SCHEDULE 14A
(Rule 14a-101)

INFORMATION REQUIRED IN PROXY STATEMENT

SCHEDULE 14A INFORMATION

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

Payment of Filing Fee (Check the appropriate box):

Foremost Corporation of America
5600 Beech Tree Lane
Caledonia Township, Michigan 49316

January 27, 2000

Dear Foremost Shareholder:

          You are cordially invited to attend a special meeting of shareholders of Foremost Corporation of America to be held at Foremost's Corporate Headquarters located at 5600 Beech Tree Lane, Caledonia Township, Michigan on Friday, February 25, 2000 at 10:30 a.m., local time.

          At the special meeting, you will be asked to vote upon a proposal to approve the Agreement and Plan of Merger dated as of October 18, 1999 by and among Foremost, Spartan Parent Corp., a newly formed Delaware corporation, and Spartan Acquisition Co., a newly formed Michigan corporation and wholly owned subsidiary of Spartan Parent Corp. Spartan Parent Corp. is owned by Farmers Insurance Exchange, Fire Insurance Exchange and Truck Insurance Exchange, each of which is a reciprocal insurance exchange headquartered in Los Angeles, California.

          If Foremost's shareholders approve the merger agreement, Spartan Acquisition Co. will be merged with and into Foremost, and each outstanding share of Foremost common stock will be converted into the right to receive $29.25 in cash. As a result of the merger, Foremost will become a wholly owned subsidiary of Spartan Parent Corp. You will not become a shareholder of Spartan Parent Corp. following the merger. Detailed information concerning the merger is in the accompanying proxy statement, and a copy of the merger agreement is attached as Annex A to the proxy statement, both of which you are urged to read carefully.

          Approval of the merger agreement requires the affirmative vote of a majority of the outstanding shares of Foremost common stock held by shareholders of record on December 29, 1999.

          Your board of directors, after careful consideration, has unanimously (with one director abstaining) approved the merger and the merger agreement and has determined that the merger is fair to and in the best interests of Foremost and our shareholders and recommends that you vote "FOR" approval of the merger and the merger agreement.

          The proxy statement and enclosed form of proxy are being mailed to shareholders on or about January 27, 2000.

          Regardless of whether you plan to attend the special meeting, we urge you to complete, sign and return promptly the enclosed proxy card or grant your proxy by telephone or the Internet as soon as possible to ensure that your shares will be voted at the special meeting. If you attend the special meeting, you may vote in person even if you previously returned or called in your proxy. Your vote is important regardless of the number of shares that you own. The merger cannot be completed unless Foremost shareholders approve the merger and the merger agreement.

          On behalf of the board of directors, we thank you for your support and urge you to vote "FOR" approval of the merger and the merger agreement.

To the Shareholders of Foremost Corporation of America:

          A special meeting of shareholders of Foremost Corporation of America will be held at 10:30 a.m., local time, on Friday, February 25, 2000 at Foremost's Corporate Headquarters located at 5600 Beech Tree Lane, Caledonia Township, Michigan, for the following purposes:

          Your board of directors has fixed the close of business on December 29, 1999 as the record date for the determination of shareholders entitled to notice of, and to vote at, the special meeting or any adjournment of the meeting. Only shareholders of record are entitled to notice of, and to vote at, the special meeting or any adjournment of the meeting.

          The accompanying proxy statement describes the proposed merger and the merger agreement in more detail and a copy of the merger agreement is attached as Annex A to the proxy statement. We encourage you to read both documents carefully.

          Your board of directors, after careful consideration, has unanimously (with one director abstaining) approved the merger and the merger agreement and has determined that the merger is fair to and in the best interests of Foremost and our shareholders and recommends that you vote "FOR" approval of the merger and the merger agreement.

          Your vote is important regardless of the number of shares that you own. The affirmative vote of the holders of a majority of the outstanding shares of Foremost common stock is required for approval of the merger and the merger agreement. Even if you plan to attend the special meeting in person, please sign and return the enclosed proxy card or grant your proxy by telephone or the Internet as soon as possible to ensure that your shares will be represented at the special meeting if you are unable to attend. If you attend the special meeting and wish to vote in person, you may withdraw your proxy and vote in person.

ANNEX A – Agreement and Plan of Merger
ANNEX B – Opinion of Morgan Stanley & Co. Incorporated

QUESTIONS AND ANSWERS
ABOUT THE FOREMOST/SPARTAN MERGER

SUMMARY OF THE PROXY STATEMENT

          This summary highlights selected information contained elsewhere in this proxy statement. The summary does not contain all of the information that is important to you. To fully understand the merger, we urge you to read carefully the entire proxy statement and the other documents referred to in this proxy statement.

Overview

Spartan, Foremost and a wholly owned subsidiary of Spartan entered into a merger agreement on October 18, 1999. Under the terms of the merger agreement, upon completion of the merger, each outstanding share of Foremost common stock will be converted into the right to receive $29.25 in cash. Upon completion of the merger, Foremost will become a wholly owned subsidiary of Spartan.

The Companies

Foremost Corporation of America (see page 35)
5600 Beech Tree Lane
Caledonia Township, Michigan 49316
(616) 942-3000

We are a holding company which, through our subsidiaries, provides property and casualty insurance primarily for mobile homes and recreational vehicles. We believe that as of the date of this proxy statement we were the leading writer of mobile home property and casualty insurance in the United States. We also write private passenger automobile and homeowners insurance. We sell property and casualty insurance to mobile home and recreational vehicle owners through independent agents and general agents, as well as through dealer agents. We also write property and casualty insurance on a direct response basis.

Spartan Parent Corp. (see page 62)
4680 Wilshire Boulevard
Los Angeles, California 90010
(323) 932-3200

Spartan is owned by the Exchanges. Each Exchange is owned by the policyholders of that Exchange. Each Exchange has appointed Farmers Group, Inc. or one of its subsidiaries as the exclusive attorney-in-fact to provide management services to that Exchange. The Exchanges and their subsidiaries, together, are the third largest insurers of automobiles and homes in the United States. Following completion of the merger, Spartan will own Foremost and currently intends to distribute the Foremost common stock owned by it to the Exchanges so that Foremost will be owned directly by the Exchanges.

What You Will Receive in the Merger (see page 11)

If the merger is completed, you will receive $29.25 in cash for each share of Foremost common stock that you owned.

Material Federal Income Tax Consequences (see page 26)

The receipt of cash in exchange for shares of Foremost common stock will be a taxable transaction to Foremost shareholders for United States federal income tax purposes, and also may be a taxable transaction under applicable foreign, state and local income 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 Foremost common stock you surrender in the merger.

The tax consequences of the merger to you will depend on the facts of your own situation. You are urged to consult your tax advisors for a full understanding of the tax consequences of the merger to you.

Recommendation of Foremost's Board (see page 13)

Your board of directors, after careful consideration, has unanimously (with one director abstaining) approved the merger and the merger agreement and has determined that the merger is fair to and in the best interests of Foremost and our shareholders. Your board of directors recommends that you vote "FOR" approval of the merger and the merger agreement.

Interests of Certain Persons in the Merger (see page 15)

You should note that certain members of Foremost's board of directors and management have interests in the merger that may be different from, or in addition to, your interest as a shareholder. These interests include:

Opinion of Foremost's Financial Advisor (see page 18)

We retained Morgan Stanley & Co. Incorporated to act as our financial advisor in connection with the merger. At the October 13, 1999 meeting of our board of directors, Morgan Stanley advised the board that, subject to the approval of Morgan Stanley's opinion committee, it would be prepared to render a formal opinion that, as of the date of the opinion, the consideration to be received by the holders of Foremost common stock pursuant to the merger agreement was fair from a financial point of view to our shareholders. Morgan Stanley delivered its written opinion on October 18, 1999. This opinion is not a recommendation as to how you should vote with respect to the merger. We have attached Morgan Stanley's opinion to this proxy statement as Annex B. You are urged to read it in its entirety.

Special Meeting (see page 9)

The special meeting of Foremost's shareholders will take place on Friday, February 25, 2000 at Foremost's Corporate Headquarters located at 5600 Beech Tree Lane, Caledonia Township, Michigan, at 10:30 a.m., local time. At the meeting, you will vote on a proposal to approve the merger and the merger agreement.

Record Date for Voting; Required Vote (see page 9)

You can vote at the special meeting of Foremost shareholders if you owned Foremost common stock at the close of business on December 29, 1999. The approval of a majority of the outstanding shares of Foremost common stock is required to approve the merger and the merger agreement.

Conditions to Completion of the Merger (see page 31)

Completion of the merger depends on the satisfaction or waiver of a number of conditions, including the following:

Termination of the Merger Agreement; Fees Payable (see pages 33 and 34)

We will pay Spartan a termination fee of $20 million if the merger agreement is terminated under any of the following circumstances and, before the termination, there was a publicly announced acquisition proposal by a third party:

If the merger agreement is terminated under the circumstances outlined above, whether or not an acquisition proposal by a third party is publicly announced, we also will pay up to $2 million of Spartan's reasonable costs and expenses actually incurred by Spartan in connection with the merger agreement.

In addition, we will pay Spartan a termination fee of $20 million and up to $2 million of Spartan's reasonable costs and expenses if we terminate the merger agreement because our board has determined that approving and entering into an agreement for a superior transaction is required to comply with its fiduciary duties to shareholders under applicable law.

If Spartan terminates the merger agreement for the reasons set forth in the merger agreement, Spartan is not required to pay us a termination fee or reimburse us for our expenses. However, if Spartan determines not to proceed with the merger and is not otherwise entitled to terminate the merger agreement, we would be able to bring an action against Spartan for damages.

Regulatory Matters (see page 24)

Completion of the merger is subject to regulatory requirements, including expiration or termination of the waiting period under the Hart-Scott-Rodino Act, which was terminated on November 16, 1999. Completion of the merger also is subject to obtaining required regulatory approvals from various state insurance commissions.

