<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]
250 MIDDLEFIELD ROAD
MENLO PARK, CALIFORNIA 94025
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 25, 2000
The Annual Meeting of Shareholders of Argonaut Group, Inc. will be held on
Tuesday, April 25, 2000, at 10:00 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 increase the number of shares of common stock
available for issuance under the Company's Stock Option Plan from 2,500,000 to
3,000,000.
3. To vote on a proposal to adopt the Company's Non-Employee Director Stock
Option Plan.
4. 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 25,
2000, 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, 250 Middlefield Road, Menlo Park, California 94025.
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 27, 2000
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:
250 MIDDLEFIELD ROAD
MENLO PARK, CALIFORNIA 94025
------------------------
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 25, 2000, at 10:00 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
27, 2000.
VOTING SECURITIES
SECURITIES OUTSTANDING
February 25, 2000 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 22,280,034 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
1
<PAGE> 4
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 25, 2000, 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 ARGONAUT GROUP PERCENT OF
ADDRESS OF BENEFICIAL OWNER SHARES OWNED CLASS
--------------------------- -------------- ----------
<S> <C> <C>
Caroline W. Singleton................................ 4,663,056(1) 20.9%
335 Maple Drive, Suite 177
Beverly Hills, CA 90210
Fayez S. Sarofim..................................... 1,600,629(2) 7.2%
Two Houston Center, Suite 2907
Houston, TX 77010
Mario J. Gabelli..................................... 1,211,800(3) 5.4%
One Corporate Center
Rye, NY 10580-1434
</TABLE>
- ---------------
(1) Sole voting and dispositive powers.
(2) Based upon information contained in an amendment to Schedule 13G dated
February 25, 2000, and filed under the Securities Exchange Act of 1934, Mr.
Sarofim may be deemed to be the beneficial owner of 1,600,629 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 866,744 shares and shared dispositive power as to 951,853
shares. Of the securities which are not subject to sole voting and
dispositive powers, 418,387 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 120,527 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 contained in Schedule 13D dated April 27, 1999, and
filed under the Securities Exchange Act of 1934, Mr. Mario Gabelli is the
Chief Executive Officer and Chief Investment Officer of Gabelli Funds, Inc.
and GAMCO Investors, Inc., and is a Director /Trustee of all registered
investment companies advised by Gabelli Funds, Inc. Mario Gabelli may be
deemed to be the beneficial owner of 1,211,800 shares of Argonaut Group
Common Stock held by the following entities: Gabelli Funds, LLC, as agent;
230,000 shares, GAMCO Investors, Inc., as agent; 941,500 shares, Gabelli
Fund, LDC; 300 shares, Gabelli Associates Fund; 18,000 shares, and Gabelli
Foundation, Inc. 22,000 shares. Each of these funds has sole voting and
dispositive powers except that (i) GAMCO Investors does not have the
2
<PAGE> 5
authority to vote 74,300 of the reported shares, (ii) Gabelli funds has sole
dispositive power and voting power so long as the aggregate voting interest
of all joint filers does not exceed 25% of their total voting interest in
Argonaut Group, Inc. and, in that event, the Proxy Voting Committee of each
Fund shall respectively vote that Fund's shares, (iii) at any time, the
Proxy Voting Committee of each such Fund may take and exercise in its sole
discretion the entire voting power with respect to the shares held by such
fund under special circumstances such as regulatory considerations, and (iv)
the power of Mario Gabelli is indirect with respect to Securities
beneficially owned directly by the various entities of Gabelli Funds, Inc.
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......................................... 241,065 1.1%
Michael T. Gray........................................... 2,000 (4)
Jerrold V. Jerome......................................... 32,094 (4)
Judith R. Nelson.......................................... 1,000 (4)
John R. Power, Jr......................................... 0 (4)
Fayez S. Sarofim.......................................... 1,600,629(1) 7.2%
Mark E. Watson, III....................................... 1,000 (4)
Gary V. Woods............................................. 0 (4)
James B Halliday.......................................... 78,670(2) (4)
John W. Polak............................................. 9,000(3) (4)
All directors and executive officers as a group (9
persons)................................................ 1,965,458(1)(2)(3)(5) 8.8%
</TABLE>
- ---------------
(1) Stock ownership is presented as of February 25, 2000 except that Mr.
