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SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, For Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or
Rule 14a-12
FARM FAMILY HOLDINGS, INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement, if Other Than the
Registrant)
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Payment of Filing Fee (Check the appropriate box):
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/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
Common Stock, par value $.01 per share
Preferred Stock, Series A, par value $.01 per share
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(2) Aggregate number of securities to which transaction applies:
6,003,983 shares of Common Stock, options to purchase
562,650 shares of Common Stock, and
163,214 shares of Preferred Stock, Series A
------------------------------------------------------------
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (set forth the
amount on which the filing fee is calculated and state how
it was determined):
Cash payment of $44.00 per share of Common Stock, cash pay-
ment of $35.72 per share of Preferred Stock, Series A (plus
$58,521.00 accrued and unpaid dividends thereon assuming a
March 15, 2001 closing date for the merger), and cash
payment of the excess of $44.00 (assuming $44.00 is greater
than the fair market value per share of Common Stock
immediately prior to the adoption of the merger agreement by
our stockholders) over the exercise price of the option.
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(4) Proposed maximum aggregate value of transaction:
$278,841,679
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(5) Total fee paid:
$55,768.34
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/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the form or schedule
and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------
(4) Date Filed:
------------------------------------------------------------
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[FARM FAMILY HOLDINGS, INC. LETTERHEAD]
Dear Stockholder: , 2001
On behalf of your board of directors, I invite you to attend a special
meeting of stockholders of Farm Family Holdings, Inc. to be held on
February 27, 2001 at 10:00 a.m., local time, at our corporate headquarters at
344 Route 9W, Glenmont, New York.
At the special meeting, you will be asked to consider and vote upon the sale
of Farm Family Holdings, Inc. to American National Insurance Company. This sale
will be accomplished by a merger of a subsidiary of American National with and
into Farm Family in accordance with an Agreement and Plan of Merger, dated as of
October 31, 2000. In the merger, each share of our common stock will be
converted into the right to receive $44.00 in cash, and each share of our
preferred stock will be converted into the right to receive $35.72 (plus accrued
and unpaid dividends thereon to the closing date of the merger) in cash, unless
subject in either case to appraisal rights.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF FARM FAMILY AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND DECLARED ITS ADVISABILITY. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
In connection with its evaluation of the merger, your board of directors
received a written opinion from Farm Family's financial advisor Fox-Pitt,
Kelton, Inc. to the effect that the consideration to be received in the merger
is fair, from a financial point of view, to the holders of our common stock. I
urge you to read Fox-Pitt, Kelton's opinion, which is attached to the
accompanying proxy statement as Annex B, for a description of the matters
considered, assumptions made and limitations of the review conducted by
Fox-Pitt, Kelton in rendering its opinion. In addition, you should know that
Fox-Pitt, Kelton advised your board of directors that the consideration to be
received by holders of our preferred stock in the merger is within a reasonable
range of implied value for the preferred stock.
The merger is subject to several conditions, including adoption of the
merger agreement by a majority of the outstanding shares of our common stock and
preferred stock, voting together as a class, and the approval of the New York
Insurance Department. The conditions to the merger are described in the
accompanying proxy statement.
PLEASE PROMPTLY COMPLETE, SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN
IT IN THE POSTAGE-PAID ENVELOPE PROVIDED. THIS WILL ALLOW YOUR SHARES TO BE
REPRESENTED AT THE SPECIAL MEETING WHETHER OR NOT YOU ATTEND THE SPECIAL
MEETING.
Detailed information concerning the merger is set forth in the accompanying
proxy statement. A copy of the merger agreement is attached as Annex A to the
proxy statement. We urge you to read these documents carefully.
Sincerely,
Clark W. Hinsdale III
Chairman of the Board
THE MERGER HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE SEC PASSED UPON THE FAIRNESS OR MERITS OF THE MERGER NOR
UPON THE ACCURACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This proxy statement is dated , 2001
and is first being mailed to stockholders on or about , 2001.
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FARM FAMILY HOLDINGS, INC.
344 ROUTE 9W
GLENMONT, NEW YORK 12077
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 27, 2001
To the Stockholders of Farm Family Holdings, Inc:
NOTICE IS HEREBY GIVEN that a special meeting of stockholders of Farm Family
Holdings, Inc. ("Farm Family"), a Delaware corporation, will be held at our
corporate headquarters at 344 Route 9W, Glenmont, New York, on February 27, 2001
at 10:00 a.m., local time, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan
of Merger, dated as of October 31, 2000, among American National Insurance
Company ("American National"), American National Acquisition Company and
Farm Family, pursuant to which American National Acquisition Company will be
merged with and into Farm Family. As a result of the merger:
- each outstanding share of our Common Stock, par value $.01 per share,
will be converted into the right to receive $44.00 in cash, payable to
the holder thereof, without interest, except that shares of our common
stock held by persons who have perfected their appraisal rights will be
subject to appraisal in accordance with Delaware law; and
- each outstanding share of our Preferred Stock, Series A, par value $.01
per share, will be converted into the right to receive $35.72 (plus
accrued and unpaid dividends thereon to the closing date of the merger)
in cash, payable to the holder thereof, without interest, except that
shares of our preferred stock held by persons who have perfected their
appraisal rights will be subject to appraisal in accordance with
Delaware law.
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements thereof.
Only holders of record of our common stock or preferred stock as of the
close of business on January 8, 2001, the record date of the special meeting,
are entitled to notice of, and to vote at, the special meeting and any
adjournments or postponements thereof. Each share of our common stock and
preferred stock outstanding on the record date will entitle the record holder to
one vote on each matter put to a vote at the special meeting. The proposal to
adopt the merger agreement requires the affirmative vote of a majority of the
outstanding shares of our common stock and preferred stock, voting together as a
class.
Detailed information concerning the merger is set forth in the accompanying
proxy statement. A copy of the merger agreement is attached as Annex A to the
proxy statement. You are urged to read these documents carefully.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER IS FAIR TO AND IN THE
BEST INTERESTS OF FARM FAMILY AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT AND DECLARED ITS ADVISABILITY. YOUR BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" ADOPTION OF THE MERGER AGREEMENT.
By Order of the Board of Directors,
Victoria M. Stanton
SECRETARY
, 2001
Glenmont, New York
<PAGE>
WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE PROMPTLY COMPLETE,
SIGN AND DATE THE ENCLOSED PROXY CARD AND RETURN IT IN THE POSTAGE-PAID ENVELOPE
PROVIDED. IF YOU SIGN, DATE AND MAIL YOUR PROXY CARD WITHOUT INDICATING HOW YOU
WISH TO VOTE, YOUR PROXY WILL BE COUNTED AS A VOTE FOR THE ADOPTION OF THE
MERGER AGREEMENT. IF YOU DO NOT RETURN YOUR PROXY CARD OR IF YOU ABSTAIN FROM
VOTING, IT WILL HAVE THE EFFECT OF A VOTE AGAINST ADOPTION OF THE MERGER
AGREEMENT. YOU MAY REVOKE YOUR PROXY AND VOTE IN PERSON IF YOU DECIDE TO ATTEND
THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR STOCK CERTIFICATES AT THIS TIME.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH THE SOLICITATION OF PROXIES MADE HEREBY, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY FARM FAMILY OR ANY OTHER PERSON.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 1
SUMMARY OF THE PROXY STATEMENT.............................. 5
The Companies............................................. 5
The Special Meeting....................................... 6
The Merger................................................ 6
MARKET PRICE OF COMMON STOCK AND DIVIDEND HISTORY........... 12
THE SPECIAL MEETING......................................... 13
Date, Time and Place...................................... 13
Purpose of the Special Meeting............................ 13
Record Date, Outstanding Shares and Voting................ 13
Quorum.................................................... 13
Vote Required............................................. 13
Voting of Proxies......................................... 14
Revocation of Proxies..................................... 14
Solicitation of Proxies................................... 15
THE MERGER.................................................. 16
Background of the Merger.................................. 16
Recommendation of our Board of Directors; Reasons for the
Merger.................................................. 19
Opinion of our Financial Advisor.......................... 21
Interests of Certain Persons in the Merger................ 27
Regulatory Approvals...................................... 32
Financing for the Merger.................................. 33
Federal Income Tax Consequences........................... 34
Accounting Treatment...................................... 35
Certain Effects of the Merger............................. 35
Operations After the Merger............................... 35
Amendment of Rights Agreement............................. 35
Appraisal Rights.......................................... 36
THE MERGER AGREEMENT........................................ 40
The Merger................................................ 40
Effective Time of the Merger.............................. 40
Consideration to be Received in the Merger................ 40
Treatment of Stock Options................................ 40
Procedures for Exchange of Stock Certificates............. 41
Representations and Warranties............................ 41
Conduct of Business Pending the Merger.................... 43
No Solicitation of Transactions........................... 44
Fiduciary Duties.......................................... 45
Employee Benefit Matters.................................. 45
Indemnification; Directors' and Officers' Insurance....... 46
Access to Information..................................... 47
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Stockholders Meeting...................................... 47
Regulatory Filings and Other Matters...................... 47
Conditions to Completion of the Merger.................... 47
Termination of Merger Agreement........................... 48
Termination Fee........................................... 49
Amendment and Waiver...................................... 49
THE COMPANIES............................................... 50
Farm Family............................................... 50
American National......................................... 50
American National Acquisition Company..................... 51
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL
OWNERS...................................................... 51
WHERE YOU CAN FIND MORE INFORMATION......................... 55
INDEPENDENT ACCOUNTANTS..................................... 56
STOCKHOLDER PROPOSALS....................................... 56
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS... 57
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ANNEXES
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ANNEX A -- Agreement and Plan of Merger
ANNEX B -- Opinion of Fox-Pitt, Kelton, Inc.
ANNEX C -- Section 262 of the Delaware General Corporation Law
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QUESTIONS AND ANSWERS ABOUT THE MERGER
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Q: Who are the parties to the merger
agreement?................................... A: The parties to the merger agreement are
American National Insurance Company,
American National Acquisition Company, a
newly formed Delaware corporation and a
wholly owned subsidiary of American
National Insurance Company, and Farm
Family Holdings, Inc.
Q: Who is the buyer in the merger?........... A: The buyer is American National Insurance
Company. American National is a Texas
domiciled insurance company that, itself
or through its subsidiaries, offers a
broad line of insurance coverages,
including individual and group life,
health and annuities, personal lines
property and casualty, and credit
insurance. See page 50.
Q: How will the merger be effected?.......... A: American National Acquisition Company will
be merged with and into Farm Family. The
separate existence of American National
Acquisition Company will cease at the
effective time of the merger, and Farm
Family will then continue as the surviving
corporation. As a result of the merger,
Farm Family will become a wholly owned
subsidiary of American National.
See page 40.
Q: Why have we decided to merge?............. A: Our board of directors believes that the
merger is fair to and in the best
interests of our stockholders because,
among other factors, it offers a
significant premium over the trading price
of our common stock prior to the
announcement of the merger. For a more
detailed description of our reasons for
the merger, see "The
Merger--Recommendation of our Board of
Directors; Reasons for the Merger"
beginning on page 19.
Q: What will I receive for my common stock or
preferred stock if the merger is
completed?................................ A: If the merger is completed, for each share
of our common stock that you own at the time
of the merger you will receive $44.00 in
cash and for each share of our preferred
stock that you own at the time of the
merger you will receive $35.72 (plus
accrued and unpaid dividends thereon to
the closing date of the merger) in cash,
unless you have perfected your appraisal
rights. See page 40.
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Q: Who can vote on the merger agreement?..... A: Holders of shares of our common stock and
preferred stock at the close of business
on the record date of January 8, 2001. See
page 13.
Q: What stockholder approvals are needed to
adopt the merger agreement?............... A: The affirmative vote of holders of a
majority of the shares of our common stock
and preferred stock, voting together as a
class. See page 13.
Q: Why should stockholders vote in favor of
the merger?............................... A: Our board of directors has determined that
the merger is fair to and in the best
interests of Farm Family and its
stockholders and has unanimously approved
the merger agreement and declared its
advisability. In making its determination,
our board of directors considered several
factors, including a written opinion from
Farm Family's financial advisors,
Fox-Pitt, Kelton, Inc. to the effect that
the consideration to be received in the
merger is fair, from a financial point of
view, to the holders of our common stock.
Fox-Pitt, Kelton also advised our board
that the consideration to be received by
the holders of our preferred stock in the
merger is within a reasonable range of
implied value for the preferred stock.
See page 19.
Q: What do I need to do now?................. A: You should indicate on your proxy card how
you want your shares to be voted, then
sign and date the proxy card and return it
in the pre-paid envelope provided as soon
as possible, so that your shares may be
represented and voted at the special
meeting to be held on February 27, 2001.
If you sign and return the proxy card and
do not indicate how you want to vote, your
proxy will be voted FOR adoption of the
merger agreement. You may also attend the
special meeting and vote your shares in
person. See page 14.
Q. What if I do not vote?.................... A: - If you fail to respond, your failure
will have the same effect as a vote against
the merger.
- If you respond and do not indicate how you
want to vote, your proxy will be counted as
a vote in favor of the merger.
- If you respond and abstain from voting,
your proxy will have the same effect as a
vote against the merger.
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Q: If my shares are held in "street name" by
my broker, will my broker vote my shares
for me?................................... A: Your broker will NOT vote your shares
UNLESS you instruct your broker how to
vote. You should follow the directions
provided by your broker concerning how to
give instructions to your broker to vote
your shares. If you fail to instruct your
broker, your shares will not be voted.
This will have the same effect as a vote
against adoption of the merger agreement.
See page 14.
Q: Can I change my vote after I have mailed
my signed proxy card?..................... A: Yes. You can change your vote at any time
before the vote is taken at the special
meeting in any one of the following three
ways:
- you may deliver a written notice to our
Corporate Secretary stating that you would
like to revoke your proxy;
- you may complete and deliver to our
Corporate Secretary a new proxy card dated
later than the original one; or
- you may attend the special meeting and vote
in person.
If your broker has been instructed to vote
your shares, you must follow the directions
received from your broker to change your
vote or to vote in person at the special
meeting.
Q: Should I send in my stock certificate
now?......................................... A: No. Shortly after the merger is completed,
you will receive written instructions for
exchanging your stock certificate for
payment of the merger consideration. We
will request that you return your stock
certificate at that time. See page 41.
Q: Am I entitled to appraisal rights?........ A: Yes. As long as you comply with all of the
requirements of Section 262 of the
Delaware General Corporation Law (as
described and summarized in this proxy
statement beginning on page 36 and
attached as Annex C to this proxy
statement), you will have the right to
seek an appraisal and payment of the fair
value of your common stock or preferred
stock. If you wish to seek appraisal of
your shares, you should read and follow
carefully the provisions of Section 262.
You should be aware that an appraisal may
result in a price for your shares that is
greater than, the same as, or less than the
consideration you otherwise are entitled to
for
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your shares of common stock or preferred
stock in the merger.
Q: When do you expect the merger to be
completed?................................ A: We are working towards completing the
merger as quickly as possible. In addition
to approval by our stockholders, the
merger must also be approved by the New
York Insurance Department and several
other regulators. We expect to receive all
necessary approvals and complete the
merger late in the first quarter of 2001.
We hope to complete the merger shortly
after the adoption of the merger agreement
by our stockholders and the receipt of all
approvals from relevant regulatory bodies.
Q: What are the tax consequences of
the merger?............................... A: The receipt of $44.00 in cash for each
share of common stock you own and $35.72 in
cash for each share of preferred stock you
own pursuant to the merger will be a
taxable transaction for United States
federal income tax purposes and may also
be a taxable transaction under applicable
state, local, foreign, or other tax laws.
Additional amounts paid for accrued but
unpaid dividends with respect to the
preferred stock will be taxable as
ordinary income. Special tax consequences
may apply to a particular class of
taxpayers, such as financial institutions,
insurance companies, broker-dealers and
tax-exempt entities. You should carefully
read the discussion of federal income tax
consequences of the merger beginning on
page 34 of this proxy statement and
consult with your own tax advisors as to
the federal, state, local, foreign and
other tax consequences, in light of your
particular situation.
Q: Who can help answer my questions?......... A: If you have questions about the merger or
how to submit your proxy, please contact:
.
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SUMMARY OF THE PROXY STATEMENT
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION IN THIS PROXY STATEMENT AND MAY
NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. FOR A MORE COMPLETE
DESCRIPTION OF THE MERGER, YOU SHOULD CAREFULLY READ THIS ENTIRE PROXY STATEMENT
AND THE DOCUMENTS THAT ARE ATTACHED TO IT, INCLUDING THE COPY OF THE MERGER
AGREEMENT THAT IS ATTACHED AS ANNEX A. SEE "WHERE YOU CAN FIND MORE INFORMATION"
ON PAGE 55 FOR DETAILS OF HOW YOU CAN OBTAIN MORE INFORMATION ABOUT THE MERGER.
WE HAVE INCLUDED PAGE REFERENCES PARENTHETICALLY TO DIRECT YOU TO A MORE
COMPLETE DESCRIPTION OF THE TOPICS IN THIS SUMMARY.
THE COMPANIES
American National Insurance Company
American National Acquisition Company
One Moody Plaza
Galveston, Texas 77550
(409) 763-4661
http://www.american-national.com
American National Insurance Company, which we sometimes refer to as
"American National," is a Texas domiciled insurance company with over
$9 billion in assets according to its 1999 Annual Report to Stockholders.
Chartered in 1905, the company, itself or through its subsidiaries, offers a
broad line of insurance coverages, including individual and group life, health,
and annuities, personal lines property and casualty, and credit insurance.
Although the majority of its revenues are generated by insurance business,
American National, through its non-insurance subsidiaries, also offers mutual
funds. American National and its subsidiaries conduct insurance business in all
50 states, as well as in the District of Columbia, Puerto Rico, Guam, American
Samoa and Mexico. American National is also authorized to sell its products to
American military personnel in Western Europe. American National and its
insurance subsidiaries provide service to more than 3.4 million policyowners.
The common stock of American National trades on the Nasdaq National Market under
the symbol "ANAT".
American National Acquisition Company, a Delaware corporation, is a wholly
owned subsidiary of American National. American National formed American
National Acquisition Company shortly before the signing of the merger agreement
for the purpose of carrying out the merger.
For additional information regarding American National and American National
Acquisition Company, see "The Companies--American National" beginning on page
50, and "The Companies--American National Acquisition Company" beginning on page
51.
Farm Family Holdings, Inc.
344 Route 9W
Glenmont, New York 12077
(518) 431-5000
http://www.farmfamily.com
The name of our company is Farm Family Holdings, Inc., which we sometimes
refer to as "Farm Family," and we are an insurance holding company incorporated
in Delaware. Our principal operating subsidiaries are Farm Family Casualty
Insurance Company, which we sometimes refer to as "Farm Family Casualty," and
Farm Family Life Insurance Company, which we sometimes refer to as "Farm Family
Life." Farm Family Casualty is a specialized insurance company that provides
property and casualty insurance coverages to farms, agribusinesses and other
generally related businesses and residents of rural and suburban communities.
Farm Family Casualty was established in 1955 to meet certain insurance needs of
Farm Bureau-Registered Trademark- members in the Northeastern United States, and
provides property and casualty insurance coverages to members of the state Farm
Bureau organizations in New York, New Jersey, Delaware, West Virginia and all of
the New England states (collectively, the "Farm
5
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Bureaus"). Farm Family Life, which we acquired in 1999, provides life insurance,
annuity and accident and health insurance coverages principally to members of
the Farm Bureaus in the same states as Farm Family Casualty, and also writes
insurance in Pennsylvania and Maryland. Farm Family Casualty and Farm Family
Life share the same agency force, certain employees and office facilities. We
market our insurance products through more than 300 agents and general agents
who are located primarily in the rural and suburban communities we serve.
For additional information regarding us and our business, see "The
Companies--Farm Family" beginning on page 50, and "Where You Can Find More
Information" beginning on page 55.
THE SPECIAL MEETING
TIME, DATE, PLACE AND PURPOSE (see page 13)
The special meeting of our stockholders will be held on February 27, 2001 at
10:00 a.m., local time, at our corporate headquarters at 344 Route 9W, Glenmont,
New York. At the special meeting, you will be asked to:
- consider and vote upon a proposal to adopt the merger agreement; and
- transact such other business as may properly come before the special
meeting.
RECORD DATE AND VOTING (see page 13)
You are entitled to vote at the special meeting if you owned shares of our
common stock or preferred stock as of the close of business on January 8, 2001,
the record date of the special meeting. On the record date, there were
shares of our common stock and shares of our preferred stock outstanding
and entitled to vote, held by approximately and record holders,
respectively.
You are entitled to one vote for each share of common stock and each share
of preferred stock held of record by you on the record date. You may vote your
shares by attending the special meeting and voting in person or by completing
and returning the enclosed proxy card. The presence, in person or by properly
executed proxy, of the holders of one-third of the shares of our capital stock
issued and entitled to vote at the special meeting is necessary to constitute a
quorum for the transaction of business at the special meeting.
VOTE REQUIRED (see page 13)
The affirmative vote of the holders of a majority of the outstanding shares
of our common stock and preferred stock, voting together as a class, is required
to adopt the merger agreement.
All of our directors and executive officers have indicated to us that they
intend to vote for adoption of the merger agreement. As of the record date, our
directors and executive officers beneficially owned shares of our common stock
representing approximately % of the combined voting power of our stockholders.
THE MERGER
WHAT YOU WILL RECEIVE IN THE MERGER (see page 40)
If the merger is completed, each outstanding share of our Common Stock, par
value $.01 per share, will be converted into the right to receive $44.00 in
cash, and each outstanding share of our Preferred Stock, Series A, par value
$.01 per share, will be converted into the right to receive $35.72 (plus accrued
and unpaid dividends thereon to the closing date of the merger) in cash, in each
case, payable to the holder thereof, without interest, except that shares of our
common stock and preferred
6
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stock held by persons who have perfected their appraisal rights will be subject
to appraisal in accordance with Delaware law.
You should not send in your stock certificates until instructed to do so
after the merger is completed.
RECOMMENDATION OF OUR BOARD OF DIRECTORS (see page 19)
Our board of directors has determined that the merger is fair to and in the
best interests of Farm Family and its stockholders and has unanimously approved
the merger agreement and declared its advisability. Our board unanimously
recommends that you vote "FOR" adoption of the merger agreement. In making this
determination and recommendation, our board of directors considered a number of
factors, which are described more fully under "The Merger--Background of the
Merger" beginning on page 16, and "The Merger--Recommendation of our Board of
Directors; Reasons for the Merger."
OPINION OF OUR FINANCIAL ADVISOR (see page 21)
We retained Fox-Pitt, Kelton, Inc. to act as our financial advisor in
connection with the merger. Fox-Pitt, Kelton provided its opinion to our board
that, based upon and subject to the various considerations set forth in its
opinion, as of the date of its opinion, the consideration to be received in the
merger is fair, from a financial point of view, to the holders of our common
stock. Fox-Pitt, Kelton has reconfirmed its opinion in writing as of the date of
this proxy statement. The opinion of Fox-Pitt, Kelton is addressed to our board
of directors and does not constitute a recommendation as to how you should vote
with respect to the adoption of the merger agreement. A copy of the written
opinion is attached as Annex B to this proxy statement. We urge you to read the
opinion in its entirety.
CONSIDERATION TO BE RECEIVED BY HOLDERS OF PREFERRED STOCK (see page 19)
Fox-Pitt, Kelton has advised our board that the consideration to be received
by the holders of our preferred stock in the merger is within a reasonable range
of implied value for the preferred stock.
APPRAISAL RIGHTS (see page 36 and Annex C)
If you do not wish to accept the merger consideration you have the right
under the Delaware General Corporation Law to receive the "fair value" of your
shares of common stock or preferred stock as determined by a Delaware court.
This "appraisal right" is subject to a number of restrictions and technical
requirements. Generally, in order to perfect appraisal rights:
- you must not vote in favor of adoption of the merger agreement; and
- you must make a written demand for appraisal before the vote on the
adoption of the merger agreement is taken.
Merely voting against adoption of the merger agreement will not preserve your
appraisal rights under Delaware law.
Annex C to this proxy statement contains the applicable provisions of the
Delaware General Corporation Law relating to appraisal rights. If you want to
exercise your appraisal rights, we urge you to read and carefully follow the
procedures beginning on page 36 and in Annex C. Failure to take all of the steps
required under Delaware law may result in the loss of your appraisal rights.
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EFFECTIVE TIME OF THE MERGER (see page 40)
The merger will become effective when a certificate of merger is filed with
the Delaware Secretary of State or at such later time as agreed to by us and
American National and specified in the certificate of merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER (see page 27)
In considering the recommendation of our board of directors, you should be
aware that certain of our directors and officers and their affiliates may be
deemed to have interests in the merger that are or may be different from, or in
addition to, your interests as stockholders. These interests include the
following:
- We have various financial arrangements and interrelationships with the
state Farm Bureau organizations in New York, New Jersey, Delaware, West
Virginia and all of the New England states. Substantially all of our
directors are or were directors or executive officers of the Farm Bureaus.
In addition, the Farm Bureaus together are holders of approximately 14.5%
of the outstanding shares of our common stock and all of our preferred
stock, representing approximately 16.7% of the combined voting power of
our stockholders.
- American National has expressed its intention following completion of the
merger with respect to certain matters affecting the Farm Bureaus.
- Under the merger agreement, upon completion of the merger, our officers
will continue to be officers of Farm Family. In addition, we have entered
into employment agreements with four of our executive officers, including
Philip P. Weber, President and Chief Executive Officer, which will become
effective at the effective time of the merger. These employment agreements
provide that these executives will continue to be employed for varying
periods following the merger and include compensation and retention
payment arrangements.
- Upon adoption of the merger agreement by our stockholders, each
outstanding stock option granted to our officers and directors will vest
and become exercisable. At the effective time of the merger, each of these
options will be exchanged for an amount of cash equal to the excess, if
any, of (1) the higher of the fair market value per share of our common
stock immediately prior to the adoption of the merger agreement by our
stockholders, or $44.00, over (2) the exercise price of the option.
- At the time we entered into the merger agreement, we amended our Annual
Incentive Plan to provide minimum bonus amounts for 2000 and for the
period of 2001 prior to the merger for each executive officer covered by
this plan. We will pay these bonuses not later than the closing date of
the merger.
- Following adoption of the merger agreement by our stockholders, we will be
required to pay severance benefits to executive officers covered by our
Officer Severance Pay Plan if their employment is terminated under certain
circumstances.
- American National has indicated to us that it intends that certain of our
directors and executive officers, including Mr. Weber, will serve as
directors of Farm Family following the merger.
- Under the merger agreement, our directors, officers and employees are
entitled to indemnification for events occurring on or prior to the
effective time of the merger to the same extent available to these persons
prior to the merger.
8
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CONDITIONS TO COMPLETION OF MERGER (see page 47)
The completion of the merger depends upon the parties meeting a number of
conditions, including the following:
- our stockholders shall have adopted the merger agreement;
- all approvals required to be obtained from governmental authorities,
including approval of the New York Insurance Department, shall have been
obtained;
- the waiting period applicable to the consummation of the merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall have terminated
or expired;
- no court shall have issued any order or injunction, and there shall not be
any statute, rule or regulation of any governmental authority, preventing
the merger;
- the representations and warranties of the parties contained in the merger
agreement shall be true and correct (subject to certain materiality
standards) as of the date of the merger agreement and as of the closing
date of the merger; and
- the parties shall have performed in all material respects all obligations
to be performed by them under the merger agreement.
Other than conditions that are required by law, any conditions that are not
satisfied may be waived by the party entitled to assert the condition.
WHAT HAPPENS IF WE RECEIVE A BETTER OFFER (see page 44)
We have agreed not to, nor will we authorize or permit any of our officers,
directors, employees or investment bankers, attorneys, accountants or other
advisors, agents or representatives, to solicit, initiate or knowingly encourage
the submission of a proposal with respect to an alternative transaction
involving us or our subsidiaries, including a merger or the sale of our, or our
subsidiaries', stock or assets, or participate in any discussions with, or
furnish non-public information to, any person with respect to any such proposal.
If we receive an unsolicited acquisition proposal, however, we may furnish
information to, or enter into discussions with, the person making the proposal
if our board of directors, upon advice received from outside counsel, determines
in good faith that in order for our board of directors to comply with its
fiduciary duties to our stockholders under applicable law it should take such
action. We are required to notify American National promptly upon receipt of an
acquisition proposal and the material terms of that proposal. We also are
required to negotiate with American National to make adjustments in the terms of
the merger agreement as would enable us to proceed with the merger.
Our board of directors may not withdraw or modify, in a manner adverse to
American National, its approval or recommendation of the merger agreement or the
merger or approve or recommend, or cause us to enter into any agreement to
consummate, an acquisition proposal, unless, upon receipt of an unsolicited
acquisition proposal, it determines in good faith, upon advice received from
outside counsel, that it is reasonably necessary to do so in order for our board
of directors to comply with its fiduciary duties to our stockholders under
applicable law. If our board of directors takes certain actions with respect to
an acquisition proposal, we may be required to pay a $7.5 million termination
fee to American National. See the sections entitled "The Merger Agreement--No
Solicitation of Transactions" beginning on page 44, "The Merger
Agreement--Fiduciary Duties" beginning on page 45 and "The Merger
Agreement--Termination Fee" beginning on page 49.
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<PAGE>
TERMINATION OF MERGER AGREEMENT (see page 48)
At any time prior to the effective time of the merger, whether before or
after receiving stockholder approval, the merger agreement may be terminated by
mutual written consent of the parties.
The merger agreement may also be terminated, whether before or after
receiving stockholder approval, unilaterally by either American National or us
if any of the following occurs:
- our stockholders do not adopt the merger agreement;
- the merger is not consummated by March 31, 2001, provided, that this
termination date will be extended for up to 90 days if all regulatory
approvals required to effect the merger have not been obtained and are
being diligently pursued;
- any governmental authority issues a final, nonappealable order prohibiting
the merger; or
- our board of directors exercises its right, under certain circumstances,
to:
-- withdraw or modify, in a manner adverse to American National, its
approval or recommendation of the merger agreement and the merger;
-- approve or recommend an acquisition proposal;
-- cause us to enter into an agreement to consummate an acquisition
proposal; or
-- terminate the merger agreement.
The merger agreement may also be terminated, whether before or after
receiving stockholder approval, by either American National or us if the other
party breaches the merger agreement and that breach cannot be cured and would
result in a condition to the closing under the merger agreement not being
satisfied or, if that breach is curable, is not cured within 20 business days.
TERMINATION FEE (see page 49)
The merger agreement requires us to pay a termination fee of $7.5 million to
American National if:
- our board of directors exercises its right, under certain circumstances,
to:
-- cause us to enter into an agreement to consummate an acquisition
proposal; or
-- terminate the merger agreement;
- American National terminates the merger agreement as a result of our board
of directors exercising its right, under certain circumstances, to:
-- withdraw or modify, in a manner adverse to American National, its
approval or recommendation of the merger agreement and the merger; or
-- approve or recommend an acquisition proposal; or
- the merger agreement is terminated by American National or us after a
failure to obtain stockholder approval at the special meeting and prior to
the time of the special meeting any person has publicly made, or has
publicly announced an intention to make, and has not withdrawn, a bona
fide acquisition proposal, and within 12 months after termination of the
merger agreement, a transaction implementing an acquisition proposal with
that person is consummated.
FINANCING FOR THE MERGER (see page 33)
American National has informed us that it intends to capitalize American
National Acquisition Company with $480 million in cash and assets, of which
approximately $280 million in cash will be used to pay the aggregate merger
consideration. American National and a wholly owned subsidiary of American
National will provide $480 million of cash and other assets to American National
Acquisition
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Company in exchange for common stock of American National Acquisition Company.
American National Acquisition Company will obtain an additional $200 million
through bank financing.
American National's obligation to proceed with the merger is not conditioned
upon its ability to obtain any financing.
FEDERAL INCOME TAX CONSEQUENCES (see page 34)
The receipt of $44.00 in cash for each share of common stock you own and
$35.72 in cash for each share of preferred stock you own pursuant to the merger
will be a taxable transaction for United States federal income tax purposes and
may also be a taxable transaction under applicable state, local, foreign, or
other tax laws. Generally, for United States federal income tax purposes, you
will recognize gain or loss in an amount equal to the difference between the
amount of the cash that you receive in the merger and your adjusted tax basis
for the common stock or preferred stock, as the case may be, that you surrender
in the merger. Additional amounts paid for accrued but unpaid dividends with
respect to the preferred stock will be taxable as ordinary income and will not
be taken into account for purposes of determining gain or loss on the sale of
your preferred stock.
Special tax consequences may apply to a particular class of taxpayers, such
as financial institutions, insurance companies, broker-dealers and tax-exempt
entities.
TAX MATTERS ARE COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO YOU
WILL DEPEND UPON YOUR PARTICULAR FACTS AND CIRCUMSTANCES. YOU SHOULD CONSULT
YOUR TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES OF THE MERGER TO YOU.
11
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MARKET PRICE OF COMMON STOCK AND DIVIDEND HISTORY
Our common stock is traded on the New York Stock Exchange under the symbol
"FFH". There is no established public trading market for our preferred stock.
The following table sets forth the high and low closing prices per share of our
common stock, as reported on the New York Stock Exchange, for the periods
indicated.
<TABLE>
<CAPTION>
HIGH LOW
------------ ------------
<S> <C> <C>
1998
First Quarter............................................... 38 3/4 31 5/8
Second Quarter.............................................. 42 5/8 38 9/16
Third Quarter............................................... 40 5/8 29 1/4
Fourth Quarter.............................................. 38 3/16 28
1999
First Quarter............................................... 34 3/8 31 3/4
Second Quarter.............................................. 36 15/16 31 9/16
Third Quarter............................................... 40 34 1/8
Fourth Quarter.............................................. 43 38 5/8
2000
First Quarter............................................... 41 29 3/8
Second Quarter.............................................. 30 15/16 26 1/4
Third Quarter............................................... 35 1/4 29 1/4
Fourth Quarter..............................................
2001
First Quarter (through , 2001)...................
</TABLE>
On October 30, 2000, the last full trading day before the public
announcement of the merger agreement, the closing sale price of our common
stock, as reported on the New York Stock Exchange, was $32 1/8. On ,
the last full trading day before the date of this proxy statement, the closing
sale price of our common stock, as reported on the New York Stock Exchange, was
$ . STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET INFORMATION FOR OUR
COMMON STOCK.
