<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 Rule 14a-11(c) or Rule 14a-12
</TABLE>
ARGONAUT GROUP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
[ARGONAUT LOGO]
1800 AVENUE OF THE STARS
SUITE 1175
LOS ANGELES, CALIFORNIA 90067
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 21, 1998
The Annual Meeting of Shareholders of Argonaut Group, Inc. will be held on
Tuesday, April 21, 1998, at 11:00 a.m. at Argonaut Insurance Company, 250
Middlefield Road, Menlo Park, California 94025.
The Meeting is called for the following purposes:
1. To elect Directors;
2. To consider and act upon such other business as may properly come before
the meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on February 20,
1998, as the record date for determining those shareholders who will be entitled
to vote at the meeting. A list of such shareholders will be open to examination
by any shareholder at the meeting and for a period of ten days prior to the date
of the meeting during ordinary business hours at the Argonaut Group, Inc.
Corporate Offices, 1800 Avenue of the Stars, Suite 1175, Los Angeles, California
90067.
The vote of each shareholder is important. I urge you to sign, date, and
return the enclosed proxy card as promptly as possible. In this way, you can be
sure your shares will be voted at the meeting.
By Order of the Board of Directors
James B Halliday
Secretary
March 16, 1998
REGARDLESS OF WHETHER YOU PLAN TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED
TO SIGN, DATE, AND RETURN THE ENCLOSED PROXY SO THAT YOUR SHARES WILL BE
REPRESENTED.
<PAGE> 3
[ARGONAUT LOGO]
CORPORATE OFFICES:
1800 AVENUE OF THE STARS
SUITE 1175
LOS ANGELES, CALIFORNIA 90067
------------------------
PROXY STATEMENT
This statement is furnished in connection with the solicitation by Argonaut
Group, Inc. ("Argonaut Group" or the "Company") of the enclosed proxy to vote
shares of the Company's Common Stock at the Annual Meeting of Shareholders to be
held on Tuesday, April 21, 1998, at 11:00 a.m. at Argonaut Insurance Company,
250 Middlefield Road, Menlo Park, California 94025, and at any postponements or
adjournments thereof.
Shares represented by duly executed proxies in the accompanying form
received before the meeting will be voted at the meeting. Any shareholder giving
a proxy has the power to revoke it at any time before it is voted by filing with
the Secretary of the Company either an instrument revoking the proxy or a duly
executed proxy bearing a later date. Proxies may also be revoked by any
shareholder present at the meeting who expresses a desire to vote in person. If
a shareholder specifies a choice on any matter to be acted upon by means of the
ballot provided in the accompanying proxy, the shares will be voted accordingly.
If no specification is made, the shares represented by the proxy will be voted
in favor of election of the nominees specified herein.
The principal solicitation of proxies is being made by mail; however,
additional solicitation may be made by directors, officers, and regular
employees of the Company and its subsidiaries. The Company has retained the
services of W. F. Doring & Co. to aid in the solicitation of proxies. Fees and
expenses to be incurred by the Company in this connection are estimated not to
exceed $10,000. The total expense of this solicitation will be borne by the
Company and will include reimbursement paid to brokerage firms and others for
their expenses in forwarding soliciting material. This proxy statement and the
accompanying form of proxy are being mailed to shareholders on or about March
16, 1998.
1
<PAGE> 4
VOTING SECURITIES
SECURITIES OUTSTANDING
February 20, 1998 has been fixed as the record date for the determination
of shareholders entitled to notice of and to vote at the meeting or any
adjournments or postponements thereof. On that date there were 23,904,293 shares
of Common Stock issued, outstanding and entitled to vote. The Company has no
other voting securities outstanding. Each shareholder of record is entitled to
one vote per share held on all matters submitted to a vote of shareholders.
Under Delaware law and the Company's Certificate of Incorporation and
Bylaws, directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote on
the election of directors. Since there is no particular percentage of either the
outstanding shares or the shares represented at the meeting required to elect a
director, abstentions and broker non-votes will have the same effect as the
failure of shares to be represented at the meeting, except that the shares
subject to such abstentions or non-votes will be counted in determining whether
there is a quorum for taking shareholder action.
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table provides information as of February 20, 1998, as to
each person who, to the Company's knowledge, beneficially owns more than 5
percent of the outstanding shares of Argonaut Group Common Stock.
<TABLE>
<CAPTION>
NAME AND PRINCIPAL NUMBER OF
BUSINESS ADDRESS OF ARGONAUT GROUP PERCENT OF
BENEFICIAL OWNER SHARES OWNED CLASS
------------------- -------------- ----------
<S> <C> <C>
Henry E. Singleton........................ 4,663,056(1) 19.5%
335 Maple Drive
Beverly Hills, CA 90210
Fayez S. Sarofim.......................... 1,678,154(2) 7.0%
Two Houston Center, Suite 2907
Houston, TX 77010
Leon G. Cooperman......................... 1,367,400(3) 5.7%
Wall Street Plaza
88 Pine Street, 31st Floor
New York, NY 10005
</TABLE>
- ---------------
(1) Sole voting and dispositive powers.
