UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1999
Commission File No. 1-11941
FARM FAMILY HOLDINGS, INC.
A Delaware Corporation IRS No. 14-1789227
344 Route 9W, Glenmont, New York 12077-2910
Registrant's telephone number: (518) 431-5000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [ ]
The number of shares outstanding of the issuer's common stock as of
August 12, 1999 is 6,110,684.
<PAGE>
FARM FAMILY HOLDINGS, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
June 30, 1999 (unaudited) and December 31, 1998 3
Consolidated Statements of Income and Comprehensive Income -
Three and Six Months Ended June 30, 1999 and 1998 (unaudited) 4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 1999 and 1998 (unaudited) 5
Notes to Consolidated Financial Statements (unaudited) 7
Review Report of Independent Accountants 15
Item 2. Management's Discussion and Analysis of Financial Condition 16
and Results of Operations
Item 3. Quantitative and Qualitative Disclosures of Market Risk 26
Part II. Other Information
Item 2. Changes in Securities and Use of Proceeds 26
Item 4. Submission of Matters to a Vote of Security Holders 27
Item 6. Exhibits and Reports on Form 8-K 27
2
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<TABLE>
<CAPTION>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
($ in thousands) (Unaudited)
June 30, 1999 December 31, 1998
------------- -----------------
ASSETS
Investments:
Fixed maturities
Available for sale, at fair value
<S> <C> <C>
(Amortized cost: $978,029 in 1999 and $280,124 in 1998 ) $958,986 $293,120
Held to maturity, at amortized cost
(Fair value: $8,029 in 1999 and $8,652 in 1998) 8,046 8,390
Equity securities - available for sale, at fair value
(Cost: $45,127 in 1999 and $3,356 in 1998) 50,944 5,323
Mortgage loans 21,143 691
Policy loans 30,684 ----
Other invested assets 278 ----
- --------------------------------------------------------------------------------------------------------------------
Total investments 1,070,081 307,524
- --------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 29,005 10,677
Insurance receivables:
Reinsurance receivables 23,273 17,800
Premiums receivable, net 33,570 29,666
Deferred acquisition costs 16,651 13,668
Present value of future profits 29,279 ----
Accrued investment income 18,630 5,527
Property and equipment, net 14,178 ----
Deferred income tax asset, net ---- 1,694
Receivable from affiliates, net ---- 16,660
Other assets 4,092 3,287
====================================================================================================================
Total Assets $1,238,759 $406,503
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for property/casualty insurance
losses and loss adjustment expenses $179,738 $174,435
Reserves for life policies and contract benefits 233,446 ----
Funds on deposit from policyholders 420,563 ----
Unearned premium reserve 76,187 71,209
Accrued dividends to policyholders 5,410 ----
Deferred income tax liability, net 21,370 ----
Reinsurance premiums payable 2,579 1,055
Accrued expenses and other liabilities 21,313 15,566
Participating policyholders' interest 96,584 ----
- --------------------------------------------------------------------------------------------------------------------
Total liabilities 1,057,190 262,265
- --------------------------------------------------------------------------------------------------------------------
Commitments and contingencies
Mandatory redeemable preferred stock, redemption value - $5,830 in
1999; 163,214 Series A shares outstanding in 1999 5,830 ----
Stockholders' equity:
Preferred stock, $.01 par value, 836,786 shares authorized,
no shares issued and outstanding ---- ----
Common stock, $.01 par value, 10,000,000 shares authorized,
6,110,684 and 5,253,813 shares issued and outstanding 61 53
Additional paid-in capital 123,504 92,906
Retained earnings 50,451 41,554
Accumulated other comprehensive income 1,723 9,725
- --------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 175,739 144,238
====================================================================================================================
Total Liabilities and Stockholders' Equity $1,238,759 $406,503
====================================================================================================================
See accompanying notes to Consolidated Financial Statements.
</TABLE>
3
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<TABLE>
<CAPTION>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income
($ in thousands, except per share data)
(Unaudited) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C> <C> <C>
Premiums from property/casualty operations $44,723 $44,929 $93,057 $87,744
Premiums from life and health operations and contract charges 9,296 ---- 9,296 ----
Net investment income 17,442 4,751 22,276 9,518
Realized investment gains (losses), net (67) 216 212 342
Other income 459 264 736 483
- ---------------------------------------------------------------------------------------------------------------------------------
Total Revenues 71,853 50,160 125,577 98,087
- ---------------------------------------------------------------------------------------------------------------------------------
Losses, benefits and expenses:
Losses and loss adjustment expenses on property/casualty operations 32,923 33,988 69,409 66,127
Policyholder contract benefits 13,537 ---- 13,537 ----
Amortization expense 9,169 8,662 18,165 17,043
Other operating costs and expenses 6,082 3,460 8,918 6,628
Participating policyholders' interest 2,573 ---- 2,573 ----
- ---------------------------------------------------------------------------------------------------------------------------------
Total Losses, Benefits and Expenses 64,284 46,110 112,602 89,798
- ---------------------------------------------------------------------------------------------------------------------------------
Income before federal income tax expense and preferred stock dividends 7,569 4,050 12,975 8,289
Federal income tax expense 2,330 1,339 3,993 2,556
- ---------------------------------------------------------------------------------------------------------------------------------
Income before preferred stock dividends 5,239 2,711 8,982 5,733
Preferred stock dividends 85 ---- 85 ----
- ---------------------------------------------------------------------------------------------------------------------------------
Net income attributable to common stockholders 5,154 2,711 8,897 5,733
- ---------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income, net of tax:
Unrealized holding gains (losses) arising during the period (net of deferred
tax expense (benefit) of ($2,523), $236, ($4,253) and $290, respectively) (4,686) 438 (7,899) 538
Reclassification adjustment for gains included in net income
(net of tax expense of $153, $35, $55 and $107, respectively) (284) (65) (103) (198)
- ---------------------------------------------------------------------------------------------------------------------------------
Other comprehensive income (loss) (4,970) 373 (8,002) 340
- ---------------------------------------------------------------------------------------------------------------------------------
Comprehensive income $184 $3,084 $895 $6,073
=================================================================================================================================
Per Share Data:
Net income - basic $0.85 $0.52 $1.57 $1.09
=================================================================================================================================
Net income - diluted $0.84 $0.51 $1.56 $1.08
=================================================================================================================================
Basic weighted average shares outstanding 6,053,559 5,253,813 5,651,477 5,253,813
=================================================================================================================================
Diluted weighted average shares outstanding 6,100,551 5,313,386 5,696,139 5,307,442
=================================================================================================================================
See accompanying notes to Consolidated Financial Statements.
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands) (Unaudited)
For the Six Months
Ended June 30,
--------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Operating Activities
Net income $8,897 $5,733
- ------------------------------------------------------------------------------------------------------------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
<S> <C> <C>
Realized investment gains, net (212) (342)
Amortization of bond discount 1,264 145
Amortization and depreciation 18,826 17,043
Interest credited to policyholders 5,801 ----
Deferred income taxes (1,511) (753)
Participating policyholders' interest 2,573 ----
Dividends to policyholders (2,568) ----
Capitalization of deferred acquisition costs (20,750) (17,867)
Loss on sale of property and equipment 9 ----
Changes in:
Reinsurance receivables (2,595) (5,170)
Premiums receivable, net (3,650) (5,331)
Accrued investment income (535) 57
Receivable from affiliates, net 1,571 96
Other assets 139 337
Reserves for property/casualty insurance losses and loss adjustment expenses 5,067 11,789
Reserves for life policies and contract benefits 3,141 ----
Unearned premium reserve 4,546 6,581
Reinsurance premiums payable 1,493 (442)
Accrued expenses and other liabilities 2,880 417
- ------------------------------------------------------------------------------------------------------------------------
Total adjustments 15,489 6,560
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 24,386 12,293
- ------------------------------------------------------------------------------------------------------------------------
Investing Activities
Proceeds from sales:
Fixed maturities - available for sale 1,207 408
Equity securities 386 ----
Investment collections:
Fixed maturities - available for sale 32,730 22,925
Fixed maturities - held to maturity 327 367
Equity securities 261 ----
Mortgage loans 173 932
Investment purchases:
Fixed maturities - available for sale (34,753) (33,541)
Equity securities (1,216) ----
Mortgage loans (1,200) ----
Policy loans issued, net (241) ----
Change in other invested assets ---- 95
Purchases of property and equipment (661) ----
Proceeds from sale of property and equipment 3 ----
Net cash of subsidiary at date of acquisition 3,295 ----
Acquisition expenses (1,895) ----
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,584) (8,814)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS-CONT'D
($ in thousands) (Unaudited)
For the Six Months
Ended June 30,
--------------
1999 1998
- ------------------------------------------------------------------------------------------------------------------------
Financing Activities
<S> <C>
Contractholder fund deposits 59,981 ----
Contractholder fund withdrawals (64,455) ----
Principal payments on debt ---- (1,268)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (4,474) (1,268)
- ------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 18,328 2,211
Cash and cash equivalents, beginning of period 10,677 11,484
========================================================================================================================
Cash and cash equivalents, end of period $29,005 $13,695
========================================================================================================================
See accompanying notes to Consolidated Financial Statements.
</TABLE>
6
<PAGE>
Notes to Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements include the accounts of
Farm Family Holdings, Inc. ("Farm Family Holdings") and its wholly-owned
subsidiaries (collectively referred to as the "Company"). The primary
subsidiaries of Farm Family Holdings are Farm Family Casualty Insurance
Company ("Farm Family Casualty") and Farm Family Life Insurance Company
("Farm Family Life"). On April 6, 1999, Farm Family Holdings acquired Farm
Family Life and Farm Family Life's wholly-owned subsidiary, United Farm
Family Insurance Company ("United Farm Family") (see Note 2).
Farm Family Life provides life, annuity, and accident & health insurance
coverages principally to members of the state Farm Bureau(R) organizations
in New York, New Jersey, Delaware, West Virginia and all of the New England
states. United Farm Family is a specialized property and casualty insurer
which began direct writing in Pennsylvania and Maryland during 1998.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article
10 of Regulation S-X. In the opinion of management, these statements
contain all adjustments, including normal recurring accruals, which are
necessary for a fair presentation of the financial position, results of
operations and cash flows for the interim periods. The results of the
Company's operations for any interim period are not necessarily indicative
of the results of the Company's operations for a full fiscal year.
It is suggested that these consolidated financial statements be read in
conjunction with the financial statements and the related notes included in
Farm Family Holdings' December 31, 1998 Form 10-K.
Accounting Policies
The following accounting policies relate to policies unique to Farm Family
Life and, therefore, were not included in the "Summary of Significant
Accounting Policies" in the notes to Farm Family Holdings' December 31,
1998 financial statements.
Investments
Policy loans are carried at their unpaid principal balance.
Premium Revenue and Benefits to Policyholders
Recognition of traditional life and group premium revenue and benefits to
policyholders:
Traditional life insurance products include those products with fixed and
guaranteed premiums and benefits, and consist principally of whole life
insurance policies. Life insurance premiums are recognized as premium
revenue when due. Group insurance premiums are recognized as premium
revenue over the time period to which the premiums relate. Benefits and
expenses are associated with earned premiums so as to result in the
recognition of profits over the life of the contracts. This association is
accomplished by means of the provision for liabilities for future policy
benefits and the amortization of deferred acquisition costs.
7
<PAGE>
Recognition of universal life-type contracts revenue and benefits to
policyholders:
Universal life-type policies are insurance contracts with terms that are
not fixed and guaranteed. The terms that may be changed could include one
or more of the amounts assessed to the policyholder, premiums paid by the
policyholder or interest credited to policyholder balances. Amounts
received as payments for such contracts are not reported as premium
revenues. Payments received are considered deposits and are classified as
funds on deposit from policyholders. Account balances are increased by
interest credited and reduced by withdrawals, mortality charges and
administrative expenses charged to policyholders. For the three months
ended June 30, 1999, interest rates credited to policyholder funds ranged
from 6% to 7% per annum.
Revenues for universal life-type policies consist of charges assessed
against policy account values for the cost of insurance and policy
administration. Policy benefits and claims that are charged to expense
include interest credited to contracts and benefit claims incurred in the
period in excess of related policy account balances.
Recognition of investment contract revenue and benefits to policyholders:
Contracts that do not subject the Company to risks arising from
policyholder mortality or morbidity are referred to as investment
contracts. Certain annuity contracts are considered investment contracts.
Amounts received as payments for such contracts are not reported as premium
revenues. Payments received are considered deposits and are classified as
funds on deposit from policyholders. Account balances are increased by
interest credited and reduced by withdrawals. For the three months ended
June 30, 1999, interest rates credited to policyholder funds ranged from
4.1% to 8.3% per annum.
Revenues for investment contracts consist of investment income and policy
administration charges. Contract benefits that are charged to expense
include benefit claims incurred in the period in excess of related contract
balances and interest credited to contract balances.
Interest crediting rates for universal life type contracts and investment
contracts are based on current market conditions and are determined by the
Board of Directors.
Deferred Acquisition Costs ("DAC")
Certain costs of writing an insurance policy, which vary with and are
primarily related to the production of new business, have been deferred to
the extent that such costs are deemed recoverable from future premiums, and
have been reported as DAC. Such costs include commissions, certain costs of
policy issuance and underwriting, and certain variable agency expenses.
Future investment income is considered in determining the recoverability of
DAC.
For traditional life insurance products, these costs are amortized, with
interest, in proportion to the ratio of estimated annual revenues to the
estimated total revenues over the contract period. For most life insurance,
a 15-year to 40-year amortization period is used, and a 25-year period is
used for annuities.
Deferred acquisition costs for universal life contracts and certain annuity
contracts are amortized at a constant rate based upon the present value of
estimated gross profits expected to be realized over the life of the
contracts.
The Company reviews the carrying amount of DAC on a periodic basis.
Amortization of DAC includes DAC relating to property and casualty and life
insurance policies and has been reported as amortization expense in the
accompanying consolidated statements of income and comprehensive income.
8
<PAGE>
Present Value of Future Profits ("PVFP")
The actuarially determined present value of anticipated net cash flows to
be realized from insurance, annuity and investment contracts in force at
the date of an acquisition is recorded as PVFP. This balance is amortized
and evaluated for recoverability in the same manner as the deferred
acquisition costs described above. The $29.3 million of PVFP in the
accompanying consolidated balance sheets reflects the original $29.7
million from the acquisition of Farm Family Life, less accumulated
amortization.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation.
The Company uses the straight line method of depreciation over the
estimated useful life ranges of 10 to 20 years for property and 3 to 7
years for equipment. The Company reviews its property and equipment for
impairment whenever events or changes in circumstances indicate that the
carrying amount may not be recoverable.
Future Policy and Contract Benefits
Liabilities for future policy benefits for term life contracts are
calculated using the net level premium method and assumptions as to
investment yields, mortality and withdrawals. These assumptions are based
on projections and past experience and include provisions for possible
unfavorable deviation. These assumptions are made at the time the contract
is issued.
Liabilities for future policy benefits for traditional whole life contracts
are calculated using the net level premium method and assumptions as to
interest and mortality. Traditional whole life is written on a
participating basis with a provision for dividends to policyholders (see
Participating Policyholders' Interest).
Liabilities for future policy and contract benefits on universal life-type
and investment-type contracts are based on the policy account balance.
The liabilities for future policy and contract benefits for long-term
disability income contracts are based upon interest rate assumptions and
morbidity and termination rates from published tables.
Participating Policyholders' Interest
The majority of the Company's life insurance, accident and health and
annuity policies are written on a "participating" basis, as defined in the
New York State insurance law. Profits earned on participating business are
reserved for the payment of dividends to policyholders except for the
stockholders' share of profits on participating policies, which is limited
to the greater of 10% of the statutory profit on participating business, or
50 cents per thousand dollars of the face amount of participating life
insurance in force. Participating policyholders' interest includes the
accumulated net income from participating policies reserved for payment to
such policyholders in the form of dividends (less net income allocated to
stockholders as indicated above) as well as a pro rata portion of
unrealized investment gains (losses), net of tax. Dividends to
policyholders are approved by the Board of Directors.
In addition to the greater of 10% of the statutory profit on participating
business or 50 cents per thousand dollars of the face amount of
participating life insurance in force, earnings available to common
stockholders consists of earnings on non-participating business and a pro
rata share of net investment income and realized investment gains (losses).
Certain reclassifications have been made to prior period's financial
statements to conform to the current period's presentation.
