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 March 31, 2000
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
May 8, 2000 is 6,070,984.
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FARM FAMILY HOLDINGS, INC.
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
<S> <C>
March 31, 2000 (Unaudited) and December 31, 1999 3
Consolidated Statements of Income and Comprehensive Income -
Three Months Ended March 31, 2000 and 1999 (Unaudited) 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2000 and 1999 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6
Report of Independent Accountants 11
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures of Market Risk 18
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 18
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2
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<CAPTION>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
($ in thousands) (Unaudited)
March 31, 2000 December 31, 1999
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ASSETS
Investments:
Fixed maturities
Available for sale, at fair value
<S> <C> <C>
(Amortized cost: $1,005,494 in 2000 and $1,002,850 in 1999) $966,699 $960,054
Held to maturity, at amortized cost
(Fair value: $7,605 in 2000 and $7,820 in 1999) 7,683 7,971
Equity securities - available for sale, at fair value
(Cost: $42,175 in 2000 and $42,819 in 1999) 41,200 45,809
Mortgage loans 28,143 26,832
Policy loans 31,220 30,839
Other invested assets 175 176
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Total investments 1,075,120 1,071,681
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Cash and cash equivalents 19,217 19,190
Insurance receivables:
Reinsurance receivables 27,452 24,748
Premiums receivable, net 43,703 32,094
Deferred acquisition costs 19,858 17,630
Present value of future profits 28,534 28,571
Accrued investment income 17,570 18,875
Property and equipment, net 14,481 14,520
Deferred income tax asset, net 25,898 29,605
Other assets 5,140 4,884
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Total Assets $1,276,973 $1,261,798
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserves for losses and loss adjustment expenses
for property/casualty insurance $189,987 $186,130
Reserves for life policies and contract benefits 244,987 239,891
Funds on deposit from policyholders 411,924 416,971
Unearned premium reserve 84,226 74,364
Accrued dividends to policyholders 5,515 5,263
Reinsurance premiums payable 5,990 4,168
Accrued expenses and other liabilities 18,021 19,471
Participating policyholders' interest 113,696 128,516
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Total liabilities 1,074,346 1,074,774
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Commitments and contingencies
Mandatory redeemable preferred stock, redemption value - $5,830;
163,214 Series A shares issued and outstanding 5,830 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,
6,113,984 and 6,110,684 shares issued and outstanding 61 61
Additional paid-in capital 123,590 123,504
Retained earnings 76,581 60,172
Accumulated other comprehensive loss (3,435) (2,543)
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Total stockholders' equity 196,797 181,194
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Total Liabilities and Stockholders' Equity $1,276,973 $1,261,798
====================================================================================================================
See accompanying notes to Consolidated Financial Statements.
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3
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FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Income and Comprehensive Income
($ in thousands, except per share amounts) (Unaudited)
Three Months Ended
March 31,
2000 1999
--------------------------------------------------------------------------------------------------------
Revenues:
<S> <C> <C>
Premiums from property/casualty insurance $47,522 $48,334
Premiums from life and health insurance and contract charges 9,563 ----
Net investment income 18,493 4,834
Realized investment gains (losses), net (208) 279
Other income 621 277
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Total revenues 75,991 53,724
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Losses, benefits, and expenses:
Losses and loss adjustment expenses on property/casualty insurance 38,534 36,486
Policyholder contract benefits 14,660 ----
Amortization expense 8,751 8,996
Other operating costs and expenses 5,674 2,836
Participating policyholders' interest (15,895) ----
--------------------------------------------------------------------------------------------------------
Total losses, benefits and expenses 51,724 48,318
Income before federal income tax expense and preferred stock dividends 24,267 5,406
Federal income tax expense 7,769 1,663
--------------------------------------------------------------------------------------------------------
Income before preferred stock dividends 16,498 3,743
Preferred stock dividends 89 ----
--------------------------------------------------------------------------------------------------------
Net income attributable to common stockholders 16,409 3,743
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Other comprehensive income, net of tax:
Unrealized holding losses arising during the period
(net of tax benefit of $482 and $1,730, respectively) (896) (3,213)
Reclassification adjustment for losses included in net income
(net of tax benefit of $2 and $98, respectively) 4 181
--------------------------------------------------------------------------------------------------------
Other comprehensive loss (892) (3,032)
--------------------------------------------------------------------------------------------------------
Comprehensive income $15,517 $711
========================================================================================================
Per Share Data:
Net income - basic $2.69 $0.71
========================================================================================================
Net income - diluted $2.66 $0.71
========================================================================================================
Basic weighted average shares outstanding 6,111,119 5,253,813
========================================================================================================
Diluted weighted average shares outstanding 6,167,294 5,296,143
========================================================================================================
See accompanying notes to Consolidated Financial Statements.
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4
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<CAPTION>
FARM FAMILY HOLDINGS, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
($ in thousands)
(Unaudited)
For the Three Months
Ended March 31,
2000 1999
-----------------------------------------------------------------------------------------------------------------------
Operating Activities
<S> <C> <C>
Net income $16,409 $3,743
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Adjustments to reconcile net income to net cash provided by operating
activities:
Realized investment losses (gains), net 208 (279)
Amortization of bond discount 1,142 87
Amortization and depreciation 9,360 8,996
Interest credited to policyholders 6,013 ----
Deferred income taxes 6,855 (295)
Participating policyholders' interest (15,895) ----
Dividends to policyholders (2,990) ----
Capitalization of deferred acquisition costs (10,941) (8,961)
Loss on sale of property and equipment 6 ----
Changes in:
Reinsurance receivables (2,704) (1,592)
Premiums receivable, net (11,609) 397
Accrued investment income 1,305 236
Receivable from affiliates, net ---- 1,266
Other assets (256) (979)
Reserves for property/casualty insurance losses and loss adjustment expenses 3,857 1,216
Reserves for life policies and contract benefits 5,096 ----
Unearned premium reserve 9,862 423
Reinsurance premiums payable 1,822 (1,055)
Accrued expenses and other liabilities (1,198) 809
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Total adjustments (67) 269
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Net cash provided by operating activities 16,342 4,012
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Investing Activities
Proceeds from sales:
Fixed maturities 10,139 705
Equity securities 1,062 366
Investment collections:
Fixed maturities 7,156 5,876
Other investments 189 18
Investment purchases:
Fixed maturities (21,344) (11,250)
Other investments (1,500) (476)
Policy loans issued, net (381) ----
Change in other invested assets 1 ----
Purchases of property and equipment (577) ----
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Net cash used in investing activities (5,255) (4,761)
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Financing Activities
Contractholder fund deposits 6,235 ----
Contractholder fund withdrawals (17,295) ----
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Net cash used in financing activities (11,060) ----
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Net increase (decrease) in cash and cash equivalents 27 (749)
Cash and cash equivalents, beginning of period 19,190 10,677
-----------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $19,217 $9,928
=======================================================================================================================
See accompanying notes to Consolidated Financial Statements.
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5
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Notes to Consolidated Financial Statements (Unaudited)
1. 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").
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, 1999 Form 10-K.
2. Participating Policyholders' Interest
A significant portion of the Company's life insurance segment's products is
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 participating policyholders, except for the stockholders' share of
profits on participating policies, which is limited annually to the greater of
10% of the profit on participating business, or 50 cents per thousand dollars of
the face amount of participating life insurance in force.
In November 1999, the Company requested an opinion of the Insurance Department
of the State of New York (the "Department") as to whether interest credited in
excess of the interest guaranteed under certain participating insurance
policies, annuities and dividend accumulations ("Excess Interest") and the
difference between the guaranteed cost of insurance or premium and the cost of
insurance or premium actually charged ("Spreads"), as well as dividends to
participating policyholders, could be included in its calculation of the
estimate of statutory profits on participating life insurance business allocable
to stockholders. In April 2000, the Department approved the Company's request to
include Excess Interest and Spreads, as well as dividends to participating
policyholders, in its calculation of the estimate of statutory profits on
participating life insurance business allocable to stockholders on both a
prospective and retrospective basis. Accordingly, the Company's calculation of
the estimate of profits on participating life insurance business allocable to
stockholders has been revised to include Excess Interest and Spreads on a
retrospective and prospective basis.
The impact of including Excess Interest and Spreads in the Company's estimate of
the profits on participating life insurance business allocable to stockholders
increased the profits allocable to stockholders and is included in participating
policyholders' interest on the accompanying Consolidated Statements of Income
and Comprehensive Income. The effect of retroactively including Excess Interest
and Spreads in the Company's calculation of its estimate of profits on
participating life insurance business allocable to stockholders for periods
through December 31, 1999 increased net income for the three months ended March
31, 2000 by $12.7 million (after tax expense of $6.3 million) or $2.07 per
common share on a fully diluted basis.
6
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3. Earnings Per Share
The following table presents a reconciliation of the numerators and denominators
of the basic and diluted earnings per share computations.