(2) Based upon information contained in an amendment to Schedule 13G dated
February 17, 1998, and filed under the Securities Exchange Act of 1934, Mr.
Sarofim may be deemed to be
2
<PAGE> 5
the beneficial owner of 1,678,154 shares of Argonaut Group Common Stock. Of
those shares, Mr. Sarofim has sole voting and dispositive powers with
respect to 648,776 shares which are owned of record and beneficially by him,
and may be deemed to have shared voting power as to 930,538 shares and
shared dispositive power as to 1,029,378 shares. Of the securities which are
not subject to sole voting and dispositive powers, 478,703 are held in
investment advisory accounts managed by Fayez Sarofim & Co. for numerous
clients, 409,506 are held by Sarofim International Management Company for
its own account, and 137,736 are held in client accounts managed by Sarofim
Trust Co. Fayez Sarofim & Co. is an Investment Adviser registered under the
Investment Advisers Act of 1940, of which Mr. Sarofim is Chairman of the
Board, President and through a holding company the majority shareholder.
Sarofim International Management Company is a wholly owned subsidiary of
Fayez Sarofim and Co., and Sarofim Trust Co. is a wholly owned subsidiary of
Sarofim International Management Company. Additionally, Trusts of which Mr.
Sarofim is a trustee own 3,433 shares as to which Mr. Sarofim shares voting
and dispositive powers but has no beneficial interest.
(3) Based upon information as of March 2, 1998, Mr. Cooperman may be deemed to
be the beneficial owner of 1,367,400 shares of Argonaut Group Common Stock.
Of these shares, Mr. Cooperman has sole voting and dispositive powers with
respect to 1,045,200 shares which are owned beneficially by him, and may be
deemed to have shared voting and dispositive powers as to 322,200 shares. Of
the securities which are not subject to sole voting and dispositive powers,
130,000 are held by Mr. Cooperman's spouse, 165,200 are held in accounts
managed for unrelated third parties by Omega Advisors, Inc., a corporation
engaged in providing investment management, of which Mr. Cooperman is
President and majority shareholder, and 27,000 are held by The Leon & Toby
Cooperman Foundation, a charitable family trust, of which Mr. Cooperman is
one of four family trustees.
3
<PAGE> 6
The following table sets forth the number and percentages of shares of
Argonaut Group Common Stock beneficially owned by each director, nominee for
director, and executive officer of Argonaut Group and by the directors, nominees
for director, and executive officers of the Company as a group.
<TABLE>
<CAPTION>
NUMBER OF
NAME OF ARGONAUT GROUP PERCENT OF
BENEFICIAL OWNER SHARES OWNED(1) CLASS(1)
---------------- --------------- ----------
<S> <C> <C>
Henry E. Singleton............... 4,663,056 19.5%
Charles E. Rinsch................ 467,893(2) 2.0%
George A. Roberts................ 247,514(3) 1.0%
Arthur Rock...................... 173,061 (7)
Fayez S. Sarofim................. 1,678,154(1) 7.0%
James B Halliday................. 66,720(4) (7)
Randall J. Mellin................ 13,657(5) (7)
John W. Polak.................... 0 (7)
Norman H. Burdick................ 10,150(6) (7)
All directors and executive
officers as a group (9
persons)....................... 7,319,305(1)(2)(3)(8) 30.6%
</TABLE>
- ---------------
(1) Stock ownership is presented as of February 20, 1998 except that Mr.
Sarofim's stock ownership is presented as of February 17, 1998. See also
footnote (2) to the preceding table. Percentages are based on the number of
shares outstanding and entitled to vote on the record date, February 20,
1998.
(2) Includes 132,151 shares as to which Mr. Rinsch has sole voting and
dispositive power. The total set forth above also includes 325,000 shares
which Mr. Rinsch has the right to acquire within 60 days of February 20,
1998 through the exercise of options. Also included in the total set forth
above are 10,742 shares as to which Mr. Rinsch disclaims any voting or
dispositive powers. 1,690 of these shares are owned by Mr. Rinsch's spouse;
the remaining 9,052 shares are held in accounts administered by Mr. Rinsch's
spouse, the economic benefits of which accrue to his sons.
(3) Includes 6,449 shares owned by Dr. Roberts' spouse and with respect to which
Dr. Roberts disclaims beneficial ownership.
(4) Includes 47,600 shares which Mr. Halliday has the right to acquire within 60
days of February 20, 1998 through the exercise of options.
(5) Includes 11,000 shares which Mr. Mellin has the right to acquire within 60
days of February 20, 1998 through the exercise of options.
4
<PAGE> 7
(6) Includes 7,800 shares which Mr. Burdick has the right to acquire within 60
days of February 20, 1998 through the exercise of options.
(7) Owns less than 1%.
(8) Includes an aggregate of 391,400 shares which the officers have the right to
acquire within 60 days of February 20, 1998 through the exercise of options.