As of January 8, 2001, there were approximately holders of record of
our common stock and holders of record of our preferred stock.
We have never paid cash dividends on our common stock. We pay regular
quarterly cash dividends on shares of our preferred stock at a rate equal to
6 1/8% per annum. The merger agreement prohibits us, without the prior consent
of American National, from paying any dividends on our common stock or preferred
stock, except for regular quarterly cash dividends on our preferred stock.
12
<PAGE>
THE SPECIAL MEETING
DATE, TIME AND PLACE
This proxy statement is being furnished to you in connection with the
solicitation of proxies by our board of directors for use at the special meeting
of our stockholders to be held on February 27, 2001, at 10:00 a.m., local time,
at our corporate headquarters at 344 Route 9W, Glenmont, New York, and at any
adjournment or postponement thereof. This proxy statement and the accompanying
notice of special meeting of stockholders and proxy card are first being mailed
to our stockholders on or about , 2001.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, you will be asked to:
- consider and vote upon a proposal to adopt the merger agreement; and
- transact such other business as may properly come before the special
meeting.
Our board of directors has determined that the merger is fair to and in the
best interests of Farm Family and its stockholders and has unanimously approved
the merger agreement and declared its advisability. Our board unanimously
recommends that you vote "FOR" adoption of the merger agreement.
RECORD DATE, OUTSTANDING SHARES AND VOTING
Only holders of record of our common stock and preferred stock at the close
of business on the record date of January 8, 2001 are entitled to notice of, and
to vote at, the special meeting. On the record date, there were shares of
common stock issued and outstanding held by approximately holders of
record and shares of preferred stock issued and outstanding held by
approximately holders of record. You are entitled to one vote for each
share of our common stock and preferred stock held of record by you on the
record date. You may vote your shares by attending the special meeting and
voting in person or by completing and returning the enclosed proxy card.
QUORUM
The presence, in person or by properly executed proxy, of the holders of
one-third of the shares of our capital stock issued and entitled to vote at the
special meeting is necessary to constitute a quorum for the transaction of
business at the special meeting. If there is not a quorum at the meeting, we
expect that the meeting will be adjourned to solicit additional proxies.
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of our common stock and preferred stock, voting together as a class, is required
to adopt the merger agreement.
As of the record date of the special meeting, our directors and executive
officers beneficially owned an aggregate of shares of our common stock
(includes options to purchase shares of our common stock that are exercisable
within 60 days of the record date) and shares of our preferred stock,
representing approximately % of the combined voting power of our stockholders.
All of our directors and executive officers have indicated to us that they
intend to vote their shares for adoption of the merger agreement.
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VOTING OF PROXIES
The enclosed form of proxy is for use at the special meeting, regardless of
whether you plan to attend the special meeting. To ensure that your shares are
represented at the special meeting, we urge you to complete, sign and date the
enclosed proxy card and return it in the postage-paid envelope provided as soon
as possible. YOU SHOULD NOT SEND IN YOUR STOCK CERTIFICATES WITH YOUR PROXY
CARDS.
All shares of our common stock and preferred stock represented by properly
executed proxies received before or at the special meeting, and not revoked,
will be voted in accordance with the instructions indicated on those proxies. If
you do not indicate instructions on a properly executed proxy card, common stock
and preferred stock represented by the proxy will be voted for adoption of the
merger agreement.
If you return a properly executed proxy card and you have abstained from
voting on adoption of the merger agreement, the common stock or preferred stock
represented by the proxy will be considered present at the special meeting for
purposes of determining a quorum, but will not be considered to have been voted
in favor of adoption of the merger agreement. If you hold your shares in an
account at a brokerage firm or bank, you must instruct your broker or bank on
how to vote your shares. If a broker or bank holding shares returns an executed
proxy card which indicates that the broker or bank does not have discretionary
authority to vote on adoption of the merger agreement, the shares will be
considered present at the meeting for purposes of determining the presence of a
quorum, but will not be considered to have been voted in favor of adoption of
the merger agreement. Your broker or bank will vote your shares only if you
provide instructions on how to vote by following the information provided to you
by your broker or bank.
Our board of directors is not aware of any matter other than the matter
referred to in this proxy statement that will be brought before the special
meeting. If, however, other matters are presented properly at the special
meeting for consideration, including consideration of a motion to adjourn or
postpone the special meeting to another time and/or place for the purposes of
soliciting additional proxies or allowing additional time for the satisfaction
of conditions to the merger, the persons named in the enclosed form of proxy and
acting under that proxy generally will have discretion to vote on those matters
in accordance with their best judgment.
REVOCATION OF PROXIES
You may revoke your proxy at any time before it is voted by:
- delivering a written notice to our Corporate Secretary stating that you
would like to revoke your proxy;
- completing and delivering to our Corporate Secretary a new proxy card
dated later than the original one; or
- attending the special meeting and voting in person.
Attendance at the special meeting will not, in and of itself, constitute
revocation of a proxy.
Any written notice of revocation or subsequent proxy must be received by us
prior to the vote at the special meeting and should be sent to our Corporate
Secretary at Farm Family Holdings, Inc., P.O. Box 656, Albany, New York
12201-0656, if sent by mail, or 344 Route 9W, Glenmont, New York 12077, if sent
by hand, express mail or overnight courier.
If you have given your broker or bank instructions to vote your shares, you
must follow directions received from your broker or bank to change your vote or
to vote in person at the special meeting.
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<PAGE>
SOLICITATION OF PROXIES
We will bear the cost of the solicitation of proxies in connection with the
special meeting. In addition to solicitation of proxies by mail, our directors,
officers, agents and employees may solicit proxies from stockholders by
telephone, telegram, letter, facsimile or in person. We will make arrangements
with brokerage firms and other custodians, nominees, fiduciaries and other
record holders to forward solicitation materials to the beneficial owners of
shares held of record by such persons, and we will reimburse such record holders
for reasonable out-of-pocket expenses incurred by them in connection therewith.
We have retained to assist with the solicitation of proxies for a
fee of approximately $ , plus reimbursement for out-of-pocket expenses.
15
<PAGE>
THE MERGER
BACKGROUND OF THE MERGER
Our consideration of a transaction with American National began on May 22,
2000, when representatives of Fox-Pitt, Kelton, Inc. met with Philip P. Weber,
our President and Chief Executive Officer, and Timothy A. Walsh, our Executive
Vice President, Chief Financial Officer and Treasurer. The Fox-Pitt, Kelton
representatives suggested that American National might be a good strategic
partner for us. Their suggestion was based on meetings they had previously had
with representatives of American National during which American National
conveyed its interest in acquiring a company like ours. Mr. Weber informed the
Fox-Pitt, Kelton representatives that we were not for sale, but would consider
meeting with representatives of American National to discuss strategic
opportunities.
Fox-Pitt, Kelton arranged a meeting in Kansas City, Missouri on June 8, 2000
between Messrs. Weber and Walsh and Gregory V. Ostergren, Executive Vice
President, Multiple Line of American National and Chairman of the Board,
President and Chief Executive Officer of American National Property and Casualty
Company, a subsidiary of American National, and other members of American
National Property and Casualty Company's management. A representative of
Fox-Pitt, Kelton also attended the meeting. At this meeting, Mr. Ostergren
expressed American National's interest in investigating a business combination
with us. We provided American National with certain publicly available
information regarding us. After the meeting, we engaged LeBoeuf, Lamb, Greene &
MacRae, L.L.P., as our outside counsel in connection with a possible transaction
with American National.
On June 21, 2000, we entered into a confidentiality agreement with American
National and agreed to provide American National with certain non-public
information regarding us. On June 27, 2000, a representative of Fox-Pitt,
Kelton, Mr. Weber and other members of our management and Mr. Ostergren and
Ronald J. Welch, Executive Vice President and Chief Actuary of American
National, and other members of American National's management met at our
offices. At this meeting, we provided American National with the non-public
information and had a general discussion about our business and the potential
strategic fit resulting from a business combination between American National
and us.
At a telephonic meeting on June 28, 2000, Mr. Weber reviewed the discussions
with American National with the Executive Committee of our board of directors,
comprised of Robert L. Baker, Stephen J. George, Gordon H. Gowen, Clark W.
Hinsdale III, William M. Stamp, Jr. and Norma R. O'Leary. The Executive
Committee authorized our engagement of Fox-Pitt, Kelton as our financial advisor
in connection with a possible transaction with American National. In July 2000,
we engaged Fox-Pitt, Kelton. Mr. Weber further reviewed the discussions with
American National and the engagement of Fox-Pitt, Kelton with our Executive
Committee at a meeting on July 24, 2000 and our board of directors at its
regularly scheduled meeting on July 25, 2000.
On August 2, 2000, American National submitted to us a letter outlining a
non-binding indication of interest to acquire all our outstanding common stock
for $43.00 per share in cash. In addition, American National proposed to pay
$8,288,726 for our outstanding stock options. American National also stated
that, if achievable on reasonable terms, it would seek to cash out all of our
outstanding preferred stock in conjunction with the proposed acquisition. This
indication of interest was subject to certain conditions, including the
completion of a due diligence review of us, negotiation of a definitive merger
agreement, negotiation of employment agreements with certain members of our
senior management, and board, stockholder and regulatory approval.
On or about August 3, 2000, Mr. Weber advised American National through a
representative of Fox-Pitt, Kelton that the proposed price of $43.00 per share
of common stock was inadequate, but that we were prepared to continue
discussions if American National could offer a higher price. Between August 3
and August 10, 2000, a representative of Fox-Pitt, Kelton had several telephone
conversations
16
<PAGE>
with Mr. Ostergren to discuss price and seek clarification of other terms of
American National's indication of interest, including the price at which
American National proposed to cash out our preferred stock. During these
conversations, Mr. Ostergren informed the Fox-Pitt, Kelton representative that
American National would offer to pay $35.72 per share for our preferred stock
(its stated value), plus accrued and unpaid dividends thereon to the closing
date of the merger. During the first week of August 2000, Mr. Weber and
Mr. Ostergren also had a telephone conversation regarding the proposed price and
the terms of the indication of interest. On or about August 7, 2000,
Mr. Ostergren informed the Fox-Pitt, Kelton representative that American
National would increase its non-binding offer to $44.00 per share of common
stock.
On August 15, 2000, American National's proposal was discussed by our board
of directors at a special meeting. At this meeting, a representative of LeBoeuf,
Lamb, Greene & MacRae, L.L.P. described the board's fiduciary duties and
confidentiality obligations in considering the proposed transaction. A
representative of Fox-Pitt, Kelton reviewed the proposed transaction and
presented an overview of American National and an analysis of the offer price
and our value. In addition, Mr. Weber reviewed the status of the negotiations
with American National, our prospects as an independent company and the effect
of the merger on our stockholders, employees, customers and relationship with
the Farm Bureaus. Mr. Weber recommended that the board authorize senior
management and our advisors to continue to investigate the proposed transaction
with American National. Our board authorized the retention of employment counsel
and consultants, at our expense, to represent our senior management in
connection with the transaction. Clark W. Hinsdale III, Chairman of our board of
directors, and Stephen J. George, Vice Chairman of our board of directors,
advised our board that they would receive updates on the terms and status of the
proposed transaction from our senior management and our advisors, and regularly
update the members of our board of directors.
During the second half of August 2000, Mr. Ostergren indicated in several
telephone conversations with both Mr. Weber and with a representative of
Fox-Pitt, Kelton that the $44.00 per share price was firm. In addition,
Mr. Ostergren stated that American National would consider, at our request,
making the cash out of the preferred stock optional rather than mandatory and
that American National desired to maintain Farm Family's relationship with the
Farm Bureaus.
At special meetings held by teleconference on August 18, 2000, August 25,
2000 and September 1, 2000, representatives of Fox-Pitt, Kelton and LeBoeuf,
Lamb, Greene & MacRae, L.L.P. and our senior management reviewed the status of
discussions with American National with our board of directors. During the
meetings, our board discussed various issues relating to the price offered for
the common stock, the treatment of the preferred stock and American National's
intentions regarding the use of Farm Family's name, our home office, Farm
Family's relationship with the Farm Bureaus, and continuing the existing
requirement that Farm Family Casualty's policyholders be members of a Farm
Bureau. In this regard, American National expressed an interest in continuing to
use the Farm Family name, logo and home office, establishing an advisory board
for Farm Family consisting of representatives of the Farm Bureaus, extending the
membership list purchase agreements with each Farm Bureau, which we sometimes
refer to as the "Membership List Purchase Agreements," for two years to
December 31, 2003, and generally continuing the existing requirement that Farm
Family Casualty's policyholders be members of a Farm Bureau. For a description
of the Membership List Purchase Agreements, see "The Merger--Interests of
Certain Persons in the Merger--Farm Bureaus."
American National conducted its due diligence review of us in late August,
September and October 2000. Throughout September and October 2000,
Messrs. Hinsdale and George had teleconferences with our senior management and
outside advisors regarding the status of discussions with American National and
thereafter updated the members of our board of directors.
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<PAGE>
During September 2000, Fox-Pitt, Kelton and our senior management developed
a preliminary list of alternative potential acquirers of Farm Family to contact
in order to determine their level of interest in pursuing a possible transaction
with us. We expanded Fox-Pitt, Kelton's engagement with us to include rendering
services in connection with eliciting interest from these potential acquirers.
At a special meeting on September 18, 2000, our board of directors reviewed
and expanded to 12 the preliminary list of alternative potential acquirers of us
which had been developed by Fox-Pitt, Kelton and our senior management. Our
board instructed Fox-Pitt, Kelton to seek expressions of interest from these
entities when our senior management determined that all material issues with
American National had been resolved. A representative of Fox-Pitt, Kelton
provided an update to our board about the current environment for mergers and
acquisitions in the insurance industry. Also at this meeting, a representative
of LeBoeuf, Lamb, Greene & MacRae, L.L.P. distributed a draft of a definitive
merger agreement to our board and summarized its principal terms.
On September 15, 2000, LeBoeuf, Lamb, Greene & MacRae, L.L.P. provided a
draft merger agreement to American National and to Clifford Chance Rogers &
Wells LLP and Greer, Herz & Adams, LLP, counsel to American National.
On September 29, 2000, American National's board of directors approved the
merger and authorized Robert L. Moody, Chairman of the Board and Chief Executive
Officer of American National, and G. Richard Ferdinandtsen, President and Chief
Operating Officer of American National, to negotiate and approve the definitive
merger agreement.
Our senior management and advisors and American National's management and
its advisors negotiated the merger agreement during September and October 2000.
In the course of those negotiations, American National advised us that although
it had considered allowing the cash out of our preferred stock to be optional,
it determined, after consultation with its advisors, that it would require that
our preferred stock be cashed out in the merger.
As noted above, American National's proposal required that Mr. Weber, James
J. Bettini, our Executive Vice President of Operations, Mr. Walsh and Victoria
M. Stanton, our Executive Vice President, General Counsel and Secretary, enter
into employment agreements with us and that Mr. Weber's employment agreement,
include an agreement to not compete with us. American National and
Messrs. Weber, Bettini and Walsh and Ms. Stanton negotiated these agreements
simultaneously with the negotiation of the definitive merger agreement and the
other transaction documents.
On October 24, 2000, Messrs. Hinsdale and George convened a telephone
meeting with Mr. Weber and other members of our senior management and our
outside legal counsel and financial advisors. At the meeting, Mr. Weber,
representatives of Fox-Pitt, Kelton and LeBoeuf, Lamb, Greene & MacRae, L.L.P.
reviewed the status of the negotiations with American National. At the
conclusion of this meeting, Mr. Weber authorized Fox-Pitt, Kelton to contact the
12 alternative potential acquirers to seek indications of interest in pursuing a
possible transaction with us.
In late October 2000, American National provided to our senior management a
draft letter that it proposed to send to each of the Farm Bureaus in connection
with the merger stating its intention, currently and for the foreseeable future,
to: (1) maintain the Farm Bureau membership requirements for the purchase of
insurance from Farm Family Casualty, provided that Farm Family Casualty can
maintain its growth and profitability objectives; (2) continue in effect the
existing Membership List Purchase Agreements and renew those agreements for an
additional two years on the same terms; (3) establish an advisory board for Farm
Family, consisting of one member of each of the state Farm Bureau organizations
in New York, New Jersey, Delaware, West Virginia and all of the New England
states, in order to maintain strong relationships with agribusiness insurance
consumers; and (4) use the Farm Family name and logo, and maintain Farm Family
Casualty's home office in Glenmont, New York.
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<PAGE>
On October 27, 2000, our board convened another telephonic special meeting
to receive an update on the status of the negotiations with American National.
At this meeting, a representative of Fox-Pitt, Kelton reported that it had
contacted the 12 potential alternative acquirers of us but had not received any
indication of interest from any of these entities.
Our senior management and advisors and American National's management and
advisors substantially completed negotiation of the merger agreement over the
weekend of October 28 and 29, 2000. During the same period, members of our
senior management completed negotiation of their employment agreements. On
October 27, 2000, we sent to our board of directors copies of a revised draft of
the merger agreement and the other transaction documents in connection with the
merger, including an amendment of our stockholder rights agreement, the
employment agreements with the four executive officers, amendments of our
Officer Severance Pay Plan, Annual Incentive Plan and Employee Severance Pay
Plan, and a new Special Severance Pay Plan. In addition, we provided our board
with the October draft letter that American National proposed to send to each of
the Farm Bureaus as described above.
At a special meeting on October 30, 2000 and a regularly scheduled meeting
on October 31, 2000, our board of directors met to consider the merger. At the
special meeting on October 30, 2000, a representative of LeBoeuf, Lamb,
Greene & MacRae, L.L.P. reviewed the fiduciary duties of the board of directors
in considering the proposed merger and summarized the terms of the merger
agreement and the proposed amendment of our stockholder rights agreement. A
representative of Fox-Pitt, Kelton made a presentation regarding the financial
aspects of the merger and delivered to our board Fox-Pitt, Kelton's oral opinion
(which opinion was reconfirmed orally by Fox-Pitt, Kelton at the board meeting
on October 31, 2000 and in writing on October 31, 2000), to the effect that, as
of the date of the opinion, the consideration to be received in the merger is
fair, from a financial point of view, to the holders of our common stock. The
Fox-Pitt, Kelton representative also advised our board that the consideration to
be received in the merger by our preferred stockholders was within a reasonable
range of implied value for the preferred stock. Finally, the Fox-Pitt, Kelton
representative reported that after contacting the 12 potential acquirers
discussed above, it had not received any indication that any of these entities
was interested in acquiring us. Our General Counsel reported on the proposed
amendments of our plans and the new Special Severance Plan, and the employment
agreements with Messrs. Weber, Bettini and Walsh and Ms. Stanton. Mr. Weber
reported on our plans with respect to communications with stockholders,
employees, agents and the Farm Bureaus about the merger.
At the October 31, 2000 board meeting, Fox-Pitt, Kelton orally reconfirmed
its oral opinion (which opinion was confirmed in writing on October 31, 2000)
concerning the fairness from a financial point of view of the merger
consideration to be received by our common stockholders. Our board of directors
then unanimously approved the merger agreement and the merger. The merger
agreement and related agreements were executed and delivered on October 31,
2000. Shortly after 6:00 p.m. on October 31, 2000, we issued a joint press
release with American National publicly announcing the merger.
On October 31, 2000, American National sent to each of the Farm Bureaus a
final copy of their letter regarding several Farm Bureau issues, as described
above. This letter is also described more fully under "The Merger--Interests of
Certain Persons in the Merger--Farm Bureaus."
RECOMMENDATION OF OUR BOARD OF DIRECTORS; REASONS FOR THE MERGER
Our board of directors has determined that the merger is fair to and in the
best interests of Farm Family and its stockholders and has unanimously approved
the merger agreement and declared its advisability. Our board unanimously
recommends that you vote "FOR" adoption of the merger agreement.
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<PAGE>
The offer made by American National to acquire our shares was not solicited
by our management or by our board of directors. Nonetheless, our management
believed that it had a duty to present to our board of directors, and our board
of directors believed that it had a duty to consider seriously, a firm cash
offer for our common stock at a substantial premium to our then current market
value from a well capitalized and highly rated financial institution that
appears to be a good strategic fit with us.
In deciding to approve the merger agreement, and to recommend that our
stockholders vote to adopt the merger agreement, our board considered a number
of factors, including the following:
- the financial presentation of Fox-Pitt, Kelton, including its opinion as
to the fairness, from a financial point of view, of the consideration to
be received in the merger by the holders of our common stock, and its
advice that the consideration to be received in the merger by the holders
of our preferred stock is within a reasonable range of implied value for
the preferred stock;
- the price per share of our common stock to be received in the merger
represented a 38.6% premium over the average closing sale price of our
common stock for the 30 day period ended October 27, 2000, and a 43.4%
premium over the closing sale price of our common stock on October 27,
2000;
- the current, historic and outlook for future valuation levels of our
common stock, which have been affected by, among other things, our small
capitalization, limited trading volume, institutional ownership, historic
financial performance and general market conditions;
- Farm Family's historical and projected operating results and financial
condition;
- the present and anticipated environment of Farm Family's business,
including the competitive environment for our property and casualty and
life insurance companies, and the belief that stockholder value may be
maximized by selling us to a larger, better capitalized company;
- the absence of any financing condition to American National's obligation
to close the merger, and the ability of American National to pay the
merger consideration;
- the intention of American National, currently and for the foreseeable
future, to: (1) maintain the Farm Bureau membership requirements for the
purchase of insurance from Farm Family Casualty, under certain
circumstances; (2) continue the existing Membership List Purchase
Agreements and renew these agreements for an additional two years on the
same terms; (3) establish an advisory board for Farm Family, consisting of
one member of each Farm Bureau, to maintain strong relationships with
agribusiness insurance consumers; and (4) continue to use the Farm Family
name and logo and to maintain our home office;
- the fact that Fox-Pitt, Kelton contacted 12 alternative potential
acquirers and that none of these entities indicated an interest in
pursuing a potential transaction with us; and
- the fact that certain members of our board of directors and certain of our
officers might have interests in the merger that are different from our
stockholders, including, with respect to our directors, as a result of
their current or prior affiliations with the Farm Bureaus.
Our board also took into account the fact that as a result of the merger,
our stockholders would no longer participate in any future growth and prospects
of Farm Family. However, our board believed that a sale of Farm Family under the
merger agreement would achieve greater value at this time for our stockholders
as compared with remaining a public company. Our board concluded that the
potential benefits of the merger outweighed the potential risks.
The foregoing discussion of the factors considered by our board is not
intended to be exhaustive. In view of the variety of factors considered in
connection with its evaluation of the merger, our board did not find it
practicable to and did not quantify or otherwise assign relative weights to the
factors
20
<PAGE>
considered in reaching its determination, and individual directors may have
given different weights to different factors.
OPINION OF OUR FINANCIAL ADVISOR
We retained Fox-Pitt, Kelton, Inc. to act as our financial advisor and to
render a fairness opinion in connection with the merger. At the October 30, 2000
special meeting of our board of directors, Fox-Pitt, Kelton delivered its oral
opinion to our board of directors which was reconfirmed orally by Fox-Pitt,
Kelton at the regular meeting of our board on October 31, 2000 and in writing on
October 31, 2000 and on the date of this proxy statement, to the effect that,
based upon and subject to the various considerations set forth in the opinion,
as of the date of the opinion, the consideration to be received in the merger is
fair, from a financial point of view, to the holders of our common stock.
Although Fox-Pitt, Kelton evaluated the consideration to be received by holders
of our common stock in the merger from a financial point of view, Fox-Pitt,
Kelton was not asked to and did not recommend the specific form or amount of
consideration payable in the merger, both of which were determined through
negotiations between American National and us. Our board of directors did not
impose any limitations upon Fox-Pitt, Kelton with respect to investigations made
or the procedures followed by Fox-Pitt, Kelton in rendering its opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF FOX-PITT, KELTON, WHICH SETS FORTH
THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITS ON THE REVIEW TAKEN BY
FOX-PITT, KELTON, IS ATTACHED AS ANNEX B TO THIS PROXY STATEMENT AND IS
INCORPORATED IN THIS SUMMARY BY REFERENCE. YOU ARE URGED TO READ THE OPINION
CAREFULLY AND IN ITS ENTIRETY. FOX-PITT, KELTON'S OPINION IS DIRECTED ONLY TO
THE FAIRNESS OF THE CONSIDERATION TO THE HOLDERS OF OUR COMMON STOCK FROM A
FINANCIAL POINT OF VIEW, HAS BEEN PROVIDED TO OUR BOARD IN CONNECTION WITH ITS
EVALUATION OF THE MERGER AND DOES NOT CONSTITUTE A RECOMMENDATION TO ANY OF OUR
STOCKHOLDERS AS TO HOW THEY SHOULD VOTE AT THE SPECIAL MEETING. FOX-PITT, KELTON
HAS CONSENTED TO THE INCLUSION OF ITS OPINION IN THIS PROXY STATEMENT. THE
SUMMARY OF FOX-PITT, KELTON'S OPINION SET FORTH IN THIS PROXY STATEMENT IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF THE OPINION.
In arriving at its opinion, Fox-Pitt, Kelton, among other things:
- reviewed and analyzed certain publicly available financial statements
regarding our business;
- analyzed certain internal financial statements, including financial
projections, and other financial and operating data for us prepared by our
management;
- discussed our past, present and future operations, financial condition and
our prospects with our management;
- reviewed the stock price performance and trading activity of our common
stock;
- compared our financial performance and condition with that of certain
other comparable publicly traded companies;
- reviewed the financial terms, to the extent publicly available, of certain
merger and acquisition transactions comparable, in whole or in part, to
the merger;
- reviewed the merger agreement;
- analyzed the consideration proposed to be paid by American National for
our preferred stock in exchange for interests therein; and
- performed such other analyses as it deemed appropriate.
In rendering its opinion, Fox-Pitt, Kelton assumed and relied upon, without
independent verification, the accuracy and completeness of all of the financial
and other information it reviewed for
21
<PAGE>
the purposes of providing its opinion. Fox-Pitt, Kelton did not assume any
responsibility for independent verification of this information. Fox-Pitt,
Kelton did not assume any responsibility for the independent valuation or
appraisal of our assets and liabilities nor was it furnished with any such
valuation or appraisal. With respect to financial projections, Fox-Pitt, Kelton
assumed that they were reasonably prepared by our management on bases reflecting
the best currently available estimates and judgments of our future financial
performance. Fox-Pitt, Kelton expresses no view as to these projections or the
assumptions on which they were based. Fox-Pitt, Kelton assumed that the merger
described in the merger agreement will be consummated on the terms set forth in
the merger agreement without material waiver or modification. Fox-Pitt, Kelton's
opinion is based upon economic, market and other conditions as they existed and
could be evaluated on October 27, 2000.
In connection with its opinion, Fox-Pitt, Kelton performed various financial
analyses which it presented to and discussed with our board on October 30, 2000.
The following is a summary of the material financial analyses performed by
Fox-Pitt, Kelton in connection with providing its opinion to our board of
directors. You should understand that the order of analyses and corresponding
results described does not represent relative importance or weight given to such
analyses by Fox-Pitt, Kelton. Certain of its summaries of financial analyses
include information presented in tabular format. To fully understand the
financial analyses used by Fox-Pitt, Kelton, you should read the tables together
with the text of each summary. The tables do not constitute a complete
description of the financial analyses.
COMPARABLE PUBLIC COMPANY ANALYSIS. Fox-Pitt, Kelton performed a comparable
public company analysis in which it reviewed and compared certain of our
financial, operating and stock market data with corresponding publicly available
financial, operating and stock market data of selected publicly traded property
and casualty insurance companies, or peer companies. For the purpose of its
analysis, the following companies composed the peer companies:
<TABLE>
<S> <C>
- Alfa Corporation - Merchants Group, Inc.
- Donegal Group Inc. - Selective Insurance Group, Inc.
- Harleysville Group Inc. - State Auto Financial Corporation
- Highlands Insurance Group, Inc. - United Fire & Casualty Company
- Horace Mann Educators Corporation
</TABLE>
Fox-Pitt, Kelton analyzed the relative performance and value of our company
by comparing certain publicly available financial data of our company with the
peer companies, including, among other things, the multiples, based on closing
market prices as of October 27, 2000 of each of the following:
- closing market price to 2000 and 2001 estimated earnings per share; and
- closing market price to June 30, 2000 book value.
Earnings per share estimates for the peer companies were based on median
I/B/E/S International Inc. ("IBES") estimates as of October 27, 2000. IBES is a
data service that monitors and publishes compilations of earnings estimates by
selected research analysts regarding companies of interest to institutional
investors. Earnings per share estimates for us were based on both IBES and our
management projections. The median multiples calculated by Fox-Pitt, Kelton for
the peer companies
22
<PAGE>
and the relevant multiples for us (based on the analysis of the peer company
multiples) are summarized in the following table:
<TABLE>
<CAPTION>
2000 2001
ESTIMATED ESTIMATED JUNE 30, 2000
PRICE/EARNINGS PRICE/EARNINGS PRICE/BOOK VALUE
PER SHARE PER SHARE PER SHARE
-------------- -------------- ----------------
<S> <C> <C> <C>
Farm Family......................... 9.7x 8.8x 1.0x
Peer Companies...................... 11.7x 10.4x 0.8x
</TABLE>
The implied range of values for our common stock, derived from Fox-Pitt,
Kelton's analysis of the peer companies' market price to June 30, 2000 book
value, market price to 2000 estimated earnings per share and 2001 estimated
earnings per share, ranged from $26.10 to $37.19 per share based on our
June 30, 2000 book value and 2000 and 2001 estimated earnings per share.
COMPARABLE TRANSACTION ANALYSIS. Fox-Pitt, Kelton reviewed certain publicly
available information, including the consideration paid or proposed to be paid,
for certain merger and acquisition transactions determined by Fox-Pitt, Kelton
to be comparable to the merger. These transactions had values ranging from
$40 million to $1 billion, were announced since January 31, 1998 and involved
United States property and casualty insurance companies. The comparable
transactions selected by Fox-Pitt, Kelton were the following:
<TABLE>
<CAPTION>
TARGET ACQUIROR
--------------------------------------------- ---------------------------------------------
<S> <C>
Meridian Insurance Group, Inc................ State Auto Financial Corporation
Old Guard Group, Inc......................... Ohio Farmers Insurance Company
Sen-Tech International Holdings, Inc......... Fairfax Financial Holdings Limited
Redland Insurance Company.................... Clarendon Insurance Group
PCA Property & Casualty Insurance Company.... White Mountains Insurance Group, Ltd.
Foremost Corporation of America.............. Farmers Insurance Exchange
USF Re Insurance Co.......................... Folksamerica Holding Company, Inc.
CalFarm Insurance Co......................... Nationwide Mutual Insurance Company
Worldwide Insurance Co....................... American Financial Group, Inc.
TIG Holdings, Inc............................ Fairfax Financial Holdings Limited
Intercargo Corporation....................... XL Capital Ltd.
Gryphon Holdings Inc......................... Markel Corporation
Auto Club Insurance Company.................. Commerce Group Corp.
Walshire Assurance Company................... Kingsway Financial Services, Inc.
MS Casualty Insurance........................ American Bankers Insurance Group, Inc.
Business Insurance Group..................... Superior National Insurance Group, Inc.
Farmers Union Insurance...................... Commercial Union Assurance Company, Plc
Milbank Insurance Co......................... State Auto Financial Corporation
</TABLE>
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<PAGE>
In reviewing the comparable transactions, Fox-Pitt, Kelton examined, among
other things, the multiples of the purchase price relative to common equity or
policyholders' surplus and net income on both generally accepted accounting
principles ("GAAP") and statutory accounting principles bases for the target
company in each such transaction. This analysis yielded median multiples for the
comparable transactions, which Fox-Pitt, Kelton compared to the relevant
financial data of our company to calculate an implied reference range of values.
Below is a summary of this analysis.
<TABLE>
<CAPTION>
MEDIAN MULTIPLES FOR IMPLIED VALUE PER
COMPARABLE SHARE OF FAMILY FARM
TRANSACTIONS COMMON STOCK
-------------------- --------------------
<S> <C> <C>
Ratio of transaction value to:
Acquired company's GAAP book value............... 1.1x $36.06
Acquired company's statutory surplus............. 1.5x $42.63
Acquired company's GAAP net income for last
twelve- month period prior to announcement..... 15.2x $47.61
Acquired company's statutory net income for last
completed fiscal year prior to announcement.... 15.5x $35.84
</TABLE>
The implied range of market values calculated by Fox-Pitt, Kelton for our
common stock derived from the above analysis of the comparable transactions
ranged from approximately $35.84 to $47.61 per share.
Fox-Pitt, Kelton also reviewed the financial terms of, and prices paid by
purchasers in, the following recent transactions involving publicly traded
companies in the insurance industry selected by Fox-Pitt, Kelton:
<TABLE>
<CAPTION>
TARGET ACQUIROR
----------------------------------------- -----------------------------------------
<S> <C>
Meridian Insurance Group, Inc............ State Auto Financial Corporation
Old Guard Group, Inc..................... Ohio Farmers Insurance Company
Foremost Corporation of America.......... Farmers Insurance Exchange
TIG Holdings, Inc........................ Fairfax Financial Holdings Limited
Intercargo Corporation................... XL Capital Ltd.
Gryphon Holdings Inc..................... Markel Corporation
Walshire Assurance Company............... Kingsway Financial Services, Inc.
</TABLE>
The premiums in these transactions as calculated by the transaction price
over the market price of the target's common stock ten days prior to
announcement of the transaction ranged from 8.6% to 64.0% with a median premium
of 23.8%. Fox-Pitt, Kelton determined that the $44.00 per share price offered by
American National in the merger represented a:
- 43.4% premium over the October 27, 2000 closing price of our common stock;
- 38.6% premium over the average closing price of our common stock for the
30-day period ended October 27, 2000; and
- 38.7% premium over the average closing price of our common stock for the
90-day period ended October 27, 2000.
DIVIDEND DISCOUNT ANALYSIS. Fox-Pitt, Kelton performed a dividend discount
analysis on a statutory basis to determine a range of present values per share
of our common stock. The range was determined by adding:
- the present value of the estimated future dividend stream that Farm Family
could generate between January 2000 and December 2004; and
- the present value of the terminal value of Farm Family.
