<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 27, 1999
The Annual Meeting of Shareholders of Argonaut Group, Inc. will be held on
Tuesday, April 27, 1999, 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 vote on a proposal to amend and restate the Company's Stock Option
Plan.
3. 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 26,
1999, 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, or, if more convenient,
vote by phone or via the internet. 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 26, 1999
REGARDLESS OF WHETHER YOU PLAN TO BE PRESENT AT THE MEETING, YOU ARE REQUESTED
TO VOTE THE ENCLOSED PROXY SO THAT YOUR SHARES WILL BE REPRESENTED.
<PAGE> 3
ARGOUNAUT 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 27, 1999, 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
26, 1999.
VOTING SECURITIES
SECURITIES OUTSTANDING
February 26, 1999 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 24,035,086 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.
1
<PAGE> 4
SECURITY OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table provides information as of February 26, 1999, 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>
NUMBER OF
NAME AND PRINCIPAL BUSINESS ADDRESS ARGONAUT GROUP PERCENT OF
OF BENEFICIAL OWNER SHARES OWNED CLASS
----------------------------------- -------------- ----------
<S> <C> <C>
Henry E. Singleton................................. 4,663,056(1) 19.4%
335 Maple Drive
Beverly Hills, CA 90210
Fayez S. Sarofim................................... 1,686,984(2) 7.0%
Two Houston Center, Suite 2907
Houston, TX 77010
Leon G. Cooperman.................................. 1,480,000(3) 6.2%
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 11, 1999, and filed under the Securities Exchange Act of 1934, Mr.
Sarofim may be deemed to be the beneficial owner of 1,686,984 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 944,690 shares and shared dispositive power as to 1,038,208
shares. Of the securities which are not subject to sole voting and
dispositive powers, 485,093 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 140,176 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 9, 1999, Mr. Cooperman may be deemed to
be the beneficial owner of 1,480,000 shares of Argonaut Group Common Stock.
Of these shares, Mr. Cooperman has sole voting and dispositive powers with
respect to 1,051,700 shares which are owned beneficially by him, and may be
deemed to have shared voting and dispositive powers as to 428,300 shares. Of
the securities which are not subject to sole voting and dispositive powers,
130,000 are held by Mr. Cooperman's spouse, 263,300 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 35,000 are held by The Leon & Toby
Cooperman Foundation, a charitable family trust, of which Mr. Cooperman is
one of four family trustees.
2
<PAGE> 5
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
ARGONAUT GROUP PERCENT OF
NAME OF BENEFICIAL OWNER SHARES OWNED(1) CLASS(1)
------------------------ --------------- ----------
<S> <C> <C>
George A. Roberts......................... 247,514(2) 1.0%
Jerrold V. Jerome......................... 32,094 (8)
Charles E. Rinsch......................... 467,893(3) 1.9%
Fayez S. Sarofim.......................... 1,686,984(1) 7.0%
Henry E. Singleton........................ 4,663,056 19.4%
James B Halliday.......................... 63,670(4) (8)
Randall J. Mellin......................... 23,657(5) (8)
John W. Polak............................. 2,400(6) (8)
Norman H. Burdick......................... 16,250(7) (8)
All directors and executive officers as a
group (9 persons)....................... 7,203,518(1)(2)(3)(9) 30.0%
</TABLE>
- ---------------
(1) Stock ownership is presented as of February 26, 1999 except that Mr.
Sarofim's stock ownership is presented as of February 11, 1999. 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 26,
1999.
(2) Includes 6,449 shares owned by Dr. Roberts' spouse and with respect to which
Dr. Roberts disclaims beneficial ownership.
(3) Includes 261,251 shares as to which Mr. Rinsch has sole voting and
dispositive power. The total set forth above also includes 195,000 shares
which Mr. Rinsch has the right to acquire within 60 days of February 26,
1999 through the exercise of options. Also included in the total set forth
above are 11,642 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 9,952 shares are held in accounts administered by Mr. Rinsch's
spouse, the economic benefits of which accrue to his sons.
(4) Includes 38,000 shares which Mr. Halliday has the right to acquire within 60
days of February 26, 1999 through the exercise of options.
(5) Includes 21,000 shares which Mr. Mellin has the right to acquire within 60
days of February 26, 1999 through the exercise of options.
(6) Includes 2,400 shares which Mr. Polak has the right to acquire within 60
days of February 26, 1999 through the exercise of options.
(7) Includes 12,750 shares which Mr. Burdick has the right to acquire within 60
days of February 26, 1999 through the exercise of options.
(8) Owns less than 1%.
(9) Includes an aggregate of 269,150 shares which the officers have the right to
acquire within 60 days of February 26, 1999 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
3
<PAGE> 6
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>
NAME POSITIONS AND OFFICES WITH COMPANY AGE
---- ---------------------------------- ---
<S> <C> <C>
George A. Roberts Chairman of the Board(1)(2)(3)(4) 80
Jerrold V. Jerome Director(2)(4) 69
Charles E. Rinsch President, Chief Executive Officer, and 66
Director(1)(3)
Fayez S. Sarofim Director(2)(4) 70
Henry E. Singleton Director(1)(2)(3)(4) 82
</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.
BUSINESS EXPERIENCE OF NOMINEES
George A. Roberts is a private investor. Dr. Roberts succeeded Dr.