Sarofim's stock ownership is presented as of February 16, 2000. 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 25,
2000.
(2) Includes 63,000 shares which Mr. Halliday has the right to acquire within 60
days of February 25, 2000 through the exercise of options.
(3) Includes 9,000 shares which Mr. Polak has the right to acquire within 60
days of February 25, 2000 through the exercise of options.
(4) Owns less than 1%.
(5) Includes an aggregate of 72,000 shares which the officers have the right to
acquire within 60 days of February 25, 2000 through the exercise of options.
ELECTION OF DIRECTORS
(PROPOSAL 1)
Eight 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 eight nominees named below as
directors of Argonaut Group unless authority to so vote is withheld. Each
nominee is currently a
3
<PAGE> 6
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
eight 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>
NAME POSITIONS AND OFFICES WITH COMPANY AGE
---- ---------------------------------- ---
<S> <C> <C>
George A. Roberts Chairman of the Board(1)(3)(4) 81
Michael T. Gray Director(4) 39
Jerrold V. Jerome Director(1)(2)(3)(4) 70
Judith R. Nelson Director(3) 59
John R. Power, Jr. Director(2)(4) 44
Fayez S. Sarofim Director(4) 71
Mark E. Watson, III President, Chief Executive Officer, and 35
Director(1)(3)
Gary V. Woods Director 56
</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. Henry
Singleton as Chairman of the Board of Directors of the Company in December of
1998. He is a director of Unitrin, Inc. and of the Internet Law Library.
Michael T. Gray has been President and Director of The Gray Insurance
Company since 1996. Previously he served in senior management with the Gray
Insurance Company for more than five years. He was named to the Argonaut Group
Board in June, 1999.
Jerrold V. Jerome is a private investor. He was Chairman of the Board of
Directors of Unitrin, Inc. from February 1994 to December 31, 1998 and remains a
director of Unitrin, Inc.
Judith R. Nelson is a retired executive. Ms. Nelson was employed at
Teledyne, Inc. until l997 where she held the position of General Counsel and
Corporate Secretary for more than five years. She was named to the Argonaut
Group Board in January, 2000.
John R. Power, Jr. has been President of the Patrician Group, a private
investment firm located in Lisle, Illinois. He has held this position for more
than five years. He currently serves as a member of America West's Advisory
Board, and is a board member of Case Corporation's financial subsidiary. He was
named to the Argonaut Group Board in January, 2000.
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 Kinder Morgan Inc. and Unitrin, Inc.
4
<PAGE> 7
Mark E. Watson, III became President and Chief Executive Officer of
Argonaut Group on January 21, 2000. He joined the Company as Vice President in
September, 1999. Mr. Watson is a principal of Aquila Capital Partners, a San
Antonio, Texas based investment firm, and served from 1992 to 1998 as Director,
Executive Vice President, General Counsel, and Secretary of Titan Holdings,
Inc., a property and casualty insurance company. He was named to the Argonaut
Group Board in June, 1999.
Gary V. Woods has been President of McCombs Enterprises for more than five
years. He currently serves on the Boards of Ilex Oncology, Inc. and the Cancer
Therapy and Research Center. He was named to the Argonaut Group Board in March,
2000.
COMMITTEES AND MEETINGS OF THE BOARD OF DIRECTORS
During 2000, 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, 1999, and December 31, 1999, the Board of Directors met
seven times, the Executive Committee met eight times, the Audit Committee met
four times, the Compensation 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, with the exception of Dr. Henry Singleton, due to poor health.