Accounting Treatment (see page 24)

We have been informed by the Exchanges that the merger will be accounted for under the statutory purchase method of accounting under the rules and regulations of the California insurance commissioner. Under this method, the Exchanges will record the Foremost insurance subsidiaries at their historical statutory surplus and noninsurance subsidiaries at historical equity calculated in accordance with generally accepted accounting principles.

No Dissenters' Rights (see page 26)

Under Michigan law, Foremost shareholders are not entitled to dissenters' rights in connection with the merger.

SELECTED HISTORICAL FINANCIAL INFORMATION

          We are providing the following information to aid you in your analysis of the financial aspects of the merger. We have derived the following financial information from our audited financial statements for the years ended December 31, 1994 through December 31, 1998 and unaudited financial statements for the nine months ended September 30, 1998 and 1999. You should read this information in connection with our historical consolidated financial statements and related notes beginning on page F-1 of this proxy statement.

          The following table lists the historical per share data of Foremost common stock. You should read the information set forth below along with the selected historical financial data included in this proxy statement.

MARKET PRICE AND DIVIDEND INFORMATION

          Foremost common stock has been listed on the New York Stock Exchange under the symbol "FOM" since April 17, 1996. Before April 17, 1996, Foremost common stock was traded on The Nasdaq National Market under the symbol "FCOA." We declared a three-for-one stock split for holders of Foremost common stock on January 5, 1998. The following table sets forth, for the periods indicated, the high and low closing sales prices for Foremost common stock as reported by the NYSE. The stock prices shown below have been adjusted to reflect the three-for-one stock split.

          On October 18, 1999, the last trading day before announcement of the merger agreement, the closing price of Foremost common stock as reported by the NYSE was $23.94. On January 19, 2000, the closing price of Foremost common stock as reported on the NYSE was $28.44. We urge you to obtain current market quotations before voting on the merger.

          At January 19, 2000, there were approximately 1,082 holders of record of Foremost common stock.

          Since January 1, 1997, we have declared regular quarterly cash dividends of $.09 per share. On November 1, 1999, we declared our latest quarterly dividend of $.09 per share payable on December 15, 1999 to shareholders of record on November 15, 1999. The merger agreement permits a continuation of the regular quarterly dividend declarations until completion of the merger. Our principal source of funds for the payment of dividends is dividend income from our insurance subsidiaries. The ability of our subsidiaries to pay dividends to us is governed by applicable insurance laws, as described in the notes to our historical financial statements beginning on page F-1 of this proxy statement.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

          This proxy statement contains statements that are not historical facts. These statements are called "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These statements involve important known and unknown risks and uncertainties and other factors and can be identified by phrases using "estimate," "anticipate," "believe," "project," "expect," "intend," "predict," "potential," "future," "may," "should" and similar expressions or words. Our future results, performance or achievements may differ materially from the results, performance or achievements discussed in the forward-looking statements. There are numerous factors that could cause actual results to differ materially from the results discussed in forward-looking statements, including:

          This list provides examples of factors that could affect the results described by forward-looking statements contained in this proxy statement. However, this list is not intended to be exhaustive; many other factors could impact our business and it is impossible to predict with any accuracy which factors could result in which negative impacts. Although we believe that the forward-looking statements contained in this proxy statement are reasonable, we cannot provide you with any guarantee that the anticipated results will be achieved. All forward-looking statements in this proxy statement are expressly qualified in their entirety by the cautionary statements contained in this section and you are cautioned not to place undue reliance on the forward-looking statements contained in this proxy statement. In addition to the risks listed above, other risks may arise in the future, and we disclaim any obligation to update information contained in any forward-looking statement.

SPECIAL MEETING OF FOREMOST SHAREHOLDERS

Date, Time and Place of Meeting

          The special meeting of our shareholders will be held at Foremost's Corporate Headquarters located at 5600 Beech Tree Lane, Caledonia Township, Michigan, on Friday, February 25, 2000, at 10:30 a.m., local time.

Purpose of the Special Meeting

          At the special meeting, you will vote on a proposal to approve the merger and the merger agreement. You also could be asked to consider and vote on any other matters that are properly submitted at the special meeting. Additionally, you could be asked to vote upon a proposal to adjourn the special meeting. An adjournment could be used for the purpose of allowing additional time for solicitation of additional votes to approve the merger and the merger agreement.

          Your board of directors, after careful consideration, has unanimously (with one director abstaining) approved the merger and the merger agreement and has determined that the merger is fair to and in the best interests of Foremost and our shareholders and recommends that you vote "FOR" approval of the merger and the merger agreement.

Record Date; Voting Rights; Proxies

          Only holders of Foremost common stock at the close of business on December 29, 1999, the record date, are entitled to notice of and to vote at the special meeting. As of the record date, there were approximately 26,615,201 shares of Foremost common stock issued and outstanding, each entitled to one vote.

          The accompanying form of proxy is for use at the special meeting, regardless of whether you will be able to attend the special meeting. To ensure that your shares are represented at the special meeting, you are urged to sign and return the proxy card in the enclosed envelope or grant your proxy by telephone or the Internet as soon as possible. All shares of Foremost common stock represented by properly authorized proxies will, unless the proxies previously have been revoked, be voted in accordance with the instructions indicated in the proxies. If no instructions are indicated, shares of Foremost common stock represented by proxies will be voted "FOR" approval of the merger and the merger agreement.

          Holders of shares of Foremost common stock may vote their shares either in person or by a duly authorized proxy. You may grant a proxy by any of the following three methods:

          We do not know of any matters other than as described in the notice of special meeting of shareholders that are to come before the special meeting. If any other matter is properly presented for action at the special meeting, the persons named in the enclosed form of proxy will have discretion to vote on the matters in accordance with their best judgment. You may change your vote at any time before it is voted. If you have given a proxy by using the enclosed proxy card, you can write to our Corporate Secretary stating that you wish to revoke your proxy and that you need another proxy card. Alternatively, you can vote again, either over the Internet or by telephone. Your last

Solicitation of Proxies

          Proxies are being solicited by and on behalf of our board of directors. We will bear all expenses in connection with the solicitation of proxies. In addition to solicitation by use of the mails, our directors, officers and employees may solicit proxies from holders of Foremost common stock by telephone, in person or through other means of communication. Our directors, officers and employees will not be additionally compensated for, but may be reimbursed by us for out-of-pocket expenses incurred in connection with, the solicitation. In addition, arrangements will be made with brokerage firms and other custodians, nominees and fiduciaries to forward proxy solicitation materials to the beneficial owners of shares of Foremost common stock and secure their voting instructions, if necessary. We will reimburse these record holders for their reasonable out-of-pocket expenses in doing so. D.F. King & Co., Inc. will assist in the solicitation of proxies for an estimated fee of $5,000, plus reasonable out-of-pocket expenses.

Quorum

          The presence in person or by properly executed proxy of holders of a majority of all issued and outstanding shares of Foremost common stock entitled to vote is necessary for a quorum at the special meeting. For purposes of determining whether a quorum is present, the inspectors of election will include shares that are present or represented by proxy, even if the holders of the shares abstain from voting on any particular matter.

          The shareholders present at the special meeting, in person or by proxy, may by a majority vote adjourn the meeting despite the absence of a quorum. If there is not a quorum at the meeting, we expect that the meeting will be adjourned to solicit additional proxies.

Required Vote

          Approval of the merger and the merger agreement requires the affirmative vote of the holders of a majority of the outstanding shares of Foremost common stock. The merger agreement provides that approval of our shareholders is a condition to completion of the merger.

          If the merger is not approved, we will continue to operate our business as an independent entity. We also may continue to consider other strategic alternatives, including a possible alliance with a national writer of automobile and homeowners insurance that would enable us to pursue growth in our standard lines as an independent entity.

          For purposes of determining whether the merger and the merger agreement have been approved, the inspectors of election will include failures to vote, abstentions and broker non-votes in the number of shares deemed to have voted on the merger at the special meeting. Accordingly, failures to vote and abstentions will have the effect of a "no" vote on the proposal to approve the merger and the merger agreement. Your broker will vote your shares only if you provide instructions on how to vote by following the information provided to you by your broker.

          If you vote against the merger and the merger agreement by proxy and a proposal to adjourn the meeting for the purpose of soliciting additional votes in favor of the merger and the merger agreement is presented, the persons named in the enclosed form of proxy will not vote your shares in favor of the adjournment proposal.

          As of January 19, 2000, Foremost's directors, officers and 10% shareholders beneficially owned an aggregate of 9,217,319 shares of Foremost common stock (based on the number of shares owned by these individuals and entities and the number of shares issuable upon exercise of options within 60 days of January 19, 2000 assuming the merger is not approved), or approximately 33.08% of the shares of Foremost common stock that were issued and outstanding on that date. Officers and directors of Foremost holding an aggregate of approximately

          The matters to be considered at the special meeting are important to you. Accordingly, you are urged to read and consider carefully the information presented in this proxy statement, and to complete, date, sign and promptly return the enclosed proxy card in the enclosed postage-paid envelope or grant your proxy by telephone or the Internet. You should not send any stock certificates with your proxy cards.

THE MERGER

          The following discussion summarizes the proposed merger and related matters. The discussion does not, however, contain a complete explanation of the merger and is qualified in its entirety by reference to the merger agreement. A copy of the merger agreement is attached as Annex A to this proxy statement and is incorporated in this proxy statement by reference. You should read the merger agreement because it, and not this proxy statement, is the legal document that governs the merger.

Structure of the Merger

          The merger agreement provides that at the effective time of the merger, Spartan Acquisition Co., a wholly owned subsidiary of Spartan, will be merged with and into Foremost. Foremost will survive the merger as a wholly owned subsidiary of Spartan. Under the terms of the merger agreement, you will receive $29.25 in cash in exchange for each share of Foremost common stock that you own. Upon completion of the merger, Foremost common stock will be delisted from the NYSE, deregistered under the Exchange Act and will no longer be publicly traded. Following completion of the merger, Spartan currently intends to distribute the Foremost common stock owned by it to the Exchanges so that Foremost will be owned directly by the Exchanges.

Background of the Merger

          As part of our strategic planning, we continually review trends and strategic opportunities in the insurance industry. In this vein, we have sought to explore the ways in which we could expand our business.