Singleton as Chairman of the Board of Directors of the Company in December of
1998. He is a director of Unitrin, Inc.
Jerrold V. Jerome was elected to the Board of Directors in October of 1998.
He was Chairman of the Board of Directors of Unitrin, Inc. from February 1994 to
December 31, 1998 and remains a member of the Board.
Charles E. Rinsch has been President and Chief Executive Officer of
Argonaut Group for more than five years.
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 Unitrin, Inc. and Imperial Holly
Corporation.
Henry E. Singleton is a rancher and investor. Dr. Singleton retired in
December of 1998 from his role as Chairman of the Board of Directors of the
Company which he had held since 1986, but he remains a member of the Board. He
is a director of Unitrin, Inc.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During 1998, the standing Committees of the Board of Directors were the
Executive Committee, the Audit Committee, the Investment Committee, and the
Compensation 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. The Compensation Committee approves and
reports 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 Stock Option Plan.
Between January 1, 1998, and December 31, 1998, the Board of Directors met
six times, the Executive Committee met two times, the Audit Committee met four
times, the Compensation and Stock Option
4
<PAGE> 7
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 and effective January 1, 1999
an additional $1,500 for attendance at each Board of Directors meeting.
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 66
James B Halliday Vice President, Secretary and Treasurer 51
Randall J. Mellin Vice President 51
John W. Polak Vice President 50
Norman H. Burdick President, Argonaut Great Central Insurance 48
</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.
Randall J. Mellin has been Vice President of Argonaut Group for more than
five years.
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
for more than five years.
5
<PAGE> 8
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation paid during each of the years
ended December 31, 1998, 1997, and 1996, of those persons who were, at December
31, 1998, 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 1998 490,000 75,000 25,000 3,600
President and Chief 1997 475,000 75,000 -- 3,117
Executive Officer 1996 475,000 66,500 -- 3,117
James B Halliday 1998 174,375 60,000 20,000 3,600
Vice President, 1997 161,750 50,000 -- 3,072
Secretary and Treasurer 1996 149,000 42,000 20,000 3,068
Randall J. Mellin 1998 175,250 39,500 10,000 3,600
Vice President 1997 165,750 52,000 -- 2,140
1996 148,000 32,500 15,000 2,183
John W. Polak 1998 181,000 30,000 -- 3,614
Vice President 1997 135,289 10,000 12,000 164
Norman J. Burdick 1998 146,654 31,000 -- 2,266
President, Argonaut Great 1997 139,749 38,000 10,000 2,165
Central Insurance 1996 133,519 25,000 -- 2,184
</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.
OPTION GRANTS
The following table sets forth information on stock option grants in 1998
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................ 25,000 15.6% 35.500 4/21/09 107,000
James B Halliday................. 20,000 12.5% 35.500 4/21/09 85,600
Randall J. Mellin................ 10,000 6.2% 35.500 4/21/09 42,800
John W. Polak.................... -- -- -- -- --
Norman H. Burdick................ -- -- -- -- --
</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 (15.91%),
risk-free rate of return (5.68%), dividend yield (5.43%), and
6
<PAGE> 9
date of exercise (4/21/09). 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.
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............ 198,000 3,284,325 180,000 55,000 45,000 --
James B Halliday............. 9,000 183,188 54,600 42,000 297,733 --
Randall J. Mellin............ -- -- 16,000 26,000 10,667 --
John W. Polak................ -- -- -- 12,000 -- --
Norman H. Burdick............ 650 4,794 9,550 14,800 -- --
</TABLE>
STOCK OPTION PLAN
The Company's 1986 Stock Option Plan ("Stock Option Plan") provides for the
issuance of options to purchase Common Stock to executives and other key
employees of the Company and its subsidiaries. Subject to shareholder approval
at the Annual Meeting, the Board of Directors has approved the amendment and
restatement of the Option Plan, among other things, to increase the aggregate
number of shares which may be issued upon exercise of all options under the
Stock Option Plan. See "Proposal 2 -- Approval of Amendment and Restatement of
Stock Option Plan." The Stock Option Plan is administered by the Board of
Directors or a Committee selected by the Board of Directors who meet the
definition of a 'non-employee directors' under Section 16 of the Securities
Exchange Act of 1934.
The terms and conditions of stock options granted under the Stock Option
Plan (including exercise price and vesting) are set forth in option agreements
The Stock Option Plan permits the Company to offer options which are "incentive
stock options" for federal income tax purposes as well as options which are not
"incentive stock options" (referred to as "non-qualified" stock options).
Incentive stock options must satisfy certain requirements imposed by federal
income tax law, including a requirement that the exercise price of the option be
no less than the fair market value on the date of grant and that the term of the
option not exceed ten years from the date of grant. [To date, the Company has
only issued "non-qualified" stock options pursuant to the Stock Option Plan.]
The Stock Option Plan also permits the Company to offer stock appreciation
rights to officers of the Company or subsidiaries of the Company. [To this date,
no stock appreciation rights have been granted under the Stock Option Plan.]
Options and stock appreciation rights under the Stock Option Plan are
non-transferable except by will or the laws of descent or distribution.