ELECTION OF DIRECTORS
(PROPOSAL 1)
Five directors are to be elected at the meeting to serve for a term of one
year or until the election and qualification of their successors. Returned
proxies will be voted in favor of electing the five nominees named below as
directors of Argonaut Group unless authority to so vote is withheld. Each
nominee is currently a director. Proxies will be voted for substitute nominees
in the event that any of the present nominees is unwilling or unable to serve.
Argonaut Group is not presently aware of the unwillingness or inability of any
nominee to serve. The five nominees receiving the greatest number of votes cast
will be elected directors. The table set forth below lists the name and age of
each of the nominees for election as director, and the positions and offices
that each such person holds with the Company.
<TABLE>
<CAPTION>
POSITIONS AND OFFICES
NAME WITH COMPANY AGE
---- --------------------- ---
<S> <C> <C>
Henry E. Singleton Chairman of the Board(1)(2)(3)(4) 81
Charles E. Rinsch President, Chief Executive Officer, and Director(1)(3) 65
George A. Roberts Director(1)(2)(3)(4) 79
Arthur Rock Director(2)(4) 71
Fayez S. Sarofim Director(2)(4) 69
</TABLE>
- ---------------
(1) Member of the Executive Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
(3) Member of the Investment Committee of the Board of Directors.
(4) Member of the Compensation Committee of the Board of Directors.
The Board of Directors recommends a vote FOR election of the nominees listed
above as directors.
5
<PAGE> 8
BUSINESS EXPERIENCE OF NOMINEES
Henry E. Singleton is a rancher and investor. Dr. Singleton has been
Chairman of the Board of Directors of the Company since its inception in 1986.
He is a director of Unitrin, Inc. and a former director of Allegheny Teledyne
Incorporated.
Charles E. Rinsch has been President and Chief Executive Officer of
Argonaut Group for more than five years.
George A. Roberts is a private investor. Dr. Roberts was Chairman of the
Board of Teledyne, Inc. from January 1991 to April 1993, when he retired as an
officer and employee of Teledyne, Inc. He is a director of Allegheny Teledyne
Incorporated and Unitrin, Inc.
Arthur Rock has been a private investor for more than five years. He is a
principal of Arthur Rock & Co., a venture capital firm. He is a director of
Intel Corporation and AirTouch Communications.
Fayez S. Sarofim is the Chairman of the Board and President of Fayez
Sarofim & Co., a registered investment advisor. He has held these positions for
more than five years. He is a director of Allegheny Teledyne Incorporated,
Unitrin, Inc., and Imperial Holly Corporation.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During 1997, the standing Committees of the Board of Directors were the
Executive Committee, the Audit Committee, the Investment Committee, and the
Compensation and Stock Option Committee. The Company does not have a nominating
committee; this function is handled by the full Board of Directors. Except for
certain powers which, under Delaware law, may only be exercised by the full
Board of Directors, the Executive Committee may exercise all powers and
authority of the Board of Directors in the management of the business of the
Company. The Audit Committee reviews the scope of the audit and non-audit
assignments and the related fees, the accounting principles being applied by the
Company in financial reporting, the scope of internal auditing procedures, and
the adequacy of internal controls. The Audit Committee meets periodically with
management, the independent public accountants, and the internal auditors. The
Investment Committee sets the Company's investment policy. All investment
transactions are ratified by the Board of Directors. During 1997, the
Compensation and Stock Option Committee was responsible for: (a) approving and
reporting to the Board of Directors on the annual compensation of the executive
officers; (b) for granting stock options or stock appreciation rights pursuant
to the Company's 1986 Stock Option Plan; and (c) for determining the exercise
price, vesting provisions, duration and other terms of such options or rights,
consistent with the 1986 Stock Option Plan. In January, 1997, to comply with
revised Securities and Exchange Commission rules under Section 16 of the
Securities Exchange Act of 1934, the Compensation and Stock
6
<PAGE> 9
Option Committee was reconstituted as the Compensation Committee with
responsibility only for approving and reporting to the Board of Directors on the
annual compensation of the executive officers. The full Board of Directors
approves all actions related to the Company's 1986 Stock Option Plan.
Between January 1, 1997, and December 31, 1997, the Board of Directors met
four times, the Executive Committee met one time, the Audit Committee met four
times, the Compensation and Stock Option Committee met three times, and the
Investment Committee met four times. During that time, all directors attended 75
percent or more of the meetings of the Board of Directors and Committees of the
Board on which they serve.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company or its subsidiaries receive
an annual fee of $18,000 for service on the Board.
EXECUTIVE OFFICERS
The following table sets forth, for each executive officer of the Company,
such person's name, age, and positions with the Company and its principal
subsidiaries.
<TABLE>
<CAPTION>
NAME POSITION AGE
---- -------- ---
<S> <C> <C>
Charles E. Rinsch President and Chief Executive Officer 65
James B Halliday Vice President, Secretary and Treasurer 50
Randall J. Mellin Vice President 50
John W. Polak Vice President 49
Norman H. Burdick President, Argonaut Great Central Insurance 47
</TABLE>
- ------------------
The position stated is with Argonaut Group unless otherwise indicated.
Argonaut Group includes two insurance subsidiaries, Argonaut Insurance Company
("Argonaut Insurance") and Argonaut Great Central Insurance Company ("Great
Central Insurance").
