQUESTED TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ENCLOSED PROXY IN THE ENCLOSED POSTAGE-PREPAID ENVELOPE.
<PAGE>
<PAGE>
[Logo]
195 LAKE LOUISE MARIE ROAD
ROCK HILL, NEW YORK 12775-8000
(914) 796-2100
---------------------------------
PROXY STATEMENT
---------------------------------
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 28, 1998
INTRODUCTION
GENERAL
This Proxy Statement is being furnished to holders of the Common Stock, par
value $.01 per share ('Common Stock'), of Frontier Insurance Group, Inc., a
Delaware corporation (the 'Company'), in connection with the solicitation of
proxies by the Board of Directors of the Company for use at the Annual Meeting
of Stockholders to be held on Thursday, May 28, 1998 at the Company's corporate
headquarters, 195 Lake Louise Marie Road, Rock Hill, New York 12775-8000
(located on Lake Louise Marie Road, which runs parallel to New York State Route
17, between Exits 109 and 110 of Route 17), at 10:00 a.m., local time, and at
any and all adjournments or postponements thereof (the 'Annual Meeting'). The
cost of this solicitation will be borne by the Company. This Proxy Statement and
enclosed proxy card are being mailed to the Company's stockholders on or about
May 5, 1998.
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING
At the Annual Meeting, the stockholders will be asked to consider and vote
upon the following proposals:
1. To elect a Board of seven (7) directors.
2. To adopt an amendment to Article FOURTH of the Company's Restated
Certificate of Incorporation, as amended, to increase the authorized number
of shares of Common Stock from 50,000,000 shares to 150,000,000 shares.
3. To ratify the grant of a stock option, expiring December 31, 2001,
to Walter A. Rhulen, the then Chairman of the Board, President and Chief
Executive Officer of the Company, since deceased, to purchase 250,000
shares of Common Stock at $40.00 per share.
4. To ratify the grant of a stock option, expiring December 31, 2004,
to Harry W. Rhulen, the Chairman of the Board, President and Chief
Executive Officer of the Company, to purchase a total of 900,000 shares of
Common Stock, consisting of 100,000 shares at $33.00 per share, 300,000
shares at $44.00 per share, and 500,000 shares at $55.00 per share.
<PAGE>
<PAGE>
5. To ratify the grant of a stock option, expiring December 31, 2004,
to Peter H. Foley, an Executive Vice President of the Company, to purchase
a total of 450,000 shares of Common Stock, consisting of 50,000 shares at
$33.00 per share, 150,000 shares at $44.00 per share, and 250,000 shares at
$55.00 per share.
all as more fully described in this Proxy Statement.
VOTING AT THE ANNUAL MEETING
Only holders of record of Common Stock at the close of business on March
31, 1998 (the 'Record Date') are entitled to notice of and to vote at the Annual
Meeting, each such holder of record being entitled to one vote per share on each
matter to be considered at the Annual Meeting. On the Record Date, there were
34,025,631 shares of Common Stock issued and outstanding.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Common Stock entitled to vote at the
Annual Meeting (17,012,816 shares of the 34,025,631 shares outstanding) is
necessary to constitute a quorum at the Annual Meeting. All abstentions and
broker non-votes, if any, will be included as shares that are present and
entitled to vote for purposes of determining the presence of a quorum at the
Annual Meeting. A plurality vote of the shares of Common Stock present in person
or represented by proxy at the Annual Meeting is required to elect the Board of
seven (7) directors. The affirmative vote by the holders of a majority of the
outstanding shares of Common Stock (17,012,816 shares of the 34,025,631 shares
outstanding) is required to adopt the amendment to the Company's Restated
Certificate of Incorporation. The separate affirmative votes by the holders of a
majority of the shares of Common Stock present in person or represented by proxy
is required to ratify the grant of stock options to each of Messrs. Walter A.
Rhulen, Harry W. Rhulen and Peter H. Foley.
If the enclosed proxy card is properly executed and returned to the Company
prior to the vote at the Annual Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. Shares represented by
proxies which are marked 'WITHHOLD AUTHORITY' to vote for (i) all seven (7)
nominees or (ii) any individual nominee(s) for election as directors and are not
otherwise marked 'FOR' the other nominees, will not be counted in determining
whether a plurality vote has been received for the election of directors.
Similarly, shares represented by proxies which are marked 'ABSTAIN' on any other
proposal will not be counted in determining whether the requisite vote has been
received for such proposal. IN THE ABSENCE OF INSTRUCTIONS, THE SHARES WILL BE
VOTED FOR ALL THE PROPOSALS SET FORTH IN THE NOTICE OF ANNUAL MEETING. At any
time prior to its exercise, a proxy may be revoked by the holder of Common Stock
granting the proxy by delivering written notice of revocation, or a duly
executed proxy bearing a later date, to the Secretary of the Company at the
address of the Company set forth on the first page of this Proxy Statement or by
attending the Annual Meeting and voting in person.
