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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)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
-------------------------------------------------------------------------
(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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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[Logo]
195 LAKE LOUISE MARIE ROAD
ROCK HILL, NEW YORK 12775-8000
(914) 796-2100
May 14, 1999
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Frontier Insurance Group, Inc. to be held at The College of Insurance, 101
Murray Street (between Greenwich and West Streets), New York, New York on
Monday, June 28, 1999, at 10:00 a.m., local time.
At the Annual Meeting, you will be asked to consider and vote upon the
following:
1. To consider and vote upon a proposal to amend the Company's
Restated Certificate of Incorporation to classify the Board of
Directors.
2. To elect seven directors to serve for terms ranging from one to
three years if the foregoing proposal is adopted or, in the
alternative, to elect seven directors to serve until the next
annual meeting of stockholders.
3. To approve the 1999 Employee Stock Purchase Plan.
4. To approve the 1999 Stock Option Plan.
5. To ratify the grant of a stock option to Patrick W. Kenny, the
Company's Executive Vice President of Finance and Planning.
6. To ratify the reappointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1999.
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
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 JUNE 28, 1999
To the Stockholders of
FRONTIER INSURANCE GROUP, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Frontier
Insurance Group, Inc. will be held at The College of Insurance, 101 Murray
Street (between Greenwich and West Streets), New York, New York on Monday, June
28, 1999, at 10:00 a.m., local time, to consider and act upon the following
proposals:
1. To consider and vote upon a proposal to amend the Company's
Restated Certificate of Incorporation to classify the Board of
Directors.
2. To elect seven directors to serve for terms ranging from one to
three years if the foregoing proposal is adopted or, in the
alternative, to elect seven directors to serve until the next
annual meeting of stockholders.
3. To approve the 1999 Employee Stock Purchase Plan.
4. To approve the 1999 Stock Option Plan.
5. To ratify the grant of a stock option to Patrick W. Kenny, the
Company's Executive Vice President of Finance and Planning.
6. To ratify the reappointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1999.
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Only holders of record of the Company's Common Stock at the close of
business on May 6, 1999, the Record Date for the Annual Meeting, are entitled to
notice of and to vote at the Annual Meeting. A Proxy Statement describing the
matters to be considered and acted upon at the Annual Meeting is attached to
this Notice and the Annual Report to Stockholders for the year ended December
31, 1998 containing audited financial statements is enclosed.
On behalf of the Board of Directors,
Joseph P. Loughlin
Joseph P. Loughlin
Secretary
Rock Hill, New York
May 14, 1999
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE
ANNUAL 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 JUNE 28, 1999
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, in connection with the solicitation of proxies by the
Company's Board of Directors for use at the Annual Meeting of Stockholders to be
held on Monday, June 28, 1999 at The College of Insurance, 101 Murray Street
(between Greenwich and West Streets), New York, New York 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 Frontier, which has
retained Georgeson & Company, Inc., at a fee of approximately $8,500, plus
expenses, to assist in the solicitation.
This Proxy Statement and accompanying proxy card are being mailed to
stockholders on or about May 14, 1999.
Eliminating Duplicate Mailings
The rules of the Securities and Exchange Commission require the Company to
provide an Annual Report to stockholders who receive this Proxy Statement,
resulting in multiple deliveries to certain stockholders. Stockholders of record
who have more than one account in their name, or the same address as another
registered stockholder, may authorize the Company to discontinue mailings of
multiple Annual Reports by marking the appropriate box on the proxy card(s) for
which an Annual Report is not desired. Eliminating duplicate mailings should not
only be a convenience to the stockholder, but will also save the Company
printing and mailing costs.
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 consider and vote upon a proposal to amend the Restated
Certificate of Incorporation of the Company to classify the Board
of Directors.
2. To elect seven directors to serve for terms ranging from one to
three years if Proposal 1 is adopted or, in the alternative, to
elect seven directors to serve until the next annual meeting of
stockholders.
3. To approve the 1999 Employee Stock Purchase Plan.
4. To approve the 1999 Stock Option Plan.
5. To ratify the grant of a stock option to Patrick W. Kenny, the
Company's Executive Vice President of Finance and Planning.
<PAGE>
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6. To ratify the reappointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1999.
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
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 May 6,
1999 (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
34,691,959 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 (17,345,980 shares of the 34,691,959 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.
The affirmative vote by holders of a majority of the outstanding shares of
Common Stock (17,345,980 shares of the 34,691,959 shares outstanding) is
required to adopt the amendment to the Company's Restated Certificate of
Incorporation.
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 separate affirmative vote by holders of a majority of the shares of
Common Stock present in person or represented by proxy is required to approve
the 1999 Employee Stock Purchase Plan, to approve the 1999 Stock Option Plan, to
ratify the grant of a stock option to Mr. Patrick Kenny and to ratify the
reappointment of Ernst & Young LLP as independent auditors of Frontier for the
year ending December 31, 1999.
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, subject to the
following conditions:
Election of Directors
Shares represented by a proxy marked 'WITHHOLD AUTHORITY' to vote for (i)
all seven nominees or (ii) any individual nominee(s) for election as directors
and 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. In the absence of instructions, shares represented by a proxy will be
voted FOR all of the seven nominees. In instances where brokers are prohibited
from exercising discretionary authority for beneficial owners who have not
returned proxies ('broker non-votes'), those shares will be disregarded and
therefore will have no effect on the outcome of the vote.
Other Proposals
Shares represented by a proxy 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, shares represented by a proxy
will be voted FOR all of the proposals set forth in the Notice of Annual Meeting
and at the discretion of the proxies on any other matters that may properly come
before the Annual Meeting. In instances where brokers are prohibited from
exercising discretionary authority for beneficial owners who have not returned
proxies ('broker non-votes'), those shares will not be included in the vote
totals, and therefore will have no effect on the outcome of the votes on the
proposals, except with respect to the vote on approval of the amendment to the
Restated Certificate of Incorporation where broker non-votes (and abstentions)
will have the effect of a vote against the amendment since the affirmative vote
of a majority of the issued and outstanding shares is required for approval of
this proposal.
At any time prior to its exercise, a proxy may be revoked by the
stockholder granting it 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
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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:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<S> <C> <C> <C>
CURRENTLY ACQUIRABLE PERCENT OF
NAME AND ADDRESS(1) OWNED WITHIN 60 DAYS(2) OUTSTANDING
- --------------------------------------------------------------- --------- ----------------- -----------
Harry W. Rhulen................................................ 184,974(3) 1,226,776(6) 3.9%
Peter L. Rhulen................................................ 1,827,567(4) -- 5.0
Lawrence E. O'Brien............................................ 74,262 6,050 *
Alan Gerry..................................................... 53,000 6,050 *
Douglas C. Moat................................................ 38,082 17,050 *
Paul B. Guenther............................................... 30,500 -- *
Suzanne R. Loughlin............................................ 219,216(5) 234,575(6) 1.2
James W. Satterfield........................................... 20,437 12,375 *
Richard F. Seyffarth........................................... 14,316 4,400 *
Mark H. Mishler................................................ 19,175 8,800 *
Wellington Management Company ................................. 2,980,008(7) -- 8.2
75 State Street
Boston, MA 02109
All directors and executive officers
as a group (12 persons)...................................... 2,463,529 1,757,126 11.6
</TABLE>
- ------------
* Less than 1%
(1) Unless otherwise indicated, address is 195 Lake Louise Marie Road, Rock
Hill, NY 12775-8000.
(2) Reflects number of shares of Common Stock acquirable upon exercise of
options.
(3) Includes 8,883 and 1,144 shares owned by a daughter and son of Mr. Harry W.
Rhulen, respectively, for whom he acts as custodian under the Uniform Gifts
to Minors Act. Does not include 15,642 shares owned by Mr. Rhulen's wife, as
to which Mr. Rhulen disclaims beneficial ownership.
(4) Does not include 26,432 shares and 22,810 shares owned, respectively, by 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.
(5) Includes 49,544 shares owned by the children of Ms. Suzanne R. Loughlin, for
whom she acts as custodian under the Uniform Gifts to Minors Act. Does not
include 25,389 shares owned by Ms. Loughlin's husband, as to which Ms.
Loughlin disclaims beneficial ownership.
(6) Includes 226,875 shares purchasable at $20.66 per share upon exercise of
options granted to the late Mr. Walter A. Rhulen, his and her father, and
gifted to each of them.
(7) Information is from Schedule 13G, dated December 31, 1998, filed by
Wellington Management Company, which reflects shared dispositive power with
respect to 2,980,008 shares.
3
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PROPOSAL 1 -- ADOPTION OF AMENDMENT TO THE
RESTATED CERTIFICATE OF INCORPORATION TO
ESTABLISH A CLASSIFIED BOARD OF DIRECTORS
BACKGROUND
Under the Company's existing Restated Certificate of Incorporation and
Bylaws, the entire Board of Directors is elected at each annual meeting of
stockholders to serve until the next annual meeting or until their respective
successors are elected and qualified. If adopted, the proposed new Sections 1
and 2 of Article SEVENTH of the Restated Certificate of Incorporation would
divide the Board into three classes, with each class to be as nearly equal as
possible in number and to hold office for a staggered term of three years.
The following summary of the proposed amendment is qualified in its
entirety by reference to the full text of the proposed amendment attached hereto
as EXHIBIT A (the 'Amendment').
Establishing a Classified Board
At the Annual Meeting, stockholders will elect the full complement of seven
directors. In the event the Amendment is approved by the stockholders, the
Company will file the Amendment with the Secretary of State of the State of
Delaware amending Article SEVENTH of the Restated Certificate of Incorporation
and, upon effectiveness of such filing, the seven directors will be divided into
three classes of directors and the vote on the directors will take place
thereafter. The two directors of the first class will hold office for a one-year
term expiring at the 2000 annual meeting, the three directors of the second
class will hold office for a two-year term expiring at the 2001 annual meeting
and the two directors of the third class will hold office for a three-year term
expiring at the 2002 annual meeting. For information regarding the Board
nominees and the classes in which each will serve if the Amendment is adopted,
see 'Proposal 2 -- Election of Directors.' At each annual meeting beginning with
the meeting to be held in 2000, the class whose term expires at such annual
meeting will be elected for a three-year term. The requirement of a staggered
election of directors will apply to every election thereafter.
The Board of Directors believes that dividing the directors into three
classes is advantageous to the Company and its stockholders as the likelihood of
continuity and stability in the policies formulated by the Board will be
enhanced by having directors serve three-year terms rather than one-year terms.
Pursuant to Delaware law, under the Restated Certificate of Incorporation
as currently in effect, holders of a majority of the outstanding shares of the
Company's Common Stock can change the entire Board at a single annual meeting
and also have the power to remove one or all directors, with or without cause,
and elect their replacements. If the Amendment is adopted, generally at least
two annual meetings will be required to effect a change in the composition of a
majority of the Board.
Accordingly, establishing a staggered board of directors has anti-takeover
implications by making it more difficult for an unsolicited takeover attempt to
succeed, as obtaining control of a company through changing the composition of
its board is more difficult. The Board of Directors of the Company believes that
an unsolicited takeover attempt may be unfair or disadvantageous to the Company
and its stockholders in that, among other reasons, a non-negotiated takeover bid
(i) may be timed to take advantage of temporarily depressed stock prices; (ii)
may be designed to foreclose or minimize the possibility of a more favorable
competing bid or alternative transaction; and (iii) may involve the acquisition
of only a controlling interest in the Common Stock without affording all
stockholders the opportunity to receive the same economic benefits.