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Mr. Rinsch's business experience during the last five years is described
under "Business Experience of Nominees," above.
James B Halliday has been Vice President, Secretary, and Treasurer of
Argonaut Group for more than five years.
7
<PAGE> 10
Randall J. Mellin joined Argonaut Insurance in 1986. He was appointed a
Senior Vice President in 1991 and Executive Vice President in May, 1996. He was
appointed Vice President of Argonaut Group in 1993.
John W. Polak joined Argonaut Group in March of 1997 as Vice President.
Prior to joining Argonaut, Mr. Polak was Chief of Staff of Personal Lines at
CNA. Previous to CNA he held senior management positions at ITT Hartford,
Republic Insurance Group and Trinity Universal.
Norman H. Burdick has been President of Argonaut Great Central Insurance
since June 1993. From December 1989 to June 1993, he was Resident Vice President
of the Argonaut Insurance Midwest Division.
8
<PAGE> 11
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation paid during each of the years
ended December 31, 1997, 1996, and 1995, of those persons who were, at December
31, 1997, the Chief Executive Officer and the Company's four most highly
compensated executive officers.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------ ALL OTHER
-------------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($)(2) BONUS($)(2) (#) ($)(3)
- ------------------------------ ---- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Charles E. Rinsch 1997 475,000 75,000 -- 3,117
President and Chief 1996 475,000 66,500 -- 3,117
Executive Officer 1995 468,750 135,000 -- 2,979
James B Halliday 1997 161,750 50,000 -- 3,072
Vice President, 1996 149,000 42,000 20,000 3,068
Secretary and Treasurer 1995 137,500 50,000 -- 2,974
Randall J. Mellin 1997 165,750 52,000 -- 2,140
Vice President 1996 148,000 32,500 15,000 2,183
1995 130,750 45,000 -- 2,576
John W. Polak 1997 135,289 10,000 12,000 164
Vice President
Norman J. Burdick 1997 139,749 38,000 10,000 2,165
President, Argonaut Great 1996 133,519 25,000 -- 2,184
Central Insurance 1995 127,616 32,000 6,000 2,087
</TABLE>
- ---------------
(1) The position stated is with Argonaut Group unless otherwise indicated.
(2) Amounts include cash compensation earned and received by executive officers
as well as amounts deferred under a 401(k) Retirement Savings Plan.
(3) Amounts shown are the Company contributions to the 401(k) Retirement Savings
Plan.
9
<PAGE> 12
OPTION GRANTS
The following table sets forth information on stock option grants in 1997
to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENT OF
TOTAL OPTIONS EXERCISE
OPTIONS GRANTED TO OR BASE GRANT DATE
GRANTED EMPLOYEES PRICE EXPIRATION PRESENT
NAME (#)(1) IN FISCAL YEAR ($/SHARE)(2) DATE VALUE($)(3)
---- ------- -------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Charles E. Rinsch.............. -- -- -- -- --
James B Halliday............... -- -- -- -- --
Randall J. Mellin.............. -- -- -- -- --
John W. Polak.................. 12,000 7.9% 27.625 4/23/08 60,000
Norman H. Burdick.............. 10,000 6.6% 27.625 4/23/08 50,000
</TABLE>
- ---------------
(1) The options granted are exercisable in annual installments of 20 percent
except that no exercise is permitted until two years after the date of
grant.
(2) The exercise price must be paid in full either in cash or by delivery of
already owned Argonaut Group Common Stock valued at market value.
(3) In using the Black-Scholes option pricing model to calculate grant date
present value, certain assumptions are used: expected volatility (15.476%),
risk-free rate of return (7.08%), dividend yield (4.78%), and date of
exercise (4/23/08). Use of this model should not be viewed as a forecast of
the future performance of the Company's stock, which will be determined by
future events and unknown factors.
10
<PAGE> 13
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last year and
unexercised options held as of the end of the year.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT YEAR-END(#) YEAR-END($)
ON EXERCISE REALIZED --------------------------- ---------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Charles E. Rinsch....... 25,000 475,625 348,000 60,000 5,919,000 444,375
James B Halliday........ 4,500 75,563 54,800 30,800 889,333 103,275
Randall J. Mellin....... 500 7,083 10,400 21,600 91,525 66,750
John W. Polak........... -- -- -- 12,000 -- 75,000
Norman H. Burdick....... 1,200 17,225 7,200 17,800 30,600 91,525
</TABLE>
PENSION PLAN
Employees of Argonaut Group and subsidiaries are provided retirement
benefits under the Argonaut Group, Inc. Retirement Plan ("Pension Plan"), a
defined benefit retirement plan. The Pension Plan benefit after 30 years of
participation is equal to 40% of an individual's average total cash compensation
over the sixty consecutive months of the highest cash compensation during the
one hundred twenty months preceding termination of employment. The benefit is
prorated for less than 30 years of participation in the Pension Plan.