          Since 1996, we have pursued business expansion beyond our specialty lines through the development of our automobile and homeowners products, also known as standard lines. We began the expansion process by building a strong new base for our standard lines on a direct response basis through affinity relationships. This strategy involved not only affinity relationships, but also included a regional focus. We considered, reviewed and monitored our progress, as well as the costs and potential risks involved in this expansion.

          During the fall of 1998, we reviewed the investment needed to expand our standard lines growth plans nationwide and to better serve our affinity groups. As we assessed the cost and risk associated with the development of a nationwide standard lines program, management also explored possible strategic alliances with several national standard lines writers as an alternative approach to internal expansion during late 1998 and early 1999. We also began to consider the alternate approach of selling our business, examining whether our growth strategy might be better accomplished through a business combination with another company. After we compared business combination alternatives with the risks and costs involved in continuing to expand our standard lines, we determined that business combinations warranted closer examination.

          Therefore, at our regular board of directors meeting on April 29, 1999, our directors appointed a special committee of the board consisting of Messrs. Richard L. Antonini, Richard A. Kayne and Michael de Havenon to evaluate a variety of strategic alternatives, including business combinations. The board authorized and directed the special committee to:

          On May 17, 1999, the special committee interviewed four investment banking firms in connection with the engagement of a financial advisor to assist the special committee and our board of directors in its evaluation of strategic alternatives.

          On June 30, 1999, a special meeting of our board of directors was held at which Mr. Antonini reported that the special committee recommended that the investment banking firm of Morgan Stanley & Co. Incorporated be retained as financial advisor. Representatives of Morgan Stanley made a presentation to our board of directors regarding our strategic position and alternatives that we might pursue. Morgan Stanley's presentation to our board focused on Foremost remaining as an independent entity and, alternatively, a sale of our company. Morgan Stanley recommended that we explore the possibility of finding a buyer for all of the outstanding Foremost common stock through a private auction process. After discussion, our board approved the engagement of Morgan Stanley as our financial advisor and determined to explore the possibility of finding a buyer for all of the outstanding Foremost common stock through a private auction process.

          In its analysis on June 30, 1999 of the desirability of us remaining independent, our board reviewed a number of factors in light of the ultimate goal of maximizing shareholder value. If we were to remain a successful independent company, our board felt that it would be necessary to expand our standard lines products to a national scale. To accomplish this growth the board determined that it would be necessary to commit significant resources to the writing of standard lines direct business. In addition, the board was aware that our growth opportunities may not be attractive to our shareholders in the short term due to anticipated costs of implementing a growth strategy for the standard lines. After reviewing the steps that would be necessary to position our company as a national writer of standard lines, our board determined that growth of standard lines business, whether independently or through affinity relationships, may not grow at a desirable pace due to the costs involved and our lack of a national presence in this line of business.

          At the June 30, 1999 special board meeting Morgan Stanley also presented its view of the desirability of proceeding with a sale of our company. Our board considered various factors that supported a sale of our company at that time, including the current strong state of the mergers and acquisitions market. Our board determined that, due to risks involved in implementing an independent growth strategy and due to the attractiveness of merger activity in the market, shareholder value would be best maximized by considering a sale of us to a strategic buyer. After reviewing the benefits and detriments of remaining independent versus those related to a sale, our board believed that a sale appeared to be the best alternative to maximize shareholder value.

          Pursuant to its engagement, Morgan Stanley, in connection with our senior management, prepared confidential offering materials concerning us and our business to be distributed to interested parties, subject to their execution of acceptable confidentiality agreements. On July 16, 1999, Morgan Stanley initiated the marketing process and made contact with 17 potential purchasers, which were selected jointly by us and Morgan Stanley. Each of the potential purchasers was a national carrier in the personal lines business that, in Morgan Stanley's and our view, could absorb Foremost into each company's existing business and achieve incremental growth. After personal meetings with potential purchasers, 11 companies received offering materials after signing confidentiality agreements.

          On August 10, 1999, Morgan Stanley gave a presentation to a regular meeting of our board of directors, summarizing the status of the private auction process, its discussions with potential purchasers and its evaluation of the potential purchasers. Morgan Stanley also presented a proposed timetable for the private auction process. After discussion, our board of directors instructed Morgan Stanley to continue the private auction process.

          Following the August 10, 1999 board meeting, Morgan Stanley notified the parties that had received the confidential offering materials that our board of directors had instructed Morgan Stanley to seek preliminary, non-binding indications of interest for the acquisition of all of the outstanding Foremost common stock. After receiving the confidential offering materials, six parties requested and received additional material regarding us. Following this initial due diligence by the six parties, three of these parties responded with non-binding indications

          Morgan Stanley then sent a letter to the parties that had conducted detailed due diligence notifying them that final acquisition proposals should be delivered to us by October 11, 1999. Morgan Stanley's letter also informed each party that its proposal was to include a mark-up of the form of merger agreement that Morgan Stanley included with its letter, in a form the party was prepared to sign.

          By the October 11, 1999 deadline, we received two final acquisition proposals. Each party proposed the purchase of all of the outstanding shares of Foremost common stock for cash. Spartan's proposed acquisition price was $29.25 in cash for each outstanding share of Foremost common stock and included a mark-up of the form of merger agreement that Spartan was prepared to sign. Spartan's proposal provided the highest price to our shareholders compared to the second proposal we received.

          During the next two days, Morgan Stanley reviewed Spartan's proposal with our senior management and sought clarification of certain provisions of Spartan's proposal from representatives of Spartan.

          At a special meeting of our board of directors on October 13, 1999, our senior management made presentations regarding Spartan's proposal, the proposed merger agreement and the status of the auction process. Representatives of Morgan Stanley and our outside legal counsel also made presentations to our board of directors regarding Spartan's proposal and proposed merger agreement. Morgan Stanley advised the board that, subject to the approval of Morgan Stanley's opinion committee, it would be prepared to render its formal opinion stating that the consideration to be received by the holders of Foremost common stock pursuant to the merger agreement was fair from a financial point of view. Morgan Stanley delivered its written opinion on October 18, 1999. After discussion, our board of directors unanimously (with director Robert M. Raives abstaining) approved the merger and the merger agreement and determined that the merger is fair to and in the best interest of Foremost and our shareholders and recommended that our shareholders vote "FOR" approval of the merger and the merger agreement. Mr. Raives abstained because he is a member of the United States Advisory Board of the Zurich Insurance Company, a wholly owned subsidiary of Zurich Financial Services and, at the time, was a director of Zurich Holding Company of America, a wholly owned subsidiary of Zurich Financial Services. Farmers Group, Inc., which with its subsidiaries provides management services to the Exchanges, is an affiliate of Zurich Financial Services. Our board of directors instructed Morgan Stanley and senior management to continue negotiations with Spartan and authorized the officers to sign the merger agreement upon the conclusion of negotiations satisfactory to senior management.

          On October 16, 17 and 18, 1999, our senior management, Morgan Stanley and our legal counsel met with representatives of Spartan, Spartan's financial advisor, Goldman Sachs & Co., and Spartan's legal advisors in Grand Rapids, Michigan to conclude negotiations of the merger agreement. Agreement was reached on all remaining issues on October 18, 1999 and the merger agreement was signed. Before the opening of trading of Foremost common stock on October 19, 1999, we issued a press release regarding the signing of the merger agreement.

Recommendation of Foremost's Board and Reasons for the Merger

          Our board of directors has determined that the terms of the merger agreement are fair to and in the best interests of Foremost and our shareholders. In reaching its determination, the board consulted with our management, as well as our legal counsel, accountants and financial advisors, and considered a number of factors, including the following:

          Our board of directors also considered a number of potentially negative factors relating to the merger, including:

          Our board of directors believes that the negative risks are outweighed by the potential benefits of the merger, and that the merger is fair to and in the best interests of Foremost and our shareholders.

          The foregoing discussion includes all material factors considered by our board. In view of the wide variety of factors considered, the board did not find it practicable to quantify, or otherwise attempt to assign relative weights to, the various factors considered in making its determination that the merger is fair to and in the best interests of Foremost and our shareholders. Accordingly, your board recommends that you vote "FOR" approval of the merger and the merger agreement.

          Spartan has informed us that the purpose of the merger is to enable the Exchanges to acquire all of the outstanding shares of Foremost common stock. The merger will expand the customer base of the Exchanges and their affiliates and create new revenue sources for those entities.

Interests of Certain Persons in the Merger

          You should be aware that certain members of our board and senior management have certain interests in the merger that may differ from the interests of our shareholders generally and that these interests could influence their decisions in voting on the merger. Your board of directors was aware of these interests before approving the merger and merger agreement. These interests are as follows:

Completion and Effectiveness of the Merger

          Completion of the merger will occur when all of the conditions to completing the merger are satisfied or waived, including approval by our shareholders and the receipt of all consents and approvals from commissioners of insurance, other governmental authorities and third parties necessary to the merger. The merger will become effective when a certificate of merger is filed with the Michigan Corporation, Securities and Land Development

Conversion of Foremost Common Stock

          Under the merger agreement, upon completion of the merger and without any action on the part of us, Spartan or any of our shareholders, each share of Foremost common stock outstanding immediately before the merger will be converted automatically into the right to receive $29.25 in cash. Each holder of a certificate representing shares of Foremost common stock will no longer have any rights with respect to the shares of Foremost common stock, except the right to receive $29.25 in cash for each share.

Effect on Foremost Stock Options

          Immediately before completion of the merger, we will cancel all outstanding unexpired and unexercised options to purchase Foremost common stock, whether or not the options have vested at that time. In exchange for the cancellation of the options, each holder of options will be entitled to receive a cash payment equal to the aggregate number of stock options held by that holder multiplied by the excess of $29.25 over the applicable exercise price of each option, less any amounts that we are required to deduct and withhold under applicable tax laws.