By contrast, in a transaction in which a potential acquirer must negotiate
with the Board, the Board can and should take account of the underlying and
long-term values of the Company's business, the possibilities for alternative
transactions on more favorable terms, anticipated favorable developments in the
Company's business not yet reflected in its stock price and equality of
treatment of all stockholders, among other factors.
Despite the Board's belief as to the benefits to stockholders of a
staggered board, it may be disadvantageous to the extent it has the effect of
discouraging a future takeover attempt which is not approved by the Board, but
which a majority of the stockholders may deem to be in their best interests
4
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or in which stockholders may receive a substantial premium for their shares over
the then current market value or over their cost basis in such shares. As a
result of these effects of the Amendment, stockholders who might wish to
participate in an unsolicited tender offer may not have an opportunity to do so.
In addition, a staggered board will also increase the time required to change
the management of the Company, even if a majority of the stockholders believe
such a change would be beneficial.
Vacancies
The Company's Bylaws currently provide that a majority of the directors in
office, although less than a quorum, may fill any vacancies in the Board of
Directors and that the new directors so elected hold office until the next
annual meeting of stockholders. The Amendment also provides that a majority vote
of the directors then in office may fill any vacancies on the Board; however,
any director so elected holds office until the annual meeting of stockholders at
which the term of office of the class of director whose vacancy was so filled
expires. Accordingly, if a Class III director, whose term expires in 2002
resigns in 2000, the majority of directors then in office could elect an
individual to fill such open directorship and the individual so elected would
serve as a Class III director of the Company until the annual meeting of
stockholders in the year 2002.
Removal of Directors
As permitted by the Delaware General Corporation Law, the Company's Bylaws
permit any director or the entire Board of Directors to be removed by a majority
vote of the stockholders, with or without cause. The Delaware General
Corporation Law explicitly provides, however, that if the Board is classified, a
director, or the entire Board, may be removed by a majority vote of stockholders
only for cause, unless the Certificate of Incorporation provides otherwise.
Section Seventh 2(c) of the Amendment tracks Delaware law by providing that,
subject to the rights, if any, of the holders of any other class or series of
preferred stock, any director or the entire Board of Directors of the Company
may be removed from office at any time, but only for cause and by the
affirmative vote of the holders of a majority of the outstanding shares then
entitled to vote in an election of directors. 'Cause' is not defined in either
the Amendment or the section of the Delaware General Corporation Law which
establishes the removal standards. The circumstances under which directors may
be removed, therefore, will be determined judicially and are likely to be
limited to circumstances involving fraud, criminal conduct or gross abuse of
office amounting to a breach of fiduciary duty to the Company.
The requirement that directors be removed only for cause is intended to
prevent a substantial stockholder from circumventing the purposes of a
classified board by removing incumbent directors without cause and then
attempting to fill the vacancies with its own nominees. Such a requirement may,
however, make it more difficult to remove a director for performance. The
necessity to prove cause will make removal of a director more difficult than at
present.
REQUIRED VOTE
Adoption of the amendment requires the affirmative vote by the holders of a
majority of the outstanding shares of Common Stock (17,345,980 shares of the
34,691,959 shares outstanding).
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE 'FOR' ADOPTION OF
THE AMENDMENT.
PROPOSAL 2 -- ELECTION OF DIRECTORS
Messrs. Harry W. Rhulen, Peter L. Rhulen, Lawrence E. O'Brien, Douglas C.
Moat, Alan Gerry, Paul B. Guenther and Ms. Suzanne Rhulen Loughlin, all of whom
are currently directors, constitute the seven nominees for election as directors
at the Annual Meeting.
If the Amendment is adopted at the Annual Meeting, the Amendment will
promptly be filed with the Secretary of State of the State of Delaware and a
classified Board of Directors will thereby be created, in which event Harry W.
Rhulen and Peter L. Rhulen will be the nominees for election as the Class I
Directors for a one-year term expiring in 2000; Suzanne Rhulen Loughlin, Douglas
C. Moat and
5
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Lawrence O'Brien will be the nominees for election as the Class II Directors for
a two-year term expiring in 2001; and Alan Gerry and Paul B. Guenther will be
the nominees for election as the Class III Directors for a three-year term
expiring in 2002. If the Amendment is not adopted, a classified Board of
Directors will not be created and the seven nominees will be elected as
directors to serve until the Annual Meeting of Stockholders to be held in 2000,
or until their respective successors have been elected and qualified.
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.
BIOGRAPHICAL INFORMATION
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 OFFICE
- ------------------------------------------- --- ---------- -----------------------------------
<S> <C> <C> <C>
Harry W. Rhulen............................ 35 1997 President, Chief Executive Officer
and Chairman of the Board
Suzanne Rhulen Loughlin.................... 38 1998 Executive Vice President -- Chief
Administrative Officer and
Director
Douglas C. Moat............................ 67 1991 Executive Vice President -- Mergers
and Acquisitions and Director
Peter L. Rhulen(1)(2)...................... 60 1986 Director
Lawrence E. O'Brien(1)(3).................. 58 1990 Director
Alan Gerry(2)(3)........................... 70 1996 Director
Paul B. Guenther(1)(2)(3).................. 58 1998 Director
</TABLE>
- ------------
(1) Member of Audit Committee.
(2) Member of Nominating Committee.
(3) 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 -- Chief
Administrative Officer and Director in February 1998. Prior thereto, Ms.
Loughlin was the managing attorney of the Company's in-house law firm of Dubois,
Billig, Loughlin, Conaty and Weisman since 1992, and an employee of the Company
since January 1991.
Douglas C. Moat has been a director of the Company since August 1991 and,
since February 1998, has served as Executive Vice President -- Mergers and
Acquisitions. 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
subsidiary; Vice President, The Glens Falls Group and the National Life
Assurance Company of Canada. Mr. Moat is a member of the New York State Bar
Association, serves on several insurance and banking committees, and writes and
speaks extensively on insurance topics, often acting as an expert witness.
6
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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.
Lawrence E. O'Brien has been a director of the Company since June 1990. 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.
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 was elected a director of the Company in March 1998. Mr.
Guenther currently serves as the Chairman of the Philharmonic-Symphony Society
of New York, a position he has held since September 1996. Prior thereto, Mr.
Guenther served as the President of PaineWebber Incorporated from 1988 to 1994,
and from 1994 through 1995 served as the President of PaineWebber Group, Inc.
Mr. Guenther also serves as Chairman of the Board of Trustees of Fordham
University, is on the Board of Overseers for the Columbia University Business
School and other charitable entities. Mr. Guenther is also a director of
Consolidated Freightways and serves as an advisory committee member and investor
in Walden Capitol Partners LP.
Mr. Harry Rhulen and Ms. Suzanne Rhulen Loughlin are brother and sister and
Mr. Peter Rhulen is their uncle.
MEETINGS AND COMMITTEES
There were eight meetings of the Board of Directors during 1998. Messrs.
Harry W. Rhulen, Peter L. Rhulen, Douglas C. Moat and Lawrence E. O'Brien
attended all meetings and Mr. Alan Gerry seven meetings. Ms. Suzanne Rhulen
Loughlin and Mr. Paul B. Guenther attended all meetings following their
respective election as a director. There were also two occasions on which the
Board took action by unanimous written consent.
The Audit Committee, composed of three directors, Messrs. Lawrence E.
O'Brien (Chairman), Peter L. Rhulen and Paul B. Guenther, 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 1998.
The Compensation Committee, composed of three directors, Messrs. Paul B.
Guenther (Chairman), Alan Gerry and Lawrence E. O'Brien, establishes a general
compensation program for all officers. See 'Report of Compensation Committee.'
The Compensation Committee held one meeting during 1998.
The newly-formed Nominating Committee, composed of Messrs. Peter L. Rhulen,
Alan Gerry and Paul B. Guenther, establishes procedures for the selection of,
and makes recommendations to the full Board with respect to, prospective nominee
candidates for election as directors.
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. In addition, and pursuant to the 1999 Stock
Option Plan, each non-employee Director will be granted 25,000 options at fair
market value, vesting quarterly over a three year period.
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REPORTS UNDER SECTION 16(a) OF THE SECURITIES EXCHANGE ACT
Section 16 of the Securities Exchange Act of 1934, as amended, requires
that executive officers, directors and holders of more than 10% of the Common
Stock (collectively 'Reporting Persons') file reports of their trading in
Company equity securities with the Securities and Exchange Commission. Based
upon a review of Section 16 forms filed by the Reporting Persons during the last
fiscal year, the Company believes that the Reporting Persons complied with all
applicable Section 16 filings, except that the following Reporting Persons filed
late reports: (i) David Campbell, one report on Form 4 listing one transaction;
(ii) Thomas Dietz, one report on Form 4 listing an aggregate of seven
transactions; (iii) Joel Gelb, one report on Form 4 listing one transaction;
(iv) Joseph Loughlin, one report on Form 3; (v) Suzanne Rhulen Loughlin, one
report on Form 3; (vi) Douglas Moat, five reports on Form 4 listing an aggregate
of ten transactions; (vii) Peter Rhulen, three reports on Form 4 listing an
aggregate of ten transactions; and (viii) Richard Seyffarth, one report on Form
4 listing one transaction.
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 seven (7)
nominees as directors, either as classified directors or as non-classified
directors.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE SEVEN (7)
NOMINEES FOR DIRECTORS.
PROPOSAL 3 -- APPROVAL OF 1999 EMPLOYEE STOCK PURCHASE PLAN
The 1999 Employee Stock Purchase Plan (the 'Purchase Plan') was adopted by
the Board of Directors in December 1998 to encourage employees of the Company
and its subsidiaries to acquire a proprietary interest in the Company by
purchasing Common Stock through voluntary payroll deductions. The Purchase Plan
is a designed as an 'employee stock purchase plan' within the meaning of
Section 423(b) of the Internal Revenue Code, and to qualify thereunder must be
approved by the Company's stockholders. The Board believes this opportunity for
employee equity participation will provide an attraction to, and promote the
retention and motivation of, employees. An aggregate of 1,000,000 shares of the
Company's Common Stock has been reserved for issuance under the Purchase Plan.
Administration
The Board of Directors has appointed a committee of Company executives to
serve as the plan administrators of the Purchase Plan. All questions of
interpretation or application of the Purchase Plan are determined by the
committee whose decisions are final, conclusive and binding upon all
participants.
Eligibility and Participation
Any person regularly employed by the Company or a subsidiary of the Company
for at least 20 hours per week is eligible to participate in the Purchase Plan.
No person who owns or holds options or rights to acquire, or as result of
participation in the Purchase Plan would own or hold options or rights to
acquire, 5% or more of the Company's Common Stock may participate in the
Purchase Plan. As of March 31, 1999, approximately 1,315 employees were eligible
to participate in the Purchase Plan, of whom approximately 396 employees were
participants.
Offering Periods
Each offering period is a calendar quarter, with the first offering period
commencing January 1, 1999.