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<CAPTION>
Three months ended
March 31,
2000 1999
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<S> <C> <C>
Net income available to common stockholders $16,409,000 $3,743,000
======================================================================================================
Weighted-average number of shares in basic earnings per share 6,111,119 5,253,813
Effect of stock options 56,175 42,330
------------------------------------------------------------------------------------------------------
Weighted-average number of shares in diluted earnings per share 6,167,294 5,296,143
======================================================================================================
Basic net income per share $2.69 $0.71
======================================================================================================
Diluted net income per share $2.66 $0.71
======================================================================================================
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4. Future Application of Accounting Standards
In September 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.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance (the
"Codification"), which will replace the current Accounting Practices and
Procedures Manual as the NAIC's primary guidance on statutory accounting.
Statutory accounting is a comprehensive basis of accounting based on prescribed
accounting practices, which include state laws, regulations and general
administrative rules, as well as a variety of publications of the NAIC. The
Codification provides guidance for the areas where statutory accounting has been
silent and changes current statutory accounting in some areas. The NAIC has
established January 1, 2001 as the effective date of the Codification. The New
York Insurance Department has advised that it intends to proceed with
implementation of the Codification, subject to any provisions in New York
statute which conflict with particular points in the Codification rules. The
Company has not estimated the potential effect of adopting the Codification.
5. 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
three-month periods ended March 31, 2000 and 1999, approximately 60% and 62%,
respectively, of the Company's property and casualty 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 adverse weather and
catastrophic events on the Company's operating results.
7
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5. Contingencies - Continued
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 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 March 31, 2000, the Company was guarantor of $1.3
million for such payments. The Company expects to enforce the terms of the
guarantee in the event of default by a successor agent.
The Company's liability for funds on deposit from policyholders includes amounts
subject to discretionary withdrawal. Withdrawal characteristics as of March 31,
2000 are as follows:
<TABLE>
($ in thousands) Amount % of Total
------------------------------------------------------------------------------------------------------
Surrender charge rate:
<S> <C> <C>
Greater than or equal to 5% $85,581 20.8%
Less than 5%, but still subject to surrender charge 67,459 16.4%
Not subject to surrender charge 250,484 60.8%
Not subject to discretionary withdrawal 8,400 2.0%
------------------------------------------------------------------------------------------------------
Total funds on deposit from policyholders $411,924 100.0%
======================================================================================================
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8
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6. Segment Information
The Company has two reportable segments: property and casualty insurance and
life insurance, which offer different products and services. The property and
casualty insurance segment includes activities related to the sale of the
Special Farm Package, a flexible multi-line package of insurance coverages, and
other insurance products covering personal and commercial automobiles,
businessowners and homeowners. The life insurance segment includes the sale of
individual whole life, term and universal life products, single and flexible
premium deferred annuity products, single premium immediate annuity products and
disability income insurance products. The Company uses operating income (net
income excluding realized investment gains (losses) and nonrecurring charges,
net of taxes) to measure the financial results of its segments.
"Corporate and other" includes holding company activities and operations not
directly related to the reportable segments.
Summarized segment financial information is as follows:
<TABLE>
Three months ended
March 31,
($ in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Premium revenues
<S> <C> <C>
Property and casualty insurance $47,522 $48,334
Life insurance 9,563 ----
- ---------------------------------------------------------------------------------------------------------------
Total premium revenues $57,085 $48,334
===============================================================================================================
Net investment income
Property and casualty insurance $5,556 $4,727
Life insurance 12,859 ----
Corporate and other 78 107
- ---------------------------------------------------------------------------------------------------------------
Total net investment income $18,493 $4,834
===============================================================================================================
Amortization expense
Property and casualty insurance
Amortization of deferred acquisition costs $8,435 $8,996
Life insurance
Amortization of deferred acquisition costs 279 ----
Amortization of present value of future profits 37 ----
- ---------------------------------------------------------------------------------------------------------------
Total amortization expense $8,751 $8,996
===============================================================================================================
Other operating costs and expenses
Property and casualty insurance
Underwriting expenses $2,723 $2,524
Dividends to policyholders ---- 70
Life insurance
Other operating costs and expenses 2,734 ----
Corporate and other 447 242
Intersegment eliminations (230) ----
- ---------------------------------------------------------------------------------------------------------------
Total other operating costs and expenses $5,674 $2,836
===============================================================================================================
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9
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6. Segment Information - Continued
<TABLE>
Three months ended
March 31,
($ in thousands) 2000 1999
- ---------------------------------------------------------------------------------------------------------------
Net income
Operating Income
<S> <C> <C>
Property and casualty insurance $2,818 $3,633
Life insurance 1,182 ----
Corporate and other (311) (71)
- ---------------------------------------------------------------------------------------------------------------
Total consolidated operating income 3,689 3,562
Effect of retroactively including Excess Interest
and Spreads, net of tax 12,746 ----
Realized investment gains (losses), net of tax (26) 181
- ---------------------------------------------------------------------------------------------------------------
Net income $16,409 $3,743
===============================================================================================================
Federal income tax expense (benefit)
Property and casualty insurance $979 $1,700
Life insurance 6,908 ----
Corporate and other (118) (37)
- ---------------------------------------------------------------------------------------------------------------
Total federal income tax expense $7,769 $1,663
===============================================================================================================
March 31, December 31,
2000 1999
- ---------------------------------------------------------------------------------------------------------------
Assets
Property and casualty insurance $461,648 $446,721
Life insurance 813,282 812,106
Corporate and other 72,241 71,014
Intersegment eliminations (70,198) (68,043)
- ---------------------------------------------------------------------------------------------------------------
Total assets $1,276,973 $1,261,798
===============================================================================================================
</TABLE>
10
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Report of Independent Accountants
To the Shareholders and Board of Directors
Farm Family Holdings, Inc.
We have reviewed the accompanying consolidated balance sheet of Farm Family
Holdings, Inc. and its subsidiaries as of March 31, 2000, and the related
consolidated statements of income and comprehensive income and of cash flows for
each of the three-month periods ended March 31, 2000 and 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 accompanying consolidated interim financial statements for them
to be in conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1999, and the related
consolidated statements of income and comprehensive income, of stockholders'
equity and of cash flows for the year then ended (not presented herein), and in
our report dated February 11, 2000 we expressed an unqualified opinion on those
consolidated financial statements. In our opinion, the information set forth in
the accompanying consolidated balance sheet as of December 31, 1999, is fairly
stated in all material respects in relation to the consolidated balance sheet
from which it has been derived.
/s/ PricewaterhouseCoopers LLP
Albany, New York
April 24, 2000
11
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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" or "we") and should be read in conjunction with the
consolidated financial statements and the related notes included elsewhere
within this document. On April 6, 1999, Farm Family Holdings acquired all of the
outstanding capital stock of Farm Family Life. As a result of the acquisition,
Farm Family Life became a wholly-owned subsidiary of Farm Family Holdings. The
acquisition was accounted for under the purchase method of accounting.
Accordingly, the financial results of Farm Family Life and Farm Family Life's
wholly-owned property and casualty subsidiary, United Farm Family, were included
in these consolidated financial statements of Farm Family Holdings subsequent to
April 6, 1999.
Our 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 our license to do business in
various states, we are 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 our results of operations.
For the three-month periods ended March 31, 2000 and 1999, 36.3% and 33.3%,
respectively, of our property and casualty direct written premiums were derived
from policies written in New York and, for the same periods, 23.5% and 28.6%,
respectively, were derived from policies written in New Jersey. For these same
periods, no other state accounted for more than 10.0% of our property and
casualty direct written premiums. As a result, our 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.
12
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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 are 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 concerning our exposure to interest rate and market
risk, statements regarding the adequacy of the Company's capital resources,
liquidity, and other financial items, statements of the plans and objectives of
the Company or its management, and statements of future economic performance 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, exposure to catastrophic loss, the frequency and severity of weather related
losses, geographic concentration of loss exposure in New York, New Jersey and
the Northeastern United States generally, the effect of regulatory changes
governing personal automobile insurance in New Jersey and the impact thereof on
the Company's direct written premium, losses and loss adjustment expenses, the
risks associated with the legislative, regulatory and competitive environments
in the states in which the Company currently operates, heightened competition,
including specifically the intensification of competition, failure to obtain new
customers or to retain existing customers, the effect of the uncertainties
related to the Year 2000 issue, the Company's primary reliance, as a holding
company, on dividends from its subsidiaries and the applicable regulatory
restrictions on the ability of the Company's subsidiaries to pay such dividends,
and conditions specific to the 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, tax law changes and other risk factors listed
from time to time in the Company's Securities and Exchange Commission filings
including the Company's Form 10-K filed for the fiscal year ended December 31,
1999. Accordingly, there can be no assurance that actual results will conform to
the forward-looking statements in this Form 10-Q.
13
<PAGE>
Results of Operations
The Three Months Ended March 31, 2000 Compared to the Three Months Ended March
31, 1999
Insurance Premiums and Contract Charges
Premium revenue increased to $57.1 million for the three months ended March 31,
2000 from $48.3 million for the same period in 1999.
Premium revenue for property and casualty insurance decreased $0.8 million
during the three months ended March 31, 2000 to $47.5 million from $48.3 million
for the same period in 1999. The decrease in premium revenue for the first
quarter of 2000 was primarily attributable to an increase of $2.0 million in
premium revenue ceded to Farm Family Casualty's reinsurers and a decrease of
$0.4 million in premium revenue from Farm Family Casualty's voluntary 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 losses
and loss adjustment expenses for the first quarter of 2000. These decreases in
premium revenue were partially offset by an increase in premium revenue derived
from Farm Family Casualty's direct writings of $1.2 million and premium revenue
of $0.6 million from United Farm Family.