2
<PAGE>
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock
on the Record Date by (i) each person known by the Company to own beneficially
five percent or more of such shares, (ii) each director and nominee for election
as a director, (iii) each person named in the Summary Compensation Table under
'Executive Compensation' of this Proxy Statement, and (iv) all directors and
executive officers as a group, together with their respective percentage
ownership of the outstanding shares:
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
CURRENTLY ACQUIRABLE PERCENT OF
NAME AND ADDRESS OWNED WITHIN 60 DAYS(1) OUTSTANDING
- --------------------------------------------------------------- --------- ----------------- -----------
<S> <C> <C> <C>
Estate of Walter A. Rhulen(2).................................. 2,145,890 -- 6.3
Peter L. Rhulen(2)............................................. 1,791,500(3) -- 5.3
Lawrence E. O'Brien............................................ 56,784 2,752 *
Douglas C. Moat................................................ 8,526 2,752 *
Alan Gerry..................................................... 30,000 5,000 *
Harry W. Rhulen................................................ 137,104(4) 214,376(5) 1.0
Suzanne Rhulen Loughlin........................................ 185,486(6) 220,496(7) 1.2
Paul B. Guenther............................................... 5,000 --
Thomas J. Dietz................................................ 135,138 148,500 *
Peter H. Foley................................................. 1,997 6,576 *
Mark H. Mishler................................................ -- 6,380 *
Denver Investment Advisors, LLC ............................... 1,984,958(8) -- 5.8
125-17th Street, 26th Floor,
Denver, CO 80202
Wellington Management Company ................................. 2,994,141(9) -- 8.8
75 State Street
Boston, MA 02109
All directors and executive officers
as a group (9 persons)....................................... 2,351,535 606,832 8.5
</TABLE>
- ------------
* Less than 1%.
(1) Reflects number of shares of Common Stock acquirable upon exercise of
options.
(2) Address is 195 Lake Louise Marie Road, Rock Hill, NY 12775-8000.
(3) Does not include 490,782 shares, 26,432 shares and 22,810 shares of Common
Stock owned, respectively, by three children of Mr. Peter L. Rhulen, Mr.
Rhulen's spouse and The Eileen and Peter Rhulen Foundation, Inc. for which
Mr. Rhulen acts as President. Mr. Rhulen disclaims beneficial ownership of
such shares.
(4) Includes 9,130 shares owned by minor children of Mr. Harry W. Rhulen for
whom he acts as custodian under the Uniform Gifts to Minors Act. Does not
include 14,220 shares of Common Stock owned by Mr. Rhulen's wife, as to
which Mr. Rhulen disclaims beneficial ownership.
(5) Includes 206,250 shares purchasable at $22.725 per share upon exercise of
options granted to Mr. Walter A. Rhulen, his father, and gifted to him by
his father.
(6) Does not include 18,514 shares and 45,000 shares of Common Stock owned,
respectively, by Ms. Loughlin's spouse and children, as to which Ms.
Loughlin disclaims beneficial ownership.
(7) Includes 206,250 shares purchasable at $22.725 per share upon exercise of
options granted to Mr. Walter A. Rhulen, her father, and gifted to her by
her father. Does not include 10,946 shares purchasable by Ms. Loughlin's
spouse, as to which Ms. Loughlin disclaims beneficial ownership.
(8) Information is from Schedule 13G, dated February 11, 1998, filed by Denver
Investment Advisors, LLC, which reflects shared dispositive power respect to
1,984,958 shares.
(9) Information is from Schedule 13G, dated January 24, 1997, filed by
Wellington Management Company, which reflects shared dispositive power with
respect to 2,994,141 shares.
On the Record Date, the outstanding Common Stock was held by approximately
1,415 stockholders of record.
3
<PAGE>
<PAGE>
ELECTION OF DIRECTORS
At the Meeting, the entire Board of seven (7) directors is to be elected to
hold office until the next Annual Meeting of Stockholders and until their
successors are duly elected and qualified. Unless otherwise specifically
directed by stockholders executing proxies, it is intended that all proxies in
the accompanying form received in time for the Annual Meeting will be voted at
the Annual Meeting FOR the election of the seven (7) nominees named below, all
of whom, with the exception of Mr. Paul B. Guenther, currently are directors of
the Company. In the event any nominee should become unavailable for election for
any presently unforeseen reason, it is intended that the proxies will be voted
for such substitute nominee as may be designated by the present Board of
Directors.