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Purchase of Shares
Eligible employees who wish to participate in the Purchase Plan allocate a
portion of their after-tax payroll to the Purchase Plan, which amount is
deducted from the employee's paycheck by the Company and directed to the
Purchase Plan account. At the end of each quarter, the employee funds in the
Purchase Plan account are used to purchase Common Stock. The Internal Revenue
Code imposes a $25,000 market value limit per employee per calendar year on the
combined value of the Common Stock purchased through the Purchase Plan as
calculated at the beginning of each quarterly purchase period. Accordingly,
assuming the share price does not decrease as of any quarter end over the
beginning price for the quarter, the maximum an employee can invest under the
Purchase Plan is $21,250 per year. If an employee reaches this limit at any
quarterly purchase date, any remaining funds in the Purchase Plan account will
be retained and applied to the next eligible quarterly purchase date.
The employee's Purchase Plan account is credited with any cash dividends
paid on his or her Common Stock in the account. These dividends are
automatically reinvested in additional Common Stock at no cost to the employee
as the Company pays the transaction fees; the amount of such cash dividends,
however, are taxable to the employee. Any stock dividends are also automatically
added to the employee's Purchase Plan account.
The Company may make a pro rata reduction in the number of shares
purchasable if such number exceeds the number of shares available for issuance
under the Purchase Plan. When an employee withdraws his or her participation in
the Purchase Plan by giving written notice to the Company of his or her election
to withdraw, all accumulated payroll deductions will be used to purchase shares
of Common Stock and future payroll deductions will cease. An employee's
withdrawal from the Purchase Plan prior to the end of a given offering period
does not affect his or her eligibility to participate in succeeding offering
periods.
Purchase Price
The purchase price per share at which shares of Common Stock are sold to
participating employees is 85% of the lower of the fair market value per share
of Common Stock on (i) the trading day immediately preceding the first business
day of the calendar quarter or (ii) the trading day immediately preceding the
last business day of the calendar quarter. The fair market value of the Common
Stock on a given date is determined by reference to the closing price of the
Common Stock on the New York Stock Exchange.
Payroll Deductions
The funds for purchasing shares is accumulated by payroll deductions, the
rate of which may be increased or decreased by the employee during the offering
period. Payroll deductions do not accrue interest. An employee's participation
in the Purchase Plan, including the rate of payroll deductions, remains in
effect for successive offering periods unless the employee withdraws or amends
such participation or such employee's employment is terminated. An employee may
discontinue his or her payroll deductions and participation in the Purchase Plan
at any time.
Termination of Participation
An employee's participation in the Purchase Plan is terminated when the
employee either voluntarily elects to withdraw his or her entire account, or his
or her employment is terminated. Once an employee's participation is terminated,
the employee is not entitled to again participate in the Purchase Plan until the
first day of the next offering period. Upon termination of participation, the
employee is entitled to receive the shares and any funds in his or her
individual account.
Capital Changes
In the event any change is made in the Company's capitalization during an
offering period, such as a stock split, reverse stock split or stock dividend,
which results in an increase or decrease in the number of shares of Common Stock
outstanding without receipt of consideration by the Company,
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appropriate adjustment will be made in the purchase price and in the number of
shares purchasable under the Purchase Plan.
The Purchase Plan will terminate automatically in the event of a
dissolution or liquidation of the Company and any funds in the Purchase Plan
account will be refunded to employees without interest.
Amendment and Termination of the Purchase Plan
The Board of Directors may amend the Purchase Plan at any time from time to
time or may terminate the Purchase Plan without approval of the stockholders.
However, no such action by the Board of Directors may alter or impair any shares
purchased or rights previously granted under the Purchase Plan without the
consent of the affected employees.
The Purchase Plan provides that stockholder approval of any amendment to
the Purchase Plan is required to increase the number of shares which can be
purchased thereunder, materially modify the eligibility provisions, materially
increase the benefits, or reduce the purchase price formula.
Federal Income Tax Information
No income will be taxable to an employee participating in the Purchase Plan
at the time of purchase of the shares of Common Stock at the formula discount
from fair market value. Upon disposition of the shares, the employee will
generally be subject to tax. If the shares have been held by the employee for
more than two years after the date of the onset of the offering period and more
than one year after the purchase date of the shares, the lesser of (i) the
excess of the fair market value of the shares at the time of such disposition
over the purchase price, or (ii) 15% of the fair market value of the shares on
the first day of the offering period will be taxable as ordinary income, and any
further gain will be treated as long-term capital gain. If the shares are
disposed of before the expiration of the holding periods described above, the
excess of the fair market value of the shares on the purchase date over the
purchase price will be treated as ordinary income, and further gain or loss on
such disposition will be capital gain or loss. Different rules may apply with
respect to participating employees subject to Section 16(b) of the Securities
Exchange Act of 1934. The Company is not entitled to a deduction for amounts
taxable to an employee except to the extent of the ordinary income taxable to an
employee upon disposition of shares prior to the expiration of the holding
periods described above.
The foregoing is only a summary of the federal income tax consequences of
the Purchase Plan to employees and the Company and does not purport to be
complete. Reference should be made to applicable provision of the Internal
Revenue Code. In addition, the summary does not discuss the tax consequences of
an employee's death or the income tax laws of any municipality, state or foreign
country in which the employee may reside.
Additional Option
As an additional incentive, each year employees participating in the
Purchase Plan will be granted an incentive stock option to purchase the same
number of shares of Common Stock that the employee purchased through the
Purchase Plan during the calendar year and held through December 31st. The
option will be exercisable at a price equal to the fair market value of the
Common Stock on the date the option is granted (on or about December 31st) and
will vest 25% cumulatively per year commencing one year from the date of grant.
VOTE REQUIRED
Approval of the 1999 Employee Stock Purchase Plan requires the affirmative
vote by holders of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting. Unless marked to the contrary,
proxies received will be voted for approval of the purchase plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE 'FOR' APPROVAL OF
THE 1999 EMPLOYEE STOCK PURCHASE PLAN.
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PROPOSAL 4 -- APPROVAL OF 1999 STOCK OPTION PLAN
GENERAL
In March 1999, the Board of Directors, subject to stockholder approval,
adopted the 1999 Stock Option Plan under which an aggregate of 8,000,000 shares
of Common Stock is reserved for issuance upon exercise of options granted to
selected employees, consultants, officers, directors, independent contractors
and other persons who contribute and are expected to contribute materially to
the success of the Company. Incentive stock options that qualify under Section
422 of the Internal Revenue Code and/or non-qualified stock options that do not
so qualify may be granted under the 1999 Stock Option Plan. On the date the
Board acted, there were no shares available under the Company's prior stock
option plans for option grants.
The purpose of the 1999 Stock Option Plan is to further the growth and
development of the Company by encouraging those granted options to obtain a
proprietary interest in the Company through the ownership of stock, thereby
providing such persons with an added incentive to promote the long-term
financial interests of the Company and enhancement of long-term stockholder
return. The 1999 Stock Option Plan is further intended to afford the Company a
means of attracting to its service persons of outstanding ability.
As of the Record Date, options to purchase an aggregate of 3,983,033 shares
of Common Stock were outstanding under prior stock option plans or independent
thereof, including the option to Mr. Patrick W. Kenny, ratification of which is
being solicited pursuant to this Proxy Statement, and no shares were available
for future grants under such plans.
SUMMARY OF THE 1999 STOCK OPTION PLAN
Administration of the 1999 Stock Option Plan
The authority to manage and control the operation and administration of the
1999 Stock Option Plan is vested in the Compensation Committee (the 'Committee')
of the Board of Directors, which shall consist of not less than two,
non-employee, independent directors.
Eligibility
Incentive Stock Options ('ISOs') may be granted only to employees
(including officers) of the Company and/or any of its subsidiaries. To qualify
as an ISO under the Internal Revenue Code, among other things, the aggregate
fair market value, determined as at the date of grant, of the shares exercisable
under the ISO for the first time by the employee during any calendar year
(inclusive of shares under any other ISOs granted to the employee) can not
exceed $100,000; any excess will not qualify for treatment as an ISO. In the
event an ISO or a portion thereof no longer qualifies as such under the Code,
such former ISO, or portion thereof, as applicable, shall be deemed a
Non-Qualified Stock Option under the 1999 Stock Option Plan.
Non-Qualified Stock Options ('NQSOs') may be granted to any person
(including employees who have been granted ISOs) whom the Committee determines
will contribute to the success of the Company or its subsidiaries.
Grant of Options
Pursuant to the 1999 Stock Option Plan, the Committee selects those persons
to be granted options and determines (i) whether the respective option is to be
an ISO or NQSO, (ii) the number of shares of Common Stock purchasable
thereunder, (iii) the time or times when the option becomes exercisable, (iv)
the exercise price per share, which cannot be less than 100% of the fair market
value on the date of grant, and (v) the duration of the option, which cannot
exceed ten years. For purposes of the 1999 Stock Option Plan, 'fair market
value' of a share of Common Stock as of a specified date is the closing sales
price of the Common Stock on the New York Stock Exchange (or on such other
public market on which the Common Stock may then be traded) on the trading day
immediately preceding the specified date.
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Each grant of an option will be evidenced by a written stock option
agreement setting forth the terms and conditions of the option, including
whether it is an ISO or NQSO. Nothing in the 1999 Stock Option Plan nor in the
stock option agreement evidencing the grant of the ISO and/or NQSO shall confer
upon the holder any right to continue in the employ of the Company or obligate
the Company to continue the engagement of the holder.
Section 162 (m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options, the 1999 Stock Option Plan limits the number of
shares as to which options may be granted under the Plan to any employee during
any calendar year to a maximum of 500,000 shares.
Exercise of Options
No option shall become exercisable prior to one year from the date of grant
and thereafter shall become exercisable on the terms and conditions established
by the Committee as set forth in the written option agreement. Unless otherwise
provided in the written stock option agreement, all outstanding options become
fully vested and immediately exercisable in the event of a 'change in control'
of the Company.
Payment for the shares may be made (i) in cash, (ii) by surrender of shares
of Common Stock having a fair market value equal to the aggregate exercise price
of the shares being purchased, or (iii) by any method approved by the Committee
in its sole discretion. Prior to the issuance of shares upon exercise of an
option, the exercising holder shall be required to pay or make adequate
provision for payment of any federal, state or local withholding tax
obligations. Until the option has been validly exercised, the holder of an
option shall not have any rights of a stockholder of the Company with respect to
the shares purchasable thereunder.
ISOs may be exercised by the holder only while in the employ of the Company
or a subsidiary or within three months following termination of employment
unless the termination is due to death or disability, in which event the ISO may
be exercised within twelve (12) months of such event to the extent the option
could have been exercised at the date of termination, but in no event subsequent
to the option's expiration date. The Committee, in its sole discretion, may
extend the time during which an ISO or NQSO may be exercised, which could have
the effect of changing an ISO into a NQSO, and may permit an ISO or NQSO to be
transferred, without consideration, to family members of the holder of the
option or entities for his or their benefit.
Adjustments
The 1999 Stock Option Plan contains customary anti-dilution provisions that
provide that in the event of any stock dividend, stock split, reverse stock
split, combination, reclassification or similar change in the capital structure
of the Company without consideration, the number of shares of Common Stock
available under the 1999 Stock Option Plan and the number of shares subject to
outstanding options and the related exercise price per share shall be
proportionately adjusted.
Amendments to the 1999 Stock Option Plan
The Committee may at any time amend the 1999 Stock Option Plan in any
respect (including, but not limited to, any form of grant, agreement or
instrument to be executed pursuant thereto); provided, however, that stockholder
approval shall be required to be obtained to increase the number of shares
purchasable under the 1999 Stock Option Plan or if otherwise required by the New
York Stock Exchange or other entity on which the Common Stock may then be
traded, and no amendment may adversely affect any then outstanding options or
any unexercised portions thereof without the written consent of the affected
holders.