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<PAGE>
Fox-Pitt, Kelton calculated the terminal value using three methodologies:
- as a multiple of statutory net income for the year 2004;
- as a multiple of statutory policyholders' surplus as of December 31, 2004;
and
- under a growth perpetuity formula (derived by dividing estimated 2005
dividends by a risk-adjusted cost of equity minus our estimated growth
rate).
To calculate these present values, Fox-Pitt, Kelton split our property and
casualty insurance business from our life insurance business and applied
different sets of assumptions and discount rates which Fox-Pitt, Kelton viewed
as consistent with trading multiples for comparable small capitalization
property and casualty and life insurance companies, to derive a range of values
under different growth and valuation scenarios identified as the Low Case, Base
Case and High Case scenarios.
The terminal values were based upon a range of price to earnings multiples
that were applied to projected net income for the year 2004 and a range of price
to book value multiples that were applied to our projected book value as of
December 31, 2004 for the three scenarios. Below are the sets of assumptions
used for each of the case scenarios.
<TABLE>
<CAPTION>
LOW CASE BASE CASE HIGH CASE
-------- --------- ---------
<S> <C> <C> <C>
Discount Rate................................ 13.5% 12.5% 11.5%
Price to earnings terminal multiple:
- Property & casualty business............. 11.0x 12.0x 13.0x
- Life business............................ 9.0x 10.0x 11.0x
Price to book terminal multiple:
- Property & casualty business............. 1.2x 1.3x 1.4x
- Life business............................ 0.9x 1.0x 1.1x
</TABLE>
Applying the foregoing multiples, discount rates, assumptions and terminal
value methodologies, Fox-Pitt, Kelton determined that the present values of our
common stock were as follows:
- Low Case: $27.73 to $33.76 per share;
- Base Case: $30.92 to $38.06 per share; and
- High Case: $34.36 to $42.70 per share.
STOCK TRADING HISTORY. Fox-Pitt, Kelton reviewed the daily stock price
performance and trading volume of our common stock during the period from our
initial public offering on July 23, 1996 through October 27, 2000. Fox-Pitt,
Kelton analyzed the $44.00 per share price offered by American National in
relation to this historic performance and compared the stock price performance
and trading volume of our common stock to movements in the Standard & Poor's 400
index and a composite of peer insurance companies for the period January 3, 2000
to October 27, 2000. The selected peer insurance companies were the following:
<TABLE>
<S> <C>
- Alfa Corporation - Merchants Group, Inc.
- Donegal Group Inc. - Selective Insurance Group, Inc.
- Harleysville Group Inc. - State Auto Financial Corporation
- Highlands Insurance Group, Inc. - United Fire & Casualty Company
- Horace Mann Educators Corporation
</TABLE>
From January 3, 2000 to October 27, 2000, the Standard & Poor's 400 index
returned -7.2%, the composite index of selected peer insurance companies
returned 9.1% and Farm Family's common stock provided a return of -23.0%. After
analyzing our performance compared to the Standard & Poor's 400 index and the
index of selected peer companies for that period, Fox-Pitt, Kelton noted that
our common stock price during this period underperformed both the index of peer
companies and the
25
<PAGE>
broader market index. Fox-Pitt, Kelton also noted that the $44.00 per share
price offered by American National exceeds our historic high stock price for the
period July 23, 1996 through October 27, 2000.
In connection with the opinion dated the date of this proxy statement,
Fox-Pitt, Kelton performed procedures to update, as necessary, certain of the
analyses described above, reviewed the assumptions on which the analyses were
based and the factors considered in connection with the analyses, and discussed
the analyses and assumptions with our management. Fox-Pitt, Kelton did not
perform any analyses in addition to those described above in updating its
opinion. Based on the foregoing analyses, Fox-Pitt, Kelton reconfirmed its
opinion as to the fairness of the consideration to be received in the merger by
the holders of our common stock.
In arriving at its opinion, Fox-Pitt, Kelton performed a variety of
financial analyses, the material portions of which are summarized above. The
summary set forth above does not purport to be a complete description of the
analyses performed by Fox-Pitt, Kelton or of Fox-Pitt, Kelton's presentations to
our board of directors. The preparation of a fairness opinion is a complex
analytical process involving various determinations as to the most appropriate
and relevant methods of financial analyses and the application of those methods
to the particular circumstances and, therefore, such opinion is not necessarily
susceptible to partial analysis or summary description. In arriving at its
opinion, Fox-Pitt, Kelton did not give any particular weight to any analysis or
factor considered by it, but rather made qualitative judgments as to the
significance and relevance of each analysis and factor. Accordingly, Fox-Pitt,
Kelton believes that its analyses must be considered as a whole and that
selecting portions of such analyses and the factors considered by it, without
considering all such analyses and factors, could create an incomplete view of
the process underlying the analyses set forth in its opinion. With regard to the
comparable public company analysis and the comparable transactions analysis
summarized above, Fox-Pitt, Kelton selected comparable public companies and
transactions on the basis of various factors; however, no public company or
transaction that Fox-Pitt Kelton used as a comparison is identical to our
company or the merger. Accordingly, an analysis of the foregoing is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the peer companies and
other factors that could affect the acquisition or public trading value of the
peer companies and comparable transactions to which our company and the merger
are being compared.
Fox-Pitt, Kelton's opinion does not address our underlying business decision
to effect the merger. In performing its analyses, Fox-Pitt, Kelton made numerous
assumptions with respect to industry performance, general business, economic,
market and financial conditions and other matters, many of which are beyond the
control of American National and us. Any estimates contained in such analyses
are not necessarily indicative of actual past or future results or values, which
may be significantly more or less than such estimates. Actual values will depend
upon various factors, including changes in interest rates, dividend rates,
market conditions, general economic conditions and other factors that generally
influence the price of securities. See the section entitled "Cautionary
Statement Regarding Forward-Looking Statements."
Fox-Pitt, Kelton is an internationally recognized investment banking firm
and we retained Fox-Pitt, Kelton based upon its experience and expertise.
Fox-Pitt, Kelton regularly engages in the valuation of securities of insurance
companies in connection with acquisitions, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for various other purposes. In the normal course of its business,
Fox-Pitt, Kelton may trade our equity securities and equity securities of
American National for its own account and for the account of customers and,
accordingly, may at any time hold a long or a short position in our securities
or securities of American National.
Pursuant to an engagement letter dated July 7, 2000, as amended, we retained
Fox-Pitt, Kelton to act as our financial advisor and to render a fairness
opinion in connection with the merger. Pursuant to the engagement letter, we
agreed to pay Fox-Pitt, Kelton $250,000 upon delivery of the fairness opinion
26
<PAGE>
and also agreed to pay Fox-Pitt, Kelton a fee of 1.0% of the aggregate
consideration paid or payable by American National upon the consummation of the
merger, which, if the merger is consummated with an approximate aggregate
consideration of $280 million, will be equal to approximately $2.80 million. The
$250,000 paid upon delivery of the fairness opinion will be credited against the
fee of 1.0% of the aggregate consideration. We have also agreed to reimburse
Fox-Pitt, Kelton for its reasonable out-of-pocket expenses, including travel,
outside legal fees and related charges. In addition, we have agreed to indemnify
Fox-Pitt, Kelton and related persons against certain liabilities, including
certain liabilities under the federal securities laws, relating to or arising
out of Fox-Pitt, Kelton's engagement.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of our board of directors, you should be
aware that certain of our directors and officers and their affiliates may be
deemed to have interests in the merger that are or may be different from, or in
addition to, your interests as stockholders. Our board of directors was aware of
these interests and considered them, among other matters, in approving the
merger agreement and recommending it for your approval.
FARM BUREAUS. Our principal operating subsidiaries, Farm Family Casualty
and Farm Family Life, were established through the efforts of certain Farm
Bureau members in the Northeast. These Farm Bureaus are affiliated with the
American Farm Bureau Federation, the nation's largest general farm organization
with over four million members, which has traditionally sought to advance the
interest of the agricultural community. Substantially all of our directors are
or were directors or executive officers of the Farm Bureaus.
Farm Family Casualty and Farm Family Life are parties to Membership List
Purchase Agreements with the Farm Bureaus in ten of the twelve states in which
we operate. Pursuant to the Membership List Purchase Agreements, the Farm
Bureaus provide us with the right to use their membership lists in connection
with the marketing of our insurance products and the financial services and
products of financial institutions and authorize us to use the Farm Bureau names
and service marks in connection with the marketing of our insurance products. In
exchange for these rights, we pay to each of the Farm Bureaus an annual fee of
$15.00 per Farm Bureau member. The Membership List Purchase Agreements terminate
on December 31, 2001. For the years ended December 31, 1999, 1998 and 1997, we
incurred expenses of $1,227,000, $660,000, and $600,000, respectively, pursuant
to the Membership List Purchase Agreements. The 1999 amount includes Farm Family
Life's expense of $526,000 for the Membership List Purchase Agreements for the
period April 6, 1999 (the date we acquired Farm Family Life) to December 31,
1999. For the year ending December 31, 2000, we will incur an expense of
$1,428,000 pursuant to the Membership List Purchase Agreements.
In general, Farm Family Casualty will not issue or renew a policy in the
voluntary market for anyone, except our employees and employees of our
affiliates, who is not a member of a state or county Farm Bureau. Annual Farm
Bureau membership fees generally range from $34 to $300, depending upon the
county and state in which the member resides and the type of membership. Annual
associate members fees for members not engaged in agricultural pursuits
generally range from $34 to $100.
In addition, we advertise our products in state and local Farm Bureau
publications, for which we pay advertising fees to the Farm Bureaus, and
participate in meetings and shows sponsored by Farm Bureau organizations. This
participation typically consists of purchasing booth space at these meetings and
shows to market our products.
New York Farm Bureau, Inc. and Farm Family Life are parties to a Lease
Agreement under which New York Farm Bureau leases office space from Farm Family
Life. New York Farm Bureau paid annual rent of approximately $113,000 under this
Lease Agreement for 1999. We lease office space from five other Farm Bureaus.
Our annual rent under these leases for 1999 was approximately $122,000, in the
aggregate.
27
<PAGE>
On October 31, 2000, American National sent each of the Farm Bureaus a
letter in which it stated that, currently and for the foreseeable future, it
intends to:
- maintain the Farm Bureau membership requirements for the purchase of
insurance from Farm Family Casualty, provided that Farm Family Casualty
can maintain its growth and profitability objectives;
- continue in effect the existing Membership List Purchase Agreements and
renew those agreements for an additional two years on the same terms;
- establish an advisory board for Farm Family, consisting of one member of
each of the state Farm Bureau organizations in New York, New Jersey,
Delaware, West Virginia and all of the New England states, in order to
maintain strong relationships with agribusiness insurance consumers; and
- use the Farm Family name and logo, and maintain Farm Family Casualty's
home office in Glenmont, New York.
The Farm Bureaus together are holders of approximately 14.5% of the
outstanding shares of our common stock and all of our preferred stock,
representing approximately 16.7% of the combined voting power of our
stockholders. Individually, certain of the Farm Bureaus are record holders of
greater than 5% of our common stock and/or preferred stock. See the section
entitled "Stock Ownership of Management and Certain Beneficial Owners."
EXECUTIVE OFFICERS AND DIRECTORS. Under the merger agreement, upon
completion of the merger, our officers immediately prior to the effective time
of the merger will remain our officers following the merger, until the earlier
of their resignation or removal or until their respective successors are
appointed and qualified. Our executive officers are Philip P. Weber, President
and Chief Executive Officer, James J. Bettini, Executive Vice President of
Operations, Timothy A. Walsh, Executive Vice President, Chief Financial Officer
and Treasurer, Victoria M. Stanton, Executive Vice President, General Counsel
and Secretary, and William T. Conine, Dale E. Wyman, Sharon T. DiLorenzo and
Richard E. Long, Senior Vice Presidents. American National has indicated to us
that it intends that Messrs. Weber and Walsh and four of our directors, Clark W.
Hinsdale III, Stephen J. George, John W. Lincoln and Edward J. Muhl, will serve
as directors of Farm Family following the merger.
TREATMENT OF STOCK OPTIONS. Upon adoption of the merger agreement by our
stockholders, all outstanding stock options that we have granted to our
directors and officers under our Omnibus Securities Plan will vest and become
exercisable. Immediately before the effective time of the merger, all
outstanding stock options, whether or not vested or exercisable, will terminate
and each holder of a terminated stock option will receive at the effective time
of the merger a cash payment equal to the number of shares subject to his or her
stock option multiplied by the excess, if any, of (1) the higher of the fair
market value per share of our common stock immediately prior to the adoption of
the merger agreement by our stockholders, or the merger consideration per share
of our common stock, which is $44.00 per share, over (2) the exercise price of
the option. Based on the number of stock options outstanding as of ,
2001 and the exercise prices of those stock options, and assuming the merger
consideration is higher than the fair market value of our common stock
immediately prior to the adoption of the merger agreement by our stockholders,
our executive officers and directors will receive in exchange for termination of
their stock options the following cash payments:
- Philip P. Weber, $2,878,305;
- James J. Bettini, $1,377,097;
- Timothy A. Walsh, $1,377,097;
- Victoria M. Stanton, $1,377,097;
- remaining executive officers, $893,765 (in the aggregate); and
- each of 22 of our 23 directors, $13,906.
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EMPLOYMENT AGREEMENTS. At American National's request in connection with
the merger, we have entered into employment agreements with four of our
executive officers: Philip P. Weber; James J. Bettini; Timothy A. Walsh; and
Victoria M. Stanton. These employment agreements will become effective at the
effective time of the merger. They provide for the annual base salaries, terms
of employment and other benefits described below.
SALARY AND TERM. The employment agreements provide for the following annual
base salaries and terms of employment:
- Philip P. Weber, $375,000 (three year term);
- James J. Bettini, $210,000 (18 month term);
- Timothy A. Walsh, $240,000 (18 month term); and
- Victoria M. Stanton, $240,000 (18 month term).
Each executive's annual base salary will be increased by no less than four
percent within one year of the effective time of the merger.
RETENTION PAYMENTS. If the executive is employed by us at the effective
time of the merger and at the end of each of the three successive six-month
periods following the effective time of the merger, the executive will be
entitled to receive retention payments. The total amount of these payments is:
- Philip P. Weber, $1,862,250;
- James J. Bettini, $639,000;
- Timothy A. Walsh, $722,000; and
- Victoria M. Stanton, $722,000.
If we terminate the executive's employment for any reason other than for
"cause," if the executive terminates his or her employment for "good reason" or
upon the executive's death or termination due to disability, each executive (or
his or her estate) will be entitled to receive all retention payments not
previously paid to him or her. The terms "cause" and "good reason" are defined
below.
BONUS. Each executive will be entitled to receive the following bonuses:
- for 2000 and for the period of 2001 prior to the merger, cash bonuses as
calculated under our Annual Incentive Plan, described below under
"--Annual Incentive Plan";
- for the periods after the effective time of the merger, the executive will
receive an annual performance-based cash bonus on a basis that is
comparable to the basis under our Annual Incentive Plan (without giving
effect to an amendment of that plan made in connection with the execution
of the merger agreement) with respect to potential payments and
performance criteria. Each employment agreement specifies a bonus range as
a percentage of the executive's annual base salary, as follows:
Mr. Weber, 30.5% to 91.5%; Messrs. Bettini and Walsh and Ms. Stanton,
22.5% to 67.5%.
If we terminate the executive's employment for any reason other than for
cause, if the executive terminates his or her employment for good reason or upon
the executive's death or termination due to disability, each executive (or his
or her estate) will be entitled to receive:
- the 2000 and prorated 2001 bonuses and any unpaid bonus for a fiscal year
ending prior to the termination of employment; and
- a bonus for the fiscal year in which the executive's employment
termination occurs based on a minimum target bonus of 61% of annual base
salary for Mr. Weber and 45% of annual base salary for Messrs. Bettini and
Walsh and Ms. Stanton, prorated for the number of days elapsed in the year
as of the date of termination.
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If we terminate the executive's employment for cause or if the executive
terminates his or her employment without good reason, the executive will be
entitled to any unpaid bonus for a fiscal year ending prior to the termination
of employment.
OTHER BENEFITS. Each executive will be entitled to:
- participate in employee benefit plans, option plans, fringe benefit
programs, and vacation and paid leave time programs at a level and cost,
if any, that is no less favorable in the aggregate than the level and cost
of the benefits to which the executive was entitled immediately prior to
October 31, 2000; and
- receive various perquisites, such as an automobile allowance and
reimbursement for spousal travel on business trips.
TERMINATION. Each employment agreement provides that if we terminate the
executive's employment for any reason other than for cause or if the executive
terminates his or her employment for good reason, the executive will be entitled
to the following payments and benefits, in addition to the payments described
above:
- with respect to Mr. Weber, a lump sum payment equal to two years of his
annual base salary conditioned upon his compliance with non-compete and
non-solicitation and related provisions described below;
- continued eligibility for health, dental, life and disability insurance
benefits for a period of up to two years for Messrs. Bettini and Walsh and
Ms. Stanton, and for a period of up to three years for Mr. Weber; and
- provision of outplacement services for a period of up to two years from
the executive's date of termination.
"Good reason" is generally defined in the employment agreements to include,
among other things, a reduction in the executive's base salary, a material
change in the executive's duties or responsibilities, a material breach by us of
certain provisions of the employment agreements, or a change of the executive's
place of employment to one that is more than 50 miles from where the executive
is currently working. "Cause" is generally defined to include, among other
things, the executive's felony conviction, willful misconduct, theft, fraud or
willful failure to substantially perform the executive's duties.
Generally, if the executive's employment terminates for any reason, the
executive will be entitled to receive annual base salary and other benefits
earned and accrued prior to the termination of employment but not yet paid.
EXCISE TAX. The employment agreements also provide for an additional
payment, if required, to make the executives whole for any excise tax imposed by
Section 4999 of the Internal Revenue Code.
NON-COMPETE. Mr. Weber's employment agreement provides that during the term
of his employment and following termination of his employment: (1) for a period
of one year, he will not compete with us; (2) for a period of three years, he
will not solicit our employees, independent contractors or agents to leave their
employment or service with us or hire our employees, independent contractors or
agents within one year of their termination of employment or service with us;
(3) for a period of two years, he will not intentionally interfere with our
relationships with any customer, client, agent representative or other agent;
and (4) he will not disclose confidential information. These provisions will be
null and void if Mr. Weber's employment terminates after the third anniversary
of the closing date of the merger.
PARTICIPATION IN OTHER PLANS. If the merger occurs, Messrs. Weber, Bettini
and Walsh and Ms. Stanton will cease to be eligible to participate in our
Officer Severance Pay Plan and Annual Incentive Plan, discussed below. Under the
employment agreements, the executives expressly waive
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their rights under the Officer Severance Pay Plan as of the effective time of
the merger and will not be entitled to receive any severance benefits under this
plan.
OFFICER SEVERANCE PAY PLAN. Our executive officers participate in our
Officer Severance Pay Plan. If the merger occurs, Philip P. Weber, James J.
Bettini, Timothy A. Walsh and Victoria M. Stanton will cease to participate in
this plan. This plan entitles our officers to severance payments and benefits if
we terminate the officer's employment for any reason other than for "cause" (as
defined in the plan), due to elimination of the officer's position or due to a
change in control or the officer terminates his or her employment for "good
reason" (as defined in the plan) after a change in control, or in the case of
our Chief Executive Officer or an Executive Vice President, within 30 days
following the first anniversary of a change in control. Adoption of the merger
agreement by our stockholders will constitute a change in control under this
plan.
Severance benefits provided under the plan for executive officers, as
amended in connection with the execution of the merger agreement, include the
following:
- a payment equal to the greater of: (1) one week's salary, including target
bonus and fringe benefits, for each year of service; (2) in the case of a
termination due to elimination of the officer's position which occurs
during the period beginning on October 31, 2000, and ending on the third
anniversary of the merger, the greater of (a) two weeks' base salary for
each year of service up to a maximum of 12 months base salary, or
(b) four weeks' base salary; or (3) a payment equal to between 12 months'
and 36 months' salary, depending on the officer's position, including
target bonus and fringe benefits;
- continued eligibility for a period of between 12 months and 36 months,
depending on the officer's position, of the officer's medical, dental,
group term life and disability insurance coverages; and
- provision of outplacement services for a period of up to two years from
the officer's effective date of termination.
The plan also provides for an additional payment, if required, to make the
officers whole for any excise tax imposed by Section 4999 of the Internal
Revenue Code.
ANNUAL INCENTIVE PLAN. Our executive officers participate in our Annual
Incentive Plan. At the effective time of the merger, Philip P. Weber, James J.
Bettini, Timothy A. Walsh and Victoria M. Stanton will cease to participate in
this plan. This plan entitles our officers and certain of our key employees to
annual bonuses based upon the participant's attainment of certain performance
goals established by us in relation to our strategic plans and budget. Upon a
change in control of Farm Family, the plan provides that participants will be
entitled to receive a minimum bonus amount for the year in which the change of
control occurs. Adoption of the merger agreement by our stockholders constitutes
a change in control under the plan.
At the time we entered into the merger agreement, we amended our Annual
Incentive Plan to provide minimum bonus amounts for 2000 and for the period of
2001 prior to the merger for each executive officer covered by this plan. We
will pay these bonuses not later than the closing date of the merger.
For 2000, and for the period of 2001 prior to the merger, assuming a
March 15, 2001 closing date for the merger, the minimum bonuses payable to our
executive officers are as follows:
<TABLE>
<CAPTION>
2000 2001 (PRORATED)
---- ---------------
<S> <C> <C>
- Philip P. Weber.................. $228,750 $48,232
- James J. Bettini................. $ 94,500 19,925
- Timothy A. Walsh................. $108,000 22,772
- Victoria M. Stanton.............. $108,000 22,772
- Remaining executive officers..... $ 34,000 to 61,000 (each) $ 7,307 to 12,367 (each)
</TABLE>
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OFFICERS' DEFERRED COMPENSATION PLAN AND DIRECTORS' DEFERRED COMPENSATION
PLAN. Our executive officers are eligible to participate in our Officers'
Deferred Compensation Plan and our directors are eligible to participate in our
Directors' Deferred Compensation Plan. These plans permit our executive officers
and directors to defer all or a portion of their compensation or fees received
until termination of their employment as an officer or service as a director.
Adoption of the merger agreement by our stockholders will constitute a change in
control of Farm Family under these plans. Upon a change in control, each
participant in these plans will receive a distribution of his or her entire
accrued benefit, consisting of amounts deferred by the participant into these
plans plus earnings, as soon as practicable following the date of the change in
control.
INDEMNIFICATION AND INSURANCE. The merger agreement requires us to
indemnify and hold harmless our current and former officers, directors and
employees for any matter existing or any act or omission occurring at or prior
to the effective time of the merger, to the same extent such indemnification is
available to these persons from us immediately prior to the merger. The merger
agreement further provides that for a period of at least six years after the
effective time of the merger, American National will, subject to limitations on
the maximum annual premium, cause our current directors' and officers' liability
insurance policy to be maintained or, with American National's consent, we may
purchase at or prior to the merger a run-off policy, in either case, providing
coverage for matters existing or acts or omissions occurring at or prior to the
effective time of the merger for all of our current and former officers,
directors and employees. In lieu of maintaining our current insurance policy,
American National may provide no less favorable coverage for each of these
persons under American National's policy or under a separate policy issued by
their insurer. The persons benefiting from the insurance provisions include all
of our current directors and executive officers. See the section entitled "The
Merger Agreement--Indemnification; Directors' and Officers' Insurance."
CONTINUED COMPENSATION AND BENEFITS. The merger agreement provides that for
a period of 12 months following the effective time of the merger, all of our
employees who continue to be employed after the merger will receive compensation
and employee benefits that are no less favorable in the aggregate than those
provided to these employees immediately prior to the closing of the merger.
American National and Farm Family have agreed in the merger agreement to
continue the Officer Severance Pay Plan in accordance with its terms for our
officers who are covered by the plan on the date of the merger agreement,
excluding Messrs. Weber, Bettini, Walsh and Ms. Stanton. For a description of
the parties' agreement on these matters, see "The Merger Agreement--Employee
Benefit Matters."
REGULATORY APPROVALS
HART-SCOTT-RODINO ACT. Under the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, and its accompanying rules, certain transactions may not be
completed until information and materials required under the Hart-Scott-Rodino
Act are furnished to the Antitrust Division of the Department of Justice and the
Federal Trade Commission and specified waiting periods expire or terminate. The
merger is subject to these requirements.
It is a condition to the parties' respective obligations to complete the
merger that each file the requisite application and notice under the
Hart-Scott-Rodino Act and that the specified waiting period requirements have
been satisfied. On November 29, 2000, American National and we filed a
notification and report form required under the Hart-Scott-Rodino Act with the
Antitrust Division of the Department of Justice and the Federal Trade
Commission, and requested an early termination of the required waiting period.
On December 8, 2000, early termination of the waiting period was granted.
However, at any time before or after completion of the merger, the Antitrust
Division of the Department of Justice, the Federal Trade Commission or any state
could take action under the antitrust laws with respect to the merger, including
seeking to enjoin completion of the merger, to
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rescind the merger or to require either American National or us to divest
particular assets. Private parties also may seek to take legal action under the
antitrust laws under certain circumstances.
STATE INSURANCE REGULATORY APPROVALS. Completion of the merger is subject
to the approval of the New York Insurance Department, the domiciliary insurance
regulatory authority of our insurance company subsidiaries, and the Texas
Department of Insurance, the domiciliary insurance regulatory authority of
American National. In connection with this approval process, American National
has informed us that it has filed an application for approval of the merger with
the New York Insurance Department and that it has applied for the required
approval of the Texas Department of Insurance to permit American National and a
subsidiary of American National to provide American National Acquisition Company
with funds necessary to pay the merger consideration.
In addition, American National will make notice filings as required in other
jurisdictions in which our insurance company subsidiaries do business. These
filings relate to the competitive impact of the proposed merger on the insurance
markets in those jurisdictions. These filings generally are reviewed within 30
to 60 days after filing with the applicable state insurance department, which
may request additional information on the competitive impact of the proposed
merger. Approval of the merger is not required in these states, but the
insurance regulators could determine to take action to prevent or impose
conditions on the merger.
OTHER APPROVALS. Farm Family Financial Services, Inc., our wholly owned
subsidiary, is registered as a broker-dealer under the Securities Exchange Act
of 1934 and is a member of, and subject to, regulation by the National
Association of Securities Dealers, Inc. Farm Family Financial Services is also
registered as a broker-dealer under the applicable laws of several states.
Completion of the merger is subject to providing notice to and/or obtaining
approval of the change of control of Farm Family Financial Services from the
National Association of Securities Dealers and certain of the states in which
Farm Family Financial Services is registered as a broker-dealer, and we expect
these notices will be filed and these approvals will be sought shortly.
Other than the approvals discussed above, we are not aware of any federal,
state or foreign regulatory requirements that must be complied with or approval
that must be obtained in connection with the merger other than the filing with
the SEC of this proxy statement and compliance with applicable state securities
laws and regulations. Should any such approval be required, it is currently
contemplated that such approval will be sought.
There can be no assurances that the required regulatory approvals described
above will be received or, if received, of the timing and terms and conditions
thereof.
FINANCING FOR THE MERGER
We have been advised by American National that its financing plan for the
merger involves capitalizing American National Acquisition Company with
$480 million in cash and other assets, of which approximately $280 million in
cash will be used to pay the aggregate merger consideration. To implement this
plan, American National will contribute bonds having a market value of
$225 million to American National Acquisition Company in exchange for
approximately 47% of the common stock of American National Acquisition Company.
In addition, Comprehensive Investment Services, Inc., a wholly owned subsidiary
of American National, will contribute $80 million of cash and $175 million of
Comprehensive Investment Services notes to American National Acquisition Company
in exchange for approximately 53% of the common stock of American National
Acquisition Company. American National Acquisition Company will obtain an
additional $200 million through bank financing. The bank financing will be
secured by the bonds contributed by American National, $25 million of the notes
contributed by Comprehensive Investment Services and a pledge of the common
stock of our subsidiaries.
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American National's obligation to proceed with the merger is not conditioned
upon American National or American National Acquisition Company obtaining
financing as described above. American National has represented to us in the
merger agreement that it has sufficient funds available to pay the aggregate
merger consideration and all fees and expenses related to the merger.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion summarizes the material United States federal
income tax consequences of the merger. This discussion does not address
consequences of the merger under state, local or foreign law, nor does the
discussion address all aspects of United States federal income taxation that may
be relevant to you in light of your particular circumstances. You should consult
your own tax advisor about the specific tax consequences to you of the proposed
merger, including the application and effect of state, local, foreign and other
tax laws, changes in tax laws and tax return reporting requirements. Special tax
consequences not described in this proxy statement may apply to a particular
class of taxpayers, such as financial institutions, insurance companies,
broker-dealers, individuals and entities who are not citizens or residents of
the United States, tax-exempt entities, persons holding our common stock as part
of an integrated investment composed of our common stock and one or more other
positions and stockholders who acquired our common stock through the exercise of
an employee stock option or otherwise as compensation.
This discussion is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), applicable Treasury Department regulations, judicial authority and
current administrative ruling and practice, all as in effect as of the date of
this proxy statement. Future legislative, judicial or administrative changes or
interpretations could change the statements and conclusions below, and any
changes or interpretations could have retroactive effect and could affect the
United States federal income tax consequences to you. The following discussion
does not address the tax consequences of any transaction other than the merger.
The receipt of cash in exchange for shares of our common stock or preferred
stock will be a taxable transaction for United States federal income tax
purposes under the Code, and also may be a taxable transaction under applicable
state, local, foreign and other tax laws. Generally, for United States federal
income tax purposes, you will recognize gain or loss in an amount equal to the
difference between the sum of the cash that you receive in the merger and your
adjusted tax basis in the shares of our common stock or preferred stock you
surrender in the merger. For United States federal income tax purposes, any gain
or loss will be capital gain or loss to you if the Farm Family common stock or
preferred stock you surrender was a capital asset and will be long-term capital
gain or loss if you held the shares of our common or preferred stock for more
than one year. Long-term capital gain of individuals will be subject to United
States federal income tax at a maximum rate of 20%. Long-term capital gains of
corporations are taxed like ordinary income up to a maximum rate of 35%.
Amounts received attributable to accrued and unpaid dividends on the
preferred stock will be taxable as ordinary income and will not be taken into
account in determining gain or loss on the preferred stock. In the case of
corporations owning less than 20% of the stock (by vote and value) of Farm
Family, the 70% dividends received deductions will be available.
Payments to you in connection with the merger may be subject to 31% "backup
withholding" unless you provide on your letter of transmittal your taxpayer
identification number or social security number and certify that the number is
correct or properly certify that you have applied for and are awaiting a number.
Certain holders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and certain other
reporting requirements. If backup withholding applies, American National is
required to withhold 31% of any payments made in the merger. Backup withholding
is not an additional tax, but rather it is an advance tax payment that is
subject to refund if it results in an overpayment of tax. Penalties apply for
failure to furnish correct information and for failure to include reportable
payments in income.
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TAX MATTERS ARE VERY COMPLICATED, AND THE TAX CONSEQUENCES OF THE MERGER TO
YOU WILL DEPEND ON YOUR PARTICULAR FACTS AND CIRCUMSTANCES. WE URGE YOU TO
CONSULT YOUR OWN TAX ADVISOR WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OF
THE MERGER, INCLUDING TAX RETURN REPORTING REQUIREMENTS, THE APPLICABILITY OF
FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS AND THE EFFECT OF ANY PROPOSED CHANGE
IN THE TAX LAWS.
ACCOUNTING TREATMENT
For United States accounting purposes, the merger will be accounted for
under the purchase method of accounting under which the total consideration paid
in the merger will be allocated among our assets and liabilities based on the
fair values of the assets acquired and liabilities assumed.
CERTAIN EFFECTS OF THE MERGER
Our common stock is traded on the New York Stock Exchange under the symbol
"FFH". As a result of the merger, our stockholders will not have an opportunity
to continue their equity interest in Farm Family as an ongoing corporation and
therefore will not share in our future earnings and potential growth. Upon
consummation of the merger, our common stock will be delisted from the New York
Stock Exchange and deregistered under the Securities Exchange Act of 1934.
Following the merger, you will be instructed to exchange your outstanding stock
certificates for the merger consideration. See the section entitled "The Merger
Agreement--Procedures for Exchange of Stock Certificates."
OPERATIONS AFTER THE MERGER
American National has informed us that it intends to maintain the operations
of Farm Family as a subsidiary of American National. The directors of American
National Acquisition Company immediately prior to the effective time of the
merger will be the initial directors of Farm Family following the merger, and
our officers immediately prior to the effective time of the merger will be the
initial officers of Farm Family following the merger, in each case, until the
earlier of their resignation or removal or until their respective successors are
duly elected or appointed and qualified. American National has indicated to us
that it intends that Philip P. Weber, President and Chief Executive Officer, and
Timothy A. Walsh, Executive Vice President, Chief Financial Officer and
Treasurer, and four of our directors, Clark W. Hinsdale III, Stephen J. George,
John W. Lincoln and Edward J. Muhl, will serve as directors of Farm Family
following the merger.
AMENDMENT OF RIGHTS AGREEMENT
On July 29, 1997, our board of directors declared a dividend of one
preferred share purchase right (a "Right") for each outstanding share of our
common stock. The dividend was payable on July 29, 1997 to stockholders of
record on that date. The description and terms of the Rights are set forth in a
Rights Agreement, dated as of July 29, 1997, between us and The Bank of New
York, as rights agent, which we sometimes refer to as the "Rights Agreement".
When exercisable, each Right entitles the registered holder to purchase from us
one one-hundredth of a share of our Junior Participating Cumulative Preferred
Stock at an initial purchase price of $90, subject to customary antidilution
adjustments.
Generally, the Rights become exercisable only if a person or group acquires
20% or more of our common stock or announces the commencement of, or an
intention to make, a tender offer or exchange offer that may result in any
person or group becoming the owner of 20% or more of our common stock.
We entered into the Amendment of Rights Agreement, dated October 31, 2000,
to amend the Rights Agreement to provide, among other things, that the Rights
would not become exercisable as a result of the execution of the merger
agreement or the completion of the merger.