Exchange of Shares of Foremost Common Stock

          When the merger is completed, our exchange agent will mail to you a letter of transmittal and instructions for surrendering Foremost stock certificates in exchange for cash. When you surrender your Foremost stock certificates to the exchange agent, together with the letter of transmittal and any other required documents, your Foremost stock certificates will be canceled and you will receive $29.25 in cash for each share of Foremost common stock that you own. The exchange agent will accept Foremost certificates upon compliance with reasonable terms and conditions as the exchange agent may impose to ensure an orderly exchange of certificates. After completion of the merger, there will be no further transfers on our records or our transfer agent of certificates representing shares of Foremost common stock, and if certificates are presented to us or our transfer agent for transfer, the certificates will be canceled and in exchange the holder will receive $29.25 in cash for each share of Foremost common stock represented by the certificate. Until surrendered as contemplated by the merger agreement, each certificate formerly representing shares of Foremost common stock will be deemed after completion of the merger to represent only the right to receive upon surrender $29.25 in cash. No interest or other payment will be paid or will accrue on the cash payment.

          You should not send your Foremost stock certificates to our exchange agent until you have received transmittal forms. Do not return your Foremost stock certificates with the enclosed proxy.

Opinion of Foremost's Financial Advisor

          Under a letter agreement dated July 1, 1999, we retained Morgan Stanley to provide financial advisory services and a fairness opinion in connection with the merger based upon Morgan Stanley's experience and expertise. At the October 13, 1999 meeting of our board of directors, Morgan Stanley updated the board on the status of the transaction, gave a valuation presentation and advised the board that a formal written opinion concerning the fairness of the transaction would be forthcoming in a few days. This opinion, dated as of October 18, 1999 and based upon and subject to the matters stated in the opinion, stated that the consideration to be received by the holders of shares of Foremost common stock pursuant to the merger agreement was fair from a financial point of view.

          The full text of Morgan Stanley's opinion dated October 18, 1999, which sets forth the assumptions made, matters considered and limitations on the review undertaken by Morgan Stanley in rendering its opinion, is attached as Annex B to this proxy statement and is incorporated in this summary by reference. You should read Morgan Stanley's opinion carefully in its entirety. Morgan Stanley's opinion is directed to our board of directors and addresses the fairness of the consideration from a financial point of view to our shareholders, and it does not address any other aspect of the merger nor is it a recommendation to any

          In arriving at its opinion, Morgan Stanley:

          Morgan Stanley assumed and relied upon, without independent verification, the accuracy and completeness of the information it reviewed for the purposes of its opinion. With respect to financial projections, Morgan Stanley assumed that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of our future financial performance. Morgan Stanley did not make any independent valuation or appraisal of our assets or liabilities, nor was it furnished with any such appraisals. Morgan Stanley's opinion is necessarily based on economic, market and other conditions as in effect on, and the information made available to Morgan Stanley as of, October 18, 1999.

          The following is a summary of the material financial analyses performed by Morgan Stanley in arriving at its opinion. Certain of the summaries of financial analyses include information presented in tabular format. To fully understand the financial analyses used by Morgan Stanley, the tables must be read together with the text of each summary. The tables alone do not constitute a complete description of the financial analyses.

          Valuation Analyses Used to Derive Implied Valuation Per Share of Foremost Common Stock

          Morgan Stanley prepared separate valuations of our business. In determining valuation, Morgan Stanley used the following methodologies:

          The per share valuation ranges derived from such analyses were then used as a basis against which to evaluate the merger consideration. The various valuation methodologies and the implied valuation per share of Foremost common stock are summarized in the following table:

          Morgan Stanley also performed a common stock performance analysis which is summarized below.

          Comparable Public Company Analysis

          Morgan Stanley performed a comparable public company trading analysis in which it compared certain of our financial information with corresponding publicly available financial and operating data, projections of future financial performance and market statistics of the following publicly traded companies that Morgan Stanley considered comparable in certain respects with us:

          Morgan Stanley used historical financial information in connection with the ratios provided below as of June 30, 1999 for the comparable companies and for us. For each of the comparable companies, Morgan Stanley calculated, among other things, the multiples, based on market trading information as of October 14, 1999, of each of the following:

          Earnings per share estimates for the comparable companies were based on median I/B/E/S International Inc. ("IBES") estimates as of October 14, 1999. 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 range of multiples calculated by Morgan Stanley for the comparable companies and the relevant multiple range for us (based on the analysis of the comparable company multiples) are summarized in the following table:

          The implied range of public market values for Foremost common stock, on a stand-alone basis, derived from Morgan Stanley's analysis of the comparable companies' market price to adjusted book value, market price to 1999 estimated earnings per share and market price to 2000 estimated earnings per share ranged from approximately $18.50 to $21.50 per share based on our adjusted book value and 1999 and 2000 earnings estimates.

          Acquisition Premium Analysis

          Using the implied public market values for Foremost common stock derived from the comparable public company analysis, Morgan Stanley performed an analysis of the implied acquisition value of Foremost common stock, based on premiums to public market value. Using premiums of 20%, 30% and 40%, a range Morgan Stanley considered representative of the acquisition premiums paid in comparable acquisitions, the implied acquisition value for Foremost common stock ranged from approximately $25.00 to $30.00 per share. No company utilized in the comparable company analysis as a comparison is identical to us. In evaluating the comparable companies, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond our control, including the impact of competition on our business and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of us or the industry, or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using comparable company data.

          Comparable Precedent Transaction Analysis

          Morgan Stanley reviewed certain publicly available information regarding 12 selected precedent transactions from 1995 to 1999 involving the acquisition of property and casualty companies determined by Morgan Stanley to be comparable to the merger. The transactions were selected to compare the multiples of transaction equity value to net income and transaction equity value to book value indicated by the consideration in the merger to those multiples indicated for the precedent transactions. The precedent transactions selected by Morgan Stanley are listed in the following table:

          Emphasis was given to the six more comparable transactions to the merger indicted with an "*" in the above table. The range of multiples of transaction equity value to net income (based on the acquired company's last 12 months net income before announcement of the transaction) for the precedent transactions was 13.9x to 31.8x. The range of multiples of transaction equity value to book value (based on the acquired company's most recently reported book value before the announcement of the transaction) for the precedent transactions was 1.25x to 3.41x. The multiple of transaction equity value to 1998 earnings for us was 19.3x. The multiple of transaction equity value to our book value as of June 30, 1999 (excluding the effects of Financial Accounting Standards No. 115) was 3.03x. The implied range of private market values calculated by Morgan Stanley for Foremost common stock derived from the analysis of the precedent transactions' equity value to net income and transaction equity value to book value ranged from approximately $25.00 to $31.00 per share.

          No company utilized in the precedent transaction analysis as a comparison is identical to us. In evaluating the precedent transactions, Morgan Stanley made judgments and assumptions with regard to industry performance, general business, economic, market and financial conditions and other matters, many of which are beyond our control, including the impact of competition on our business and the industry generally, industry growth and the absence of any adverse material change in the financial condition and prospects of us or the industry, or in the financial markets in general. Mathematical analysis, such as determining the average or median, is not in itself a meaningful method of using precedent transaction data.

          Discounted Cash Flow Analysis

          Morgan Stanley performed a discounted cash flow analysis to calculate the present value of the stand-alone unlevered free cash flows that we would generate from January 1, 1999 through December 31, 2008 assuming annual growth rates of our historical premium revenues of 5% and 7% and average statutory combined ratios over this time period ranging from 89% to 93%. The combined ratio under statutory accounting is the sum of the following:

          Morgan Stanley then discounted the estimated unlevered free cash flows for each of these scenarios using discount rates of 9%, 10% and 11%. Morgan Stanley calculated terminal values based on price to earnings multiples of 14x estimated GAAP earnings in 2009, 15x estimated GAAP earnings in 2009 and 16x estimated GAAP earnings in 2009 for each of the scenarios and then discounted these terminal values using discount rates of 9%, 10% and 11%. The implied range of private market values calculated by Morgan Stanley for Foremost common stock derived from the discounted cash flow analysis ranged from approximately $25.00 to $29.00 per share.

          Historical Foremost Common Stock Performance

          Morgan Stanley reviewed the historical trading prices for Foremost common stock and analyzed the merger consideration in relation to the price of Foremost common stock in the time periods referred to below. The analysis indicated that, from October 14, 1998 to October 14, 1999, the closing market price of Foremost common stock ranged from a low of $15.88 to a high to $25.38. Furthermore, the analysis showed that the merger consideration represented a 40.0% premium to the average closing market price of Foremost common stock during this period and a 48.1% premium to the closing market price of Foremost common stock on May 17, 1999 (the date Morgan Stanley first met with us to discuss strategic alternatives).

          Morgan Stanley also reviewed the historical trading prices for Foremost common stock and the relationship between Foremost common stock and movements in (a) the Standard & Poor's 500 index and (b) a composite index of selected insurance companies. This analysis was conducted for the period from May 17, 1999 (the date that Morgan Stanley first met with us to discuss strategic alternatives) to October 11, 1999. The index of comparable companies consisted of the following:

          From May 17, 1999 to October 14, 1999, the S&P 500 index returned -4.2%, the composite index of selected insurance companies returned -16.3% and we provided a return of 20.3%. This analysis showed that since May 17, 1999, we have outperformed the index of comparable companies by 36.6% and the S&P 500 index by 24.5%. After analyzing our performance compared to the S&P index and the index of comparable companies, Morgan Stanley determined that our current level of stock price performance would likely not be sustainable over the long term. Morgan Stanley based this judgment in part on the developing softness in the insurance industry market sector due to a lack of investor interest as a consequence of intense price competition among property and casualty insurers. Morgan Stanley's judgment also was based on the previously discussed difficulties in growing our company into a national writer of standard lines. See "The Merger--Background of the Merger."

          The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary descriptions. In arriving at its opinion, Morgan Stanley considered the results of all of its analyses as a whole and did not attribute any particular weight to any analysis or factor considered by it. Furthermore, Morgan Stanley believes that selecting any portion of its analysis, without considering all analyses, would create an incomplete view of the process underlying its opinion. In addition, Morgan Stanley may have given various analyses and factors more or less weight than other analyses and factors, and may have deemed various assumptions more or less probable than other assumptions, so that the ranges of valuations resulting from any particular analysis described above should not be taken to be Morgan Stanley's view of the actual value of our business.