The Board may amend or terminate the Stock Option Plan at any time but may
not do so without shareholder approval if the amendment increases the number of
shares that may be granted under the Stock Option Plan, lowers exercise prices
for incentive stock options under the Stock Option Plan, increases the term of
incentive stock options under the Stock Option Plan or permits the granting of
options to individuals or stock appreciation rights to individuals other than
those described in the Stock Option Plan.
Federal Income Tax Consequences. No taxable income is recognized by the
optionee at the time a stock option is granted. Generally, on the date of
exercise of a 'non-qualified' stock option, ordinary income is recognized by the
optionee in an amount equal to the difference between the exercise price and the
fair market value of the shares on the date of exercise, and the Company
receives a tax deduction for the same amount.
7
<PAGE> 10
Upon disposition of the shares acquired, an optionee generally recognizes the
appreciation or depreciation on the shares after the date of exercise as either
short-term or long-term capital gain or loss depending on how long the shares
have been held.
In the case of an incentive stock option, however, the optionee will
generally not have taxable income (although the alternative minimum tax may
apply, as described below) upon exercise. The optionee will be taxed only upon
the sale of stock received on the incentive option exercise. If the optionee
holds the stock for more than one year after exercise and two years after option
grant, the optionee's gain will generally be capital gain, and the Company will
not be entitled to a deduction for compensation paid. Any earlier sale will
result at least in part in ordinary income to the employee and a deduction for
the Company equal to the amount of ordinary income recognized by the employee.
Depending upon a particular option holder's circumstances and the holding period
of the stock after exercise of the option, there may be a favorable differential
tax rate applicable to capital gains.
Upon exercise of incentive stock options, the alternative minimum tax may
apply to optionees because the excess of the fair market value of the shares
received over the exercise price of an incentive stock option constitutes an
item of tax preference. The alternative minimum tax may produce a higher tax
than the regular income tax applicable to an optionee.
THE ABOVE SUMMARY OF TAX MATTERS IS GENERAL IN SCOPE AND DOES NOT APPLY TO
EVERY SPECIFIC TRANSACTION WHICH MAY ARISE. MOREOVER, THE RULES OF GOVERNMENT
TAXATION OF NON-QUALIFIED AND INCENTIVE STOCK OPTIONS ARE COMPLEX, AND THE
STATEMENT OF TAX CONSEQUENCES SET FORTH HEREIN IS NECESSARILY GENERAL. FINALLY,
CONGRESS IS CONSIDERING MANY ADDITIONAL PROPOSALS TO CHANGE THE TAX LAWS, AND
THE INTERPRETATION OF EXISTING LAWS AND ANY ADDITIONAL REVISIONS ULTIMATELY
ADOPTED COULD SIGNIFICANTLY ALTER THE TAX REQUIREMENTS AND EFFECTS COVERED IN
THIS DISCUSSION.
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.
8
<PAGE> 11
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
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 1998, 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 1998, 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
Pension Equalization Plan will be reduced by the benefit payable under the
Teledyne Pension Equalization Plan.
The Company has agreed to pay Mr. Rinsch an additional pension benefit 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 is
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 is
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, 1998 for Charles E. Rinsch is 29.9 years, James B Halliday is
24.3 years, John W. Polak is 1 year, Norman H. Burdick is 12.5 years, and
Randall J. Mellin is 11.3 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
9
<PAGE> 12
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
Halliday, two and one-half years for Mr. Mellin, one year for Mr. Polak, and two
years for Mr. Burdick.
If no change in control of the Company occurs, these agreements will expire
December 31, 1999.
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 1998 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.
APPROVAL OF AMENDMENT AND RESTATEMENT OF STOCK OPTION PLAN
(PROPOSAL 2)
DESCRIPTION OF PROPOSAL
Currently, the Company Stock Option Plan provides for the issuance of up to
2,000,000 shares of Company Common Stock upon the exercise of options granted
under the Stock Option Plan. For a description of the Stock Option Plan, see the
discussion above under "Executive Officers -- Stock Option Plan." As of March 1,
1999, options to acquire 916,740 shares of Common Stock were outstanding under
the Stock Option Plan and 657,520 shares had already been issued under the Stock
Option Plan pursuant to option exercises, leaving options covering 425,740
shares remaining available for grant. The Board of Directors of the Company has
approved amendment and restatement of the Stock Option Plan, subject to
shareholder approval. The amendments adopted by the Board of Directors of the
Company increase the total number of shares of Company Common Stock issuable
under the Stock Option Plan from 2,000,000 to 2,500,000, and provide that the
Stock Option Plan will expire March 16, 2009. In addition, certain technical and
conforming changes have been made to reflect changes in the tax and securities
laws and regulations. The text of the Stock Option Plan as amended and restated
is attached as Appendix A to this Proxy Statement.