In the case of employees who were employed by Teledyne, Inc. before October
1, 1991, Pension Plan participation will include participation in the Teledyne,
Inc. Retirement Plan (the "Teledyne Plan"). Compensation for participation
accrued under the Teledyne Plan will be based on cash compensation earned during
the period of Teledyne employment. If an employee's participation in the Pension
Plan includes participation in the Teledyne Plan and that employee will receive
a benefit from the Teledyne Plan, the benefit calculated under the Pension Plan
will be reduced by the benefit payable under the Teledyne Plan.
11
<PAGE> 14
Benefits are payable to unmarried individuals in the form of a single life
annuity unless the employee elects another form of benefit. Benefits are payable
to married individuals in the form of a joint and 50% survivor annuity unless
another form of benefit is elected. For retirement prior to age 65, benefits are
reduced on an actuarial basis according to age. Annual Plan benefits at age 65
or later retirement are illustrated as follows:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-----------------------------------------
AVERAGE ANNUAL 30 OR
CASH COMPENSATION 15 20 25 MORE
----------------- -------- -------- -------- --------
<S> <C> <C> <C> <C>
$125,000................. $ 25,000 $ 33,333 $ 41,667 $ 50,000
150,000................. 30,000 40,000 50,000 60,000
175,000................. 35,000 46,667 58,333 70,000
200,000................. 40,000 53,333 66,667 80,000
225,000................. 45,000 60,000 75,000 90,000
250,000................. 50,000 66,667 83,333 100,000
300,000................. 60,000 80,000 100,000 120,000
400,000................. 80,000 106,667 133,333 160,000
450,000................. 90,000 120,000 150,000 180,000
500,000................. 100,000 133,333 166,667 200,000
625,000................. 125,000 166,667 208,333 250,000
</TABLE>
- ------------------
Section 415 of the Internal Revenue Code ("Code") limits the amount of
benefits payable under tax-qualified retirement plans such as the Pension Plan.
For calendar year 1997, the limit was $125,000. In addition, the Code imposes an
annual limit upon the amount of compensation which may be included in the
calculation of a benefit from a tax-qualified plan. In 1997, the maximum
includable compensation was $160,000. These limits are adjusted periodically for
increases in the cost of living. The Company has adopted the Argonaut Group,
Inc. Pension Equalization Plan ("Pension Equalization Plan") to restore
retirement benefits which would be payable under the Pension Plan (set forth in
the preceding table) but for the limits imposed by the Code. An employee's
benefit under the Pension Equalization Plan will be the difference between the
amount calculated under the Pension Plan without limitation and the amount
calculated under the Pension Plan with limitation. If an employee's
participation in the Pension Plan includes participation in the Teledyne Plan
and that employee will receive a benefit from both the Pension Equalization Plan
and the Teledyne Pension Equalization Plan, the benefit calculated under the
12
<PAGE> 15
Pension Equalization Plan will be reduced by the benefit payable under the
Teledyne Pension Equalization Plan.
The Company has agreed to pay Mr. Rinsch, upon retirement, an amount to
compensate him for a portion of his Teledyne employment which did not count as
participation in the Teledyne Plan because of a break in service. The benefit
will be equal to the difference between the amount calculated under the Pension
Plan if his participation had included this service and without limitation and
the amount calculated under the Pension Plan without limitation. The benefit
will be reduced by a benefit payable from a Teledyne supplemental retirement
agreement with Mr. Rinsch.
The number of years of service credited toward the determination of
benefits under the Pension Plan, Predecessor Plan and Pension Equalization Plan
as of December 31, 1997 for Charles E. Rinsch is 28.9 years, James B Halliday is
23.3 years, John W. Polak is 0 years, Norman H. Burdick is 11.5 years, and
Randall J. Mellin is 10.3 years.
EMPLOYEE RETENTION PLAN
Messrs. Rinsch, Halliday, Mellin, Polak and Burdick participate in the
Company's Employee Retention Plan, which was adopted on February 24, 1998. Each
of them is entitled to receive benefits under the Employee Retention Plan if,
within 18 months after a "Change in Control," the Company terminates him without
"Just Cause," or he quits for "Good Reason." The terms "Change in Control",
"Just Cause" and "Good Reason" are defined in the Employee Retention Plan. The
benefits under the Employee Retention Plan are (a) a lump sum payment equal to
the sum of (i) the executive's base salary for a specified period, plus (ii) the
amount of the executive's annual bonus for the fiscal year of the Company which
preceded the fiscal year in which the Change in Control occurred, (b) health
benefits coverage for the specified period, and (c) if the executive was using a
company car, the right to continue using the car for 90 days after the
executive's termination of employment, and/or, at the executive's election, to
purchase the car for its low wholesale bluebook value (or to assume the lease if
the Company leased the car). The executive will be required to pay for his
health benefits coverage to the same extent that he did while he was still
employed by the Company. The amount of benefits an executive may receive under
the Employee Retention Plan is limited to the amount which would not cause the
benefits to be non-deductible to the Company under Section 280G of the Internal
Revenue Code of 1986, as amended (the "Code"), or subject the executive to an
excise tax under Section 4999 of the Code. Benefits are conditioned upon the
executive's refraining from disclosing confidential material or information of
the Company, and on the execution by the executive of a release of all claims he
may have against the Company, including claims for age discrimination. The
specified periods for determining benefits under the Employee Retention Plan are
three years for Messrs. Rinsch and
13
<PAGE> 16
Halliday, two and one-half years for Mr. Mellin, one year for Mr. Polak, and two
years for Mr. Burdick.