          The Spartan proposal of $29.25 was within the fairness range for each of the analyses considered by Morgan Stanley. Because fairness in a transaction such as the proposed merger commonly is analyzed in terms of a range rather than a specific number, all of the factors considered by Morgan Stanley supported its conclusion that the merger is fair to our shareholders.

          In performing its analysis, Morgan Stanley made numerous assumptions with respect to industry performance, general business and economic conditions and other matters, many of which are beyond our control. Any estimates contained in Morgan Stanley's analysis are not necessarily indicative of future results or actual values, which may be significantly more or less favorable than those suggested by these estimates. The analyses performed were prepared solely as part of Morgan Stanley's analysis of the fairness of the consideration to be

          Our board of directors retained Morgan Stanley based upon Morgan Stanley's qualifications, experience and expertise. Morgan Stanley is an internationally recognized investment banking and advisory firm. Morgan Stanley, as part of its investment banking and financial advisory business, is continuously engaged in the valuation of businesses and securities in connection with mergers and acquisitions, negotiated underwritings, competitive biddings, secondary distributions of listed and unlisted securities, private placements and valuations for corporate and other purposes. In the ordinary course of Morgan Stanley's trading and brokerage activities, Morgan Stanley or its affiliates may at any time hold long or short positions, may trade or otherwise effect transactions, for its own account or for the account of customers in the equity or debt securities or vendor loans of us, the Exchanges or Farmers Group, Inc.

          Pursuant to an engagement letter dated July 1, 1999, Morgan Stanley provided financial advisory services and a financial fairness opinion in connection with the merger, and we agreed to pay Morgan Stanley a transaction fee equal to approximately 61 basis points of the equity value of the transaction (approximately $4.96 million) if the merger is completed. We also agreed to reimburse Morgan Stanley for its out-of-pocket expenses incurred by Morgan Stanley in performing its services (approximately $35,000). In addition, we have agreed to indemnify Morgan Stanley and its affiliates, their respective directors, officers, agents and employees and other persons, if any, controlling Morgan Stanley or any of its affiliates against certain liabilities and expenses, including certain liabilities under the federal securities laws, related to or arising out of Morgan Stanley's engagement and any related transactions.

Financing for the Merger

          The Exchanges will contribute to Spartan a sufficient amount of funds to pay the total amount of the merger consideration to our shareholders and option holders and pay estimated fees, expenses and other transaction costs of Spartan and Spartan Acquisition Co. in connection with the merger. These funds will come from the Exchanges' available cash resources which may include the proceeds of approximately $370 million principal amount of contribution certificates or surplus notes issued by the Exchanges to Farmers Group, Inc. or its subsidiaries.

Accounting Treatment

          The Exchanges will account for the merger given that the Exchanges will directly own Foremost following completion of the merger. We have been informed by the Exchanges that the merger will be accounted for under the statutory purchase method of accounting under the rules and regulations of the California insurance commissioner. Under this method, the Exchanges will record our insurance subsidiaries at their historical statutory surplus and noninsurance subsidiaries at historical equity calculated in accordance with generally accepted accounting principles.

Regulatory Approvals

          The regulatory filings and approvals described below must be made before the merger can be completed and certain of these approvals may take a significant period of time to obtain. Although we and Spartan believe tha t

          Hart-Scott-Rodino Act Filings

          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 requisite approvals in respect of the act are obtained. On November 4, 1999, each of Foremost and Farmers Insurance Exchange 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, which commenced a 30-day waiting period. The waiting period was terminated on November 16, 1999. Although the waiting period has expired pursuant to early termination, 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 rescind the merger or to require either Foremost or Farmers Insurance Exchange to divest particular assets. Private parties also may seek to take legal action under the antitrust laws under certain circumstances.

          State Regulatory Approvals

          We and our subsidiaries are subject to the insurance laws and regulations of Michigan, Florida and Texas, the domiciliary states of our subsidiaries, and the laws and regulations of other states in which our subsidiaries are licensed to do business. As of the date of our annual report on Form 10-K for the year ended December 31, 1998, our subsidiaries were licensed to do business in all 50 states and the District of Columbia, in the aggregate. The Exchanges are subject to the insurance laws and regulations of California, the domiciliary state of the Exchanges, and the laws and regulations of other states in which the Exchanges and their subsidiaries are licensed to do business. As of March 31, 1999, the Exchanges and their subsidiaries were licensed to do business in all 50 states and the District of Columbia, in the aggregate.

          The insurance laws and regulations of all United States jurisdictions generally require that, before the acquisition of control of an insurance company domiciled in that jurisdiction, either through the acquisition of or merger with the insurance company or the holding company of the insurance company, the acquiring corporation must obtain the prior approval of, or file notification with and meet waiting period requirements imposed by, the insurance commissioner of that jurisdiction.

          Completion of the merger is subject to approvals of, and/or notice to, and the expiration of applicable waiting periods required by, the insurance regulatory agencies of California, Florida, Michigan, Texas and other states in which the companies do business. In connection with the state approval and notification process, Spartan and the Exchanges have filed formal applications, called Form A filings, for approval of the merger with the commissioners of insurance in Michigan, Texas and Florida. Spartan and the Exchanges also have filed with the California insurance commissioner a formal application with respect to the transactions contemplated by the merger agreement. A hearing on the Form A filing could be held in Texas, Michigan and/or Florida.

          In addition, Spartan and the Exchanges will make notice filings as required in other jurisdictions in which the companies do business. 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 departments could determine to take action to prevent or impose conditions on the merger.

Expenses

          Except as discussed in "The Merger Agreement--Payment of Expenses and Termination Fee," Spartan, Spartan Acquisition Co. and Foremost each will pay its own expenses incurred in connection with the merger and the merger agreement.

Federal Income Tax Consequences

          The following discussion summarizes the material United States federal income tax consequences of the merger. This discussion does not address the 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 Foremost common stock as part of an integrated investment composed of Foremost common stock and one or more other positions and shareholders who acquired their Foremost 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, 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 Foremost common stock will be a taxable transaction for United States federal income tax purposes under the Internal Revenue 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 Foremost common 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 Foremost common stock you surrender was a capital asset and will be long-term capital gain or loss if you held the shares of Foremost common 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%.

          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, Spartan 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.

Dissenters' Rights

          Under Michigan law, a shareholder who does not vote in favor of certain corporate actions may have the right to obtain an appraisal of those shares and the right to receive cash in exchange for those shares. However, a shareholder does not have dissenters' rights in a merger if the shareholder receives cash. Accordingly, you do not have dissenters' rights in the merger.

Operations After the Merger

          Spartan currently intends to maintain the operations of Foremost as an operating subsidiary of Spartan. The directors of Spartan Acquisition Co. immediately before completion of the merger will become the directors of Foremost following completion of the merger until their respective successors have been elected and qualified or until their earlier death, resignation or removal. The officers of Foremost immediately before completion of the merger will remain the officers of Foremost immediately following completion of the merger until their respective successors have been elected and qualified or until their earlier death, resignation or removal. Please see "The Merger--Interests of Certain Persons in the Merger" for a discussion of Spartan's current intent regarding our executive officers following completion of the merger.

THE MERGER AGREEMENT

          The following discussion summarizes the material terms of the merger agreement. The discussion does not, however, contain a complete statement of all provisions of the merger agreement and is qualified in its entirety by reference to the merger agreement. A copy of the merger agreement is attached as Annex A to this proxy statement and is incorporated in this proxy statement by reference. You should read the merger agreement because it, and not this proxy statement, is the legal document that governs the merger.

Representations and Warranties

          Foremost, Spartan, Spartan Acquisition Co. and the Exchanges each made a number of representations and warranties in the merger agreement, subject to certain exceptions, regarding aspects of their respective businesses, structure and other facts relevant to the merger.

          Representations and Warranties of Foremost

          Our representations and warranties include representations as to, among other things:

          Our representations and warranties will expire on the effective date of the merger.

          Representations and Warranties of Spartan, Spartan Acquisition Co. and the Exchanges

          The representations and warranties of Spartan, Spartan Acquisition Co. and the Exchanges include representations as to, among other things:

          The representations and warranties of Spartan, Spartan Acquisition Co. and the Exchanges will expire on the effective date of the merger.

Covenants

          The merger agreement contains a number of covenants, most of which provide limitations within which we will operate our business until the merger is completed. These covenants include the following:

          Conduct of Business of Foremost Pending the Merger

          From the date of the merger agreement until completion of the merger, we will use commercially reasonable efforts to:

          We agreed that, until completion of the merger, we and our subsidiaries will conduct operations in the ordinary course of business consistent with past practice. Further, unless Spartan consents in writing, we and our subsidiaries will not:

          Conduct of Business of Spartan Pending the Merger

          Spartan agreed that, until completion of the merger, unless we consent in writing, Spartan and its subsidiaries will not do either of the following:

          No Solicitation

          Until completion of the merger, we have agreed not to:

          We also have agreed to cease any existing discussions and negotiations with any parties conducted up to the date of the merger agreement with respect to any proposal relating to an Acquisition Transaction.

          However, our board of directors is not prohibited from furnishing information to, or entering into discussions or negotiations with, any person or entity in connection with an unsolicited bona fide proposal for an Acquisition Transaction from a person or entity reasonably believed to have the financial ability to complete the Acquisition Transaction, if all of the following occurs:

          Additionally, our board of directors is not prohibited from failing to make or withdrawing or modifying its recommendation for the merger or making or disclosing any position or taking any other action if our board of directors, after consultation with and based on the advice of outside legal counsel, determines in good faith that the action is necessary for our board to comply with its fiduciary duties to our shareholders under applicable law.

          We promptly must advise Spartan in writing of the receipt of any bona fide proposal relating to an Acquisition Transaction and any actions taken by us as described in this section.

          We have not received any proposals to enter into an Acquisition Transaction from third parties since we entered into the merger agreement.