5
<PAGE> 8
COMPENSATION OF DIRECTORS
Effective January 1, 2000, Directors who are not employees of the Company
or its subsidiaries receive a retainer of $30,000 per year, paid quarterly. In
addition, Chairmen of the Executive and Audit Committees will receive a
quarterly retainer of $5,000; other non-employee members of these committees
will receive a retainer of $2,000 per quarter. Directors will also receive an
additional $1,500 for attendance at each Board of Directors meeting. If the
shareholders approve the Company's Non-Employee Director Stock Option Plan, the
directors who are not employees will also receive stock option grants of 3,000
shares per year. See Proposal 3 (Approval of the Company's Non-Employee Director
Stock Option Plan) of this Proxy Statement.
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>
Mark E. Watson, III President and Chief Executive Officer 35
James B Halliday Vice President, Secretary and Treasurer 52
John W. Polak Vice President 51
Charles E. Rinsch President and Chief Executive Officer, 67
retired
</TABLE>
BUSINESS EXPERIENCE OF EXECUTIVE OFFICERS
Mark E. Watson, III became President and Chief Executive Officer of
Argonaut Group on January 21, 2000. His business experience is described under
"Business Experience of Nominees," under the Election of Directors section.
James B Halliday has been Vice President, Secretary, and Treasurer of
Argonaut Group for more than five years.
John W. Polak joined Argonaut Group as Vice President in March of 1997. He
was made President of Argonaut Great Central Insurance Company, a subsidiary of
Argonaut Group, in August, 1999. Prior to joining Argonaut, Mr. Polak was Chief
of Staff of Personal Lines at CNA.
Charles E. Rinsch retired as President and Chief Executive Officer of
Argonaut Group as of January 21, 2000. He had been in this position for more
than five years.
6
<PAGE> 9
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth compensation paid during each of the years
ended December 31, 1999, 1998, and 1997, of those persons who were, at December
31, 1999, the Chief Executive Officer and each Argonaut Group executive officer
whose salary plus bonus exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
ANNUAL COMPENSATION ------------ ALL OTHER
--------------------------- OPTIONS COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($)(1) BONUS($)(1) (#) ($)(2)
------------------------------ ---- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Mark E. Watson, III(3).......... 1999 86,480 -- -- 1,895
President and Chief -- -- -- -- --
Executive Officer -- -- -- -- --
James B Halliday................ 1999 185,000 32,000 -- 3,600
Vice President, 1998 174,375 60,000 20,000 3,600
Secretary and Treasurer 1997 161,750 50,000 -- 3,072
John W. Polak................... 1999 186,102 25,000 -- 3,600
Vice President 1998 181,000 30,000 -- 3,614
1997 135,289 10,000 12,000 164
Charles E. Rinsch(4)............ 1999 495,000 69,000 -- 3,600
President and Chief 1998 490,000 75,000 25,000 3,600
Executive Officer 1997 475,000 75,000 -- 3,117
</TABLE>
- ---------------
(1) Amounts include cash compensation earned and received by executive officers
as well as amounts deferred under a 401(k) Retirement Savings Plan.
(2) Amounts shown are the Company contributions to the 401(k) Retirement Savings
Plan.
(3) Mr. Watson began employment with the Company as a Vice President in
September of 1999. He was subsequently promoted to his current position of
President and Chief Executive Officer on January 21, 2000.
(4) Charles Rinsch retired in January of 2000. The terms of Mr. Rinsch's
retirement included a severance payment of $1,060,000 payable in lump sum on
retirement, continued health and medical insurance coverage for two years
after retirement, vesting of all options and an extension of the term of
options two years from date of retirement. In addition, the Company entered
into a two year consulting contract with Mr. Rinsch at $150,000 per year.
7
<PAGE> 10
OPTION GRANTS
The following table sets forth information on stock option grants in 1999
to the named executive officers.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------------
PERCENT OF
TOTAL OPTIONS EXERCISE
OPTIONS GRANTED TO OR BASE GRANT DATE
GRANTED EMPLOYEES PRICE EXPIRATION PRESENT
NAME (#)(1) IN FISCAL YEAR ($/SHARE)(2) DATE VALUE($)(3)
---- ------- -------------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C>
Mark Watson, III................. -- -- -- -- --
James B Halliday................. -- -- -- -- --
John W. Polak.................... 8,000 6.5% 25.375 4/27/10 33,590
Charles E. Rinsch................ -- -- -- -- --
</TABLE>
- ---------------
(1) The options granted are exercisable in annual installments of 25 percent
except that no exercise is permitted until one year after the date of grant.