INDEMNIFICATION
Under its Certificate of Incorporation, Argonaut Group is obligated to
indemnify its directors and officers to the fullest extent permitted by Delaware
law. The Certificate of Incorporation makes such indemnification rights contract
rights and entitles directors and officers to initiate legal action against
Argonaut Group to enforce such indemnification rights.
Argonaut Group's Certificate of Incorporation also provides that, to the
fullest extent permitted by Delaware law, a director shall not be liable to
Argonaut or its shareholders for monetary damages for breach of fiduciary duty
as a director. However, the Certificate of Incorporation does not eliminate a
director's liability for breach of the duty of loyalty, acts or omissions not in
good faith, certain payments not permitted under Delaware General Corporation
Law, or transactions in which the director derives an improper benefit.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company believes that during 1997 all reports for the Company's
executive officers and directors that were required to be filed under Section 16
of the Securities Exchange Act of 1934 were timely filed.
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<PAGE> 17
REPORT OF THE BOARD OF DIRECTORS ON EXECUTIVE COMPENSATION
Notwithstanding anything to the contrary set forth in any of the Company's
previous filings under the Securities Act of 1933, as amended, or the Exchange
Act that might incorporate future filings, including this Proxy Statement, in
whole or in part, this Compensation Committee Report on Executive Compensation
and the Performance Graph on page 17 shall not be incorporated by reference into
any such filings.
GENERAL
In October 1992, the Securities and Exchange Commission adopted substantial
amendments to its disclosure rules relating to executive compensation. In order
to adequately address and comply with these new rules, the Argonaut Group Board
of Directors established a Compensation and Stock Option Committee (the
"Committee") composed entirely of independent non-employee directors. In
January, 1997, in response to revised rules under Section 16 of the Securities
Exchange Act of 1934, it was determined that the Compensation and Stock Option
Committee be reconstituted as the Compensation Committee, and that the full
Board would administer and determine the persons to whom options may be granted
under the Company's 1986 Stock Option Plan, or any successor plan. The
Compensation Committee retained the authority to set all other forms of
compensation of the Company's executive officers.
COMPENSATION PHILOSOPHY
The Board's compensation philosophy is that compensation for the chief
executive officer and other executive officers should encourage and reward
annual and long-term corporate and individual performance, as measured by the
attainment of specific goals for the creation of long-term shareholder value.
Also, the level of compensation should allow the Company to attract, retain, and
reward executive officers who contribute to the long-term success of the
Company. The compensation of the chief executive officer and other executive
officers of the Company comprises cash compensation and long-term incentive
compensation in the form of stock options.
15
<PAGE> 18
COMPENSATION PACKAGE
For 1997, the compensation package of the Company's executive officers
consisted of annual base salary, discretionary bonuses, and stock options. In
setting 1997 compensation, the Committee considered the specific factors
discussed below:
Base Salary
In setting the executive officers' base salaries for 1997 (effective April
1), the Committee considered the performance of the executive officers'
respective business units, as well as executive officers' individual
performance. The entire Company was the business unit of certain executive
officers, while subsidiaries or departments for which they were responsible were
the business units of other executive officers. Specific factors considered were
the same as those described below for consideration of a bonus award.
Bonus Awards
While bonuses to executive officers are discretionary, the Committee has
established specific goals for each executive officer to measure both individual
performance and Company performance. In particular, the Committee considers the
performance of the executive officer's business unit as well as his success in
achieving specific personal goals. Targets for measuring both business unit
results and achievement of personal goals are set at the beginning of the year,
after review by the officer's immediate superior and the Committee. Areas
considered include achieving specific objectives such as operating income, net
cash flow from operations, profitable new business, retention of current
business, and the efficient operation of the executive officer's department.
Bonuses are generally awarded in April of a given year for service in the
preceding year. Bonuses have not yet been determined or awarded for the 1997
year.
To evaluate the performance of the other executive officers during 1996,
Mr. Rinsch assessed specific results achieved by the Company, each executive
officer's business unit, and each executive officer's success in achieving
previously agreed upon personal goals. Based on this evaluation, Mr. Rinsch made
recommendations to the Compensation Committee for bonus awards. The Committee
members also reviewed Mr. Rinsch's performance as measured by similar previously
set objectives.
After completing its review and analysis of the foregoing factors and
recommendations, the Committee determined the bonus to be awarded to the
executive officers. The specific weight given to each factor varied depending on
the responsibilities of the executive officer, but was primarily weighted toward
business unit performance.
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<PAGE> 19
Stock Options
The purpose of the Company's stock option plan is to provide long-term
incentives for the executive officers to maximize shareholder value by creating
a direct link between executive compensation and long-term shareholder return.