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Termination of 1999 Stock Option Plan; Successors
No options may be granted under the 1999 Stock Option Plan subsequent to
March 17, 2009 but options theretofore granted may extend beyond that date and
the terms of the 1999 Stock Option Plan shall continue to apply to such options
and to any shares acquired upon exercise thereof. The 1999 Stock Option Plan may
be sooner terminated at the discretion of the Committee.
The obligations of the Company under the 1999 Stock Option Plan shall be
binding upon any successor corporation or organization resulting from the
merger, consolidation or other reorganization of the Company, or any successor
corporation or organization succeeding to all or substantially all of the assets
and business of the Company.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options (ISOs)
No taxable income is recognized by the recipient of an ISO upon either the
grant or exercise of the ISO (except that the alternative minimum tax may apply
upon exercise) and no expense deduction is available to the Company upon either
such event. If the exercising holder of an ISO holds the shares so acquired for
at least two years from the date of grant of the ISO and for at least one year
from the date of exercise, any gain (the excess of the sales price over the
exercise price) on the subsequent sale of such shares will be long-term capital
gain. However, in the event the holder sells the shares prior to the expiration
of either such two-year or one-year period (referred to as a 'disqualifying
disposition') the holder will recognize taxable income at ordinary tax rates in
an amount equal to the lesser of (i) the excess of the fair market value of the
shares on the date of exercise over the exercise price, or (ii) the excess of
the sales price over the exercise price, and the Company will receive a
corresponding business expense deduction. The balance of any gain recognized on
the disqualifying disposition will be capital gain, either long-term or
short-term depending on the period the shares were held prior to the sale. The
two-year and one year holding periods do not apply to a holder's estate or heirs
in the event of the holder's death.
Non-Qualified Stock Options (NQSOs)
As in the case of ISOs, the grant of a NQSO will not result in taxable
income to the recipient. However, unlike the situation with ISOs, the exercising
holder will recognize ordinary income upon the exercise of a NQSO, the amount of
such income being equal to the excess of the fair market value of the shares
received upon exercise over the exercise price, and the Company will be entitled
to a corresponding business expense deduction if the federal income tax
attributable to such excess is withheld. The fair market value of the shares on
the date income is required to be recognized will constitute the tax basis for
such shares for computing gain or loss on any subsequent sale, which will be
capital gain or loss, either long-term or short-term depending on the holding
period.
The foregoing is only a summary of the federal income tax consequences with
respect to ISOs and NQSOs which may be granted under the 1999 Stock Option Plan
and does not purport to be complete. Reference should be made to applicable
provision of the Internal Revenue Code. In addition, the summary does not
discuss the tax consequences of the income tax laws of any municipality, state
or foreign country in which the recipient of an option may reside.
OPTIONS GRANTED UNDER 1999 STOCK OPTION PLAN
In March 1999, the Compensation Committee granted options to purchase an
aggregate of 3,801,125 shares of Common Stock to 29 key management executives.
Each option is exercisable at identical exercise prices ranging from $14.06 per
share to $35.16 per share and averaging $30.52 per share. Of such options,
Messrs. James W. Satterfield, an Executive Vice President, Richard F, Seyffarth,
an Executive Vice President, and Mark H. Mishler, a Vice President, Treasurer
and Chief Financial Officer, three of the executive officers listed in the
Summary Compensation Table under 'Executive Compensation', received options to
purchase an aggregate of 734,375 shares. Messrs. Satterfield and Seyffarth each
received an option to purchase 11,000 shares at $14.06 per share; 27,500 shares
at $21.09
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per share; 82,500 shares at $28.13 per share; and 137,500 shares at $35.16 per
share, and Mr. Mishler received an option to purchase 9,250 shares at $14.06 per
share; 23,125 shares at $21.09 per share; 69,375 shares at $28.13 per share; and
115,625 shares at $35.16 per share. Executive officers as a group (14 persons),
including the three named executive officers and an executive officer who is
also a director, received options under the Plan exercisable at the same range
of exercise prices (with the same average exercise price) to purchase an
aggregate of 2,344,125 shares of Common Stock.
REQUIRED VOTE
Approval of the 1999 Stock Option Plan requires the affirmative vote by
holders of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting. Unless marked to the contrary,
proxies received will be voted for approval of the 1999 Stock Option Plan.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE 'FOR' APPROVAL OF
THE 1999 STOCK OPTION PLAN.
PROPOSAL 5 -- RATIFICATION OF STOCK OPTION GRANT
Pursuant to an agreement employing Mr. Patrick W. Kenny as the Company's
Executive Vice President of Finance and Planning, the Board of Directors granted
Mr. Kenny an option to purchase 235,000 shares of Common Stock at an average
exercise price of $37.57 per share,, comprised of 10,000 shares at $17.31 per
share, 25,000 shares at $25.97 per share, 75,000 shares at $34.63 per share; and
125,000 shares at $43.28 per share. On the date of the grant, the Common Stock
closed at $17.31 per share on the New York Stock Exchange. Stockholder approval
is required under Section 162 (m) of the Internal Revenue Code to preserve the
Company's ability to deduct, for federal income tax purposes, the differential
between the exercise price and the fair market value of the shares on the date
the option is exercised.
The option is exercisable at any time prior to July 31, 2005 by Mr. Kenny,
provided Mr. Kenny is then in the employ of the Company or, in the event Mr.
Kenny dies while in the Company's employ, by his personal representatives, heirs
or legatees within one year following the date of death, but in no event later
than July 31, 2005, the expiration date of the option. Mr. Kenny's option may
not be transferred except by will or the laws of descent or distribution.
The 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.
The 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 Mr. Kenny may elect. Upon exercise of the option, in lieu of delivery
of the certificates for the shares of Common Stock being purchased, the Company,
at its option, 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 the
amount, if any, required for any associated withholding taxes.
Under current tax law, no taxable income will be recognized by Mr. Kenny
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, Mr. Kenny 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.
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REQUIRED VOTE
Ratification of the grant of the stock option to Mr. Patrick W. Kenny
requires the affirmative vote by holders of a majority of the shares of Common
Stock present in person or represented by proxy at the Annual Meeting. Unless
marked to the contrary, proxies received will be voted for ratification of the
grant.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION
OF THE GRANT OF THE STOCK OPTION TO PATRICK W. KENNY.
PROPOSAL 6 -- RATIFICATION OF REAPPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors, upon the advice of the Audit Committee, has
retained Ernst & Young LLP to audit the Company's financial statements for the
year ending December 31, 1999. Ernst & Young LLP has acted as the Company's
independent auditors since the Company's initial public offering in 1986. 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.
REQUIRED VOTE
Ratification of the reappointment of Ernst & Young LLP as independent
auditors requires the affirmative vote by holders of a majority of the shares of
Common Stock present in person or represented by proxy at the Annual Meeting.
Unless marked to the contrary, proxies received will be voted for ratification
of the reappointment.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR RATIFICATION
OF THE REAPPOINTMENT OF ERNST & YOUNG LLP AS INDEPENDENT AUDITORS.
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
The Company's executive compensation plan is designed to help the Company
attract, motivate and retain the executive talent that the Company needs in
order to maximize its return to shareholders and more closely link executive
compensation to the Company's performance. The Compensation Committee's
philosophy is to place more emphasis on variable performance-based pay with the
objective to reward executives for maximizing long-term rewards to shareholders.
See Proposals 4 and 5 of this Proxy Statement.
On January 28, 1998, the Compensation Committee recommended and the Board
of Directors approved an employment agreement for Mr. Harry W. Rhulen, the
Company's President and Chief Executive Officer (the 'CEO'), that expires on
December 31, 2000, which provides for an annual base compensation of $450,000,
plus an annual bonus based on performance. The CEO's compensation is set based
on Company performance, as measured by operating, financial and strategic
objectives. See 'Executive Compensation'.
THE COMPENSATION COMMITTEE
Paul Guenther
Lawrence E. O'Brien
Alan Gerry
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EXECUTIVE COMPENSATION
The following table sets forth a summary of the compensation earned by the
Company's Chief Executive Officer and each of its four other most highly
compensated executive officers for the years ended December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
<S> <C> <C> <C> <C> <C>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTION(#) COMPENSATION($)(1)
- --------------------------------- ---- -------- ------------ ------------ ------------------
Harry W. Rhulen ................. 1998 $459,000 $150,000 1,025,356(2)(5) $ 34,100
President, Chief Executive 1997 188,000 150,000 15,400(4) 17,500
Officer and Chairman of the 1996 126,000 65,000 14,000
Board
Douglas C. Moat ................. 1998 250,000 100,000 30,644(2)(3) 5,000
Executive Vice President 1997 -- -- -- --
1996 -- -- -- --
James W. Satterfield ............ 1998 284,000 100,000 21,216(2) 21,400
Executive Vice President 1997 257,000 75,000 5,500(4) 19,500
1996 90,000 100,000 11,000(6) 200
Richard F. Seyffarth ............ 1998 193,000 100,000 14,300(2) 14,400
Executive Vice President 1997 143,000 40,000 4,400(4) 9,500
1996 38,000 6,600(7) 800
Mark H. Mishler ................. 1998 209,000 75,000 15,714(2) 16,000
Vice President, Treasurer and 1997 143,000 30,000 11,000(4) 16,300
Chief Financial Officer 1996 106,000 60,000 -- 11,300
Walter A. Rhulen* ............... 1998 -- -- -- --
Former President, Chief 1997 519,000 200,000 275,000(8) 59,800
Executive Officer and Chairman 1996 500,000 415,500 -- 30,000
of the Board
</TABLE>
- ------------
* Deceased January 31, 1998.
(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. Rhulen, Moat, Satterfield,
Seyffarth and Mishler was $15,700, $5,000, $10,000, $6,700 and $7,600,
respectively, and the allocable amount contributed to the Company's 401k
Plan for Messrs. Rhulen, Satterfield, Seyffarth and Mishler was $18,400,
$11,400, $7,700 and $8,400, respectively.
(2) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing December 31, 1999, by Messrs. Rhulen, Moat, Satterfield,
Seyffarth and Mishler with respect to 35,356, 19,644, 21,216, 14,300 and
15,714 shares, respectively.
(3) 11,000 shares exercisable through December 31, 2000.
(4) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing May 22, 1998.
(5) 990,000 shares exercisable at prices ranging from $30.00 to $50.00 through
December 31, 2004.
(6) Exercisable through August 13, 2001.
(7) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing November 21, 1998.
(8) Exercisable through December 31, 2001 by the Estate of Walter A. Rhulen.