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A copy of the Rights Agreement was filed with the Securities and Exchange
Commission as an Exhibit to our Current Report on Form 8-K filed on July 30,
1997. A corrected copy of the Rights Agreement was filed with the SEC as an
Exhibit to our Current Report on Form 8-K/A filed on June 14, 1999. A copy of
the Amendment of Rights Agreement was filed with the SEC as an Exhibit to our
Amended Registration Statement on Form 8-A/A filed on November 3, 2000. You can
obtain a copy of the Rights Agreement and the Amendment of Rights Agreement free
of charge from us. This summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights Agreement
and the Amendment of Rights Agreement, which are hereby incorporated by
reference.
APPRAISAL RIGHTS
Under Section 262 of the Delaware General Corporation Law, if you do not
vote your outstanding shares of our common stock or preferred stock in favor of
adoption of the merger agreement, you will be entitled to dissent and elect to
have the "fair value" of your shares of our common stock or preferred stock,
exclusive of any element of value arising from the accomplishment or expectation
of the merger, together with a fair rate of interest, if any, judicially
determined by the Delaware Court of Chancery and paid to you in cash.
The following discussion is not a complete statement of the law pertaining
to appraisal rights under the Delaware General Corporation Law, and is qualified
in its entirety by the full text of Section 262, a copy of which is provided as
Annex C to this proxy statement. All references in Section 262 and in this
summary to a "stockholder" are to the record holder of the shares of our common
stock or preferred stock as to which appraisal rights are asserted. If you have
a beneficial interest in shares of our common stock or preferred stock held of
record in the name of another person, such as a broker or nominee, you must act
promptly to cause the record holder to follow the steps summarized below
properly and in a timely manner to perfect your appraisal rights.
Under Section 262, where a merger agreement is to be submitted for adoption
at a meeting of stockholders, as in the case of the special meeting described in
this proxy statement, the corporation, not less than 20 days prior to the
meeting, must notify each of its stockholders entitled to appraisal rights that
appraisal rights are available and include in that notice a copy of
Section 262. This proxy statement is that notice to you, and a copy of the
applicable statutory provisions of the Delaware General Corporation Law is
attached to this proxy statement as Annex C. If you wish to exercise your
appraisal rights or wish to preserve the right to do so, you should review
carefully Section 262 and seek advice of legal counsel, since failure to comply
fully with the procedures specified in Section 262 will result in the loss of
appraisal rights.
If you wish to exercise the right to dissent from the merger and demand
appraisal under Section 262, you must satisfy each of the following conditions:
- you must deliver to us a written demand for appraisal of your shares of
our common stock or preferred stock before the vote on adoption of the
merger agreement at the special meeting, which demand will be sufficient
if it reasonably informs us of your identity and that you intend to demand
the appraisal of your shares;
- you must not vote in favor of adoption of the merger agreement; a proxy
that does not contain voting instructions will, unless revoked, be voted
in favor of the merger agreement, therefore, if you vote by proxy and wish
to exercise appraisal rights, you must vote against adoption of the merger
agreement or abstain from voting on adoption of the merger agreement; and
- you must continuously hold your shares from the date of making your
written demand through the effective time of the merger. If you are the
record holder of shares of our common stock or preferred stock on the date
the written demand for appraisal is made but thereafter transfer
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these shares prior to the effective time of the merger, you will lose any
right to appraisal in respect of these shares.
Neither voting in person or by proxy against, abstaining from voting on or
failing to vote on the proposal to adopt the merger agreement will constitute a
written demand for appraisal within the meaning of Section 262. The written
demand for appraisal must be in addition to and separate from any such proxy or
vote.
Only a holder of record of shares of our common stock or preferred stock
issued and outstanding immediately prior to the effective time of the merger is
entitled to assert appraisal rights for the shares of our common stock or
preferred stock registered in that holder's name. A demand for appraisal should
be executed by or on behalf of the stockholder of record, fully and correctly,
as that stockholder's name appears on the stock certificates, and should specify
the stockholder's name and mailing address, the number of shares of our common
stock or preferred stock owned and that the stockholder intends thereby to
demand appraisal of the stockholder's shares of our common stock or preferred
stock.
If your shares of our common stock or preferred stock are owned of record in
a fiduciary capacity, such as by a trustee, guardian or custodian, execution of
a written demand should be made in that capacity. If your shares of our common
stock or preferred stock are owned of record by more than one person as in a
joint tenancy or tenancy in common, the demand should be executed by or on
behalf of all owners. An authorized agent, including one or more joint owners,
may execute a demand for appraisal on behalf of a stockholder; however, the
agent must identify the record owner or owners and expressly disclose the fact
that, in executing the demand, the agent is acting as agent for the owner or
owners.
A record holder such as a broker who holds shares of our common stock or
preferred stock as nominee for several beneficial owners may exercise appraisal
rights with respect to the shares of our common stock or preferred stock held
for one or more beneficial owners while not exercising those rights with respect
to the shares of our common stock or preferred stock held for one or more other
beneficial owners; in that case, the written demand should set forth the number
of shares of our common stock or preferred stock as to which appraisal is
sought, and where no number of shares is expressly mentioned, the demand will be
presumed to cover all shares of our common stock or preferred stock held in the
name of the record owner. If you hold your shares of our common stock or
preferred stock in brokerage accounts or other nominee forms and wish to
exercise appraisal rights, you are urged to consult with your broker to
determine the appropriate procedures for the making of a demand for appraisal by
the nominee.
A stockholder who elects to exercise appraisal rights under Section 262
should mail or deliver a written demand to: Farm Family Holdings, Inc.,
Attention: Corporate Secretary, P.O. Box 656, Albany, New York 12201-0656, if
sent by mail, or 344 Route 9W, Glenmont, New York 12077, if sent by hand,
express mail or overnight courier.
Within ten days after the effective time of the merger, we, as the surviving
corporation in the merger, are required to send a notice as to the effectiveness
of the merger to each of our former stockholders who has made a written demand
for appraisal in accordance with Section 262 and who has not voted in favor of
adoption of the merger agreement.
Within 120 days after the effective time of the merger, but not thereafter,
either we or any holder of dissenting shares of our common stock or preferred
stock who has complied with the requirements of Section 262 may file a petition
in the Delaware Court of Chancery demanding a determination of the value of all
shares of our common stock or preferred stock held by dissenting stockholders.
We are under no obligation to and have no present intent to file a petition for
appraisal, and you should not assume that we will file a petition or that we
will initiate any negotiations with respect to the fair value of the shares.
Accordingly, if you desire to have your shares appraised, you should initiate
any petitions
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necessary for the perfection of your appraisal rights within the time periods
and in the manner prescribed in Section 262.
Under the merger agreement, we have agreed to give American National prompt
notice of any demands for appraisal received by us and the opportunity to direct
all negotiations and proceedings with respect to demands for appraisal under the
Delaware General Corporation Law. We may not, without the prior written consent
of American National, voluntarily make any payment with respect to any demands
for appraisal or offer to settle or settle any such demands.
Within 120 days after the effective time of the merger, any stockholder who
has complied with the provisions of Section 262 to that point in time will be
entitled to receive from us, upon written request, a statement setting forth the
aggregate number of shares of our common stock and preferred stock not voted in
favor of adoption of the merger agreement and with respect to which demands for
appraisal have been received and the aggregate number of holders of the shares.
We must mail this statement to the stockholder within 10 days after receipt of
the request or within 10 days after expiration of the period for delivery of
demands for appraisals under Section 262, whichever is later.
A stockholder timely filing a petition for appraisal with the Delaware Court
of Chancery must deliver a copy to us, and we will then be obligated within
20 days to provide the Delaware Court of Chancery with a duly verified list
containing the names and addresses of all stockholders who have demanded
appraisal of their shares of our common stock or preferred stock. After notice
to the stockholders, the Delaware Court of Chancery is empowered to conduct a
hearing on the petition to determine which stockholders are entitled to
appraisal rights. The Delaware Court of Chancery may require stockholders who
have demanded an appraisal for their shares and who hold stock represented by
certificates to submit their certificates to the Register in Chancery for
notation thereon of the pendency of the appraisal proceedings, and if any
stockholder fails to comply with the requirement, the Delaware Court of Chancery
may dismiss the proceedings as to that stockholder.
After determining the stockholders entitled to an appraisal, the Delaware
Court of Chancery will appraise the "fair value" of their shares, exclusive of
any element of value arising from the accomplishment or expectation of the
merger, together with a fair rate of interest, if any, to be paid upon the
amount determined to be the fair value. In determining fair value and, if
applicable, a fair rate of interest, the Delaware Court of Chancery is to take
into account all relevant factors.
IF YOU CONSIDER SEEKING APPRAISAL, YOU SHOULD BE AWARE THAT THE FAIR VALUE
OF YOUR SHARES OF COMMON STOCK OR PREFERRED STOCK AS DETERMINED UNDER
SECTION 262 COULD BE GREATER THAN, THE SAME AS, OR LESS THAN THE MERGER
CONSIDERATION YOU WOULD RECEIVE UNDER THE MERGER AGREEMENT IF YOU DID NOT SEEK
APPRAISAL OF YOUR SHARES. YOU SHOULD ALSO BE AWARE THAT THE FOX-PITT,
KELTON, INC. FAIRNESS OPINION IS NOT AN OPINION AS TO FAIR VALUE UNDER SECTION
262.
The costs of the action may be determined by the Delaware Court of Chancery
and taxed upon the parties as the Delaware Court of Chancery deems equitable.
Upon application of a holder of dissenting shares of our common stock or
preferred stock, the Delaware Court of Chancery may also order that all or a
portion of the expenses incurred by any stockholder in connection with the
appraisal proceeding, including reasonable attorneys' fees and the fees and
expenses of experts, be charged pro rata against the value of all of the shares
entitled to appraisal.
Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the effective time of the merger, be entitled to
vote the shares of our common stock or preferred stock subject to that demand
for any purpose or to receive payment of dividends or other distributions on
those shares (except dividends or other distributions payable to holders of
record of those shares as of a record date prior to the effective time of the
merger).
If any stockholder who demands appraisal of shares of our common stock or
preferred stock under Section 262 fails to perfect, or effectively withdraws or
loses, the right to appraisal, the stockholder's shares of our common stock or
preferred stock will be converted into the right to receive the merger
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consideration in accordance with the merger agreement, without interest. A
stockholder will fail to perfect, or effectively lose or withdraw, the right to
appraisal if no petition for appraisal is filed within 120 calendar days after
the effective time of the merger. A stockholder may withdraw a demand for
appraisal by delivering to us a written withdrawal of the demand for appraisal
and acceptance of the merger consideration, except that any such attempt to
withdraw made more than 60 calendar days after the effective time of the merger
will require our written approval. Once a petition for appraisal has been filed,
the appraisal proceeding may not be dismissed as to any stockholder, absent
approval of the Delaware Court of Chancery.
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THE MERGER AGREEMENT
THE FOLLOWING IS A BRIEF SUMMARY OF THE MATERIAL PROVISIONS OF THE MERGER
AGREEMENT, A COPY OF WHICH IS ATTACHED AS ANNEX A TO THIS PROXY STATEMENT AND IS
INCORPORATED IN THIS DOCUMENT BY REFERENCE. THE SUMMARY IS NOT COMPLETE AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MERGER AGREEMENT. WE URGE YOU TO
READ THE MERGER AGREEMENT ANNEXED TO THIS PROXY STATEMENT IN ITS ENTIRETY FOR A
MORE COMPLETE DESCRIPTION OF THE TERMS AND CONDITIONS OF THE MERGER AND RELATED
MATTERS.
THE MERGER
The merger agreement provides that American National Acquisition Company
will be merged with and into Farm Family. At the effective time of the merger,
the separate corporate existence of American National Acquisition Company will
cease and Farm Family will continue as the surviving corporation and will become
a subsidiary of American National.
EFFECTIVE TIME OF THE MERGER
The merger will become effective upon the filing of a certificate of merger
with the Secretary of State of the State of Delaware or at a later time as
agreed to by us and American National and specified in the certificate of
merger. The closing of the merger will take place on the date that is the fifth
business day after certain conditions contained in the merger agreement,
including adoption of the merger agreement by our stockholders and receipt of
all approvals required to be obtained from governmental authorities, have been
fulfilled or waived or on another date agreed upon by us and American National.
CONSIDERATION TO BE RECEIVED IN THE MERGER
At the time of the merger, each share of our common stock issued and
outstanding immediately prior to the effective time of the merger (including the
associated Right issued pursuant to the Rights Agreement) will convert into the
right to receive $44.00 in cash, and each share of our preferred stock issued
and outstanding immediately prior to the effective time of the merger will
convert into the right to receive $35.72 (plus accrued and unpaid dividends
thereon to the closing date of the merger) in cash, without interest, except
that shares of our common stock and preferred stock (1) owned by us, American
National or by any of our respective subsidiaries will be canceled without
consideration, and (2) held by stockholders who have perfected their appraisal
rights will be subject to appraisal in accordance with Delaware law.
TREATMENT OF STOCK OPTIONS
Upon adoption of the merger agreement by our stockholders, all outstanding
options to purchase our common stock granted pursuant to our Omnibus Securities
Plan will vest and become exercisable. Immediately before the effective time of
the merger, each outstanding stock option, whether or not vested or exercisable,
will terminate and each holder of a terminated stock option will receive from us
at the effective time of the merger a cash payment equal to the number of shares
subject to his or her stock option multiplied by the excess, if any, of (1) the
higher of the fair market value per share of our common stock immediately prior
to the adoption of the merger agreement by our stockholders, or the merger
consideration per share of our common stock, which is $44.00 per share, over
(2) the exercise price of the option, less any required withholding taxes.
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PROCEDURES FOR EXCHANGE OF STOCK CERTIFICATES
On the closing date of the merger, American National will deposit with a
paying agent, for the benefit of holders of common stock and preferred stock,
cash sufficient to pay the aggregate merger consideration. As soon as
practicable after the effective time of the merger, the paying agent will mail
to each record holder of our common stock or preferred stock a letter of
transmittal and instructions for use in effecting the surrender of share
certificates for payment of the merger consideration. YOU SHOULD NOT SEND IN
YOUR STOCK CERTIFICATES UNTIL YOU RECEIVE THE INSTRUCTIONS AND A FORM OF LETTER
OF TRANSMITTAL FROM THE PAYING AGENT.
Holders of certificates who surrender their certificates to the paying
agent, together with a properly completed and executed letter of transmittal,
will be entitled to receive the merger consideration with respect to the shares
represented by the certificate. The surrendered certificates will be cancelled.
If the merger consideration is to be paid to a person other than the registered
holder of the shares of our stock, the certificate surrendered must be properly
endorsed or in proper form for transfer and any transfer or similar taxes must
be paid by the person requesting the transfer or that person must establish to
our satisfaction that such tax has been paid or is not applicable. No interest
will be paid or will accrue on the merger consideration payable to the holders
of our common stock or preferred stock. Any payment of the merger consideration
will be reduced by the amount of any taxes required to be deducted and withheld
with respect to such consideration under the Internal Revenue Code or any
provision of state, local or foreign tax law. Any amounts withheld will be
treated as having been paid to the holder of the shares of our common stock or
preferred stock.
After the effective time of the merger, there will be no further transfers
of shares of our common stock or preferred stock on our stock transfer books.
At any time following six months after the effective time, we may require
the paying agent to deliver to us any funds, including any interest or income
received with respect to those funds, which the paying agent has not disbursed.
Thereafter, holders of certificates representing shares of our common stock or
preferred stock immediately prior to the effective time of the merger, will be
entitled to look only to us, as the surviving company in the merger (subject to
abandoned property, escheat and other similar laws), for payment of the merger
consideration.
If your certificate has been lost, stolen or destroyed, you will be entitled
to obtain payment only by signing an affidavit of that fact and, if required by
us, posting a bond in a reasonable amount as directed by us as indemnity against
any claim with respect to your certificate.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains representations and warranties made by us
relating to, among other things:
- our corporate organization, good standing, corporate power and authority
and qualifications;
- our capital structure;
- ownership of the capital stock of our subsidiaries free and clear of all
pledges, claims, liens and encumbrances;
- the authorization, execution, delivery and enforceability of, and required
consents, approvals and authorizations relating to, the merger agreement
and the transactions contemplated by the merger agreement;
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- the accuracy of the information contained in our reports and financial
statements filed with the SEC, and of the information contained in the
annual statements of our insurance company subsidiaries filed with
insurance regulatory authorities;
- information supplied by us in this proxy statement;
- the absence of certain changes or events in our business since the date of
our most recent audited financial statements included in documents filed
with the SEC;
- our employee benefit plans and collective bargaining agreements and
employment, severance, termination and indemnification agreements;
- our tax returns and other tax matters;
- our compliance with laws and permits;
- litigation;
- the absence of undisclosed liabilities;
- Fox-Pitt, Kelton's fairness opinion;
- our stockholder vote required to adopt the merger agreement;
- the Rights Agreement and compliance with state anti-takeover laws;
- broker's and finder's fees;
- our material contracts;
- insurance contracts issued and premium rates charged by our insurance
company subsidiaries, reinsurance arrangements, actuarial reports and
claims-paying ability rating from A.M. Best Company, Inc.;
- insurance matters, insurance reserves and assessments by insurance
guaranty associations;
- the absence of any reason to believe that regulatory approvals required to
complete the merger would be withheld; and
- intellectual property.
In addition, the merger agreement contains representations and warranties
made by American National and American National Acquisition Company relating to,
among other things:
- their corporate organization, good standing, corporate power and authority
and qualifications;
- the capitalization of American National Acquisition Company;
- the authorization, execution, delivery and enforceability of, and required
consents, approvals and authorization relating to the merger agreement and
the transactions contemplated by the merger agreement;
- information supplied by American National and American National
Acquisition Company in connection with this proxy statement;
- availability of sufficient funds to pay the merger consideration and all
fees related to the transactions under the merger agreement;
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- the absence of any reason to believe that regulatory approvals required to
complete the merger would be withheld;
- broker's and finder's fees;
- the absence of share ownership in us; and
- lack of business activities of American National Acquisition Company.
CONDUCT OF BUSINESS PENDING THE MERGER
Under the merger agreement, we have agreed that before completion of the
merger, we will carry on business only in the ordinary course consistent with
past practice and use commercially reasonable efforts to preserve intact our
current business organization and relationships with our officers, employees,
agents, insureds and reinsureds and others having business dealings with us.
In addition to these agreements regarding the conduct of our business
generally, we have agreed that, until the closing of the merger, we will not
(with certain exceptions), without American National's prior consent:
- declare, set aside or pay dividends on, or make other distributions in
respect of, our capital stock, other than regular quarterly cash dividends
on our preferred stock;
- split, combine or reclassify any of our capital stock or issue or
authorize the issuance of securities in respect of or in substitution for
our capital stock;
- engage in a recapitalization, merger, issuer tender or exchange offer or
other similar transaction;
- purchase, redeem or otherwise acquire any shares of our capital stock or
rights with respect thereto, except for repurchases of shares or options
pursuant to the terms of outstanding stock options and shares tendered for
tax withholding under our Omnibus Securities Plan;
- other than Rights issued pursuant to the Rights Agreement, issue, sell,
grant, pledge or encumber any shares of our capital stock or other
securities or rights with respect thereto other than pursuant to the
exercise of stock options outstanding on the date of the merger agreement;
- amend our certificate of incorporation or by-laws;
- except for acquisitions of investment assets in the ordinary course of
business consistent with past practice, acquire (1) an equity interest in
any corporation, partnership or other entity or division or (2) any other
asset (other than capital expenditures) that has a purchase price in
excess of $500,000, with an aggregate limit of $2 million;
- sell, lease, mortgage, encumber or subject to any lien (other than
permitted liens) or dispose of any of our properties or assets for an
amount in excess of $1 million, except in the ordinary course of business
consistent with past practice (including sales of investment assets);
- (1) incur, assume or guarantee any indebtedness, except in the ordinary
course of business consistent with past practice, or (2) make any loans,
advances or capital contributions to, or investments in, any person, other
than to any of our subsidiaries and customary loans and advances to
employees, and other than as to such matters related to our and our
subsidiaries' investment portfolios in the ordinary course of business
consistent with past practice;
- make any tax election or settle or compromise any liability for taxes that
would be reasonably expected to have a material adverse effect on us;
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- make any change in accounting methods, principles or practices materially
affecting us, except as required by a change in applicable accounting
principles;
- make any capital expenditure involving a payment in excess of $500,000,
with an aggregate limit of $3 million;
- grant to specified executive officers any increase in compensation in
excess of 4% of their prior year's base salary or grant to any officer
(other than the specified officers) or other employee any increase in
compensation, except in the ordinary course of business consistent with
prior practice or as provided in the merger agreement;
- provide to our officers and employees any profit sharing declared under
our Profit Sharing and Money Purchase Plan or our Supplemental Profit
Sharing and Money Purchase Plan in excess of specified amounts;
- grant to any executive officer or other employee any increase in severance
or termination pay, except to the extent currently required under
applicable law or an agreement in effect as of the date of the merger
agreement;
- enter into any employment, severance or termination agreement with any
executive officer or supervisory employee;
- adjust the strike price of any stock options, issue any additional stock
options or amend our Omnibus Securities Plan;
- enter into or amend any material contracts; or
- authorize, commit or agree to take, any of the actions described above.
NO SOLICITATION OF TRANSACTIONS
We have agreed not to, and have agreed not to authorize or permit any of our
officers, directors, employees or investment bankers, attorneys, accountants or
other advisors, agents or representatives to, directly or indirectly:
- solicit, initiate or knowingly encourage the submission of any acquisition
proposal; or
- participate in any discussions or negotiations regarding, or furnish to
any person any non-public information with respect to, any acquisition
proposal.
The term "acquisition proposal" means a proposal with respect to:
- a consolidation, exchange of shares or merger of Farm Family, any of our
insurance company subsidiaries or Farm Family Financial Services, Inc.
with any person, other than American National;
- the acquisition of beneficial ownership of 50% or more of the voting stock
or other equity interest of Farm Family, any of our insurance company
subsidiaries or Farm Family Financial Services, Inc. by any person; or
- a sale, lease or transfer of 50% or more of the business or assets of Farm
Family, any of our insurance company subsidiaries or Farm Family Financial
Services, Inc. to any person, other than American National.
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However, we and our representatives may furnish information to, or enter
into discussions or negotiations with, any person that makes an unsolicited
acquisition proposal if:
- our board of directors, upon advice received from outside counsel,
determines in good faith that in order for our board of directors to
comply with its fiduciary duties to our stockholders under applicable law
it should take such action; and
- we receive from the person making the acquisition proposal an executed
confidentiality agreement in customary form.
We have agreed to notify American National promptly of the receipt of any
acquisition proposal and the material terms and conditions of that acquisition
proposal, including the identity of the person making that acquisition proposal.
We have also agreed to give American National reasonable notice of the material
terms and conditions of an acquisition proposal prior to entering into a
definitive agreement with respect to that acquisition proposal, and to negotiate
with American National to make such adjustments in the terms and conditions of
the merger agreement as would enable us to proceed with the transactions
contemplated in the merger agreement.
FIDUCIARY DUTIES
Except as described below, we have agreed that our board of directors will
not:
- withdraw or modify, in a manner adverse to American National, its approval
or recommendation of the merger agreement or the merger;
- approve or recommend any acquisition proposal; or
- cause us to enter into a binding agreement to consummate any acquisition
proposal.
If we receive an unsolicited acquisition proposal, however, and our board of
directors determines in good faith, upon advice received from outside counsel,
that it is reasonably necessary to do so in order to comply with its fiduciary
duties to our stockholders under applicable law, our board of directors may:
- withdraw or modify, in a manner adverse to American National, its approval
or recommendation of the merger agreement and the merger;
- approve or recommend that acquisition proposal;
- cause us to enter into an agreement to consummate that acquisition
proposal; or
- terminate the merger agreement.
We are not prohibited from taking and disclosing to our stockholders a
position contemplated by Rule 14e-2(a) promulgated under the Securities Exchange
Act of 1934 or from making any disclosure to our stockholders which, in the good
faith judgment of our board of directors based on the advice of outside counsel,
is required under applicable law.
EMPLOYEE BENEFIT MATTERS
The merger agreement provides that for 12 months following the effective
time of the merger, all of our employees who continue to be employed after the
merger will receive compensation and employee benefits that are no less
favorable in the aggregate than those provided to these employees immediately
prior to the closing of the merger. Subject to certain limitations, each
employee entitled to
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these benefits will receive credit for service with us prior to the effective
time of the merger for purposes of determining eligibility, vesting and, in some
instances, benefits.
The merger agreement also provides that:
- Following the effective time of the merger, American National will cause
us to continue our Officer Severance Pay Plan for our officers covered by
the plan on the date of the merger agreement, other than four of our
executive officers who have entered into employment agreements with us in
connection with the merger.
- For three years following the effective time of the merger, American
National will provide, or cause us to provide, our employees and officers
covered by our Officer Severance Pay Plan on the date of the merger
agreement with severance benefits in the event they are terminated due to
a job elimination in an amount which is not less than that provided under
either our Employee Severance Pay Plan or our Officer Severance Pay Plan,
whichever is applicable. In connection with the execution of the merger
agreement, both of these plans were amended to provide a minimum severance
benefit upon a termination due to job elimination during the period
beginning on October 31, 2000 and ending on the third anniversary of the
merger consisting of two weeks' base salary for each year of service with
a minimum of four weeks' and a maximum of one year of base salary.
- For the three years following the effective time of the merger, American
National will continue to provide, or cause us to continue to provide,
additional severance benefits to specified employees under our Special
Severance Pay Plan, adopted by us in connection with the merger. This plan
entitles participants who are terminated due to job elimination to a
minimum severance benefit equal to one year's base salary, less any amount
which participants are entitled to receive under our other severance
plans.
- American National will honor, or cause to be honored, all employment
agreements and severance plans disclosed to American National.
American National and we acknowledge in the merger agreement that we amended
our Annual Incentive Plan to provide minimum bonus amounts for 2000 and for the
period of 2001 prior to the merger for each participant in the plan, which will
be paid not later than the closing date of the merger.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE
The merger agreement requires us to indemnify and hold harmless our current
and former officers, directors and employees for any matter existing or any act
or omission occurring at or prior to the effective time of the merger, to the
same extent provided under our certificate of incorporation and by-laws as in
effect on the date of the merger agreement. The merger agreement further
provides that for a period of not less than six years after the effective time
of the merger, American National will cause our current directors' and officers'
liability insurance policy to be maintained or, with American National's
consent, we may purchase at or prior to the closing of the merger a run-off
policy, in either case, providing coverage for matters existing or acts or
omissions occurring at or prior to the effective time of the merger for all of
our current and former officers, directors and employees. If American National
maintains our existing policy, it will not be required to pay an annual premium
for this insurance in excess of 200% of the current annual premium paid by us
for this insurance and, in the event that the cost of the coverage exceeds that
amount, American National will only be required to purchase as much coverage as
possible for that amount. In lieu of maintaining our current insurance policy,
American National may provide no less favorable coverage for each of these
persons under either American National's policy or under a separate policy
issued by their insurer.
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ACCESS TO INFORMATION
In the merger agreement, we have agreed to allow American National access to
our properties, contracts, personnel and books and records. We further agreed to
furnish to American National such information regarding our business,
properties, financial condition, operations and personnel as American National
may from time to time reasonably request.
STOCKHOLDERS MEETING
In the merger agreement, we have agreed to convene a meeting of our
stockholders to consider and vote on the adoption of the merger agreement. In
addition, we have agreed that our board of directors, subject to its fiduciary
obligations under applicable law, will solicit proxies from our stockholders
with respect to the merger agreement and will recommend that our stockholders
adopt the merger agreement.
REGULATORY FILINGS AND OTHER MATTERS
The merger agreement requires American National and us to cooperate with
each other and use commercially reasonable efforts to do or cause to be done all
things necessary, proper or advisable to consummate the merger and the other
transactions contemplated by the merger agreement. In this regard, American
National and we agree to:
- cooperate with each other and use commercially reasonable efforts to
obtain all consents and approvals of all governmental authorities and
third parties necessary to consummate the merger, free from conditions
that would be reasonably expected to have a material adverse effect on us;
- cooperate and make all necessary filings, as promptly as practicable,
including those required under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, the Securities Exchange Act of 1934, state
securities and state insurance laws in order to facilitate the prompt
consummation of the merger; and
- promptly advise each other upon the receipt of communications from
governmental authorities in connection with the merger, and furnish each
other with all applications or communications in advance of filing with
governmental authorities.
CONDITIONS TO COMPLETION OF THE MERGER
American National's and our obligations to effect the merger are subject to
the satisfaction or waiver, on or prior to the closing date of the merger, of
the following conditions:
- our stockholders shall have adopted the merger agreement;
- all approvals required to be obtained from governmental authorities to
complete the merger shall have been obtained free from any conditions that
would be reasonably expected to have a material adverse effect on us;
- the waiting period applicable to the consummation of the merger under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 shall have terminated
or expired; and
- no court shall have issued any order or injunction, and there shall not be
any statute, rule or regulation of any governmental authority, preventing
the merger.
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In addition, American National's and American National Acquisition Company's
obligations to complete the merger are also subject to the satisfaction or
waiver by them, on or prior to the closing date of the merger, of the following
conditions:
- the representations and warranties made by us in the merger agreement
shall be true and correct as of the date of the merger agreement and as of
the closing date of the merger, unless made as of another date, in which
case they shall be true and correct as of such date and except where the
failure to be true and correct (without giving effect to any
qualifications as to materiality in the representation), would not,
individually or in the aggregate, have a material adverse effect on us;
and
- we shall have performed in all material respects all obligations required
to be performed by us under the merger agreement.
In addition, our obligation to complete the merger is also subject to the
satisfaction or waiver by us, on or prior to the closing date of the merger, of
the following conditions:
- the representations and warranties made by American National and American
National Acquisition Company in the merger agreement shall be true and
correct as of the date of the merger agreement and as of the closing date
of the merger, unless made as of another date, in which case they shall be
true and correct as of such date and except where the failure to be true
and correct (without giving effect to any qualification as to materiality
in the representation), would not, individually or in the aggregate,
materially impair American National's or American National Acquisition
Company's ability to consummate the merger; and
- American National and American National Acquisition Company shall have
performed in all material respects all obligations required to be
performed by them under the merger agreement.
Other than conditions that are required by law, any conditions that are not
satisfied may be waived by the party entitled to assert the condition.
TERMINATION OF MERGER AGREEMENT
The merger agreement may be terminated at any time prior to the effective
time of the merger, whether before or after our stockholders approve the merger:
- by mutual written consent of American National and us by action of our
respective boards of directors;
- by either American National or us if:
-- the approval by our stockholders of the merger agreement has not been
obtained at the special meeting or at any adjournment of the special
meeting;
-- the merger is not completed by March 31, 2001; PROVIDED, HOWEVER, that
the March 31, 2001 termination date will be automatically extended for
up to 90 days if on March 31, 2001 any of the required approvals of
governmental authorities have not been obtained but are being pursued
diligently and all other conditions to the merger are satisfied.
Neither we nor American National may terminate the merger agreement if
our breach of any of our respective obligations under the merger
agreement is the cause of the merger not being completed by the
termination date;
-- any governmental authority issues a final, nonappealable order
prohibiting the merger; or
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-- our board of directors, after we receive an unsolicited acquisition
proposal, determines in good faith, upon advice received from outside
counsel, that it is reasonably necessary to do so in order to comply
with its fiduciary duties to our stockholders under applicable law,
(1) withdraws or modifies, in a manner adverse to American National,
its approval or recommendation of the merger agreement and the merger,
(2) approves or recommends that acquisition proposal, (3) causes us to
enter into an agreement to consummate that acquisition proposal, or
(4) terminates the merger agreement;
- by us if American National or American National Acquisition Company
breaches any representation, warranty, covenant or agreement in the merger
agreement and that breach cannot be cured and would result in a condition
to the closing under the merger agreement not being satisfied or, if that
breach is curable, is not cured within 20 business days; or
- by American National if we breach any representation, warranty, covenant
or agreement in the merger agreement and that breach cannot be cured and
would result in a condition to the closing under the merger agreement not
being satisfied or, if that breach is curable, is not cured within 20
business days.
TERMINATION FEE
Except as described below, the merger agreement provides that, whether or
not the merger is consummated, American National and American National
Acquisition Company will bear their own, and we will bear our own, fees and
expenses in connection with the merger agreement and the merger.
We have agreed to pay a termination fee of $7.5 million to American National
if:
- we receive an unsolicited acquisition proposal and our board of directors,
after determining in good faith, upon advice received from outside
counsel, that it is reasonably necessary to do so in order to comply with
its fiduciary duties to our stockholders under applicable law:
-- exercises its right to cause us to enter into an agreement to
consummate that acquisition proposal;
-- exercises its right to terminate the merger agreement; or
-- exercises its right to (1) withdraw or modify, in a manner adverse to
American National, its approval or recommendation of the merger
agreement and the merger, or (2) approve or recommend that acquisition
proposal and, as a result of our board taking the actions described in
(1) or (2), American National terminates the merger agreement; or
- the merger agreement is terminated by American National or us after a
failure to obtain stockholder approval at the special meeting and prior to
the special meeting any person has publicly made, or has publicly
announced an intention to make, and has not withdrawn, a bona fide
acquisition proposal, and within 12 months of termination of the merger
agreement, a transaction implementing an acquisition proposal with that
person or an affiliate of that person is consummated.
AMENDMENT AND WAIVER
The merger agreement may be amended by the parties at any time prior to the
effective time of the merger. After the approval of the merger by our
stockholders, however, no amendment may be made without the approval of our
stockholders if that approval is required by law. Further, at any time prior to
the effective time of the merger, any party may extend the time for the
performance of any obligation of any other party, waive any inaccuracy in the
representations and warranties of any other party and, subject to amendments
requiring the approval of our stockholders, waive compliance with any agreement
or conditions of any other party.