The Board meets to discuss the grant of stock options at least annually, with
each executive officer being considered for an award periodically at the sole
discretion of the Committee.
In determining the amount of options, if any, to be granted in a fiscal
year under the stock option plan, the Board has considered the same factors set
forth above, as well as the amount of options previously granted.
CHIEF EXECUTIVE OFFICER COMPENSATION
Mr. Rinsch's annual base salary for 1997 was set at $475,000, the same as
for 1996. In setting Mr. Rinsch's 1997 base salary, the Committee considered the
same items discussed above, focusing primarily on 1996 performance.
As discussed above, the Committee has not yet determined or awarded bonuses
for 1997 service. During 1997, Mr. Rinsch received a bonus of $75,000 relating
to 1996 performance. Mr. Rinsch's bonus award for 1996 was determined after
considering six factors: Combined ratio of continuing operations (30% weight),
net income from continuing operations (25%), cash flow from continuing
operations (10%), retention of profitable accounts (5%), premium increase (10%)
and factors relating to overall efficiency and productivity (20%). Mr. Rinsch
was eligible for a bonus ranging from 0 to 50% of base salary, evaluating actual
results against specific targets for each factor, and determining whether it was
a "fair", "good", "excellent", or "superior" result.
BOARD OF DIRECTORS:
Henry E. Singleton, Chairman
Charles E. Rinsch
George A. Roberts
Arthur Rock
Fayez S. Sarofim
17
<PAGE> 20
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
ALLEGHENY TELEDYNE INCORPORATED
Two of the directors of Argonaut Group, George A. Roberts and Fayez S.
Sarofim are also directors of Allegheny Teledyne Incorporated. Directors,
nominees for director, and executive officers of Argonaut Group as a group may
be deemed to beneficially own in the aggregate approximately 10% of the
outstanding common stock of Allegheny Teledyne Incorporated.
In prior years, pursuant to contractual arrangements, Argonaut Insurance
insured Teledyne, Inc., (now a wholly owned subsidiary of Allegheny Teledyne
Incorporated), and its subsidiaries for certain coverages including workers
compensation, general liability, automobile liability, and excess liability
exposures. On November 1, 1987, Argonaut Insurance discontinued writing new
insurance for Teledyne, Inc., but Argonaut Insurance continues to be subject to
claims on policies written prior to November 1, 1987. These policies include
retrospective rating and dividend provisions under which future payments to or
from Teledyne, Inc. may be required. During 1997, Teledyne, Inc. paid Argonaut
Insurance $944,582 pursuant to certain retrospective rating and dividend
provisions of these policies. With regard to insurance covering the period from
November 1, 1986 to November 1, 1987, a subsidiary of Unitrin, Inc. has
reinsured 100% of these insurance coverages. Teledyne, Inc. has guaranteed
payment to Argonaut Insurance of such obligations under these policies.
AGI Properties, Inc. ("AGI Properties"), a non-insurance subsidiary of
Argonaut Insurance, owns several buildings and the real property on which these
buildings are located. During 1997, Teledyne, Inc. leased one of these
properties in Los Angeles, California for a total annual rental of approximately
$1.6 million. The leases for the foregoing properties provide that Teledyne,
Inc. assume obligations for real property taxes, assessments, repairs,
maintenance, and insurance. The lease rates are subject to periodic adjustment
in accordance with a formula based on the Consumer Price Index.
During 1997, Teledyne, Inc. provided Argonaut Group certain investment
trade execution services. For 1997, Argonaut Group paid Teledyne, Inc. $18,600
for these services. This agreement for Teledyne, Inc. to provide certain
investment trade execution services to Argonaut Group is no longer in place.
FAYEZ SAROFIM & CO.
The Company and Fayez Sarofim & Co. ("Investment Manager") are parties to
an agreement dated November 11, 1995 (the "Investment Management Agreement"),
whereby the Investment Manager has agreed to make investment decisions with
respect to and otherwise
18
<PAGE> 21
manage certain funds deposited by the Company for that purpose. The Investment
Manager is owned 100% by the Sarofim Group, Inc. which is owned 69% by Fayez
Sarofim, a director of the Company, and approximately 9% by Arthur Rock, also a
director of the Company. Through March 2, 1998, the Company had deposited $100
million into the managed account. Under the Investment Management Agreement, the
Investment Manager is entitled to a fee, calculated and payable quarterly, of
approximately 0.35% per annum of the market value of the currently managed
equity assets, and 0.20% per annum of the market value of fixed income assets.
The Investment Management Agreement does not have a specified term but is
terminable by either party at any time on 30 days advance written notice. During
1997, Argonaut Group paid Fayez Sarofim & Co. $424,100 for these services.
UNITRIN, INC.
Three of the directors of Argonaut Group, George A. Roberts, Fayez S.
Sarofim, and Henry E. Singleton are also directors of Unitrin, Inc. Directors,
nominees for director, and executive officers of Argonaut Group as a group may
be deemed to beneficially own in the aggregate approximately 29% of the
outstanding common stock of Unitrin, Inc.
Argonaut Group has in effect an agreement with Unitrin, Inc. pursuant to
which Unitrin, Inc. provides the Company with certain data processing services.
