<PAGE>
________________________________________________________________________________
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
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 'SS'240.14a-11(c) or 'SS'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:
........................................................................
(2) Aggregate number of securities to which transaction applies:
........................................................................
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined):
........................................................................
(4) Proposed maximum aggregate value of transaction:
........................................................................
(5) Total fee paid:
........................................................................
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
.......................................................................
(2) Form, Schedule or Registration Statement No.:
.......................................................................
(3) Filing Party:
.......................................................................
(4) Date Filed:
.......................................................................
Notes:
________________________________________________________________________________
<PAGE>
[FRONTIER LOGO]
195 LAKE LOUISE MARIE ROAD
ROCK HILL, NEW YORK 12775-8000
(914) 796-2100
May 4, 2000
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
Frontier Insurance Group, Inc. (the 'Company') to be held at the Company's
corporate headquarters, 195 Lake Louise Marie Road, Rock Hill, New York 12775-
8000 (located on Lake Louise Marie Road, which runs parallel to New York State
Route 17, between Exits 109 and 110 of Route 17), on Wednesday, June 14, 2000,
at 9:00 a.m., local time.
At the Annual Meeting, you will be asked to consider and vote upon the
following:
To elect a Board of seven directors.
To transact such other business as may properly come before the Annual
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,
Jerry E. Goldress
Chairman of the Board
Harry W. Rhulen
President and Chief Executive Officer
<PAGE>
[FRONTIER 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 14, 2000
To the Stockholders of
FRONTIER INSURANCE GROUP, INC.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Frontier
Insurance Group, Inc. (the 'Company') will be held at the Company's corporate
headquarters, 195 Lake Louise Marie Road, Rock Hill, New York 12775-8000
(located on Lake Louise Marie Road, which runs parallel to New York State
Route 17, between Exits 109 and 110 of Route 17), on Wednesday, June 14, 2000,
at 9:00 a.m., local time, to consider and act upon the following proposals:
To elect a Board of seven directors.
To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof.
Only holders of record of the Company's Common Stock at the close of
business on April 26, 2000, 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, 1999 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 4, 2000
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>
[FRONTIER 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 14, 2000
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 Wednesday, June 14, 2000 at the Company's corporate headquarters, 195
Lake Louise Marie Road, Rock Hill, New York 12775-8000 (located on Lake Louise
Marie Road, which runs parallel to New York State Route 17, between Exits 109
and 110 of Route 17) at 9:00 a.m., local time, and at any and all adjournments
or postponements thereof (the 'Annual Meeting'). The cost of this solicitation
will be borne by the Company.
This Proxy Statement and accompanying proxy card are being mailed to
stockholders on or about May 5, 2000.
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:
To elect seven directors to serve until the next annual meeting of
stockholders,
To transact such other business as may properly come before the Annual
Meeting or any adjournment thereof,
all as more fully described in this Proxy Statement.
<PAGE>
VOTING AT THE ANNUAL MEETING
Only holders of record of Common Stock at the close of business on April 26,
2000 (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
33,718,755 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 (16,859,378 shares of the 33,718,755 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.
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.
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 will be voted at the discretion of the proxies
on any other matters that may properly come before the Annual Meeting.