49
<PAGE>
THE COMPANIES
FARM FAMILY
The name of our company is Farm Family Holdings, Inc. and we are an
insurance holding company incorporated in Delaware. Our principal operating
subsidiaries are Farm Family Casualty and Farm Family Life. Farm Family Casualty
and a subsidiary of Farm Family Life, United Farm Family Insurance Company, are
specialized insurance companies that provide property and casualty insurance
coverages to farms, agribusinesses and other generally related businesses and
residents of rural and suburban communities. Farm Family Casualty was
established in 1955 to meet certain insurance needs of Farm Bureau members in
the Northeastern United States, and provides property and casualty insurance
coverages to members of the state Farm Bureau organizations in New York, New
Jersey, Delaware, West Virginia and all of the New England states. Membership in
a state or county Farm Bureau is a prerequisite for voluntary insurance coverage
with Farm Family Casualty, except for our employees and employees of our
affiliates. United Farm Family Insurance Company provides similar property and
casualty insurance products in Pennsylvania and Maryland. Membership in a state
or county Farm Bureau organization is not a prerequisite for purchasing
insurance coverage from United Farm Family Insurance Company. United Farm Family
Insurance Company began operations in these states during 1998. Farm Family
Life, which we acquired in 1999, provides life insurance, annuity and accident
and health insurance coverages principally to members of the Farm Bureaus in the
same states as Farm Family Casualty, and also writes insurance in Pennsylvania
and Maryland. Membership in a state or county Farm Bureau is not a prerequisite
for purchasing insurance coverage from Farm Family Life.
Farm Family Casualty, Farm Family Life and United Farm Family Insurance
Company share the same agency force, certain employees and office facilities. We
market our insurance products through more than 300 agents and general agents
who are located primarily in the rural and suburban communities we serve.
We were incorporated under the laws of the State of Delaware in 1996. Our
principal executive offices are located at 344 Route 9W, Glenmont, New York
12077, and our telephone number is (518) 431-5000. For additional information
regarding our company and its business, see "Where You Can Find More
Information."
AMERICAN NATIONAL
American National Insurance Company is a Texas domiciled insurance company
with over $9 billion in assets according to its 1999 Annual Report to
Stockholders. Chartered in 1905, the company, itself or through its
subsidiaries, offers a broad line of insurance coverages, including individual
and group life, health, and annuities, personal lines property and casualty, and
credit insurance. Although the majority of its revenues are generated by
insurance business, American National, through its non-insurance subsidiaries,
also offers mutual funds. American National and its subsidiaries conduct
insurance business in all 50 states, as well as in the District of Columbia,
Puerto Rico, Guam, American Samoa and Mexico. American National is also
authorized to sell its products to American military personnel in Western
Europe. American National and its insurance subsidiaries provide service to more
than 3.4 million policyowners. The common stock of American National trades on
the Nasdaq National Market under the symbol "ANAT". The principal executive
offices of American National are located at One Moody Plaza, Galveston, Texas
77550, and its telephone number is (409) 763-4661.
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AMERICAN NATIONAL ACQUISITION COMPANY
American National Acquisition Company, a Delaware corporation, is a wholly
owned subsidiary of American National. American National formed American
National Acquisition Company shortly before execution of the merger agreement
for the purpose of carrying out the merger. American National Acquisition
Company has not engaged in any business activities other than in connection with
the transactions contemplated by the merger agreement. American National
Acquisition Company will be merged with and into Farm Family and Farm Family
will become a wholly owned subsidiary of American National. The principal
executive offices of American National Acquisition Company are located at One
Moody Plaza, Galveston, Texas 77550, and its telephone number is
(409) 763-4661.
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
The following tables set forth information regarding the beneficial
ownership of our common stock and preferred stock as of , 2001 by
(i) each director, (ii) our Chief Executive Officer and each of our other four
most highly compensated executive officers, (iii) all of our executive officers
and directors as a group and (iv) each person who is known by us to be the
beneficial owner of more than 5% of our common stock or preferred stock. Except
as noted below, each person listed in the table has sole investment and voting
power with respect to the shares held by such person. This information has been
furnished by the persons listed in this table.
STOCK OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL % OF
NAME OF BENEFICIAL OWNER OWNERSHIP(1) COMMON STOCK
------------------------ -------------------- ------------
<S> <C> <C>
Clark W. Hinsdale III.................................... 210(2) *
Stephen J. George........................................ 100 *
Philip P. Weber.......................................... 101,287(3) 1.66%
James J. Bettini......................................... 50,453(4) *
Victoria M. Stanton...................................... 51,065(5) *
Timothy A. Walsh......................................... 50,730(6) *
William T. Conine........................................ 8,570(7) *
Robert L. Baker.......................................... 1,133(8) *
Wayne R. Bissonette...................................... 0(9) *
Randolph C. Blackmer, Jr................................. 800(10) *
Joseph E. Calhoun........................................ 73(11) *
James V. Crane........................................... 350(12) *
Sandra A. George......................................... 0(13) *
Gordon H. Gowen.......................................... 1,017(14) *
Jon R. Greenwood......................................... 1,479(15) *
Denzil D. Huff........................................... 70(16) *
Arthur D. Keown, Jr...................................... 0(17) *
W. Bruce Krenning........................................ 30(18) *
John W. Lincoln.......................................... 167(19) *
Wayne A. Mann............................................ 67(20) *
Frank W. Matheson........................................ 372(21) *
John P. Moskos........................................... 0 *
Edward J. Muhl........................................... 0 *
Norma R. O'Leary......................................... 1,216(22) *
John I. Rigolizzo, Jr.................................... 27(23) *
William M. Stamp, Jr..................................... 534(24) *
Charles A. Wilfong....................................... 643(25) *
Tyler P. Young........................................... 227(26) *
All directors and executive officers as a group (31
persons)............................................... 284,021(27) 4.53%
</TABLE>
------------------------
* less than 1%
(FOOTNOTES BEGIN ON NEXT PAGE)
51
<PAGE>
HOLDERS OF GREATER THAN 5% OF OUR COMMON STOCK
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL % OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP COMMON STOCK
------------------------------------ -------------------- ------------
<S> <C> <C>
FMR Corp. ............................................... 500,000(28) 8.33%
82 Devonshire Street
Boston, MA 02109
Parsimony Limited ....................................... 403,500(29) 6.72
Piermont House
33/35 Pier Road
St. Helier, Jersey
Channel Island JE 8X3
New York Farm Bureau, Inc. .............................. 341,599(30) 5.70
Route 9W, Box 992
Glenmont, NY 12077-0992
W. R. Berkley Corporation ............................... 325,900(31) 5.43
165 Mason Street
P.O. Box 2518
Greenwich, CT 06836-2518
Gotham Partners, L.P., .................................. 316,400(32) 5.27
Gotham Partners II, L.P. and
Gotham International Advisors, L.L.C.
110 E. 42nd Street, 18th Floor
New York, NY 10017
</TABLE>
HOLDERS OF GREATER THAN 5% OF OUR PREFERRED STOCK
<TABLE>
<CAPTION>
AMOUNT AND
NATURE OF BENEFICIAL % OF
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP PREFERRED STOCK
------------------------------------ -------------------- ---------------
<S> <C> <C>
New York Farm Bureau, Inc. ............................. 64,682 39.63%
Route 9W, Box 992
Glenmont, NY 12077-0992
New Jersey Farm Bureau ................................. 44,100 27.02
168 West State Street
Trenton, NJ 08608
Massachusetts Farm Bureau Federation, Inc. ............. 19,109 11.71
466 Chestnut Street
Ashland, MA 01721-2299
Connecticut Farm Bureau Association, Inc. .............. 13,229 8.11
510 Pigeon Hill Road
Windsor, CT 07095-2141
</TABLE>
------------------------
(1) No beneficial owner in this table holds any of our preferred stock except as
otherwise indicated in the notes hereto.
(2) Excludes 467 shares of our common stock and 33 shares of our preferred stock
owned by Vermont Farm Bureau, Inc. and its affiliates. Mr. Hinsdale is
President and a Director of Vermont Farm Bureau, Inc.
(3) Represents 1,537 shares as to which voting and investment power are shared
with Brenda Lee Weber and options to acquire 99,750 shares that may be
exercised within 60 days.
(4) Represents 223 shares as to which voting and investment power are shared
with Marie C. Bettini and options to acquire 50,230 shares that may be
exercised within 60 days.
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<PAGE>
(5) Includes 685 shares as to which voting and investment power are shared with
Randy M. Sweeney and options to acquire 50,230 shares that may be exercised
within 60 days.
(6) Includes options to acquire 50,230 shares that may be exercised within
60 days.
(7) Represents 270 shares as to which voting and investment power are shared
with Judith Conine and options to acquire 8,300 shares that may be exercised
within 60 days.
(8) Represents 33 shares as to which voting and investment power are shared with
Pamela M. Baker, 86 shares as to which voting and investment power are
shared with Delaware Produce Growers, Inc., 744 shares as to which voting
and investment power are shared with Baker Farms, Inc. and 270 shares held
by the Robert L. Baker Revocable Trust. Excludes 38,645 shares of our common
stock and 7,349 shares of our preferred stock owned by Delaware State Farm
Bureau, Inc. Mr. Baker is President and a Director of Delaware State Farm
Bureau, Inc.
(9) Excludes 467 shares of our common stock and 33 shares of our preferred stock
owned by Vermont Farm Bureau, Inc. and its affiliates. Mr. Bissonette is
First Vice President and a Director of Vermont Farm Bureau, Inc.
(10) Represents shares as to which voting and investment power are shared with
Myrtie I. Blackmer or Ag Services, Inc. Excludes 69,540 shares of our common
stock and 13,229 shares of our preferred stock owned by Connecticut Farm
Bureau Association, Inc. Mr. Blackmer is President and a Director of
Connecticut Farm Bureau Association, Inc.
(11) Represents shares as to which voting and investment power are shared with
Bessie J. Calhoun.
(12) Represents shares as to which voting and investment power are shared with
Crane Bros., Inc. Excludes 15,846 shares of our common stock and 2,943
shares of our preferred stock owned by Maine Farm Bureau Association and its
affiliates. Mr. Crane is a Director of Maine Farm Bureau Association.
(13) Excludes 15,846 shares of our common stock and 2,943 shares of our
preferred stock owned by Maine Farm Bureau Association and its affiliates.
Ms. George is President and a Director of Maine Farm Bureau Association.
(14) Includes 929 shares as to which voting and investment power are shared with
Elizabeth R. Gowen.
(15) Represents shares as to which voting and investment power are shared with
Linda R. Greenwood.
(16) Represents shares as to which voting and investment power are shared with
Rita F. Huff. Excludes 37,935 shares of our common stock and 5,882 shares of
our preferred stock owned by West Virginia Farm Bureau, Inc. Mr. Huff is
Vice President and a Director of West Virginia Farm Bureau, Inc.
(17) Excludes 100,959 shares of our common stock and 19,109 shares of our
preferred stock owned by Massachusetts Farm Bureau Federation, Inc.
Mr. Keown is President and a Director of Massachusetts Farm Bureau
Federation, Inc.
(18) Represents shares as to which voting and investment power are shared with
Diane Z. Krenning. Excludes 341,599 shares of our common stock and 64,682
shares of our preferred stock owned by New York Farm Bureau, Inc.
Mr. Krenning is Vice President and a Director of New York Farm Bureau, Inc.
(19) Includes 113 shares as to which voting and investment power are shared with
S. Anne Lincoln. Excludes 341,599 shares of our common stock and 64,682
shares of our preferred stock owned by New York Farm Bureau, Inc.
Mr. Lincoln is President and a Director of New York Farm Bureau, Inc.
(20) Represents shares as to which voting and investment power are shared with
Ruth F. Mann. Excludes 233 shares of our common stock and 5 shares of our
preferred stock owned by New Hampshire Farm Bureau Federation. Mr. Mann is
President and a Director of New Hampshire Farm Bureau Federation.
(21) Includes 69 shares as to which voting and investment power are shared with
Eunice Matheson. Excludes 100,959 shares of our common stock and 19,109
shares of our preferred stock owned by Massachusetts Farm Bureau
Federation, Inc. and 813 shares of our common stock owned by
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<PAGE>
Middlesex County Farm Bureau. Mr. Matheson is Vice President and a Director
of Massachusetts Farm Bureau Federation, Inc. and a Director and Financial
Advisor of Middlesex County Farm Bureau.
(22) Includes 71 shares as to which voting and investment power are shared with
Ernest J. O'Leary.
(23) Represents shares as to which voting and investment power are shared with
Marita Rigolizzo. Excludes 232,523 shares of our common stock and 44,100
shares of our preferred stock owned by New Jersey Farm Bureau.
Mr. Rigolizzo is President and a Director of New Jersey Farm Bureau.
(24) Includes 297 shares as to which voting and investment power are shared with
Stamp Farm Enterprises, Inc. or Carol Stamp. Excludes 31,972 shares of our
common stock and 5,882 shares of our preferred stock owned by Rhode Island
Farm Bureau Federation, Inc. Mr. Stamp is President and a Director of Rhode
Island Farm Bureau Federation, Inc.
(25) Represents shares as to which voting and investment power are shared with
Linda Wilfong. Excludes 37,935 shares of our common stock and 5,882 shares
of our preferred stock owned by West Virginia Farm Bureau, Inc. Mr. Wilfong
is President and a Director of West Virginia Farm Bureau, Inc.
(26) Represents shares as to which voting and investment power are shared with
Karla K. Young. Excludes 31,972 shares of our common stock and 5,882 shares
of our preferred stock owned by Rhode Island Farm Bureau Federation, Inc.
Mr. Young is Vice President and a Director of Rhode Island Farm Bureau
Federation, Inc.
(27) Includes options to acquire 271,990 shares that may be exercised within
60 days.
(28) Based on Schedule 13G/A dated February 14, 2000 filed with the Securities
and Exchange Commission by FMR Corp. which has the sole dispositive power
over 500,000 shares and the voting power over 0 shares.
(29) Based on Schedule 13D dated March 2, 2000 filed with the SEC by Parsimony
Limited which has the sole dispositive power and the sole voting power over
403,500 shares.
(30) Based on Schedule 13D dated April 16, 1999 filed with the SEC by New York
Farm Bureau Service Company, Inc., and New York Farm Bureau, Inc. which have
the sole dispositive power and the sole voting power over 341,599 shares.
(31) Based on Schedule 13G/A dated February 8, 1999 filed with the SEC by W. R.
Berkley Corporation which has the sole dispositive power and the sole voting
power over 325,900 shares.
(32) Based on Schedule 13G/A dated February 15, 2000 filed with the SEC by
Gotham Partners, L.P., Gotham Partners II, L.P. and Gotham International
Advisors, L.L.C. Gotham Partners, L.P. has the sole dispositive power and
the sole voting power over 252,634 shares. Gotham Partners II, L.P. has the
sole dispositive power and the sole voting power over 4,441 shares. Gotham
International Advisors, L.L.C. has the sole dispositive power and the sole
voting power over 59,325 shares.
54
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
As required by the Securities Exchange Act of 1934, we file annual,
quarterly and special reports, proxy statements and other information with the
Securities and Exchange Commission. These reports, proxy statements and other
information filed may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549 and may be available at the following Regional Offices of
the SEC located at: Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511; and 7 World Trade Center, Suite 1300, New York,
New York 10048. Copies of such materials can be obtained at prescribed rates
from the Public Reference Section of the SEC at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. We make filings of reports, proxy
statements and other information pursuant to the Securities Exchange Act of 1934
with the SEC electronically, and such materials may be inspected and copied at
the SEC's Web site, http://www.sec.gov. In addition, material filed by us can be
inspected at the offices of the New York Stock Exchange, Inc., 20 Broad Street,
New York, New York 10005, on which the shares of our common stock are listed.
The SEC allows us to "incorporate by reference" information into this proxy
statement. This means that we can disclose important information by referring to
another document filed separately with the SEC. The information incorporated by
the reference is considered to be part of this proxy statement, and later
information filed with the SEC will update and supersede the information in this
proxy statement. This proxy statement incorporates by reference the documents
listed below that were previously filed by us with the SEC. These documents
contain important information about us and our finances.
(1) Annual Report on Form 10-K of Farm Family for the fiscal year ended
December 31, 1999;
(2) Proxy Statement on Schedule 14A of Farm Family filed on March 16, 2000;
(3) Quarterly Reports on Form 10-Q of Farm Family for fiscal quarters ended
September 30, 2000, June 30, 2000 and March 31, 2000;
(4) Current Reports on Form 8-K of Farm Family filed on March 2, 2000,
April 27, 2000, May 5, 2000, July 28, 2000, November 1, 2000 and November 7,
2000; and
(5) Registration Statement on Form 8-A of Farm Family filed on July 30,
1997, Current Report on Form 8-K of Farm Family filed on July 30, 1997, Amended
Registration Statement on Form 8-A/A of Farm Family filed on June 14, 1999,
Current Report on Form 8-K/A of Farm Family filed on June 14, 1999 and Amended
Registration Statement on Form 8-A/A of Farm Family filed on November 3, 2000.
All documents subsequently filed by us pursuant to Section 13(a), 13(c), 14
or 15(d) of the Securities Exchange Act of 1934 after the date of this proxy
statement and prior to our special meeting shall be deemed to be incorporated by
reference into this proxy statement and to be a part of this proxy statement
from the date of the filing of such documents. Any statement contained herein,
or in a document all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded
for purposes of this proxy statement to the extent that a statement contained
herein or in any other subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this proxy statement.
Documents incorporated by reference are available from us, without charge,
excluding any exhibits to the documents unless the exhibit is specifically
incorporated by reference into those documents. Stockholders may obtain these
documents by requesting them in writing or by telephone at the following
address: Farm Family Holdings, Inc., Attention: Corporate Secretary, P.O. Box
656, Albany, New York 12201-0656, if sent by mail, or 344 Route 9W, Glenmont,
New York 12077, if sent by hand, express mail or overnight courier, telephone
number (518) 431-5000. In order to ensure timely delivery of the documents, any
request should be made before , 2001.
55
<PAGE>
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROXY STATEMENT TO VOTE ON THE MERGER. NEITHER WE NOR AMERICAN
NATIONAL HAS AUTHORIZED ANYONE TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT
FROM OR IN ADDITION TO THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. THIS
PROXY STATEMENT IS DATED , 2001. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE OTHER
THAN , 2001, AND THE MAILING OF THE PROXY STATEMENT TO OUR STOCKHOLDERS
SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
INDEPENDENT ACCOUNTANTS
Our consolidated financial statements incorporated in this proxy statement
by reference to our 1999 Annual Report on Form 10-K have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
Representatives of PricewaterhouseCoopers LLP will be present at the special
meeting and will have an opportunity to make a statement, if so desired. They
will also be available to respond to appropriate questions from stockholders in
attendance.
STOCKHOLDER PROPOSALS
If we complete the merger, we will no longer have public stockholders or any
public participation in our stockholder meetings. If we do not complete the
merger, we intend to hold our next annual stockholder meeting in April 2001. In
that case, if you are still a stockholder as of the record date of such meeting,
you would continue to be entitled to attend and participate in our stockholder
meetings.
Our by-laws require a stockholder who intends to bring business before any
annual meeting to provide advanced written notice of this intention to our
Corporate Secretary not less than 60 days nor more than 90 days prior to the
anniversary date of the immediately preceding annual meeting. If the date of the
annual meeting has been advanced or delayed by more than 30 days from the
anniversary date of the immediately preceding annual meeting, notice must be
received not later than the close of business on the 10th day following the day
on which the notice of the annual meeting was mailed or a public disclosure of
the date of the annual meeting was made, whichever first occurs. While we have
not set the date of the 2001 annual meeting, assuming it is held on April 24,
2001, as was expected at the time of our 2000 annual meeting and set forth in
the proxy statement for our 2000 annual meeting, stockholders must submit this
written notice to our Corporate Secretary not earlier than January 25, 2001 or
later than February 26, 2001.
In accordance with federal securities laws, proposals to be submitted by our
stockholders for consideration at our next annual meeting and inclusion in our
2001 annual proxy statement must have been received by our Corporate Secretary
at the address set forth below, not later than November 17, 2000. SEC rules
establish standards as to which stockholder proposals are required to be
included in a proxy statement for an annual meeting. We will only consider
proposals for inclusion in our proxy statement for an annual meeting that
satisfy the requirements of applicable SEC rules.
The foregoing is only a summary of the detailed provisions of our by-laws
and is qualified by reference to the text thereof. Stockholders wishing to
submit a proposal should review our by-law requirements regarding proposals by
stockholders and should communicate with our Corporate Secretary at Farm Family
Holdings, Inc., P.O. Box 656, Albany, New York 12201-0656, if sent by mail, or
344 Route 9W, Glenmont, New York 12077, if by hand, express mail or overnight
courier, for further information.
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<PAGE>
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This proxy statement and the other documents incorporated herein by
reference contain forward-looking statements within the meaning of the Private
Securities Litigation Reform Act of 1995. These statements are based on
management's current knowledge, expectations, estimates, beliefs and assumptions
and can be identified by phrases using "intend," "estimate," "anticipate,"
"believe," "expect," "predict," "project," "plan," "potential," "future," "may,"
"should" and similar expression or words, although not every forward-looking
statement includes these words.
The forward-looking statements in this proxy statement and the other
documents incorporated herein by reference include, but are not limited to,
statements of the plans and objectives of each of American National and us or
American National's or our managements, statements of future economic
performance and assumptions underlying statements regarding American National
and us or American National's or our businesses. 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 proxy statement and the other documents incorporated herein
by reference are not guarantees of future performance and are subject to a
number of important risks and uncertainties, many of which are outside American
National's and our control, that could cause actual results to differ
materially. These risks and uncertainties include, but are not limited to, the
following:
- satisfaction of the closing conditions set forth in the merger agreement,
including the approval of our stockholders and approval of the New York
Insurance Department;
- the risk of a significant delay in the expected completion of the merger;
- 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 our direct written premium, losses
and loss adjustment expenses;
- the risks associated with the legislative, regulatory and competitive
environments in the states in which we currently operate;
- heightened competition, including specifically the intensification of
competition, failure to obtain new customers or to retain existing
customers;
- our primary reliance, as a holding company, on dividends from our
subsidiaries and the applicable regulatory restrictions on the ability of
our subsidiaries to pay such dividends;
- 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 our reserving policy, and the adequacy of our
reinsurance programs;
- developments in the securities markets and the impact of those
developments on our investment portfolio;
- tax law changes;
- an increase in policyholder lapses for our life insurance segment and an
adverse impact on the attractiveness of certain life insurance segment
products;
- significant variations of actual experience from assumptions regarding
future morbidity, persistency, lapse rates, expenses, mortality, and
interests rates used in calculating reserve and
57
<PAGE>
liability amounts for our life insurance segment and in developing pricing
and other terms of life insurance products; and
- other risk factors listed from time to time in our SEC filings including
Form 10-K filed for the year ended December 31, 1999 and Forms 10-Q filed
for the quarters ended March 31, 2000, June 30, 2000 and September 30,
2000.
Please note that the list provided above is not intended to be exhaustive,
as many other factors could also affect the results described by forward-looking
statements contained in this proxy statement and the other documents
incorporated herein by reference. Moreover, you are cautioned not to place undue
reliance on forward-looking statements, which reflect management's view only as
of the date of the proxy statement. All forward-looking statements included in
this proxy statement and the other documents incorporated herein by reference
and all subsequent forward-looking statements attributable to us or persons
acting on our behalf are expressly qualified in their entirety by these
cautionary statements.
58
<PAGE>
ANNEX A
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN NATIONAL INSURANCE COMPANY,
AMERICAN NATIONAL ACQUISITION COMPANY,
AND
FARM FAMILY HOLDINGS, INC.
DATED AS OF OCTOBER 31, 2000
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C> <C> <C>
ARTICLE I THE MERGER....................................................... A-1
Section 1.1. The Merger....................................................... A-1
Section 1.2. Closing.......................................................... A-1
Section 1.3. Effective Time................................................... A-1
Section 1.4. Effects of the Merger............................................ A-1
Section 1.5. Certificate of Incorporation; By-laws............................ A-2
Section 1.6. Directors and Officers........................................... A-2
ARTICLE II EFFECT OF THE MERGER ON SECURITIES............................... A-2
Section 2.1. Effect on Common Stock and Preferred Stock....................... A-2
(a) Cancellation of Treasury Stock and Parent-Owned Stock....... A-2
(b) Conversion of Subsidiary Common Stock....................... A-2
(c) Conversion of Common Stock and Preferred Stock.............. A-2
Section 2.2. Dissenting Shares................................................ A-3
Section 2.3. Surrender of Shares; Stock Transfer Books........................ A-3
(a) Paying Agent................................................ A-3
(b) Surrender of Shares......................................... A-3
(c) Exchange Fund............................................... A-4
(d) No Further Ownership Rights in Common Stock or Preferred A-4
Stock.......................................................
(e) Lost Certificates........................................... A-4
(f) Adjustments to Prevent Dilution............................. A-4
Section 2.4. Stock Options.................................................... A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES................................... A-5
Section 3.1. Representations and Warranties of the Company.................... A-5
(a) Organization, Standing and Corporate Power.................. A-5
(b) Certificates of Incorporation and By-laws; Minute Books..... A-6
(c) Capital Structure........................................... A-6
(d) Authority; Noncontravention................................. A-7
(e) SEC Documents; Financial Statements......................... A-8
(f) Information in Proxy Statement.............................. A-8
(g) Absence of Certain Changes or Events........................ A-8
(h) Benefit Plans............................................... A-9
(i) Taxes....................................................... A-10
(j) No Excess Parachute Payments................................ A-11
(k) Compliance with Applicable Laws............................. A-11
(l) Litigation.................................................. A-12
(m) Undisclosed Liabilities..................................... A-12
(n) Opinion of Financial Advisor................................ A-12
(o) Voting Requirements......................................... A-12
(p) Rights Agreement; Takeover Statutes......................... A-12
(q) Brokers..................................................... A-12
(r) Material Contracts.......................................... A-12
(s) Insurance Business.......................................... A-13
(t) Liabilities and Reserves.................................... A-14
(u) Approvals and Permits....................................... A-14
(v) Intellectual Property....................................... A-14
</TABLE>
A-i
<PAGE>
<TABLE>
<S> <C> <C> <C>
Section 3.2. Representations and Warranties of Parent and Subsidiary.......... A-15
(a) Organization, Standing and Corporate Power.................. A-15
(b) Capitalization of Subsidiary................................ A-15
(c) Authority; Noncontravention................................. A-15
(d) Information in Proxy Statement.............................. A-16
(e) Financing................................................... A-16
(f) Approvals and Permits....................................... A-16
(g) Brokers..................................................... A-16
(h) Share Ownership............................................. A-16
(i) Interim Operations.......................................... A-17
ARTICLE IV COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER........ A-17
Section 4.1. Conduct of Business of the Company............................... A-17
ARTICLE V ADDITIONAL AGREEMENTS............................................ A-18
Section 5.1. Proxy Statement.................................................. A-18
Section 5.2. Stockholders Meeting............................................. A-19
Section 5.3. Access to Information; Confidentiality........................... A-19
Section 5.4. Commercially Reasonable Efforts.................................. A-19
Section 5.5. Benefit Plans.................................................... A-19
Section 5.6. Indemnification and Insurance.................................... A-20
Section 5.7. Public Announcements............................................. A-22
Section 5.8. Acquisition Proposals............................................ A-22
Section 5.9. Fiduciary Duties................................................. A-23
Section 5.10. Certain Fees..................................................... A-23
Section 5.11. Consents, Approvals and Filings.................................. A-23
Section 5.12. Employment Agreements............................................ A-24
ARTICLE VI CONDITIONS PRECEDENT............................................. A-24
Section 6.1. Conditions to Each Party's Obligation to Effect the Merger....... A-24
(a) Stockholder Approval........................................ A-24
(b) Governmental, Regulatory Consents........................... A-24
(c) HSR Act..................................................... A-24
(d) No Injunctions or Restraints................................ A-25
Section 6.2. Conditions to Obligations of Parent and Subsidiary............... A-25
(a) Representations and Warranties.............................. A-25
(b) Performance of Obligations of the Company................... A-25
Section 6.3. Conditions to Obligation of the Company.......................... A-25
(a) Representations and Warranties.............................. A-25
(b) Performance of Obligations of Parent and Subsidiary......... A-25
Section 6.4. Frustration of Closing Conditions................................ A-25
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER................................ A-26
Section 7.1. Termination...................................................... A-26
Section 7.2. Effect of Termination............................................ A-26
Section 7.3. Amendment........................................................ A-26
Section 7.4. Extension; Waiver................................................ A-27
Section 7.5. Procedure for Termination, Amendment, Extension or Waiver........ A-27
ARTICLE VIII GENERAL PROVISIONS............................................... A-27
Section 8.1. Nonsurvival of Representations and Warranties.................... A-27
Section 8.2. Fees and Expenses................................................ A-27
</TABLE>
A-ii
<PAGE>
<TABLE>
<S> <C> <C> <C>
Section 8.3. Certain Definitions.............................................. A-27
Section 8.4. Notices.......................................................... A-28
Section 8.5. Interpretation................................................... A-29
Section 8.6. Counterparts..................................................... A-29
Section 8.7. Entire Agreement; No Other Representations; Third-Party A-29
Beneficiaries....................................................
Section 8.8. Governing Law.................................................... A-29
Section 8.9. Assignment....................................................... A-29
Section 8.10. Enforcement and Consent to Jurisdiction.......................... A-29
Section 8.11. Severability..................................................... A-30
</TABLE>
A-iii
<PAGE>
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
Acquisition Proposal........................................ 5.8
affiliate................................................... 8.3(a)
Agent....................................................... 3.1(s)(ii)
Agreement ..................................... Introductory Paragraph
Annual Statements........................................... 3.1(e)(ii)
Benefit Plans............................................... 3.1(h)(i)
Best........................................................ 3.1(a)
Bonus Plan.................................................. 5.5(c)
By-laws..................................................... 1.5(b)
Certificate of Incorporation................................ 1.5(a)
Certificates................................................ 2.3(b)
Closing..................................................... 1.2
Closing Date................................................ 1.2
Code........................................................ 3.1(h)(ii)
Commonly Controlled Entity.................................. 3.1(h)(ii)
Common Merger Consideration................................. 2.1(c)
Common Stock................................................ 2.1
Company ....................................... Introductory Paragraph
Company By-laws............................................. 3.1(b)
Company Certificate......................................... 3.1(b)
Company Disclosure Schedules................................ 3.1
Company Insurance Contracts................................. 3.1(s)(i)
Company Material Adverse Effect............................. 3.1(a)
Confidentiality Agreement................................... 5.3
Continuing Employees........................................ 5.5(a)
Contract.................................................... 8.3(f)
Delaware Secretary of State................................. 1.3
DGCL........................................................ 1.1
Designated Officers......................................... 8.3(g)
Dissenting Shares........................................... 2.2
D&O Insurance............................................... 5.6(c)
Effective Time.............................................. 1.3
ERISA....................................................... 3.1(h)(i)
Exchange Act................................................ 3.1(d)
Exchange Fund............................................... 2.3(a)
FFCIC....................................................... 3.1(a)
FFLIC....................................................... 3.1(a)
Filed SEC Documents......................................... 3.1(g)
Form 10-K................................................... 3.1(m)
GAAP........................................................ 8.3(b)
Governmental Entity......................................... 3.1(d)
HSR Act..................................................... 3.1(d)
Indemnified Parties......................................... 5.6(a)
Insurance Laws.............................................. 3.1(k)(i)
Insurance Regulator......................................... 3.1(e)(ii)
Insurers.................................................... 3.1(e)(ii)
Intellectual Property....................................... 3.1(v)(i)
</TABLE>
A-iv
<PAGE>
<TABLE>
<CAPTION>
TERM SECTION
---- -------
<S> <C>
knowledge................................................... 8.3(e)
Laws........................................................ 3.1(k)(ii)
Liens....................................................... 3.1(c)
Maximum Premium............................................. 5.6(c)
Merger...................................................... Recitals
Merger Consideration........................................ 2.1(c)
New York Court.............................................. 8.10
Option Consideration........................................ 2.4(a)
Parent ........................................ Introductory Paragraph
Parent Disclosure Schedule.................................. 3.2
Parent Material Adverse Effect.............................. 3.2(a)
Paying Agent................................................ 2.3(a)
PBGC........................................................ 3.1(h)(ii)
Permitted Lien.............................................. 8.3(b)
person...................................................... 8.3(c)
Preferred Merger Consideration.............................. 2.1(c)
Preferred Stock............................................. 2.1
Proxy Statement............................................. 3.1(d)
Reinsurance Contracts....................................... 3.1(s)(iii)
Representatives............................................. 5.8
Rights...................................................... 3.1(c)
Rights Agreement............................................ 3.1(c)
SAP......................................................... 3.1(e)(ii)
SEC......................................................... 3.1(d)
SEC Documents............................................... 3.1(e)(i)
Securities Act.............................................. 3.1(e)(i)
State Insurance Approvals................................... 3.1(d)
Stockholder Approval........................................ 3.1(d)
Stock Option................................................ 2.4(a)
Stock Option Plan........................................... 2.4(a)
Stockholders Meeting........................................ 5.2
Stub Period Bonuses......................................... 5.5(c)
Subsidiary .................................... Introductory Paragraph
subsidiary.................................................. 8.3(d)
Surviving Corporation....................................... 1.1
Tax Returns................................................. 3.1(i)(v)
Taxes....................................................... 3.1(i)(v)
2000 Bonuses................................................ 5.5(c)
</TABLE>
A-v
<PAGE>
AGREEMENT AND PLAN OF MERGER (the "AGREEMENT")
DATED AS OF OCTOBER 31, 2000
AMONG
AMERICAN NATIONAL INSURANCE COMPANY,
A TEXAS INSURANCE COMPANY ("PARENT"),
AMERICAN NATIONAL ACQUISITION COMPANY,
A DELAWARE CORPORATION ("SUBSIDIARY"),
AND
FARM FAMILY HOLDINGS, INC.,
A DELAWARE CORPORATION (the "COMPANY").
WHEREAS, the Board of Directors of each of Parent, Subsidiary and the
Company has adopted resolutions approving this Agreement, pursuant to which
Subsidiary shall be merged with and into the Company (the "MERGER"); and
WHEREAS, Parent, Subsidiary and the Company desire to make certain
representations, warranties, covenants and agreements in connection with the
Merger and also to prescribe various conditions to the Merger.
NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
Section 1.1. THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Subsidiary shall be merged with and into the Company at the
Effective Time (as hereinafter defined). Upon the Effective Time, the separate
existence of Subsidiary shall cease, and the Company shall continue as the
surviving corporation (the "SURVIVING CORPORATION").