(2) The exercise price must be paid in full either in cash or by delivery of
already owned Argonaut Group Common Stock valued at market value.
(3) In using the Black-Scholes option pricing model to calculate grant date
present value, certain assumptions are used: expected volatility (26.11%),
risk-free rate of return (5.20%), dividend yield (5.80%), and date of
exercise (4/27/10). Use of this model should not be viewed as a forecast of
the future performance of the Company's stock, which will be determined by
future events and unknown factors.
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth information with respect to the named
executive officers concerning the exercise of options during the last year and
unexercised options held as of the end of the year.
AGGREGATED OPTION EXERCISES IN LAST YEAR AND YEAR-END OPTION VALUE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
SHARES NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS AT
ACQUIRED VALUE OPTIONS AT YEAR-END(#) YEAR-END($)
ON EXERCISE REALIZED ---------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Mark Watson, III..... -- -- -- -- -- --
James B Halliday..... 23,600 320,634 53,000 20,000 -- --
John W. Polak........ -- -- 6,000 14,000 -- --
Charles E. Rinsch.... 6,000 17,250 210,250 18,750 -- --
</TABLE>
STOCK OPTION PLAN
The Company's 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. 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.
8
<PAGE> 11
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. 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
9
<PAGE> 12
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.
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 1999, the limit was $130,000. 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 1999, 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
10
<PAGE> 13
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, Pension Equalization Plan and
the additional pension benefit for Mr. Rinsch described in the preceding
paragraph, as of December 31, 1999 for Mark E. Watson, III is none, James B
Halliday is 25.3 years, John W. Polak is 1.8 years and Charles E. Rinsch is 30
years.
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 1999 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 TO THE STOCK OPTION PLAN TO INCREASE
THE NUMBER OF SHARES OF COMMON STOCK ISSUABLE UNDER
THE PLAN FROM 2,500,000 TO 3,000,000
(PROPOSAL 2)
DESCRIPTION OF PROPOSAL
Currently, the Company's Stock Option Plan provides for the issuance of up
to 2,500,000 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
22, 2000, options to acquire 2,070,460 shares had already been issued under the
Stock Option Plan, leaving options covering 429,540 shares remaining available
for grant. The Board of Directors of the Company
11
<PAGE> 14
has approved an increase in the total number of shares of Company Common Stock
issuable under the Stock Option Plan from 2,500,000 to 3,000,000, subject to
shareholder approval.
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, directors, 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 increase in the number
of shares issuable under 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 22, 2000 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>
Mark E. Watson, III................................. 350,000 16.9
James B Halliday.................................... 153,000 7.4
John W. Polak....................................... 32,000 1.5
Charles E. Rinsch................................... 535,000 25.8
--------- ----
All executive officers as a group (4 persons)....... 1,070,000 51.7
</TABLE>
VOTE REQUIRED
Approval of the Board of Directors' action in amending 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 TO 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.
12
<PAGE> 15
APPROVAL OF THE COMPANY'S NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
(PROPOSAL 3)
DESCRIPTION OF PROPOSAL
The Board of Directors has adopted the Company's Non-Employee Director
Stock Option Plan (the "Non-Employee Director Plan"), subject to shareholder
approval. The following summary of the terms of the Non-Employee Director Plan
is qualified in its entirety by the text of the Non-Employee Director Plan
attached as Appendix A to this Proxy Statement.
The Non-Employee Director Plan provides for the issuance of options to
purchase Common Stock to directors of the Company who are not employees. The
Non-Employee Director Plan is administered by the Board of Directors or a
Committee selected by the Board of Directors. The Company may issue up to
150,000 shares of Common Stock upon exercise of options issued under the
Non-Employee Director Plan. The Non-Employee Director Plan provides for the
issuance of options which are not "incentive stock options" for federal income
tax purposes.