10
<PAGE> 13
The Board of Directors of the Company believes that the availability of an
adequate number of shares under the Stock Option Plan has been and in the future
will be an important factor in attracting and retaining the highest caliber
officers and employees. The Board of Directors believes that, given the
relatively small number of shares remaining available for issuance under the
Stock Option Plan, additional shares need to be added to the Stock Option Plan
to ensure that sufficient shares are available for option grants. Consequently,
the Board of Directors urges shareholders to approve the amendment and
restatement to the Stock Option Plan. However, in voting on Proposal 2,
shareholders should bear in mind that stock options inherently provide option
holders with the ability, in the event that the market price of the Company
Common Stock is higher than or rises above the exercise price of the options, to
acquire shares of Company Common Stock at prices that are dilutive to the equity
interests and voting power of existing holders of Common Stock. In addition, if
the Board of Directors determines to grant incentive stock options pursuant to
the Stock Option Plan, the Company would generally not be entitled to a
deduction for the gain inherent in such options at the time of their exercise,
and there would be certain other differences in the tax treatment of the Company
and option holders relative to non-qualified stock options.
The following table sets forth the number of stock options received through
March 1, 1999 under the Stock Option Plan by the Named Officers and all current
executive officers as a group. No directors who are not also employees have
received any grant under the Stock Option Plan.
<TABLE>
<CAPTION>
PERCENTAGE OF
TOTAL OPTIONS TOTAL
GRANTED OPTIONS
NAME UNDER PLAN(#) GRANTED
---- -------------- -------------
<S> <C> <C>
Charles E. Rinsch................................ 535,000 35.0
James B Halliday................................. 118,000 7.7
Randall J. Mellin................................ 45,500 3.0
John W. Polak.................................... 12,000 0.8
Norman H. Burdick................................ 28,000 1.8
All executive officers as a group (5 persons).... 738,500 48.3
</TABLE>
VOTE REQUIRED
Approval of the Board of Directors' action in amending and restating the
Stock Option Plan requires the affirmative vote of the holders of at least a
majority of the shares of outstanding Company Common Stock represented and
voting at the Meeting and cast on this Proposal. Broker abstentions and
non-votes will have the effect of a vote against the Proposal.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF
THE PROPOSED AMENDMENT AND RESTATEMENT OF THE STOCK OPTION PLAN AND, UNLESS
DIRECTED OTHERWISE, IT IS THE INTENTION OF THE PROXIES NAMED IN THE FORM OF
PROXY THAT ACCOMPANIES THIS PROXY STATEMENT TO VOTE FOR THE APPROVAL OF SUCH
PROPOSAL.
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 15 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
11
<PAGE> 14
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 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.
COMPENSATION PACKAGE
For 1998, the compensation package of the Company's executive officers
consisted of annual base salary, discretionary bonuses, and stock options. In
setting 1998 compensation, the Committee considered the specific factors
discussed below:
BASE SALARY
In setting the executive officers' base salaries for 1998 (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 1998
year.
To evaluate the performance of the other executive officers during 1997,
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.
12
<PAGE> 15
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 1998 was set at $495,000, an increase
of $20,000. In setting Mr. Rinsch's 1998 base salary, the Committee considered
the same items discussed above, focusing primarily on 1997 performance.
As discussed above, the Committee has not yet determined or awarded bonuses
for 1998 service. During 1998, Mr. Rinsch received a bonus of $75,000 relating
to 1997 performance. Mr. Rinsch's bonus award for 1997 was determined after
considering six factors: Combined ratio of continuing operations (30% weight),
underwriting income from continuing operations (30%), retention of profitable
accounts (5%), new business (15%) 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:
George A. Roberts, Chairman
Jerrold V. Jerome
Charles E. Rinsch
Fayez S. Sarofim
Henry E. Singleton
13
<PAGE> 16
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The entire Board of Directors (except for Mr. Rinsch) served as members of
the Compensation Committee of the Company during 1998. The entire Board of
Directors (including Mr. Rinsch) administered the Company's Stock Option Plan.
Mr. Rinsch is an executive officer of the Company.
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 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. Through March 4, 1999,
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 1998, Argonaut Group paid Fayez Sarofim & Co.
$504,636 for these services.
UNITRIN, INC.
Four of the directors of Argonaut Group, George A. Roberts, Jerrold V.
Jerome, 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 30%
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 $1.9 million in 1998.
During 1998, Argonaut Group provided Unitrin, Inc. certain investment trade
execution services. For 1998, Unitrin, Inc. paid Argonaut Group $131,300 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.
14
<PAGE> 17
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
'ARGONAUT GROUP, INC.' S & P 500 INDEX INDUSTRY GROUP
---------------------- --------------- -----------------------
<S> <C> <C> <C>
1993 100 100 100
1994 96.24 101.32 97.69
1995 115.54 139.4 114.08
1996 114.65 171.41 139.22
1997 132.94 228.59 192.68
1998 101.36 293.92 217.99
</TABLE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been selected as the Company's independent public
accountants for the year 1998. It is expected that a representative of Arthur
Andersen LLP 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.
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, 1998. 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 1998, 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 8, 1999. Shareholder
proposals should be submitted to James B Halliday, Secretary, Argonaut Group,
Inc., 1800 Avenue of the Stars, Suite 1175, Los Angeles, California 90067.
15
<PAGE> 18
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 26, 1999
16
<PAGE> 19
APPENDIX A
ARGONAUT GROUP, INC.