Each nominee's name, age, office with the Company, the year first elected a
director and certain biographical information are set forth below:
<TABLE>
<CAPTION>
YEAR FIRST
ELECTED
NAME AGE A DIRECTOR POSITION
- ------------------------------------------- --- ---------- -----------------------------------
<S> <C> <C> <C>
Harry W. Rhulen............................ 34 1997 President, Chief Executive Officer
and Chairman of the Board
Suzanne Rhulen Loughlin.................... 36 1998 Executive Vice President and a
Director
Peter L. Rhulen(1)......................... 59 1986 Director
Lawrence E. O'Brien(1)(2).................. 57 1990 Director
Douglas C. Moat(1)(2)...................... 66 1991 Director
Alan Gerry(2).............................. 69 1996 Director
Paul B. Guenther........................... 57 -- --
</TABLE>
- ------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
Harry W. Rhulen, a director of the Company since October 1997, was elected
President and Chief Executive Officer in January 1998 and Chairman of the Board
in February 1998 following the illness and subsequent death of his father,
Walter A. Rhulen, the former Chairman of the Board, President and Chief
Executive Officer of the Company. Mr. Harry Rhulen has been an employee of the
Company since June 1989, was elected a Vice President in June 1990, Executive
Vice President in October 1996 and Chief Operating Officer in May 1997.
Suzanne Rhulen Loughlin was elected Executive Vice President and Chief
Administrative Officer and a director of the Company in February 1998. Ms.
Loughlin has been an employee of the Company since January 1991 and has acted as
Managing Attorney of the Company's law firm since l992.
Peter L. Rhulen has been a director of the Company since commencement of
its operations in July 1986. Mr. Rhulen was formerly Vice Chairman of
Markel/Rhulen, a position he held from October 1989 to September 1992. Mr.
Rhulen is also Vice Chairman of the Board of Metro Partners, Inc.
Lawrence E. O'Brien has been a director of the Company since June 1990 and
a member of the Audit Committee since that date. Mr. O'Brien, a CPCU, is the
President of O'Brien Management Company, Inc., an insurance consulting firm, a
position he has held since January 1988, and was a co-founder and a director of
Underwriter Management Associates, a managing general insurance agency with
which he had been associated since its inception in 1983 until its sale in
September 1990. From 1976 to 1987, Mr. O'Brien was Executive Vice President of
Associated Risk Managers, a New York statewide affiliation of independent
insurance agents marketing specialized insurance programs.
Douglas C. Moat has been a director of the Company since August 1991, a
member of the Audit Committee since that date and since January 1998 has been a
consultant to the Company under a two-year consulting agreement. Mr. Moat, a JD,
CLU, and FLMI, is Chairman of the Manhattan Group, Inc., an insurance and
financial services firm, and has over 40 years' experience in insurance and
financial services sales and management, including 13 years as a private
consultant. During his career, he has held positions as Executive Vice
President, The Home Group; Director -- Financial Services Corporate Staff, ITT
Corp.; Vice President, USLIFE Corp., and President of USLIFE's mutual fund
4
<PAGE>
<PAGE>
subsidiary; Vice President, The Glens Falls Group and the National Life
Assurance Company of Canada. Mr. Moat is a member of the New York Bar
Association, serves on several insurance and banking committees, and writes and
speaks extensively on insurance topics, often acting as an expert witness.
Alan Gerry was elected a director of the Company in March 1996. Mr. Gerry
was the founder, Chairman of the Board and Chief Executive Officer of
Cablevision Industries Corporation, the eighth largest multiple cable system
operator in the United States until its merger with Time Warner Entertainment in
January 1996, and now acts as a private investor. Mr. Gerry was a founding
member of the Board of the Cable Alliance for Education and is a past President
of the New York State Cable Television Association.
Paul B. Guenther has been Chairman of the Board of Directors of the
Philharmonic-Symphony Society of New York since September 1996, having served as
a director since 1994. Mr. Guenther had been an employee of PaineWebber
Incorporated from 1966 until his retirement in 1995, having been elected its
Chief Administrative Officer in 1984, its President in 1988, and President of
PaineWebber Group, Inc., its parent company in 1994. Mr. Guenther is Vice
Chairman of the Board of Trustees of Fordham University, a member of the Board
of Overseers of Columbia University Business School and a member of the Board of
Directors of Lincoln Center for the Performing Arts. Mr. Guenther is also a
director of Consolidated Freightways, a publicly-owned trucking company.
Mr. Harry W. Rhulen and Ms. Suzanne Rhulen Loughlin are siblings and Mr.
Peter L. Rhulen is their uncle.
MEETINGS AND COMMITTEES
There were six meetings of the Board of Directors during 1997. Messrs.
Walter A. Rhulen, Douglas C. Moat, Alan Gerry and Lawrence E. O'Brien attended
all such meetings, Mr. Peter L. Rhulen attended five meetings, and Mr. Harry W.
Rhulen attended all meetings following his election as a director. There was
also one occasion on which the Board took action by unanimous written consent.