The Non-Employee Director Plan specifies the number and timing of grants of
options. Upon approval of the Non-Employee Director Plan by the shareholders,
all directors who are not employees will receive an option to purchase 3,000
shares of Common Stock. At each subsequent annual meeting, each non-employee
director will receive an additional option to purchase 3,000 shares. In
addition, each non-employee director that becomes a member of the board after
the adoption of the Non-Employee Director Plan shall be granted an option to
purchase 3,000 shares upon election or appointment (other than a director who
first becomes a board member by shareholder vote at an annual meeting).
All options granted under the Non-Employee Director Plan will have a term
of 10 years and will have an exercise price equal to the fair market value as of
the date of grant. The options will vest one year after the date of grant,
unless a "change of control" occurs, in which case the options will become
immediately vested. In general, a "change of control" will occur if (i) more
than fifty percent (50%) of the combined voting power of the Company is acquired
by another person or entity (whether through merger or otherwise), (ii) more
than half of the members of the board of directors are replaced by individuals
who were not appointed or nominated by at least 50% of the then incumbent
directors (including any person appointed or elected as a result of a proxy
fight or threatened proxy fight), or (iii) the Company merges, consolidates or
reorganizes or sells substantially all of its assets unless the Company's
shareholders own 50% or more of the entity resulting from the transaction.
When non-employee directors leave the board for any reason, their unvested
options will immediately terminate. Non-employee directors will have three
months after they leave the board to exercise their vested options, except in
cases of death or disability, where they will have one year. Options under the
Non-Employee Director Plan are non-transferable except by will or the laws of
descent or distribution.
The Board may amend or terminate the Non-Employee Director Plan at any time
but may not do so without shareholder approval if the amendment would increase
the number of shares that may be granted under the Non-Employee Director Plan,
lower the exercise price, permit the granting of options to anyone other than a
non-employee director, increase the number of options to be granted to each
non-employee director or increase the term of options granted.
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 an option granted under the Non-Employee Director
13
<PAGE> 16
Plan, 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. 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.
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 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.
The Board of Directors of the Company has approved the adoption of the
Non-Employee Director Plan, subject to shareholder approval. The purpose of the
Non-Employee Director Plan is to help the Company attract and retain qualified
and competent persons to serve as members of the board of directors of the
Company by providing a means whereby these persons may acquire stock in the
Company. The Board of Directors of the Company believes that the Non-Employee
Director Plan will be an important factor in attracting and retaining the
highest caliber directors. Consequently, the Board of Directors urges
shareholders to approve the adoption of the Non-Employee Director Plan. However,
in voting on Proposal 3, 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.
VOTE REQUIRED
Approval of the Board of Directors' action in adopting the Non-Employee
Director 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 ADOPTION OF THE NON-EMPLOYEE DIRECTOR 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.
14
<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
The Argonaut Group Board of Directors has established a Compensation
Committee with authority to set all forms of compensation of the Company's
executive officers except the grant of stock options. The full Board retains the
administration of the Company Stock Option Plan, or any successor plan, and
makes the determination of persons to whom options may be granted.
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 1999, the compensation package of the Company's executive officers
consisted of annual base salary, discretionary bonuses, and stock options. In
setting 1999 compensation, the Committee considered the specific factors
discussed below:
Base Salary
In setting the executive officers' base salaries for 1999 (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 1999
year.
15
<PAGE> 18
To evaluate the performance of the other executive officers during 1999,
the Compensation Committee 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. 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.
During 1999, the Committee members also reviewed Mr. Rinsch's performance
for 1998 as measured by similar previously set objectives. Mr. Rinsch retired as
Chief Executive Officer on January 21, 2000.
Stock Options
The purpose of the 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
Board.
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 1999 was set at $495,000, the same as
the prior year. In setting Mr. Rinsch's 1999 base salary, the Committee
considered the same items discussed above, focusing primarily on 1998
performance.
Since Mr. Rinsch retired in January, no bonus was determined or awarded for
1999. During 1999, Mr. Rinsch received a bonus of $69,000 relating to 1998
performance. Mr. Rinsch's bonus award for 1998 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
Michael T. Gray
Jerrold V. Jerome
Judith R. Nelson
John R. Power, Jr.