AMENDED AND RESTATED STOCK OPTION PLAN
(AS AMENDED AND RESTATED MARCH 16, 1999)
1. Purpose.
The purpose of this amended and restated Stock Option Plan (the "Plan") of
Argonaut Group, Inc., a Delaware corporation (the "Company"), is to secure for
the Company and its stockholders the benefits arising from stock ownership by
selected executive and other key employees of the Company or its subsidiaries
and such other persons as the Board of Directors of the Company, or Committee
thereof constituted for the purpose, may from time to time determine. The Plan
will provide a means whereby (i) such employees may purchase shares of the
Common Stock of the Company pursuant to options which will qualify as "incentive
stock options" under Section 422 of the Internal Revenue Code, as amended (the
"Code"), (ii) such employees or other persons may purchase shares of the Common
Stock of the Company pursuant to "non-incentive" or "non-qualified" stock
options and (iii) such employees who are also officers of the Company or its
subsidiaries may receive shares of the Common Stock of the Company, or cash in
lieu thereof, pursuant to stock appreciation rights granted in tandem with such
options.
2. Administration.
The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors") or by a Committee consisting of two or more persons,
all of whom are "Non-Employee Directors", to whom administration of the Plan has
been duly delegated (the "Committee"). For these purposes, a "Non-Employee
Director" shall have the meaning set forth in Rule 16b-3 adopted pursuant to the
Securities and Exchange Act of 1934 (the "Exchange Act"). Any action of the
Board of Directors or the Committee with respect to administration of the Plan
shall be taken by a majority vote or written consent of its members.
Subject to the provisions of the Plan, the Board of Directors or Committee
shall have authority (i) to construe and interpret the Plan, (ii) to define the
terms used therein, (iii) to prescribe, amend and rescind rules and regulations
relating to the Plan, (iv) to determine the individuals to whom and the time or
times at which options shall be granted, whether such options will be incentive
stock options or non-qualified stock options, whether to include a stock
appreciation right with an option and the terms of such rights, the number of
shares to be subject to each option, the option price, the number of
installments, if any, in which each option may be exercised, and the duration of
each option, (v) to approve and determine the duration of leaves of absence
which may be granted to participants without constituting a termination of their
employment for the purposes of the Plan, and (vi) to make all other
determinations necessary or advisable for the administration of the Plan. All
determinations and interpretations made by the Board of Directors or Committee
shall be binding and conclusive on all participants in the Plan and their legal
representatives and beneficiaries.
3. Shares Subject to the Plan.
Subject to adjustment as provided in paragraph 16 hereof, the shares to be
offered under the Plan shall consist of the Company's authorized but unissued
Common Stock, and the aggregate amount of such stock which may be issued upon
exercise of all options under the Plan (including any options granted pursuant
to the Company's 1986 Stock Option Plan prior to its amendment and restatement)
shall not exceed Two Million five hundred thousand (2,500,000) of such shares.
If any option granted under the Plan (including any options granted pursuant to
the Company's 1986 Stock Option Plan prior to its amendment and restatement)
shall expire or terminate for any reason (other than surrender at the time of
exercise of a related stock appreciation right provided for in paragraph 8
hereof), without having been exercised in full, the unpurchased shares subject
thereto shall again be available for options to be granted under the Plan.
A-1
<PAGE> 20
4. Eligibility and Participation.
All executive and other key employees of the Company or of any subsidiary
corporation (as defined in Section 424(f) of the Code) shall be eligible for
selection to fully participate in the Plan, except that only such employees who
are also officers of the Company or a subsidiary of the Company shall be
eligible to receive stock appreciation rights. Directors of the Company who are
not regular employees of the Company are not eligible to participate in the
Plan. Other non-employees may participate in the Plan with respect to non-
qualified stock options, but only selected executives and other key employees of
the Company or a subsidiary may receive incentive stock options under the Plan.
An individual who as been granted an option may, if such individual is otherwise
eligible, be granted an additional option or options if the Board of Directors
or Committee shall so determine, subject to the other provisions of the Plan. No
incentive stock option may be granted to any person who, at the time the
incentive stock option is granted, owns shares of the Company's outstanding
Common Stock possessing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company (and of its affiliates if
applicable), unless the exercise price of such option is at least 110 percent
(110%) of the fair market value of the stock subject to the option and such
option by its terms is not exercisable after the expiration of five years from
the date such option is granted.
All options granted under the Plan shall be granted within ten years from
March 16, 2009.
5. Duration of Options.
Each option and all rights associated therewith shall expire on such date
as the Board of Directors or Committee may determine, and shall be subject to
earlier termination as provided herein; provided, however, that in the case of
incentive stock options, each incentive stock option and all rights associated
therewith shall expire in any event within ten (10) years of the date on which
such incentive stock option is granted.
6. Purchase Price.
The purchase price of the stock covered by each option shall be determined
by the Board of Directors or the Committee, but in the case of incentive stock
options, shall not be less than one hundred percent (100%) of the fair market
value of such stock on the date the incentive stock option is granted. The
purchase price of the shares upon exercise of an option shall be paid in full at
the time of exercise (i) in cash or by certified, cashier's or personal check
payable to the order of the Company or (ii) by delivery of shares of Common
Stock of the Company already owned by, and in the possession of the option
holder, or any combination thereof. Shares of Common Stock used to satisfy the
exercise price of an option shall be valued at their fair market value
determined (in accordance with paragraph 9 hereof) as of the close of business
on the date of exercise (or if such date is not a business day, as of the close
of the business day immediately preceding such date).