The $1.2 million increase in earned premiums on additional business directly
written by Farm Family Casualty was primarily attributable to an increase of
$0.7 million, or 1.9%, 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 $0.5 million,
or 6.1%, in earned premiums from other products. Farm Family Casualty had
approximately 175,000 total policies in force at March 31, 2000. The number of
policies in force related to Farm Family Casualty's primary products increased
by 3.9% to approximately 144,000 as of March 31, 2000 from approximately 138,600
as of March 31, 1999.
Property and casualty net written premiums increased $8.6 million to $57.3
million for the three months ended March 31, 2000 compared to $48.7 million for
the same period in 1999. The increase in net written premiums was primarily
attributable to an increase of $10.6 million in Farm Family Casualty's direct
writings (excluding assigned risk automobile business premiums) and the
inclusion of United Farm Family's net written premiums of $1.4 million. Premiums
from direct writings increased primarily as a result of the conversion of our
personal and commercial automobile policies in certain states from six-month to
twelve-month policies. Excluding the impact of converting personal and
commercial automobile policies from six-month to twelve-month policies in
certain states and premiums from assigned risk automobile business, Farm Family
Casualty's direct written premiums increased approximately $2.9 million or 6.3%
to $49.0 million for the first quarter of 2000 compared to $46.1 million for the
same period in 1999. These increases were partially offset by an increase of
$2.1 million in premiums ceded to Farm Family Casualty's reinsurers and a
decrease of $0.4 million in premiums assumed by Farm Family Casualty. Excluding
premiums from personal automobile business in New Jersey, premiums from assigned
risk automobile business, and the effects of converting personal and commercial
automobile policies in certain states from six-month to twelve-month policies,
Farm Family Casualty's direct writings increased $3.5 million or 9.0% for the
first quarter of 2000 compared to the same period in 1999. The reduction in
premiums from personal automobile business in New Jersey was primarily
attributable to the New Jersey legislation mandating a rate roll back for
personal automobile business in New Jersey, effective March 22, 1999.
14
<PAGE>
Geographically, the increase in Farm Family Casualty's direct writings,
excluding the effects of converting personal and commercial automobile policies
in certain states from six-month to twelve-month policies, came from New York,
New Jersey, Massachusetts, West Virginia, New Hampshire, Vermont and Rhode
Island. In addition, excluding the effects of converting personal and commercial
automobile policies in certain states from six-month to twelve-month policies,
direct writings of our primary products by Farm Family Casualty increased during
the first quarter of 2000, except for direct writings of personal automobile and
Special Farm Package policies. Personal automobile direct writings decreased
primarily as a result of the rate roll back in New Jersey effective March 22,
1999. Excluding premiums from personal automobile business in New Jersey,
premiums from assigned risk automobile business, and the effects of converting
personal and commercial automobile policies in certain states from six-month to
twelve-month policies, premiums from direct writings of personal automobile
business increased 5.4%. Direct writings of the Special Farm Package decreased
1.4%, however, Special Farm Package policies in force increased 2.2%. The
property and casualty segment's direct writings of the Special Farm Package
increased 0.7% during the first quarter of 2000, due to the inclusion of United
Farm Family.
Life insurance premium revenue was $9.6 million for the three months ended March
31, 2000. 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.
Net Investment Income
Net investment income increased $13.7 million to $18.5 million for the three
months ended March 31, 2000 from $4.8 million for the same period in 1999.
Net investment income for the property and casualty insurance segment increased
$0.8 million, or 17.5%, to $5.6 million for the three months ended March 31,
2000 from $4.7 million for the same period in 1999. The taxable equivalent yield
on the property and casualty insurance segment's investment portfolio was 7.0%
and 6.9% for the three months ended March 31, 2000 and 1999, respectively. The
increase in net investment income for the property and casualty insurance
segment was primarily the result of an increase in the average cash and invested
assets (at amortized cost) of $22.6 million, or 7.4%, for Farm Family Casualty
and the inclusion of United Farm Family, which accounted for $0.4 million of the
increase in investment income and an additional $24.3 million in average cash
and invested assets (at amortized cost).
Net investment income for the life insurance segment was $12.9 million for the
three months ended March 31, 2000. The yield on fixed maturity investments (at
amortized cost) was 7.0% for that period.
Losses and Loss Adjustment Expenses
Losses and loss adjustment expenses on property and casualty insurance increased
$2.0 million, or 5.6%, to $38.5 million for the three months ended March 31,
2000 from $36.5 million for the same period in 1999. Losses and loss adjustment
expenses were 81.1% of premium revenue for the three months ended March 31, 2000
compared to 75.5% of premium revenue for the same period in 1999. United Farm
Family's losses and loss adjustment expenses were $0.5 million for the three
months ended March 31, 2000. The increase in the loss and loss adjustment
expense ratio was primarily attributable to an increase in the severity of
losses incurred on certain of our businessowners, umbrella, and personal
automobile (bodily injury coverage) policies. In addition, we incurred
significant weather-related property losses on two of our voluntary assumed
reinsurance contracts during the first quarter of 2000.
15
<PAGE>
Other Operating Costs and Expenses
Other operating costs and expenses increased $2.8 million to $5.7 million for
the three months ended March 31, 2000 from $2.9 million for the same period in
1999. The increase was primarily due to the inclusion of Farm Family Life's
other operating costs and expenses of $2.7 million. For the three months ended
March 31, 2000, property and casualty insurance underwriting expenses (including
amortization expenses) were 23.5% of premium revenue compared to 23.8% for the
same period in 1999. Excluding United Farm Family, for the three months ended
March 31, 2000, property and casualty insurance underwriting expenses (including
amortization expenses) were 23.0% of premium revenue.
Participating Policyholders' Interest
Participating policyholders' interest of $15.9 million reduced losses, benefits
and expenses for the three months ended March 31, 2000. This amount includes
$19.0 million, which reduced losses, benefits and expenses, representing the
pre-tax effect of retroactively including Excess Interest and Spreads in our
calculation of the estimate of profits on participating life insurance business
allocable to stockholders for periods through December 31, 1999, as discussed in
Note 2 to the accompanying Consolidated Financial Statements.
Federal Income Tax Expense
Federal income tax expense increased $6.1 million to $7.8 million for the three
months ended March 31, 2000 from $1.7 million for the same period in 1999. The
increase includes $6.3 million relating to deferred income taxes on the effect
of retroactively including Excess Interest and Spreads in our calculation of the
estimate of profits on participating life insurance business allocable to
stockholders for periods through December 31, 1999, as discussed in Note 2 to
the accompanying Consolidated Financial Statements. Federal income tax expense
was 32.0% of income before federal income tax expense and preferred stock
dividends for the three months ended March 31, 2000 compared to 30.8% for the
same period in 1999.
Net Income Attributable to Common Stockholders
Net income increased $12.7 million to $16.4 million for the three months ended
March 31, 2000 from $3.7 million for the same period in 1999 primarily due to
the effect of retroactively including Excess Interest and Spreads in our
calculation of the estimate of profits on participating life insurance business
allocable to stockholders for periods through December 31, 1999, which increased
net income for the three months ended March 31, 2000 by $12.7 million. The
impact of including these amounts in our calculations for the three months ended
March 31, 2000 was to increase net income by $136,000.
Liquidity and Capital Resources
Farm Family Holdings may receive dividends from subsidiaries, if declared and
paid. The New York Insurance Law regulates the distribution of dividends and
other payments to Farm Family Holdings by Farm Family Casualty and Farm Family
Life. As of December 31, 1999, the maximum amount of dividends that could be
paid by Farm Family Casualty without the prior approval of the New York State
Insurance Department (the "Department") was approximately $4.3 million. During
the three months ended March 31, 2000, Farm Family Casualty declared and paid
dividends of $0.5 million to Farm Family Holdings.
The payment of stockholder dividends by Farm Family Life is subject to the prior
approval of the Department. Under the New York Insurance Law, the Superintendent
of Insurance has broad discretion to determine whether the financial condition
of a stock life insurance company would support the payment of dividends to its
shareholders. During the three months ended March 31, 2000, Farm Family Life
declared and paid dividends of $1.0 million to Farm Family Holdings. The
Department approved this amount prior to declaration of the dividend.
We have a revolving credit agreement with three banks, which provides for
uncollateralized borrowings of up to $30.0 million. At March 31, 2000, no
amounts were outstanding.
16
<PAGE>
On April 25, 2000, our Board of Directors adopted a stock repurchase plan that
authorizes us to repurchase shares of the Company's common stock in an aggregate
amount of up to $7.5 million. The repurchase program has been authorized for a
one-year period beginning on April 27, 2000 (the expiration of our existing
stock repurchase plan) and ending on April 26, 2001. The extent and timing of
any repurchases will depend on market conditions and other corporate
considerations. No share repurchases have been made through March 31, 2000.