9
<PAGE>
2. Acquisition of Farm Family Life
On April 6, 1999, Farm Family Holdings acquired all of the outstanding
capital stock of Farm Family Life pursuant to the terms of an Amended and
Restated Option Purchase Agreement, as amended (the "Option Purchase
Agreement") among the Company and the shareholders of Farm Family Life (the
"Selling Stockholders"). Farm Family Holdings' aggregate purchase price was
approximately $38.3 million, including direct acquisition costs. The
purchase price consisted of approximately $30.6 million of Farm Family
Holdings' common stock ($31.5 million less certain expenses paid by Farm
Family Life), approximately $5.8 million stated value of 6-1/8% voting
preferred stock ($6 million less certain expenses paid by Farm Family Life)
and approximately $1.9 million in direct acquisition costs. Under the terms
of the Option Purchase Agreement, the price used to determine the number of
shares of common and voting preferred stock issued in the acquisition was
fixed at $35.72 per share. Farm Family Holdings issued 856,871 shares of
common stock and 163,214 shares of voting preferred stock to the Selling
Stockholders. After the acquisition, Farm Family Holdings' total number of
common shares outstanding increased to 6,110,684. As a result of the
acquisition, Farm Family Life became a wholly-owned subsidiary of Farm
Family Holdings. The acquisition was accounted for as a purchase and,
accordingly, the financial results of Farm Family Life are included in
these consolidated financial statements effective April 6, 1999.
3. Farm Family Life Acquisition - Pro Forma Results of Operations
The following unaudited pro forma information for the Company gives effect
to the Farm Family Life acquisition as if it happened at the beginning of
the periods presented. These pro forma results have been prepared for
comparative purposes only and are not necessarily indicative of what would
have resulted had the acquisition been made on the dates indicated, or
future results.
<TABLE>
<CAPTION>
Six Months Ended
($ in thousands, except per share data) June 30,
--------
1999 1998
---- ----
<S> <C> <C>
Revenues $148,329 $143,491
Income attributable to common shareholders $9,764 $7,284
Net income per common share - diluted $1.59 $1.18
</TABLE>
4. Earnings Per Share
The following table presents a reconciliation of the numerators and
denominators of the basic and diluted earnings per share computations.
<TABLE>
Three months ended Six months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income available to common stockholders $5,154,000 $2,711,000 $8,897,000 $5,733,000
====================================================
Weighted-average number of shares in basic earnings per share 6,053,559 5,253,813 5,651,477 5,253,813
Effect of stock options 46,992 59,573 44,662 53,629
----------------------------------------------------
Weighted-average number of shares in diluted earnings per share 6,100,551 5,313,386 5,696,139 5,307,442
====================================================
Basic net income per share $0.85 $0.52 $1.57 $1.09
====================================================
Diluted net income per share $0.84 $0.51 $1.56 $1.08
====================================================
</TABLE>
5. Preferred Stock
Farm Family Holdings' Certificate of Incorporation authorizes the issuance
of 1,000,000 shares of preferred stock with a par value of $.01, issuable
in classes or series. Of the 1,000,000 authorized, 163,214 shares of
mandatory redeemable preferred stock have been issued and are outstanding
as of June 30, 1999 and are reported in the accompanying consolidated
balance sheets as mandatory redeemable preferred stock. The remaining
10
<PAGE>
836,786 shares are reported in preferred stock in the stockholders' equity
section. None of the remaining 836,786 shares have been issued as of June
30, 1999.
In connection with the acquisition of Farm Family Life, Farm Family
Holdings issued 163,214 shares of 6 1/8% Series A preferred stock with a
$5,830,000 redemption value, or $35.72 per share. The dividends are payable
on each January 15, April 15, July 15 and October 15 and must be fully paid
or declared with funds set aside for payment before any dividend can be
declared or paid on any other class of Farm Family Holdings' stock. The
preferred stock must be redeemed by Farm Family Holdings on April 7, 2019
(or the next business day) and may be redeemed, at Farm Family Holdings'
option, in whole or in part, on and after April 6, 2009. Farm Family
Holdings has the option to pay the redemption amount in cash or by delivery
of Farm Family Holdings' common stock.
6. Future Application of Accounting Standards
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("Statement 133"). This
statement, which is effective for the Company for the year beginning
January 1, 2001, establishes accounting and reporting standards for
derivative instruments and for hedging activities. Statement 133 requires
the recognition of all derivatives as either assets or liabilities in the
statement of financial position and the measurement of those instruments at
fair value. Management believes that Statement 133 will not have a material
impact on the Company's consolidated financial statements.
7. Contingencies
The Company is party to numerous legal actions arising in the normal course
of business. Management believes that resolution of these legal actions
will not have a material adverse effect on the Company's consolidated
financial condition.
Catastrophes are an inherent risk in the property and casualty insurance
industry and could produce significant adverse fluctuations in the
Company's results of operations and financial condition. The Company is
subject to a concentration of risk within the Northeastern United States.
For each of the six month periods ended June 30, 1999 and 1998,
approximately 62% of the Company's direct premiums were written in the
states of New York and New Jersey. As a result of the concentration of the
Company's business in the states of New York and New Jersey, and more
generally, in the Northeastern United States, the Company's results of
operations may be significantly affected by weather conditions,
catastrophic events and regulatory developments in these two states and in
the Northeastern United States, despite the Company's property and casualty
reinsurance program designed to mitigate the impact of these factors.
As a condition of its license to do business in various states, the Company
is required to participate in a variety of mandatory residual market
mechanisms (including mandatory pools) which provide certain insurance
(most notably automobile insurance) to consumers who are otherwise unable
to obtain such coverages from private insurers. The amount of future losses
or assessments from residual market mechanisms can not be predicted with
certainty and could have a material adverse effect on the Company's future
results of operations.
During the third quarter of 1998, the Company modified the agreements with
its agents to include revised conditions under which eligible agents may
receive extended earnings payments. In addition to length of service,
confidentiality, and non-competition conditions, extended earnings will be
paid only if a successor agent(s) assumes the right to service the book of
business of the eligible former agent and agrees to become primarily
responsible for making the extended earnings payments. In the event that no
successor agent(s) assumes the right to service the book of business of an
eligible former agent, the Company has no obligation to make the extended
earnings payments. The Company has no intention to waive this provision of
its agreements with its agents. As a result, the successor agent(s), not
the Company, is the primary obligor responsible for extended earnings
payments. Since the inception of the Program in 1986, the Company has
11
<PAGE>
always been able to identify successor agents willing to assume the rights
to service such books of business. The Company acts as guarantor of the
amounts payable to eligible former agents who have terminated their
association with the Company by successor agents who agree to make the
extended earnings payments. At June 30, 1999, the Company was guarantor of
$642,000 for such payments. The Company expects to enforce the terms of the
guarantee in the event of default by a successor agent.
The Company's liability for funds on deposit from policyholders includes
amounts subject to discretionary withdrawal from annuity investment
contracts. Withdrawal characteristics of annuity deposit liabilities as of
June 30, 1999 are as follows:
<TABLE>
<CAPTION>
($ in thousands) Amount % of Total
Subject to discretionary withdrawal at book
<S> <C> <C>
value less surrender charge of 5% or more $60,089 19.7%
Subject to discretionary withdrawal at book
value less no or minimal surrender charge 236,375 77.3%
Not subject to discretionary withdrawal 9,139 3.0%
-------------------------------
Total annuities and deposit fund liabilities $305,603 100.0%
-------------------------------
</TABLE>
Many of the Company's existing computer programs and other computer systems
upon which the Company relies were created using only two digits to
identify a year in the date field. If not corrected, many of these computer
applications could fail or produce erroneous results. In 1996, management
began considering Year 2000 issues as they affect the Company and began to
develop a Year 2000 plan. The Company's overall plan for dealing with the
Year 2000 problem covers information technology ("IT") systems, non-IT
systems, and third-party providers. The Company has established a Year 2000
team to lead the Company's activities relating to its Year 2000 issues. The
Company's Year 2000 team works with the Company's senior management, legal
and business units on Year 2000 issues. Despite the Company's efforts to
address its Year 2000 issues, there can be no assurances that Year 2000
related failures of the Company's IT systems, or that Year 2000 related
failures by third parties with which the Company interacts, will not have a
material adverse effect on the Company's results of operations, liquidity
and financial condition.
In addition to its own computer systems and third-party providers, the
Company may also have exposure in its property/casualty operations to Year
2000 claims asserted under certain insurance policies it has sold to
customers. There can be no assurances that Year 2000 related claims will
not emerge and that such claims will not have a material adverse effect on
the Company's results of operations, liquidity and financial condition.
12
<PAGE>
8. Segment Information
The Company has two reportable segments: property and casualty insurance
and life insurance, which offer different products and services. The
property and casualty insurance segment includes activities related to the
sale of the Special Farm Package, a flexible multi-line package of
insurance coverages, and other insurance products covering, personal and
commercial automobiles, businessowners and homeowners. The life insurance
segment includes the sale of individual whole life, term and universal life
products, single and flexible premium deferred annuity products, single
premium immediate annuity products and disability income insurance
products. The Company uses operating income (net income excluding realized
investment gains (losses) and nonrecurring charges, net of taxes) to
measure the financial results of its segments.
"Corporate and other" includes holding company activities and operations
not directly related to the reportable segments.
Summarized segment financial information is as follows:
<TABLE>
<CAPTION>
($ in thousands) Three months ended Six months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Premium Revenues
<S> <C> <C> <C> <C>
Property and casualty insurance $44,723 $44,929 $93,057 $87,744
Life insurance 9,296 ---- 9,296 ----
---------------------------------------------------
Total premium revenues $54,019 $44,929 $102,353 $87,744
===================================================
Net Investment Income
Property and casualty insurance $5,122 $4,619 $9,849 $9,247
Life insurance 12,205 ---- 12,205 ----
Corporate and other 103 132 210 271
Intersegment eliminations 12 ---- 12 ----
---------------------------------------------------
Total investment income $17,442 $4,751 $22,276 $9,518
===================================================
Amortization Expense
Property and casualty insurance
Amortization of deferred acquisition costs $8,515 $8,662 $17,511 $17,043
Life insurance
Amortization of deferred acquisition costs 257 ---- 257 ----
Amortization of present value of future profits 397 ---- 397 ----
---------------------------------------------------
Total amortization expense $9,169 $8,662 $18,165 $17,043
===================================================
Other Operating Costs and Expenses
Property and casualty insurance
Underwriting expenses $2,601 $3,109 $5,125 $5,925
Dividends to policyholders 38 5 108 55
Life insurance
Other operating costs and expenses 3,378 ---- 3,378 ----
Corporate and other 290 346 532 648
Intersegment eliminations (225) ---- (225) ----
---------------------------------------------------
Total other operating costs and expenses $6,082 $3,460 $8,918 $6,628
===================================================
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
-------- --------
1999 1998 1999 1998
---- ---- ---- ----
Net Income
Other Operating Income
<S> <C> <C> <C> <C>
Property and casualty insurance $4,783 $2,707 $8,416 $5,755
Life insurance 635 ---- 635 ----
Corporate and other (274) (136) (345) (244)
---------------------------------------------------
Total consolidated operating income 5,144 2,571 8,706 5,511
Realized investment gains, net of tax 10 140 191 222
---------------------------------------------------
Total net income $5,154 $2,711 $8,897 $5,733
===================================================
Federal Income Tax Expense (Benefit)
Property and casualty insurance $1,767 $1,410 $3,467 $2,682
Life insurance 549 ---- 549 ----
Corporate and other 14 (71) (23) (126)
---------------------------------------------------
Total federal income tax expense $2,330 $1,339 $3,993 $2,556
===================================================
</TABLE>
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
---- ----
Assets
<S> <C> <C>
Property and casualty $437,462 $397,038
Life insurance 829,254 ----
Corporate and other 71,093 35,417
Intersegment eliminations (99,050) (25,952)
--------------------------
Total assets $1,238,759 $406,503
===========================
</TABLE>
14
<PAGE>
Review Report of Independent Accountants
To the Shareholders and Board of Directors
Farm Family Holdings, Inc.
We have reviewed the consolidated balance sheet of Farm Family Holdings, Inc.
and subsidiaries as of June 30, 1999, and the related consolidated statements of
income and comprehensive income for the three-month and six-month periods ended
June 30, 1999 and cash flows for the six-month period ended June 30, 1999. These
financial statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
/s/ PricewaterhouseCoopers LLP
Albany, New York
July 28, 1999
15
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operations
General
The following discussion includes the operations of Farm Family Holdings, Inc.
("Farm Family Holdings") and its wholly-owned subsidiaries (collectively
referred to as the "Company") and should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere
within this document.
The Company's operating results are subject to significant fluctuations from
period to period depending upon, among other factors, the frequency and severity
of losses from weather related and other catastrophic events, the effect of
competition and regulation on the pricing of products, changes in interest
rates, the impact on reserves and reserving policy caused by property and
casualty claims development and variations of actual experience from that
assumed for life insurance business as to expected morbidity, lapse rates and
other factors used in the development of product pricing, general economic
conditions, tax laws and the regulatory environment. As a condition of its
license to do business in various states, the Company is required to participate
in a variety of mandatory residual market mechanisms (including mandatory pools)
which provide certain insurance (most notably automobile insurance) to consumers
who are otherwise unable to obtain such coverages from private insurers. In all
such states, residual market premium rates are subject to the approval of the
state insurance department and have generally been inadequate. The amount of
future losses or assessments from residual market mechanisms cannot be predicted
with certainty and could have a material adverse effect on the Company's results
of operations.
For the six month periods ended June 30, 1999 and 1998, 35.0% and 34.2%,
respectively, of the Company's property and casualty direct written premiums
were derived from policies written in New York and, for the same periods, 26.9%
and 27.8%, respectively, were derived from policies written in New Jersey. For
these same periods, no other state accounted for more than 10.0% of the
Company's direct written premiums. As a result, the Company's results of
operations may be significantly affected by weather conditions, catastrophic
events and regulatory developments in these two states and in the Northeastern
United States generally.
Many computer programs and other computer systems upon which the Company relies
were created using only two digits to identify a year in the date field. If not
corrected, many of these computer applications could fail or produce erroneous
results. In 1996, management began considering Year 2000 issues as they affect
the Company and began to develop a Year 2000 plan. The Company's overall plan
for dealing with the Year 2000 problem covers information technology ("IT")
systems, non-IT systems, and third-party providers. The Company has established
a Year 2000 team to lead the Company's activities relating to its Year 2000
issues. The Company's Year 2000 team works with the Company's senior management,
legal and business units on Year 2000 issues. The Company's current state of
readiness with respect to each of its IT systems, non-IT systems and third-party
providers is discussed below.
The Company uses a process consisting of the following five phases to approach
Year 2000 compliance of its IT systems: (1) Inventory (cataloging the systems
portfolio); (2) Assessment (identifying possible Year 2000 related failures and
developing strategies to remediate them); (3) Remediation (creating or acquiring
corrections to deficiencies); (4) Testing (confirming whether remediation is
successful); and (5) Implementation (installing solutions).
Critical IT systems include product administration systems, key financial
systems and core IT infrastructure. Management of the Company believes that the
phases of inventory, assessment, remediation, testing and implementation for
critical IT systems currently in use by the Company have been completed.
Noncritical IT systems include certain other business applications which the
Company does not believe to be critical. The inventory phase has been completed
for the Company's noncritical IT systems. The assessment, remediation, testing
and implementation phases for the Company's noncritical IT systems are ongoing
and are expected to be completed by the end of 1999.
16
<PAGE>
The Company has tested the operation of IT systems working together in an
integrated test environment that replicated the Company's live environment. This
test exercised software and hardware using dates advanced to Year 2000 and
beyond. There can be no assurances that this integrated testing discovered all
potential Year 2000 problems.
Non-IT systems typically include embedded technology such as microcontrollers.
The Company's non-IT systems include machinery and equipment in the buildings it
occupies, such as elevators, telephone equipment, HVAC, security and alarm
systems and print shop/mail room equipment. The Company is reviewing these
systems for Year 2000 compliance with the third-party providers the Company uses
to service and maintain this equipment.
The Company's Year 2000 effort also includes a systematic assessment of the Year
2000 compliance status of third-party providers. The Company believes loss of
public utilities, phone, banking, mail or certain outsourced processing services
could have an immediate adverse impact on the Company's operations, which under
certain circumstances could be material. The Company has contacted each of its
third-party providers, through letters, questionnaires and/or interviews
depending upon the nature of the product or service supplied, to determine if
the provider is Year 2000 compliant. As of June 30, 1999, the Company has
received responses from approximately 90% of such third parties. These responses
generally state that the third-party providers believe they will be Year 2000
compliant and that no products or services provided will be materially affected.
However, few providers have given written assurances directly to the Company
that they are currently Year 2000 compliant. The Company continues to monitor
the status of third-party providers' Year 2000 compliance. Management believes
that the process of evaluating the Year 2000 compliance status of the Company's
third-party providers who provide critical services and products has been
substantially completed. At this time, the Company has not changed its
dependency on any of these third-party providers because of concerns about their
Year 2000 compliance status and plans.
The Company does not separately track the internal costs incurred for the Year
2000 project which are principally the related payroll costs for its IT staff.
However, the Company has identified certain costs related to the Year 2000
project including costs related to outside consultants and software and hardware
applications. The identified costs incurred for the six months ended June 30,
1999 were approximately $84,000. The total identified costs related to the Year
2000 project to date are approximately $562,000, of which $546,000 was expensed
and $16,000 was capitalized. Based on information currently available, the total
identified remaining costs expected to be incurred for the Year 2000 projects
are estimated to be $80,000. These costs are being funded through operating cash
flows. These amounts include costs relating to Farm Family Life and United Farm
Family, including costs incurred by Farm Family Life and United Farm Family
prior to Farm Family Holdings' acquisition of Farm Family Life on April 6, 1999.