7. Exercise of Options.
The aggregate fair market value (determined at the time the options are
granted) of the shares covered by incentive stock options granted to any one
employee under this Plan or any other incentive stock option plan of the Company
which may become exercisable for the first time in any one calendar year shall
not exceed $100,000; provided, however, that if the Code or the regulations
thereunder shall permit a greater amount of incentive stock options to vest in
any calendar year, then such higher limit shall be applicable, subject to the
provisions of the specific option agreement. Subject to the foregoing, each
option granted under this Plan shall be exercisable in such installments during
the period prior to its expiration date as the Board of Directors or Committee
shall determine; provided that, unless otherwise determined by the Board of
Directors or Committee, if the option holder shall not in any given installment
period purchase all of the shares which the option holder is entitled to
purchase in such installment period, then the option holder's right to purchase
any shares not purchased in such installment period shall continue until the
expiration date or sooner termination of the option holder's option. Any option
may be exercised for a fraction of a share and no partial exercise of any option
may be for less than one hundred (100) shares.
A-2
<PAGE> 21
8. Stock Appreciation Rights.
If deemed appropriate by the Board of Directors or the Committee, any stock
option granted to an officer of the Company or a subsidiary of the Company may
be coupled with a stock appreciation right at the time of the grant of the
option, or, the Board of Directors or Committee may grant a stock appreciation
right to any such officer at any time after granting an option to such officer
prior to the end of the term of such associated option. Such stock appreciation
right shall be subject to such terms and conditions not inconsistent with the
Plan as the Board of Directors or Committee shall impose, provided that:
(1) A stock appreciation right shall be exercisable to the extent, and
only to the extent, the associated option is exercisable and shall be
exercisable only for such period as the Board of Directors or Committee may
determine (which period may expire prior to the expiration date of the
option);
(2) A stock appreciation right shall entitle the option holder to
surrender to the Company unexercised the option to which it is related, or
any portion thereof, and to receive from the Company in exchange therefor
that number of shares (rounded down to the nearest whole number) having an
aggregate value equal to the excess of the fair market value of one share
(determined as thereinafter provided) over the option price per share
specified in such option multiplied by the number of shares subject to the
option, or portion thereof, which is so surrendered; and
(3) The Board of Directors or Committee may elect to settle, or the
stock appreciation right may permit the optionee to elect to receive
(subject to approval by the Board of Directors or Committee), any part or
all of the Company's obligation arising out of the exercise of a stock
appreciation right by the payment of cash equal to the aggregate fair
market value of that part or all of the shares it would otherwise be
obligated to deliver, provided that in no event shall cash be payable upon
exercise of a stock appreciation right unless the transaction is exempt
from the operation of Section 16(b) of the Exchange Act.
9. Fair Market Value of Common Stock.
The fair market value of a share of Common Stock of the Company shall be
determined for purposes of the Plan by reference to the closing price on the
principal stock exchange on which such shares are then listed or, if such shares
are not then listed on an exchange, by reference to the closing price (if a
National Market Issue) or the mean between the bid and asked price (if other
over-the-counter issue) of a share as supplied by the National Association of
Securities Dealers through NASDAQ (or its successor in function), in each case
as reported by The Wall Street Journal, for the date on which the option or
stock appreciation right is granted or exercised, or if such date is not a
business day, for the business day immediately preceding such date (or, if for
any reason no such price is available, in such other manner as the Board of
Directors or the Committee may deem appropriate to reflect the then fair market
value thereof).
10. Withholding Tax.
Upon (i) the disposition by an employee or other person of shares of Common
Stock acquired pursuant to the exercise of an incentive stock option granted
pursuant to the Plan within two years of the granting of the incentive stock
option or within one year after exercise of the incentive stock option, (ii) the
exercise of "non-incentive" or "non-qualified" options, or (iii) the exercise of
a stock appreciation right, the Company shall have the right to (a) require such
employee or such other person to pay the Company the amount of any taxes which
the Company may be required to withhold with respect to such shares or (b)
deduct from all amounts paid in cash with respect to the exercise of a stock
appreciation right the amount of any taxes which the Company may be required to
withhold with respect to such cash amounts.
11. Nontransferability.
An option (and any accompanying appreciation right) granted under the Plan
shall, by its terms, be non-transferable by the option holder, either
voluntarily or by operation of law, otherwise than by will or the laws of
descent and distribution, and shall be exercisable during option holder's
lifetime only by the option holder, regardless of any community property
interest therein of the spouse of the option holder, or such spouse's successors
in interest. If the spouse of the option holder shall have acquired a community
property interest in
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<PAGE> 22
such option (or accompanying stock appreciation right), the option holder, or
the option holder's permitted successors in interest, may exercise the option
(or accompanying stock appreciation right) on behalf of the spouse of the option
holder or such spouse's successors in interest.
12. Holding of Stock After Exercise of Option.
At the discretion of the Board of Directors or Committee, any option may
provide that the option holder, by accepting such option, represents and agrees,
for the option holder and the option holder's permitted transferees (by will or
the laws of descent and distribution), that none of the shares purchased upon
exercise of the option or any accompanying stock appreciation right will be
acquired with a view to any sale, transfer or distribution of said shares in
violation of the Securities Act of 1933, as amended, and the rules and
regulations promulgated thereunder, or any applicable state "blue sky" laws, and
the person entitled to exercise the same shall furnish evidence satisfactory to
the Company (including a written and signed representation) to that effect in
form and substance satisfactory to the Company, including an indemnification of
the Company in the event of any violation of the Securities Act of 1933 or state
blue sky law by such person.