The Audit Committee, composed of three independent directors, Messrs.
Lawrence E. O'Brien (Chairman), Douglas C. Moat and Peter L. Rhulen, meets with
the Company's independent auditors to review the scope of their annual audit,
the adequacy of the Company's system of internal controls, and the sufficiency
of its financial reporting. The Audit Committee held three meetings during 1997.
The Compensation Committee, composed of three independent directors,
Messrs. O'Brien, Moat and Gerry, establishes a general compensation program for
all officers. See 'Report of Compensation Committee.' The Compensation Committee
held three meeting during 1997.
The Company does not have a standing nominating committee.
COMPENSATION OF DIRECTORS
The Company pays each director who is not an employee an annual retainer of
$24,000 plus reimbursement of expenses, plus $2,000 to each director who is a
member of the Audit Committee. Mr. Douglas C. Moat, a director, has entered into
a consulting agreement with the Company. See 'Executive
Compensation -- Employment and Consulting Agreements.'
REPORTS UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Mr. Alan Gerry filed his Form 4s on March 9, 1998 for the months of May
1997, September 1997 and November 1997, which Forms were due on June 10, 1997,
September 10, 1997 and December 10, 1997, respectively.
REQUIRED VOTE
A plurality vote of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting is required to elect the Board of
seven (7) directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ITS SEVEN (7)
NOMINEES FOR DIRECTORS.
5
<PAGE>
<PAGE>
ADOPTION OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION
BACKGROUND
The Company presently is authorized to issue 50,000,000 shares of Common
Stock. On the Record Date, there were 34,025,631 shares issued and outstanding
and 8,822,300 shares reserved for issuance upon exercise of options under
outstanding stock option plans and conversion of outstanding convertible
securities.
The Board of Directors has approved, subject to adoption by the Company's
stockholders, an amendment to Article FOURTH of the Company's Restated
Certificate of Incorporation, as amended, to increase the authorized numbers of
shares of Common Stock from 50,000,000 shares to 150,000,000 shares (the
'Amendment'). A copy of the form of Amendment is attached hereto as Exhibit A.
The Amendment provides for 100,000,000 additional authorized shares of
Common Stock which will be available for future stock dividends, acquisitions
(no stock acquisition is currently pending) and other general corporate
purposes.
REQUIRED VOTE
Adoption of the Amendment requires the affirmative vote by the holders of a
majority of the outstanding shares of Common Stock (17,012,816 shares of the
34,025,631 shares outstanding).
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR ADOPTION OF
THE AMENDMENT.
RATIFICATION OF STOCK OPTION GRANTS
Pursuant to the respective employment agreement with Messrs. Walter A.
Rhulen, Harry W. Rhulen and Peter H. Foley (each, an 'Optionee'), the Board of
Directors granted the Optionee an option to purchase shares of Common Stock, as
more particularly described below, subject to approval by the Company's
stockholders. STOCKHOLDER APPROVAL IS REQUIRED TO COMPLY WITH THE RULES OF THE
NEW YORK STOCK EXCHANGE, INC., AND TO COMPLY WITH SECTION 162 (m) OF THE
INTERNAL REVENUE CODE AND THEREBY ASSURE THE DEDUCTIBILITY BY THE COMPANY, FOR
FEDERAL INCOME TAX PURPOSES, OF THE DIFFERENTIAL BETWEEN THE EXERCISE PRICE AND
THE FAIR MARKET VALUE, ON THE DATE OF EXERCISE, OF THE SHARES OF COMMON STOCK
PURCHASED UPON SUCH EXERCISE.
Each option is exercisable at any time prior to its expiration by the
Optionee, provided the Optionee is then in the employ of the Company or, in the
event the Optionee dies while in the Company's employ, by the Optionee's
personal representatives, heirs or legatees within one year following the date
of death, but in no event later than the expiration date of the option; Mr.
Walter A. Rhulen's option is exercisable by his personal representatives, heirs
or legatees at any time prior to December 31, 2001, the expiration date of the
option. An option may not be transferred except by will or the laws of descent
or distribution.
Each option contains customary anti-dilution provisions which provide that
in the event of a merger, consolidation, stock dividend, split-up, combination,
reclassification, exchange or similar event, the number of shares covered by the
option and the exercise price are to be appropriately adjusted by the Board of
Directors, whose determination shall be conclusive.
6
<PAGE>
<PAGE>
An option is exercisable by payment of the full purchase price for the
shares of Common Stock being purchased, plus any amount required for any
associated withholding taxes, in cash, by check or by delivery of shares of
Common Stock, including shares issuable upon exercise of the option, having a
fair market value equal to the payment required, or a combination of cash and
shares as the Optionee may elect. Upon exercise of an option, in lieu of
delivery of the certificates for the shares of Common Stock being purchased, at
its option, the Company may elect to deliver, funds in an amount equal to the
difference between (x) the fair market value of the shares underlying the option
on the day preceding the closing of such exercise and (y) the exercise price
plus any amount required for any associated withholding taxes.