The Company's estimated costs of the Year 2000 project are based on management's
best estimates, which were derived from numerous assumptions, including the
extent of remaining remediation and testing activities, availability of certain
resources and other factors.
The phases of inventory, assessment, remediation, testing and implementation of
the Company's software for Year 2000 issues have been done primarily by the
Company's existing IT staff. Correction of Year 2000 issues is a high priority
project and certain other less critical IT projects have been deferred due to
Year 2000 efforts; however, the Company does not believe the deferral of other
IT projects has had a material effect on the Company's financial condition or
results of operations in 1998 or during the six months ended June 30, 1999. The
Company's IT staff has continued to work on other high priority projects
concurrent with the Year 2000 project.
The Company has not conducted a comprehensive analysis of the operational
problems and costs that would be reasonably likely to result from the failure to
achieve Year 2000 compliance on a timely basis. The Company believes that its
most reasonably likely worst case Year 2000 scenarios may include these
elements: (1) one or more parts of the Company's IT systems will operate
incorrectly, thereby resulting in a temporary shutdown or miscalculations in a
system which may have an adverse effect on the Company's operations and (2) one
or more of the Company's third-party providers will be unable to provide the
products or services expected which may have an adverse effect on the Company's
operations. The Company believes that its testing of its critical hardware and
17
<PAGE>
software will reveal any significant Year 2000 problems, that such problems will
be capable of remediation, and that the Company's software and hardware will
perform substantially as planned when Year 2000 processing begins.
The Company is currently developing Year 2000 contingency plans for critical
services and products provided by third-parties and for internal critical IT
systems. Management intends to validate these plans as practicable and implement
them by the end of 1999.
Despite the Company's efforts to address its Year 2000 issues, there can be no
assurances that Year 2000 related failures of the Company's IT systems, or that
Year 2000 related failures by third parties with which the Company interacts,
will not have a material adverse effect on the Company's results of operations,
liquidity and financial condition.
In addition to its own computer systems and third-party providers, the Company
may also have exposure in its property/casualty operations to Year 2000 claims
asserted under certain insurance policies it has sold to customers. Although the
Company does not issue insurance policies intended to cover risks related to the
Year 2000 issue, there can be no certainty regarding future judicial or
legislative interpretations of coverage. There can be no assurances that Year
2000 related claims will not emerge and that such claims will not have a
material adverse effect on the Company's results of operations, liquidity and
financial condition.
18
<PAGE>
Safe Harbor Statement under The Private Securities Litigation Reform Act of
1995: With exception of historical information, the matters discussed or
incorporated by reference in this Report on Form 10-Q contains forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 that are based on management's current knowledge, expectations, estimates,
beliefs and assumptions. The forward-looking statements in this Form 10-Q
include, but are not limited to, statements of the plans and objectives of the
Company or its management, statements of future economic performance,
projections of revenue, earnings, capital structure and other financial items
and assumptions underlying statements regarding the Company or its business.
Readers are hereby cautioned that certain events or circumstances could cause
actual results to differ materially from those estimated, projected, or
predicted. The forward-looking statements in this Form 10-Q are not guarantees
of future performance and are subject to a number of important risks and
uncertainties, many of which are outside the Company's control, that could cause
actual results to differ materially. These risks and uncertainties include, but
are not limited to, the results of operations of the Company, fluctuations in
the market value of shares of the Company's common stock, exposure to
catastrophic loss, geographic concentration of loss exposure, general economic
conditions and conditions specific to the property and casualty insurance
industry, including its cyclical nature, regulatory changes and conditions,
rating agency policies and practices, competitive factors, claims development
and the impact thereof on loss reserves and the Company's reserving policy, the
adequacy of the Company's reinsurance programs, developments in the securities
markets and the impact thereof on the Company's investment portfolio, factors
relating to the Company's ability to successfully address its Year 2000 issues
and other risks listed from time to time in the Company's Securities and
Exchange Commission filings, including the Form 10-K filed for the fiscal year
ended December 31, 1998. Additional risks and uncertainties that may cause
actual results of operations and business of Farm Family Life to differ
materially from those contemplated or projected, forecasted, estimated or
budgeted in such forward looking statements, include, among others: (i)
assumptions regarding future morbidity, persistency, lapse rates, expenses,
mortality and interest rates used in calculating reserve and liability amounts;
(ii) significant variations of actual experience from that assumed by Farm
Family Life as to the expected morbidity, lapse rates and other factors in
developing pricing and other terms of its life insurance products; (iii) the
ability of Farm Family Life to maintain its current rating from A.M. Best
Company, Inc. (iv) changes in interest rates causing a reduction of investment
income, operating cash flow and other sources which affect Farm Family Life's
ability to pay policyholder benefits; (v) policyholder lapses resulting from
interest rate fluctuations; (vi) inability of Farm Family Life to maintain
appropriate levels of statutory capital and surplus, particularly in light of
continuing scrutiny by rating organizations and state insurance regulatory
authorities, and to maintain acceptable financial strength and claim-paying
ratings; (vii) a significant change in or termination of Farm Family Life's
relationship with the Farm Bureaus(R) in the states where Farm Family Life's
business is concentrated; (viii) adverse state and federal legislation and
regulation, including limitations on premium levels, increases in minimum
capital and reserves and other financial viability requirements; (ix) heightened
competition, including, specifically the intensification of price competition,
the entry of new or existing competitors and the formation of new products by
new and existing competitors which may have substantially greater technical,
financial and operating resources; (x) inability to carry out marketing and
sales plans; (xi) loss of key executives; (xii) general economic and business
conditions which are less favorable than expected; (xiii) unanticipated changes
in industry trends; and (xiv) the reserving policies and the adequacy of the
reinsurance and retrocession programs of Farm Family Life. Accordingly, there
can be no assurance that actual results will conform to the forward-looking
statements in this Form 10-Q.
19
<PAGE>
Results of Operations
The Three Months Ended June 30, 1999 Compared to the Three Months Ended June 30,
1998
Insurance Premiums and Contract Charges
- ---------------------------------------
Premium revenue increased to $54.0 million for the three months ended June 30,
1999 from $44.9 million for the same period in 1998.
Premium revenue for property and casualty insurance business decreased $0.2
million, during the three months ended June 30, 1999 to $44.7 million from $44.9
million for the same period in 1998. The decrease in premium revenue in 1999
primarily resulted from an increase of $3.0 million in earned premiums ceded to
Farm Family Casualty's reinsurers and from the impact of the recently enacted
15% rate roll back for personal automobile business in New Jersey. These
decreases were partially offset by an increase of $1.8 million in earned
premiums on additional business directly written by Farm Family Casualty and an
increase of $0.8 million in earned premiums from Farm Family Casualty's assumed
reinsurance business.
The increase in premium revenue ceded to reinsurers was primarily attributable
to an increase in premiums ceded pursuant to Farm Family Casualty's aggregate
stop loss reinsurance program which also reduced loss and loss adjustment
expenses for the second quarter of 1999. The $1.8 million increase in earned
premiums on additional business directly written by Farm Family Casualty was
primarily attributable to an increase of $1.5 million, or 4.0%, in earned
premiums from Farm Family Casualty's primary products (personal and commercial
automobile products other than assigned risk automobile business, the Special
Farm Package, businessowners products, homeowners products, and Special Home
Package) and an increase of $0.3 million in earned premiums from other products.
Farm Family Casualty had approximately 169,800 total policies in force at June
30, 1999. The number of policies in force related to Farm Family Casualty's
primary products increased by 4.7% to approximately 139,900 as of June 30, 1999
from approximately 133,600 as of June 30, 1998.
Property and casualty net written premiums decreased $0.2 million to $48.4 for
the three months ended June 30, 1999 compared to $48.6 million for the same
period in 1998. The decrease in net written premiums was primarily attributable
to an increase of $2.9 million in written premiums ceded to Farm Family
Casualty's reinsurers and a decrease of $1.6 million in direct written premiums
for personal automobile business (excluding assigned risk automobile business)
in New Jersey. These decreases were offset by an increase of $2.8 million in
Farm Family Casualty's direct writings excluding personal automobile business in
New Jersey and assigned risk automobile premiums, and an increase of $1.2
million in Farm Family Casualty's voluntary assumed reinsurance business.
Geographically, the increase in Farm Family Casualty's direct writings came from
New York, Massachusetts, Connecticut, West Virginia, New Hampshire, Maine,
Vermont and Rhode Island. In addition, direct writings of all the Company's
primary products, except personal automobile, increased during the second
quarter of 1999. Excluding assigned risk automobile business, Farm Family
Casualty's direct written premiums for personal automobile business in New
Jersey decreased $1.6 million or 23.9% for the second quarter of 1999. This
reduction was primarily attributable to the New Jersey legislation mandating a
rate roll back for personal automobile business in New Jersey.
The inclusion of United Farm Family did not have a material impact on premium
revenue for the three months ended June 30, 1999, since United Farm Family first
began direct writing in Pennsylvania and Maryland during 1998.
Life insurance premium revenue was $9.3 million for the three months ended June
30, 1999. This amount includes premiums and contract charges primarily from the
sale of individual whole life, term and universal life products, and disability
income insurance products, subsequent to April 6, 1999, the effective date of
Farm Family Holdings' acquisition of Farm Family Life.
20
<PAGE>
Net Investment Income
- ---------------------
Net investment income increased $12.7 million to $17.4 million for the three
months ended June 30, 1999 from $4.7 million for the same period in 1998.
Net investment income for the property and casualty insurance segment increased
$0.5 million, or 10.9%, to $5.1 million for the three months ended June 30, 1999
from $4.6 million for the same period in 1998. The taxable equivalent yield on
the property and casualty insurance segment's investment portfolio was 6.80% and
7.12% for the three months ended June 30, 1999 and 1998, respectively. The
increase in net investment income for the property and casualty insurance
segment was primarily the result of an increase in cash and invested assets (at
amortized cost) of $37.0 million, or 12.4%. The inclusion of United Farm Family
accounted for $0.4 million of the increase in investment income and $27.0
million of the increase in cash and invested assets. The overall increase in
cash and invested assets was greater than the overall increase in net investment
income for the three months ended June 30, 1999 primarily as a result of an
increase in the investment in tax-exempt fixed maturity securities. The
investment income from the property and casualty insurance segment's tax-exempt
securities increased to $1.1 million for the three months ended June 30, 1999
from $0.5 million for the same period in 1998. United Farm Family's investment
income from tax-exempt securities was not material for the three months ended
June 30, 1999. After-tax income has been increased by investing in tax-exempt
securities which generally produce more after-tax investment income than taxable
investment grade fixed maturity securities.
Net investment income for the life insurance segment was $12.2 million for the
three months ended June 30, 1999. The yield on fixed maturity investments (at
amortized cost) was 6.38% for that period.
Losses and Loss Adjustment Expenses
- -----------------------------------
Losses and loss adjustment expenses on property and casualty business decreased
$1.1 million, or 3.1%, to $32.9 million for the three months ended June 30, 1999
from $34.0 million for the same period in 1998. Loss and loss adjustment
expenses were 73.6% of premium revenue for the three months ended June 30, 1999
compared to 75.6% of premium revenue for the same period in 1998. The decrease
in loss and loss adjustment expenses as a percent of premium revenue was
primarily attributable to a decrease in weather related losses for Farm Family
Casualty during the three months ended June 30, 1999 compared to the same period
in 1998. Losses believed to be weather related aggregated $1.1 million in the
three months ended June 30, 1999 compared to $2.7 million for the same period in
1998. This decrease was partially offset by the inclusion of the losses and loss
adjustment expenses for United Farm Family. Excluding United Farm Family, for
the three months ended June 30, 1999, loss and loss adjustment expenses were
71.4% of premium revenue compared to 75.6% for the same period in 1998.
Amortization Expense
- --------------------
Amortization expense increased $0.5 million, or 5.9%, to $9.2 million for the
three months ended June 30, 1999 from $8.7 million for the same period in 1998.
The increase was primarily attributable to the inclusion of amortization expense
of deferred acquisition costs and present value of future profits for the life
insurance segment of $0.7 million.
Other Operating Costs and Expenses
- ----------------------------------
Other operating costs and expenses increased $2.6 million to $6.1 million for
the three months ended June 30, 1999 from $3.5 million for the same period in
1998. The increase was primarily due to the inclusion of Farm Family Life's
other operating costs and expenses of $3.4 million partially offset by a
decrease in property and casualty underwriting expenses of $0.5 million, or
16.3%, to $2.6 million for the three months ended June 30, 1999 from $3.1
million for the same period in 1998. For the three months ended June 30, 1999,
property and casualty insurance underwriting expenses (including amortization
expenses) were 24.9% of premium revenue compared to 26.2% for the same period in
1998. The decrease in underwriting expenses as a percent of premium revenue was
primarily attributable to a greater relative increase in the Company's premium
revenue than in the level of overhead expenses, as well as the continuation of a
company-wide expense management program, partially offset by the inclusion of
the costs and expenses for United Farm Family. Excluding United Farm Family, for
the three months ended June 30, 1999,
21
<PAGE>
property and casualty insurance underwriting expenses (including amortization
expenses) were 24.5% of premium revenue compared to 26.2% for the same period in
1998.
Participating Policyholders' Interest
- -------------------------------------
Participating policyholders' interest of $2.6 million for the three months ended
June 30, 1999 is attributable to the inclusion of Farm Family Life in the
operations of the Company for the second quarter of 1999.
Federal Income Tax Expense
- --------------------------
Federal income tax expense increased $1.0 million to $2.3 million for the three
months ended June 30, 1999 from $1.3 million for the same period in 1998.
Federal income tax expense was 30.8% of income before federal income tax expense
and preferred stock dividends for the three months ended June 30, 1999 compared
to 33.1% for the same period in 1998. The reduction is primarily due to an
increase in interest income from tax-exempt securities.
Net Income Attributable to Common Stockholders
- ----------------------------------------------
Net income increased $2.4 million to $5.2 million for the three months ended
June 30, 1999 from $2.8 million for the same period in 1998 primarily as a
result of the foregoing factors.
The Six Months Ended June 30, 1999 Compared to the Six Months Ended June 30,
1998
Insurance Premiums and Contract Charges
- ---------------------------------------
Premium revenue increased to $102.4 million for the six months ended June 30,
1999 from $87.7 million for the same period in 1998.
Premium revenue for property and casualty insurance business increased $5.3
million, during the six months ended June 30, 1999 to $93.1 million from $87.8
million for the same period in 1998. The increase in property and casualty
premium was primarily attributable to an increase of $4.3 million in premium
revenue from direct writings and an increase of $2.2 million in voluntary
assumed reinsurance business for Farm Family Casualty. These increases were
partially offset by an increase of $1.0 million in premiums ceded to Farm Family
Casualty's reinsurers.
The $4.3 million increase in earned premiums on additional business directly
written by Farm Family Casualty was primarily attributable to an increase of
$4.2 million, or 5.7%, in earned premiums from Farm Family Casualty's primary
products (personal and commercial automobile products other than assigned risk
automobile business, the Special Farm Package, businessowners products,
homeowners products, and Special Home Package) and an increase of $0.1 million
in earned premiums from other products. Farm Family Casualty had approximately
169,800 total policies in force at June 30, 1999. The number of policies in
force related to Farm Family Casualty's primary products increased by 4.7% to
approximately 139,900 as of June 30, 1999 from approximately 133,600 as of June
30, 1998.
Property and casualty net written premiums increased $1.5 million, or 1.6%, to
$97.5 for the six months ended June 30, 1999 compared to $96.0 million for the
same period in 1998. The increase in net written premiums was primarily
attributable to an increase of $4.7 million in Farm Family Casualty's direct
writings, excluding personal automobile business in New Jersey and assigned risk
automobile premiums, an increase of $1.0 million in direct writings by Farm
Family Casualty in assigned risk automobile premiums and an increase of $0.5
million in Farm Family Casualty's written voluntary assumed reinsurance
business. These increases were partially offset by a decrease of $1.7 million in
direct written premiums for personal automobile business (excluding assigned
risk automobile business) in New Jersey and an increase of $3.2 million in
written premiums ceded to Farm Family Casualty's reinsurers. Geographically, the
increase in Farm Family Casualty's direct writings came from New York, New
Jersey, Massachusetts, Connecticut, West Virginia, New Hampshire, Vermont and
Rhode Island. In addition, direct writings of all of Farm Family Casualty's
primary products, except personal automobile, increased
22
<PAGE>
during the six months ended June 30, 1999. Excluding assigned risk automobile
business, Farm Family Casualty's direct written premiums for personal automobile
business in New Jersey decreased $1.7 million or 12.8% for the six months ended
June 30, 1999. This reduction was primarily attributable to the New Jersey
legislation mandating a rate roll back for personal automobile business in the
New Jersey.
The inclusion of United Farm Family did not have a material impact on premium
revenue during the six months ended June 30, 1999, since United Farm Family
first began direct writing in Pennsylvania and Maryland during 1998.