Net cash provided by operating activities was $16.3 million and $4.0 million
during the three-month periods ended March 31, 2000 and 1999, respectively. The
increase in net cash provided by operating activities was primarily attributable
to the additional operating cash flow from Farm Family Life.
Net cash used in investing activities was $5.3 million during the three months
ending March 31, 2000 compared to $4.8 million for the same period in 1999. The
increase in cash used in investing activities resulted primarily from an
increase in investment purchases partially offset by an increase in proceeds
from investment sales.
Net cash used in financing activities of $11.1 million for the three months
ending March 31, 2000 was the result of contractholder fund withdrawals on
interest sensitive products exceeding the related deposits for these products.
We believe the excess of contractholder fund withdrawals over deposits is
directly related to the strength of the stock market and the prevailing interest
rate environment.
Future Application of Accounting Standards
In September 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 us 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 our financial statements.
In 1998, the National Association of Insurance Commissioners ("NAIC") adopted
the Codification of Statutory Accounting Principles guidance (the
"Codification"), which will replace the current Accounting Practices and
Procedures Manual as the NAIC's primary guidance on statutory accounting.
Statutory accounting is a comprehensive basis of accounting based on prescribed
accounting practices, which include state laws, regulations and general
administrative rules, as well as a variety of publications of the NAIC. The
Codification provides guidance for the areas where statutory accounting has been
silent and changes current statutory accounting in some areas. The NAIC has
established January 1, 2001 as the effective date of the Codification. The New
York Insurance Department has advised that it intends to proceed with
implementation of the Codification, subject to any provisions in New York
statute which conflict with particular points in the Codification rules. We have
not estimated the potential effect of adopting the Codification.
17
<PAGE>
PART I. FINANCIAL INFORMATION (CONTINUED)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
Our market risks of financial instruments and investment objectives have not
materially changed since December 31, 1999.
PART II. OTHER INFORMATION
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
EXHIBIT INDEX
FARM FAMILY HOLDINGS, INC. FORM 10-Q
FOR THE QUARTER ENDED MARCH 31, 2000
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 (Incorporated by
reference to Registration Statement No. 333-4446)
3.1 Certificate of Incorporation of Farm Family Holdings, Inc.
(Incorporated by reference to Registration Statement No. 333-4446)
3.2 Bylaws of Farm Family Holdings, Inc. (Incorporated by reference to
Registration Statement No. 333-4446)
4.1 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)
4.2 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)
4.3 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)
4.4 Rights Agreement, dated as of July 29, 1997, between the Company and
The Bank of New York (incorporated by reference to Exhibit 4.1 to the
Company's Current Report of Form 8-K/A filed with the Securities and
Exchange Commission on June 14, 1999)
4.5 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 (incorporated by reference to Farm Family
Holdings, Inc. Form 10-Q for the quarter ended June 30, 1999)
10.1 Amended and Restated Option Purchase Agreement, dated February 26,
1998 among Farm Family Holdings, Inc. and the Shareholders of Farm
Family Life Insurance Company, as amended by Amendment No. 1 dated as
of April 28, 1998 and Amendment No. 2 dated as of January 14, 1999
(incorporated by reference to the Proxy Statement of Farm Family
Holdings, Inc. dated February 17, 1999)
10.2 Amended and Restated Expense Sharing Agreement, made effective as of
February 14, 1996, by and among Farm Family Mutual Insurance Company,
Farm Family Life Insurance Company and Farm Family Holdings, Inc.
(Incorporated by reference to Farm Family Holdings, Inc. Form 10-K for
the year ended December 31, 1996) 18
<PAGE>
Exhibit
Number Document Description
- --------------- ----------------------------------------------------------------
10.3 Indenture of Lease, made the 1st day of January 1999, between Farm
Family Life Insurance Company and Farm Family Casualty Insurance
Company (incorporated by reference to Farm Family Holdings, Inc. Form
10-Q for the quarter ended March 31, 1999)
10.4 Underlying Multi-Line Per Risk Reinsurance Contract, effective January
1, 1995, issued to Farm Family Mutual Insurance Company by The
Subscription Reinsurer(s) Executing the Interests and Liabilities
Agreement(s) Attached Thereto, as amended by Addendum No. 1, effective
January 1, 1996 (Incorporated by reference to Registration Statement
No. 333-4446), Addendum No. 2, effective January 1, 1996, Addendum No.
3, effective July 26, 1996 (Incorporated by reference to Farm Family
Holdings, Inc. 1997 Form 10-K for the year ended December 31, 1996),
Addendum No. 4, effective January 1, 1997 (Incorporated by reference
to Farm Family Holdings, Inc. Form 10-Q for the quarter ended March
31, 1997), and Termination Addendum, effective December 31, 1997
(Incorporated by reference to Farm Family Holdings, Inc. Form 10-K/A
for the year ended December 31, 1997) 10.5 Umbrella Quota Share
Reinsurance Contract, effective January 1, 1995, issued to Farm Family
Mutual Insurance Company and United Farm Family Insurance Company, as
amended by Addendum No. 1, effective January 1, 1995 (Incorporated by
reference to Registration Statement No. 333-4446), and Addendum No. 2
effective July 26, 1996 (Incorporated by reference to Farm Family
Holdings, Inc. 1997 Form 10-K for the year ended December 31, 1996),
Addendum No. 3, effective January 1, 1997 (Incorporated by reference
to Farm Family Holdings, Inc. Form 10-Q for the quarter ended March
31, 1997), and Termination Addendum, effective January 1, 1998
(Incorporated by reference to Farm Family Holdings, Inc. Form 10-K/A
for the year ended December 31, 1997)
10.6 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 (incorporated by
reference to Farm Family Holdings, Inc.'s Form 10-Q for the quarter
ended June 30, 1999)
10.7 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 (incorporated by
reference to Farm Family Holdings, Inc.'s Form 10-Q for the quarter
ended June 30, 1999)
10.8 Farm Family Life Insurance Company Annual Incentive Plan, as amended
and restated as of October 27, 1998 (incorporated by reference to Farm
Family Holdings, Inc.'s Form 10-Q for the quarter ended June 30, 1999)
as amended by Amendment No. 1 to the Farm Family Life Insurance
Company Annual Incentive Plan effective July 28, 1999 (incorporated by
reference to Farm Family Holdings, Inc.'s Form 10-Q for the quarter
ended September 30, 1999)
10.9 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 (incorporated by
reference to Farm Family Holdings, Inc.'s Form 10-Q for the quarter
ended June 30, 1999) and Amendment No. 2 to the Farm Family Holdings,
Inc. Supplemental Profit Sharing and Money Purchase Plan effective
July 28, 1999 (incorporated by reference to Farm Family Holdings,
Inc.'s Form 10-Q for the quarter ended September 30, 1999)
10.10 Service Agreement, made effective as of July 25, 1988 by and between
Farm Family Mutual Insurance Company and United Farm Family Insurance
Company (Incorporated by reference to Registration Statement No.
333-4446)
19
<PAGE>
Exhibit
Number Document Description
- --------------- ----------------------------------------------------------------
10.11 Farm Family Life Insurance Company, Farm Family Casualty Insurance
Company, Farm Family Holdings, Inc. Officer Severance Pay Plan
Effective July 28, 1999 (incorporated by reference to Farm Family
Holdings, Inc.'s Form 10-Q for the quarter ended September 30, 1999)
10.12 Farm Family Mutual Insurance Company Supplemental Employee
Retirement Plan, adopted as of January 1, 1994 (Incorporated by
reference to Registration Statement No. 333-4446)
10.13 Farm Family Holdings, Inc. Directors' Deferred Compensation Plan,
effective January 1, 1997 (Incorporated by reference to Farm Family
Holdings, Inc. Form 10-K for the year ended December 31, 1996) as
amended by Amendment No. 1 dated as of October 27, 1998 (incorporated
by reference to Farm Family Holdings, Inc.'s Form 10-K for the year
ended December 31, 1998) and Amendment No. 2 effective July 28, 1999
(incorporated by reference to Farm Family Holdings, Inc.'s Form 10-Q
for the quarter ended September 30, 1999) Farm Family Holdings, Inc.
Officers' Deferred Compensation Plan, effective January 1, 1997
(Incorporated by 10.14 reference to Farm Family Holdings, Inc. Form
10-K for the year ended December 31, 1996) as amended by Amendment No.
1 dated as of October 27, 1998 (incorporated by reference to Farm
Family Holdings, Inc.'s Form 10-K for the year ended December 31,
1998) and Amendment No. 2 effective July 28, 1999 (incorporated by
reference to Farm Family Holdings, Inc.'s Form 10-Q for the quarter
ended September 30, 1999) 10.15 Farm Family Holdings, Inc. Annual
Incentive Plan effective, as amended and restated as of October 27,
1998 (incorporated by reference to Farm Family Holdings, Inc.'s Form
10-K for the year ended December 31, 1998) as amended by Amendment No.