13. Termination of Employment.
If a holder of an option granted under this Plan who is employed by the
Company or one of its subsidiaries ceased to be so employed for any reason other
than the option holder's death or permanent and total disability (within the
meaning of Section 22(e)(3) of the Code), the option holder's option (and any
accompanying stock appreciation right) shall immediately become void and of no
further force or effect; provided, however, that if such cessation of employment
shall be due to option holder's voluntary resignation with the consent of the
Board of Directors of the Company or such subsidiary, expressed in the form of a
written resolution, or to option holder's retirement under the provisions of any
pension or retirement plan of the Company or of such subsidiary then in effect,
then, such option shall be exercisable for a period of three (3) months after
the date option holder ceases to be an employee of the Company or such
subsidiary (unless by its terms it sooner expires) to the extent exercisable on
the date of such cessation of employment and shall thereafter expire and be void
and of no further force or effect. A leave of absence approved in writing by the
Board of Directors or Committee shall not be deemed a termination of employment
for the purposes of this paragraph 13, but no option may be exercised during any
such leave of absence, except during the first three (3) months thereof.
14. Death or Permanent Disability of Option Holder.
If the holder of an incentive stock option dies or becomes permanently and
totally disabled (as defined in paragraph 13) while option holder is employed by
the Company or one of its subsidiaries, option holder's option (and any
accompanying stock appreciation right) shall expire one (1) year after the date
of such death or permanent and total disability unless by its terms it sooner
expires. During such period after death, such option (and any accompanying stock
appreciation right) may, to the extent that it remained unexercised (but
exercisable by the option holder according to such option's terms) on the date
of such death, be exercised by the person or persons to whom the option holder's
rights under the option shall pass by option holder's will or by the laws of
descent and distribution. The death or disability of a holder of a non-qualified
stock option will have the effect specified in the individual option agreement
as determined by the Board of Directors or the Committee.
15. Privileges of Stock Ownership.
No person entitled to exercise any option or stock appreciation right
granted under the Plan shall have any of the rights or privileges of a
stockholder of the Company in respect of any shares of stock issuable upon
exercise of such option or stock appreciation right until certificates
representing such shares shall have been issued and delivered. No shares shall
be issued and delivered upon the exercise of any option or accompanying stock
appreciation rights unless and until there shall have been full compliance with
all applicable requirements of the Securities Act of 1933 (whether by
registration or satisfaction of exemption conditions), all applicable listing
requirements of any national securities exchange on which shares of the same
class are then listed and any other requirements of law or of any regulatory
bodies having jurisdiction over such issuance and delivery.
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<PAGE> 23
16. Adjustments.
If the outstanding shares of the Common Stock of the Company are increased,
decreased, changed into or exchanged for a different number or kind of shares or
securities of the Company through reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
similar transaction, an appropriate and proportionate adjustment shall be made
in the maximum number and kind of shares as to which options may be granted
under this Plan. A corresponding adjustment changing the number or kind of
shares allocated to unexercised options or portions thereof, which shall have
been granted prior to any such change, shall likewise be made. Any such
adjustment in the outstanding options shall be made without change in the
aggregate purchase price applicable to the unexercised portion of the option but
with a corresponding adjustment in the price for each shares or other unit of
any security covered by the option.
Upon the dissolution or liquidation of the Company, or upon a
reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all the property or more than eighty percent
(80%) of the then outstanding stock of the Company to another corporation, the
Plan shall terminate, and all options and stock appreciation rights theretofore
granted hereunder shall terminate.
Notwithstanding the foregoing, the Board of Directors or the Committee may
provide in writing in connection with such transaction for any or all of the
following alternatives (separately or in combinations): (i) for the options and
any accompanying stock appreciation rights theretofore granted to become
immediately exercisable notwithstanding the provisions of paragraph 7; (ii) for
the assumption by the successor corporation of the options and stock
appreciation rights theretofore granted or the substitution by such corporation
for such options and rights of new options and rights covering the stock of the
successor corporation, or a parent or subsidiary thereof, with appropriate
adjustments as to the number and kind of shares and prices; (iii) for the
continuance of the Plan by such successor corporation in which event the Plan
and the options and any accompanying stock appreciation rights theretofore
granted shall continue in the manner and under the terms so provided; or (iv)
for the payment in cash or stock in lieu of and in complete satisfaction of such
options and rights.
Adjustments under this paragraph 16 shall be made by the Board of Directors
or Committee, whose determination as to what adjustments shall be made, and the
extent thereof, shall be final, binding and conclusive. No fractional shares of
stock shall be issued under the Plan on any such adjustment.
At the discretion of the Board of Directors or the Committee, any option
may contain provisions to the effect that upon the happening of certain events,
including a change in control (as defined by the Board of Directors or Committee
in the option) of the Company, any outstanding options and accompanying stock
appreciation rights not theretofore exercisable shall immediately become
exercisable in their entirety, notwithstanding any of the other provisions of
the option.