Life insurance premium revenue was $9.3 million. This amount includes premiums
and contract charges primarily from the sale of individual whole life, term and
universal life products, and disability income insurance products, subsequent to
April 6, 1999, the effective date of Farm Family Holdings' acquisition of Farm
Family Life.
Net Investment Income
- ---------------------
Net investment income increased $12.8 million to $22.3 million for the six
months ended June 30, 1999 from $9.5 million for the same period in 1998.
Net investment income for the property and casualty insurance segment increased
$0.6 million, or 6.5% to $9.8 million for the six months ended June 30, 1999
from $9.2 million for the same period in 1998. The taxable equivalent yield on
the property and casualty insurance segment's investment portfolio was 6.88% and
7.16% for the six months ended June 30, 1999 and 1998, respectively. The
increase in net investment income for the property and casualty insurance
segment was primarily the result of an increase in cash and invested assets (at
amortized cost) of $40.1 million, or 13.5%. The inclusion of United Farm Family
accounted for $0.4 million of the increase in investment income and $27.0
million of the increase in cash and invested assets. The overall increase in
cash and invested assets was greater than the overall increase in net investment
income for the six months ended June 30, 1999 primarily as a result of an
increase in the investment in tax-exempt fixed maturity securities. The
investment income from the property and casualty insurance segment's tax-exempt
securities increased to $2.1 million for the six months ended June 30, 1999 from
$1.0 million for the same period in 1998. United Farm Family's investment income
from tax-exempt securities was not material for the six months ended June 30,
1999. After-tax income has been increased by investing in tax-exempt securities
which generally produce more after-tax investment income than taxable investment
grade fixed maturity securities.
Net investment income for the life insurance segment was $12.2 million for the
six months ended June 30, 1999, which includes net investment income for Farm
Family Life since its acquisition by Farm Family Holdings on April 6, 1999. The
yield on fixed maturity investments (at amortized cost) was 6.38% for that
period.
Losses and Loss Adjustment Expenses
- -----------------------------------
Losses and loss adjustment expenses on property and casualty business increased
$3.3 million, or 5.0%, to $69.4 million for the six months ended June 30, 1999
from $66.1 million for the same period in 1998. Loss and loss adjustment
expenses were 74.6% of premium revenue for the six months ended June 30, 1999
compared to 75.4% of premium revenue for the same period in 1998. The decrease
in loss and loss adjustment expenses as a percent of premium revenue was
primarily attributable to a decrease in weather related losses for Farm Family
Casualty during the six months ended June 30, 1999 compared to the same period
in 1998. Losses on direct writings believed to be weather related aggregated
$6.4 million in the six months ended June 30, 1999 compared to $6.8 million for
the same period in 1998. This decrease was partially offset by the inclusion of
the losses and loss adjustment expenses for United Farm Family since its
acquisition by Farm Family Holdings. Excluding United Farm Family, for the six
months ended June 30, 1999, loss and loss adjustment expenses were 73.5% of
premium revenue compared to 75.4% for the same period in 1998.
23
<PAGE>
Amortization Expense
- --------------------
Amortization expense increased $1.1 million, or 6.6%, to $18.2 million for the
six months ended June 30, 1999 from $17.1 million for the same period in 1998.
The increase was primarily attributable to the inclusion of amortization expense
of deferred acquisition costs and present value of future profits for the life
insurance segment of $0.7 million.
Other Operating Costs and Expenses
- ----------------------------------
Other operating costs and expenses increased $2.3 million to $8.9 million for
the six months ended June 30, 1999 from $6.6 million for the same period in
1998. The increase was primarily due to the inclusion of Farm Family Life's
other operating costs and expenses of $3.4 million partially offset by a
decrease in property and casualty underwriting expenses of $0.8 million, or
13.5%, to $5.1 million for the six months ended June 30, 1999 from $5.9 million
for the same period in 1998. For the six months ended June 30, 1999, property
and casualty insurance underwriting expenses (including amortization expenses)
were 24.3% of premium revenue compared to 26.2% for the same period in 1998. The
decrease in underwriting expenses as a percent of premium revenue was primarily
attributable to a greater relative increase in the Company's premium revenue
than in the level of overhead expenses, as well as the continuation of a
company-wide expense management program, partially offset by the inclusion of
the costs and expenses for United Farm Family since its acquisition by Farm
Family Holdings. Excluding United Farm Family, for the six months ended June 30,
1999, property and casualty underwriting expenses (including amortization
expenses) were 24.1% of premium revenue compared to 26.1% for the same period in
1998.
Participating Policyholders' Interest
- -------------------------------------
Participating policyholders' interest of $2.6 million for the six months ended
June 30, 1999 is attributable to the inclusion of Farm Family Life in the
operations of the Company for the second quarter of 1999.
Federal Income Tax Expense
- --------------------------
Federal income tax expense increased $1.4 million to $4.0 million for the six
months ended June 30, 1999 from $2.6 million for the same period in 1998.
Federal income tax expense was 30.8% of income before federal income tax expense
and preferred stock dividends for each of the six month periods ended June 30,
1999 and 1998.
Net Income Attributable to Common Stockholders
- ----------------------------------------------
Net income increased $3.2 million to $8.9 million for the six months ended June
30, 1999 from $5.7 million for the same period in 1998 primarily as a result of
the foregoing factors.
24
<PAGE>
Liquidity and Capital Resources
On April 6, 1999, Farm Family Holdings acquired all of the outstanding capital
stock of Farm Family Life pursuant to the terms of an Amended and Restated
Option Purchase Agreement, as amended (the "Option Purchase Agreement") among
the Company and the shareholders of Farm Family Life (the "Selling
Stockholders"). Farm Family Holdings' aggregate purchase price was approximately
$38.3 million, including direct acquisition costs. The purchase price consisted
of approximately $30.6 million of Farm Family Holdings' common stock ($31.5
million less certain expenses paid by Farm Family Life), approximately $5.8
million stated value of 6-1/8% voting preferred stock ($6 million less certain
expenses paid by Farm Family Life) and approximately $1.9 million in direct
acquisition costs. Under the terms of the Option Purchase Agreement, the price
used to determine the number of shares of common and voting preferred stock
issued in the acquisition was fixed at $35.72 per share. Farm Family Holdings
issued 856,871 shares of common stock and 163,214 shares of voting preferred
stock to the Selling Stockholders. After the acquisition, the Company's total
number of common shares outstanding increased to 6,110,684.
Net cash provided by operating activities was $24.4 million and $12.3 million
during the six month periods ended June 30, 1999 and 1998, respectively. The
increase of $12.1 million in net cash provided by operating activities during
the six months ended June 30, 1999 was primarily attributable to the additional
operating cash flow from Farm Family Life.
Net cash used in investing activities was $1.6 million during the six months
ending June 30, 1999 compared to $8.8 million for the same period in 1998. The
decrease in cash used in investing activities resulted primarily from an
increase in investment collections from fixed maturities and the net cash of
Farm Family Life acquired offset partially by an increase in net policy loans
issued and expenses incurred relating to the acquisition of Farm Family Life.
The Company has in place unsecured lines of credit with two banks under which it
may borrow up to $17.0 million. At June 30, 1999, no amounts were outstanding on
the lines of credit.
On April 27, 1999, the Company's Board of Directors adopted a stock repurchase
plan that authorizes the Company to repurchase shares of the Company's common
stock in an aggregate amount of up to $7,500,000. The repurchase program has
been authorized for a one year period ending on April 27, 2000. The extent and
timing of any repurchases will depend on market conditions and other corporate
considerations.
Future Application of Accounting Standards
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" ("Statement 133"). This statement, which is effective
for the Company for the year beginning January 1, 2001, establishes accounting
and reporting standards for derivative instruments and for hedging activities.
Statement 133 requires the recognition of all derivatives as either assets or
liabilities in the statement of financial position and the measurement of those
instruments at fair value. Management believes that the adoption of Statement
133 will not have a material impact on the Company's financial statements.
25
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
The Company's market risks of financial instruments and investment objectives
have not materially changed since December 31, 1998. With the acquisition of
Farm Family Life, however, the total amount of fixed maturity investments has
increased substantially. The total fixed maturity portfolio at June 30, 1999 was
$967.0 million compared to $301.5 million at December 31, 1998. The fair value
of the Company's fixed maturity portfolio is sensitive to changes in interest
rates. The Company estimates that if interest rates were to increase by 100
basis points from their June 30, 1999 levels, the Company's fixed maturity
portfolio would decline in fair value by approximately $49.1 million.
The calculations involved in the computer simulations we utilized incorporate
numerous assumptions, require significant estimates and assume an immediate
change in interest rates without any management of the investment portfolio in
reaction to such change. Consequently, the potential changes in value of our
financial instruments indicated by the simulations will likely be different from
the actual changes experienced under given interest rate scenarios, and the
differences may be material.
PART II. OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On April 6, 1999, Farm Family Holdings issued 856,871 shares of its common
stock, par value $.01 per share and 163,214 shares of its 6 1/8% Preferred
Stock, Series A, par value $.01 per share to the stockholders of Farm Family
Life (the "Selling Stockholders") in exchange for all of the issued and
outstanding capital stock of Farm Family Life pursuant to the terms of an
Amended and Restated Option Purchase Agreement, by and among Farm Family
Holdings and the Selling Stockholders.
Prior to its acquisition by Farm Family Holdings, Farm Family Life was owned by
the Farm Bureaus or their affiliates in ten states. These entities, which
comprised all of the Selling Stockholders, were Connecticut Farm Bureau Service
Company, Delaware Farm Bureau Service Company, Inc., Maine Farm Bureau Service
Company, Massachusetts Farm Bureau Service Company, Inc., New Hampshire Farm
Bureau Federation, New Jersey Farm Bureau Service Company, New York Farm Bureau
Service Company, Inc., Rhode Island Farm Bureau Federation, Inc., Vermont Farm
Bureau, Inc. and West Virginia Farm Bureau, Inc.
Farm Family Holdings, Farm Family Casualty and Farm Family Life are each
affiliated with the Selling Stockholders. Historically, substantially all of the
directors of each company, have been directors or executive officers of,
employed by or otherwise associated with the Selling Stockholders and their
affiliates.
The shares of common and preferred stock issued in the acquisition were issued
in private placements in reliance upon Section 4(2) under the Securities Act of
1933, as amended (the "Securities Act"). The share certificates issued in the
acquisition contain legends to the effect that the shares have not been
registered under the Securities Act and may not be reoffered or sold unless
registered under the Securities Act or an exemption from such registration is
available.
26
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Farm Family Holdings' annual Meeting of Stockholders was held on April 27, 1999.
At the meeting, (i) seven persons were elected as directors of Farm Family
Holdings, and (ii) the appointment of PricewaterhouseCoopers LLP as Farm Family
Holdings' independent auditors for the year 1999 was ratified. The number of
votes cast for, against or withheld, and the number of abstentions with respect
to each such matter is set forth below:
<TABLE>
<CAPTION>
For Against/Withheld Abstained
Election of Directors:
Nominee
<S> <C> <C>
Randolph C. Blackmer, Jr. 3,361,955 23,093
Fred G. Butler, Sr. 3,363,463 21,585
Sandra A. George 3,364,547 20,501
Stephen J. George 3,375,274 9,774
Arthur D. Keown, Jr. 3,365,084 19,964
W. Bruce Krenning 3,365,373 19,675
William M. Stamp, Jr. 3,361,185 23,863
Ratification of Auditors: 3,353,487 4,015 27,546
</TABLE>
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
FARM FAMILY HOLDINGS, INC. FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1999
Exhibit Number Document Description
*2.1 Plan of Reorganization and Conversion dated February 14,
1996 as amended by Amendment No. 1, dated April 23, 1996
*3.1 Certificate of Incorporation of Farm Family Holdings, Inc.
*3.2 Bylaws of Farm Family Holdings, Inc.
3.3 Certificate of Designations of Junior Participating
Cumulative Preferred Stock of Farm Family Holdings, Inc.
(incorporated by reference to Exhibit 4.3 to Form S-8,
Registration No. 333-80723 filed with the Securities and
Exchange Commission on June 15, 1999)
3.4 Certificate of Corrections to Certificate of Designations of
Junior Participating Cumulative Preferred Stock of Farm
Family Holdings, Inc. (incorporated by reference to Exhibit
4.4 to Form S-8, Registration No. 333-80723 filed with the
Securities and Exchange Commission on June 15, 1999)
3.5 Certificate of Designations of Farm Family Holdings, Inc.
Preferred Stock, Series A (incorporated by reference to
Exhibit 4.5 to Form S-8, Registration No. 333-80723 filed
with the Securities and Exchange Commission on June 15,
1999)
4.1 Rights Agreement, dated as of July 29, 1997, between Farm
Family Holdings, Inc. and The Bank of New York (incorporated
by reference to Exhibit 4.1 to Farm Family Holdings, Inc.'s
Current Report on Form 8-K/A filed with the Securities and
Exchange Commission on June 14, 1999)
27
<PAGE>
Exhibit Number Document Description
4.2 Registration Rights Agreement, dated as of April 6, 1999 by
and among Farm Family Holdings, Inc. and the Shareholders of
the Farm Family Life Insurance Company (filed herewith)
10.1 Form of Membership List Purchase Agreement between Farm
Family Mutual Insurance Company and each of the Farm Bureaus
(incorporated by reference to Exhibit 10.9 to Form S-1,
Registration No. 333-4446 filed with the Securities and
Exchange Commission on May 3, 1996) as amended by Amendment
No. 1 to Membership List Purchase Agreements, effective July
26, 1996 (incorporated by reference to Farm Family Holdings,
Inc.'s Form 10-Q for the quarter ended March 31, 1997) and
Amendment No. 2 to Membership List Purchase Agreements (Farm
Family Casualty Insurance Company), effective January 1,
1998 (filed herewith)
10.2 Form of Membership List Purchase Agreement between Farm
Family Life Insurance Company and each of the Farm Bureaus,
as amended by Amendment No. 1 to Membership List Purchase
Agreements (Farm Family Life Insurance Company), effective
January 1, 1998 (filed herewith)
10.3 Farm Family Life Insurance Company Annual Incentive Plan, as
amended and restated as of October 27, 1998 (filed herewith)
10.4 Farm Family Supplemental Profit Sharing and Money Purchase
Plan, effective January 1, 1997 (incorporated by reference
to Farm Family Holdings, Inc.'s Form 10-K for the year ended
December 31, 1996) as amended by Amendment No. 1 to
Supplemental Profit Sharing and Money Purchase Plan
effective as of April 27, 1999 (filed herewith)
27 Financial Data Schedule
*Incorporated by reference to Registration Statement No. 333-4446
Reports on Form 8-K
A report on Form 8-K was filed on April 8, 1999 reporting a press release
issued announcing that the Company acquired all of the outstanding capital stock
of Farm Family Life Insurance Company pursuant to terms of an Amended and
Restated Option Purchase Agreement.
A report on Form 8-K was filed on April 20, 1999 reporting a press release
issued providing additional pro forma financial information regarding the
acquisition of Farm Family Life and filed required unaudited pro forma financial
statements.
A report on Form 8-K was filed on April 28, 1999 reporting a press release
issued announcing operating results for the first quarter ended March 31, 1999.
A report on Form 8-K/A was filed on June 14, 1999 reporting a correction to
the description of the Rights Agreement.
28
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FARM FAMILY HOLDINGS, INC.
(Registrant)
August 13, 1999 By: /s/ Philip P. Weber
- --------------- ----------------------------------------------------------------
(Date) Philip P. Weber, President & Chief Executive Officer
(Principal Executive Officer)
August 13, 1999 By: /s/ Timothy A. Walsh
- --------------- ----------------------------------------------------------------
(Date) Timothy A. Walsh, Executive Vice President - Finance & Treasurer
(Principal Financial & Accounting Officer)
29
<PAGE>
Exhibit No. 4.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of April 6,
1999, by and among FARM FAMILY HOLDINGS, INC., a Delaware corporation (the
"Company"), and THE SHAREHOLDERS OF THE COMPANY set forth on the signature pages
hereof (each, a "Shareholder" and collectively, the "Shareholders").
WHEREAS, each of the Shareholders is the owner of the number of shares of
common stock, par value $.01 per share, of the Company (the "Common Stock") set
forth opposite the name of such Shareholder on Exhibit A hereto (collectively,
the "Shares"); and
WHEREAS, pursuant to the Amended and Restated Option Purchase Agreement,
dated as of February 26, 1998, as amended by Amendment No. 1, dated as of April
28, 1998, and Amendment No. 2, dated as of January 14, 1999 (as so amended, the
"Option Purchase Agreement"), by and among the Company and each of the
Shareholders, the Company agreed to grant to the Shareholders certain
registration rights with respect to the Shares upon the terms and subject to the
conditions set forth herein.
NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
Section 1. Demand Registration.