1 effective July 28, 1999 (incorporated by reference to Farm Family
Holdings, Inc.'s Form 10-Q for the quarter ended September 30, 1999)
10.16 Tax Payment Allocation Agreement effective January 1, 1996 by and
between Farm Family Holdings, Inc. and Farm Family Casualty Insurance
Company (Incorporated by reference to Farm Family Holdings, Inc. Form
10-K for the year ended December 31, 1996)
10.17 Excess Catastrophe Reinsurance Contract issued to Farm Family
Casualty Insurance Company effective January 1, 1997 (incorporated by
reference to Farm Family Holdings, Inc. Form 10-Q for the quarter
ended March 31, 1997)
10.18 Farm Family Holdings, Inc. Amended and Restated Omnibus Securities
Plan, effective as of February 29, 2000 (filed herewith)
10.19 Indenture of Lease made the 1st day of January 1999, between Farm
Family Life Insurance Company and New York Farm Bureau, Inc. (filed
herewith)
27 Financial Data Schedule (for electronic filing purposes only)
Reports on Form 8-K
A report on Form 8-K was filed on March 2, 2000 reporting a press
release issued announcing results of our operations for the fourth quarter and
the year ended December 31, 1999.
20
<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)
May 10, 2000 By:
- ----------------------------- ----------------------------------------------
(Date) Philip P. Weber, President & CEO
(Principal Executive Officer)
May 10, 2000 By:
- ----------------------------- ----------------------------------------------
(Date) Timothy A. Walsh, Executive VP, CFO & Treasurer
(Principal Financial & Accounting Officer)
21
Exhibit 10.18
FARM FAMILY HOLDINGS, INC.
OMNIBUS SECURITIES PLAN
AMENDMENT AND RESTATEMENT
ARTICLE I
Purpose
The purpose of this FARM FAMILY HOLDINGS, INC. OMNIBUS SECURITIES PLAN (the
"Plan") is to benefit the stockholders of FARM FAMILY HOLDINGS, INC., a Delaware
corporation (the "Company"), by assisting the Company to attract, retain and
incentivize key management employees and directors of the Company and its
Affiliates, and to align the interests of such employees and directors with
those of the Company's stockholders. Accordingly, the Plan provides for the
granting of Incentive Stock Options, Non-Qualified Stock Options, Stock
Appreciation Rights, Restricted Stock Awards or any combination of the
foregoing, as may be best suited to the circumstances of the particular employee
or director as provided herein. The Plan was originally adopted effective as of
December 13, 1996 and has since been amended from time to time. This amendment
and restatement of the Plan shall be effective as of February 29, 2000, provided
that the Plan is approved by the stockholders of the Company within twelve (12)
months of such date.
ARTICLE II
Definitions
The following definitions shall be applicable throughout the Plan unless the
context otherwise requires:
"Affiliate" means any person or entity which, at the time of reference,
directly, or indirectly through one or more intermediaries, controls, is
controlled by, or is under common control with, the Company.
"Award" means, individually or collectively, any Option, Stock Appreciation
Right or Restricted Stock Award.
"Award Agreement" means a written agreement between the Company and the Holder
with respect to any Award.
"Board" means the Board of Directors of the Company.
A "Change of Control" of the Company shall mean 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 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 common stock of the Company then outstanding;
(b) stockholders approve a merger, consolidation or other business combination
(a "Business Combination") other than a Business Combination in which the
persons who were the holders of common stock of Farm Family Life Insurance
Company, Farm Family Casualty Insurance Company or Farm Family Holdings,
Inc. immediately prior to the Business Combination (i) own, immediately
after the Business Combination, more than sixty percent (60%) of the
combined voting power of securities issued by the ultimate parent company
resulting from such Business Combination, and (ii) own such securities in
substantially the same proportion as they were owned by such persons
immediately prior to the Business Combination;
(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 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 as a result
of such transaction or transactions.
"Code" means the Internal Revenue Code of 1986, as amended. Reference in the
Plan to any section of the Code shall be deemed to include any amendments or
successor provisions to any section and any regulation under such section.
"Committee" means not less than three (3) members of the Board who are selected
by the Board to administer the Plan.
"Common Stock" means the Common Stock, par value $.01 per share, of the Company.
"Company" means Farm Family Holdings, Inc., a Delaware corporation, and any
successor thereto.
"Director" means a member of the Board, or a member of the board of directors of
an Affiliate, in either case, who is not an Employee.
"Effective Date" shall be as set forth in Article III of the Plan.
"Employee" means any person employed by the Company or an Affiliate.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" means, as of any specified date, the mean of the reported
high and low sales prices of the Common Stock on the stock exchange composite
tape on that date, or if no prices are reported on that date, on the last
preceding date on which such prices of the Common Stock are so reported. If the
Common Stock is traded over-the-counter at the time a determination of its fair
market value is required to be made hereunder, its fair market value shall be
deemed to be equal to the average between the reported high and low or closing
bid and asked prices of Common Stock on the most recent date on which Common
Stock was publicly traded. In the event Common Stock is not publicly traded at
the time a determination of this value is required to be made hereunder, the
determination of its fair market value shall be made by the Committee in such
manner as it deems appropriate.
"Holder" means an Employee or a Director who has been granted an Award.
"Incentive Stock Option" means an Option which is an "incentive stock option"
within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means an Option which is not an Incentive Stock
Option.
"Option" means an Award granted under Article VII of the Plan of an option to
purchase shares of Common Stock and includes both Incentive Stock Options and
Non-Qualified Stock Options.
"Option Agreement" means a written agreement between the Company and a Holder
with respect to an Option.
"Plan" means this Farm Family Holdings, Inc. Omnibus Securities Plan, as amended
from time to time.
"Restricted Stock Agreement" means a written agreement between the Company and a
Holder with respect to a Restricted Stock Award.
"Restricted Stock Award" means an Award granted under Article IX of the Plan.
"Rule 16b-3" means Rule 16b-3 promulgated by the Securities and Exchange
Commission under the Exchange Act, as such may be amended from time to time, and
any successor rule, regulation or statute fulfilling the same or a substantially
similar function.
"Spread" means, in the case of a Stock Appreciation Right, an amount equal to
the excess, if any, of the Fair Market Value of a share of Common Stock on the
date such Stock Appreciation Right is exercised over the Fair Market Value of a
share of Common Stock on the date on which such Stock Appreciation Right was
granted.
"Stock Appreciation Right" means an Award granted under Article VIII of the
Plan.
"Stock Appreciation Rights Agreement" means a written agreement between the
Company and a Holder with respect to an Award of Stock Appreciation Rights.
"Total and Permanent Disability" means the inability of an individual to provide
meaningful service for the Company due to a medically determinable physical or
mental impairment, which service is reasonably consistent with the individual's
past service for the Company, training and experience. Such determination of
total and permanent disability shall be made by the Committee. Notwithstanding
the foregoing, if an individual qualifies for Federal Social Security disability
benefits or for payments under a long-term disability income plan of the Company
or the Affiliate which employs such individual, based upon his physical or
mental condition, such individual shall be deemed to suffer from a Total and
Permanent Disability hereunder.
ARTICLE III
Effective Date of Plan
The Plan was originally effective as of December 13, 1996. This amendment and
restatement of the Plan shall be effective as of February 29, 2000, provided
that the Plan is approved by the stockholders of the Company within twelve (12)
months of such date.
ARTICLE IV
Administration
Section 4.1 Composition of Committee. Except as provided in Section 4.5, the
Plan shall be administered by the Committee. If a member of the Committee shall
be eligible to receive an Award under the Plan, such Committee member shall have
no authority hereunder with respect to his or her own Award.
Section 4.2 Powers. Subject to the provisions of the Plan, the Committee shall
have the sole authority, in its discretion, to determine which Employees shall
receive Awards, the time or times when Awards to Employees shall be made, what
type of Awards shall be granted to Employees and the number of shares of Common
Stock which may be issued under each Option, Stock Appreciation Right or
Restricted Stock Award to an Employee. In making such determinations the
Committee may take into account the nature of the services rendered by the
respective Employees, their present and potential contribution to the Company's
(or the Affiliate's) success and such other factors as the Committee in its
discretion shall deem relevant.
Section 4.3 Additional Powers. Subject to Section 4.5, the Committee shall have
such additional powers as are delegated to it under the other provisions of the
Plan. Subject to the express provisions of the Plan, including but not limited
to Section 4.5, the Committee is authorized to construe the Plan and the
respective Award Agreements executed hereunder, to prescribe such rules and
regulations relating to the Plan as it may deem advisable to carry out the
intent of the Plan, and to determine the terms, restrictions and provisions of
each Award made to an Employee, including such terms, restrictions and
provisions as shall be requisite in the judgment of the Committee to cause
designated Options to qualify as Incentive Stock Options, and to make all other
determinations necessary or advisable for administering the Plan with respect to
the participation of Employees. The Committee may correct any defect or supply
any omission or reconcile any inconsistency in any Award Agreement entered into
with an Employee in the manner and to the extent it shall deem expedient to
carry it into effect. In no event shall the Committee have the right to amend an
outstanding Option Agreement for the sole purpose of reducing the exercise price
thereof. The determinations of the Committee on the matters referred to in this
Article IV shall be conclusive.
Section 4.4 Committee Action. In the absence of specific rules to the contrary,
action by the Committee shall require the consent of a majority of the members
of the Committee, expressed either orally at a meeting of the Committee or in
writing in the absence of a meeting.