Fayez S. Sarofim
Mark E. Watson III
16
<PAGE> 19
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The entire non-employee Board of Directors served as members of the
Compensation Committee of the Company during 1999. The entire Board of Directors
administered the Company's Stock Option Plan during 1999.
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. the
majority of which is owned by Fayez Sarofim, a director of the Company. Through
March 15, 2000, 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 based upon a graduated schedule with a
maximum rate of 0.75% and a minimum rate of 0.20%. The average fee as of
December 31, 1999 was approximately 0.26% 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. Currently no fixed assets are being managed. 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. Argonaut Group paid Fayez
Sarofim & Co. $579,695 for services provided in 1999.
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.
17
<PAGE> 20
FIVE-YEAR STOCK PERFORMANCE GRAPH
The graph below compares the yearly percentage change in the cumulative
total shareholder return on the Argonaut Group, Inc. Common Stock with the
cumulative total return of companies in the Standard and Poor's 500 Stock Index
and the Property Casualty Insurance Index. The Property Casualty Insurance Index
contains 94 United States property and casualty insurance companies. The graph
assumes $100 invested on January 1, 1995 in stock of the Corporation and the
companies on each of these indices.
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>
PROPERTY CASUALTY INSURANCE
ARGONAUT GROUP INC. S&P 500 INDEX INDEX
------------------- ------------- ---------------------------
<S> <C> <C> <C>
1994 100.00 100.00 100.00
1995 120.05 137.58 144.66
1996 119.13 169.17 169.84
1997 138.13 225.61 247.11
1998 105.32 290.09 260.36
1999 91.10 351.13 289.50
</TABLE>
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP has been selected as the Company's independent public
accountants for the year 2000. 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, 1999. Shareholders entitled to
18
<PAGE> 21
vote at the Annual Meeting may obtain a copy of the Company's Annual Report on
Form 10-K for the year ended 1999, without charge, upon written request to James
B Halliday, Secretary, Argonaut Group, Inc., 250 Middlefield Road, Menlo Park,
California 94025.
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, 2000. Shareholder
proposals should be submitted to James B Halliday, Secretary, Argonaut Group,
Inc., 250 Middlefield Road, Menlo Park, California 94025.
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 27, 2000
19
<PAGE> 22
APPENDIX A
ARGONAUT GROUP, INC.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLAN
1. Purpose.
The purpose of this Non-Employee Director Stock Option Plan (the "Plan") of
Argonaut Group, Inc., a Delaware corporation (the "Company"), is to attract and
retain qualified and competent persons to serve as members of the board of
directors of the Company by providing a means whereby such persons may acquire
stock ownership in the Company. The Plan will provide a means whereby such
directors may purchase shares of the Common Stock of the Company pursuant to
options which are not "incentive stock options" under Section 422 of the
Internal Revenue Code, as amended (the "Code").
2. Administration.
The Plan shall be administered by the Board of Directors of the Company
(the "Board of Directors") or by a Committee selected by the Board of Directors
consisting of two or more persons, to whom administration of the Plan has been
duly delegated (the "Committee"). 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, and (iv) 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.
The Board of Directors and the Committee shall have no discretion with
respect to the selection of directors to receive options, the number of shares
subject to the Plan or to each option granted hereunder, or the purchase price
for shares subject to option grants hereunder. The Board of Directors and the
Committee shall have no authority (absent stockholder approval) to materially
increase benefits under the Plan.
3. Shares Subject to the Plan.
Subject to adjustment as provided in paragraph 15 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 shall not exceed 150,000 of such shares.
If any option granted under the Plan shall expire or terminate for any reason,
without having been exercised in full, the unpurchased shares subject thereto
shall again be available for options to be granted under the Plan.
4. Eligibility and Participation.
Only Directors of the Company who are not regular employees of the Company
("Non-Employee Directors") are eligible to participate in the Plan.
A-1
<PAGE> 23
5. Schedule of Option Grants.
Subject to paragraph 15, grants under the Plan shall be made in accordance
with the following schedule:
(a) Initial Grants. Each Non-Employee Director who is serving on the
date on which the stockholders of this Company approve this Plan shall
receive an option to purchase 3,000 shares of Common Stock on such date.