16
<PAGE>
<PAGE>
The following table sets forth certain information concerning options
granted during 1998 to the individuals named in the Summary Compensation table:
<TABLE>
<CAPTION>
OPTION GRANTS IN 1998
POTENTIAL REALIZABLE
VALUE OF ASSUMED
ANNUAL RATES OF
STOCK
NUMBER OF % OF TOTAL PRICE APPRECIATION
SECURITIES OPTIONS FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS ALL PRICE EXPIRATION --------------------
NAME GRANTED (#) EMPLOYEES ($/SHARE) DATE 5%($) 10%($)
- -------------------------------- ----------- ---------- --------------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Harry W. Rhulen................. 35,356 1.9 12.88 12/31/03 $125,766 $277,909
990,000 54.6 30.00 - 50.00 12/31/04 -- --
Douglas C. Moat................. 19,644 1.1 12.88 12/31/03 69,876 154,408
11,000 0.6 20.80 12/31/00 36,057 75,716
James W. Satterfield............ 21,216 1.2 12.88 12/31/03 75,468 166,764
Richard F. Seyffarth............ 14,300 0.8 12.88 12/31/03 50,867 112,403
Mark H. Mishler................. 15,714 0.9 12.88 12/31/03 55,897 123,517
</TABLE>
The following table presents the value of unexercised options held at
December 31, 1998 by the individuals named in the Summary Compensation Table:
<TABLE>
<CAPTION>
OPTIONS VALUE TABLE
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT
OPTIONS AT YEAR-END YEAR-END ($)*
(#) EXERCISABLE(E)/ EXERCISABLE(E)/
NAME UNEXERCISABLE(U) UNEXERCISABLE(U)
- ------------------------------------------------------ --------------------- ----------------
<S> <C> <C>
Harry W. Rhulen....................................... 1,226,776(E)(1) 21,481(E)
46,904(U) -- (U)
Douglas C. Moat....................................... 17,050(E) 21,481(E)
19,644(U) -- (U)
James W. Satterfield.................................. 12,375(E) -- (E)
25,341(U) -- (U)
Richard F. Seyffarth.................................. 4,400(E) -- (E)
20,900(U) -- (U)
Mark H. Mishler....................................... 8,800(E) 21,481(E)
23,964(U) -- (U)
</TABLE>
- ------------
* Values are calculated by subtracting the exercise price from the fair market
value of the stock at year end.
(1) Includes 226,875 shares purchasable at $20.66 per share upon exercise of
options granted to Mr. Walter A. Rhulen, and gifted to his son, Mr. Harry W.
Rhulen.
EMPLOYMENT 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. The Compensation Committee awarded Mr. Rhulen a
bonus of $150,000 for 1998.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1998, the Company guaranteed a loan of $1.25 million for Thomas J.
Dietz, an executive officer of the Company, which guarantee was outstanding on
the Record Date.
In August 1998, the Company guaranteed a loan of $1.0 million and, in
December 1998, guaranteed an additional $0.8 million and, in January 1999,
guaranteed an additional $0.25 million for Peter L. Rhulen, a director of the
Company, which $2.025 million of guarantees was outstanding on the Record Date.
17
<PAGE>
<PAGE>
In November 1998, the Company acquired 180 shares of the capital stock of
Metro Partners, Inc. ('Metro Partners') from Metro Partners, representing 30% of
Metro Partners' outstanding capital stock, for $600,000. Thereafter and during
1998, the Company loaned approximately $1.0 million at an 8.75% interest rate to
Metro Partners, delivered a $250,000 letter of credit to Metro Partners'
landlord as collateral for its real estate lease, and purchased $500,000 of
Metro Partners' preferred stock. Metro Partners, organized in 1998, provides
administrative services to insurance agents and brokers. Douglas C. Moat, an
executive officer and director of the Company, and Peter L. Rhulen, a director
of the Company, are principal shareholders (Mr. Rhulen with members of his
immediate family and Mr. Moat through a corporation in which he is a principal
shareholder) and directors of Metro Partners.
During 1998, the Company loaned an aggregate of $150,000 at a 6.5% interest
rate to, and guaranteed a loan of $150,000 for, Film Backers, a company in which
Anthony Rhulen, the brother of Harry Rhulen and Suzanne Loughlin, is a
principal. The loans and guarantee were outstanding on December 31, 1998.
In December 1998, the Company initiated a program to facilitate the
purchase of its Common Stock by key management executives. Under the program, a
financial institution will loan funds to the executive for such purchase in an
annual amount up to 200% of the executive's salary, depending on the executive's
level of responsibility at the Company. The shares purchased will be pledged
with the financial institution as collateral for the loan by the executive, who
will be responsible for its repayment and payment of the related interest. The
Company will guarantee the loan as long as the executive is in the employ of the
Company. The Company has also agreed to grant the executive an option on
December 31 of each year to purchase an equivalent number of shares at the fair
market value on such date as the executive purchased during the calendar year
under the program, twenty-four management executives have elected to participate
in this program. Pending finalization of the loan documents with the financial
institution, the Company provided a loan facility for the participating
management executives. Mr. Richard Seyffarth, an Executive Vice President of the
Company and its Chief Investment Officer acted as the nominee for such
management executives to borrow funds on their behalf. Through December 31,
1998, an aggregate of $2,250,000 was borrowed pursuant to this loan facility and
176,653 shares of Common Stock were purchased on the New York Stock Exchange
with the proceeds on behalf of the twenty-four management executives
participating in the program. The Company's eight executive officers are
participating in the program and on December 31, 1998, loans outstanding from
the Company on their behalf were as follows: Mr. Harry W. Rhulen, $225,000; Ms.
Suzanne Rhulen Loughlin $100,000; Mr. Patrick W. Kenny, $150,000; Mr. James W.
Satterfield, $135,000; Mr. Joseph P. Loughlin, Esq., $87,500; Mr. Richard F.
Seyffarth, $91,000; Mr. Douglas C. Moat, $125,000; and Mr. Mark H. Mishler,
$100,000. Once the arrangements with the financial institution are finalized,
the loan proceeds from the financial institution will be applied to repay the
loans by the Company.
18
<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,
1998, 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
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
FISCAL YEAR ENDING
----------------------------------------------
COMPANY 1994 1995 1996 1997 1998
- ------------------------------------------------------- ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Frontier Insurance Group, Inc.......................... 74.51 110.95 148.02 178.87 112.62
Peer Group Index....................................... 98.89 145.09 173.37 254.38 265.23
S&P 500 Index.......................................... 101.32 139.40 171.41 228.59 293.92
</TABLE>
ASSUMES $100 INVESTED ON JAN. 1, 1993 AND REINVESTMENT OF DIVIDENDS
STOCKHOLDER PROPOSALS FOR THE
2000 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal to be considered for inclusion in the Company's
proxy soliciting material for the 2000 Annual Meeting of Stockholders must be
received by the Company at its principal office by December 31, 1999.
Dated: May 14, 1999
19
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<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<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, is hereby further amended by striking out
subparagraphs 1. and 2. of Article SEVENTH and restating Article SEVENTH in its
entirety to read as follows:
'SEVENTH: For the management of the business and for the conduct of
the affairs of the Corporation, and in further definition, limitation, and
regulation of the powers of the Corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further
provided:
1. The number of directors of the Corporation constituting the entire
Board of Directors shall be not less than six nor more than twelve. The
Board of Directors shall determine from time to time the number of
directors who shall constitute the entire Board of Directors. Any such
determination made by the Board of Directors shall continue in effect
unless and until changed by the Board of Directors, but no such changes
shall affect the term of any directors then in office.
2 (a) The Board of Directors shall be divided into three classes,
Class I, Class II and Class III, the number of and class for each director
to be determined by the Board of Directors (with the number of directors in
each class being as nearly equal as possible). No class shall include less
than two nor more than four directors. Any vacancy on the Board of
Directors that results from an increase in the number of directors and any
other vacancy on the Board may be filled by the affirmative vote of a
majority of the remaining directors then in office whether or not a quorum
is present, or by the affirmative vote of the holders of a majority of the
shares of capital stock present in person or represented by proxy at a duly
convened meeting of stockholders (excluding for purposes of calculating the
number of votes cast, broker non-votes and abstentions). Any increase or
decrease in the number of directors shall be so apportioned among the
classes as to make all classes as nearly equal in number as possible.
Directors elected to fill a newly created directorship or other vacancies
shall be classified and hold office as provided by statute.
(b) The terms of office of the respective classes of directors
initially classified shall be as follows: (1) Class I shall expire at the
Annual Meeting of Stockholders to be held in 2000; (2) Class II shall
expire at the Annual Meeting of Stockholders to be held in 2001; and (3)
Class III shall expire at the Annual Meeting of Stockholders to be held in
2002. At each Annual Meeting of Stockholders after the aforementioned
initial classification, the successors to directors whose terms shall then
expire shall be elected to serve from the time of election and
qualification until the third
A-1
<PAGE>
<PAGE>
Annual Meeting following election and until a successor shall have been
duly elected and shall have qualified.
(c) Subject to the rights of the holders of any class or series of
Preferred Stock of the Corporation, any director, or the entire board of
directors, may be removed from office at any time, but only for cause and
only by the affirmative vote of the holders of at least fifty percent (50%)
of the outstanding shares of all classes of stock of the Corporation
generally entitled to vote in the election of directors, considered for
purposes of this Section as one class.
Whenever the Corporation shall be authorized to issue only one class
of stock, each outstanding share shall entitle the holder thereof to notice
of, and the right to vote at, any meeting of stockholders. Whenever the
Corporation shall be authorized to issue more than one class of stock, no
outstanding share of any class of stock which is denied voting power under
the provisions of the certificate of incorporation shall entitle the holder
thereof to the right to vote at any meeting of stockholders except as the
provision of paragraph (b)(2) of 'SS'242 of the General Corporation Law of
the State of Delaware shall otherwise require; provided, that no share of
any such class which is otherwise denied voting power shall entitle the
holder thereof to vote upon the increase or decrease in the number of
authorized shares of said class.'
4. The amendment to the Restated 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 to be signed by its President and attested
by its Secretary this 28th day of June, 1999.
FRONTIER INSURANCE GROUP, INC.
By:
.................................
Harry W. Rhulen
Chairman of the Board, President
and Chief Executive Officer
[Corporate Seal]
Attest:
By:
.................................
Joseph P. Loughlin
Secretary
A-2
<PAGE>
<PAGE>
APPENDIX 1
1999 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
OF
FRONTIER INSURANCE GROUP, INC.
1. Purpose of Plan. The purpose of this 1999 Incentive and Non-Qualified
Stock Option Plan ('Plan') is to further the growth and development of Frontier
Insurance Group, Inc. (the 'Company') and its subsidiaries by encouraging
selected employees, consultants, officers, directors, independent contractors
and other persons who contribute and are expected to contribute materially to
the success of the Company or any subsidiary to obtain a proprietary interest in
the Company through the ownership of stock, thereby providing such persons with
an added incentive to promote the long-term financial interests of the Company
and enhancement of long-term stockholder return. The Plan is further intended to
afford the Company and any subsidiary a means of attracting to its service
persons of outstanding ability. Unless otherwise defined elsewhere in the Plan,
capitalized terms used herein are defined in Section 17 hereof.
2. Stock Subject to the Plan. An aggregate of 8,000,000 shares of Common
Stock, $.01 of par value per share ('Common Stock') of the Company, subject to
adjustment or change pursuant to Section 10 hereof, shall be reserved for
issuance upon the exercise of options which may be granted from time to time in
accordance with the Plan ('Options'). Such shares may be, in whole or in part,
authorized but unissued shares or issued shares which have been reacquired by
the Company as the Compensation Committee ('Committee') of the Board of
Directors ('Board') shall from time to time determine. If, for any reason, an
Option shall lapse, expire or terminate without having been exercised in full,
the unpurchased shares covered thereby shall again be available for purposes of
the Plan. If, for any reason, any shares of Common Stock purchased upon exercise
of an Option are repurchased by the Company, such shares shall again be
available for purposes of the Plan. If the exercise price of an Option granted
under the Plan is satisfied by tendering shares of Common Stock, only the number
of shares of Common Stock issued, net of the shares of Common Stock so tendered,
shall be deemed delivered for purposes of calculating the maximum number of
shares of Common Stock reserved for issuance under the Plan.