17. Amendment and Termination of Plan.
The Board of Directors or the Committee may at any time suspend or
terminate the Plan. The Board of Directors or the Committee may also at any time
amend or revise the terms of the Plan, provided that no such amendment or
revision shall, unless appropriate stockholder approval of such amendment or
revision is obtained, increase the maximum number of shares in the aggregate
which may be sold pursuant to options granted under the Plan, except as
permitted under the provisions of paragraph 16, or change the minimum purchase
price of incentive stock options set forth in paragraph 6, or increase the
maximum term of incentive stock options provided for in paragraph 5, or permit
the granting of options or stock appreciation rights to anyone other than as
provided in paragraph 6.
At any time that the federal tax law is changed or amended with respect to
incentive stock options, this Plan shall be deemed automatically amended to
provide to the holders of incentive stock options the full benefit of the law,
as amended, without any action being taken by the Board, the Committee or the
stockholders of the Company. Notwithstanding the foregoing, no amendment,
suspension or termination of the Plan shall, without specific actions of the
Board of Directors or the Committee and the consent of the
A-5
<PAGE> 24
option holder, in any way modify, amend, alter or impair any rights or
obligations under any option or accompanying stock appreciation right
theretofore granted under the Plan.
18. Effective Date of Plan.
Effectiveness of the Plan is subject to approval by the holders of the
outstanding voting stock of the Company as hereinafter provided within twelve
months from the date the Plan is adopted by the Board of Directors. The Plan
shall be deemed approved by the holders of the outstanding voting stock of the
Company by (i) the affirmative vote of the holders of a majority of the voting
shares of the Company represented and voting at a duly held meeting at which a
quorum is present or (ii) the written consent of the holders of a majority of
the outstanding voting shares of the Company. Any options granted under the Plan
prior to obtaining such stockholder approval shall be granted under the
conditions that the options so granted: (1) shall not be exercisable prior to
such approval, and (2) shall become null and void if such stockholder approval
is not obtained.
No options or stock appreciation rights may be granted under the Plan
unless and until (i) the options, rights and underlying shares have been
qualified with the California Corporation Commissioner or (ii) the Company has
been advised by counsel that such options, rights and shares are exempt from
such qualification.
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<PAGE> 25
DETACH HERE
- --------------------------------------------------------------------------------
PROXY
ARGONAUT GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MARCH 26, 1999
The undersigned shareholder of Argonaut Group, Inc. (the "Company") hereby
appoints CHARLES E. RINSCH and JAMES B. HALLIDAY and each of them, with the
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 shares of Common Stock of the Company held of
record by the undersigned on February 26, 1999, at the 1999 Annual Meeting of
Shareholders of the Company to be held on Tuesday, April 27, 1999 at 11:00 a.m.,
at Argonaut Insurance Company, 250 Middlefield Road, Menlo Park, California,
94025, and any adjournments or postponements thereof.
- ----------- -----------
SEE REVERSE SEE REVERSE
SIDE CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
- ----------- -----------
<PAGE> 26
ARGONAUT GROUP, INC.
c/o EquiServe
P.O. Box 8040
Boston, MA 02266-8040
VOTE BY TELEPHONE
- -----------------
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
1-877-PRX-VOTE (1-877-779-8683)
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Call the toll-free number 1-877-PRX-VOTE (1-877-779-8683). For shareholders
residing outside the United States, call collect on a touch-tone phone
1-201-536-8073.
3. Enter your 14-digit Control Number located on your Proxy Card above your
name.
YOUR VOTE IS IMPORTANT! CALL 1-877-PRX-VOTE ANYTIME!
VOTE BY INTERNET
- ----------------
It's fast, convenient, and your vote is immediately confirmed and posted.
Follow these four easy steps:
1. Read the accompanying Proxy Statement/Prospectus and Proxy Card.
2. Go to the Website http://www.eproxyvote.com/agi.
3. Enter your 14-digit Voter Control Number located on your Proxy Card above
your name.
4. Follow the instructions provided.
YOUR VOTE IS IMPORTANT! GO TO http://www.eproxyvote.com/agi ANYTIME!
DO NOT RETURN YOUR PROXY CARD IF YOU ARE VOTING BY TELEPHONE OR INTERNET
DETACH HERE
- --------------------------------------------------------------------------------
[1720 ARGONAUT GROUP] [FILE:ARG32A.ELX] [VERSION-4] [03/18/99]
PLEASE MARK
[X] VOTES AS IN
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 PROPOSALS 1 AND 2.
THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF THE NOTICE OF ANNUAL MEETING AND PROXY
STATEMENT DATED MARCH 26, 1999.
1. Election of Directors
Nominees: (01) Jerrold V. Jerome, (02) Charles E. Rinsch,
(03) George A. Roberts, (04) Fayez S. Sarofin,
and (05) Henry E. Singleton.
[ ] FOR ALL [ ] WITHHELD FROM
ALL NOMINEES ALL NOMINEES
[ ]
--------------------------------------------
For all nominees except as noted above
2. Proposal to amend and restate the Company's Stock Option Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting or any adjournments
thereof.
[ ] MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
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
full title. If a corporation, please sign in full
corporate name by an authorized officer. If a
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.
Signature: Date:
---------------------------------------------- -----------------
Signature: Date:
---------------------------------------------- -----------------