(b) Annual Grants. Immediately after each annual meeting of
stockholders of the Company (beginning with the Company's 2001 annual
meeting), each Non-Employee Director who is in office at such time shall be
granted an option to purchase 3,000 shares of Common Stock.
(c) Grants to New Non-Employee Directors. Upon the appointment or
election to the Board of Directors of a Non-Employee Director who was not
previously a member of the Board of Directors, such Non-Employee Director
shall be granted an option to purchase 3,000 shares of Common Stock on the
date of appointment or election; provided, however, a Non-Employee Director
who is first made a member of the Board of Directors in connection with the
vote of stockholders of the Company at its annual meeting shall not be
entitled to receive the grant described in this subparagraph (c).
6. Duration of Options.
Each option and all rights associated therewith shall expire ten (10) years
after the date on which such option is granted, and shall be subject to earlier
termination as provided herein.
7. Purchase Price.
The purchase price of the stock covered by each option shall be equal to
one hundred percent (100%) of the fair market value of such stock on the date
the option is granted as determined in paragraph 9. 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 (subject to any required
holding period imposed by the Board of Directors or the Committee), 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).
8. Exercise of Options.
Subject to the other provisions of this Plan, each option granted under
this Plan shall become vested and exercisable one year after the date of grant;
provided, however, upon the occurrence of a Change of Control (as defined
below), each option shall become immediately vested and exercisable. No 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.
For purposes of this Plan, "Change of Control" shall mean the occurrence of
any of the following:
(i) Any "Person" or "Group" (as such terms are defined in Section
13(d) of the Securities Exchange Act of 1934 (the "Exchange Act") and the
rules and regulations promulgated thereunder) is or becomes the "Beneficial
Owner" (within the meaning of Rule 13d-3 under the Exchange Act), directly
or indirectly, of securities of the Company, or of any entity resulting
from a merger or consolidation involving the Company, representing more
than fifty percent (50%) of the combined voting power of the then
outstanding securities of the Company or such entity.
A-2
<PAGE> 24
(ii) The individuals who, as of the date that this Plan is approved by
the stockholders of the Company, are members of the Board of Directors (the
"Existing Directors"), cease, for any reason, to constitute more than fifty
percent (50%) of the number of authorized directors of the Company as
determined in the manner prescribed in the Company's Certificate of
Incorporation and Bylaws; provided, however, that if the election, or
nomination for election, by the Company's stockholders of any new director
was approved by a vote of at least fifty percent (50%) of the Existing
Directors, such new director shall be considered an Existing Director;
provided further, however, that no individual shall be considered an
Existing Director if such individual initially assumed office as a result
of either an actual or threatened "Election Contest" (as described in Rule
14a-11 promulgated under the Exchange Act) or other actual or threatened
solicitation of proxies by or on behalf of anyone other than the Board (a
"Proxy Contest"), including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest.
(iii) The consummation of (x) a merger, consolidation or
reorganization to which the Company is a party, whether or not the Company
is the Person surviving or resulting therefrom, or (y) a sale, assignment,
lease, conveyance or other disposition of all or substantially all of the
assets of the Company, in one transaction or a series of related
transactions, to any Person other than the Company, where any such
transaction or series of related transactions as is referred to in clause
(x) or clause (y) above in this subparagraph (iii) (a "Transaction") does
not otherwise result in a "Change in Control" pursuant to subparagraph (i)
of this definition of "Change in Control"; provided, however, that no such
Transaction shall constitute a "Change in Control" under this subparagraph
(iii) if the Persons who were the stockholders of the Company immediately
before the consummation of such Transaction are the Beneficial Owners,
immediately following the consummation of such Transaction, of fifty
percent (50%) or more of the combined voting power of the then outstanding
voting securities of the Person surviving or resulting from any merger,
consolidation or reorganization referred to in clause (x) above in this
subparagraph (iii) or the Person to whom the assets of the Company are
sold, assigned, leased, conveyed or disposed of in any transaction or
series of related transactions referred in clause (y) above in this
subparagraph (iii).