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
<PAGE>
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership of the Common Stock
on the Record Date by (i) each person known by the Company to own beneficially
five percent or more of such shares, (ii) each director and nominee for election
as a director, (iii) each person named in the Summary Compensation Table under
'Executive Compensation' of this Proxy Statement, and (iv) all directors and
executive officers as a group, together with their respective percentage
ownership of the outstanding shares:
AMOUNT AND NATURE OF BENEFICIAL OWNERSHIP
<TABLE>
<CAPTION>
CURRENTLY ACQUIRABLE PERCENT OF
NAME AND ADDRESS OWNED WITHIN 60 DAYS(1) OUTSTANDING
---------------- ----- ---------------- -----------
<S> <C> <C> <C>
Harry W. Rhulen................................... 210,658(2) 1,012,590 3.6%
Peter L. Rhulen(3)................................ 1,305,173(4) 6,250 3.9
Lawrence E. O'Brien............................... 74,662 12,300 *
Douglas C. Moat................................... 42,954 21,961 *
Suzanne R. Loughlin............................... 268,760(5) 271,778 1.6
Jerry E. Goldress................................. -- -- *
Ronald L. Bornheutter............................. 20,000 -- *
James W. Satterfield.............................. 20,437 277,554 *
Richard F. Seyffarth.............................. 14,316 269,225 *
Theodore J. Rupley................................ -- -- *
Joan R. Farrow ................................... 1,809,249(6) -- 5.4
34 Benton Avenue
Monticello, NY 12701
HAES Investment Limited Partnership .............. 2,010,401(7) -- 6.0
c/o Judith Rhulen
471 Starlight Road
Monticello, NY 12701
West Highland Capital, Inc. ...................... 2,000,000(8) -- 5.9
300 Drake's Landing Rd.,
Suite 290
Greenbrae, CA 94904
Dimensional Fund Advisors, Inc. .................. 2,010,457(9) -- 6.0
1299 Ocean Avenue 11th floor
Santa Monica, CA 90401
All directors and executive officers
as a group (13 persons)......................... 2,703,522 2,162,941 14.4
</TABLE>
- ---------
* Less than 1%
(1) Reflects number of shares acquirable upon exercise of options.
(2) Includes 10,042 shares owned by the children of Mr. Harry W. Rhulen, 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.
(3) Address is 195 Lake Louise Marie Road, Rock Hill, NY 12775-8000.
(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 20,365 shares owned by Ms. Loughlin's husband, as to which Ms.
Loughlin disclaims beneficial ownership.
(6) Information supplied by American Stock Transfer & Title Company, transfer
agent of the Company's Common Stock.
(footnotes continued on next page)
3
<PAGE>
(footnotes continued from previous page)
(7) A limited partnership in which Judith Rhulen is a general partner and the
limited partners are her children, Harry W. Rhulen, Anthony Rhulen, Erik
Rhulen and Suzanne R. Loughlin.
(8) Information is from Schedule 13G, dated December 31, 1999, filed by West
Highland Capital, Inc., which reflects shared dispositive power with
respect to 2,000,000 shares.
(9) Information is from Schedule 13G, dated February 3, 2000, filed by
Dimensional Fund Advisors, Inc., which reflects shared dispositive power
with respect to 2,010,457 shares as of December 31, 1999.
PROPOSAL 1 -- ELECTION OF DIRECTORS
Messrs. Jerry E. Goldress, Harry W. Rhulen, Peter L. Rhulen, Lawrence E.
O'Brien, Douglas C. Moat and Ronald L. Bornheutter, and Ms. Suzanne Rhulen
Loughlin, all of whom are currently directors, constitute the seven nominees for
election as directors at the Annual Meeting.
The seven nominees will be elected as directors to serve until the annual
meeting of stockholders to be held in 2001, 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>
Jerry E. Goldress(1)(2)............ 69 2000 Director and Chairman of the Board
(non-executive)
Harry W. Rhulen.................... 36 1997 President, Chief Executive Officer
and Director
Suzanne Rhulen Loughlin............ 38 1998 Executive Vice President -- Chief
Administrative Officer and
Director
Douglas C. Moat.................... 68 1991 Executive Vice President --
Mergers and Acquisitions and
Director
Peter L. Rhulen(1)................. 61 1986 Director
Lawrence E. O'Brien(1)(2).......... 59 1990 Director
Ronald L. Bornhuetter(1)(2)........ 67 2000 Director
</TABLE>
- ---------
(1) Member of Audit Committee
(2) Member of Compensation Committee
Jerry E. Goldress was elected a director of the Company and Chairman of the
Board (non-executive) in February 2000. Mr. Goldress is chairman of the board
and chief executive officer of Grisanti, Galef and Goldress, Inc. (GGG), a
company specializing in corporate turnarounds. Prior to joining GGG, Mr.