          Indemnification of Our Officers, Directors, Employees and Agents

          After the merger is completed, Spartan will cause the surviving corporation to indemnify our present and former officers, directors, employees and agents for acts or omissions occurring before or at the time that the merger is completed to the same extent and on the same terms and conditions as provided in our articles of incorporation, bylaws and other agreements in effect as of the date of the merger agreement to the extent consistent with applicable law. For a period of six years after the merger is completed, Spartan will cause the surviving corporation to include in its articles of incorporation and bylaws and maintain indemnification provisions to the fullest extent permitted by the laws of the surviving corporation's state of incorporation and will cause to be maintained in effect the current policies of directors' and officers' liability insurance maintained by us with respect to claims arising or facts that occurred before completion of the merger.

          Employees

          For a period of at least one year following completion of the merger, continuing employees of Foremost will receive employee benefits which in the aggregate are no less favorable to our employees than benefits which are substantially similar to the benefits received by those employees as of the date of the merger agreement, provided, however that Spartan will not be obligated to provide a stock option plan to our employees. Following the first anniversary of completion of the merger, Spartan will provide or cause the surviving corporation to provide employee benefit plans, programs, arrangements and policies which are comparable in the aggregate to the employee benefit plans, programs, arrangements and policies provided to similarly situated employees of Spartan.

Conditions to the Merger

          Joint Conditions to Completion of the Merger

          The obligations of Foremost and Spartan to complete the merger are subject to the satisfaction or waiver of each of the following conditions:

          Spartan's Conditions to Completion of the Merger

          Spartan's obligations to complete the merger are subject to the satisfaction or waiver of each of the following additional conditions:

          Foremost's Conditions to Completion of the Merger

          Our obligations to complete the merger are subject to the satisfaction or waiver of each of the following additional conditions:

Termination

          The merger agreement may be terminated at any time before completion of the merger, whether before or after approval of the merger and the merger agreement by our shareholders:

Effect of Termination

          If the merger agreement is terminated, the merger will be deemed abandoned and the merger agreement will be void, except for agreements concerning confidentiality in accordance with the terms of the confidentiality agreement between us and Farmers Group, Inc. and the payment of expenses. The termination of the merger agreement will not result in liability on the part of any party or its affiliates, directors, officers or shareholders except for payment of the termination fee, as described in "--Payment of Expenses and Termination Fee" below, and except for any willful or bad faith breach of any obligation or undertakings under the merger agreement.

Payment of Expenses and Termination Fee

          We will pay Spartan a termination fee of $20 million if the merger agreement is terminated under any of the following circumstances and, before the termination, there was a publicly announced proposal for an Acquisition Transaction:

          If the merger agreement is terminated in the circumstances outlined above, whether or not a proposal for an Acquisition Transaction is publicly announced, we also will pay Spartan's reasonable costs and expenses actually incurred by Spartan in connection with the merger agreement up to a maximum of $2 million.

          In addition, we will pay Spartan a termination fee of $20 million and Spartan's reasonable costs and expenses up to a maximum of $2 million if we terminate the merger agreement because our board has determined

          As discussed above, the existence of a termination fee provision permits our board to terminate the merger agreement under certain conditions subject to the payment to Spartan of the termination fee and reasonable expenses. However, the existence of a termination fee provision also may reduce the amount that a third party would be willing to pay to us to enter into an Acquisition Transaction. The amount of the termination fee was reached through arms length negotiations with Spartan and was consistent with termination fees in similar transactions with which we were familiar.

          The termination fees and expenses payable by us to Spartan are triggered under certain circumstances including if we terminate the merger agreement because our board has exercised its fiduciary duties or our shareholders do not approve the merger agreement. Spartan is not permitted to terminate the merger agreement based on the comparable actions of its board of directors or shareholders but may terminate the merger agreement based on specific reasons outlined in the merger agreement. If Spartan terminates the merger agreement for the reasons set forth in the merger agreement, Spartan is not required to pay us a termination fee or reimburse us for our expenses. However, if Spartan determines not to proceed with the merger and is not otherwise entitled to terminate the merger agreement, Foremost would be able to bring an action against Spartan for damages.

Extension, Amendment and Waiver of the Merger Agreement

          Spartan, Spartan Acquisition Co. and Foremost may amend, modify or supplement the merger agreement at any time before completion of the merger.

          Either Spartan and Spartan Acquisition Co., on the one hand, or Foremost, on the other hand, may extend the time for the performance of any of the obligations or other acts of the other party required by the merger agreement, waive any inaccuracies in the other party's representations and warranties in the merger agreement or in any documents delivered pursuant to the merger agreement and waive compliance by the other party with any of the agreements or conditions in the merger agreement that may be legally waived.

FOREMOST'S BUSINESS

General

          We are a holding company which, through our subsidiaries, provides property and casualty insurance primarily for mobile homes and recreational vehicles. We believe that as of the date of this proxy statement we were the leading writer of mobile home property and casualty insurance in the United States. We also write private passenger automobile and homeowners insurance.

          We sell property and casualty insurance to mobile home and recreational vehicle owners through independent agents and general agents, as well as through dealer agents. We also write property and casualty insurance on a direct response basis.

          Our principal subsidiary, Foremost Insurance Company, Grand Rapids, Michigan, was founded in 1952. We were incorporated in Delaware in 1967 and acquired all the outstanding capital stock of Foremost Insurance Company in that year. On June 30, 1998, we changed our state of incorporation to Michigan. Our principal executive offices are located at 5600 Beech Tree Lane, Caledonia Township, Michigan 49316. Our mailing address is Post Office Box 2450, Grand Rapids, Michigan 49501, and our telephone number is (616) 942-3000.

          Our insurance subsidiaries are rated A+ (Superior) by A.M. Best & Co. which is the second highest of the 15 rating categories in the A.M. Best rating system. On October 27, 1999, A.M. Best & Co. affirmed our A+ (Superior) rating following the announcement of the merger agreement.

          In September 1998, our insurance subsidiaries received an A (strong) financial strength rating from Standard & Poors. In addition, in 1999 we were, for the fifth consecutive year, rated among the top 50 insurance companies in the United States with respect to safety, consistency and performance by Ward's Financial Group, a management

          During 1999, our business was concentrated in the property and casualty insurance market.

Property and Casualty Insurance

          Our property and casualty insurance business is concentrated primarily in the mobile home and recreational vehicle markets. Foremost Insurance Company, Foremost Signature Insurance Company, American Federation Insurance Company and Foremost Property and Casualty Insurance Company write our property and casualty insurance.

          Through our property and casualty subsidiaries, we write mobile home and recreational vehicle property and casualty insurance. We also write dwelling fire, homeowners and automobile insurance. Foremost Property and Casualty writes mobile home property and casualty insurance on a direct response basis under an exclusive endorsement by the American Association of Retired Persons as discussed below in "--Marketing--Direct Response Channel." In addition, we write automobile and homeowners property and casualty insurance based upon endorsements by third parties on a direct basis.

          Our property and casualty insurance operations cover all 50 states and the District of Columbia, although not all lines of insurance are sold in all jurisdictions. The following table presents the amounts and percentages of premium written by our property and casualty insurance subsidiaries in the 10 leading states during 1998:

          A substantial portion of premium written in Texas is written by Foremost County Mutual Insurance Company, a Texas county mutual insurance company, and reinsured by Foremost. These amounts are included in "premium written and assumed" in the notes to the consolidated financial statements included in this proxy statement.

          Our insurance subsidiaries are subject to statutory restrictions and to supervision by state insurance regulatory agencies in all jurisdictions in which the subsidiaries transact insurance business as discussed below in "--Government Regulation."

Other Operations

          Secondary Market Financial Services

          In August of 1982, Foremost Financial Services Corporation developed a Manufactured Housing Pass-Through program. Under this program Foremost Financial Services issued certificates which are privately placed with institutional investors. The certificates evidence undivided interests in pools of manufactured housing retail installment obligations. Foremost Financial Services is contractually obligated to the certificate holders for servicing of the installment obligations. The certificates do not represent an interest in or obligation of Foremost Financial Services. However, Foremost Financial Services is obligated, if there is a delinquency or deficiency in payments on the

          Insurance Agencies

          We own the following insurance agencies:

These agencies generate commission income by selling our specialty insurance products to selected markets. Some of the agencies listed above currently are inactive.

Marketing

          Our primary marketing strategy has been to provide insurance products through three distribution channels:

          Agency Channel

          We write insurance through numerous independent agents and a select group of general agents. These agents, many of whom also represent one or more competing insurance companies, are independent contractors selected and appointed by us. Under our agency agreement, each agent is authorized to sell and bind insurance policies in accordance with procedures specified in the agency agreement. Our marketing force focuses on developing and maintaining relationships in this channel. We also own a number of captive agencies which operate like an independent agency, except that they primarily only sell our insurance products.

          Point-of-Sale Channel

          We sell our insurance through mobile home and recreational vehicle dealer agents. Mobile home property and casualty insurance is the primary product sold through mobile home dealer agents. Recreational vehicle property and casualty insurance is the primary product sold through recreational vehicle dealer agents. We provide open lot commercial insurance products for certain property risk exposure of mobile home and recreational vehicle dealers. Our marketing force develops and maintains relationships with mobile home and recreational vehicle dealer agents.

          Direct Response Channel

          We utilize our direct response operation for the offering of mobile home, recreational vehicle, automobile and homeowners insurance to insureds through third-party endorsements and through our direct advertising. In December of 1989, we entered into a 10-year agreement with AARP under which the association granted us the exclusive right to offer our mobile home insurance to AARP members. This agreement was amended in 1997 extending the term through the year 2004. We market AARP mobile home policies exclusively on a direct response basis and own the renewal rights to these policies.

          During 1997, we entered into a multiyear agreement with an agent that represents the Amway Distributors Benefits Association and markets personal lines insurance to approximately 1.2 million independent distributors of Amway Corporation in the United States. In January of 1998, we entered into an agreement with Old Kent Bank, Grand Rapids, Michigan to market personal lines insurance to customers and employees of Old Kent Bank and its affiliates. We also utilize a direct response mail and telemarketing operation to sell our property and casualty policies to insureds in cases where we own the renewal rights to policy expirations.