Under current tax law, no taxable income will be recognized by the Optionee
upon the grant or stockholder approval of his option, and no deduction will be
allowed to the Company upon either such event. In general, upon exercise of the
option, the Optionee will recognize an amount of ordinary income (and the
Company will be entitled to a corresponding tax deduction) equal to the
difference between (x) the fair market value of the shares underlying the option
on the date of exercise, and (y) the exercise price.
Walter A. Rhulen's Option. On December 15, 1997, pursuant to an amended and
restated employment agreement with Mr. Walter A. Rhulen, whose prior employment
agreement was expiring December 31, 1997, the Board of Directors granted Mr.
Rhulen an option to purchase 250,000 shares of Common Stock at $40.00 per share,
exercisable at any time prior to December 31, 2001, subject to stockholder
ratification. On the date of the grant, Mr. Rhulen, since deceased, was the
Chairman of the Board, President and Chief Executive Officer of the Company; on
such date, the Common Stock closed at $21.25 per share on the New York Stock
Exchange.
Harry W. Rhulen's Option. On January 28, 1998, pursuant to an employment
agreement approved by the Board of Directors on such date providing for Mr.
Harry A. Rhulen's election to and employment as the President and Chief
Executive Officer of the Company, the Board granted Mr. Rhulen a stock option to
purchase a total of 900,000 shares of Common Stock, consisting of 100,000 shares
at $33.00 per share, 300,000 shares at $44.00 per share, and 500,000 shares at
$55.00 per share, exercisable at any time prior to December 31, 2004, subject to
stockholder ratification. See 'Report of Compensation Committee' and 'Executive
Compensation -- Employment and Consulting Agreements.' On January 28, 1998, the
Common Stock closed at $23.50 per share on the New York Stock Exchange.
Peter H. Foley's Option. On January 28, 1998, pursuant to an employment
agreement approved by the Board of Directors on such date, the Board granted Mr.
Peter H. Foley a stock option to purchase a total of 450,000 shares of Common
Stock consisting of 50,000 shares at $33.00 per share, 150,000 shares at $44.00
per share, and 250,000 shares at $55.00 per share, exercisable at any time prior
to December 31, 2004, subject to stockholder ratification. See 'Report of
Compensation Committee' and 'Executive Compensation -- Employment and Consulting
Agreements.' On January 28, 1998, the Common Stock closed at $23.50 per share on
the New York Stock Exchange.
REQUIRED VOTE
Approval of each stock option grant requires the separate affirmative vote
by the holders of a majority of the shares of Common Stock present in person or
represented by proxy.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE GRANT OF
THE STOCK OPTION TO WALTER A. RHULEN, FOR APPROVAL OF THE GRANT OF THE STOCK
OPTION TO HARRY W. RHULEN AND FOR APPROVAL OF THE GRANT OF THE STOCK OPTION TO
PETER H. FOLEY.
7
<PAGE>
<PAGE>
INDEPENDENT AUDITORS
The Board of Directors, upon the advice of the Audit Committee, currently
is interviewing prospective independent auditors to audit the Company's
financial statements for the year ending December 31, 1998 and it is anticipated
that the process will not be completed prior to July 1998. Ernst & Young LLP has
acted as the Company's independent auditors since the Company's initial public
offering in l986 and the Audit Committee decided it would be appropriate to
interview other auditors at this time. It is anticipated that a representative
of Ernst & Young LLP will be present at the Annual Meeting to answer questions
within such firm's field of expertise.
OTHER BUSINESS
Management does not know of any matter to be brought before the Annual
Meeting other than as described above. In the event any other matter properly
comes before the Annual Meeting, the persons named in the accompanying form of
proxy have discretionary authority to vote on such matters.
REPORT OF COMPENSATION COMMITTEE
In 1993, in order to more closely link executive compensation to the
Company's performance, the Board of Directors, following the recommendation of
the Compensation Committee, adopted an Executive Bonus Plan (the 'Plan') for
executive officers of the Company and its subsidiaries. The Plan, as revised,
provides for an annual bonus to the participating executive officers to the
extent the Company's earnings per share before extraordinary items ('EPS') for
the year exceeded the Company's highest EPS during the five preceding years by
at least 10%. In such event, the participating executive officers are entitled
to a bonus equal to 5% of their respective base salary, plus a percentage of
base salary equal to the percentage by which the Company's EPS for the year
exceeded 10% of the target year's EPS. In addition to the Plan, each executive
officer is eligible to receive an individual bonus based on individual
performance. As the 1996 EPS was not exceeded in 1997, no bonuses were payable
for 1997 under the Plan; however, individual performance bonuses aggregating
$895,000 were awarded to certain of the 18 executive officers eligible for 1997
bonuses under the Plan.