Goldress held senior management positions with Raytheon, General Electric and
General Motors.
4
<PAGE>
Harry W. Rhulen has been 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. Rhulen resigned as Chairman of the Board
in February 2000. Mr. 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 a director of the Company 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 has over 45 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.
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.
Ronald L. Bornhuetter was elected a director in April 2000. Since 1987, Mr.
Burnhuetter had been Chairman of the Board of NAC Re Corporation, where he was
also Chief Executive Officer until 1998. He retired from NAC Re Corporation in
July 1999, at which time the corporation merged with XL Capital Ltd., where he
is currently a Director and member of the finance Committee. Prior to joining
NAC Re, Mr. Burnhuetter was Chief Financial Officer of General Re Corporation.
Mr. Bornhuetter is a Fellow of the Casualty Actuarial Society, a member of the
American Academy of Actuaries and the International Actuarial Association. A
former President of both the Casualty Actuarial Society and the American Academy
of Actuaries, Mr. Bornhuetter is co-author of the 'Borhuetter/Ferguson' loss
reserve approach.
Mr. Harry Rhulen and Ms. Suzanne Rhulen Loughlin are brother and sister and
Mr. Peter Rhulen is their uncle.
MEETINGS AND COMMITTEES
There were 9 meetings of the Board of Directors during 1999 and 7 occasions
on which the Board took action by unanimous written consent. All of the nominees
who were directors in 1999 attended in excess of 75% of all 1999 Board meetings
and committee meetings of which they were members.
The Audit Committee meets with the Company's independent auditors to review
the scope of their annual audit and the terms of their engagement, the adequacy
of the Company's system of internal controls, the sufficiency of its financial
reporting, the effect on the Company's financial statements of any proposed
changes in generally accepted accounting principles, disagreements, if any,
between the Company's independent auditors and management, and matters of
concern to the independent auditors resulting from the audit. During 1999, the
Audit Committee held 5 meetings.
5
<PAGE>
The Compensation Committee establishes a general compensation program for
all officers. See 'Report of Compensation Committee'. During 1999, the
Compensation Committee held 4 meetings.
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, each non-employee director is
granted options to purchase 25,000 shares of Common Stock at fair market value,
vesting quarterly over a three year period.
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) Jacob Billig, two reports on Form 4 listing an aggregate of
two transactions; (ii) Thomas Dietz, one report on Form 4 listing an aggregate
of three transactions; (iii) Joanne Jenkins, one report on Form 4 listing one
transaction; (iv) George Marone, one report on Form 4 listing an aggregate of
fourteen transactions; (v) Douglas Moat, two reports on Form 4 listing an
aggregate of six transactions; (vi) Jeffrey Gordon, one report on Form 4 listing
an aggregate of seven transactions; and (vii) Mark Sioma, one report on Form 3
listing one transaction and one report on Form 4 listing an aggregate of two
transactions.
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.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE SEVEN (7)
NOMINEES FOR DIRECTORS.
INDEPENDENT AUDITORS
In April 2000, upon advice of the Audit Committee, the Board of Directors
decided to begin interviewing prospective independent auditors to audit the
Company's 2000 consolidated financial statements. Subsequently, on May 1, 2000,
Ernst & Young LLP ('E&Y'), who had acted as the Company's independent auditors
since the Company's public offering in 1986, advised the Company that they would
not stand for reelection. Previous audit reports issued by E&Y on the Company's
consolidated financial statements were unqualified, except for an explanatory
paragraph for the year ended December 31, 1999 relating to the Company's ability
to continue as a going concern.
In connection with the 1999 audit, the Company and E&Y had disagreements
regarding (i) the amount of the increase in reserves for losses and loss
adjustment expenses at September 30, 1999 and (ii) the appropriate level of
reserves to be recorded for certain performance and payment bonds at December
31, 1999. Related to the disagreement over the third quarter reserves, E&Y
advised management that the Company's actuarial analysis did not include
appropriate documentation and/or analysis to support the Company's conclusions
as to the appropriate level of reserves at September 30, 1999. Each of these
issues was resolved to the satisfaction of E&Y. The Audit Committee discussed
these matters with E&Y and has authorized them to respond fully to inquiries of
any successor auditors. It is anticipated that representatives of E&Y will be
present at the Annual Meeting.