Section 4.5 Participation of Directors. Notwithstanding anything to the contrary
contained in the Plan, all decisions relating to the participation of Directors
in the Plan, including but not limited to the determination of which Directors
shall receive Awards, the time or times when Awards shall be made to Directors,
what types of Awards (other than Incentive Stock Options, which may not be
awarded to Directors) shall be granted to Directors and the number of shares of
Common Stock which may be issued under each Non-Qualified Stock Option, Stock
Appreciation Right or Restricted Stock Award for a Director, shall be made by
the Board, in its discretion, rather than by the Committee.
ARTICLE V
Stock Subject to Plan and Limitations Thereon
Section 5.1 Stock Grant and Award Limits. Subject to Article XII, the aggregate
number of shares of Common Stock that may be issued under the Plan shall not
exceed One Million (1,000,000) shares. Shares shall be deemed to have been
issued under the Plan solely to the extent actually issued and delivered
pursuant to an Award. To the extent that an Award is settled in cash or lapses
or the rights of its Holder terminate, any shares of Common Stock subject to
such Award shall again be available for the grant of a new Award.
Notwithstanding any provision in the Plan to the contrary, the aggregate number
of shares of Common Stock that may be subject to Awards of Restricted Stock
under Article IX is One Hundred Thousand (100,000) (subject to adjustment in the
same manner as provided in Article X with respect to shares of Common Stock
subject to Awards then outstanding). Notwithstanding any provision in the Plan
to the contrary, the maximum number of shares of Common Stock that may be
subject to Awards of Options and Stock Appreciation Rights under Article VII or
VIII granted to any one Employee during any calendar year is One Hundred
Thousand (100,000) (subject to adjustment in the same manner as provided in
Article X with respect to shares of Common Stock subject to Awards then
outstanding). The limitation set forth in the preceding sentence shall be
applied in a manner which shall permit compensation generated in connection with
the exercise of Options and Stock Appreciation Rights to constitute
"performance-based" compensation for purposes of Section 162(m) of the Code,
including, but not limited to, counting against such annual maximum number of
shares per covered employee, as defined in Section 162(m) of the Code, to the
extent required under Section 162(m) of the Code and applicable interpretive
authority thereunder, any shares subject to Options or Stock Appreciation Rights
that are canceled. Notwithstanding any provision in the Plan to the contrary,
the maximum number of shares of Common Stock that may be subject to Awards
granted to any one Director during any calendar year is One Thousand (1,000)
(subject to adjustment in the same manner as provided in Article X with respect
to shares of Common Stock subject to Awards then outstanding).
Section 5.2 Stock Offered. The stock to be offered pursuant to the grant of an
Award may be authorized but unissued Common Stock or Common Stock previously
issued and outstanding and reacquired by the Company.
ARTICLE VI
Eligibility for Awards; Termination of Employment
or Director Status
Section 6.1 Eligibility. Awards made under the Plan may be granted solely to
persons who, at the time of grant, are Employees or Directors; provided,
however, that Incentive Stock Options may not be granted to Directors. An Award
may be granted on more than one occasion to the same Employee or Director, and,
subject to the limitations set forth in the Plan, such Award may include an
Incentive Stock Option (except with respect to Awards made to Directors), a
Non-Qualified Stock Option, a Stock Appreciation Right, a Restricted Stock Award
or any combination thereof.
Section 6.2 Termination of Employment. Except to the extent inconsistent with
the terms of the applicable Award Agreement, the following terms and conditions
shall apply with respect to the termination of a Holder's employment with the
Company or an Affiliate, as applicable, for any reason, including, without
limitation, retirement upon or after attaining age fifty-five (55), Total and
Permanent Disability or death:
(a) The Holder's rights, if any, to exercise any then exercisable
Non-Qualified Stock Options and/or Stock Appreciation Rights (other than
Stock Appreciation Rights granted in connection with Incentive Stock
Options), shall terminate on the earlier of the expiration date of the
Options as set forth in the Award Agreement and one (1) year after the
date of termination of employee.
Upon such applicable date the Holder (and such Holder's estate, designated
beneficiary or other legal representative) shall forfeit any rights or
interests in or with respect to any such Non-Qualified Stock Options or
Stock Appreciation Rights.
(b) The Holder's rights, if any, to exercise any then exercisable Incentive
Stock Options and/or Stock Appreciation Rights granted in connection with
Incentive Stock Options, shall terminate on the earlier of the expiration
date of the Options as set forth in the Award Agreement and the relevant
date set forth in (1), (2), or (3) below:
(1) If such termination is for a reason other than the Holder's
retirement upon or after attaining age fifty-five (55), Total and
Permanent Disability or death, not more than thirty (30) days after
the date of such termination of employment;
(2) If such termination is on account of the Holder's retirement upon or
after attaining age fifty-five (55) or on account of the Holder's
Total and Permanent Disability, three (3) months after the date of
such termination of employment; or
(3) If such termination is on account of the Holder's death, one (1) year
after the date of the Holder's death.
Upon such applicable date the Holder (and such Holder's estate, designated
beneficiary or other legal representative) shall forfeit any rights or
interests in or with respect to any such Incentive Stock Options or Stock
Appreciation Rights.
(c) If a Holder's employment with the Company or an Affiliate, as applicable,
terminates for any reason prior to the actual or deemed satisfaction
and/or lapse of the restrictions, terms and conditions applicable to a
grant of Restricted Stock, such Restricted Stock shall immediately be
canceled, and the Holder (and such Holder's estate, designated beneficiary
or other legal representative) shall forfeit any rights or interests in
and with respect to any such Restricted Stock. The immediately preceding
sentence to the contrary notwithstanding, the Committee, in its sole
discretion, may determine, prior to or within thirty (30) days after the
date of such termination of employment, that all or a portion of any such
Holder's Restricted Stock shall not be so canceled and forfeited.
Section 6.3 Termination of Director Status. Except to the extent inconsistent
with the terms of the applicable Award Agreement, the following terms and
conditions shall apply with respect to the termination of a Holder's status as a
Director of the Company or an Affiliate, as applicable, for any reason:
(a) The Holder's rights, if any, to exercise any then exercisable
Non-Qualified Stock Options and/or Stock Appreciation Rights shall
terminate on the earlier of the expiration date of the Options as set
forth in the Award Agreement and one (1) year after the date of such
termination of Director status.
Upon such applicable date the Holder (and such Holder's estate, designated
beneficiary or other legal representative) shall forfeit any rights or
interests in or with respect to any such Non-Qualified Stock Options or
Stock Appreciation Rights.
(b) If a Holder's status as a Director of the Company or an Affiliate, as
applicable, terminates for any reason prior to the actual or deemed
satisfaction and/or lapse of the restrictions, terms and conditions
applicable to a grant of Restricted Stock, such Restricted Stock shall
immediately be canceled, and the Holder (and such Holder's estate,
designated beneficiary or other legal representative) shall forfeit any
rights or interests in and with respect to any such Restricted Stock. The
immediately preceding sentence to the contrary notwithstanding, the Board,
in its sole discretion, may determine, prior to or within thirty (30) days
after the date of such termination of Director status, that all or a
portion of any such Holder's Restricted Stock shall not be so canceled and
forfeited.
ARTICLE VII
Options
Section 7.1 Option Period. The term of each Option shall be as specified in the
Option Agreement.
Section 7.2 Limitations on Exercise of Option. An Option shall be exercisable in
whole or in such installments and at such times as specified in the Option
Agreement.
Section 7.3 Special Limitations on Incentive Stock Options. Incentive Stock
Options may be granted solely to Employees. In addition, to the extent that the
aggregate Fair Market Value (determined at the time the respective Incentive
Stock Option is granted) of Common Stock with respect to which Incentive Stock
Options are exercisable for the first time by an individual during any calendar
year under all plans of the Company and any parent corporation or subsidiary
corporation thereof (both as defined in Section 424 of the Code) which provide
for the grant of Incentive Stock Options exceeds One Hundred Thousand Dollars
($100,000) (or such other individual limit as may be in effect under the Code on
the date of grant), such Incentive Stock Options shall be treated as
Non-Qualified Stock Options. The Committee shall determine, in accordance with
applicable provisions of the Code, Treasury Regulations and other administrative
pronouncements, which of a Holder's Options, which were intended by the
Committee to be Incentive Stock Options when granted to the Holder, will not
constitute Incentive Stock Options because of such limitation and shall notify
the Holder of such determination as soon as practicable after such
determination. No Incentive Stock Option shall be granted to an Employee if, at
the time the Option is granted, such Employee owns stock possessing more than
ten percent (10%) of the total combined voting power of all classes of stock of
the Company or of any parent corporation or subsidiary corporation thereof (both
as defined in Section 424 of the Code), within the meaning of Section 422(b)(6)
of the Code, unless (i) at the time such Incentive Stock Option is granted the
Option price is at least one hundred ten percent (110%) of the Fair Market Value
of the Common Stock subject to the Option and (ii) such Incentive Stock Option
by its terms is not exercisable after the expiration of five (5) years from the
date of grant.