1.1 Notice. Upon the terms and subject to the conditions set forth herein,
upon written notice by the holders of a majority of the Shares held by the
Shareholders or their Permitted Transferees (as defined in Section 1.3) (the
Shareholders and such Permitted Transferees being collectively referred to
herein as the "Holders") requesting that the Company effect the registration
under the Securities Act of 1933, as amended (the "Securities Act"), of the
Shares held by such Holders, which notice shall specify the intended method or
methods of disposition of such Shares, the Company will promptly give written
notice of the proposed registration to all other Holders and will use its best
efforts to effect (at the earliest possible date) the registration under the
Securities Act of such Shares (and the Shares of any other Holders joining in
such request as are specified in a written notice received by the Company within
20 days after receipt of the Company's written notice of the proposed
registration) for disposition in accordance with the intended method or methods
of disposition stated in such request; provided, however, that:
<PAGE>
(a) if the Company shall have previously effected a registration, the
Company shall not be required to effect a registration pursuant to this Section
1 until 180 days shall have elapsed from the effective date of the most recent
such previous registration;
(b) if, upon receipt of a registration request pursuant to this Section 1,
the Company is advised in writing, with a copy to the Holders of Shares proposed
to be included in the offering (the "Selling Holders"), by a recognized
independent investment banking firm selected by the Company that, in such firm's
opinion, a registration at the time and on the terms requested would adversely
affect any public offering of securities by the Company (other than in
connection with employee benefit and similar plans) (a "Company Offering") that
had been contemplated by the Company prior to the notice by the Holders
requesting registration, the Company shall not be required to effect a
registration pursuant to this Section 1 until the earliest of (i) 180 days after
the completion of such Company Offering, (ii) the termination of any "blackout"
period required by the underwriters, if any, to be applicable to the Holders in
connection with such Company Offering, (iii) promptly after abandonment of such
Company Offering or (iv) 180 days after the date of written notice by the
Holders requesting registration;
(c) if, while a registration request is pending pursuant to this Section 1,
the Company determines in the good faith judgment of the general counsel of the
Company that the filing of a registration statement would require the disclosure
of material information that the Company has a bona fide business purpose for
preserving as confidential or the Company is unable to comply with the
requirements of the Securities and Exchange Commission ("SEC"), the Company
shall not be required to effect a registration pursuant to this Section 1 until
the earlier of (i) the date upon which such material information is disclosed to
the public or ceases to be material or (ii) 120 days after the Company makes
such good faith determination;
(d) subject to Section 2.3(b), Holders shall have the right to exercise
registration rights pursuant to this Section 1 only once; and
(e) the number of Shares registered pursuant to a registration requested
pursuant to this Section 1, (i) shall represent more than 35% of the Shares and
(ii) shall have an aggregate expected offering price of at least $10 million.
-2-
<PAGE>
1.2 Registration Expenses. All Registration Expenses (as defined in Section
6) for any registration requested pursuant to this Section 1 shall be paid 50%
by the Company and 50% by the Selling Holders, on the basis of the respective
amounts of the securities then being registered on behalf of each of such
Selling Holder; provided that if any securities are registered for sale for the
account of any Person (as such term is defined in Section 2(2) of the Securities
Act) other than the Selling Holders pursuant to Section 1, each such other
Person shall bear its pro rata share of the Registration Expenses.
1.3 Permitted Transferees. As used in this Agreement, "Permitted
Transferees" shall mean any transferee, whether direct or indirect, of Shares
designated by any Shareholder in a written notice to the Company as provided for
in Section 7.6. Such written notice shall be signed by such Shareholder and the
Permitted Transferee so designated and shall include an undertaking by the
Permitted Transferees to comply with the terms and conditions of this Agreement
applicable to such Shareholder. Permitted Transferees will be entitled to the
benefits of this Agreement.
1.4 Third Person Shares. The Company shall have the right to cause the
registration of securities for sale for its own account or for the account of
any Person in any registration of Shares requested pursuant to this Section 1;
provided that the Company shall not have the right to cause the registration of
such securities if the managing underwriter of any underwritten offering shall
advise the Company in writing (with a copy to each Selling Holder) that, in such
firm's opinion, registration of such securities would materially and adversely
affect the offering and sale of Shares then contemplated by the Selling Holders.
1.5 Selection of Underwriters. If a requested registration pursuant to this
Section 1 involves an underwritten offering, there shall be selected one or more
underwriters for such Shares, such underwriters to be selected by the holders of
a majority of the Shares held by the Selling Holders requesting such
registration.
1.6 Priority in Requested Registrations. If a requested registration
pursuant to this Section 1 involves an underwritten offering, and the managing
underwriter shall advise the Selling Holders requesting registration of Shares
in writing (with a copy to the Company) that, in its opinion, the inclusion of
all the securities to be included in such registration would interfere with the
sale of the Shares to be sold in such offering by the Selling Holders within a
price range acceptable to the majority (by number of Shares) of the Selling
Holders requesting such registration, the Company will include in such
registration (i) first, Shares requested to be included in such registration by
such Selling Holders, pro rata among such Selling Holders on the basis of the
number of Shares which are requested by them and (ii) second, securities of the
Company proposed by the Company to be sold for its own account or for the
account of any Person.
-3-
<PAGE>
1.7 Effective Registration. Notwithstanding any provision herein to the
contrary, a registration requested pursuant to Section 1.1 hereof shall not be
deemed to have been effected (and not requested for purposes of Section 1.1) (i)
unless the registration statement relating thereto has become effective under
the Securities Act, (ii) if after it has become effective such registration is
interfered with by any stop order, injunction or other order or requirement of
the SEC or other governmental agency or court for any reason other than a
misrepresentation or omission by a Selling Holder and, as a result thereof, the
Shares requested to be registered cannot be completely distributed in accordance
with the plan of distribution, (iii) if the conditions to closing specified in
the purchase agreement or underwriting agreement entered into in connection with
such registration are not satisfied or waived other than by reason of some act
or omission by a Selling Holder or (iv) if, pursuant to Section 1.6, less than
all of the Shares requested to be registered were actually registered.
Section 2. Registration Procedures.
2.1 Registration and Qualification. If and whenever the Company is required
to use its best efforts to effect the registration of any Shares under the
Securities Act as provided in Section 1, the Company will as promptly as is
practicable:
(a) prepare, file and use its best efforts to cause to become effective a
registration statement under the Securities Act regarding such Shares, which
registration statement will be on a form consistent with the intended method of
distribution thereof; provided, however, that before filing with the SEC a
registration statement or prospectus, the Company shall furnish to counsel for
the Selling Holders copies of all such documents proposed to be filed, which
documents shall be subject to the reasonable and timely review of counsel for
the Selling Holders. The Company will also notify counsel for the Selling
Holders of any stop order issued or threatened by the SEC and take all
reasonable actions required to prevent the entry of such stop order or to remove
it if entered;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Securities Act with respect to the disposition of such Shares
until the earlier of (i) such time as such Shares have been disposed of in
accordance with the intended methods of disposition by the Selling Holders set
forth in such registration statement or (ii) such time as such Shares are no
longer required to be registered for the sale thereof by the Holder thereof by
reason of Rule 144(k) of the SEC under the Securities Act or any other rule of
similar effect;
-4-
<PAGE>
(c) furnish to the Selling Holders and to any underwriter of such Shares
such number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits), such
number of copies (one of which will be fully executed) of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such registration
statement or prospectus, and such other documents as the Selling Holders or such
underwriter may reasonably request;
(d) use its best efforts to register or qualify all Shares covered by such
registration statement under such other securities or blue sky laws of such
United States jurisdictions as the Selling Holders or any underwriter of such
Shares shall reasonably request, and do any and all other acts and things which
may be necessary or advisable to enable the Selling Holders or any underwriter
to consummate the disposition in such jurisdictions of its Shares covered by
such registration statement, except that the Company shall not for any such
purpose be required to qualify generally to do business as a foreign corporation
in any jurisdiction where it is not so qualified, or to subject itself to
taxation in any such jurisdiction, or to consent to general service of process
in any such jurisdiction;
(e) (i) furnish to the Selling Holders, addressed to them, an opinion of
counsel for the Company, dated the date of the closing under the underwriting
agreement, and (ii) use its best efforts to furnish to the Selling Holders,
addressed to them, a "cold comfort" letter signed by the independent public
accountants who have certified the Company's financial statements included in
such registration statement, covering substantially the same matters with
respect to such registration statement (and the prospectus included therein)
and, in the case of such accountants' letter, with respect to events subsequent
to the date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in accountants' letters delivered to underwriters in
underwritten public offerings of securities and such other matters as the
Selling Holders may reasonably request;
(f) immediately notify the Selling Holders at any time when a prospectus
relating to a registration pursuant to Section 1 is required to be delivered
under the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and at
the request of the Selling Holders prepare and furnish to the Selling Holders a
reasonable number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Shares, such prospectus shall not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
-5-
<PAGE>
(g) make available senior management personnel to participate in, and cause
them to cooperate with the underwriters in connection with, the "road show" and
other customary marketing activities, including "one-on-one" meetings with
prospective purchasers of the Shares; and
(h) otherwise use commercially reasonable efforts to comply with all
applicable rules and regulations of the SEC, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering a
period of at least 12 months, beginning with the first month after the effective
date of the registration statement (as the term "effective date" is defined in
Rule 158(c) under the Securities Act), which earnings statement shall satisfy
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder.
The Company may require the Selling Holders to furnish the Company with
such information regarding the Selling Holders and the distribution of such
securities as the Company may from time to time reasonably request in writing
and as shall be required by law, the SEC or any securities exchange on which any
shares of Common Stock are then listed for trading in connection with any
registration.
Each Selling Holder agrees that upon receipt of any notice from the Company
of the happening of any event of the kind described in Section 2.1(f), such
Selling Holder will forthwith discontinue its disposition of Shares pursuant to
the registration statement relating to such Shares until such Selling Holder's
receipt of the copies of the supplemented or amended prospectus contemplated by
Section 2.1(f) and, if so directed by the Company, such Selling Holder will
deliver to the Company (at the Company's expense) all copies (other than
permanent file copies then in such Selling Holder's possession) of the
prospectus relating to such Shares current at the time of receipt of such
notice.
2.2 Underwriting. If requested by the underwriters for any underwritten
offering of Shares pursuant to a registration requested hereunder (including any
registration under Section 2 which involves, in whole or in part, an
underwritten offering), the Company will use reasonable efforts to enter into an
underwriting agreement with such underwriters for such offering, such agreement
to be reasonably satisfactory in substance and form to the Company and to
contain such representations and warranties by the Company and such other terms
and provisions as are customarily contained in underwriting agreements with
respect to secondary distributions, including, without limitation, indemnities
and contribution to the effect and to the extent provided in Section 4 and the
provision of opinions of counsel and accountants' letters to the effect and to
the extent provided in Section 2.1(e). The Selling Holders of Shares to be
distributed by such underwriters shall be parties to any such underwriting
agreement, and the representations and warranties by, and the other agreements
on the part of, the Company to and for the benefit of such underwriters shall
also be made to and for the benefit of such Selling Holders.
-6-
<PAGE>
2.3 Blackout Periods. (a) At any time when a registration statement
effected pursuant to Section 1 relating to Shares is effective, upon written
notice from the Company to the Selling Holders that the Company determines in
the good faith judgment of the general counsel of the Company that the Selling
Holders sale of Shares pursuant to the registration statement would require
disclosure of material information which the Company has a bona fide business
purpose for preserving as confidential or the Company is unable to comply with
SEC requirements (an "Information Blackout"), the Selling Holders shall suspend
sales of Shares pursuant to such registration statement until the earlier of (i)
the date upon which such material information is disclosed to the public or
ceases to be material, (ii) 120 days after the Company makes such good faith
determination or (iii) such time as the Company notifies the Selling Holders
that sales pursuant to such registration statement may be resumed (the number of
days from such suspension of sales of the Selling Holders until the day when
such sales may be resumed hereunder is hereinafter called a "Sales Blackout
Period").
(b) Any delivery by the Company of notice of an Information Blackout during
the 120 days immediately following effectiveness of any registration statement
effected pursuant to Section 1 shall give the Selling Holders the right, by
notice to the Company within 20 days after the end of such blackout period, to
cancel such registration and obtain for the Holders one additional registration
right (a "Blackout Termination Right") under Section 1.1(d).
(c) If there is an Information Blackout and the Selling Holders do not
exercise the cancellation right, if any, pursuant to clause (b) of this Section
2.3, or, if such cancellation right is not available, the period set forth in
Section 2.1(b)(ii) shall be extended for a number of days equal to the number of
days in the Sales Blackout Period.
2.4 Listing. In connection with the registration of any offering of Shares
pursuant to this Agreement, the Company agrees to use its best efforts to effect
the listing of such Shares on any securities exchange on which any shares of the
Common Stock are then listed or otherwise facilitate the public trading of such
Shares.
2.5 Holdback Agreement. To the extent not inconsistent with applicable law,
each Shareholder agrees not to effect any public sale or distribution of any
equity securities of the Company, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and the 90 days after any registration pursuant to Section 1 has become
effective, except as part of such registration, if and to the extent requested
by the Company in the case of a non-underwritten public offering or if and to
the extent requested by the managing underwriter or underwriters in the case of
an underwritten public offering.
-7-
<PAGE>
Section 3. Preparation; Reasonable Investigation. In connection with the
preparation and filing of each registration statement registering Shares under
the Securities Act pursuant to this Agreement, the Company will give the Selling
Holders and the underwriters, if any, and their respective counsel and
accountants, such reasonable and customary access to its books and records and
such opportunities to discuss the business, financial condition and results of
operations of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the opinion of the Selling Holders and such underwriters or their respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
Section 4. Indemnification and Contribution.
4.1 Indemnification and Contribution. (a) In the event of any registration
of any Shares hereunder, the Company will enter into customary indemnification
arrangements to indemnify and hold harmless each of the Selling Holders, each of
their respective directors and officers, each Person who participates as an
underwriter in the offering or sale of such securities, each officer and
director of each underwriter, and each Person, if any, who controls each such
Selling Holder or any such underwriter within the meaning of the Securities Act
against any losses, claims, damages, liabilities and expenses, joint or several,
to which such Person may be subject under the Securities Act or otherwise
insofar as such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
Securities Act, any preliminary prospectus or final prospectus included therein,
or any amendment or supplement thereto, or any document incorporated by
reference therein, or (ii) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and the Company will reimburse each such Person, as
-8-
<PAGE>
incurred, for any legal or any other expenses reasonably incurred by such Person
in connection with investigating or defending any such loss, claim, liability,
action or proceeding; provided, however, that the Company shall not be liable in
any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus or
final prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company by the Selling Holders or such
underwriter specifically for use in the preparation thereof and provided further
that the Company shall not be liable to any Person who participates as an
underwriter in the offering or sale of Shares or any other Person, if any, who
controls such underwriter within the meaning of the Securities Act, in any such
case to the extent that any such loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of such Person's failure to
send or give a copy of the final prospectus, as the same may be then
supplemented or amended, to the Person asserting an untrue statement or alleged
untrue statement or omission or alleged omission at or prior to the written
confirmation of the sale of Shares to such Person if such statement or omission
was corrected in such final prospectus. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Selling Holders or any such Person and shall survive the transfer of such
securities by the Selling Holders. The Company also shall agree to provide for
contribution as shall reasonably be requested by the Selling Holders or any
underwriters in circumstances where such indemnity is held unenforceable.
(b) The Selling Holders, by virtue of exercising their respective
registration rights hereunder, agree and undertake, jointly and severally, to
enter into customary indemnification arrangements to indemnify and hold harmless
(in the same manner and to the same extent as set forth in clause (a) of this
Section 4), jointly and severally, the Company, each director of the Company,
each officer of the Company who shall sign such registration statement, each
Person who participates as an underwriter in the offering or sale of such
securities, each officer and director of each underwriter, and each Person, if
any, who controls the Company or any such underwriter within the meaning of the
Securities Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus or final prospectus included
therein, or any amendment or supplement thereto, if, but only to the extent
that, such statement or omission was made in reliance upon and in conformity
with written information furnished by the Selling Holders to the Company
specifically for inclusion in such registration statement or prospectus. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any such director, officer or controlling
Person and shall survive the transfer of the registered securities by the
Selling Holders. The Selling Holders also shall agree to provide for
contribution as shall reasonably be requested by the Company for any
underwriters in circumstances where such indemnity is held unenforceable.
-9-
<PAGE>
(c) Indemnification and contribution similar to that specified in the
preceding subdivisions of this Section 4 (with appropriate modifications) shall
be given by the Company and the Selling Holders with respect to any required
registration or other qualification of such Shares under any federal or state
law or regulation of governmental authority other than the Securities Act.
Section 5. Benefits and Termination of Registration Rights. The
Shareholders may jointly exercise the registration rights granted hereunder in
such manner and proportions as they shall agree among themselves; provided,
however, any Permitted Transferees of Shares shall be subject to and bound by
all of the terms and conditions hereof applicable to any Shareholder and, to the
extent that a Permitted Transferee requests to be included in an offering, to
those terms and conditions expressly applicable to Selling Holders. The
registration rights hereunder shall cease to apply to Shares: (a) when a
registration statement with respect to the sale of such Shares shall have become
effective under the Securities Act and such Shares shall have been disposed of
in accordance with the intended methods of disposition by the Selling Holders
set forth in such registration statement; (b) such time as such Shares are no
longer required to be registered for the sale thereof by the Holder thereof by
reason of Rule 144(k) of the SEC under the Securities Act or any other rule of
similar effect; (c) when they shall have been otherwise transferred, new
certificates for them not bearing a legend restricting further transfer shall
have been delivered by the Company and subsequent public distribution of them
shall not require registration or qualification of them under the Securities Act
or any similar state law then in force; (d) when they shall have ceased to be
outstanding; or (e) in all events, on the second anniversary of the date of this
Agreement.