Section 1.2. CLOSING. Unless this Agreement shall have been terminated
pursuant to Section 7.1 and subject to the satisfaction or waiver of each of the
conditions set forth in Article VI, the closing of the Merger (the "CLOSING")
shall take place at 10:00 a.m. on the date that is the fifth business day
following the date on which the last to be fulfilled or waived of the conditions
set forth in Section 6.1 shall be fulfilled or waived in accordance with this
Agreement (other than those conditions that by their nature are to be fulfilled
at the Closing, but subject to the fulfillment or waiver of those conditions),
at the offices of LeBoeuf, Lamb, Greene & MacRae, L.L.P., 125 West 55th Street,
New York, New York, unless another date, time or place is agreed to in writing
by the parties hereto. The actual date and time of the Closing are herein
referred to as the "CLOSING DATE".
Section 1.3. EFFECTIVE TIME. The parties hereto will file with the
Secretary of State of the State of Delaware (the "DELAWARE SECRETARY OF STATE")
on the date of the Closing (or on such other later date as Parent and the
Company may agree in writing) a certificate of merger or other appropriate
documents, executed in accordance with the relevant provisions of the DGCL, and
make all other filings or recordings required under the DGCL in connection with
the Merger. The Merger shall become effective upon the filing of the certificate
of merger with the Delaware Secretary of State, or at such later time as is
specified in the certificate of merger (the "EFFECTIVE TIME").
Section 1.4. EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time,
A-1
<PAGE>
all the properties, rights, privileges, powers and franchises of the Company and
Subsidiary shall vest in the Surviving Corporation, and all debts, liabilities
and duties of the Company and Subsidiary shall become the debts, liabilities and
duties of the Surviving Corporation, all as provided under the DGCL.
Section 1.5. CERTIFICATE OF INCORPORATION; BY-LAWS. (a) At the Effective
Time and without any further action on the part of the Company or Subsidiary,
the certificate of incorporation of the Company as in effect immediately prior
to the Effective Time shall be the certificate of incorporation of the Surviving
Corporation (the "CERTIFICATE OF INCORPORATION") until thereafter amended as
provided therein and under the DGCL.
(b) At the Effective Time and without any further action on the part of the
Company or Subsidiary, the by-laws of the Company as in effect immediately prior
to the Effective Time shall be the by-laws of the Surviving Corporation (the
"BY-LAWS") until thereafter amended or repealed in accordance with their terms
or the Certificate of Incorporation of the Surviving Corporation and as provided
under the DGCL.
Section 1.6. DIRECTORS AND OFFICERS. The directors of Subsidiary
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be, from and after the
Effective Time, the initial officers of the Surviving Corporation, in each case
until the earlier of their resignation or removal or until their respective
successors are duly elected or appointed (as the case may be) and qualified.
ARTICLE II
EFFECT OF THE MERGER ON SECURITIES
Section 2.1. EFFECT ON COMMON STOCK AND PREFERRED STOCK. At the Effective
Time, by virtue of the Merger and without any action on the part of the holders
of any shares of the outstanding common stock, par value $.01 per share (the
"COMMON STOCK"), or the holders of any shares of the outstanding Preferred
Stock, Series A, par value $.01 per share (the "PREFERRED STOCK") of the Company
or any other shares of capital stock of the Company or any shares of capital
stock of Subsidiary:
(a) CANCELLATION OF TREASURY STOCK AND PARENT-OWNED STOCK. Each share of
Common Stock and Preferred Stock issued and outstanding immediately prior to the
Effective Time that is owned by the Company or any subsidiary of the Company or
by Parent or any subsidiary of Parent (together, in each case, with any
associated Right (as defined in Section 3.1(c)) shall automatically be canceled
and retired and shall cease to exist, and no cash or other consideration shall
be delivered or deliverable in exchange therefor.
(b) CONVERSION OF SUBSIDIARY COMMON STOCK. Each share of common stock of
Subsidiary issued and outstanding immediately prior to the Effective Time shall
be converted into and become one fully paid and nonassessable share of common
stock, par value $.01 per share, of the Surviving Corporation.
(c) CONVERSION OF COMMON STOCK AND PREFERRED STOCK. Subject to Sections
2.1(a) and 2.2, (i) each share of Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares to be canceled in
accordance with Section 2.1(a) and any Dissenting Shares (as defined in
Section 2.2)) together with the associated Right shall be canceled, extinguished
and converted automatically into the right to receive an amount equal to $44.00
per share in cash (the "COMMON MERGER CONSIDERATION") and (ii) each share of
Preferred Stock issued and outstanding immediately prior to the Effective Time
(other than shares to be canceled in accordance with Section 2.1(a) and any
Dissenting Shares) shall be canceled, extinguished and converted automatically
into the right to receive
A-2
<PAGE>
an amount equal to $35.72 per share, plus accrued and unpaid dividends thereon
to the Closing Date, in cash (the "PREFERRED MERGER CONSIDERATION" and,
collectively with the Common Merger Consideration, the "MERGER CONSIDERATION"),
in each case, payable to the holder thereof, without interest, upon surrender of
the certificate that prior to the Merger represented such share of Common Stock
or Preferred Stock, as applicable, in the manner provided in Section 2.3(b),
less any required withholding taxes.
Section 2.2. DISSENTING SHARES. Notwithstanding anything in this Agreement
to the contrary, shares of Common Stock (together with the associated Rights)
and Preferred Stock that are issued and outstanding immediately prior to the
Effective Time and are held by any stockholders who shall have not voted in
favor of or consented to the Merger and who shall have delivered a written
demand for appraisal of such shares of Common Stock or Preferred Stock in the
time and manner provided in Section 262 of the DGCL and shall not have failed to
perfect or shall not have effectively withdrawn or lost their rights to
appraisal and payment under the DGCL (the "DISSENTING SHARES") shall not be
converted into the right to receive the Common Merger Consideration or the
Preferred Merger Consideration, as applicable, but shall be entitled to receive
the consideration as shall be determined pursuant to Section 262 of the DGCL;
PROVIDED, HOWEVER, that if any such holder shall have failed to perfect or shall
have effectively withdrawn or lost such holder's right to appraisal and payment
under the DGCL, such holder's shares of Common Stock (together with the
associated Rights) or Preferred Stock shall thereupon be deemed to have been
converted, at the Effective Time, into the right to receive the Common Merger
Consideration or the Preferred Merger Consideration, as applicable, set forth in
Section 2.1(c) of this Agreement, without any interest thereon, less any
required withholding taxes. The Company shall give Parent (i) prompt notice of
any demands for appraisal pursuant to Section 262 of the DGCL received by the
Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Company shall not, except
with the prior written consent of Parent, voluntarily make any payment with
respect to any such demands for appraisal or offer to settle or settle any such
demands.
Section 2.3. SURRENDER OF SHARES; STOCK TRANSFER BOOKS.
(a) PAYING AGENT. Prior to the Effective Time, Subsidiary shall designate
a bank or trust company (which shall be reasonably satisfactory to the Company)
to act as agent for the holders of Common Stock and Preferred Stock in
connection with the Merger (the "PAYING AGENT") to receive the Common Merger
Consideration and the Preferred Merger Consideration to which holders of Common
Stock and Preferred Stock shall become entitled pursuant to Section 2.1(c), as
applicable. At the Closing, Parent shall deposit in trust with the Paying Agent,
for the benefit of the holders of Common Stock and Preferred Stock, cash in
immediately available funds in an amount equal to the aggregate Merger
Consideration (such cash being hereinafter referred to as the "EXCHANGE FUND").
Such funds shall be invested by the Paying Agent as directed by Subsidiary or,
after the Effective Time, the Surviving Corporation; PROVIDED, HOWEVER, that
such investments shall only be in obligations of or guaranteed by the United
States of America. Any net profit resulting from, or interest or income produced
by, such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
(b) SURRENDER OF SHARES. As soon as practicable after the Effective Time
(but in no event more than five business days after the Effective Time), the
Surviving Corporation shall cause to be mailed to each record holder, as of the
Effective Time, of an outstanding certificate or certificates which immediately
prior to the Effective Time represented shares of Common Stock or Preferred
Stock (the "CERTIFICATES"), a form of letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to the Certificates
shall pass, only upon proper delivery of the Certificates (or affidavits of loss
in lieu thereof) to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates for payment of the Common Merger Consideration or
the Preferred Merger Consideration, as applicable. Upon surrender to the Paying
Agent of a Certificate (or affidavits of loss in lieu thereof), together with
such letter of transmittal, duly completed and validly executed in
A-3
<PAGE>
accordance with the instructions thereto, and such other documents as may be
reasonably required pursuant to such instructions, the holder of such
Certificate shall be entitled to receive in exchange therefor the Common Merger
Consideration or the Preferred Merger Consideration, as applicable, for each
share of Common Stock or Preferred Stock formerly represented by such
Certificate, and such Certificate shall then be canceled. No interest shall be
paid or accrued for the benefit of holders of the Certificates on the Merger
Consideration payable upon the surrender of the Certificates and any payment of
the Common Merger Consideration or the Preferred Merger Consideration, as
applicable, may be made less any required withholding taxes. If payment of the
Common Merger Consideration or the Preferred Merger Consideration, as
applicable, is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or shall be otherwise
in proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of the
Common Merger Consideration or the Preferred Merger Consideration, as
applicable, to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable.
(c) EXCHANGE FUND. At any time following six months after the Effective
Time, the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds (including any interest and other income received with
respect thereto) which had been made available to the Paying Agent and which
have not been disbursed to holders of Certificates, and thereafter such holders
shall be entitled to look to the Surviving Corporation (subject to abandoned
property, escheat or other similar laws) only as general creditors thereof with
respect to the Common Merger Consideration or the Preferred Merger
Consideration, as applicable, payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMMON STOCK OR PREFERRED STOCK. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Common Stock or Preferred Stock outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such shares of
Common Stock or Preferred Stock except as otherwise provided for herein or by
applicable law. After the Effective Time, there shall be no further transfer on
the records of the Company or its transfer agent of certificates representing
shares of Common Stock or Preferred Stock, and if such certificates are
presented to the Company for transfer, they shall be canceled against delivery
of the Merger Consideration as herein provided. The Common Merger Consideration
or the Preferred Merger Consideration, as applicable, paid upon the surrender
for exchange of certificates representing shares of Common Stock or Preferred
Stock in accordance with the terms of this Article II shall be deemed to have
been paid in full satisfaction of all rights pertaining to the shares of Common
Stock or Preferred Stock theretofore represented by such certificates.
(e) LOST CERTIFICATES. If any Certificate shall have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
such Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such person of a bond in such reasonable
amount as the Surviving Corporation may direct as indemnity against any claim
that may be made against it with respect to such Certificate, the Paying Agent
will deliver in exchange for such lost, stolen or destroyed Certificate the
Common Merger Consideration or the Preferred Merger Consideration, as
applicable, set forth in Section 2.1(c) with respect to the shares of Common
Stock or Preferred Stock formerly represented thereby, without any interest
thereon.
(f) ADJUSTMENTS TO PREVENT DILUTION. In the event that the Company changes
the number of shares of Common Stock or Preferred Stock issued and outstanding
prior to the Effective Time as a result of a reclassification, stock split
(including a reverse stock split), stock dividend or distribution,
A-4
<PAGE>
recapitalization, merger, subdivision, issuer tender or exchange offer, or other
similar transaction, the Merger Consideration shall be equitably adjusted to
reflect such change.
Section 2.4. STOCK OPTIONS. (a) Pursuant to Section 10.3 of the Company's
Omnibus Securities Plan (the "STOCK OPTION PLAN"), upon the occurrence of a
Change of Control (as defined in the Stock Option Plan) each then outstanding
stock option to purchase Common Stock (each a "STOCK OPTION") granted under the
Stock Option Plan shall immediately vest and become exercisable. Immediately
before the Effective Time, and as contemplated by Section 10.3 of the Stock
Option Plan, each then outstanding Stock Option granted under the Company's
Stock Option Plan, whether or not then vested or exercisable, shall terminate
and be sold to and canceled by the Company, and each holder of such terminated
Stock Option shall receive from the Company at the Effective Time (and, if
requested by the Company, Parent shall provide funds to the Company in the form
of a loan sufficient for it to make such payments) in consideration for the
termination of such Stock Option an amount in cash equal to the product of
(i) the number of shares of Common Stock that were subject to such Stock Option
immediately prior to its termination pursuant to this Section 2.4 and (ii) the
excess, if any, of (A) the higher of (1) the Common Merger Consideration per
share of Common Stock or (2) the Fair Market Value (as defined in the Stock
Option Plan) immediately prior to the occurrence of the Change of Control (as
defined in the Stock Option Plan) per share of the Common Stock over (B) the
exercise price per share of Common Stock subject to such Stock Option
immediately prior to its termination pursuant to this Section 2.4 (the "OPTION
CONSIDERATION"). This provision is intended to and does exercise the rights of
the Board of Directors of the Company to make such determinations under
Section 10.3 of the Stock Option Plan. The provisions of this section shall
survive the Merger and are intended to be for the benefit of, and shall be
enforceable by, Stock Option holders and, as applicable, their descendents,
heirs and representatives.
(b) Any payment made pursuant to this Section 2.4 may be made less any
required withholding taxes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
Section 3.1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. Except as set
forth in the corresponding sections or subsections of the disclosure schedules
delivered to Parent by the Company on or prior to entering into this Agreement
(the "COMPANY DISCLOSURE SCHEDULES"), the Company represents and warrants to
Parent and Subsidiary as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. The Company and each
subsidiary of the Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction in which it is incorporated
and has all the requisite corporate power and authority to carry on its business
as now being conducted and to own its properties and assets. The Company and
each subsidiary of the Company is duly qualified or licensed to do business and
is in good standing in each jurisdiction in which the nature of its business or
the ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so
qualified, licensed or in good standing would not, individually or in the
aggregate, have a Company Material Adverse Effect.
As used in this Agreement, a "COMPANY MATERIAL ADVERSE EFFECT" with respect
to the Company means a material adverse effect on (i) the business, financial
condition or results of operations of the Company and its subsidiaries, taken as
a whole, or (ii) the ability of the Company to perform its obligations under
this Agreement other than, in either case, any such effect resulting from
(1) changes in general economic or securities or financial market conditions
(including changes in interest rates), (2) any occurrence or condition generally
affecting any segment of the property and casualty insurance,
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life insurance or reinsurance industry in which the Company or any of its
subsidiaries participates (including natural catastrophe events and any change
or proposed change in law or regulations in any jurisdiction), (3) any increase
in the reserve for uncollectable reinsurance, or any write-off of reinsurance
recoverable assets as uncollectable, (4) any occurrence or condition arising out
of the transactions contemplated by this Agreement or the public announcement
thereof (including an occurrence or condition arising out of the identity of or
fact relating to Parent), and (5) (A) any downgrade or potential downgrade
by A.M. Best Company, Inc. ("BEST") of the claims paying ability rating of Farm
Family Casualty Insurance Company ("FFCIC") or Farm Family Life Insurance
Company ("FFLIC") to a level not below "B+", or (B) any downgrade or potential
downgrade by Best of the claims paying ability rating of FFCIC or FFLIC
attributable to any of the circumstances identified in clauses (1), (2), (3) or
(4) of this paragraph or any facts or circumstances relating to Parent or any of
its subsidiaries (including an occurrence or condition arising out of the
identity of Parent or any of its subsidiaries); PROVIDED, HOWEVER, that for
these purposes the loss of FFCIC's or FFLIC's license to transact insurance in
any state in which FFCIC or FFLIC transacts insurance on the date hereof shall
constitute a Company Material Adverse Effect.
(b) CERTIFICATES OF INCORPORATION AND BY-LAWS; MINUTE BOOKS. The Company
has made available to Parent true and complete copies of its certificate of
incorporation (the "COMPANY CERTIFICATE") and by-laws (the "COMPANY BY-LAWS")
and the certificates of incorporation and by-laws of each of its subsidiaries,
in each case as amended to the date hereof. The Company has made available to
Parent true and complete copies of the minute books of the meetings of the
Company's and its subsidiaries' stockholders and Boards of Directors for the
period January 1, 1996 to October 27, 2000. The minute books of the Company
accurately reflect in all material respects all resolutions adopted at all
meetings of its stockholders and its Board of Directors during such period. The
minute books of the subsidiaries of the Company accurately reflect in all
material respects all resolutions adopted at all meetings of their respective
Boards of Directors during such period.
(c) CAPITAL STRUCTURE. The authorized capital stock of the Company
consists of 10,000,000 shares of Common Stock and 1,000,000 shares of preferred
stock. At the close of business on October 27, 2000, 6,003,983 shares of Common
Stock were issued and outstanding, 496,700 shares of Common Stock were reserved
for issuance pursuant to outstanding Stock Options issued under the Stock Option
Plan, 163,214 shares of Preferred Stock, were issued and outstanding and 70,000
shares of Junior Participating Cumulative Preferred Stock, par value $.01 per
share, were reserved for issuance in connection with the rights (the "RIGHTS")
issued pursuant to the Rights Agreement dated as of July 29, 1997, as amended
(the "RIGHTS AGREEMENT"), between the Company and The Bank of New York. Except
as set forth above, at the close of business on October 27, 2000, no shares of
capital stock or other equity securities of the Company were issued, reserved
for issuance or outstanding. All outstanding shares of capital stock of the
Company have been duly authorized and validly issued and are fully paid and
nonassessable and not subject to preemptive rights. No bonds, debentures, notes
or other indebtedness of the Company or any subsidiary of the Company having the
right to vote (or convertible into, or exchangeable for, securities having the
right to vote) on any matters on which the stockholders of the Company or any
subsidiary of the Company may vote are issued or outstanding. Section 3.1(c) of
the Company Disclosure Schedule lists each subsidiary of the Company. All
outstanding shares of capital stock of each subsidiary of the Company have been
duly authorized and validly issued and are fully paid and nonassessable and are
owned by the Company, by one or more wholly owned subsidiaries of the Company or
by the Company and one or more such wholly owned subsidiaries, free and clear of
all pledges, claims, liens, charges, assessments, encumbrances and security
interests of any kind (collectively, "LIENS"). Except as set forth above or in
Section 3.1(c) of the Company Disclosure Schedule, there are not any securities,
options, warrants, rights, commitments or agreements of any kind to which the
Company or any of its subsidiaries is a party or by which any of them is bound
obligating any of them to issue, sell or deliver, or repurchase, redeem or
otherwise acquire, shares of capital stock or other equity or voting securities
of any of them or securities convertible into or
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exchangeable for capital stock or voting securities of the Company, or
obligating any of them to issue, sell, deliver, grant, extend or enter into any
such security, option, warrant, right, commitment or agreement. There are no
voting trusts or other agreements or understandings to which the Company or any
of its subsidiaries is a party with respect to the voting of the capital stock
of the Company or any of its subsidiaries.
(d) AUTHORITY; NONCONTRAVENTION. The Company has all requisite corporate
power and authority to enter into this Agreement and, subject to obtaining the
requisite approval of the plan of merger set forth in this Agreement by the
holders of at least a majority of all outstanding shares of Common Stock and
Preferred Stock, voting together as a class, entitled to vote thereon (the
"STOCKHOLDER APPROVAL"), to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Company,
subject to the Stockholder Approval. This Agreement has been duly executed and
delivered by the Company and, assuming this Agreement constitutes the valid and
binding agreement of Parent and Subsidiary, constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except that (i) such enforcement may be subject to applicable
bankruptcy, insolvency or other similar laws, now or hereafter in effect,
affecting creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms or equitable relief may be subject to
equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought. Except as disclosed in Section 3.1(d) of the
Company Disclosure Schedule, the execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement
will not, (i) subject to the Stockholder Approval, conflict with any of the
provisions of the Company Certificate or the Company By-laws or the comparable
documents of any subsidiary of the Company, (ii) subject to the matters referred
to in the next sentence, conflict with, result in a breach of or default under,
give rise to a right of termination, cancellation or acceleration of any
obligation under, or result in the creation of any Lien on any property or asset
of the Company or any of its subsidiaries under, any indenture or other
agreement, permit, franchise, license or instrument to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or any of their assets is bound or affected, or (iii) subject to
the matters referred to in the next sentence, contravene any statute, law,
ordinance, rule, regulation, order, judgment, injunction, decree, determination
or award applicable to the Company or any of its subsidiaries or any of their
respective properties or assets, which, in the case of clauses (ii) and
(iii) above, would, individually or in the aggregate, be reasonably expected to
have a Company Material Adverse Effect. No consent, approval or authorization
of, or declaration or filing with, or notice to, any court, governmental or
regulatory authority or agency, domestic or foreign (a "GOVERNMENTAL ENTITY"),
is required by or with respect to the Company or any of its subsidiaries in
connection with the execution and delivery of this Agreement by the Company or
the consummation by the Company of the transactions contemplated hereby, except
for (i) the filing of premerger notification and report forms under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT")
with respect to the Merger, (ii) the approvals, filings, authorizations, orders
and notices required under the insurance laws ("STATE INSURANCE APPROVALS") of
the jurisdictions set forth in Section 3.1(d) of the Company Disclosure
Schedule, (iii) the filing with the Securities and Exchange Commission (the
"SEC") of a proxy statement relating to the Stockholder Approval contemplated by
Section 5.1 (the "PROXY STATEMENT") and of such reports under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), as may be required in
connection with this Agreement and the transactions contemplated by this
Agreement, (iv) the filing of the certificate of merger with the Delaware
Secretary of State and appropriate documents with the relevant authorities of
other states in which the Company is qualified to do business, (v) such other
consents, approvals, authorizations, declarations, filings or notices as are set
forth in Section 3.1(d) of the Company Disclosure Schedule, (vi) any applicable
filings and approvals under state anti-takeover laws, state securities or "blue
sky" laws or New York
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Stock Exchange, Inc. or National Association of Securities Dealers, Inc.
requirements and (vii) such other consents, approvals, authorizations,
declarations, filings or notices the failure to obtain or make which would not,
individually or in the aggregate, be reasonably expected to have a Company
Material Adverse Effect.
(e) SEC DOCUMENTS; FINANCIAL STATEMENTS. (i) The Company has made
available to Parent all registration statements, proxy statements, annual
reports, quarterly reports and reports on Form 8-K filed by the Company with the
SEC since January 1, 1999 (as such documents have been amended since the time of
their filing, collectively, the "SEC DOCUMENTS"). As of their respective dates
or, if amended, as of the date of the last such amendment, the SEC Documents
(i) complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "SECURITIES ACT"), or the Exchange Act,
as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. The consolidated
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles (except, in the case
of unaudited consolidated quarterly statements, as permitted by Form 10-Q of the
SEC) applied on a consistent basis during the periods involved (except as may be
indicated in the notes thereto) and fairly present in all material respects the
consolidated financial position of the Company and its subsidiaries as of the
dates thereof and the consolidated results of operations and cash flows of the
Company and its subsidiaries for the periods then ended (subject, in the case of
unaudited quarterly statements, to normal year-end adjustments).
(ii) The Company has previously furnished to Parent true and complete
copies of the annual statements for each of the years ended December 1998 and
December 1999, together with all exhibits and schedules thereto (collectively,
the "ANNUAL STATEMENTS"), with respect to each of FFCIC, FFLIC and United Farm
Family Insurance Company (together with FFCIC and FFLIC, the "INSURERS"), in
each case as filed with the Governmental Entity charged with supervision of
insurance companies of such Insurer's jurisdiction of domicile (the "INSURANCE
REGULATOR"). The Annual Statements were prepared in conformity with statutory
accounting practices prescribed or permitted by such Insurance Regulator applied
on a consistent basis ("SAP") and present fairly, to the extent required by and
in conformity with SAP, except as expressly set forth in the notes, exhibits or
schedules thereto, in all material respects the statutory financial condition of
such Insurer at their respective dates and the results of operations, changes in
capital and surplus and cash flow of such Insurer for each of the periods then
ended.
(f) INFORMATION IN PROXY STATEMENT. The Proxy Statement, at the date it is
first mailed to the Company's stockholders and at the time of the Stockholders
Meeting (as defined in Section 5.2), will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. The Proxy Statement
will comply as to form in all material respects with the requirements of the
Exchange Act and the rules and regulations promulgated thereunder.
Notwithstanding the foregoing, no representation or warranty is made by the
Company in this Section 3.1(f) with respect to information supplied by Parent or
Subsidiary for inclusion or incorporation by reference in the Proxy Statement.
(g) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in the SEC
Documents filed and publicly available prior to the date of this Agreement (the
"FILED SEC DOCUMENTS") or in Section 3.1(g) of the Company Disclosure Schedule,
since the date of the most recent audited financial statements included in the
Filed SEC Documents, the Company and its subsidiaries have conducted their
business in the ordinary course consistent with past practice, and there has not
occurred (i) any event or change
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that would, individually or in the aggregate, be reasonably expected to have a
Company Material Adverse Effect, (ii) any declaration, setting aside or payment
of any dividend or other distribution (whether in cash, stock or property) with
respect to any of the Company's outstanding capital stock, other than regular
quarterly cash dividends on the Preferred Stock or (iii) any change in
accounting methods, principles or practices by the Company or any of its
subsidiaries materially affecting its assets, liabilities or business, except
insofar as may have been required by a change in applicable accounting
principles (including SAP).
(h) BENEFIT PLANS. (i) Each "employee pension benefit plan" (as defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA")), and each other written plan, arrangement or policy relating to stock
options, stock purchases, compensation, deferred compensation, severance, fringe
benefits or other employee benefits, in each case maintained or contributed to,
or required to be maintained or contributed to, by the Company or any of its
subsidiaries for the benefit of any present or former officer, employee or
director of the Company or any of its subsidiaries (all the foregoing
collectively referred to hereinafter as "BENEFIT PLANS") has been administered
in accordance with its terms except where failure to administer in accordance
with such terms would not be reasonably expected to have a Company Material
Adverse Effect. The Company, its subsidiaries and all the Benefit Plans are in
compliance with the applicable provisions of ERISA, the Code, all other
applicable laws and all applicable collective bargaining agreements except where
failure to comply would not be reasonably expected to have a Company Material
Adverse Effect.
(ii) None of the Company or any other person or entity that together
with the Company is treated as a single employer under Section 414(b), (c),
(m) or (o) of the Internal Revenue Code of 1986, as amended (the "CODE"), or
Section 4001 of ERISA (each a "COMMONLY CONTROLLED ENTITY") has incurred any
liability under Title IV of ERISA (other than for the payment of benefits or
Pension Benefit Guaranty Corporation ("PBGC") insurance premiums, in either case
in the ordinary course) or under Section 412(f) or 412(n) of the Code except as
would not, individually or in the aggregate, be reasonably expected to have a
Company Material Adverse Effect. No Benefit Plan that is or has ever been
subject to Part III of Subtitle B of Title I of ERISA or Section 412 of the Code
has incurred any "accumulated funding deficiency" (as defined therein) that has
not been satisfied in full, whether or not waived, and no liability under Title
IV of ERISA has been incurred or is reasonably expected to be incurred with
respect to any such Benefit Plan subject thereto (other than premiums incurred
and paid when due), in each case, that would, individually or in the aggregate,
be reasonably expected to have a Company Material Adverse Effect. There has not
been any "reportable event" within the meaning of Section 4043(c) of ERISA with
respect to any such Benefit Plan for which the 30-day reporting requirement has
not been waived or extended, in any case, that would, individually or in the
aggregate, be reasonably expected to have a Company Material Adverse Effect.
Except as disclosed in Section 3.1(h) of the Company Disclosure Schedule, the
actuarial present value on a termination basis of accrued benefits under each of
the Benefit Plans sponsored by the Company, a subsidiary or any Commonly
Controlled Entity which is subject to Title IV of ERISA, based upon the interest
rate assumptions that would be utilized by the PBGC to value annuities for a
pension plan termination and the other actuarial assumptions and methods
currently used for such Benefit Plan, did not, as of its latest valuation date,
exceed the then current value of the assets of such Benefit Plan.
(iii) No Commonly Controlled Entity is, or at any time has been,
obligated to contribute to any "multiemployer plan" (as defined in
Section 4001(a)(3) of ERISA) or has withdrawn from or incurred any contractual
liability to any multiemployer plan resulting or which could reasonably be
expected to result in any material "withdrawal liability" (within the meaning of
Section 4201 of ERISA) that has not been fully paid.
(iv) Except as disclosed in the Filed SEC Documents or in Section 2.4 or
in Section 3.1(h) of the Company Disclosure Schedule, since the date of the most
recent audited financial statements included in the Filed SEC Documents, there
has not been any adoption or amendment by the
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Company or any of its subsidiaries of any collective bargaining agreement or any
Benefit Plan which adoption or amendment results in a material increase in
liability thereunder. Except as disclosed in the Filed SEC Documents or in
Section 2.4 or in Section 3.1(h) of the Company Disclosure Schedule, there exist
no material written or, to the knowledge of the Company, no material oral
employment, consulting, severance, termination or indemnification agreements or
arrangements between the Company or any subsidiary of the Company and any
current or former employee, officer or director of the Company or any subsidiary
of the Company, other than those entered into after the date of this Agreement
in the ordinary course of business or, with the consent of Parent, in connection
with any additions to personnel required for post-Merger operations.
(v) Except as disclosed in Section 3.1(h) or 3.1(j) of the Company
Disclosure Schedule, no event has occurred and no condition exists, with respect
to any Benefit Plan that has subjected or would be reasonably expected to
subject the Company or any of its subsidiaries, any Benefit Plan or any
successor thereto, or Parent or Subsidiary or any of their affiliates, to any
tax, fine, penalty or other liability that would, individually or in the
aggregate, be reasonably expected to have a Company Material Adverse Effect
(other than a liability arising in the normal course to make contributions,
payments of expenses or benefits, or to provide benefits, as applicable, when
ordinarily due under a Benefits Plan with respect to employees, agents, former
employees or former agents of the Company and its subsidiaries, Benefit Plan
expenses and benefits paid or provided as required by the provisions of this
Agreement, as a result of actions taken pursuant to this Agreement or as a
result of actions taken at or after Closing).
(i) TAXES. (i) Except as disclosed in Section 3.1(i) of the Company
Disclosure Schedule and only to the extent that a breach of the following
representations and warranties would in the aggregate have a Company Material
Adverse Effect: (A) all Tax Returns required to be filed for any period ending
on or before the Closing Date with respect to the Company or any of its
subsidiaries (including the consolidated Federal income Tax Return of the
Company and any state Tax Return that includes the Company or any of its
subsidiaries on a consolidated or combined basis) have been timely filed;
(B) all Taxes required to be shown on such Tax Returns or otherwise due have
been timely paid; (C) all such Tax Returns (insofar as they relate to the
activities or income of the Company or any of its subsidiaries) are true,
correct and complete in all material respects; and (D) the most recent financial
statements contained in the Filed SEC Documents reflect adequate reserves for
all Taxes payable by the Company and its subsidiaries for all taxable periods
and portions thereof accrued through the date of such financial statements.
(ii) Except as set forth in Section 3.1(i) of the Company Disclosure
Schedule, (A) no deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries that are not adequately
reserved for, except for deficiencies that would not, individually or in the
aggregate, be reasonably expected to have a Company Material Adverse Effect, and
(B) no agreement to extend and no requests for waivers of the time to assess any
Taxes or to file any Tax Returns have been granted or are pending.
(iii) Except as disclosed in Section 3.1(i) of the Company Disclosure
Schedule, as of the date hereof, (A) no Tax Return of the Company or any of its
subsidiaries is currently the subject of an audit and (B) there are no liens on
any of the assets of the Company or any of its subsidiaries with respect to
Taxes, other than Permitted Liens.
(iv) Except as disclosed in Section 3.1(i) of the Company Disclosure
Schedule, none of the Company or any of its subsidiaries (A) has been a member
of any group of entities (other than a group of which the Company is the common
parent) filing a consolidated federal income Tax Return or similar combined
state, local or foreign Tax Return, (B) has any liability for the Taxes of any
person (other than the Company or any of its subsidiaries) under Treasury
Regulation Section 1.1502-6 (or any
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similar provision of state, local or foreign law) as a transferee or successor
by contract or otherwise or (C) is a party to any tax allocation or tax sharing
agreement.
(v) As used in this Agreement: (A) "TAXES" shall include all Federal,
state, local and foreign income, property, sales, excise, employment, payroll,
withholding, premium and other taxes, tariffs or governmental charges of any
nature whatsoever; and (B) "TAX RETURNS" shall include any return, declaration,
report, claim for refund, or information return or statement relating to Taxes,
including any schedule or attachment thereto, and including any amendment
thereof.
(j) NO EXCESS PARACHUTE PAYMENTS. Except as disclosed in Section 3.1(j) of
the Company Disclosure Schedule, neither the Company nor any of its subsidiaries
has made any payments or is obligated to make any payments or is a party to any
agreement (including this Agreement) that could obligate it to make any payments
that will not be deductible under Section 280G of the Code.
(k) COMPLIANCE WITH APPLICABLE LAWS. (i) Except as disclosed in
Section 3.1(k) of the Company Disclosure Schedule, the business and operations
of the Insurers have been conducted in compliance with all applicable foreign,
federal, state and local statutes and regulations regulating the business and
products of insurance and reinsurance and all applicable orders of insurance
regulatory authorities and market conduct recommendations resulting from market
conduct examinations of the Insurers by insurance regulatory authorities
(collectively, "INSURANCE LAWS"), except where the failure to so conduct such
business and operations would not, individually or in the aggregate, be
reasonably expected to have a Company Material Adverse Effect. Without limiting
the generality of the preceding sentence, except as disclosed in Section 3.1(k)
of the Company Disclosure Schedule, and except where the failure to do so would
not, individually or in the aggregate, be reasonably expected to have a Company
Material Adverse Effect, each of the Insurers has marketed, sold and issued
insurance, reinsurance and annuity products in compliance with all applicable
Insurance Laws, including (A) all applicable prohibitions against withdrawal of
business lines and "redlining", (B) all applicable requirements relating to the
disclosure of the nature of insurance products as policies of insurance,
(C) all applicable requirements relating to insurance product projections and
illustrations and (D) all applicable requirements relating to the advertising,
sales and marketing of insurance and annuity products. In addition, except as
disclosed in Section 3.1(k) of the Company Disclosure Schedule: (X) neither the
Company nor any of its subsidiaries has received written notice from an
Insurance Regulator alleging any of the Insurers to be in violation of any
applicable Insurance Laws, where such violations would, individually or in the
aggregate, be reasonably expected to have a Company Material Adverse Effect;
(Y) none of the Insurers is subject to any order or decree of any Insurance
Regulator relating specifically to it (as opposed to insurance companies
generally) that would, individually or in the aggregate, be reasonably expected
to have a Company Material Adverse Effect; and (Z) the Insurers have filed all
reports required to be filed with any Insurance Regulator, except where the
failure to file such reports would not, individually or in the aggregate, be
reasonably expected to have a Company Material Adverse Effect.