Section 7.4 Option Agreement. Each Option shall be evidenced by an Option
Agreement in such form and containing such provisions not inconsistent with the
provisions of the Plan as the Committee or the Board from time to time shall
approve, including, but not limited to, provisions to qualify an Option as an
Incentive Stock Option. An Option Agreement may provide for the payment of the
Option price, in whole or in part, by the delivery of a number of shares of
Common Stock (plus cash if necessary) having a Fair Market Value equal to such
Option price. Each Option Agreement shall, solely to the extent inconsistent
with the provisions of Section 6.2 or 6.3, specify the effect of termination of
employment or Director status on the exercisability of the Option. Moreover, an
Option Agreement may provide for a "cashless exercise" of the Option by
establishing procedures whereby the Holder, by a properly-executed written
notice, directs (i) an immediate market sale or margin loan respecting all or a
part of the shares of Common Stock to which he is entitled upon exercise,(ii)
the delivery of the shares of Common Stock from the Company directly to a
brokerage firm and (iii) the delivery of the Option price from sale or margin
loan proceeds from the brokerage firm directly to the Company. Such Option
Agreement may also include provisions relating to (i) subject to the provisions
hereof, accelerated vesting of Options, (ii) tax matters (including provisions
covering any applicable Employee wage withholding requirements and requiring
additional "gross-up" payments to Holders to meet any excise taxes or other
additional income tax liability imposed as a result of a payment upon a Change
of Control resulting from the operation of the Plan or of such Option Agreement)
and (iii) any other matters not inconsistent with the terms and provisions of
the Plan that the Committee (or, with respect to Directors, the Board) shall in
its sole discretion determine. The terms and conditions of the respective Option
Agreements need not be identical.
Section 7.5 Option Price and Payment. The price at which a share of Common Stock
may be purchased upon exercise of an Option shall be determined by the Committee
or the Board, but such Option price (i) in the case of an Option that is an
Incentive Stock Option, shall not be less than the Fair Market Value of a share
of Common Stock on the date such Option is granted, and (ii) in the case of an
Option that is a Non-Qualified Stock Option, shall not be less than eighty-five
percent (85%) of the Fair Market Value of a share of Common Stock on the date
such Option is granted and (iii) shall be subject to adjustment as provided in
Article X. The Option or portion thereof may be exercised by delivery of an
irrevocable notice of exercise to the Company. The Option price for the Option
or portion thereof shall be paid in full in the manner prescribed by the
Committee or the Board. Separate stock certificates shall be issued by the
Company for those shares of Common Stock acquired pursuant to the exercise of an
Incentive Stock Option and for those shares of Common Stock acquired pursuant to
the exercise of a Non-Qualified Stock Option.
Section 7.6 Stockholder Rights and Privileges. The Holder shall be entitled to
all the privileges and rights of a stockholder of the Company solely with
respect to such shares of Common Stock as have been purchased under the Option
and for which certificates of stock have been registered in the Holder's name.
Section 7.7 Options and Rights in Substitution for Stock Options Granted by
Other Corporations. Options and Stock Appreciation Rights may be granted under
the Plan from time to time in substitution for stock options held by individuals
employed by entities who become Employees as a result of a merger or
consolidation of the employing entity with the Company or any Affiliate, or the
acquisition by the Company or an Affiliate of the assets of the employing
entity, or the acquisition by the Company or an Affiliate of stock of the
employing entity with the result that such employing entity becomes an
Affiliate.
ARTICLE VIII
Stock Appreciation Rights
Section 8.1 Stock Appreciation Rights. A Stock Appreciation Right is the right
to receive an amount equal to the Spread with respect to a share of Common Stock
upon the exercise of such Stock Appreciation Right. Stock Appreciation Rights
may be granted in connection with the grant of an Option, in which case the
Award Agreement will provide that the exercise of Stock Appreciation Rights will
result in the surrender of the right to purchase the shares under the Option as
to which the Stock Appreciation Rights were exercised. Alternatively, Stock
Appreciation Rights may be granted independently of Options in which case each
Award of Stock Appreciation Rights shall be evidenced by a Stock Appreciation
Rights Agreement which shall contain such terms and conditions as may be
approved by the Committee (or, with respect to Directors, by the Board)
including all applicable matters set forth with specificity in Section 7.4 with
respect to Option Agreements. The terms and conditions of the respective Stock
Appreciation Rights Agreements need not be identical. The Spread with respect to
a Stock Appreciation Right may be payable either in cash, in shares of Common
Stock with a Fair Market Value equal to the Spread or in a combination of cash
and shares of Common Stock, as determined by the Committee (or, with respect to
Directors, by the Board). Each Stock Appreciation Rights Agreement shall, solely
to the extent inconsistent with the provisions of Section 6.2 or 6.3, specify
the effect of termination of employment or Director status on the exercisability
of the Stock Appreciation Rights.
Section 8.2 Exercise Period. The term of each Stock Appreciation Right shall be
as specified by the Committee (or, with respect to Directors, by the Board) at
the date of grant.
Section 8.3 Limitations on Exercise of Stock Appreciation Right. A Stock
Appreciation Right shall be exercisable in whole or in such installments and at
such times as determined by the Committee (or, with respect to Directors, by the
Board).
ARTICLE IX
Restricted Stock Awards
Section 9.1 Restriction Period to be Established . At the time a Restricted
Stock Award is made, the Committee (or, with respect to Directors, the Board)
shall establish a period of time (the "Restriction Period") applicable to such
Award. Each Restricted Stock Award may have a different Restriction Period, in
the discretion of the Committee (or, with respect to Directors, the Board),
provided however, that all shares underlying Awards of Restricted Stock shall
vest either (i) in full at the expiration of a period of not less than three (3)
years from the date of grant of such Award, or (ii) proportionately in equal
installments over a period of not less than three (3) years from the date of
grant of such Award. The Restriction Period applicable to a particular
Restricted Stock Award shall not be changed except as permitted by Section 9.2
or Article X.
Section 9.2 Other Terms and Conditions. Common Stock awarded pursuant to a
Restricted Stock Award shall be represented by a stock certificate registered in
the name of the Holder of such Restricted Stock Award. If provided for by the
Award Agreement, the Holder shall have the right to receive dividends during the
Restriction Period, to vote Common Stock subject thereto and to enjoy all other
stockholder rights, except that (i) the Holder shall not be entitled to delivery
of the stock certificate until the Restriction Period shall have expired, (ii)
the Company shall retain custody of the stock during the Restriction Period,
(iii) the Holder may not sell, transfer, pledge, exchange, hypothecate or
otherwise dispose of the stock during the Restriction Period and (iv) a breach
of the terms and conditions established by the Committee (or, with respect to
Directors, by the Board) pursuant to the Restricted Stock Agreement shall cause
a forfeiture of the Restricted Stock Award. At the time of such Award, the
Committee (or, with respect to Directors, the Board) may, in its sole
discretion, prescribe additional terms and conditions or restrictions relating
to Restricted Stock Awards, including, but not limited to, rules pertaining to
the effect of termination of employment prior to expiration of the Restriction
Period, solely to the extent inconsistent with the provisions of Section 6.2 or
6.3. Such additional terms, conditions or restrictions shall, to the extent
inconsistent with the provisions of Section 6.2 or 6.3, be set forth in a
Restricted Stock Agreement made in conjunction with the Award. Such Restricted
Stock Agreement may also include provisions relating to (i) subject to the
provisions hereof, accelerated vesting of Restricted Stock Awards, (ii) tax
matters (including provisions covering any applicable Employee wage withholding
requirements, prohibiting an election by the Holder under Section 83(b) of the
Code and requiring additional "gross-up" payments to Holders to meet any excise
taxes or other additional income tax liability imposed as a result of a Change
of Control payment resulting from the operation of the Plan or of such
Restricted Stock Agreement) and (iii) any other matters not inconsistent with
the terms and provisions of the Plan that the Committee (or, with respect to
Directors, the Board) shall in its sole discretion determine. The terms and
conditions of the respective Restricted Stock Agreements need not be identical.
Section 9.3 Payment for Restricted Stock. The Committee (or, with respect to
Directors, the Board) shall determine the amount and form of any payment for
Common Stock received pursuant to a Restricted Stock Award, provided that in the
absence of such a determination, a Holder shall not be required to make any
payment for Common Stock received pursuant to a Restricted Stock Award, except
to the extent otherwise required by law.
Section 9.4 Agreements. At the time any Award is made under this Article IX, the
Company and the Holder shall enter into a Restricted Stock Agreement setting
forth each of the matters contemplated hereby and such other matters as the
Committee (or, with respect to Directors, the Board) may determine to be
appropriate.
ARTICLE X
Recapitalization or Reorganization
Section 10.1 Adjustments to Common Stock. The shares with respect to which
Awards may be granted are shares of Common Stock as presently constituted;
provided, however, that if, and whenever, prior to the expiration or
distribution to the Holder of an Award theretofore granted, the Company shall
effect a subdivision or consolidation of shares of Common Stock or the payment
of a stock dividend on Common Stock without receipt of consideration by the
Company, the number of shares of Common Stock with respect to which such Award
may thereafter be exercised or satisfied, as applicable, (i) in the event of an
increase in the number of outstanding shares, shall be proportionately
increased, and the purchase price per share shall be proportionately reduced,
and (ii) in the event of a reduction in the number of outstanding shares, shall
be proportionately reduced, and the purchase price per share shall be
proportionately increased.