Section 6. Registration Expenses. As used in this Agreement, the term
"Registration Expenses" means all expenses incident to the Company's performance
of or compliance with the registration requirements set forth in this Agreement
including, without limitation, the following: (a) the fees, disbursements and
expenses of the Company's counsel and accountants in connection with the
registration of Shares to be disposed of under the Securities Act; (b) all
expenses in connection with the preparation, printing and filing of the
registration statement, any preliminary prospectus or final prospectus, any
other offering document and amendments and supplements thereto and the mailing
and delivering of copies thereof to the underwriters and dealers;
-10-
<PAGE>
(c) the cost of printing and producing any agreement(s) among underwriters,
underwriting agreement(s), and blue sky or legal investment memoranda, any
selling agreements and any amendments thereto or other documents in connection
with the offering, sale or delivery of Shares to be disposed of; (d) all
expenses in connection with the qualification of Shares to be disposed of for
offering and sale under state securities laws, including the fees and
disbursements of counsel for the underwriters in connection with such
qualification and in connection with any blue sky and legal investment surveys;
(e) the filing fees incident to securing any required review by the securities
exchange on which any shares of the Common Stock are then listed of the terms of
the sale of Shares to be disposed of; (f) the costs of preparing stock
certificates; and (g)the costs and charges of the Company's transfer agent and
registrar. Registration Expenses shall not include underwriting discounts and
underwriters commissions attributable to the Shares being registered for sale on
behalf of the Selling Holders, which shall be paid by the Selling Holders.
Section 7. Miscellaneous.
7.1 No Inconsistent Agreements. The Company shall not on or after the date
of this Agreement enter into any agreement with respect to its securities that
violates the rights expressly granted to the Shareholders in this Agreement.
7.2 Assignment. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto and with respect to the
Company, its respective successors and assigns, and with respect to any
Shareholder, any Permitted Transferees of the Shares.
7.3 Governing Law; Jurisdiction. This Agreement shall be construed,
performed and enforced in accordance with, and governed by, the laws of the
State of New York applicable to contracts executed in and to be performed in
that State.
7.4 Severability. In the event that any part of this Agreement is declared
by any court or other judicial or administrative body to be null, void or
unenforceable, said provision shall survive to the extent it is not so declared,
and all of the other provisions of this Agreement shall remain in full force and
effect.
7.5 Rule 144. If and for so long as the Company is subject to the reporting
requirements of the Exchange Act, the Company shall take measures and file such
information, documents, and reports as shall be required by the SEC as a
condition to the availability of Rule 144 (or any successor provision) under the
Securities Act.
-11-
<PAGE>
7.6 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if (i) delivered personally, or (ii) sent by
reputable overnight courier service, or (iii) telecopied (which is confirmed),
or (iv) five days after being mailed by registered or certified mail return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
(a) If to the Company, to:
Farm Family Holdings, Inc.
P.O. Box 656
Albany, New York 12201-0656
Attention: General Counsel
Telephone: (518) 431-5409
Telecopy: (518) 431-5999
(b) If to the Shareholders, to:
The addresses of each Shareholder listed on Exhibit A
hereto.
with a copy to:
Dewey Ballantine
1301 Avenue of the Americas
New York, New York 10019
Attention: Jeff Liebmann
7.7 Amendments; Waivers. This Agreement may be amended or modified, and any
of the terms, covenants or conditions hereof may be waived, only by a written
instrument executed by the parties hereto, or in the case of a waiver, by the
party waiving compliance. Any waiver by any party of any condition, or of the
breach of any provision, term or covenant contained in this Agreement, in any
one or more instances, shall not be deemed to be nor construed as furthering or
continuing waiver of any such condition or of the breach of any other provision,
term or covenant of this Agreement.
7.8 Section and Paragraph Headings. The section and paragraph headings in
this Agreement are for reference purposes only and shall not affect the meaning
or interpretation of this Agreement.
7.9 Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but all of which shall constitute the same
instrument.
-12-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
FARM FAMILY HOLDINGS, INC.
By /s/ Philip P. Weber
----------------------
Name: Philip P. Weber
Title: President & C.E.O.
CONNECTICUT FARM BUREAU
SERVICE COMPANY
By /s/ Randolph Blackman, Jr.
-----------------------------
Name: Randolph Blackman, Jr.
Title: President
DELAWARE FARM BUREAU SERVICE
COMPANY, INC.
By /s/ Robert L. Baker
----------------------
Name: Robert L. Baker
Title: President
MAINE FARM BUREAU SERVICE
COMPANY
By /s/ Sandra A. George
-----------------------
Name: Sandra A. George
Title: President
MASSACHUSETTS FARM BUREAU
SERVICE COMPANY, INC.
By /s/ Arthur D. Keown, Jr.
---------------------------
Name: Arthur D. Keown, Jr.
Title: President
-13-
<PAGE>
NEW HAMPSHIRE FARM BUREAU
FEDERATION
By /s/ Frank W. Reinhold, Jr.
-----------------------------
Name: Frank W. Reinhold, Jr.
Title: Second Vice President, NHFBF
NEW JERSEY FARM BUREAU SERVICE
COMPANY
By /s/ Walter Ellis, Jr.
------------------------
Name: Walter Ellis, Jr.
Title: President
NEW YORK FARM BUREAU SERVICE
COMPANY, INC.
By /s/ John W. Lincoln
----------------------
Name: John W. Lincoln
Title: President
RHODE ISLAND FARM BUREAU
FEDERATION, INC.
By /s/ William M. Stamp, Jr.
----------------------------
Name: William M. Stamp, Jr.
Title: President
VERMONT FARM BUREAU, INC.
By /s/ Clark W. Hinsdale III
----------------------------
Name: Clark W. Hinsdale III
Title: President
WEST VIRGINIA FARM BUREAU, INC.
By /s/ Charles Wilfong
----------------------
Name: Charles Wilfong
Title: President
<PAGE>
EXHIBIT A
<TABLE>
<CAPTION>
FARM FAMILY HOLDINGS, INC.
SHAREHOLDERS
Registered Holder Number of Shares
- ----------------- ----------------
Connecticut Farm Bureau Service Company
510 Pigeon Hill Road
<S> <C>
Windsor, Connecticut 06095-2112 69,449
Delaware Farm Bureau Service Company, Inc.
233 S. Dupont Highway
Camden-Wyoming, Delaware 19934 38,585
Maine Farm Bureau Service Company
RR 4, Box 1254
4 Gabriel Drive
Augusta, Maine 04330-9322 15,449
Massachusetts Farm Bureau Service Company, Inc.
466 Chestnut Street
Ashland, Massachusetts 01721-2299 100,322
New Hampshire Farm Bureau Federation
295 Sheep Davis Road
Concord, New Hampshire 03301 26
New Jersey Farm Bureau Service Company
168 W. State Street
Trenton, New Jersey 08608 231,527
New York Farm Bureau Service Company, Inc.
Route 9W, Box 992
Glenmont, New York 12077-0992 339,578
Rhode Island Farm Bureau Federation, Inc.
201 Comstock Parkway
Cranston, Rhode Island 02921-2007 30,882
Vermont Farm Bureau, Inc.
RR 2, Box 123
Richmond, Vermont 05477-9605 171
West Virginia Farm Bureau, Inc.
1 Red Rock Road
Buckhannon, West Virginia 26201 30,882
--------
Total 856,871
--------
--------
</TABLE>
<PAGE>
EXHIBIT 10.1
AMENDMENT NO. 2 TO
MEMBERSHIP LIST PURCHASE AGREEMENTS
(Farm Family Casualty Insurance Company)
Amendment No. 2, effective January 1, 1998, to those certain Membership List
Purchase Agreements ("MLP Agreements") effective January 1, 1996, among Farm
Family Casualty Insurance Company (formerly known as Farm Family Mutual
Insurance Company) (the "Insurer"), Connecticut Farm Bureau Association, Inc.,
Delaware Farm Bureau, Inc., Maine Farm Bureau Association, Massachusetts Farm
Bureau Federation, Inc., New Hampshire Farm Bureau Federation, New Jersey Farm
Bureau, New York Farm Bureau, Inc., Rhode Island Farm Bureau Federation, Inc.,
Vermont Farm Bureau, Inc., and West Virginia Farm Bureau, Inc. (collectively,
the "Farm Bureaus"); Rural Agency and Brokerage, Inc., Rural Agency and
Brokerage of New Hampshire, Inc., Rural Insurance Agency and Brokerage of
Massachusetts, Inc., R.A.A.B. of W. Va., Inc. (collectively, the
"Subsidiaries"); and Farm Family Holdings, Inc. ("FFH").
WHEREAS, the parties wish to amend the MLP Agreements to grant the Insurer the
right to use the Farm Bureaus' membership lists for the purpose of marketing
financial services and products to Farm Bureau members.
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby
severally acknowledged, the parties agree as follows:
1. The second sentence of Paragraph 4 of the MLP Agreements shall be
deleted in its entirety and replaced with the following: "The Insurer and
its agents will use the names and addresses only for the purposes of
marketing to the Farm Bureau's members: (i) the Insurer's insurance
products; and (ii) the financial services and products of financial
institutions, including but not limited to, banks, broker-dealers,
investment companies and insurance companies."
2. The second sentence of Paragraph 5 of the MLP Agreements shall be
deleted in its entirety and replaced with the following: "The Farm Bureau
agrees not to promote or endorse the sale of the products of any other
insurer, except Farm Family Life Insurance Company, or the financial
services and products of any financial institution, including but not
limited to, banks, broker-dealers, investment companies and insurance
companies, without the prior written consent of the Insurer."
3. Unless otherwise defined herein, all capitalized terms shall have the
meanings as provided in the MLP Agreements.
4. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one
and the same document.
<PAGE>
5. Except as otherwise provided herein, all terms and conditions of the MLP
Agreements shall remain in full force and effect.
FARM FAMILY CASUALTY
INSURANCE COMPANY
By: /s/ Philip P. Weber
President & CEO
<PAGE>
CONNECTICUT FARM BUREAU NEW JERSEY FARM BUREAU
ASSOCIATION, INC.
By: /s/ Norma R. O'Leary By: /s/ John I. Rigolizzo, Jr.
President President
Date: 4/27/98 Date: 2/17/98
DELAWARE FARM BUREAU, INC. NEW YORK FARM BUREAU, INC.
By: /s/ Joseph E. Calhoun By: /s/ Jeffery H. Kirby
President Secretary/Treasurer
Date: 2/25/98 Date: 12/7/98
MAINE FARM BUREAU RHODE ISLAND FARM BUREAU
ASSOCIATION FEDERATION, INC.
By: /s/ Sandra A. George By: /s/ William M. Stamp, Jr.
President President
Date: 3/26/98 Date: 2/24/98
MASSACHUSETTS FARM BUREAU VERMONT FARM BUREAU, INC.
By: /s/ Arthur D. Keown, Jr. By: /s/ Clark W. Hinsadale III
President President
Date: 7/27/99 Date: 5/26/99
NEW HAMPSHIRE FARM BUREAU WEST VIRGINIA FARM BUREAU,
FEDERATION INC.
By: /s/ Gordon H. Gowen By: /s/ Charles Wilfong
President President
Date: 2/14/98 Date: 1/25/99
<PAGE>
THE UNDERSIGNED HEREBY ACKNOWLEDGE AND AGREE TO THE TERMS AND CONDITIONS OF
PARAGRAPH 6 OF THE MLP AGREEMENTS, AS AMENDED.
RURAL AGENCY AND BROKERAGE, RURAL AGENCY AND BROKERAGE
INC. OF NEW HAMPSHIRE, INC.
By: /s/ Philip P. Weber By: /s/ Philip P. Weber
President President
Date: 6/3/99 Date: 6/3/99
RURAL INSURANCE AGENCY AND R.A.A.B. OF W. VA., INC.
BROKERAGE OF MASSACHUSETTS, INC.
By: /s/ Philip P. Weber By: /s/ Philip P. Weber
President President
Date: 6/3/99 Date: 6/3/99
THE UNDERSIGNED HEREBY ACKNOWLEDGES AND AGREES TO THE TERMS AND CONDITIONS OF
PARAGRAPHS 1, 6(A), 6(C) - 6(H), AND 12 OF THE MLP AGREEMENTS, AS AMENDED.
FARM FAMILY HOLDINGS, INC.
By: /s/ Philip P. Weber
President & CEO
Date: 6/3/99
<PAGE>
EXHIBIT 10.2
MEMBERSHIP LIST PURCHASE AGREEMENT
The ________________________, a corporation organized and existing pursuant to
the laws of the State of _______________, having its office and principal place
of business at ________________________ (hereinafter referred to as the "Farm
Bureau") and Farm Family Life Insurance Company , a New York domestic insurance
company organized and existing pursuant to the laws of the State of New York and
having its principal offices and place of business at 344 Route 9W, Glenmont,
New York 12077 (mailing: P.O. Box 656, Albany, N.Y. 12201-0656) (hereinafter
referred to as the "Insurer") and United Farm Family Insurance Company
(hereinafter referred to as the "Subsidiary") agree as follows: .
1. The term of this Agreement shall be for six (6) years commencing on January
1, 1996. This Agreement shall be automatically renewed for successive
one-year terms unless either party gives the other written notice of its
intention not to renew this Agreement at least sixty (60) days prior to
December 31, 2001 and each anniversary thereafter.
2. On or before January 1, 1996, and annually thereafter for the term of this
Agreement, including any renewed term, the Farm Bureau will provide the
Insurer with mailing lists consisting of the name, address and membership
number of all of the Farm Bureau's members who are in good standing. The
list shall be in a form prescribed by the Insurer and shall be compatible
with the Insurer's electronic data processing requirements. During the term
of this Agreement and any renewals, the Farm Bureau will provide the
Insurer with all additions, deletions and changes to the membership list
including change of Farm Bureau membership status in a form prescribed by
the Insurer to be compatible with the Insurer's electronic processing
requirements.
3. The Insurer, in conjunction with Farm Family Mutual Insurance Company,
shall maintain the membership list for the mutual benefit of the parties to
this Agreement. At the request of the Farm Bureau, the Insurer shall
produce labels, lists, billings and other output from the membership list
for the Farm Bureau at cost.
4. The Insurer agrees that the names and addresses that are provided by the
Farm Bureau will at all times remain the property of the Farm Bureau. The
Insurer and its agents will use the names and addresses only for the
purposes of marketing the Insurer's insurance products to the Farm Bureau's
members. The Insurer further agrees that the mailing lists which are the
subject of this Agreement are the valuable properties of the Farm Bureau
and will not be divulged, disclosed or otherwise disseminated to any other
person or persons without the express written consent of the Farm Bureau.
The Insurer agrees that it acquires no proprietary interest in the mailing
list as a result of this Agreement.
5. The Farm Bureau agrees that it will not release its membership list to any
third party, except Farm Family Mutual Insurance Company, without the prior
written consent of the Insurer. The Farm Bureau agrees not to promote or
endorse the sale of the products of any other insurer , except Farm Family
Mutual Insurance Company, without the prior written consent of the Insurer.
<PAGE>
6. (A) The Farm Bureau and the Insurer hereby acknowledge that the American
Farm Bureau Federation ("AFBF") is the owner of the marks "FARM BUREAU" and
"FB" (hereinafter referred to as the "Marks") and the United States Service
Marks Registration Nos. 594,500 and 1,022,111, and others with respect
thereto; that AFBF has licensed the Farm Bureau to use the Marks; and, that
AFBF has authorized the Farm Bureau to sublicense the Marks according to
the terms and conditions of this Agreement, subject to approval and
revocation of approval by the AFBF Board of Directors.
(B) The Farm Bureau grants to Insurer, and Insurer accepts, an exclusive,
nontransferable right to use the Marks and the Farm Bureau's other names
and logos (excluding those names and logos owned by AFBF other than the
Marks) only in connection with the promotion and sale of insurance products
within the State of _______________ upon the terms and conditions, and, for
the term of this Agreement.
(C) Insurer agrees that the nature and quality of all insurance products
offered or sold by Insurer shall meet or exceed the standards required by
applicable state laws and regulations and shall be appropriate for the
needs of Farm Bureau members. Insurer shall permit the Farm Bureau or its
representatives to inspect all insurance products upon request and all
promotional materials used in connection therewith. Farm Bureau, either
acting alone or at the direction of AFBF, shall have the right to revoke
Insurer's right to use the Marks and Farm Bureau's other names and logos in
the event that, in the judgment of Farm Bureau and/or AFBF, the level of
the nature and quality of the insurance products offered or sold by Insurer
is not appropriate for the needs of Farm Bureau members.