(ii) Except as disclosed in Section 3.1(k) of the Company Disclosure
Schedule, and except as set forth in the Filed SEC Documents prior to the date
hereof, the business of each of the Company and its subsidiaries have not been,
and are not being, conducted in violation of any applicable federal, state,
local or foreign law, statute, ordinance, rule, regulation, judgment, order,
injunction, decree, arbitration award, agency requirement, license or permit of
any Governmental Entity (collectively, "LAWS"), except for violations or
possible violations that would not, individually or in the aggregate, be
reasonably expected to have a Company Material Adverse Effect. Except as
disclosed in Section 3.1(k) of the Company Disclosure Schedule, neither the
Company nor any of its subsidiaries has received written notice from any
Governmental Entity that it is conducting an investigation or review of the
Company or any of its subsidiaries which would be reasonably expected to have a
Company Material Adverse Effect. The Company and its subsidiaries each has all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct
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its business as presently conducted except those the absence of which would not,
individually or in the aggregate, be reasonably expected to have a Company
Material Adverse Effect.
(l) LITIGATION. Except as disclosed in the Filed SEC Documents or in
Section 3.1(l) of the Company Disclosure Schedule, there is no suit, action,
proceeding or arbitration (excluding those relating to policies of insurance or
reinsurance written by the Company and its subsidiaries) pending or, to the
knowledge of the Company, threatened in writing against or affecting the Company
or any of its subsidiaries that would, individually or in the aggregate, be
reasonably expected to have a Company Material Adverse Effect, nor is there any
judgment, decree, injunction or order of any Governmental Entity or arbitrator
outstanding against the Company or any of its subsidiaries which would,
individually or in the aggregate, be reasonably expected to have a Company
Material Adverse Effect.
(m) UNDISCLOSED LIABILITIES. Except for (i) liabilities or items set forth
in Section 3.1(m) of the Company Disclosure Schedule, (ii) liabilities that are
reflected or reserved against on the consolidated balance sheet of the Company
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1999 (the "FORM 10-K") or otherwise disclosed in the notes to the
Company's consolidated financial statements included in the Form 10-K,
(iii) liabilities incurred in the ordinary course of business consistent with
past practice since the date of such balance sheet, and (iv) liabilities or
obligations arising under this Agreement or incurred in connection with the
transactions contemplated hereby, no liabilities, whether accrued, contingent or
otherwise, have been incurred by the Company or its subsidiaries, other than
those that would not, individually or in the aggregate, be reasonably expected
to have a Company Material Adverse Effect.
(n) OPINION OF FINANCIAL ADVISOR. The Company has received the opinion of
its financial advisor, Fox-Pitt, Kelton Inc., dated as of the date of this
Agreement to the effect that the consideration to be received by the holders of
Common Stock of the Company in the Merger is fair to such holders from a
financial point of view.
(o) VOTING REQUIREMENTS. The affirmative vote of holders of a majority of
the shares of Common Stock and Preferred Stock, voting together as a class, with
respect to this Agreement and the Merger is the only vote of the holders of any
class or series of the capital stock of the Company necessary to approve this
Agreement and the Merger.
(p) RIGHTS AGREEMENT; TAKEOVER STATUTES. The Company and its Board of
Directors have amended the Rights Agreement (without redeeming the Rights) so
that neither the execution and delivery of this Agreement nor the consummation
of the Merger will (i) cause any of the Rights to become exercisable,
(ii) cause Parent or Subsidiary to be an Acquiring Person (as defined in the
Rights Agreement) or (iii) trigger other provisions of the Rights Agreement,
including giving rise to a Distribution Date (as defined in the Rights
Agreement) and such amendment shall be in full force and effect from and after
the date hereof. The Company has taken all action required to be taken by it in
order to exempt this Agreement and the transactions contemplated hereby from the
requirements of any "fair price," "moratorium," "control share acquisition,"
"interested stockholder" or other similar anti-takeover statute or regulation of
any state, including, without limitation, Section 203 of the DGCL.
(q) BROKERS. No broker, investment banker, financial advisor or other
person, other than Fox-Pitt, Kelton Inc., the fees and expenses of which will be
paid by the Company, is entitled to any broker's, finder's, financial advisor's
or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
(r) MATERIAL CONTRACTS. Except as disclosed in Section 3.1(r) of the
Company Disclosure Schedule, as of the date hereof neither the Company nor any
of its subsidiaries is a party to or bound by any Contract (i) that is a
"material contract" within the meaning of Item 601(b)(10) of Regulation S-K or
(ii) that prohibits or restricts the Company or any of its subsidiaries from
engaging
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in any business activity in any geographic area, line of business or otherwise
in competition with any other person. The Company has made available to Parent
true and complete copies of each Contract that was filed as an exhibit to the
Form 10-K or is listed in Section 3.1(r) of the Company Disclosure Schedule.
Except as disclosed in Section 3.1(r) of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries is in default under any Contract
to which it is a party or bound, except for such defaults as would not,
individually or in the aggregate, be reasonably expected to have a Company
Material Adverse Effect. Except as set forth in Section 3.1(r) of the Company
Disclosure Schedule, neither the Company nor any of its subsidiaries is a party
to any material Contract with any state Farm Bureau-Registered Trademark-
association in those states in which the Company operates or, to the knowledge
of the Company, any directors or officers thereof (other than policies of
insurance or Contracts in connection with their service as directors and
officers of the Company and its subsidiaries).
(s) INSURANCE BUSINESS. (i) Except as disclosed in Section 3.1(s) of the
Company Disclosure Schedule, and except as otherwise would not, individually or
in the aggregate, be reasonably expected to have a Company Material Adverse
Effect: (A) all policies, binders, slips, certificates, annuity contracts and
participation agreements and other agreements of insurance and reinsurance,
whether individual or group (including all applications, supplements,
endorsements, riders and ancillary agreements in connection therewith), that are
currently issued by the Insurers (the "COMPANY INSURANCE CONTRACTS") and any and
all marketing materials that are currently used by the Insurers, are, to the
extent required under applicable Insurance Laws, on forms approved by applicable
insurance regulatory authorities or which have been filed and not objected to by
such authorities within the period provided for objection, and such forms comply
in all material respects with the Insurance Laws applicable thereto; and
(B) premium rates established by the Insurers with respect to the Company
Insurance Contracts that are required to be filed with or approved by insurance
regulatory authorities have been so filed or approved, the premiums charged
conform thereto in all material respects, and such premiums comply in all
material respects with the Insurance Laws applicable thereto.
(ii) To the knowledge of the Company, as of the date hereof, each
insurance agent, third party administrator, manager, marketer, underwriter,
broker, reinsurance intermediary and distributor (each an "AGENT"), at the time
such Agent wrote, sold, produced or managed business for the Company or its
subsidiaries was duly licensed (for the type of business written, sold, produced
or managed), except for such failures to be licensed that would not,
individually or in the aggregate, be reasonably expected to have a Company
Material Adverse Effect.
(iii) The Company has made available to Parent (A) a "reinsurance
confirmation" (prepared by the applicable reinsurance broker) of each property
and casualty reinsurance agreement in force as of the date of this Agreement
pursuant to which any of the Insurers is a ceding party, (B) a summary (prepared
by the Company) of the life and health reinsurance agreements in force as of the
date of this Agreement pursuant to which any of the Insurers is a ceding party,
and (C) an "assumed treaty profile" (prepared by the Company) of each
reinsurance agreement in force as of the date of this Agreement pursuant to
which any of the Insurers is an assuming party (the reinsurance agreements
referred to in the foregoing clauses (A), (B) and (C) being referred to
collectively as the "REINSURANCE CONTRACTS"). Neither the Insurers nor, to the
knowledge of the Company, any other party thereto, is in default under any
Reinsurance Contract, except for such default as would not, individually or in
the aggregate, be reasonably expected to have a Company Material Adverse Effect.
To the knowledge of the Company, as of the date hereof, there are no disputes
with reinsurers under any of the Reinsurance Contracts that would, individually
or in the aggregate, be reasonably expected to have a Company Material Adverse
Effect.
(iv) The Company has made available to Parent a true and complete copy
of any actuarial reports prepared by independent actuaries with respect to
reserve adequacy of the Insurers from December 31, 1997 to the date hereof, and
all attachments, addenda, supplements and modifications thereto.
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(v) Except as set forth in Section 3.1(s) of the Company Disclosure
Schedule, to the knowledge of the Company, as of the date hereof, Best has not
informed the Company that any claims-paying ability rating from Best currently
held by any of the Insurers is likely to be modified, qualified, lowered or
placed under such surveillance or review for any reason.
(t) LIABILITIES AND RESERVES. (i) The reserves carried on the Annual
Statements of each Insurer for the year ended December 31, 1999 in respect of
its insurance business were determined in accordance with generally accepted
actuarial standards consistently applied and were fairly stated in accordance
with sound actuarial principles utilizing actuarial assumptions in accordance
with or more conservative than called for in relevant policy and contract
provisions (it being understood that no representation or warranty is made in
this Agreement to the effect that such reserves were or are in fact adequate to
cover the actual amount of such liabilities that are eventually paid after the
date hereof). The Company has made available to Parent true and complete copies
of the actuarial valuation reports delivered to the Insurance Regulator of each
of the Company's insurance subsidiaries for the years ended December 31, 1999
and 1998.
(ii) Except for regular periodic assessments in the ordinary course of
business or assessments based on developments which are publicly known within
the insurance industry, to the knowledge of the Company, no claim or assessment
is pending or threatened against any of the Insurers which is peculiar or unique
to such Insurer by any state insurance guaranty associations in connection with
such association's fund relating to insolvent insurers which if determined
adversely would, individually or in the aggregate, be reasonably expected to
have a Company Material Adverse Effect.
(u) APPROVALS AND PERMITS. The Company has no reason to believe that it
and its affiliates will not be able to obtain as promptly as reasonably
practicable all necessary approvals, authorizations and consents of Governmental
Entities required to be obtained by it and its affiliates to consummate the
transactions contemplated by this Agreement.
(v) INTELLECTUAL PROPERTY. (i) To the knowledge of the Company, the
Company and each of its subsidiaries owns, or is licensed or otherwise possesses
legally enforceable rights to use, all material patents, trademarks, trade
names, service marks, copyrights, technology, know-how trade secrets, computer
software programs or applications, and tangible or intangible confidential and
proprietary information or materials ("INTELLECTUAL PROPERTY") that are used in
the business of the Company and its subsidiaries as currently conducted, except
for any such failures to own, be licensed or possess that would not,
individually or in the aggregate, be reasonably expected to have a Company
Material Adverse Effect. To the knowledge of the Company, the service mark
currently being used by the Company and its subsidiaries listed in
Section 3.1(v)(i) of the Company Disclosure Schedule is the only material
patent, trademark, tradename or service mark registered by the Company or any of
its subsidiaries and, based solely on records of the U.S. Patent and Trademark
Office, such registration is valid and subsisting. The Company has made
available to Parent true, correct and complete copies of all material third
party licenses of Intellectual Property held by it or any of its subsidiaries.
(ii) Except as would not be reasonably expected to have a Company
Material Adverse Effect: (A) except as disclosed in Schedule 3.1(v)(ii) of the
Company Disclosure Schedule, the Company is not, nor will it be as a result of
the execution and delivery of this Agreement or the performance of its
obligations hereunder, in material violation of any licenses, sublicenses and
other agreement as to which the Company is a party and pursuant to which the
Company is authorized to use any third-party Intellectual Property; (B) the
Company has not received any written notice or any bona fide claims (1) to the
effect that the Company or any of its subsidiaries is infringing on any third
party copyright, patent, trademark, trade name, service mark or trade secret; or
(2) against the use by the Company or any of its subsidiaries, of any
Intellectual Property used in the business of the Company or any of its
subsidiaries as currently conducted or as proposed to be conducted; and (C) the
Company has not received any written notice of any infringement of any of the
Intellectual Property of the Company or
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any of its subsidiaries by any third party, including any employee or former
employee of the Company or any of its subsidiaries.
Section 3.2. REPRESENTATIONS AND WARRANTIES OF PARENT AND
SUBSIDIARY. Except as set forth in the corresponding sections or subsections of
the disclosure schedules delivered to the Company by Parent on or prior to
entering into this Agreement (the "PARENT DISCLOSURE SCHEDULES"), Parent and
Subsidiary represent and warrant to the Company as follows:
(a) ORGANIZATION, STANDING AND CORPORATE POWER. Parent and each of its
subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
all requisite corporate power and authority to carry on its business as now
being conducted and to own its properties and assets. Parent and each of its
subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed or in good standing would not, individually or in the aggregate,
have a Parent Material Adverse Effect. Subsidiary has not heretofore conducted
any business other than in connection with this Agreement and the transactions
contemplated hereby. Each of Parent and Subsidiary has delivered to the Company
complete and correct copies of its certificate of incorporation and by-laws, as
amended to the date of this Agreement.
As used in this Agreement, a "PARENT MATERIAL ADVERSE EFFECT" with respect
to Parent means a material adverse effect on (i) the business, financial
condition or results of operations of Parent and its subsidiaries, taken as a
whole, or (ii) the ability of Parent or Subsidiary to perform its obligations
under this Agreement.
(b) CAPITALIZATION OF SUBSIDIARY. The authorized capital stock of
Subsidiary consists of 1,000 shares of common stock. At the close of business on
October 30, 2000, 100 shares of common stock were issued and outstanding. All
outstanding shares of capital stock of Subsidiary have been validly issued and
are fully paid and nonassessable and not subject to preemptive rights. No bonds,
debentures, notes, or other indebtedness of Subsidiary having the right to vote
(or convertible into, or exchangeable for, securities having the right to vote)
on any matters on which the stockholders of Subsidiary may vote are issued or
outstanding. Section 3.2(b) of Parent Disclosure Schedule lists each subsidiary
of Subsidiary. Except as set forth above or in Section 3.2(b) of Parent
Disclosure Schedule, there are not any securities, options, warrants, rights,
commitments or other agreements of any kind to which Subsidiary or any of its
subsidiaries is a party or by which any of them is bound obligating any of them
to issue, sell or deliver, or repurchase, redeem or otherwise acquire, shares of
capital stock or other equity or voting securities of any of them or securities
convertible into or exchangeable for capital stock or voting securities of
Subsidiary, or obligating any of them to issue, sell, deliver, grant, extend or
enter into any such security, option, warrant, right, commitment or agreement.
(c) AUTHORITY; NONCONTRAVENTION. Each of Parent and Subsidiary has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement by Parent and Subsidiary and the consummation by
Parent and Subsidiary of the transactions contemplated by this Agreement have
been duly authorized by all necessary corporate action on the part of Parent and
Subsidiary. No action by the stockholders of Parent is necessary to authorize
the execution and delivery by Parent and Subsidiary of this Agreement and the
consummation by Parent and Subsidiary of the transactions contemplated hereby.
This Agreement has been duly executed and delivered by Parent and Subsidiary
and, assuming this Agreement constitutes the valid and binding agreement of the
Company, constitutes a valid and binding obligation of Parent and Subsidiary,
enforceable against Parent and Subsidiary in accordance with its terms except
that (i) such enforcement may be subject to applicable bankruptcy, insolvency or
other similar laws, now or hereafter in effect, affecting creditors' rights
generally and (ii) the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to equitable
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defenses and to the discretion of the court before which any proceeding therefor
may be brought. Except as disclosed in Section 3.2(c) of Parent Disclosure
Schedule, the execution and delivery of this Agreement do not, and the
consummation of the transactions contemplated by this Agreement will not,
(i) conflict with any of the provisions of the certificate of incorporation or
the by-laws of Parent or the comparable documents of any of its subsidiaries,
(ii) subject to the matters referred to in the next sentence, conflict with,
result in a breach of or default under, give rise to a right of termination,
cancellation or acceleration of any obligation under, or result in the creation
of any Lien on any property or asset of Parent or any of its subsidiaries under,
any indenture or other material agreement, permit, franchise, license or
instrument to which Parent or any of its subsidiaries is a party or by which
Parent or any of its subsidiaries or any of their assets is bound or affected,
or (iii) subject to the matters referred to in the next sentence, contravene any
statute, law, ordinance, rule, regulation, order, judgment, injunction, decree,
determination or award applicable to Parent or any of its subsidiaries or any of
their respective properties or assets, which, in the case of clauses (ii) and
(iii) above, would, individually or in the aggregate, be reasonably expected to
have a Parent Material Adverse Effect. No consent, approval or authorization of,
or declaration or filing with, or notice to, any Governmental Entity is required
by or with respect to Parent or any of its subsidiaries in connection with the
execution and delivery of this Agreement by Parent and Subsidiary or the
consummation by Parent and Subsidiary of any of the transactions contemplated
hereby, except for (i) the filing of premerger notification and report forms
under the HSR Act with respect to the Merger, (ii) State Insurance Approvals set
forth in Section 3.2(c) of Parent Disclosure Schedule, (iii) the filing of the
certificate of merger with the Delaware Secretary of State and appropriate
documents with the relevant authorities of other states in which Parent and
Subsidiary are qualified to do business, (iv) such other consents, approvals,
authorizations, declarations, filings or notices as are set forth in
Section 3.2(c) of Parent Disclosure Schedule, (v) any applicable filings and
approvals under state anti-takeover laws, state securities or "blue sky" laws or
Nasdaq National Market requirements, and (vi) such other consents, approvals,
authorizations, declarations, filings or notices the failure to obtain or make
which would not, individually or in the aggregate, be reasonably expected to
have a Parent Material Adverse Effect.
(d) INFORMATION IN PROXY STATEMENT. None of the information supplied or to
be supplied by Parent or Subsidiary for inclusion or incorporation by reference
in the Proxy Statement will, at the date the Proxy Statement is first mailed to
the Company's stockholders and at the time of the Stockholders' Meeting, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading.
(e) FINANCING. Parent has sufficient funds available to pay the Merger
Consideration and all fees and expenses related to the transactions contemplated
by this Agreement.
(f) APPROVALS AND PERMITS. Parent has no reason to believe that it and its
affiliates will not be able to obtain as promptly as reasonably practicable all
necessary approvals, authorizations and consents of Governmental Entities
required to be obtained to consummate the transactions contemplated by this
Agreement.
(g) BROKERS. No broker, investment banker, financial advisor or other
person is entitled to any broker's, finder's, financial advisor's or other
similar fee or commission in connection with the transactions contemplated by
this Agreement based upon arrangements made by or on behalf of Parent.
(h) SHARE OWNERSHIP. Parent, Subsidiary and their respective subsidiaries
do not own any shares of Common Stock or Preferred Stock.
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(i) INTERIM OPERATIONS. Subsidiary was formed solely for the purposes of
engaging in the transactions contemplated hereby and has not conducted any
business prior to the date hereof other than in connection with its formation.
Subsidiary has no, and prior to the Effective Time will have no, assets,
liabilities or obligations of any nature other than those incident to its
formation and pursuant to this Agreement and the Merger and the other
transactions contemplated by this Agreement.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
Section 4.1. CONDUCT OF BUSINESS OF THE COMPANY. Except as specifically
contemplated by this Agreement (including as set forth on Section 4.1 of the
Company Disclosure Schedule) or as may be required by law, during the period
from the date of this Agreement to the Effective Time, the Company shall, and
shall cause its subsidiaries to, carry on their respective businesses only in
the ordinary course of business consistent with past practice and, to the extent
consistent therewith, use their commercially reasonable efforts to preserve
intact their current business organizations and their relationships with
officers, employees, agents, insureds, reinsureds and others having business
dealings with them. Without limiting the generality of the foregoing, during the
period from the date of this Agreement to the Effective Time, except as
expressly contemplated by this Agreement (including as set forth on Section 4.1
of the Company Disclosure Schedule) or as may be required by law, the Company
shall not, and shall not permit any of its subsidiaries to, without the prior
consent of Parent, which consent shall not be unreasonably withheld:
(i) (A) declare, set aside or pay any dividends on, or make any other
distributions (whether in cash, stock or property) in respect of, any of the
Company's outstanding capital stock other than regular quarterly cash dividends
on the Preferred Stock, (B) split, combine or reclassify any of its outstanding
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its outstanding capital
stock, (C) engage in a recapitalization, merger, issuer tender or exchange offer
or other similar transaction, or (D) purchase, redeem or otherwise acquire any
shares of outstanding capital stock of the Company or any of its subsidiaries or
any rights, warrants or options to acquire any such shares, except for
repurchases of shares or options pursuant to the terms of any Stock Option and
except with respect to such shares tendered for tax withholding under the Stock
Option Plan;
(ii) other than Rights disclosed on Company Disclosure Schedule 4.1,
issue, sell, grant, pledge or otherwise encumber any shares of its capital
stock, any other voting securities or any securities convertible into, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities other than upon the exercise of Stock Options outstanding
on the date of this Agreement;
(iii) amend its certificate of incorporation, by-laws or other
comparable organizational documents;
(iv) except for acquisitions of investment assets in the ordinary course
of business consistent with past practice, acquire (A) an equity interest in any
corporation, partnership, joint venture, association or other business
organization or division thereof or (B) any other asset (other than capital
expenditures) that has a purchase price in excess of $500,000, with an aggregate
limit of $2,000,000;
(v) sell, lease, mortgage or otherwise encumber or subject to any Lien
(other than Permitted Liens) or otherwise dispose of any of its properties or
assets for an amount in excess of $1,000,000, except in the ordinary course of
business consistent with past practice (including sales of investment assets);
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(vi) (A) incur any indebtedness for borrowed money (including
capitalized lease obligations, installment sales or similar arrangements) or
guarantee or otherwise become responsible for any such indebtedness of another
person, except in the ordinary course of business consistent with past practice
or (B) make any loans, advances or capital contributions to, or investments in,
any other person, other than to the Company or to any direct or indirect
subsidiary of the Company and customary loans and advances to employees, and
other than as to such matters related to the investment portfolio of the Company
or any of its subsidiaries in the ordinary course of business consistent with
past practice;
(vii) make any tax election or settle or compromise any liability for
Taxes that would be reasonably expected to have a Company Material Adverse
Effect;
(viii) make any change in accounting methods, principles or practices
used by the Company or any of its subsidiaries materially affecting its assets,
liabilities or business, except insofar as may be required by a change in
applicable accounting principles (including SAP);
(ix) make any capital expenditure involving a payment in excess of
$500,000, with an aggregate limit of $3,000,000;
(x) (A) grant to any Designated Officer (as hereinafter defined) any
increase in compensation in excess of 4% of such Designated Officer's base
salary for the prior year or grant to any officer (other than any Designated
Officer) or other employee of the Company or any of its subsidiaries any
increase in compensation, except in the ordinary course of business consistent
with prior practice or as contemplated by Section 5.5(c), (B) provide to the
employees (including Designated Officers and other officers) of the Company any
profit sharing declared pursuant to the terms of the Farm Family Profit Sharing
and Money Purchase Plan (as amended) or the Farm Family Supplemental Profit
Sharing and Money Purchase Plan (as amended), (1) in the aggregate, in excess of
7.5% of payroll of the Company and its subsidiaries or (2) that is made on a
basis that is not consistent with the Company's past practices, including,
without limitation, with respect to the percentage of payroll declared in
relation to the profitability of the Company, (C) grant to any executive officer
or other employee of the Company or any of its subsidiaries any increase in
severance or termination pay, except to the extent currently required under
applicable law or as was required under any employment, severance or termination
agreement in effect as of the date of this Agreement, (D) enter into any
employment, severance or termination agreement with any executive officer or
supervisory employee of the Company or any of its subsidiaries (provided that
newly hired supervisory employees (excluding officers) may be included in the
Company's severance and termination plans), or (E) adjust the strike price of
any Stock Options, issue any additional Stock Options or amend the Stock Options
Plan;
(xi) except as permitted under this Agreement and except for amendments
or commitments pending on the date of this Agreement and disclosed in the
Company Disclosure Schedule, enter into any Contract that would be a "material
contract" within the meaning of Item 601(b)(10) of Regulation S-K or amend any
Contract identified in Section 3.1(r) of the Company Disclosure Schedule; or
(xii) authorize any of, or commit or agree to take any of, the foregoing
actions.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1. PROXY STATEMENT. As soon as practicable following the date of
this Agreement, the Company shall prepare and file with the SEC the Proxy
Statement and shall use its commercially reasonable efforts to have the Proxy
Statement cleared by the SEC as promptly as practicable after such filing. The
Company shall notify Parent promptly of the receipt of any comments from the SEC
and of any request by the SEC for amendments or supplements to the Proxy
Statement and will use all
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reasonable efforts to respond promptly to such comments or requests. The Company
will provide to Parent promptly copies of all correspondence between it or any
of its representatives and the SEC with respect to the Proxy Statement. Parent
shall cooperate with the Company in the preparation of, and furnish all
information concerning it required to be included in, the Proxy Statement. The
Company shall cause the Proxy Statement to be mailed to the Company's
stockholders as promptly as practicable after it is cleared by the SEC.
Section 5.2. STOCKHOLDERS MEETING. Subject to Section 5.9, the Company,
acting through its Board of Directors, shall, in accordance with applicable law
and the Company Certificate and Company By-laws, (a) convene a meeting of its
stockholders to consider and vote on the approval of this Agreement and the
Merger (the "STOCKHOLDERS MEETING") and (b) subject to the fiduciary duties of
its Board of Directors to stockholders under applicable law, (i) solicit proxies
from its stockholders to obtain the approval of its stockholders with respect to
this Agreement and (ii) include in the Proxy Statement to be sent to the
stockholders of the Company the recommendation of the Board of Directors of the
Company that the stockholders of the Company vote in favor of the approval of
this Agreement and the Merger.
Section 5.3. ACCESS TO INFORMATION; CONFIDENTIALITY. The Company shall,
and shall cause its subsidiaries to, afford to Parent and to the officers,
employees, counsel, financial advisors and other representatives of Parent
reasonable access during normal business hours during the period prior to the
Effective Time to all its properties, books, contracts, commitments, personnel
and records and, during such period, the Company shall, and shall cause its
subsidiaries to, furnish as promptly as practicable to Parent such information
concerning its business, properties, financial condition, operations and
personnel as Parent may from time to time reasonably request, other than any
such properties, books, contracts, commitments, records and information that
(a) are subject to the attorney-client privilege or (b) are subject to an
obligation of confidentiality to a third party. The Company will disclose to
Parent each instance in which information is withheld under (a) and (b) of the
preceding sentence and provide a general description of the type of information
withheld; PROVIDED, HOWEVER, that the Company shall have no obligation to
prejudice, compromise or violate any such attorney-client privilege or
obligation of confidentiality. Parent will hold, and will cause its subsidiaries
and each of their respective directors, officers, employees, counsel, financial
advisors and other representatives and affiliates to hold, any non-public
information in confidence to the extent required by, and in accordance with, the
provisions of the existing confidentiality agreement, dated June 21, 2000,
between Parent and the Company (the "CONFIDENTIALITY AGREEMENT").
Section 5.4. COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject
to the conditions and other agreements set forth in this Agreement, each of the
parties agrees to use its commercially reasonable efforts to take, or cause to
be taken, all actions, and to do, or cause to be done, and to assist and
cooperate with the other parties in doing, all things necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by this
Agreement.
Section 5.5. BENEFIT PLANS. (a) For a period of twelve months following
the Effective Time, Parent will cause the Surviving Corporation and each of its
subsidiaries to provide all employees of the Company or its subsidiaries who
continue to be employed after the Effective Time by the Surviving Corporation or
its subsidiaries (the "CONTINUING EMPLOYEES") with compensation and employee
benefits which are no less favorable in the aggregate than those provided to
such employees immediately prior to the Closing. For purposes of the employee
benefits to be provided to the Continuing Employees, solely to the extent
permissible pursuant to applicable law, Parent will cause the Continuing
Employees to receive, without duplication, full credit for purposes of
eligibility and vesting, and for purposes of sick pay, vacation, severance and
similar benefits only service counting, for such Continuing Employees' service
with the Company or its subsidiaries prior to the Effective Time. Such service
also shall apply for purposes of satisfying any waiting periods, evidence of
insurability requirements, or the application
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of any preexisting condition limitations. Employees of the Company shall be
given credit for amounts paid under a corresponding benefit plan during the same
period for purposes of applying deductibles, copayments and out-of-pocket
maximums as though such amounts had been paid in accordance with the terms and
conditions of a plan of Parent.
(b) On and after the Effective Time, Parent shall cause the Surviving
Corporation to continue the Officer Severance Plan (which is identified in
Section 5.5(b) of the Company Disclosure Schedule) in accordance with its terms
and only for those officers (other than to the Designated Officers) covered by
such plan on the date of this Agreement. For the period beginning on the
Effective Time and ending on the date three years following the Effective Time,
Parent shall provide, or cause the Surviving Corporation to provide, severance
benefits for employees of the Company or its subsidiaries, including officers
other than Designated Officers, whose employment is terminated due to job
elimination of not less than that provided under the Farm Family Employee
Severance Plan (which is identified in Section 5.5(b) of the Company Disclosure
Schedule) or Officer Severance Plan, as applicable (each amended to provide two
weeks of salary for each year of service with a minimum of four weeks and a
maximum of 1 year of salary). In addition, for the period beginning on the
Effective Time and ending on the date three years following the Effective Time,
Parent shall provide, or cause the Surviving Corporation to provide, severance
benefits to certain employees of the Company or its subsidiaries (excluding the
Designated Officers) pursuant to a Special Severance Plan described in
Section 5.5(b) of the Company Disclosure Schedule. Following the Effective Time,
Parent shall honor, or shall cause the Surviving Corporation to honor, all
individual employment agreements and the severance plans listed in
Section 5.5(b) of the Company Disclosure Schedule.
(c) The parties agree and acknowledge that the Farm Family Holdings, Inc.
Annual Incentive Plan (the "BONUS PLAN") was amended, a copy of which has been
provided to Parent, effective on the date of this Agreement, to provide that the
participants entitled to a bonus under the Bonus Plan shall be paid for 2000 a
bonus in an amount equal to the greater of the Earned Award or the Target Award
Opportunity, each as defined in the Bonus Plan (the "2000 BONUSES"), and for
2001 an amount equal to (i) the greater of the Earned Award or the Target Award
Opportunity multiplied by (ii) a fraction (A) the numerator of which is the
number of days in 2001 up to and through the Effective Time and (B) the
denominator of which is 365 (the "STUB PERIOD BONUSES"). Such amendment also
provides that the 2000 Bonuses shall be paid on the earlier of the date the 2000
Bonuses would otherwise be paid in the ordinary course of business consistent
with past practices or the Effective Time and the Stub Period Bonuses shall be
paid on the Effective Time. Notwithstanding the foregoing, the Designated
Officers will, as of the Effective Time, cease to participate in the Bonus Plan,
as amended; PROVIDED, HOWEVER, that the Bonus Plan shall apply to any Designated
Officer in accordance with its terms to the extent that such Designated Officer
has a termination of employment prior to the Effective Time with the result that
the applicable employment agreement referred to in Section 5.12 never becomes
effective.
Section 5.6. INDEMNIFICATION AND INSURANCE. (a) From and after the
Effective Time, the Surviving Corporation will indemnify and hold harmless each
person who is, or has been at any time prior to the date hereof or who becomes
prior to the Effective Time, an officer, director or employee of the Company or
any of its subsidiaries (the "INDEMNIFIED PARTIES"), in respect of any matter
existing or any act or omission occurring at or prior to the Effective Time
(including but not limited to the transactions contemplated by this Agreement),
to the same extent provided under the Company Certificate and Company By-laws or
the certificate of incorporation or by-laws of such subsidiary as in effect on
the date hereof. The Indemnified Parties shall be entitled to advancement of
expenses provided such Indemnified Party provides Parent with an undertaking to
reimburse the Surviving Corporation in a form comparable to the undertaking
provided for by the DGCL. Any determination to be made as to whether any
Indemnified Party has met any standard of conduct imposed by law shall be made
by legal counsel reasonably acceptable to such Indemnified Party and the
Surviving Corporation, retained at the Surviving Corporation's expense.
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(b) Any Indemnified Party wishing to claim indemnification under
paragraph (a) of this Section 5.6, upon learning of any such claim, action,
suit, proceeding or investigation, shall promptly notify the Surviving
Corporation thereof. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) the
Surviving Corporation shall have the right to assume the defense thereof and the
Surviving Corporation shall not be liable to such Indemnified Parties for any
legal expenses of other counsel or any other expenses subsequently incurred by
such Indemnified Parties in connection with the defense thereof, except that if
the Surviving Corporation elects not to assume such defense or counsel for the
Indemnified Parties advises that there are issues which raise conflicts of
interest between the Surviving Corporation and the Indemnified Parties, the
Indemnified Parties may retain counsel satisfactory to them, and the Surviving
Corporation shall pay all reasonable fees and expenses of such counsel for the
Indemnified Parties promptly as statements therefor are received; PROVIDED,
HOWEVER, that the Surviving Corporation shall be obligated pursuant to this
paragraph (b) to pay for only one firm of counsel for all Indemnified Parties,
unless, in the good faith judgment of any of the Indemnified Parties, there is a
conflict of interests between two or more of such Indemnified Parties, in which
case there may be separate counsel for each similarly situated group, (ii) the
Indemnified Parties will cooperate in the defense of any such matter and
(iii) the Surviving Corporation shall not be liable for any settlement effected
without its prior written consent (which consent shall not be unreasonably
withheld or delayed); and PROVIDED, FURTHER, that the Surviving Corporation
shall not have any obligation hereunder to any Indemnified Party if and when a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
(c) Parent will cause to be maintained for a period of not less than six
years from the Effective Time the current directors' and officers' insurance and
indemnification policies of the Company and its subsidiaries to the extent that
such policies provide coverage for any matter existing or act or omission
occurring at or prior to the Effective Time (the "D&O INSURANCE") for all
current or former directors, officers or employees of the Company or any
subsidiary, so long as the annual premium therefor would not be in excess of two
hundred percent (200%) of the last annual premium paid prior to the date of this
Agreement (200% of such premium, the "MAXIMUM PREMIUM"); PROVIDED, HOWEVER, that
Parent may, in lieu of maintaining such existing D&O Insurance as provided
above, cause no less favorable coverage to be provided under any policy
maintained for the benefit of the directors and officers of Parent or any of its
subsidiaries or a separate policy provided by the same insurer, so long as
(i) the issuer thereof has a Best rating of "A" or better (or a comparable
rating from Best in the event that Best changes its rating designations) and
(ii) the terms and conditions thereof are substantially comparable to the
existing D&O Insurance; and PROVIDED, FURTHER, that the Company may, with the
consent of Parent, at or prior to the Closing, purchase from an insurer or
insurers chosen by the Company, one or more run-off policies of directors' and
officers' insurance and indemnification providing coverage for any matter
existing or act or omission occurring at or prior to the Effective Time for all
current or former directors, officers or employees of the Company or any
subsidiary, such policy (or policies) to become effective at the Effective Time
and to remain in effect for a period of six years after the Effective Time, and
the purchase of such coverage by the Company shall be in lieu of Parent's
obligation to maintain or obtain the D&O Insurance under this Section 5.6(c). If
the existing D&O Insurance expires, is terminated or cancelled or if the annual
premium would exceed the Maximum Premium during the six-year period, Parent
shall cause to be obtained as much D&O Insurance as can be obtained for the
remainder of such period for an annualized premium not in excess of the Maximum
Premium, on terms and conditions substantially comparable to the existing D&O
Insurance to the extent commercially available.