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.
6
<PAGE>
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.
THE COMPENSATION COMMITTEE
Lawrence E. O'Brien
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 during 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION ALL OTHER
SALARY BONUS AWARDS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) OPTION (#) ($)(1)
- ------------------------------ ---- -------- -------- --------- -------
<S> <C> <C> <C> <C> <C>
Harry W. Rhulen .............. 1999 $533,000 $ 60,000 34,807(2) $17,000
President and Chief 1998 459,000 150,000 1,025,356(3)(4) 34,100
Executive Officer 1997 188,000 150,000 15,400(5) 17,500
Douglas C. Moat .............. 1999 303,000 40,000 20,922(2) 8,000
Executive Vice President 1998 250,000 100,000 30,644(3)(6) 5,000
1997 -- -- -- --
James W. Satterfield ......... 1999 332,000 40,000 279,999(2)(7) 13,000
Executive Vice President 1998 284,000 100,000 21,216(3) 21,400
1997 257,000 75,000 5,500(5) 19,500
Richard F. Seyffarth ......... 1999 282,000 40,000 274,067(2)(7) 12,300
Executive Vice President 1998 193,000 100,000 14,300(3) 14,400
1997 143,000 40,000 4,400(5) 9,500
Theodore J. Rupley ........... 1999 271,000 100,000 1,711(2) 12,100
Executive Vice President 1998 -- -- -- --
1997 -- -- -- --
</TABLE>
- ---------
(1) Represents the allocable amount accrued for contribution by the Company to
its profit sharing plan (1998 and 1997 only) and the allocable amount of the
Company's contribution to its 401(k) plan.
(2) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing December 31, 2000 (with respect to 21,499 and 15,567
shares, respectively, for Messrs. Satterfield, and Seyffarth).
(3) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing December 31, 1999, (with respect to 35,356 and 19,644
shares, respectively, for Messrs. Rhulen and Moat).
(4) 990,000 shares exercisable at prices ranging from $30.00 to $50.00 through
December 31, 2004.
(5) Exercisable cumulatively at the rate of 25% of the underlying shares per
year, commencing May 22, 1998.
(6) 11,000 shares exercisable through December 31, 2000.
(7) 258,500 shares exercisable at prices ranging from $14.12 to $35.31 through
December 31, 2005.
7
<PAGE>
The following table sets forth certain information concerning options
granted during 1999 to the individuals named in the Summary Compensation Table:
OPTION GRANTS IN 1999
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE OF ASSUMED
NUMBER OF % OF TOTAL ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS ALL PRICE EXPIRATION ------------------------
NAME GRANTED (#) EMPLOYEES ($/SHARE) DATE 5% ($) 10% ($)
---- ----------- --------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Harry W. Rhulen........... 34,807 .85% 3.44 12/31/04 $33,057 $73,047
Douglas C. Moat........... 20,922 .51 3.44 12/31/04 19,870 43,907
James W. Satterfield...... 258,500 6.29 14.12 - 35.31 12/31/05 -- --
21,499 .52 3.44 12/31/04 20,418 45,118
Richard F. Seyffarth...... 258,500 6.29 14.12 - 35.31 12/31/05 -- --
15,567 .38 3.44 12/31/04 14,784 32,669
Theodore J. Rupley........ 1,711 .04 3.44 12/31/04 1,625 3,591
</TABLE>
The following table presents the value of unexercised options held at
December 31, 1999 by the individuals named in the Summary Compensation Table:
OPTIONS VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS AT
OPTIONS AT YEAR-END (#) YEAR-END ($)(1)
EXERCISABLE(E)/ EXERCISABLE(E)/
NAME UNEXERCISABLE(U) UNEXERCISABLE(U)
---- ---------------- ----------------
<S> <C> <C>
Harry W. Rhulen.......................... 1,012,590(E)(2) --
69,023(U) --
Douglas C. Moat.......................... 21,961(E) --
35,655(U) --
James W. Satterfield..................... 277,554(E) --
40,161(U) --
Richard F. Seyffarth..................... 269,225(E) --
30,142(U) --
Theodore J. Rupley....................... --(E) --
1,711(U) --
</TABLE>
- ---------
(1) Values are calculated by subtracting the exercise price of the underlying
shares from the fair market value of the shares at year end. On such basis,
no options were in-the-money and all options had no value.