Unitrin, Inc. has agreed to provide Argonaut Group with data processing services
for an indefinite period of time, subject to nine months cancellation notice.
Charges are based on actual computer usage. Payments to Unitrin, Inc. for data
processing services were $1.7 million in 1997.
During 1997, Argonaut Group provided Unitrin, Inc. certain investment trade
execution services. For 1997, Unitrin, Inc. paid Argonaut Group $129,000 for
these services.
The Company believes that the transactions described above have been
entered into on terms no less favorable than could have been negotiated with
non-affiliated third parties.
19
<PAGE> 22
PERFORMANCE GRAPH
Note: The stock price performance shown on the graph below is not
necessarily indicative of future price performance.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
<TABLE>
<CAPTION>
MEDIA
GENERAL
INSURANCE
MEASUREMENT PERIOD ARGONAUT S & P 500 INDUSTRY
(FISCAL YEAR COVERED) GROUP, INC. INDEX GROUP
<S> <C> <C> <C>
1992 100 100 100
1993 103.03 110.08 102.42
1994 99.16 111.54 101.44
1995 119.04 153.45 145.48
1996 118.13 188.69 174.79
1997 136.97 251.64 250.41
</TABLE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen & Co. has been selected as the Company's independent public
accountants for the year 1997. It is expected that a representative of Arthur
Andersen & Co. will be present at the meeting. Such representative will be
afforded an opportunity to make a statement if he or she desires to do so and
will be available for the purpose of responding to appropriate questions.
20
<PAGE> 23
FORM 10-K
Prior to the mailing of this proxy statement, the Company has furnished to
each of its shareholders a copy of its Annual Report to Shareholders for the
fiscal year ended December 31, 1997. Shareholders entitled to vote at the Annual
Meeting may obtain a copy of the Company's Annual Report on Form 10-K for the
year ended 1997, without charge, upon written request to James B Halliday,
Secretary, Argonaut Group, Inc., 1800 Avenue of the Stars, Suite 1175, Los
Angeles, California 90067.
SHAREHOLDER PROPOSALS AT THE NEXT
ANNUAL MEETING OF SHAREHOLDERS
Shareholders of the Company who intend to submit proposals to the Company's
shareholders for a vote at the next annual meeting of shareholders must submit
such proposals to Argonaut Group no later than November 6, 1998. Shareholder
proposals should be submitted to James B Halliday, Secretary, Argonaut Group,
Inc., 1800 Avenue of the Stars, Suite 1175, Los Angeles, California 90067.
OTHER MATTERS
The management of the Company knows of no other matters which may come
before the meeting. However, if any matters other than the election of Directors
should properly come before the meeting, it is the intention of the persons
named in the enclosed proxy to vote all proxies in accordance with their best
judgment.
By Order of the Board of Directors
JAMES B HALLIDAY
Secretary
March 16, 1998
21
<PAGE> 24
1720-PS-98
<PAGE> 25
AREA 6 DETACH HERE
PROXY
ARGONAUT GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MARCH 16, 1998
The undersigned shareholder of Argonaut Group, Inc. (the "Company")
hereby appoints CHARLES E. RINSCH and JAMES B. HALLIDAY and each of them, with
power of substitution to each, true and lawful attorneys, agents and
proxyholders of the undersigned, and hereby authorizes them to represent and
vote as specified herein, all the shares of Common Stock of the Company held of
record by the undersigned on February 20, 1998, at the 1998 Annual Meeting of
Shareholders of the Company to be held on Tuesday, April 21, 1998, at 11:00
a.m., at Argonaut Insurance Company, 250 Middlefield Road, Menlo Park,
California 94025, and any adjournments or postponements thereof.
- ----------- -----------
SEE REVERSE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SEE REVERSE
SIDE SIDE
- ----------- -----------
<PAGE> 26
DETACH HERE
[X] Please mark
votes as in this
this example.
The shares represented by this proxy will be voted in the manner directed. In
the absence of any direction, the shares will be voted FOR Proposal l.
The undersigned acknowledges receipt of the Notice of Annual Meeting and Proxy
Statement dated March 16, 1998.
1. ELECTION OF DIRECTORS
Nominees: Charles E. Parish, George A. Roberts, Arthur Rock, Fayez S. Sarofim
and Henry E. Singleton
FOR WITHHELD
[ ] [ ]
[ ]
--------------------------------------
For all nominees except as noted above
2. In their discretion, the policyholders are authorized to vote upon such other
business as may properly come before the meeting, or any adjournments or
postponements thereof.
MARK HERE FOR ADDRESS CHANGE AND NOTE AT LEFT [ ]
Please sign exactly as your name appears hereon.
Joint owners should each sign. Trustees and
others acting in a representative capacity should
indicate the capacity in which they sign and
give their full title. If a corporation, please
sign in full corporate name by an authorized
officer. If in partnership, please sign in
partnership name by an authorized person.
Please mark, sign and date this proxy and return
it promptly whether you plan to attend the
meeting or not. If you do attend, you may vote in
person if you desire.