(d) The provisions of this Section are in addition to the rights that an
Indemnified Party may have under the applicable certificate of incorporation or
by-laws of or agreements with the Company or any of its subsidiaries or under
applicable law. The Surviving Corporation agrees to pay all costs and
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expenses (including fees and expenses of counsel) that may be incurred by any
Indemnified Party in successfully enforcing the indemnity or other obligations
under this Section. There are no separate indemnification agreements in effect
between the Company and any director or officer of the Company indemnifying such
officer or director in their capacity as an officer or director in respect of
any matter existing or any act or omission occurring at or prior to the
Effective Time. The provisions of this Section shall survive the Merger and are
intended to be for the benefit of, and shall be enforceable by, each of the
Indemnified Parties, their heirs and their representatives.
(e) In the event that the Surviving Corporation or any of its successors or
assigns (i) consolidates with or merges into any other person and is not the
continuing or surviving corporation or entity of such consolidation or merger or
(ii) transfers or conveys, including through distributions or dividends, a
substantial portion of its properties and assets (including FFCIC, FFLIC or
their respective assets) to any person, then, and in each such case, proper
provision will be made so that the successors and assigns of the Surviving
Corporation assume the obligations set forth in this Section 5.6.
Section 5.7. PUBLIC ANNOUNCEMENTS. Parent and Subsidiary, on the one hand,
and the Company, on the other hand, (i) shall mutually agree on any initial
press release announcing the transactions contemplated by this Agreement,
(ii) shall consult with each other before issuing, and provide each other the
opportunity to review and comment upon, any subsequent press release or other
public statements with respect to the transactions contemplated by this
Agreement, and (iii) shall not issue any such press release or make any such
public statement prior to such agreement or consultation, except as may be
required by applicable law, court process or by obligations pursuant to any
listing agreement with any national securities exchange in which event notice
shall be promptly provided.
Section 5.8. ACQUISITION PROPOSALS. The Company and its subsidiaries shall
not, and shall not authorize or permit any of their respective officers,
directors, employees, or duly authorized investment bankers, attorneys,
accountants or other advisors, agents or representatives (collectively,
"REPRESENTATIVES") to, directly or indirectly (i) solicit, initiate or knowingly
encourage the submission of any Acquisition Proposal or (ii) participate in any
discussions or negotiations regarding, or furnish to any person any non-public
information with respect to, any Acquisition Proposal; PROVIDED, HOWEVER, that
nothing contained in this Section 5.8 shall prohibit the Company (and its
Representatives) from furnishing information to, or entering into discussions or
negotiations with, any person that makes an unsolicited Acquisition Proposal if,
and only to the extent that, (A) the Board of Directors of the Company, upon
advice received from outside counsel, determines in good faith that in order for
the Board of Directors of the Company to comply with its fiduciary duties to
stockholders under applicable law it should take such action, and (B) prior to
taking such action, the Company receives from such person an executed agreement
in reasonably customary form relating to the confidentiality of information to
be provided to such person. The Company agrees to inform any person requesting
non-public information with respect to an Acquisition Proposal or making an
Acquisition Proposal of the obligations undertaken in this Section 5.8.
Notwithstanding anything in this Agreement to the contrary, the Company shall
(i) promptly advise Parent orally and in writing of (A) the receipt by it or any
of its subsidiaries or any of their respective Representatives, after the date
hereof, of any Acquisition Proposal and (B) the material terms and conditions of
such Acquisition Proposal and the identity of the person making such Acquisition
Proposal, all of which information will be kept confidential by Parent (and its
affiliates and representatives) pursuant to the terms of the Confidentiality
Agreement, and (ii) give Parent reasonable notice of the material terms and
conditions of an Acquisition Proposal prior to entering into a definitive
agreement with respect to such Acquisition Proposal, and negotiate with Parent
to make such adjustments in the terms and conditions of this Agreement as would
enable the Company to proceed with the transactions contemplated herein. For
purposes of this Agreement, "ACQUISITION PROPOSAL" means any proposal with
respect to (i) a consolidation, exchange of shares or merger of the Company, any
Insurer or Farm Family Financial Services, Inc. with any person, other than
Parent or one of its subsidiaries, (ii) the acquisition of
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beneficial ownership of 50% or more of the voting stock or other equity interest
of the Company, any Insurer or Farm Family Financial Services, Inc. by a person,
or (iii) a sale, lease or transfer of 50% or more of the business or assets
(including through a bulk reinsurance transaction not in the ordinary course of
business) of the Company, any Insurer or Farm Family Financial Services, Inc. to
any person, other than Parent or one of its subsidiaries.
Section 5.9. FIDUCIARY DUTIES. Except as set forth below, the Board of
Directors of the Company shall not (i) withdraw or modify in a manner adverse to
Parent, the approval or recommendation by such Board of Directors of this
Agreement or the Merger, (ii) approve or recommend any Acquisition Proposal or
(iii) cause the Company to enter into a binding agreement to consummate any
Acquisition Proposal. Notwithstanding the foregoing, if the Company receives an
unsolicited Acquisition Proposal and the Board of Directors of the Company
determines in good faith, upon advice received from outside counsel, that it is
reasonably necessary to do so in order to comply with its fiduciary duties to
stockholders under applicable law, such Board of Directors may (w) withdraw or
modify, in a manner adverse to Parent, its approval or recommendation of this
Agreement and the Merger, (x) approve or recommend such Acquisition Proposal,
(y) cause the Company to enter into an agreement to consummate such Acquisition
Proposal, or (z) terminate this Agreement pursuant to Section 7.1(b)(iv).
Nothing contained in this Agreement shall prohibit the Company from taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to the
Company's stockholders which, in the good faith judgment of the Board of
Directors of the Company based on the advice of outside counsel, is required
under applicable law. Notwithstanding anything contained in this Agreement to
the contrary, any action by the Board of Directors of the Company permitted by
this Section 5.9 shall not constitute a breach of this Agreement by the Company.
Section 5.10. CERTAIN FEES. If (a) the Board of Directors of the Company
takes any action described in clause (y) or (z) of Section 5.9 (other than
entering into a confidentiality agreement), (b) Parent exercises its right to
terminate this Agreement under Section 7.1(b)(iv) based on the Board of
Directors having taken any action described in clause (w) or (x) of
Section 5.9, or (c) this Agreement is terminated by either Parent or the Company
pursuant to Section 7.1(b)(i) and prior to the meeting referred to therein any
person shall have publicly made, or shall have publicly announced an intention
(whether or not conditional) to make, and shall not have withdrawn, a bona fide
Acquisition Proposal, and within 12 months of termination, a transaction
implementing an Acquisition Proposal with such person or an affiliate thereof
shall have been consummated, the Company shall pay, within three business days
of a demand by Parent, $7.5 million, payable in same-day funds, as liquidated
damages and not as a penalty.
Section 5.11. CONSENTS, APPROVALS AND FILINGS. (a) The Company and Parent
shall cooperate with each other and will make (and cause their respective
subsidiaries to make) all necessary filings, as promptly as practicable,
including, without limitation, those required under the HSR Act, the Exchange
Act, state securities laws and state insurance laws, in order to facilitate
prompt consummation of the Merger and the other transactions contemplated by
this Agreement. In addition, the Company, Parent and Subsidiary will each use
their commercially reasonable efforts, and will cooperate fully with each other
(i) to comply as promptly as practicable with all governmental requirements
applicable to the Merger and the other transactions contemplated by this
Agreement and (ii) to obtain as promptly as practicable all necessary permits,
orders or other consents, approvals or authorizations of Governmental Entities
and consents or waivers of all third parties necessary in connection with the
consummation of the Merger and the other transactions contemplated by this
Agreement free from any conditions that, individually or in the aggregate, would
be reasonably expected to have a Company Material Adverse Effect. Each of the
Company, Parent and Subsidiary shall use its commercially reasonable efforts to
provide such information and communications to Governmental Entities as such
Governmental Entities may reasonably request.
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(b) Without limiting the generality of the foregoing, as soon as practicable
after execution and delivery of this Agreement, Parent and the Company shall
make all filings required under the HSR Act. Parent and the Company will each
furnish all information as may be required by the Federal Trade Commission and
the United States Department of Justice under the HSR Act in order that the
requisite approvals for the Merger pursuant hereto, and the transactions
contemplated hereby, be obtained or to cause any applicable waiting periods to
expire.
(c) Each of the parties shall provide to the other party copies of all
applications or other communications in advance of filing or submission of such
applications or communications to Governmental Entities in connection with this
Agreement. Each of Parent and Subsidiary shall give to the Company prompt
written notice if it receives any notice or other communication from any
Insurance Regulator or any other regulatory authority in connection with the
transactions contemplated by this Agreement, and, in the case of any such notice
or communication which is in writing, shall promptly furnish the Company with a
copy thereof. Each of Parent and Subsidiary shall give to the Company reasonable
prior written notice of the time and place when any meetings may be held by it
with Insurance Regulators or any other regulatory authority in connection with
the transactions contemplated by this Agreement, and the Company shall have the
right to have a representative or representatives present at any such meeting.
(d) The Company shall give prompt notice to Parent, and Parent shall give
prompt notice to the Company, of (i) any representation or warranty made by it
contained in this Agreement becoming untrue or inaccurate in any material
respect or (ii) the failure by it to comply with or satisfy in any material
respect any covenant, condition or agreement to be complied with or satisfied by
it under this Agreement; PROVIDED, HOWEVER, that no such notification shall
affect the representations, warranties, covenants or agreements of the parties
or the conditions to the obligations of the parties under this Agreement.
Section 5.12. EMPLOYMENT AGREEMENTS. The parties acknowledge that
concurrently with the execution of this Agreement, employment agreements have
been entered into by Parent, the Company and each of the Designated Officers.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger shall have been
approved by the affirmative vote of the stockholders of the Company by the
requisite vote in accordance with applicable law and the Company Certificate and
the Company By-laws.
(b) GOVERNMENTAL, REGULATORY CONSENTS. All filings required to be made
prior to the Effective Time with, and all consents, approvals, permits and
authorizations required to be obtained prior to the Effective Time from, and
expiry of all waiting periods imposed by, Governmental Entities, including,
without limitation, those set forth in Sections 3.1(d) and 3.2(c), in connection
with the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby by the Company, Parent and Subsidiary shall
have been made or obtained free from any conditions that, individually or in the
aggregate, would be reasonably expected to have a Company Material Adverse
Effect.
(c) HSR ACT. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have otherwise
expired.
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(d) NO INJUNCTIONS OR RESTRAINTS. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction and no statute, rule or regulation of any Governmental
Entity preventing the consummation of the Merger or any of the other
transactions contemplated hereby shall be in effect; PROVIDED, HOWEVER, that the
party invoking this condition shall have used reasonable efforts to have any
such order or injunction vacated.
Section 6.2. CONDITIONS TO OBLIGATIONS OF PARENT AND SUBSIDIARY. The
obligations of Parent and Subsidiary to effect the Merger are further subject to
the satisfaction or waiver by Parent at or prior to the Effective Time of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
the Company set forth in this Agreement shall be true and correct as of the date
of this Agreement and as of the Closing Date as though made on and as of the
Closing Date (except to the extent any such representation and warranty speaks
as of an earlier date, in which event such representation and warranty shall be
true and correct as of such date), in each case except where the failure of such
representations and warranties to be so true and correct (without giving effect
to any limitation as to "materiality" or "Company Material Adverse Effect" or
similar qualification as to materiality set forth therein), would not,
individually or in the aggregate, have a Company Material Adverse Effect, and
Parent shall have received a certificate signed on behalf of the Company by an
executive officer of the Company to the effect set forth in this paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed by
it under this Agreement at or prior to the Closing Date, and Parent shall have
received a certificate signed on behalf of the Company by an executive officer
of the Company to such effect.
Section 6.3. CONDITIONS TO OBLIGATION OF THE COMPANY. The obligation of
the Company to effect the Merger is further subject to the satisfaction or
waiver by the Company at or prior to the Effective Time of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Parent and Subsidiary set forth in this Agreement shall be true and correct as
of the date of this Agreement and as of the Closing Date as though made on and
as of the Closing Date (except to the extent any such representation and
warranty speaks as of an earlier date, in which event such representation and
warranty shall be true and correct as of such date), in each case except where
failure of such representations and warranties to be so true and correct
(without giving effect to any limitation as to "materiality" or "Parent Material
Adverse Effect" or similar qualification as to materiality set forth therein),
would not, individually or in the aggregate, materially impair the ability of
Parent or Subsidiary to consummate the Merger and the other transactions
contemplated by this Agreement; and the Company shall have received a
certificate signed on behalf of Parent by an executive officer of Parent to the
effect set forth in this paragraph.
(b) PERFORMANCE OF OBLIGATIONS OF PARENT AND SUBSIDIARY. Each of Parent
and Subsidiary shall have performed in all material respects all obligations
required to be performed by it under this Agreement at or prior to the Closing
Date, and the Company shall have received a certificate signed on behalf of
Parent by an executive officer of Parent to such effect.
Section 6.4. FRUSTRATION OF CLOSING CONDITIONS. Neither Parent, Subsidiary
nor the Company may rely on the failure of any condition set forth in Sections
6.1 through 6.3 to be satisfied if such failure was caused solely by such
party's own failure to use commercially reasonable efforts to consummate the
Merger and the transactions contemplated hereby, as required by and subject to
Section 5.4.
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1. TERMINATION. This Agreement may be terminated and abandoned
at any time prior to the Effective Time, whether before or after the Stockholder
Approval:
(a) by mutual written consent of Parent and the Company by action of their
respective Board of Directors;
(b) by either Parent or the Company:
(i) if, upon a vote at a duly held Stockholders Meeting or any
adjournment thereof, any required approval of the stockholders of the Company
shall not have been obtained;
(ii) if the Merger shall not have been consummated on March 31, 2001
whether such date is before or after the date of approval of the stockholders of
the Company; PROVIDED, HOWEVER, that the termination date shall be automatically
extended for up to an additional 90 days if on March 31, 2001 any of the
consents of Governmental Entities described in Section 6.1(b) have not been
obtained or waived and are being pursued diligently, in good faith and in
accordance with Section 5.11 and all other conditions to the consummation of the
Merger have been satisfied; and PROVIDED, FURTHER, that the right to terminate
this Agreement under this Section 7.1(b)(ii) shall not be available to any party
whose breach of any obligation under this Agreement has been the cause of, or
resulted in, the failure of the Merger to occur on or prior to such date;
(iii) if any Governmental Entity shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other action
the parties hereto shall use their commercially reasonable efforts to lift)
permanently enjoining, restraining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become final and nonappealable;
or
(iv) if the Board of Directors of the Company shall have exercised any
of its rights set forth in the second sentence of Section 5.9 of this Agreement;
(c) by the Company if there is a breach by Parent or Subsidiary of any
representation, warranty, covenant or agreement contained in this Agreement that
cannot be cured and would cause a condition set forth in Section 6.3(a) or
6.3(b) to be incapable of being satisfied or if curable, is not cured within 20
business days after written notice of such breach is given by the Company to the
party committing such breach; or
(d) by Parent if there is a breach by the Company of any representation,
warranty, covenant or agreement contained in this Agreement that cannot be cured
and would cause a condition set forth in Section 6.2(a) or 6.2(b) to be
incapable of being satisfied or if curable, is not cured within 20 business days
after written notice of such breach is given by Parent to the party committing
such breach.
Section 7.2. EFFECT OF TERMINATION. In the event of termination of this
Agreement by either the Company or Parent as provided in Section 7.1, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of any party hereto (or of any of its directors,
officers, employees, agents, legal and financial advisors or other
representatives) other than the last sentence of Section 5.3 and Sections
3.1(q), 3.2(g), 5.10 and 7.2 and Article VIII. Notwithstanding the foregoing,
nothing contained in this section shall relieve any party from any liability
resulting from any willful and material breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement.
Section 7.3. AMENDMENT. Subject to the applicable provisions of the DGCL,
at any time prior to the Effective Time, the parties hereto may amend this
Agreement; PROVIDED, HOWEVER, that after approval of the Merger by the
stockholders of the Company, no amendment shall be made that by law
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requires the approval of the Company's stockholders without the approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
Section 7.4. EXTENSION; WAIVER. At any time prior to the Effective Time,
the parties may (a) extend the time for the performance of any of the
obligations or other acts of the other parties, (b) waive any inaccuracies in
the representations and warranties of the other parties contained in this
Agreement or in any document delivered pursuant to this Agreement or
(c) subject to Section 7.3, waive compliance with any of the agreements or
conditions of the other parties contained in this Agreement. Any agreement on
the part of a party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party. The failure of
any party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of such rights.
Section 7.5. PROCEDURE FOR TERMINATION, AMENDMENT, EXTENSION OR WAIVER. A
termination of this Agreement pursuant to Section 7.1, an amendment of this
Agreement pursuant to Section 7.3 or an extension or waiver pursuant to
Section 7.4 shall, in order to be effective, require in the case of Parent or
the Company, action by its Board of Directors or the duly authorized designee of
its Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time. This Section 8.1
shall not limit any covenant or agreement of the parties which by its terms
contemplates performance after the Effective Time, including but not limited to
Section 5.6.
Section 8.2. FEES AND EXPENSES. Except as provided otherwise in
Section 5.10, whether or not the Merger is consummated, each party hereto shall
pay its own fees and expenses incident to preparing for, entering into and
carrying out this Agreement and the consummation of the transactions
contemplated hereby.
Section 8.3. CERTAIN DEFINITIONS. For purposes of this Agreement:
(a) an "AFFILIATE" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "PERMITTED LIEN" means the following: (i) any Lien existing on any real
property, zoning restrictions, easements, rights-of-way and restrictions of the
real property that do not materially diminish the value or use of such real
property in the business of the Company or any of its subsidiaries; (ii) Liens
for Taxes or other assessments or charges of Governmental Entities, including
those that arise by operation of law, that are not yet delinquent or that are
being contested in good faith by appropriate proceedings, in each case, with
respect to which adequate reserves or other appropriate provisions are being
maintained to the extent required by generally accepted accounting principals
("GAAP"); (iii) statutory Liens of landlords and lessors and Liens of carriers,
warehousemen, mechanics, materialmen and other Liens imposed by law and created
in the ordinary course of business for amounts not yet overdue or which are
being contested in good faith by appropriate proceedings, in each case, with
respect to which adequate reserves or other appropriate provisions are being
maintained to the extent required by GAAP; (iv) leases or subleases heretofore
disclosed to Parent; (v) pledges and deposits maintained in the ordinary course
of business in compliance with workers' compensation, unemployment insurance and
other social security laws or regulations; (vi) deposits to secure the
performance of bids, trade contracts, leases, statutory obligations, surety and
appeal bonds,
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performance bonds and other obligations of a like nature incurred in the
ordinary course of business; (vii) securities deposited with insurance
regulators, if any; and (viii) other Liens, which, in the aggregate, are not
substantial in amount and do not materially detract from the value of the
property subject thereto or interfere with the ordinary conduct of the business
of the Company and its subsidiaries;
(c) "PERSON" means an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity;
(d) a "SUBSIDIARY" of any person means another person 50% or more of the
total combined voting power of all classes of capital stock or other voting
interests of which, or 50% of more of the equity securities of which, is owned
directly or indirectly by such first person; and
(e) "KNOWLEDGE" means, with respect to the Company, the actual knowledge of
those persons listed in Section 8.3(e) of the Company Disclosure Schedule.
(f) "CONTRACT" means any agreement, lease, license, contract, note,
mortgage, indenture, franchise, permit, concession or arrangement.
(g) "DESIGNATED OFFICERS" shall mean Philip P. Weber, James J. Bettini,
Victoria M. Stanton and Timothy A. Walsh.
Section 8.4. NOTICES. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally, by facsimile (which is confirmed) or sent by
overnight courier (providing proof of delivery) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Subsidiary, to
American National Insurance Company
One Moody Plaza
Galveston, Texas 77550
Attention: G. Richard Ferdinandtsen,
President and Chief Operating Officer
Facsimile: (409) 766-6699
with a copy to:
Clifford Chance & Rogers Wells LLP
200 Park Avenue, 50th Floor
New York, New York 10166-0153
Attention: Paul Meyer
Facsimile: (212) 878-8375
(b) if to the Company, to
Farm Family Holdings, Inc.
U.S. mail to:
P.O. Box 656
Albany, New York 12201-0656
Attention: Victoria M. Stanton, Executive Vice President,
General Counsel and Secretary
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All other deliveries to:
344 Route 9W
Glenmont, New York 12077
Attention: Victoria M. Stanton, Executive Vice President, General
Counsel and Secretary
Facsimile: (518) 431-5999
with a copy to:
LeBoeuf, Lamb, Greene & MacRae, L.L.P.
125 West 55th Street
New York, NY 10019
Attention: Alexander M. Dye
Facsimile: (212) 424-8500
Section 8.5. INTERPRETATION. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
Section 8.6. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
Section 8.7. ENTIRE AGREEMENT; NO OTHER REPRESENTATIONS; THIRD-PARTY
BENEFICIARIES. This Agreement (including any exhibits hereto), the Company
Disclosure Schedule, Parent Disclosure Schedule and the Confidentiality
Agreement constitute the entire agreement, and supersede all prior agreements,
understandings, representations and warranties, both written and oral, among the
parties with respect to the subject matter of this Agreement. Parent and
Subsidiary acknowledge that neither the Company nor any affiliate or officer,
director, employee, representative or advisor of any of them makes or has made
any representation or warranty, express or implied, to Parent or Subsidiary
except as specifically made in this Agreement or in any certificate delivered
hereto. This Agreement is not intended to confer upon any person other than the
parties hereto and the third party beneficiaries referred to in the following
sentence any rights or remedies. The parties hereto expressly intend the
provisions of Sections 2.4 and 5.6 to confer a benefit upon and be enforceable
by, as third party beneficiaries of this Agreement, the third persons referred
to in, or intended to be benefited by, such provisions.
Section 8.8. GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 8.9. ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties, and any such assignment that is not
consented to shall be null and void. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 8.10. ENFORCEMENT AND CONSENT TO JURISDICTION. The parties agree
that irreparable damage would occur in the event that any of the provisions of
this Agreement were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall be
entitled to an injunction or injunctions to prevent breaches of this Agreement
and to enforce specifically the terms and provisions of this Agreement in any
court of the United States
A-29
<PAGE>
located in the State of New York or any state court sitting in the New York
County, New York (any such federal or state court, a "NEW YORK COURT"), in
addition to any other remedy to which they are entitled at law or in equity. In
addition, each of the parties hereto (a) consents to submit itself to the
personal jurisdiction of any New York Court in the event any dispute arises out
of this Agreement or any of the transactions contemplated by this Agreement and
(b) agrees that it will not attempt to deny or defeat such personal jurisdiction
or venue by motion or other request for leave from any such New York Court.
Section 8.11. SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or unenforceable by any rule of law, or public
policy, all other terms, conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic and legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or unenforceable, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions contemplated by this Agreement may be consummated as
originally contemplated to the fullest extent possible.
IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
<TABLE>
<S> <C> <C>
AMERICAN NATIONAL INSURANCE COMPANY
By: /s/ G. RICHARD FERDINANDTSEN
-----------------------------------------
Name: G. Richard Ferdinandtsen
Title: President and Chief Operating
Officer
AMERICAN NATIONAL ACQUISITION COMPANY
By: /s/ GREGORY V. OSTERGREN
-----------------------------------------
Name: Gregory V. Ostergren
Title: Chairman and President
FARM FAMILY HOLDINGS, INC.
By: /s/ PHILIP P. WEBER
-----------------------------------------
Name: Philip P. Weber
Title: President and Chief Executive
Officer
</TABLE>
A-30
<PAGE>
ANNEX B
[LETTERHEAD OF FOX-PITT, KELTON INC.]
[DATE]
The Board of Directors
Farm Family Holdings, Inc.
P.O. Box 656
Albany, NY 12201-0656
Fox-Pitt, Kelton Inc. ("Fox-Pitt, Kelton") understands that Farm Family Holdings
Inc. ("Farm Family"), American National Insurance Company ("ANICO") and American
National Acquisition Company ("Merger Sub") propose to enter into an Agreement
and Plan of Merger dated as of October 31, 2000 (the "Merger Agreement"), which
provides, among other things, for the merger of Merger Sub with and into Farm
Family (the "Merger"). Pursuant to the Merger Agreement, among other things: (i)
each issued and outstanding share of Common Stock (par value $0.01) of Farm
Family ("Farm Family Common Stock") shall be canceled, extinguished and
converted automatically into the right to receive $44.00 per share in cash (the
"Consideration"); and (ii) each issued and outstanding share of Preferred Stock,
Series A (par value $0.01) ("Farm Family Preferred Stock") shall be canceled,
extinguished and converted automatically into the right to receive $35.72 per
share plus accrued and unpaid dividends thereon in cash. The terms and
conditions of the Merger are more fully set forth in the Merger Agreement.
You have requested the opinion of Fox-Pitt, Kelton as to whether the
Consideration is fair, from a financial point of view, to the holders of Farm
Family Common Stock. In arriving at the opinion set forth below, Fox-Pitt,
Kelton has, among other things:
a) reviewed and analyzed certain publicly available financial statements for
Farm Family;
b) analyzed certain internal financial statements, including financial
projections, and other financial and operating data prepared by the management
of Farm Family;
c) discussed the past, present and future operations, financial condition and
prospects of Farm Family with the management of Farm Family;
d) reviewed the stock price performance and trading activity of Farm Family
Common Stock;
e) compared the financial performance and condition of Farm Family with that of
certain other comparable publicly traded companies;
f) reviewed the financial terms, to the extent publicly available, of certain
merger and acquisition transactions comparable, in whole or in part, to the
Merger;
g) reviewed the Merger Agreement;
h) analyzed the consideration proposed to be paid by ANICO for the Farm Family
Preferred Stock in exchange for interests therein; and
i) performed such other analyses as we have deemed appropriate.
Fox-Pitt, Kelton has assumed and relied upon, without independent verification,
the accuracy and completeness of all of the financial and other information it
has reviewed for the purposes of providing this opinion, and has not assumed any
responsibility for independent verification of such information. Fox-Pitt,
Kelton has not assumed any responsibility for any independent valuation or
appraisal of the assets and liabilities of Farm Family and has not been
furnished with any such valuation or appraisal.
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With respect to the financial projections, Fox-Pitt, Kelton has assumed that
they have been reasonably prepared by the management of Farm Family on bases
reflecting the best currently available estimates and judgments of the future
financial performance of Farm Family. Fox-Pitt, Kelton expresses no view as to
such projections or the assumptions on which they are based. Fox-Pitt, Kelton
has assumed that the Merger described in the Merger Agreement will be
consummated on the terms set forth therein without material waiver or
modification. Fox-Pitt, Kelton's opinion is necessarily based upon economic,
market and other conditions as they exist and can be evaluated on .
In the normal course of its investment banking business, Fox-Pitt, Kelton is
regularly engaged in the valuation of the securities of insurance companies in
connection with acquisitions, negotiated underwritings, secondary distributions
of listed and unlisted securities, private placements and valuations for various
other purposes. As specialists in the securities of insurance companies,
Fox-Pitt, Kelton has experience in, and knowledge of, the valuation of such
enterprises.
In the normal course of its business, Fox-Pitt, Kelton may trade equity
securities of ANICO and Farm Family for its own account and for the accounts of
customers and, accordingly, may at any time hold a long or short position in
such securities. We have acted as financial advisor to Farm Family in connection
with the Merger, have received a fee in connection with our engagement and will
receive an additional fee upon the closing of the Merger.
It is understood that this letter is solely for the information of the Board of
Directors of Farm Family and is not intended to confer any rights or remedies
upon any other entity or persons, and may not be used for any other purpose
without our prior written consent, except for inclusion in a proxy or
information statement related to the Merger that we have had an opportunity to
review. This opinion does not constitute a recommendation to any shareholder of
Farm Family as to how such shareholder should vote on the Merger.
Based upon and subject to the foregoing, Fox-Pitt, Kelton is of the opinion that
the Consideration is fair, from a financial point of view, to the holders of
Farm Family Common Stock.
Very truly yours,
FOX-PITT, KELTON INC.
B-2
<PAGE>
ANNEX C
DELAWARE GENERAL CORPORATION LAW
SECTION 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to Section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section 251 (other than a merger effected pursuant to
Section 251(g) of this title), Section 252, Section 254, Section 257,
Section 258, Section 263 or Section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to
SectionSection 251, 252, 254, 257, 258, 263 and 264 of this title to accept
for such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
C-1
<PAGE>
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections
(d) and (e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of such stockholder's shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of such stockholder's shares. Such demand will
be sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of such stockholder's shares. A proxy or vote against the merger
or consolidation shall not constitute such a demand. A stockholder electing
to take such action must do so by a separate written demand as herein
provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become
effective; or
(2) If the merger or consolidation was approved pursuant to Section 228
or Section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date of the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the effective
date of the merger or consolidation, either (i) each such constituent
corporation shall send a second notice before the effective date of the
merger or consolidation notifying each of the holders of any class or series
of stock of such constituent
C-2
<PAGE>
corporation that are entitled to appraisal rights of the effective date of
the merger or consolidation or (ii) the surviving or resulting corporation
shall send such a second notice to all such holders on or within 10 days
after such effective date; provided, however, that if such second notice is
sent more than 20 days following the sending of the first notice, such
second notice need only be sent to each stockholder who is entitled to
appraisal rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or assistant
secretary or of the transfer agent of the corporation that is required to
give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be not
more than 10 days prior to the date the notice is given, provided, that if
the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day
on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
C-3
<PAGE>
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
C-4
<PAGE>
[FORM OF PROXY CARD]
FARM FAMILY HOLDINGS, INC.
344 ROUTE 9W, GLENMONT, NEW YORK 12077
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FARM FAMILY HOLDINGS, INC.
PROXY CARD
The person(s) signing the front of this Proxy Card hereby appoint(s) Clark
W. Hinsdale III, Stephen J. George and Victoria M. Stanton, or any of them,
lawful attorneys-in-fact and proxies with full power of substitution in each of
them and hereby authorize(s) them to represent and vote, as designated on the
reverse side hereof, all shares of Common Stock, par value $.01 per share, and
Preferred Stock, Series A, par value $.01 per share, of Farm Family Holdings,
Inc. standing in the name of said person(s) with all powers said person(s)
would possess if present at the special meeting of stockholders of Farm
Family Holdings, Inc. to be held on February 27, 2001 at 10:00 a.m., local
time, at the corporate headquarters of Farm Family Holdings, Inc. at 344
Route 9W, Glenmont, New York, or any adjournment(s) or postponement(s)
thereof. In their discretion, the proxies are authorized to vote upon such
other business (including any business of which the board of directors of
Farm Family Holdings, Inc. was not aware within a reasonable time before the
solicitation) as may properly come before the special meeting or any
adjournment(s) or postponement(s) thereof.
THIS PROXY, PROPERLY EXECUTED AND RETURNED, WILL BE VOTED AS DIRECTED
ON THIS CARD BY THE PERSONS DESIGNATED AS PROXIES ABOVE. IF NO SPECIFIC
DIRECTIONS ARE GIVEN, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL.
(Continued, and to be dated and signed on reverse side.)
FARM FAMILY HOLDINGS, INC.
P.O. BOX [ ]
NEW YORK, N.Y. 10203-0098
[ ]
THE BOARD OF DIRECTORS OF FARM FAMILY HOLDINGS, INC.
UNANIMOUSLY RECOMMENDS A VOTE FOR THE FOLLOWING
PROPOSAL:
1. To adopt the Agreement
and Plan of Merger, dated as of
October 31, 2000, among American
National Insurance Company,
American National Acquisition
Company and Farm Family
Holdings, Inc., as described in FOR [ ] AGAINST [ ] ABSTAIN [ ]
the accompanying proxy statement.
I plan to attend CHANGE OF ADDRESS
the special meeting. [ ] AND/OR COMMENTS
MARK HERE [ ]
<TABLE>
<S> <C>
In their discretion, the proxies are authorized to Please sign exactly as your name(s)
vote upon such other business as may properly come appear(s) to the left. (Joint owners
before the special meeting or any adjournments(s) or should each sign.) When signing as an
postponement(s) thereof. attorney, executor, administrator,
trustee, guardian or corporate officer,
please give your full title as such.
Dated: _____________________________, 2001
------------------------------------------
Signature
------------------------------------------
(Additional signature(s) if held jointly)
PLEASE MARK, SIGN AND DATE ON THIS SIDE OF THIS VOTES MUST BE INDICATED [X]
PROXY CARD AND RETURN IT IN THE POSTAGE-PAID (X) IN BLACK OR BLUE INK.
ENVELOPE PROVIDED.
</TABLE>