(D) Insurer agrees to use, display and reproduce the Marks only in the form
and manner as are prescribed from time to time by the Farm Bureau and the
AFBF. The notice (R) shall always appear in conjunction with the Marks. The
words "Farm Bureau" shall always appear in all capitals or in initial
capitals and followed by the notice (R). Insurer shall not use the Marks in
its company, corporate or trade names.
(E) Notwithstanding paragraph 1 of this Agreement, Insurer shall
immediately discontinue use of the Marks in the event the Farm Bureau
terminates its membership in the AFBF, or, in the event that AFBF otherwise
revokes the license granted to the Farm Bureau to use the Marks. The
service mark license granted to Insurer in paragraph 6 of this Agreement,
may be revoked by the Farm Bureau alone or by the Farm Bureau at the
direction of AFBF if Insurer violates any terms of this paragraph 6 and
fails to cure such violation after 30 days written notice thereof to
Insurer.
(F) Nothing in this Agreement shall be deemed to constitute an assignment
of the Marks or to give Insurer any right, title or interest in and to the
Marks other than the right to use in accordance with this Agreement.
Insurer shall not register or apply to register the Marks or any
confusingly similar marks in the Patent and Trademark office or in any
other jurisdiction or institution in the United States or elsewhere in the
world. Insurer shall not represent in any manner that it owns the Marks,
nor shall Insurer attack the title of AFBF to the Marks, or attack the
validity or enforceability of the Marks.
<PAGE>
(G) Insurer shall notify AFBF and the Farm Bureau promptly of any
unauthorized use of the Marks by others which comes to its attention, or to
the attention of its officers, directors, employees or agents. AFBF shall
have the sole right, but no obligation, to bring or defend infringement,
unfair competition or other proceedings involving the Marks. When requested
by AFBF, Insurer shall cooperate with AFBF in efforts to stop an
infringement or other violation of the Marks or to defend the Marks against
attack.
(H) The rights granted to Insurer under this paragraph 6 of this Agreement
are extended so as to permit Insurer also to use the Marks through the
Subsidiary. The Subsidiary agrees to assume and fulfill the same
obligations to Farm Bureau and AFBF as those agreed to by Insurer under the
terms and conditions of this paragraph 6 of this Agreement, and to
otherwise comply with all of the terms and conditions of this paragraph 6
of this Agreement. The Subsidiary may not assign its rights or obligations
under this paragraph 6 of this Agreement without the prior written consent
of the Farm Bureau and the AFBF.
7. The Insurer may grant any right it has received under the terms of this
Agreement except any rights arising (a) under or relating to the Marks or
(b) under or relating to paragraph 6 of this Agreement, to any of its
agents, subsidiaries or affiliates, without the consent of the Farm Bureau.
8. The Insurer agrees to pay the Farm Bureau on or about March 1, 1996, and
annually thereafter during the term of this Agreement, including any
renewed term, an amount equal to the sum of seven dollars and fifty cents
($7.50) for each member of the Farm Bureau as reported on the Annual
Membership Census reported by the American Farm Bureau Federation at its
Annual Meeting for each respective year.
9. This Agreement contains the entire Agreement of the parties and can be
modified or changed only in writing which is signed by the parties. In the
event of any dispute hereunder except a dispute arising (a) under or
relating to the Marks or (b) under or relating to paragraph 6 of this
Agreement, the parties agree that such dispute will be settled by binding
arbitration pursuant to the rules of the American Arbitration Association.
10. Whenever notice is required under the terms of this Agreement, it shall be
given in writing and sent by registered or certified mail, or by personal
delivery to the address of the parties hereinabove set forth, or at such
other address as shall be designated in accordance with this paragraph.
Receipt shall be deemed to have been made upon mailing or personal
delivery, whichever first occurs.
11. This Agreement contains the entire Agreement and understanding between the
parties with respect to the subject matter hereof. This Agreement shall be
construed and interpreted in accordance with the laws of the State of New
York.
<PAGE>
12. The rights and obligations of the Insurer under this Agreement may be
assigned to a successor in interest upon written notice to the Farm Bureau
- provided however, that any rights arising (a) under or relating to the
Marks or (b) under or relating to paragraph 6 of this Agreement, may not be
assigned hereunder without the prior written consent of the AFBF.
Dated: ____________________
____________________ FARM BUREAU
By: ______________________________________
President
FARM FAMILY LIFE INSURANCE COMPANY
By: ______________________________________
Philip P. Weber
Executive Vice President
and Chief Executive Officer
THE UNDERSIGNED HEREBY ACKNOWLEDGES AND AGREES TO THE TERMS AND CONDITIONS OF
PARAGRAPH 6 OF THIS AGREEMENT.
UNITED FARM FAMILY INSURANCE COMPANY
By: ______________________________________
<PAGE>
AMENDMENT NO. 1 TO
MEMBERSHIP LIST PURCHASE AGREEMENTS
(Farm Family Life Insurance Company)
Amendment No. 1, effective January 1, 1998, to those certain Membership List
Purchase Agreements ("MLP Agreements") effective January 1, 1996, among Farm
Family Life Insurance Company (the "Insurer"), Connecticut Farm Bureau
Association, Inc., Delaware Farm Bureau, Inc., Maine Farm Bureau Association,
Massachusetts Farm Bureau Federation, Inc., New Hampshire Farm Bureau
Federation, New Jersey Farm Bureau, New York Farm Bureau, Inc., Rhode Island
Farm Bureau Federation, Inc., Vermont Farm Bureau, Inc., and West Virginia Farm
Bureau, Inc. (collectively, the "Farm Bureaus"); and United Farm Family
Insurance Company (the "Subsidiary").
WHEREAS, the parties wish to amend the MLP Agreements to grant the Insurer the
right to use the Farm Bureaus' membership lists for the purpose of marketing
financial services and products to Farm Bureau members.
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby
severally acknowledged, the parties agree as follows:
1. The second sentence of Paragraph 4 of the MLP Agreements shall be
deleted in its entirety and replaced with the following: "The Insurer and
its agents will use the names and addresses only for the purposes of
marketing to the Farm Bureau's members: (i) the Insurer's insurance
products; and (ii) the financial services and products of financial
institutions, including but not limited to, banks, broker-dealers,
investment companies and insurance companies."
2. The second sentence of Paragraph 5 of the MLP Agreements shall be
deleted in its entirety and replaced with the following: "The Farm Bureau
agrees not to promote or endorse the sale of the products of any other
insurer, except Farm Family Casualty Insurance Company, or the financial
services and products of any financial institution, including but not
limited to, banks, broker-dealers, investment companies and insurance
companies, without the prior written consent of the Insurer."
3. Unless otherwise defined herein, all capitalized terms shall have the
meanings as provided in the MLP Agreements.
4. This Amendment may be executed in any number of counterparts, each of
which shall be deemed an original, but all of which shall constitute one
and the same document.
<PAGE>
5. Except as otherwise provided herein, all terms and conditions of the MLP
Agreements shall remain in full force and effect.
FARM FAMILY LIFE
INSURANCE COMPANY
By: /s/ Philip P. Weber
President & CEO
Date: 6/3/99
<PAGE>
CONNECTICUT FARM BUREAU NEW JERSEY FARM BUREAU
ASSOCIATION, INC.
By: /s/ Norma R. O'Leary By: /s/ John I. Rigolizzo, Jr.
President President
Date: 4/27/98 Date: 2/17/98
DELAWARE FARM BUREAU, INC. NEW YORK FARM BUREAU, INC.
By: /s/ Joseph E. Calhoun By: /s/ Jeffery H. Kirby
President Secretary/Treasurer
Date: 2/25/98 Date: 12/7/98
MAINE FARM BUREAU RHODE ISLAND FARM BUREAU
ASSOCIATION FEDERATION, INC.
By: /s/ Sandra a. George By: /s/ William M. Stamp, Jr.
President President
Date: 3/26/98 Date: 2/24/98
MASSACHUSETTS FARM BUREAU VERMONT FARM BUREAU, INC.
By: /s/ Arthur D. Keown, Jr. By: /s/ Clark W. Hinsadale III
President President
Date: 7/27/99 Date: 5/26/99
NEW HAMPSHIRE FARM BUREAU WEST VIRGINIA FARM BUREAU,
FEDERATION INC.
By: /s/ Gordon H. Gowen By: /s/ Charles Wilfong
President President
Date: 2/14/98 Date: 1/25/99
<PAGE>
THE UNDERSIGNED HEREBY ACKNOWLEDGES AND AGREES TO THE TERMS AND CONDITIONS OF
PARAGRAPH 6 OF THE MLP AGREEMENTS, AS AMENDED.
UNITED FARM FAMILY INSURANCE COMPANY
By: /s/ Philip P. Weber
President & CEO
<PAGE>
Exhibit 10.3
FARM FAMILY LIFE INSURANCE COMPANY
ANNUAL INCENTIVE PLAN
(AS AMENDED AND RESTATED AS OF OCTOBER 27, 1998)
Farm Family Life Insurance Company hereby establishes this Annual Incentive Plan
(the "Plan") for certain key employees of the Company and its affiliates who are
selected for participation in the Plan. The Plan is comprised of this Plan
document and each valid, executed Annual Incentive Plan Notice for a
Participant.
ARTICLE 1
DEFINITIONS
1.01 Board of Directors: The Board of Directors of the Company.
1.02 Cause: An employee's:
(a) felony conviction or the failure of an employee to contest
prosecution for a felony;
(b) willful misconduct or dishonesty, any of which is directly and
materially harmful to the business or reputation of the Company;
(c) theft, participation in any material fraudulent conduct, or other
acts involving material misappropriation of property;
(d) habitual drunkenness or habitual drug abuse;
(e) material and willful disclosure of any confidential information:
(f) unlawful discrimination and/or unlawful sexual harassment by an
officer;
(g) serious breach of the Company's policies; or
(h) continuing inattention to or continuing neglect of the duties to
be performed by an employee which inattention or neglect is not
the result of illness or accident.
<PAGE>
1.03 Change in Control: A change in control of the Company of a nature that
would be required to be reported in response to Item 6(e) of Schedule 14A of
Regulation 14A under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), whether or not the Company is subject to the Exchange Act at
such time; provided, however, that without limiting the generality of the
foregoing, a Change in Control will in any event be deemed to occur if and when:
(a) any person (as such term is used in paragraphs 13(d) and 14(d)(2)
of the Exchange Act, hereinafter in this definition, "Person"),
other than the Company or a subsidiary or employee benefit plan
of the Company or subsidiary, becomes the beneficial owner (as
defined in Rule 13d-3 under the Exchange Act), directly or
indirectly of twenty percent (20%) or more of the Company's
common stock then outstanding;
(b) stockholders approve a merger, consolidation or other business
combination (a "Business Combination") other than a Business
Combination in which holders of common stock of the Company
immediately prior to the Business Combination have substantially
the same proportionate ownership of common stock of the surviving
corporation immediately after the Business Combination as
immediately before;
(c) stockholders approve either (i) an agreement for the sale or
disposition of all or substantially all of the Company's assets
to any entity that is not a subsidiary of the Company, or (ii) a
plan of complete liquidation; or
(d) the persons who were members of the Board of Directors
immediately before a tender offer by any Person other than the
Company or a subsidiary, or before a merger, consolidation or
contested election, or before any combination of such
transactions, cease to constitute a majority of the Board of
Directors as a result of such transaction or transactions.
Provided, however, that the acquisition of Farm Family Life Insurance Company by
Farm Family Holdings, Inc. pursuant to the Amended and Restated Option Purchase
Agreement dated as of February 26, 1998 by and among Farm Family Holdings, Inc.
and the shareholders of Farm Family Life Insurance Company, as amended by
Amendment No. 1 to Amended and Restated Option Purchase Agreement dated as of
April 28, 1998, as the same may be further amended from time to time, shall not
constitute a Change in Control hereunder.
1.04 Company: Farm Family Life Insurance Company, a Delaware corporation, and
any successor thereto.
1.05 Committee: The Compensation Committee of the Board of Directors of the
Company or such other committee appointed by the Board. If at any time there is
no Committee, then the functions of the Committee specified in the Plan shall be
exercised by the Board.
1.06 Disability: The total and permanent disability as determined under the
Company's long term disability program.
<PAGE>
1.07 Earned Award: The amount of incentive award to be paid to a Participant
calculated pursuant to Section 6.01 hereof.
1.08 Effective Date: January 1, 1997.
1.09 Employee: An individual who is employed by the Company or an affiliate
thereof.
110 ERISA: The Employee Retirement Income Security Act of 1974, as amended.
1.11 Notice: The Annual Incentive Plan Notice for a Participant for a Plan Year.
1.12 Participant: An employee who is selected by the Committee as eligible to
participate in the Plan for a Plan Year.
1.13 Plan: This Plan document, together with each executed, valid Notice.
1.14 Plan Year: The calendar year. The first Plan Year begins January 1, 1997.
1.15 Retirement: The Normal or Early Retirement as those terms are defined in
the Farm Family Profit Sharing and Money Purchase Plan or any successor plan
thereto.
1.16 Secretary: The Corporate Secretary of the Company.
1.17 Severance Qualifying Termination: An officer's termination pursuant to
which the officer qualifies for severance benefits as determined under the Farm
Family Life Insurance Company, Farm Family Casualty Insurance Company and Farm
Family Holdings, Inc. Officer Severance Pay Plan, as the same may be amended
from time to time.
ARTICLE 2
OBJECTIVES
2.01 Objectives: The objectives of the Annual Incentive Plan are to:
(a) provide incentives and financial rewards to the employees of the
Company and its affiliates for their contribution to improving
the profitability of the Company and its affiliates;
(b) enable the Company to pay a fully-competitive total cash
compensation package; and
(c) facilitate the attraction and retention of executives.
<PAGE>
ARTICLE 3
ELIGIBILITY
3.01 Eligibility: Officers and other key employees of the Company, its
subsidiaries and its affiliates (but excluding members of the Committee and any
person who serves only as a director) who are responsible for or contribute to
the management, growth and/or profitability of the business of the Company, or
its subsidiaries, may be designated as Participants.
3.02 Part-year Participants: An employee who is employed after January 1 but
prior to September 1 may be designated a Participant for the Plan Year in which
he commenced employment. An employee who is employed on or after September 1 may
not be designated a Participant for the Plan Year in which he commenced
employment.
3.03 Cessation of Eligibility: An individual shall cease to be a Participant for
any Plan Year in which the individual's employment with the Company or its
affiliates is terminated voluntarily by the individual or involuntarily for
Cause. Provided, however, that a Participant who is an officer of the Company or
its affiliate who terminates his or her employment with the Company or its
affiliate pursuant to a Severance Qualifying Termination shall be entitled to
payment under the Plan as provided herein.
ARTICLE 4
AWARD OPPORTUNITIES AND PERFORMANCE FACTORS
4.01 Levels of Award Opportunities: Award Opportunities have the following
levels:
(a) Threshold Award Opportunity: 50% of the amount which will be paid
for Target Performance.
(b) Target Award Opportunity: The amount paid for Target Performance.
(c) Outstanding Award Opportunity: 150% of the amount paid for Target
Performance.
4.02 Performance Factors: Each level of performance shall have the following
Performance Factors:
(a) Below Threshold Performance: will have a Performance Factor of 0.
(b) Threshold Performance: will have a Performance Factor of 0.5.
(c) Target Performance: will have a Performance Factor of 1.0.
<PAGE>
(d) Outstanding Performance: will have a Performance Factor of 1.5.
(e) Above Outstanding Performance: will have a Performance Factor of
1.5.
4.03 Interpolation of Performance Factors: The Performance Factors for
performance between Threshold and Outstanding Performance levels will be
interpolated.
4.04 Limitations on Award Opportunities: No award will be paid for below
Threshold Performance. No award will exceed the amount payable for Outstanding
Performance.
ARTICLE 5
PERFORMANCE MEASUREMENT
5.01 Performance Measures: The performance of each Participant will be assessed
according to the achievement of predefined goals derived from the Company's and
its affiliates' strategic plans and budgets. These goals will be chosen each
year and identified as Performance Measures on the Participant's Notice,
weighted according to the Participant's relative responsibilities to the Company
and its affiliates and according to their relative importance.
5.02 Levels of Performance: Performance Measures will be stated in terms of the
following levels of performance:
(a) Threshold Performance: which will be defined to be 90%
achievement of budget or a similar level of any performance
measure which is not budget-related;
(b) Target Performance: which will generally be defined to be 100%
achievement of budget or a similar level of any performance
measure which is not budget-related; or
(c) Outstanding Performance: which will generally be defined to be
110% achievement of budget or a similar level of any performance
measure which is not budget-related.
5.03 Performance Measurement: The Performance Measures and weights for each
Participant will be set forth in a Notice for each Plan Year.
<PAGE>
ARTICLE 6
PAYMENT OF AWARDS
6.01 Calculation of Earned Awards: The Earned Award for each Participant for a
Plan Year shall be calculated as follows:
(a) The Performance Factor will be calculated for each Performance
Measure based on the Participant's actual performance
(b) The Adjusted Performance Factor for each Performance Measure will
be calculated by multiplying the weight for each Performance
Measure by the Performance Factor.