Trademarks

          We hold a number of registered and common law trademarks that identify our products and services. The trademarks that we use most widely include "Foremost" and the "interlocking F." Although the registration of "Foremost" will expire on July 29, 2006, and the "interlocking F" on October 13, 2007, further renewals for periods of 20 years currently are available under federal trademark laws.

          We believe that consumers identify our products and services by our trademarks and that these trademarks are valuable assets. We are not aware of any infringing uses or any prior claims of ownership of our trademarks that could materially affect our current business. It is our policy to pursue registration of our primary marks whenever possible and to vigorously defend our trademarks against infringement or other threats to the greatest extent practicable under the laws of the United States. We also hold several other proprietary rights. We protect all of these proprietary rights to the greatest extent practicable under applicable law.

Underwriting

          The objective of our underwriting and ratemaking strategy is to achieve underwriting profits as well as to generate investable assets. Each of our property and casualty subsidiaries designs its own coverages and sets its own rates for its policies. However, our property and casualty subsidiaries incorporate some of the standard coverages and rates developed by ratemaking bureaus. Each prospective policy is underwritten and rated based upon a combination of factors which include, in the case of mobile homes, type of mobile home, location and other risk characteristics. Through this practice we seek to write policies only for those risks which meet our underwriting criteria.

          We believe that a key factor in our underwriting process is the use of our extensive historical mobile home database, which includes a computerized database of over 15 million earned policy years of experience with mobile home insurance policies. This database enables us to better identify and quantify the loss experience associated with numerous risk characteristics and is employed in the design of the coverage and rating used to classify insurance risks.

          The significant increase in catastrophe events since 1989 requires that we manage risk concentrations, especially in areas prone to hurricane, flood and earthquake. Over the last several years we have implemented various restrictions on new business writings in some areas. In addition, from 1993 to 1996 we implemented nonrenewals of policies in certain coastal areas running from Maine to Texas on the Atlantic Ocean and the Gulf of Mexico, including Florida, and California on the West Coast, to limit our exposure to these catastrophes. During 1997, we took action against another catastrophic risk by starting the process of eliminating flood from our mobile home policies' coverages. As of December 31, 1998, flood coverage was removed in 47 states. Accordingly, based on our policy renewal schedule, approximately 50% of our mobile home policies were without flood coverage as of December 31, 1998. This percentage grew to approximately 70% by the end of 1999, which significantly reduced our exposure of loss due to flooding. The guaranteed renewability of AARP policies and some American Federation policies, which accounted for approximately 12% of the total policies at December 31, 1999, will delay the removal of flood coverage. Also, the bureau states of Texas and North Carolina refuse to modify the bureau forms to eliminate flood

Claims

          Approximately 97% of claims are handled by our own staff of claim adjusters and the remainder by independent claim adjusters. Independent claim adjusters are primarily used to assist in handling claims in areas where insurance volume does not warrant the maintenance of a staff adjuster and for certain nonmobile home related claims. If a claim or loss cannot be settled and results in litigation, we retain outside counsel. In view of our commitment to mobile home and recreational vehicle property and casualty insurance, we conduct training programs for our adjusters on mobile home and recreational vehicle construction and the settlement of mobile home and recreational vehicle claims. We believe that the extensive use of our own trained claims adjustment staff as opposed to independent adjusters permits us to more expeditiously settle claims and limit underwriting losses and loss adjustment expenses. We intend to follow the same approach in the automobile and homeowners business by training our own adjusters as justified by the volume of business in geographic areas.

Loss and Loss Adjustment Expense Reserves

          We maintain reserves for the payment of losses and loss adjustment expenses for both reported and unreported claims. We estimate loss reserves at a given point in time at what we expect to pay in incurred losses based on facts and circumstances then known. Loss adjustment expense reserves are intended to cover the ultimate cost of settling all losses and defending lawsuits resulting from losses. The amount of loss reserves and loss adjustment expense reserves for reported claims primarily is based upon a case-by-case evaluation of the type of claim involved, the circumstances surrounding each claim and the policy provisions relating to the type of loss. We determine the amount of loss reserves and loss adjustment expense reserves for incurred but not reported claims on the basis of historical information by line of insurance. Neither generally accepted accounting principles nor statutory reserves represent an exact calculation of future benefit liabilities but are instead estimates made by us using actuarial and statistical methods. Ultimate liability may be greater or lower than reserves, and we cannot assure you that these reserves would be sufficient to fund future liabilities in all circumstances. We monitor reserves closely and quarterly review the reserves using new information on reported claims. We obtain certification of the adequacy of our reserves as of each December 31st by independent actuaries. We do not discount to present value that portion of our loss reserves expected to be paid in future periods. Inflation is reflected in the reserving process through analysis of cost trends and reviews of historical reserving results.

Limits of Insurance Coverage and Reinsurance

          We offer property coverage based on the actual cash value, or replacement cost, of the risk, depending on the coverage form written. Our published limits of liability for mobile home physical damage vary by state, with the highest limit being $125,000 for the states of Arizona, California, Oregon and Washington, with the nationwide average mobile home insured at approximately $24,000. Our published limits of liability for homeowners physical damage is typically $700,000. We maintain an excess of loss reinsurance policy for our homeowners programs, ceding 95% of each individual property loss in excess of $250,000. We write personal effects coverage at a percentage of the dwelling amount, usually 20% to 75%, depending on the coverage form written. Our published limits on liability coverage range from $25,000 to $500,000 per liability occurrence for mobile homes, and vary with other products depending on the needs and qualification of the policyholders. We reinsure 100% of any single liability loss which exceeds $500,000.

          A reinsurance transaction occurs when an insurance company transfers (cedes) a portion of its exposure on business written by it to a reinsurer which assumes that risk for a premium. Although the ceding of the insurance risk does not discharge the original insurer from its primary liability to its policyholder, it is the practice of insurers for accounting purposes to treat the reinsured risks, to the extent of the insurance ceded, as though they were risks for which the original insurer is not liable since the original insurer only would assume liability in those situations where the reinsurer is unable to meet the obligations assumed under the reinsurance agreements.

          During 1998, our property and casualty subsidiaries maintained reinsurance protection for catastrophes which indemnified us for aggregate catastrophe loss in excess of our retention up to the reinsurance treaty limits. We did not renew this aggregate catastrophe loss treaty. For 1999 our property and casualty subsidiaries maintained single

          We monitor the financial condition of the reinsurers and attempt to place coverage only with substantial, financially sound carriers. Due to fluctuations in capacity in the reinsurance market, we cannot be sure that our reinsurance agreements will be continued on current terms.

          The severity of weather-related and similar catastrophes in recent years has demonstrated to insurers, including our property and casualty insurance subsidiaries, that most assumptions on the damage potential of catastrophes were too optimistic. Our insurance subsidiaries maintain records showing concentrations of risks in catastrophe-prone areas of the United States. Our insurance subsidiaries regularly assess their concentration of underwriting exposures in catastrophe-prone areas and develop strategies to manage their exposure to catastrophic events, subject to regulatory constraints.

Government Regulation

          Our insurance subsidiaries are subject to regulation and supervision by state insurance regulatory agencies in all jurisdictions in which the subsidiaries are licensed to transact insurance business. Regulation and supervision relates to, among other things:

          These regulations are intended primarily to protect policyholders rather than shareholders. Our subsidiaries also are required to file detailed annual and other reports with the regulatory agencies in each of the states in which they do business, and their business and accounts are subject to examination at any time by state agencies. Under insurance statutes and procedures established by the National Association of Insurance Commissioners, our insurance subsidiaries are examined periodically by one or more of the supervisory agencies on behalf of states in which these subsidiaries do business for both financial condition and market conduct practices. The last financial examination of our property and casualty insurance subsidiaries was completed in 1996 which covered the period from January 1, 1993 through December 31, 1995, except (a) Foremost County Mutual was examined in 1998 for the period January 1, 1996 through December 31, 1997; (b) Foremost Lloyds of Texas was examined in 1998 for the period July 1, 1994 through December 31, 1997; (c) American Federation was examined in 1998 for the three-year period ending December 31,

          The insurance laws of most states generally provide that all property and casualty insurance companies which do business in their state must belong to a statutory property and casualty guaranty association. The purpose of these guaranty associations is to protect policyholders by requiring solvent property and casualty insurance companies to pay certain insurance claims of insolvent insurers. The rules of these guaranty associations assess insurers in order to pay these claims proportionately to the insurer's share of voluntary premiums written in the given state. While most guaranty associations provide a procedure for recouping assessments through rate increases, rate surcharges or premium tax credits, there is no assurance that insurers recover these assessments, and the time value of money becomes a cost to the insurer assessed. We do not expect that our share of these assessments will have a material impact on the business of our property and casualty subsidiaries.

          Many states have formed statutory residual market associations or plans to write certain higher risk property and casualty insurance, which risks are not eligible for the private market. These associations cover such risks as wind and water in coastal areas, assigned risk for automobile, workers' compensation, FAIR plans for homeowners and various other joint underwriting associations due to capacity shortfalls in the private market. By statute, each private insurer writing voluntary business of the type written under the residual market plans in the state must be a member of these associations and, depending on the plan, may be required to accept certain of these risks and also is required to participate in the profit or loss of the association or plan. Exposures under these plans are higher than voluntary writings because the plans accept higher risk business, and rates charged for this business are often lower than actuarially required due to political influence of the governmental agency operating these plans. In recent years, the Florida Residential Property and Casualty Joint Underwriting Association and the Florida Windstorm Underwriting Association have grown in the amount of exposures assumed due to the growth of wind and water exposure in Florida with continued real estate development. The shortage of private capacity after Hurricane Andrew in 1992, compounded by the inability of private insurers and Florida associations to secure regulatory approval of adequate rates for business written in the coastal areas, has caused further growth of exposures in these Florida associations. Florida also has imposed a nonrenewal moratorium which places annual limits on the amount of business an insurer may nonrenew in that state.