Section 10.2 Recapitalization. If the Company recapitalizes or otherwise changes
its capital structure, thereafter upon any exercise or satisfaction, as
applicable, of a previously granted Award, the Holder shall be entitled to
receive (or entitled to purchase, if applicable) under such Award, in lieu of
the number of shares of Common Stock then covered by such Award, the number and
class of shares of stock and securities to which the Holder would have been
entitled pursuant to the terms of the recapitalization if, immediately prior to
such recapitalization, the Holder had been the holder of record of the number of
shares of Common Stock then covered by such Award.
Section 10.3 Change of Control. In the event of the occurrence of a Change of
Control, all outstanding Awards shall immediately vest and become exercisable or
satisfiable, as applicable. The Committee (or, with respect to Directors, the
Board), in its discretion, may determine that upon the occurrence of a Change of
Control, each Award outstanding hereunder shall terminate within a specified
number of days after notice to the Holder, and such Holder shall receive, with
respect to each share of Common Stock subject to such Award, cash in an amount
equal to the excess of (i) the higher of (x) the Fair Market Value of such share
of Common Stock immediately prior to the occurrence of such Change of Control or
(y) the value of the consideration to be received in connection with such Change
of Control for one share of Common Stock, over (ii) the exercise price per
share, if applicable, of one share of Common Stock. If the consideration offered
to stockholders of the Company in any transaction described in this Section 10.3
consists of anything other than cash, the Committee shall determine the fair
cash equivalent of the portion of the non-cash consideration offered. The
provisions contained in this Section 10.3 shall not terminate any rights of the
Holder to further payments pursuant to any other agreement with the Company
following the occurrence of a Change of Control.
Section 10.4 Other Events. In the event of changes to the outstanding Common
Stock by reason of stock split, stock dividend, recapitalization,
reorganization, mergers, consolidations, combinations, exchanges or other
relevant changes in capitalization occurring after the date of the grant of any
Award and not otherwise provided for under this Article X, any outstanding
Awards and any Award Agreements evidencing such Awards shall be subject to
adjustment by the Committee (or, with respect to Directors, by the Board) in its
discretion as to the number and price of shares of Common Stock or other
consideration subject to such Awards. In the event of any such change to the
outstanding Common Stock, the aggregate number of shares available under the
Plan may be appropriately adjusted by the Committee, the determination of which
shall be conclusive.
Section 10.5 Powers Not Affected. The existence of the Plan and the Awards
granted hereunder shall not affect in any way the right or power of the Board or
of the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change of the Company's capital
structure or business, any merger or consolidation of the Company, any issue of
debt or equity securities ahead of or affecting Common Stock or the rights
thereof, the dissolution or liquidation of the Company or any sale, lease,
exchange or other disposition of all or any part of its assets or business or
any other corporate act or proceeding.
Section 10.6 No Adjustment for Certain Awards. Except as hereinabove expressly
provided, the issuance by the Company of shares of stock of any class or
securities convertible into shares of stock of any class, for cash, property,
labor or services, upon direct sale, upon the exercise of rights or warrants to
subscribe therefor or upon conversion of shares or obligations of the Company
convertible into such shares or other securities, and in any case whether or not
for fair value, shall not affect previously granted Awards, and no adjustment by
reason thereof shall be made with respect to the number of shares of Common
Stock subject to Awards theretofore granted or the purchase price per share, if
applicable.
ARTICLE XI
Amendment and Termination of Plan
The Board in its discretion may terminate the Plan at any time with respect to
any shares for which Awards have not theretofore been granted. The Board shall
have the right to alter or amend the Plan or any part hereof from time to time;
provided, however, that no change in any Award theretofore granted may be made
which would impair the rights of a Holder without the consent of the Holder
(unless such change is required in order to cause the benefits under the Plan to
qualify as performance-based compensation within the meaning of Section 162(m)
of the Code and applicable interpretive authority thereunder).
ARTICLE XII
Miscellaneous
Section 12.1 No Right to Award. Neither the adoption of the Plan by the Company
nor any action of the Board or the Committee shall be deemed to give an Employee
or Director any right to be granted an Option, a Stock Appreciation Right and/or
a Restricted Stock Award except as may be evidenced by an Award or by an Award
Agreement duly executed on behalf of the Company, and then solely to the extent
and on the terms and conditions expressly set forth therein.
Section 12.2 No Rights Conferred. Nothing contained in the Plan shall (i) confer
upon any Employee or Director any right with respect to continuation of
employment or Director status with the Company or any Affiliate, or (ii)
interfere in any way with the right of the Company or any Affiliate to terminate
the employment of an Employee or the Director status of a Director at any time.
Section 12.3 Other Laws; Withholding. The Company shall not be obligated to
issue any Common Stock pursuant to any Award granted under the Plan at any time
when the shares covered by such Award have not been registered under the
Securities Act of 1933 and such other state and federal laws, rules or
regulations as the Company or the Committee deems applicable and, in the opinion
of legal counsel of the Company, there is no exemption from the registration
requirements of such laws, rules or regulations available for the issuance and
sale of such shares. No fractional shares of Common Stock shall be delivered,
nor shall any cash in lieu of fractional shares be paid. The Company shall have
the right to deduct in cash (whether under this Plan or otherwise) in connection
with all Awards any taxes required by law to be withheld and to require any
payments required to enable it to satisfy its withholding obligations. In the
case of any Award satisfied in the form of shares of Common Stock, no shares
shall be issued unless and until arrangements satisfactory to the Company shall
have been made to satisfy any tax withholding obligations applicable with
respect to such Award. Subject to such terms and conditions as the Committee may
impose, the Company shall have the right to retain, or the Committee may subject
to such terms and conditions as it may establish from time to time permit
Holders to elect to tender, Common Stock (including Common Stock issuable in
respect of an Award) to satisfy, in whole or in part, the amount required to be
withheld.
Section 12.4 No Restriction on Corporate Action. Nothing contained in the Plan
shall be construed to prevent the Company or any Affiliate from taking any
corporate action which is deemed by the Company or such Affiliate to be
appropriate or in its best interest, whether or not such action would have an
adverse effect on the Plan or any Award made under the Plan. No Employee,
beneficiary or other person shall have any claim against the Company or any
Affiliate as a result of any such action.
Section 12.5 Restrictions on Transfer. No Award under the Plan or any Award
Agreement and no rights or interests herein or therein, shall or may be
assigned, transferred, sold, exchanged, encumbered, pledged or otherwise
hypothecated or disposed of by a Holder except (i) by will or by the laws of
descent and distribution, or (ii) by gift to any member of the Holder's
immediate family or to a trust for the benefit of such immediate family member,
if permitted under the applicable Award Agreement. An Award may be exercisable
during the lifetime of the Holder only by such Holder or by the Holder's
guardian or legal representative unless it has been transferred by gift to a
member of the Holder's immediately family or to a trust for the benefit of such
immediate family member, in which case it shall be exercisable solely by such
transferee. For purposes of this provision, a Holder's "immediate family" shall
mean the Holder's spouse, children and grandchildren. Notwithstanding any such
transfer, the Holder will continue to be subject to the withholding requirements
provided for under Section 12.3 hereof.
Section 12.6 Section 162(m). It is intended that the Plan shall comply fully
with and meet all the requirements of Section 162(m) of the Code so that Options
and Stock Appreciation Rights granted hereunder with an exercise price not less
than the Fair Market Value of a share of Common Stock on the date of grant shall
constitute "performance-based" compensation within the meaning of Section
162(m).
Section 12.7 Other Plans. No Award, payment or amount received hereunder shall
be taken into account in computing an Employee's salary or compensation for the
purposes of determining any benefits under any pension, retirement, life
insurance or other benefit plan of the Company or any Affiliate, unless such
other plan specifically provides for the inclusion of such Award, payment or
amount received.
Section 12.8 Limits of Liability. Any liability of the Company with respect to
an Award shall be based solely upon the contractual obligations created under
the Plan and the Award Agreement. Neither the Company nor any member of the
Committee or the Board shall have any liability to any party for any action
taken or not taken, in good faith, in connection with or under the Plan.
Section 12.9 Governing Law. Except as otherwise provided herein, the Plan shall
be construed in accordance with the laws of the State of New York.
Section 12.10 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.
Section 12.11 No Funding. The Plan shall be unfunded. The Company shall not be
required to establish any special or separate fund or to make any other
segregation of funds or assets to ensure the payment of any Award.
Section 12.12 Headings. Headings used throughout the Plan are for convenience
only and shall not be given legal significance. --------
IN WITNESS WHEREOF, the Company has hereby executed this amendment and
restatement of the Plan, on the date written below.
FARM FAMILY HOLDINGS, INC.
By: /s/ Philip P. Weber
Philip P. Weber
President & Chief Executive Officer
Date: May 3, 2000
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<NAME> Farm Family Holdings, Inc.
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<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<DEBT-HELD-FOR-SALE> 966,699
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5,830
0
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57,085
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<INCOME-TAX> 7,769
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<PAYMENTS-PRIOR> 0
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</TABLE>