(2) 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 AND CONSULTING AGREEMENTS
Harry W Rhulen. Mr. Rhulen is employed as the Company's President and Chief
Executive Officer under an agreement with the Company as, amended, which
provides for an annual base compensation of $525,000 and expires December 31,
2000.
Jerry Goldress. Mr. Goldress' services to the Company are provided pursuant
to a consulting agreement between the Company and a firm of which Mr. Goldress
is Chairman of the Board and a principal shareholder. The consulting agreement
provides for Mr. Goldress, personally and exclusively, to perform all consulting
services required by the Company and to devote approximately 60 hours per month
to the performance of such services. The agreement provides for compensation to
Mr. Goldress' firm of $30,000 per month, reimbursement of expenses incurred by
Mr. Goldress on the Company's behalf and for an option to Mr. Goldress,
personally, to purchase shares of Common Stock. The consulting agreement
terminates February 21, 2002, unless a majority of the outside members of the
Board, excluding Mr. Goldress, at any time subsequent to January 21, 2001 decide
to terminate the agreement on 30 days prior written notice. On May 1, 2000,
pursuant to the agreement, the Company granted Mr. Goldress an option to
purchase 300,000 shares of Common Stock at $1.00 per share, the closing price of
the Common Stock on the New York Stock Exchange on such date.
8
<PAGE>
SEVERANCE AGREEMENTS
The Company has entered into severance agreements, which (except for the
agreement for the chief executive which differs in the respects hereinafter
described) are identical in content, with 15 members of its executive
management. These agreements are intended to provide stability in key management
of the Company in the event of a change in control of the Company. The
agreements provide for certain payments if, during the two-year period following
a change in control of the Company, the officer's employment is terminated
voluntarily by the Company (except for cause as defined in the agreement, in
which case no benefits are payable) or by the executive for significant and
detrimental change in the executive's employment. The termination payment, if
required, is an amount equal to two times (three times in the case of the chief
executive, payable to him upon the change in control without respect to whether
or not such chief executive is thereafter terminated) the sum of (a) the highest
salary earned by the executive during the year (annualized) or either of the two
prior calendar years and (b) the largest bonus received by the executive during
the year or either of the two prior calendar years. Outplacement services would
also be provided. In addition, the executive is entitled to continued medical,
dental and group life insurance benefits for two years at the same cost basis as
prior to termination. If all or part of the total payments would be subject to
an excise tax imposed by Section 4999 of the Internal Revenue Code, the
agreement further provides for an additional gross up payment equal to the
excise tax imposed on the total payments. 'Change In Control' is defined as any
of the following: (i) the acquisition at any time by a 'person' or 'group' (as
such terms are used in 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 approves the same. Each of the Agreements continues for a
period equal to the lesser of: (x) three years from the date of its execution or
(y) 24 months from the date of the Change In Control. Upon a Change In Control,
all unexercised employee stock options to purchase common stock of the Company
theretofore granted to the executive shall vest immediately.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Metro Partners, Inc.
During 1998, the Company purchased 180 shares of Metro Partners, Inc.
('Metro Partners') for $600,000 representing a 30% interest in Metro Partners.
Metro Partners was organized in 1998 and 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, organized Metro
Partners and were 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.