3. Administration. The authority to manage and control the operation and
administration of the Plan shall be vested in the Committee which shall at all
times consist of three or more Board members. The Board shall have power at any
time to fill vacancies in, to change the membership of, or to discharge the
Committee. The Committee shall select one of its members as its chairman and
shall hold its meetings at such time and at such places as it shall deem
advisable. A majority of the Committee shall constitute a quorum and such
majority shall determine its action. Any action may be taken without a meeting
by written consent of all the members of the Committee. The Committee shall keep
minutes of its proceedings and shall report the same to the Board at the next
succeeding meeting of the Board. To the extent practicable, the members of the
Committee shall be 'outside directors' as defined in the regulations under
Section 162(m) of the Internal Revenue Code of 1986, as amended (the 'Code'),
and 'non-employee directors' as defined by Regulation 240.16b-3 under the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'). The
Committee's authority shall be subject to the following:
(a) subject to the provisions of the Plan, the Committee shall have
authority in its sole discretion to select from among those persons
eligible to receive Options under the Plan those persons who shall receive
Options, to determine the time or times at which Options shall be granted
and the number of shares of Common Stock to be subject to each such Option;
to establish the terms, conditions, performance criteria, restrictions and
other provisions of each Option, including but not limited to whether all
or any portion of each Option shall be incentive stock options ('Incentive
Options') qualifying under Section 422A of the Code or stock options which
do not so qualify ('Non-Qualified Options'); the time or times when the
Option may be exercised; the term of such Option; the events of termination
of such Option; the transferability of such Option; and any voting,
transfer or other restrictions on the shares of Commons Stock issuable upon
exercise of the Option. Both Incentive Options and Non-qualified Options
may be granted to the same person at the same time, provided each type of
Option is clearly designated. Options may be granted as alternatives to or
replacements of Options outstanding under the Plan or of options
1
<PAGE>
<PAGE>
or other awards under any other plan or arrangement of the Company or any
subsidiary (including a plan or arrangement of a business or entity, all or
a portion of which is acquired by the Company or a subsidiary). In making
such determinations, the Committee may take into account the nature of the
services rendered by such persons, their present and potential contribution
to the success of the Company or a subsidiary and such other factors as the
Committee in its sole discretion may deem relevant.
(b) the Committee shall also have authority to interpret the Plan, to
establish, amend and rescind rules and regulations relating to the Plan, to
determine the terms and provisions of the respective agreements evidencing
the grant of Options ('Option Agreements'), and to make all other
determinations that may be necessary or advisable for the administration of
the Plan.
(c) except as otherwise provided in the Plan, where the Committee
shall be authorized to make a determination with respect to any Option,
such determination shall be made at the time of the grant of the Option,
except that the Committee reserves the authority to have such determination
made by the Committee in the future (but only if such reservation is made
at the time the Option is granted and is expressly stated in the Option
Agreement relating to such Option).
(d) Any interpretation of the Plan by the Committee and any decision
made by it under the Plan shall be final and not subject to review.
4. Eligibility for Receipt of Options.
(a) Incentive Options. Incentive Options may be granted only to employees
(including officers) of the Company and/or any of its subsidiaries. A director
of the Company or any subsidiary who is not an employee of the Company or of one
of its subsidiaries is not eligible to receive Incentive Options under the Plan.
Further, Incentive Options may not be granted to any person who, at the time the
Incentive Option is granted, owns (or is considered as owning within the meaning
of Section 425(d) of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the Company or any subsidiary
(10% Owner), unless at the time the Incentive Option is granted to the 10%
Owner, the option price is at least 110% of the fair market value of the Common
Stock subject thereto and such Incentive Option by its terms is not exercisable
subsequent to five years from the date of grant. The aggregate fair market value
(determined as of the time an Incentive Option is granted) of the shares of the
Company's Common Stock initially purchasable upon exercise of an Incentive
Option during any calendar year may not exceed $100,000. In the event an
outstanding Incentive Option or a portion thereof no longer qualifies as an
incentive stock option under Section 422A of the Code, such Option or portion
thereof, as applicable, thereafter shall be deemed a Non-Qualified Option under
the Plan.
(b) Non-Qualified Options. Non-Qualified Options may be granted to any
person eligible to receive Options under the Plan (including any individual who
has been granted Incentive Options) whom the Committee determines will
contribute to the success of the Company or a subsidiary.
(c) Maximum Number of Options Granted Annually to any Person. The maximum
number of shares that may be subject to Options under this Plan granted during
any calendar year to any employee of the Company or its subsidiaries is 500,000
shares.
5. Exercise Price; Date of Grant.
(a) Exercise Price. The exercise price of each Option shall be determined
by the Committee, in its sole discretion, which determination shall be
conclusive and not subject to review, but in no event shall the exercise price
be less than 100% of the Fair Market Value of the Common Stock on the date of
grant (or 110% of Fair Market Value with respect to Incentive Options granted to
a 10% Owner, as such term is defined in the Code) and 50% of the fair market
value of the Common Stock on the date of the grant in the case of Non-Qualified
Options.
(b) Date of Grant. For purposes of the Plan, the date of grant of an Option
shall be the date on which the Committee (or Board) shall duly authorize the
Option.
6. Term of Option.
(a) The term of each Option shall be such number of years as the Committee
shall determine, subject to earlier termination as herein provided or as
determined by the Committee, but in no event
2
<PAGE>
<PAGE>
more than ten years from the date the Option is granted (or five years in the
case of an Incentive Option granted to a 10% Owner).
(b) If the employment of the holder of an Incentive Option shall be
terminated for any reason other than such holder's disability (as such term is
defined in Section 22(e)(3) of the Code) or death, the Option shall terminate no
later than three months from the date of termination of employment or at such
earlier date as determined by the Committee and set forth in the Option
Agreement.
(c) If the employment of the holder of an Incentive Option shall be
terminated by reason of such holder's disability (as such term is defined in
Section 22(e)(3) of the Code) or death, the Option shall terminate no later than
twelve months from the date of such termination of employment or at such earlier
date as determined by the Committee and set forth in the Option Agreement.
(d) Any Option exercisable after the date of termination of employment
shall be exercisable only to the extent such Option was exercisable at the date
of termination of employment.
(e) Notwithstanding anything to the contrary contained herein, no Option
may be exercised following the termination or expiration of such Option.
7. Exercise of Options.
(a) Subject to Section 11 hereof, each Option shall be exercisable in
accordance with the terms and conditions and during such periods as may be
established by the Committee. However, the aggregate fair market value
(determined as of the time an Incentive Option is granted) of the shares of
Common Stock initially purchasable upon exercise of Incentive Options by the
holder thereof during any calendar year may not exceed $100,000 and in no event
shall an Option be exercisable until at least one year from the date of grant.
(b) An Option may not be exercised for fractional shares of the Company's
Common Stock.
(c) Except as provided in paragraphs 9, 10 and 11 hereof, and unless
determined otherwise by the Committee with respect to Non-Qualified Options
granted to non-employees, no Option shall be exercisable unless the holder
thereof shall have been an employee, director, consultant, agent, independent
contractor or other person employed by or engaged in performing services for the
Company and/or a subsidiary continuously from the date of grant to the date of
exercise.
(d) The exercise of an Option shall be contingent upon receipt from the
holder thereof of a written representation that at the time of such exercise it
is the optionee's then present intention to acquire the Option shares for
investment and not with a view to the distribution or resale thereof (unless a
Registration Statement covering the shares purchasable upon exercise of the
Options shall have been declared effective by the Securities and Exchange
Commission) and upon receipt by the Company of cash, or a check to its order,
for the full purchase price of such shares. The Committee may, in its
discretion, include a 'cashless exercise' provision in the applicable Option
Agreement, in which event the optionee will be permitted (i) to deliver
previously owned shares of Common Stock with a fair market value equal to the
exercise price in payment of the full purchase price of such shares, or (ii) to
request that the Company withhold shares of Common Stock issuable upon exercise
of such Option with a fair market value equal to the exercise price of the
shares being purchased under the Option (thereby reducing the number of shares
issuable upon exercise of the Option).
(e) An Option may not be exercised for fractional shares of the Common
Stock.
(f) The exercise of an Option shall be contingent upon receipt by the
Company of the following:
(i) Payment of the exercise price pursuant to Section 7(d) below; and
(ii) A written representation that at the time of such exercise it is
the then present intention of the holder of the Option to acquire the
shares of Common Stock being purchased for investment and not with a view
to the distribution or resale thereof (unless a Registration Statement
covering the shares purchasable upon exercise of the Option shall have been
declared effective by the Securities and Exchange Commission).
(g) Payment of the exercise price for the shares of Common Stock being
purchased shall be subject to the following:
(i) The full exercise price for the shares being purchased shall be
paid at the time of exercise.
3
<PAGE>
<PAGE>
(ii) The exercise price shall be payable in cash or by tendering
shares of Common Stock (such shares to be valued at Fair Market Value as of
the day of exercise), or in any combination thereof, as determined by the
Committee; provided, however, any such tendering shares, if purchased upon
exercise of a stock option, shall have been held for at least six (6)
months.
(h) The holder of an Option shall have none of the rights of a stockholder
with respect to the shares purchasable upon exercise of the Option until a
certificate for such shares shall have been issued to the holder upon due
exercise of the Option.
(i) The proceeds received by the Company upon exercise of an Option shall
be added to the Company's working capital and be available for general corporate
purposes.
8. Transferability of Options. Except as otherwise provided by the
Committee in an Option Agreement, no Option shall be transferable otherwise than
by will or the laws of descent or distribution. The Committee shall have the
authority to provide in the Option Agreement for transferability of an Option by
the holder of the Option for no consideration to or for the benefit of the
holder's Family Group, subject to such conditions or limitations as the
Committee may establish and the transferee shall remain subject to all of the
terms and conditions applicable to the Option prior to such transfer.
9. No Rights of Employment. Nothing in the Plan or in any Option Agreement
granted hereunder shall confer upon any holder of an Option any right to
continue in the employ of the Company or any subsidiary or obligate the Company
or any subsidiary to continue the engagement of any holder of an Option or
interfere in any way with the right of the Company or any subsidiary to
terminate the employment or engagement of the holder of an Option at any time.
10. Adjustments Upon Changes in Capitalization. If at any time after the
date of grant of an Option, the Company shall by stock dividend, split-up,
combination, reclassification or exchange, or through merger or consolidation or
otherwise, change its shares of Common Stock into a different number or kind or
class of shares or other securities or property, then the number of shares
covered by such Option and the price per share thereof shall be proportionately
adjusted for any such change by the Committee, whose determination thereon shall
be conclusive.
11. Acceleration of Exercisability Upon Change in Control. Upon the
occurrence of a 'change in control' of the Company (as defined below), all
outstanding Options shall become immediately fully exercisable.
12. Vesting of Rights Under Options. Neither anything contained in the Plan
nor in any resolution adopted or to be adopted by the Committee or the
stockholders of the Company shall constitute the vesting of any rights under any
Option. The vesting of such rights shall take place only (i) when a written
Option Agreement shall be duly executed and delivered by and on behalf of the
Company and the person to whom the Option shall be granted, and (ii) on the
terms and conditions set forth in such Option Agreement.