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 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 the exercise of options, the Company shall have the right to require
the participant to pay the Company the amount of any taxes which the Company may
be required to withhold (if any) with respect to such shares.
A-3
<PAGE> 25
11. Nontransferability.
An option 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 such option, the option holder, or the option
holder's permitted successors in interest, may exercise the option 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 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 Status as Non-Employee Director.
If an option holder ceases to be a Non-Employee Director for any reason any
unvested options held by such option holder shall immediately become void and of
no further force or effect. Any options which are vested as of the date of
cessation ("Termination Date") shall be exercisable for a period of three (3)
months after the Termination Date to the extent exercisable on the Termination
Date and shall thereafter expire and be void and of no further force or effect;
provided, however, where such cessation occurs as a result of the option
holder's death or permanent and total disability (within the meaning of Section
22(e)(3) of the Code), the vested portion of the option shall be exercisable for
one year following the Termination Date; provided, further, in no event shall
any options be exercisable after the scheduled expiration date of such options.
14. Privileges of Stock Ownership.
No person entitled to exercise any option 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 until certificates
representing such shares shall have been issued and delivered. No shares shall
be issued and delivered upon the exercise of any option 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.
15. 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
A-4
<PAGE> 26
which options may be granted under this Plan pursuant to paragraph 3 and the
numbers of options to be granted pursuant to paragraph 5. 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 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
theretofore granted to become immediately exercisable notwithstanding the
provisions of paragraph 8; (ii) for the assumption by the successor corporation
of the options theretofore granted or the substitution by such corporation for
such options of new options 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 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.
Adjustments under this paragraph 15 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.
16. 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 permitted under the provisions of paragraph 15 or unless
appropriate stockholder approval of such amendment or revision is obtained, (i)
increase the maximum number of shares in the aggregate which may be sold
pursuant to options granted under the Plan pursuant to paragraph 3, (ii) permit
the granting of options to anyone other than as provided in paragraph 4, (iii)
increase the number of options to be granted pursuant to paragraph 5, (iv)
increase the maximum term of stock options provided for in paragraph 6, or (v)
change the purchase price of stock options set forth in paragraph 7.
17. Effective Date of Plan.
Effectiveness of the Plan is subject to approval by the holders of the
outstanding voting stock of the Company. The Plan shall be deemed approved by
the holders of the outstanding voting stock of the Company by 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.
A-5
<PAGE> 27
1720-PS-00
<PAGE> 28
PROXY
ARGONAUT GROUP, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MARCH 27, 2000
The undersigned shareholder of Argonaut Group, Inc. (the "Company") hereby
appoints MARK E. WATSON, III 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 25, 2000, at the 2000 Annual Meeting of
Shareholders of the Company to be held on Tuesday, April 25, 2000 at 10:00 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> 29
[X] PLEASE MARK
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, 2 and 3.
The undersigned acknowledges receipt of the Notice of Annual Meeting and Proxy
Statement dated March 27, 2000.
1. Election of Directors
Nominees: (01) Michael T. Gray, (02) Jerrold V. Jerome,
(03) Judith R. Nelson, (04) John R. Power, Jr.,
(05) George A. Roberts, (06) Fayez Sarofim,
(07) Mark E. Watson, III and (08) Gary V. Woods
[ ] FOR ALL NOMINEES [ ] WITHHELD FROM ALL NOMINEES
[ ]
--------------------------------------
For all nominees except as noted above
[ ] MARK HERE FOR ADDRESS CHANGE NOTE BELOW
FOR AGAINST ABSTAIN
2. Proposal to increase the number of / / / / / /
shares of Common Stock available for
issuance under the Company's Stock
Option Plan from 2.6 million to 3.0
million.
3. Proposal to adopt the Company's / / / / / /
Non-Employee Director Stock Option
Plan.
4. In their discretion, the proxies are authorized to vote upon such other
business as may property come before the meeting or any adjournments thereof.
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 its 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:
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Signature: Date:
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