9
<PAGE>
In April 1999, the Company purchased an additional 180 shares of Metro
Partners, representing a 30% interest, from Mr. Rhulen for $210,000.
Accordingly, the Company's ownership interest in Metro Partners at December 31,
1999 was 60%. The Company also loaned Metro Partners an additional $1.4 million
during 1999 with interest rates ranging from 8.75% to 9.25%, bringing the total
loans outstanding to Metro Partners at December 31, 1999 to $2.4 million,
including accrued interest. The Company also has an outstanding letter of credit
of $250,000 issued to Metro Partners' landlord as collateral for its real
estate. In addition to its Common Stock ownership, at December 31, 1999 the
Company owned $500,000 of Metro Partners' preferred stock.
For the period in 1999 prior to the acquisition of its 60% controlling
interest, the Company recorded a net investment loss of approximately $180,000.
Subsequent to the acquisition of its controlling interest, the accounts and
operations of Metro Partners, after elimination of intercompany accounts and
transactions, have been consolidated with the Company. The Company's share of
Metro Partners' net loss from operations for 1999 since the acquisition of its
controlling interest was approximately $795,000. In addition, during 1999 the
Company wrote-off approximately $1.3 million in goodwill relating to its
investment in Metro Partners.
During the first quarter of 2000, the Company purchased Emmes Holdings, a
holding company which owns 30% of Metro Partners, for approximately $97,000,
thereby increasing the Company's ownership in Metro to 90%; Metro's president
owns the 10% balance. Mr. Moat held a 27.5% interest in Emmes, which he
contributed to Frontier.
Director and Officer Loans and Guarantees
In June 1998, the Company guaranteed a loan of $1.25 million for Thomas J.
Dietz ('Dietz'), an officer of the Company, which guaranty was secured by a
pledge by the Company of United States Treasury Notes (the 'Notes'). During
1999, the Company increased its guaranty and pledged collateral to $2 million,
the amount of the guaranty outstanding at December 31, 1999. Under a Security
and Indemnity Agreement (the 'Agreement') between the Company and Dietz executed
in December 1999, Dietz granted the Company a security interest in his unpledged
personal assets as security for the Company's guaranty. At December 31, 1999,
the Company established an allowance of $750,000 for its exposure under the
guaranty.
In February 2000, after a principal repayment of $250,000 by Dietz to the
lender, the Company's guaranty was reduced to $1.75 million. In March 2000, in
exchange for extinguishing its guaranty, the Company transferred $1.8 million of
the Notes pledged as collateral to a Dietz account maintained by the lender,
free and clear of any interest by the Company, and Dietz transferred 97,338
shares of the Company's Common Stock, having a market value of $200,000, to the
Company. In connection with these transfers, Dietz executed an amendment to the
Agreement agreeing to pay an additional $250,000 in principal to the lender
during 2000 and each year thereafter until the loan is repaid. As such payments
are made, the Notes will be returned to the Company.
In August 1998, the Company guaranteed a loan of $1 million and, in December
1998, guaranteed an additional $800,000 loan for Peter L. Rhulen ('PRhulen'), a
director of the Company, which guarantees were secured by a pledge by the
Company of United States Treasury Notes (the 'Treasuries'). During 1999, and
prior to November 1999, the Company increased its loan guarantees for PRhulen to
$12.5 million. In November 1999, in exchange for extinguishing one of its
guarantees, the Company transferred $4.5 million of the pledged Treasuries to a
PRhulen account maintained by the lender, free and clear of any interest by the
Company, and PRhulen transferred 930,212 shares of Common Stock, having a market
value approximating the value of the transferred Treasuries, to the Company.
Under a Security and Indemnity Agreement between the Company, PRhulen and his
wife, the Company was granted a security interest in their unpledged personal
assets as security for the Company's guarantees. After these transactions,
approximately $8.6 million of guarantees of PRhulen loans were outstanding at
December 31, 1999.