13. Withholding Taxes. The Company shall have the right to require the
exercising holder of an Option to remit to the Company an amount sufficient to
satisfy any federal, state and local withholding tax requirements resulting from
or attributable to such exercise.
14. Compliance with Laws. The grant of Options and the issuance of Common
Stock upon exercise thereof shall be subject to and conditioned upon compliance
with all applicable requirements of law, including without limitation compliance
with the Securities Act of 1933, compliance with applicable state securities
laws and compliance with the requirements of any stock exchange on which the
Common Stock may then be listed. The Company shall have no obligation to
register the Common Stock under the Securities Act or any state securities laws.
15. Applicable Law. The validity, interpretation and enforcement of this
Plan shall be governed in all respects by the laws of the State of New York
(without giving effect to any choice of law or conflict of law rules or
provisions that would cause the application of the laws of any jurisdiction
other than the State of New York) and the United States of America.
16. Termination and Amendment; Successors. The Plan, which was adopted by
the Board on March 18, 1999, subject to stockholder approval, shall terminate on
March 17, 2009 and no Option shall be granted under the Plan after such date.
The Committee may, at any time prior to such date, terminate
4
<PAGE>
<PAGE>
the Plan or make such modifications or amendments thereto as it shall deem
advisable; provided, however, that stockholder approval shall be required:
(a) to increase the number of shares reserved for issuance under the
Plan;
(b) to materially increase the benefits accruing to participants under
the Plan;
(c) to materially modify the requirements of eligibility for
participation in the Plan; or
(d) if otherwise required to comply with the incentive stock option
provisions of Section 162(m) of the Code or the listed company requirements
of The New York Stock Exchange or of a national securities exchange on
which the Common Stock is then traded,
and, provided, further, that no modification or amendment shall adversely
affect the rights of a holder of an Option previously granted under the
Plan without such holder's written consent.
The obligations of the Company under the Plan shall be binding upon any
successor corporation or organization resulting from the merger, consolidation
or other reorganization of the Company, or any successor corporation or
organization succeeding to all, or substantially all, of the assets and business
of the Company. In the event of any of the foregoing, the Committee may, at its
discretion prior to the consummation of the transaction and subject to the first
paragraph of this section, cancel, offer to purchase, exchange, adjust or modify
any outstanding Options, at such time and in such manner as the Committee deems
appropriate and in accordance with applicable law.
17. Definitions. The following terms shall have the meanings set forth
below for purposes of this Plan.
(a) 'Change in Control' shall mean (i) the acquisition at any time by a
'person' or 'group' (as such terms are used Sections 13(d) and 14(d)(2) of the
Exchange Act of beneficial ownership (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities representing 50% or more of
the combined voting power in the election of directors of the then outstanding
securities of the Company or any successor of the Company; (ii) the termination
of service of directors, for any reason other than death, disability or
retirement from the Board of Directors, during any period of two consecutive
years or less, of individuals who at the beginning of such period constituted a
majority of the Board of Directors, unless the election of or nomination for
election of each new director during such period was approved by a vote of at
least two-thirds of the directors still in office who were directors at the
beginning of the period; (iii) approval by the stockholders of the Company of
any merger, consolidation, or statutory share exchange as a result of which the
Common Stock shall be changed, converted or exchanged (other than a merger,
consolidation or share exchange with a wholly-owned Subsidiary) or liquidation
of the Company or any sale or disposition of 80% or more of the assets or
earning power or the Company; or (iv) approval by the stockholders of the
Company of any merger, consolidation, or statutory share exchange to which the
Company is a party as a result of which the persons who were stockholders
immediately prior to the effective date of the merger, consolidation or share
exchange shall have beneficial ownership of less than 50% of the combined voting
power in the election of directors of the surviving corporation; provided,
however, that no change in control shall be deemed to have occurred if, prior to
such time as a change in control would otherwise be deemed to have occurred, the
Company's Board of Directors deems otherwise.
(b) 'Fair Market Value' of a share of Common Stock as of a specified date
shall mean the closing sale price of the Common Stock on the New York Stock
Exchange (or on such other body on which the Common Stock is then traded) on the
trading day immediately preceding the date as of which the Fair Market Value is
being determined.
(c) 'Family Group' shall mean the descendants (whether natural or adopted)
spouse, parents, siblings and their respective descendants (whether natural or
adopted) of the recipient of an Option and any trust solely for the benefit of
the recipient and/or such other persons and any partnership or limited liability
company, the partners or member of which include one or more individuals within
the Family Group.
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APPENDIX 2
FRONTIER INSURANCE GROUP, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. Purpose and Scope of Plan. The purpose of this employee stock purchase
plan (the 'Plan') is to provide the employees of Frontier Insurance Group, Inc
('Frontier') with an opportunity to acquire a proprietary interest in Frontier
through the purchase of its common stock and, thus, to develop a stronger
incentive to work for the continued success of Frontier. The Plan is intended to
be an 'employee stock purchase plan' within the meaning of Section 423(b) of the
Internal Revenue Code of 1986, as amended, and shall be interpreted and
administered in a manner consistent with such intent.
2. Definitions.
2.1 The terms defined in this section are used (and capitalized) elsewhere
in this Plan:
(a) 'Affiliate' means any corporation that is a 'parent corporation'
or 'subsidiary corporation' of Frontier, as defined in Sections 424(e) and
424(f) of the Code or any successor provision, and whose participation in
the Plan has been approved by the Board of Directors.
(b) 'Board of Directors' means the Board of Directors of Frontier.
(c) 'Code' means the Internal Revenue Code of 1986, as amended from
time to time.
(d) 'Committee' means two or more Frontier executive officers as
designated by the Board of Directors to administer the Plan under Section
13.
(e) 'Common Stock' means the common stock, par value $.01 per share
(as such par value may be adjusted from time to time), of Frontier.
(f) 'Company' means Frontier Insurance Group, Inc., a Delaware
corporation.
(g) 'Compensation' means the gross cash compensation (including wage,
salary, commission, bonus, and overtime earnings) paid by Frontier or any
Affiliate to a Participant in accordance with the terms of employment.
(h) 'Eligible Employee' means any employee of Frontier or an Affiliate
whose customary employment is at least 20 hours per week; provided,
however, that 'Eligible Employee' shall not include any person who would be
deemed, for purposes of Section 423(b)(3) of the Code, to own stock
possessing 5% or more of the total combined voting power or value of all
classes of stock of Frontier.
(i) 'Exchange Act' means the Securities Exchange Act of 1934, as
amended.
(j) 'Fair Market Value' of a share of Common Stock as of any date
means, the closing price for such Common Stock on the New York Stock
Exchange on the preceding trading day. If such determination of Fair Market
Value is not consistent with the then current regulations of the Secretary
of the Treasury applicable to plans intended to qualify as an 'employee
stock purchase plan' within the meaning of Section 423(b) of the Code,
however, Fair Market Value shall be determined in accordance with such
regulations. The determination of Fair Market Value shall be subject to
adjustment as provided in Section 14.
(k) 'Participant' means an Eligible Employee who has elected to
participate in the Plan in the manner set forth in Section 4.
(l) 'Plan' means this Frontier Employee Stock Purchase Plan, as
amended from time to time.
(m) 'Purchase Period' means each quarter of Frontier's fiscal year.
The first Purchase Period will be the quarter that starts January 1, 1999
and ends March 31, 1999.
(n) 'Recordkeeping Account' means the account maintained in the books
and records of Frontier recording the amount withheld from each Participant
through payroll deductions made under the Plan.
3. Scope of the Plan. Shares of Common Stock may be sold to Eligible
Employees pursuant to this Plan commencing January 1, 1999, as hereinafter
provided, but not more than 1,000,000 shares of Common Stock (subject to
adjustment as provided in Section 14) shall be sold to Eligible Employees
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pursuant to this Plan. All sales of Common Stock pursuant to this Plan shall be
subject to the same terms, conditions, rights and privileges. The shares of
Common Stock sold to Eligible Employees pursuant to this Plan may be shares
acquired by purchase on the open market or in privately negotiated transactions,
by direct issuance from Frontier (whether newly issued or treasury shares) or by
any combination thereof. Frontier, during the term of the Plan, shall at all
times reserve and keep available, such number of shares as shall be sufficient
to satisfy the requirements of the Plan.
4. Eligibility and Participation. To be eligible to participate in the Plan
for a given Purchase Period, an employee must be an Eligible Employee on the
cutoff date for such Purchase Period. The cutoff date is the 15th day of the
month immediately preceding the Purchase Period. An Eligible Employee may elect
to participate in the Plan by filing an enrollment form and payroll deduction
authorization form with the Frontier Human Resources department before the
prescribed cutoff date for each Purchase Period. Regular payroll deductions from
Compensation will begin with the first payday in such Purchase Period and
continue until the Eligible Employee withdraws from the Plan, modifies his or
her authorization, or ceases to be an Eligible Employee, as hereinafter
provided.
5. Amount of Common Stock Each Eligible Employee May Purchase.
5.1 Subject to the provisions of this Plan, each Eligible Employee shall be
offered the right to purchase on the last day of the Purchase Period the number
of shares of Common Stock (including fractional shares) that can be purchased at
the price specified in Section 5.2 with the entire credit balance in the
Participant's Recordkeeping Account; provided, however, that the Fair Market
Value (determined on the first day of any Purchase Period) of shares of Common
Stock that may be purchased by a Participant during any calendar year shall not
exceed $25,000 (therefore, with a 15% discount, the maximum cash contribution
can not exceed $21,250). If the purchases by all Participants would otherwise
cause the aggregate number of shares of Common Stock to be sold under the Plan
to exceed the number specified in Section 3, each Participant shall be allocated
a ratable portion of the maximum number of shares of Common Stock which may be
sold.
5.2 The purchase price of each share of Common Stock sold pursuant to this
Plan shall be the lesser of (a) or (b) below:
(a) 85% of the Fair Market Value of such share on the first day of the
Purchase Period.
(b) 85% of the Fair Market Value of such share on the last day of the
Purchase Period.
6. Method of Participation.
6.1 Frontier shall give notice to each Eligible Employee of the opportunity
to purchase shares of Common Stock pursuant to this Plan and the terms and
conditions for such offering. Such notice is subject to revision by Frontier at
any time prior to the date of purchase of such shares. Frontier contemplates
that for tax purposes the first day of a Purchase Period will be the date of the
offering of such shares.
6.2 Each Eligible Employee who desires to participate in the Plan for a
Purchase Period shall signify his or her election to do so by signing an
enrollment form. An Eligible Employee may elect to have any whole percent of
Compensation withheld per pay period. An election to participate in the Plan and
to authorize payroll deductions as described herein must be made prior to the
prescribed cutoff date for each Purchase Period to which it relates and shall
remain in effect unless and until such Participant withdraws from the Plan,
modifies his or her authorization, or ceases to be an Eligible Employee, as
hereinafter provided.
6.3 Any Eligible Employee who does not make a timely election as provided
in Section 6.2, shall be deemed to have elected not to participate in the Plan.
Such election shall be irrevocable for such Purchase Period.
6.4 Nothing herein contained shall affect an employee's right to
participate in and receive benefits under and in accordance with the then
current provisions of any pension, insurance, retirement savings/401(k) plan or
other employee welfare plan or program of Frontier.
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7. Recordkeeping Account.
7.1 Frontier shall maintain a Recordkeeping Account for each Participant.
Payroll deductions pursuant to Section 6 shall be credited to such Recordkeeping
Accounts on each payday.