In the fall of 1997, the Compensation Committee recommended that the
employment agreement of Mr. Walter A. Rhulen, its Chairman of the Board,
President and Chief Executive Officer, which was due to expire December 31,
1998, be amended to extend the term to December 31, 2000, increase the base
salary to $600,000 and to grant Mr. Walter A. Rhulen an option, subject to
stockholder ratification, to purchase 250,000 shares of Common Stock at $40.00
per share; the agreement as so amended was restated and signed on December 15,
1997.
On January 28, 1998, following a diagnosis of the severity of Mr. Walter A.
Rhulen's leukemia, to evidence its confidence in senior management and assure
continuity, the Board of Directors elected Mr. Harry W. Rhulen, the then Chief
Operating Officer of the Company, as President and Chief Executive Officer, and
approved employment agreements and stock options for Mr. Harry W. Rhulen and for
Mr. Peter H. Foley, an Executive Vice President of the Company, and a consulting
agreement and stock option for Mr. Douglas C. Moat, a director of the Company.
See 'Employment and Consulting Agreements.'
THE COMPENSATION COMMITTEE
Douglas C. Moat
Lawrence E. O'Brien
Alan Gerry
8
<PAGE>
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation paid and
accrued by the Company to its Chief Executive Officer and each of its other four
most highly compensated executive officers for the years ended December 31,
1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------- AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS$ OPTIONS(#) COMPENSATION($)(1)
- ------------------------------------------- ---- ------- ------- ------------ ------------------
<S> <C> <C> <C> <C> <C>
Walter A. Rhulen .......................... 1997 519,000 200,000 -- 59,800
President and Chairman 1996 500,000 415,000 -- 30,000
1995 500,000 296,900 -- 23,400
Harry W. Rhulen ........................... 1997 188,000 -- 14,000(2) 17,500
Executive Vice President 1996 125,000 65,000 -- 14,000
1995 105,000 23,900 5,500(5) 10,000
Thomas J. Dietz ........................... 1997 286,000 50,000 -- 25,900
Vice President 1996 250,000 75,000 -- 20,000
1995 215,000 35,400 -- 16,300
Peter H. Foley ............................ 1997 239,000 125,000 -- 22,400
Vice President 1996 191,000 157,800 40,000(3) 17,000
1995 77,900 45,300 22,000(4) 3,600
Mark H. Mishler ........................... 1997 143,000 30,000 10,000(2) 16,300
Vice President, Treasurer 1996 106,000 60,000 -- 11,300
and Chief Financial Officer 1995 87,000 8,900 5,500(5) 6,700
</TABLE>
- ------------
(1) Represents the allocable amount accrued for contribution by the Company to
its profit sharing plan and the allocable amount of the Company's
contribution to its 401K plan. The allocable amount accrued for contribution
to the Company's profit sharing plan for Messrs. W. Rhulen, H. Rhulen,
Dietz, Foley and Mishler was $36,624, $9,523, $13,962, $13,507, and $8,081,
respectively, and the allocable amount contributed to the Company's 401K
Plan for Messrs. W. Rhulen, H. Rhulen, Dietz, Foley and Mishler was $23,136,
$8,000, $11,900, $8,900, $8,000 and $8,222, respectively.
(2) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing May 22, 1998.
(3) Exercisable cumulatively at the rate of approximately 5% of the underlying
shares per year, commencing June 30, 1997.
(4) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing June 5, 1996.
(5) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing March 3, 1996.
9
<PAGE>
<PAGE>
The following table sets forth certain information concerning options
granted during 1997 to the individuals named in the Summary Compensation Table:
OPTION GRANTS IN 1997
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
NUMBER OF ANNUAL RATES OF
SECURITIES % OF TOTAL STOCK PRICE
UNDERLYING OPTIONS APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM
GRANTED ALL PRICE EXPIRATION --------------------
NAME (#) EMPLOYEES ($/SHARE) DATE 5%($) 10%($)
- --------------------------------------- --------- ---------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Walter A. Rhulen....................... -- -- -- -- -- --
Harry W. Rhulen........................ 14,000 3.1 26.688 5/22/2002 $103,180 $228,060
Thomas J. Dietz........................ -- -- -- -- -- --
Peter H. Foley......................... -- -- -- -- -- --
Mark H. Mishler........................ 10,000 2.2 26.688 5/22/2002 $ 73,700 $162,900
</TABLE>
The following table presents the value of unexercised options held at
December 31, 1997 by the individuals named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTIONS VALUE TABLE
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT
OPTIONS AT YEAR-END YEAR-END ($)*
(#) EXERCISABLE (E)/ EXERCISABLE(E)/
NAME UNEXERCISABLE(U) UNEXERCISABLE(U)
- ------------------------------------------------- --------------------- ----------------
<S> <C> <C>
Walter A Rhulen.................................. -- --
Harry W. Rhulen.................................. 214,626(E) 124,811(E)
16,750(U) 36,969(U)
Thomas J. Dietz.................................. 148,500(E) 21,933(E)
Peter H. Foley................................... 6,576(E) 61,655(E)
49,024(E) 276,468(U)
Mark H. Mishler.................................. 6,380(E) 74,880(E)
12,750(U) 36,969(U)
</TABLE>
- ------------
* Values are calculated by subtracting the exercise price from the fair market
value of the Common Stock at year-end.