(c) The Total Adjusted Performance Factor will be the sum of all
Adjusted Performance Factors for the Participant.
(d) The Earned Award will be equal to the Target Award Opportunity
multiplied by the Total Adjusted Performance Factor.
An example of the Earned Award calculation is set forth in Exhibit A attached
hereto.
6.02 Determination of Awards: The Earned Award for each Participant for a Plan
Year will be based solely on the Company's and its affiliates' records. The
Earned Award for each Participant for a Plan Year will be determined within a
reasonable time period after the end of the Plan Year.
6.03 Payment of Awards: Payment of Earned Awards will be made within a
reasonable time period after the end of the Plan Year but in no event later than
90 days after close of the Company's books for the Plan Year. Participants may
elect to defer receipt of their Earned Awards pursuant to the Company's
Officers' Deferred Compensation Plan. The Company will deduct from all payments
due a Participant, taxes required by law to be withheld with respect to such
payments.
6.04 Change in Control: In the event of a Change in Control without a change in
employment status, each Participant will receive payment of the greater of his
actual Earned Award or his Target Award Opportunity for the Plan Year in which
the Change in Control occurs regardless of the level of performance actually
achieved.
6.05 Change in Employment Status: The effect of a change in the employment
status of an Participant during a Plan Year shall be determined as follows:
(a) New Hire or Promotion During the Plan Year: The Participant will
be paid the Earned Award prorated for the number of days of the
Plan Year that the Participant was employed in the eligible
position.
<PAGE>
(b) Death, Retirement or Disability During the Plan Year: The
Participant will be paid the Earned Award prorated for the number
of days of the Plan Year that the Participant was employed in the
eligible position.
(c) Voluntary Termination Other Than a Severance Qualifying
Termination: The Participant will forfeit any Earned Award for
the Plan Year in which he voluntarily terminates employment with
the Company or its affiliates, provided that such voluntary
termination does not constitute a Severance Qualifying
Termination.
(d) Severance Qualifying Termination: The Participant will be paid
the Earned Award prorated for the number of days of the Plan Year
that the Participant was employed by the Company in the eligible
position, provided, however, that, in the event of a Change in
Control during the Plan Year, the Participant will receive
payment of the greater of his actual Earned Award or Target Award
Opportunity for the Plan Year in which the Change in Control
occurs, regardless of achievement of Target Performance, prorated
for the number of days of the Plan Year that the Participant was
employed in the eligible position.
(e) Involuntary Termination for Cause: The Participant will forfeit
any award for the Plan Year in which he is terminated for Cause.
6.06. Amendment or Termination of Plan: In the event of an amendment or
termination of the Plan which reduces the amount any Participant will receive
pursuant to the Plan for the Plan Year in which the amendment or termination is
first effective, each such Participant will receive for such Plan Year payment
of the greater of his actual Earned Award calculated under the Plan, as amended,
or his Target Award Opportunity for the Plan Year without giving any effect to
such amendment or termination.
ARTICLE 7
ADMINISTRATION
7.01 Appointment of Committee: The general administration of the Plan and the
responsibility for carrying out its provisions shall be placed with the
Committee which shall be appointed from time to time by the Board of Directors.
7.02 Compensation of Committee: The members of the Committee shall not receive
compensation for their services as such, other than regular meeting fees, and,
except as required by law, no bond or other security need be required of them in
such capacity in any jurisdiction.
<PAGE>
7.03 Rules of Plan: Subject to the limitations of the Plan, the Committee may,
from time to time, establish policies for the administration of the Plan and the
transaction of its business. The Committee may correct errors, however arising,
and, as far as possible, adjust any award payments accordingly. The
determination of the Committee as to the interpretation of the provisions of the
Plan or any disputed question with respect to the Plan shall be conclusive upon
all interested parties.
7.04 Agents and Employees: The Committee may authorize one or more agents to
execute or deliver any instrument. The Committee may appoint or employ such
agents, counsel, auditors, physicians, clerical help and actuaries as in the
Committee's judgment shall be reasonable or necessary for the proper
administration of the Plan.
7.05 Records: The Committee shall maintain accounts showing the transactions of
the Plan. The Committee shall prepare and submit annually to the Board of
Directors a report setting forth the amounts paid to Participants for the Plan
Year. The report to the Board of Directors shall also include a brief account of
the operation of the Plan for the Plan Year.
7.06 Delegation of Authority: With the consent of the Board of Directors, the
Committee may, by resolution, delegate to any person or persons any or all of
its rights and duties hereunder. Any such delegation shall be valid and binding
on all persons, and the person or persons to whom any such authority has been
delegated shall, upon written acceptance of such authority, have full power to
act in all matters so delegated until the authority expires by its terms or is
revoked by the Committee.
7.07 Indemnification: The Company shall indemnify each member of the Committee
for all expenses and liabilities (including reasonable attorneys' fees) arising
out of the administration of the Plan, other than any expenses or liabilities
resulting from the Committee's own gross negligence or willful misconduct. The
foregoing right of indemnification shall be in addition to any other rights to
which the members of the Committee shall be entitled as a matter of law.
<PAGE>
ARTICLE 8
MISCELLANEOUS
8.01 No Trust Created: Nothing contained in the Plan, and no action taken
pursuant to the Plan by the Company or any Participant shall create, or be
construed to create, a trust of any kind, or a fiduciary relationship between
the Company and the Participant, or any other person
8.02 Benefits Payable Only From General Corporate Assets - Unsecured General
Creditor Status of Participant: Payments to any Participant shall be made from
assets which shall continue, for all purposes, to be a part of the general,
unrestricted assets of the Company. Title to and beneficial ownership of any
assets, whether cash or investments which the Company may earmark to pay Awards
hereunder, shall at all times remain in the Company and no Participant shall
have any property interest whatsoever in any specific asset of the Company. No
person shall have any interest in any such assets by virtue of the provisions of
this Plan. The Company's obligation hereunder shall be unfunded, for tax
purposes and for purposes of Title I of ERISA, and an unsecured promise to pay
money in the future. To the extent that any person acquires a right to receive
payments from the Company under the Plan, such right shall be no greater than
the right of any unsecured general creditor of the Company, and no such person
shall have nor acquire any legal or equitable right, interest or claim in or to
any property or asset of the Company.
There is no obligation on the part of the Company to fund for any liability
which accrues as a result of the Plan.
8.03 No Contract of Retention: Nothing contained herein shall be construed to be
a contract of employment as an Employee for any term of years, nor as conferring
upon any Participant the right to continue to be employed as an Employee in the
Participant's present capacity, or in any capacity. It is expressly understood
that the Plan relates merely to the promise of payment of annual incentive
compensation for the Participant's services as an Employee.
8.04 Benefits Not Transferable: The Participant shall not have any power or
right to transfer, assign, anticipate, hypothecate or otherwise encumber any
part or all of the amounts payable hereunder. A Participant's rights to payments
under the Plan are not subject in any manner to anticipation, alienation, sale,
transfer, assignment, pledge, encumbrance, attachment or garnishment by
creditors of the Participant, and no such amounts shall be subject to seizure by
any creditor of any Participant, by a proceeding at law or in equity, nor shall
such amounts be transferable by operation of law in the event of bankruptcy,
insolvency or death of the Participant. Any such attempted assignment or
transfer shall be void.
8.05 Determination of Benefits: A Participant who believes that such Participant
is being denied a benefit to which the Participant is entitled under the Plan
(hereinafter referred to as a "Claimant") may file a written request for such
benefit with the Committee, setting forth the Participant's claim. The request
must be addressed to the Secretary at the principal place of business of the
Company.
<PAGE>
Upon receipt of a claim, the Secretary shall advise the Claimant that a reply
will be forthcoming within ninety (90) days and shall, in fact, deliver such
reply within such period. The Committee may, however, extend the reply period
for an additional ninety (90) days for reasonable cause.
If the claim is denied in whole or in part, the Committee shall render a written
opinion, using language calculated to be understood by the Claimant, setting
forth:
(a) The specific reason or reasons for such denial;
(b) The specific reference to pertinent provisions of the Plan upon
which such denial is based;
(c) A description of any additional material or information necessary
for the Claimant to perfect his claim and an explanation why such
material or such information is necessary; and
(d) Appropriate information as to the steps to be taken if the
Claimant wishes to submit the claim for review and the time
period within which such review must be requested.
Within sixty (60) days after the receipt by the Claimant of the written opinion
described above, the Claimant may request in writing that the Board of Directors
review the determination of the Committee. Such request must be addressed to the
Board of Directors at the principal place of business of the Company. The
Claimant or the Claimant's duly authorized representative may, but need not,
review the pertinent documents and submit issues and comments in writing for
consideration by the Board of Directors. If the Claimant does not request a
review of the Committee's determination by the Board of Directors within such
sixty (60) day period, the Claimant shall be barred and estopped from
challenging the Committee's determination.
Within sixty (60) days after the Board of Directors' receipt of a request for
review from a Claimant, the Board of Directors shall review the Committee's
determination. If the Claimant is a member of the Board of Directors, the
Claimant shall be precluded from participating in the Board of Directors' review
of the Claimant's claim. After considering all material presented by the
Claimant, the Board of Directors shall render a written opinion, written in a
manner calculated to be understood by the Claimant, setting forth the specific
reasons for the decision and containing specific references to the pertinent
provisions of the Plan upon which the decision is based. If special
circumstances require that the sixty (60) day time period be extended, the Board
of Directors shall so notify the Claimant and will render the decision as soon
as possible, but not later than one hundred twenty (120) days after receipt of
the request for review from the Claimant.
8.06 Amendment or Termination: The Board of Directors, without the consent of
any Participant, may amend or terminate the Plan at any time provided, however,
that in the event of an amendment or termination of the Plan which reduces the
amount any Participant will receive pursuant to the Plan, each such Participant
shall be entitled to the payment set forth in Section 6.06 hereof for the Plan
Year in which such amendment or termination is first effective.
<PAGE>
8.07 Severability of Provisions: If any provision of the Plan is held invalid or
unenforceable, such invalidity or unenforceability shall not affect any other
provision of the Plan, and the Plan shall be construed and enforced as if such
invalid or unenforceable provision had not been included in the Plan.
8.08 Headings: Headings used throughout the Plan are for convenience only and
shall not be given legal significance.
8.09 Inurement: The Plan shall be binding upon and shall inure to the benefit
of, the Company and its successors and assigns, and the Participants and their
Designated Beneficiaries and the successors, heirs, executors, administrators
and beneficiaries thereof.
8.10 Notice: Any notice, consent or demand required or permitted to be given
under the Plan shall be in writing and shall be signed by the party giving or
making the same. If such notice, consent or demand is mailed to a party hereto,
it shall be sent by United States certified mail, postage prepaid, and addressed
to such party's last known address as shown on the records of the Company. The
date of such mailing shall be deemed the date of notice, consent or demand. Any
party hereto may change the address to which notice is to be sent by giving
notice of the change of address in the manner aforesaid.
8.11 Governing Law: The Plan and the rights of the parties hereunder shall be
governed by and be construed in accordance with the laws of the State of New
York.
8.12 Pronouns: Any masculine term used in the Plan shall include the feminine
and any singular term shall include the plural, unless the text indicates
otherwise.
IN WITNESS WHEREOF, the Company has hereby executed this Plan, as of the date
written below.
FARM FAMILY LIFE INSURANCE COMPANY
By: /s/ Philip P. Weber
Title: President & Chief Executive Officer
Date: 11/8/98
<PAGE>
EXHIBIT 10.4
AMENDMENT #1 TO FARM FAMILY
SUPPLEMENTAL PROFIT SHARING AND MONEY PURCHASE PLAN
WHEREAS, Farm Family Life Insurance Company and Farm Family Casualty Insurance
Company (the "Principal Employers") adopted an amended and restated Farm Family
Supplemental Profit Sharing and Money Purchase Plan (the "Plan"), effective as
of January 1, 1997, for the benefit of eligible employees of the Principal
Employers as well as eligible employees of Farm Family Holdings, Inc. and United
Farm Family Insurance Company (collectively with the Principal Employers, the
"Employers"); and
WHEREAS, pursuant to Section 10 of the Plan, the Principal Employers have the
right to amend or modify the Plan from time to time; and
WHEREAS, the Principal Employers now wish to amend the Plan to address the
effect on the Plan of a Change in Control of any of the Employers.
NOW, THEREFORE, the Plan is hereby amended, effective as of April 27, 1999, as
follows:
(1) Section 2., Definitions, is amended by adding a new paragraph at the end of
the Section as follows -
"For purposes of the Plan, the term "Change in Control" shall
mean a change in control of any of the Employers of a nature that
would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), whether or not such
Employer is subject to the Exchange Act at such time; provided,
however, that without limiting the generality of the foregoing, a
Change in Control will in any event be deemed to occur if and
when:
(a) any person (as such term is used in paragraphs 13(d) and
14(d)(2) of the Exchange Act, hereinafter in this definition,
"Person"), other than an Employer, or a subsidiary of an Employer
or employee benefit plan of an Employer, becomes the beneficial
owner (as defined in Rule 13d-3 under the Exchange Act), directly
or indirectly, of twenty percent (20%) or more of the common
stock of any Employer then outstanding;
(b) stockholders approve a merger, consolidation or other
business combination (a "Business Combination") other than a
Business Combination in which holders of common stock of an
Employer immediately prior to the Business Combination have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the Business
Combination as immediately before;
<PAGE>
(c) stockholders approve either (i) an agreement for the sale or
disposition of all or substantially all of an Employer's assets
to any entity that is not a subsidiary of one of said Employers,
or (ii) a plan of complete liquidation; or
(d) the persons who were members of the Board of Directors
immediately before a tender offer by any Person other than an
Employer or a subsidiary of an Employer, or before a merger,
consolidation or contested election, or before any combination of
such transactions, cease to constitute a majority of the Board of
Directors as a result of such transaction or transactions."
(2) Section 5, Plan Benefit, is amended by deleting the last paragraph of the
Section in its entirety and replacing it with the following -
"The Employers shall also credit interest ("Plan Earnings") to
each Plan Account for each calendar quarter at the rate equal to
the "Prime Rate" as published in the "Money Rates" section of the
Wall Street Journal, on the first business day of each such
calendar quarter. The balance of all Plan Contributions plus
Forfeiture Credits (as defined below) plus Plan Earnings credited
to a Participant's Plan Account shall, as of any particular date,
constitute such Participant's then benefit under the Plan (the
"Plan Benefit")."
(3) Section 6, Vesting of Plan Benefit, is deleted in its entirety and replaced
with the following -
"Section 6. Vesting of Plan Benefit and Change in Control.
Each Participant's Plan Benefit shall be vested to the identical
extent as that of the Participant's benefit under the Qualified
Plan; provided, however, that in the event of the occurrence of a
Change in Control, all Plan Benefits of Participants who were
also Participants of the Plan as of December 31, 1998, shall
become fully vested and nonforfeitable. In addition, if a
Participant was a Participant of the Plan as of December 31,
1998, and such Participant's employment terminates within 18
months of a Change in Control, and a Forfeiture of any portion of
such Participant's Accrued Benefit under the Qualified Plan
occurs, then the Employers shall credit to such Participant's
Plan Account an amount equal to the amount of Forfeiture for such
Participant under the Qualified Plan (the "Forfeiture Credit") on
the date the Forfeiture is considered to occur."
(4) Except as specifically set forth in this Amendment #1, the terms and
conditions of the Plan shall remain unchanged and in full force and effect.
<PAGE>
IN WITNESS WHEREOF, Farm Family Life Insurance Company and Farm Family Casualty
Insurance Company, as Principal Employers under the Plan, have caused this
Amendment #1 to be adopted.
ATTEST: FARM FAMILY LIFE INSURANCE COMPANY
By: /s/ Victoria M. Stanton By: /s/ Philip P. Weber
Secretary Philip P. Weber
President & C.E.O.
ATTEST: FARM FAMILY CASUALTY INSURANCE
COMPANY
By: /s/ Victoria M. Stanton By: /s/ Philip P. Weber
Secretary Philip P. Weber
President & C.E.O.
IN WITNESS WHEREOF, Farm Family Holdings, Inc. and United Farm Family Insurance
Company, as Employers under the Plan, have caused this Amendment #1 to be
adopted.
ATTEST: FARM FAMILY HOLDINGS, INC.
By: /s/ Victoria M. Stanton By: /s/ Philip P. Weber
Secretary Philip P. Weber
President & C.E.O.
ATTEST: UNITED FARM FAMILY INSURANCE
COMPANY
By: /s/ Victoria M. Stanton By: /s/ Philip P. Weber
Secretary Philip P. Weber
President & C.E.O.
<PAGE>
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<CIK> 0001013564
<NAME> Farm Family Holdings, Inc.
<MULTIPLIER> 1,000
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> Jan-01-1999
<PERIOD-END> Jun-30-1999
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5,830
0
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102,353
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<RESERVE-OPEN> 143,525
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