7.2 No interest shall be credited to a Participant's Recordkeeping Account.
7.3 The Recordkeeping Account is established solely for accounting
purposes, and all amounts credited to the Recordkeeping Account shall remain
part of the general assets of Frontier.
7.4 A Participant may not make any separate cash payment into the
Recordkeeping Account.
8. Right to Adjust Participation or to Withdraw.
8.1 A Participant may, at any time during a Purchase Period, direct
Frontier to make no further deductions from his or her future Compensation,
subject to the limitation in Section 6.2. Upon any such action, future payroll
deductions with respect to such Participant shall cease in accordance with the
Participant's direction.
8.2 Any Participant who stops payroll deductions may not thereafter resume
payroll deductions during such Purchase Period.
8.3 At any time before the end of a Purchase Period, any Participant may
withdraw from the Plan. In such event, all future payroll deductions shall
cease. The Participant may direct that the entire credit balance in the
Participant's Recordkeeping Account be used to purchase stock at the end of the
Purchase Period or be paid to the Participant, without interest, in cash. A
Participant who withdraws from the Plan will not be eligible to reenter the Plan
until the next succeeding Purchase Period.
8.4 Notification of a Participant's election to increase, decrease, or
terminate deductions, or to withdraw from the Plan, shall be made by filing an
appropriate form with Frontier. Notification to increase or decrease deductions
received before the prescribed cutoff date for each Purchase Period will become
effective that Purchase Period.
9. Termination of Employment. A Participant's membership in the Plan will
be terminated when the Participant either voluntarily elects to withdraw his or
her entire account, or resigns or is discharged from Frontier or one of its
subsidiaries for twelve (12) consecutive months, unless this period is due to
illness, injury or for other reasons approved by the person or persons appointed
by Frontier to administer the Plan as provided in Paragraph 13 below. Upon
termination of membership, the terminated Participant shall not be entitled to
rejoin the Plan until the first day of the next Purchase Period. Upon
termination of membership, the Participant shall be entitled to receive the
amount of his or her individual account.
10. Purchase of Shares.
10.1 As of the last day of each Purchase Period, the entire credit balance
in each Participant's Recordkeeping Account shall be used to purchase shares
(including fractional shares) of Common Stock (subject to the limitations of
Section 5) unless the Participant has filed an appropriate form with Frontier in
advance of that date (which elects to receive the entire credit balance in
cash).
10.2 Shares of Common Stock acquired by each Participant shall be held in
an account maintained by American Stock Transfer & Trust Co. ('AST') a transfer
agent selected by Frontier as its service provider. AST shall maintain
individual accounts for each Participant to which shall be allocated such
Participant's shares of Common Stock (including fractional shares).
10.3 Prior to the last day of each Purchase Period, Frontier shall
determine whether some or all of the shares of Common Stock to be purchased as
of the last day of such Purchase Period will be purchased by AST for the
accounts of Participants on the open market or in privately negotiated
transactions. If some or all of such shares are to be so purchased by AST,
Frontier shall advise AST of the number of shares to be so purchased and shall
provide to AST such funds, in addition to the funds available from Participants'
Recordkeeping Accounts, as may be necessary to permit AST to so purchase such
number of shares (including all brokerage fees and expense).
10.4 Dividends with respect to a Participant's shares of Common Stock held
in the account maintained by AST shall automatically be reinvested in additional
shares of Common Stock. AST shall commingle all dividends paid on all
Participants' shares held in the account and shall purchase on the
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open market, or in privately negotiated transactions, as soon as reasonably
practicable after the receipt of the dividends, as many shares of Common Stock
as can be acquired with such commingled dividends and the purchase price of each
such Reinvestment Share shall be the average price paid by AST in purchasing all
Reinvestment Shares for all Participants with the proceeds of such dividend
payment. There shall be allocated to each Participant's individual account such
Participant's pro rata portion of the Reinvestment Shares purchased with the
commingled funds. Frontier shall pay all brokerage fees and expenses of AST in
connection with the reinvestment of dividends.
10.5 Each Participant shall be entitled to vote all shares held for the
benefit of such Participant in the account maintained by AST.
10.6 Certificates for the number of whole shares of Common Stock,
determined as aforesaid, purchased by each Participant shall be issued and
delivered to him or her, registered in the form directed by the Participant,
only upon the request of the Participant or his or her representative. Any such
request shall be made by filing an appropriate form with Frontier. No
certificates for fractional shares will be issued.. Upon closing of the account,
the Participant will receive a cash distribution representing the value of any
fractional shares.
11. Rights as a Stockholder. A Participant shall not be entitled to any of
the rights or privileges of a stockholder of Frontier with respect to shares of
Common Stock under the Plan, including the right to receive any dividends which
may be declared by Frontier, until (i) he or she actually has paid the purchase
price for such shares and (ii) either the shares have been credited to the
account maintained by AST for the Participant's benefit or certificates have
been issued to the Participant, both as provided in Section 10.
12. Rights Not Transferable. A Participant's rights under this Plan are
exercisable only by the Participant during his or her lifetime, and may not be
sold, pledged, assigned or transferred in any manner other than by will or the
laws of descent and distribution. Any attempt to sell, pledge, assign or
transfer the same shall be null and void and without effect. The amounts
credited to a Recordkeeping Account may not be assigned, transferred, pledged or
hypothecated in any way, and any attempted assignment, transfer, pledge,
hypothecation or other disposition of such amounts will be null and void and
without effect.
13. Administration of the Plan. This Plan shall be administered by the
Committee, which is authorized to make such uniform rules as may be necessary to
carry out its provisions. The Committee shall determine any questions arising in
the administration, interpretation and application of this Plan, and all such
determinations shall be conclusive and binding on all parties. All costs and
expenses incurred in administering the Plan shall be paid by Frontier. Any taxes
applicable to the Participant's account shall be charged or credited to the
Participant's account by Frontier.
14. Adjustment upon Changes in Capitalization. In the event of any change
in the Common Stock by reason of stock dividends, split-ups, corporate
separations, recapitalizations, mergers, consolidations, combinations, exchanges
of shares and the like, the aggregate number and class of shares available under
this Plan and the number, class and purchase price of shares available but not
yet purchased under this Plan, shall be adjusted appropriately by the Committee.
15. Registration of Certificates. Stock certificates to be issued and
delivered upon the request of the Participant or his or her representative, as
provided in Section 10.6, shall be, registered in the name of the Participant,
or jointly, as joint tenants with the right of survivorship, in the name of the
Participant and another person, as the Participant or his or her representative
may direct on an appropriate form filed with Frontier.
16. Amendment of Plan. Frontier expects to continue the Plan until such
time as the shares reserved for issuance under the Plan have been sold. Frontier
reserves, however, the right at any time to amend this Plan in any respect which
shall not adversely affect the rights of Participants pursuant to shares
previously acquired under the Plan, except that, without stockholder approval on
the same basis as required by Section 19.1, no amendment shall be made (i) to
increase the number of shares to be reserved under this Plan, (ii) decrease the
minimum purchase price, (iii) to withdraw the administration of this Plan from
the Committee, or (iv) to change the definition of employees eligible to
participate in the Plan.
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17. Effective Date of Plan. This Plan shall consist of an offering
commencing January 1, 1999, and continuing on a quarterly basis thereafter. All
rights of Participants in any offering hereunder shall terminate at the earlier
of (i) the day that Participants become entitled to purchase a number of shares
of Common Stock equal to or greater than the number of shares remaining
available for purchase or (ii) at any time, at the discretion of the Board of
Directors, after 30 days' notice has been given to all Participants. Upon
termination of this Plan, shares of Common Stock shall be purchased for
Participants in accordance with Section 10.1, and cash, if any, remaining in the
Participants' Recordkeeping Accounts shall be refunded to them, as if the Plan
were terminated at the end of a Purchase Period.
18. Governmental Regulations and Listing. All rights granted or to be
granted to Eligible Employees under this Plan are expressly subject to all
applicable laws and regulations and to the approval of all governmental
authorities required in connection with the authorization, issuance, sale or
transfer of the shares of Common Stock reserved for this Plan, including,
without limitation, there being a current registration statement of Frontier
under the Securities Act of 1933, as amended, covering the shares of Common
Stock purchasable on the last day of the Purchase Period applicable to such
shares, and if such a registration statement shall not then be effective, the
term of such Purchase Period shall be extended until the first business day
after the effective date of such a registration statement, or post-effective
amendment thereto. All such rights hereunder are also similarly subject to
effectiveness of an appropriate listing application to the New York Stock
Exchange, covering the shares of Common Stock under the Plan upon official
notice of issuance.
19. Miscellaneous.
19.1 This Plan shall be submitted for approval by the stockholders of
Frontier prior to December 1, 1999. If not so approved prior to such date, this
Plan shall terminate on November 30, 1999.
19.2 This Plan shall not be deemed to constitute a contract of employment
between Frontier and any Participant, nor shall it interfere with the right of
Frontier to terminate any Participant and treat him or her without regard to the
effect which such treatment might have upon him or her under this Plan.
19.3 Wherever appropriate as used herein, the masculine gender may be read
as the feminine gender, the feminine gender may be read as the masculine gender,
the singular may be read as the plural and the plural may be read as the
singular.
19.4 The Plan, and all agreements hereunder, shall be construed in
accordance with and governed by the laws of the State of Delaware.
19.5 Delivery of shares of Common Stock or of cash pursuant to the Plan
shall be subject to any required withholding taxes. A person entitled to receive
shares of Common Stock may, as a condition precedent to receiving such shares,
be required to pay Frontier a cash amount equal to the amount of any required
withholdings.
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APPENDIX 3
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 Mark Mishler 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 June 28, 1999, 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]
Please date, sign and mail your
proxy card back as soon as possible!
Annual Meeting of Stockholders
FRONTIER INSURANCE GROUP, INC.
June 28, 1999
Please Detach and Mail in the Envelope Provided
Please mark your
votes as in this
example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ALL MATTERS LISTED BELOW TO COME
BEFORE THE ANNUAL MEETING:
1. To amend the Restated Certificate of Incorporation
of the Company to classify the Board of Directors.
For Against Abstain
[ ] [ ] [ ]
FOR the nominees
listed at right (except as WITHHOLD
marked to the AUTHORITY
contrary below) seven to vote for all seven (7)
(7) nominees listed at right nomines listed at right
2. To elect a
Board of [ ] [ ]
seven(7)
directors.
To WITHHOLD AUTHORITY to vote for any individual
nominee(s), print such nominee's name below:
NOMINEES: Harry W. Rhulen
Peter L. Rhulen
Suzanne Rhulen Loughlin
Lawrence E. O'Brien
Douglas C. Moat
Alan Gerry
Paul B. Guenther
3. To approve the 1999 Employee Stock Purchase Plan.
For Against Abstain
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4. To approve the 1999 Stock Option Plan.
For Against Abstain
5. To ratify by the grant of a stock option to Patrick W. Kenny.
For Against Abstain
6. To ratify the reappointment of Ernst & Young LLP as independent
auditors of the Company for the year ending December 31, 1999.
For Against Abstain
7. To transact such other business as may properly come before the
meeting or any adjournment thereof.
Signature____________________________________________DATE_________________,1999
Signature if held jointly____________________________DATE_________________,1999
NOTE: Executors, Administrators, Trustees, etc. should give full title.
For multiple accounts only, mark here to discontinue extra annual report. [ ]