EMPLOYMENT AND CONSULTING AGREEMENTS
Harry W. Rhulen. Mr. Harry W. Rhulen is employed as the Company's President
and Chief Executive Officer under an agreement with the Company effective
January 1, 1998 and expiring December 31, 2000, which provides for an annual
base compensation of $450,000, a bonus of $150,000 for past services, plus an
annual bonus through participation in the Company's executive bonus pool and,
subject to stockholder approval, a seven-year option to purchase 900,000 shares
of Common Stock. See 'Report of Compensation Committee' and 'Ratification of
Stock Option Grants.'
Peter H. Foley. Mr. Peter H. Foley is employed as the Company's Executive
Vice President under an agreement with the Company effective January 1, 1998 and
expiring December 31, 2000, which provides for an annual base compensation of
$300,000, plus an annual bonus through participation in the Company's executive
bonus pool and, subject to stockholder approval, a seven-year option to purchase
450,000 shares of Common Stock. See 'Report of Compensation Committee' and
'Ratification of Stock Option Grants.'
Douglas C. Moat. Mr. Douglas C. Moat has been retained as a consultant
pursuant to an agreement with the Company effective January 1,1998, which
provides for an annual consulting fee of $250,000, plus an annual bonus to be
determined by the Board of Directors, and a three-year option to purchase 10,000
shares of Common Stock at $22.875, the closing price of the Common Stock on the
New York Stock Exchange on December 31,1997. See 'Report of Compensation
Committee.'
10
<PAGE>
<PAGE>
STOCK PERFORMANCE GRAPH
The following graph sets forth the cumulative total shareholder return to
the Company's (FTR) shareholders during the five-year period ended December 31,
1997, as well as an overall stock market index (S&P 500 Index) and FTR's peer
group index (SIC Code Index 6331 -- Fire, Marine, and Casualty Insurance, and
6351 -- Surety Insurance combined):
COMPARE 5-YEAR CUMULATIVE TOTAL RETURN
AMONG FRONTIER INSURANCE GROUP, INC.,
S&P 500 INDEX AND PEER GROUP INDEX
[GRAPH]
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
------------------------------------------------------
COMPANY 1992 1993 1994 1995 1996 1997
- ------------------------------------------------ ---- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Frontier Insurance Group........................ 100 114.67 85.44 127.23 169.73 205.11
Peer Group...................................... 100 106.73 107.31 154.47 182.06 262.53
Broad Market.................................... 100 110.08 111.54 153.45 188.69 251.64
</TABLE>
ASSUMES $100 INVESTED ON JAN. 1, 1992
ASSUMES DIVIDEND REINVESTED
FISCAL YEAR ENDING DEC. 31, 1997
STOCKHOLDER PROPOSALS FOR THE
1999 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal to be considered for inclusion in the Company's
proxy soliciting material for the 1999 Annual Meeting of Stockholders must be
received by the Company at its principal office by December 31, 1998.
Dated: May 5, 1998
11
<PAGE>
<PAGE>
EXHIBIT A
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
FRONTIER INSURANCE GROUP, INC.
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
Frontier Insurance Group, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies as follows:
1. The name of the Corporation is Frontier Insurance Group, Inc.
and the name under which the Corporation originally was incorporated is Frontier
Financial Corp.
2. The original Certificate of Incorporation of the Corporation
was filed with the Secretary of State of Delaware on April 22, 1986.
3. The Restated Certificate of Incorporation of the Corporation,
as heretofore amended or supplemented (the "Certificate of Incorporation"), is
hereby further amended by striking out "Article FOURTH" and substituting in lieu
thereof a new "Article FOURTH" changing the authorized capital stock of the
Corporation to read as follows:
"FOURTH: (a) The total number of shares of stock which the
Corporation shall have authority to issue is one hundred
fifty-one million (151,000,000) shares, of which one hundred
fifty million (150,000,000) shares are to be shares of Common
Stock, $.01 par value per share, and one million (1,000,000)
shares are to be shares of Preferred Stock, $.01 par value per
share.