10
<PAGE>
During the first quarter of 2000, the Company purchased certain investments
from PRhulen for approximately $7.6 million, representing approximately 95% of
the estimated fair value of the investments, and PRhulen repaid approximately
$8.2 million of the loans guaranteed by the Company. At March 31, 2000, the
Company's guaranty of PRhulen loans was reduced to $400,000.
Film Bond International
During 1998, the Company loaned an aggregate of $150,000 at a 6.5% interest
rate to Film Bond International ('FBI'), an insurance agency created to provide
specialty insurance products to the motion picture industry utilizing Frontier
as its exclusive underwriting facility. Anthony Rhulen, the brother of Harry
Rhulen and Suzanne Rhulen Loughlin, subsequently joined FBI as a principal and
chief executive officer. During 1999, the Company loaned FBI an additional
$455,000 at a 6.5% interest rate and guaranteed a $150,000 loan to FBI. As a
result of the loss of Frontier's A- rating from A.M. Best, FBI ceased
operations, requiring the Company to write-off its loan and the accrued interest
thereon and to fulfill the commitment under its guaranty, resulting in a charge
of approximately $800,000 at December 31, 1999.
Officer Loan Program
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 loans funds to the executive for such purchase, the amount depending
on the executive's level of responsibility at the Company. Borrowings under the
credit facility are guaranteed by the Company and the shares purchased are
pledged with the financial institution as collateral for the loan to the
executive, who is responsible for its repayment and payment of the related
interest. As part of the program, the Company grants the executives options 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. At December 31, 1999, 222,321 options were granted to
participating executives as of that date with an exercise price of $3.44. At
December 31, 1999, the total amount borrowed by executives and guaranteed by the
Company was approximately $4,418,000, which exceeded the fair market value of
the 335,653 shares of Common Stock pledged as collateral by $3,277,000. Also, at
December 31, 1999, amounts due from executive officers for interest paid on
their behalf with respect to the outstanding loans was approximately $117,000;
each such executive officer subsequently paid his or her respective interest.
The Company's executive officers are participating in the program and on
December 31, 1999, loans outstanding to them and guaranteed by the Company were,
as follows: Mr. Harry W. Rhulen, $450,000; Ms. Suzanne Rhulen Loughlin,
$200,000; Mr. Patrick W. Kenny, $300,000; Mr. James W. Satterfield, $270,000;
Mr. Joseph P. Loughlin, $175,000; Mr. Richard F. Seyffarth, $182,000;
Mr. Douglas C. Moat, $250,000; and Mr. Mark H. Mishler, $200,000.
11
<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,
1999, 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 1999
------- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Frontier Insurance Group, Inc....... 100.00 148.91 198.65 240.05 151.14 41.11
Peer Group Index.................... 100.00 145.09 165.86 233.86 269.82 258.91
S&P 500 Index....................... 100.00 137.58 169.17 225.61 290.09 351.13
</TABLE>
ASSUMES $100 INVESTED ON JAN. 1, 1994
ASSUMES DIVIDEND REINVESTED FISCAL YEAR ENDING DEC. 31, 1999
STOCKHOLDER PROPOSALS FOR THE
2001 ANNUAL MEETING OF STOCKHOLDERS
Any stockholder proposal to be considered for inclusion in the Company's
proxy soliciting material for the 2001 Annual Meeting of Stockholders must be
received by the Company at its principal office by December 31, 2000.
Dated: May 4, 2000
12
<PAGE>
APPENDIX 1
[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 14, 2000, 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 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 elect seven directors to serve until the next annual meeting of
stockholders.
For Against Abstain
2. To transact such other business as may properly come before the meeting
or any adjournment thereof.
This proxy, which is solicited on behalf of the Board of Directors, will be
voted FOR the matters described in paragraphs 1 unless the stockholder specifies
otherwise, in which case it will be voted as specified.
SIGNATURE(S): DATE 2000
-------------------------------------------- ---------------
Note: Executors, Administrators, Trustees, etc.
Should give full title.
STATEMENT OF DIFFERENCES
------------------------
The section symbol shall be expressed as............................... 'SS'