(b) The Board of Directors of the Corporation is
authorized to issue shares of Preferred Stock from time to time
in one or more series for such consideration as it may determine;
to fix or alter the voting powers, designations, preferences and
rights, including but not limited to dividend rights, dividend
rate, conversion rights and terms of redemption (including
sinking fund provisions), redemption price or
<PAGE>
<PAGE>
prices and liquidation preferences, or any of them, as to wholly
unissued series of shares of Preferred Stock; and to fix the
number of shares constituting any such series and designation
thereof, or any number of them, and to increase or decrease the
number of shares of any series subsequent to the issue of shares
of that series, but not below the number of shares of such series
then outstanding. In case the number of shares of such series be
so decreased, the shares constituting such decrease shall resume
the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series."
4. The amendment to the Certificate of Incorporation herein
certified has been duly adopted in the manner and by the vote prescribed by
Section 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal
to be affixed hereto and this certificate be signed by its President and Chief
Executive Officer and attested by its Secretary this [___] day of [__________],
1998.
FRONTIER INSURANCE GROUP, INC.
By:
-----------------------
Harry W. Rhulen
President and Chief
Executive Officer
Attest:
By:
-------------------------------
Joseph P. Loughlin
Secretary
<PAGE>
<PAGE>
APPENDIX 1
PROXY CARD
[FRONT OF PROXY CARD]
PROXY FRONTIER INSURANCE GROUP, INC
THIS PROXY IS BEING SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints HARRY W. RHULEN and PETER H. FOLEY and
each of them, proxies, each with the power of substitution, to vote the shares
of the undersigned at the Annual Meeting of Stockholders of Frontier Insurance
Group, Inc. on May 28, 1998, and any adjournments and postponements thereof,
upon all matters as may properly come before the Annual Meeting. Without
otherwise limiting the foregoing general authorization, the proxies are
instructed to vote as indicated herein.
PLEASE COMPLETE, DATE AND SIGN ON THE REVERSE SIDE AND MAIL IN THE ENCLOSED
ENVELOPE.
[BACK OF PROXY CARD]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR MATTERS (1), (2), (3), (4), (5),
(6) and (7) LISTED BELOW TO COME BEFORE THE ANNUAL MEETING:
(1) To elect a Board of seven (7) directors.
- ----------------------------------------------------------------------------
FOR the nominees listed below WITHHOLD AUTHORITY to vote for all
(except as marked to the contrary seven (7) nominees listed below
below) seven (7) nominees listed
below
[ ] [ ]
Harry W. Rhulen, Peter L. Rhulen, Suzanne Rhulen Loughlin, Lawrence E. O'Brien,
Douglas C. Moat, Alan Gerry, Paul B. Guenther.
To WITHHOLD AUTHORITY to vote for any individual nominee(s), print such
nominee's name below:
(2) To adopt an amendment to Article FOURTH of the Company's Restated
Certificate of Incorporation, as amended, to increase the authorized number of
shares of Common Stock from 50,000,000 shares to 150,000,000 shares.
- -------------------------------------------------------------------------------
[ ] FOR [ ] AGAINST [ ] ABSTAIN
<PAGE>
<PAGE>
(3) To ratify the grant of a stock option, expiring December 31, 2001, to Walter
A. Rhulen, the then Chairman of the Board, President and Chief Executive Officer
of the Company, since deceased, to purchase 250,000 shares of the Company's
Common Stock at $40.00 per share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(4) To ratify the grant of a stock option, expiring December 31, 2004, to Harry
W. Rhulen, the Chairman of the Board, President and Chief Executive Officer of
the Company, to purchase a total of 900,000 shares of the Company's Common
Stock, consisting of 100,000 shares at $33.00 at shares, 300,000 shares at
$44.00 per share, and 500,000 shares at $55.00 per share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(5) To ratify the grant of a stock option, expiring December 31, 2004, to Peter
H. Foley, an Executive Vice President of the Company, to purchase a total of
450,000 shares of the Company's Common Stock, consisting of 50,000 shares at
$33.00 per share, 150,000 shares at $44.00 per share, and 250,000 shares at
$55.00 per share.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(6) Upon any and all other business that may come before the Annual Meeting.
Check here if you plan to attend the Annual Meeting of Stockholders. [ ]
THIS PROXY, WHICH IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS, WILL
BE VOTED FOR THE MATTERS DESCRIBED IN PARAGRAPHS (1), (2), (3), (4), (5), (6)
AND (7) UNLESS THE STOCKHOLDER SPECIFIES OTHERWISE, IN WHICH CASE IT WILL BE
VOTED AS SPECIFIED.
SIGNATURE(S): DATE 1998
-------------------------------------- ----------------
Note: Executors, Administrators, Trustees, etc.
should give full title.