          Unprecedented catastrophe losses in recent years have prompted insurers to more aggressively limit their exposures to catastrophes. These actions have in turn created insurance availability problems in certain areas. In response to this environment, activity at the state regulatory level has occurred. During 1995, the California legislature authorized the establishment of the California Earthquake Authority, which will provide an alternative facility to California consumers for obtaining insurance to cover the earthquake peril. A similar situation exists in Florida where a state-sponsored insurance facility has accepted a significant number of insureds as a response to insurance companies continuing to limit the amount of their Florida business.

          Insurers also are required by the states to provide coverage to insureds who would not otherwise be considered eligible by the insurers. Each state dictates the types of insurance and the level of coverage which must be provided to these involuntary risks. Our insurance subsidiaries' shares of these involuntary risks is mandatory and generally a function of their respective share of the voluntary market by line of insurance in each state.

          In recent years, increased scrutiny of state-regulated insurer solvency requirements by certain members of the United States Congress resulted in the National Association of Insurance Commissioners developing industry minimum risk-based capital requirements, and establishing a formal state accreditation process designed to more closely regulate solvency, minimize the diversity of approved statutory accounting and actuarial practices and increase the annual statutory statement disclosure requirements. Risk-based capital formulas are designed to identify an insurer's minimum capital requirements based upon the inherent risks of its operations, including asset default, credit and underwriting of its operations. In addition to the minimum capital requirements, risk-based capital formula and related regulations identify various levels of the capital adequacy and corresponding actions that the state insurance departments should initiate. As of December 31, 1998, all of our property and casualty subsidiaries had adjusted capital amounts in excess of company action levels.

          Because we have implemented steps to reduce our exposure to catastrophes in catastrophe-prone areas, we have encountered resistance to these actions from state insurance regulators. However, we currently believe that we will be able to continue efforts to manage catastrophe exposures, but with some delays and compromises imposed by state insurance regulators.

          Various states have enacted laws that require registration and periodic reporting by insurance companies that are members of holding company systems. Our insurance subsidiaries are subject to this legislation and are registered under statutes where required. Typically, this legislation requires:

          Under the terms of applicable state insurance statutes, any person or entity desiring to purchase more than a specified percentage, commonly 10%, of our outstanding voting securities would be required to obtain regulatory approval of the purchase. As discussed above in "The Merger--Regulatory Approvals--State Regulatory Approvals" section of this proxy statement, Spartan and the Exchanges have made or will make certain filings with various state insurance commissioners related to the merger.

          The federal government also has the power to regulate the insurance business if the various states fail to do so. Except in a few limited areas, the federal government has not exercised its power. The United States Congress has considered the issue of federal regulation of certain aspects of the insurance industry and it is possible that it may adopt legislation in the future. Although Congress has not issued laws regarding the regulation of insurance, fair housing activists, including private advocacy groups, the United States Department of Housing and Urban Development's Office of Fair Housing and Equal Opportunity and the United States Department of Justice, have taken steps to limit or attack the use of certain risk-based methods for underwriting and pricing homeowners insurance under the Federal Fair Housing Act, even though the act does not apply to insurers by its terms. This activity has increased over the past several years. Although regulation of insurance generally is reserved to the states, these fair housing activists have had some success both in the courts and through private settlements in regulating certain insurance practices which they claim deprive people of housing through unfair and discriminatory "redlining." Recent efforts to challenge risk-based insurance practices have been facilitated through the legal concept of "disparate impact," the legal concept that a policy or practice based on race-neutral criteria may nevertheless constitute illegal discrimination if it has a disproportionate adverse impact on minorities. If fair housing activists and the executive branch of the federal government succeed in challenging certain underwriting and pricing practices, insurers may have to abandon certain practices that, while based on risk-based criteria, may yield a disparate racial impact. This could result in less variation in rates according to individual risks and a higher average premium for most risks to subsidize high loss groups of customers.

Competition

          All lines of business in which we engage are competitive. Large national companies account for much of the competition, although the types of insurance coverages that we sell are usually a relatively small portion of those companies' businesses. These national competitors are larger and have greater resources available to them than we do. In addition to large national companies that compete in our markets, other companies specialize in the same types of insurance coverages and compete directly with us, primarily in limited geographical areas. We compete primarily on the basis of value, although some of our competitors use price competition with respect to both premium rates and commission rates offered to agents.

Working Capital

          We maintain liquid assets in excess of an amount needed to pay our current operating expenses and claims.

Dependency Upon Single Customer

          No single customer accounted for 10% or more of our consolidated revenues in 1998, 1997 and 1996, and no material part of our business is dependent upon a single customer or a few customers, the loss of any one or more of whom would have a materially adverse effect on our business.

Environmental Regulations

          Compliance with federal, state or local provisions regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, has not had a material adverse effect on our expenditures or earnings.

Employees

          We employed approximately 1,214 persons as of September 30, 1999. We presently consider our employee relations to be good.

Financial Information By Business Segment

          Financial information by business segment for the three years ended December 31, 1998 and for the nine months ended September 30, 1999 appears in the consolidated financial statements and related notes beginning on page F-1 of this proxy statement.

Properties

          In 1988 we purchased a 587-acre parcel of land in Caledonia Township (southeast of Grand Rapids, Michigan) and constructed a 260,000 square foot corporate headquarters building on part of this property. We currently use approximately 50 acres of this parcel for corporate headquarters, and we hold the balance of the parcel as investment property. In 1998, we completed construction of a 98,000 square foot office facility on part of our Caledonia Township property to house our customer service center. We also lease a 25,000 square foot facility in Cascade Township near Grand Rapids, Michigan for office, distribution and printing space. We have other short-term leasehold interests in real property used for claim service offices and captive agencies throughout the country.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          Except for the historical information contained in this section, the following discussion contains forward-looking statements that involve risks and uncertainties regarding our strategy and financial performance. Our actual results could differ materially from those discussed here. Factors that could cause or contribute to the differences include, but are not limited to, those discussed in the "Cautionary Statement Regarding Forward-Looking Statements" section of this proxy statement.

Nine Months Ended September 30, 1999 and September 30, 1998

          Results of Operations

          Net income for the third quarter was $.27 per share, including $.03 per share in realized gains. This compares to net income of $.43 per share, including $.04 per share in realized gains, during the same quarter of 1998. Net income for the first nine months of 1999 was $1.28 per share, which compares to net income, before an extraordinary item, of $1.16 per share for the first nine months of 1998. Realized gains of $.12 per share in 1999 and $.13 per share in 1998 are included in the nine months results.

          Results from lawsuit settlements, recorded in the first nine months of 1999, include a $6.75 million pre-tax settlement received in the first quarter from the settlement with First USA Bank and a second quarter charge of $5.8 million pre-tax for our settlement and payment of a verdict in Iowa.

          Our property and casualty group's combined ratio for the third quarter of 1999 was 99.8% compared to 91.9% for the same period last year. Due mainly to Hurricane Floyd, third quarter catastrophe losses accounted for 6.6 points of the increase in the combined ratio in the third quarter of 1999 compared to the same quarter of last year. The 1999 combined ratio for the first nine months was 93.4%, which compares with 93.5% for the first nine months of 1998.

          Written premium by major product line is as follows:

          Our written premium has increased 4.2% for the first nine months of 1999 compared to the same period last year. Mobile home written premium had solid growth increasing $9.7 million for the first nine months of 1999 compared to the first nine months of 1998. Direct response automobile written premium for the first nine months of 1999 nearly doubled from the same period last year when we wrote $6 million compared to $11.6 million in 1999.

          After-tax investment income contributed $.21 per share in the third quarter of 1999 compared to $.18 per share in the third quarter of 1998. For the first nine months of 1999, after-tax investment income contributed $.59 per share compared to $.55 per share for the same period last year. The majority of the increase can be attributed to the positive cash flow from operations during the first nine months of 1999 and the shift from equity securities to fixed maturities.

          Financial Position

          The principal sources of cash for the first nine months of 1999 were approximately $137.3 million from sales and maturities of investments and $47.2 million from operations. We also borrowed an additional $6.5 million from our line of credit, but repaid approximately $12.4 million of our debt. The primary uses of cash were approximately $171.5 million for purchases of securities, real estate and equipment, $12.8 million to purchase treasury stock and $7.2 million to pay dividends to shareholders. We had $30.2 million in cash and other liquid assets at September 30, 1999.

          Total invested assets on a cost basis increased 4.8%, or $28.8 million during the first nine months of 1999. The unrealized gain in securities available for sale declined $11.9 million net of tax in the first nine months of 1999, of which $3.2 million, net of tax, represents realized gains taken from the sale of securities. The reason for the shift in investments from equity securities to fixed maturities is the concern that there is more risk in owning certain large cap common stocks, with high multiples, at this time than the potential for reward. Also by investing in current return securities, we expect to be able to maintain or grow our investment income.

          We continued to manage our capital base and leverage ratios by repurchasing $12.8 million of Foremost common stock during the first nine months of 1999, under a previously announced repurchase plan. In the first nine months of 1999 we repurchased 665,695 shares of Foremost common stock. Since the inception of this repurchase plan in February 1994, we have purchased 6,730,067 shares.

          On June 24, 1999, we restructured the interest rate swap on the $30 million of our term loan that is amortizing. The interest rate was lowered from 5.705% to 5.09% plus credit spread and the term was shortened by three years to terminate in May 2001. The starting notional amount was $25 million.

          Recent Accounting Pronouncements

          FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" requires all derivatives to be recognized in financial statements and to be measured at fair value. Gains and losses resulting from changes in fair value must be included in income, or in comprehensive income, depending on whether the instrument qualifies for hedge accounting and the type of hedging instrument involved. Since our only derivative transactions are interest rate swaps on our debt, which effectively fix the interest rate on debt, we do not expect that the adoption of SFAS No. 133 will have a significant effect on our results of operations or financial position.

          Year 2000 Readiness Disclosure

          The Year 2000 issue is the result of computer programs being written using two digits to define the applicable year instead of four. The problem exists when time sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. By nature, the insurance industry is highly dependent upon computer systems because of significant transaction volumes and date dependencies for many of its applications. We have completed a comprehensive review of our computer programs to identify the systems that would be affected by the Year 2000 problem. We have a comprehensive written plan, which has been regularly updated and monitored by technical personnel. Management regularly reviews plan status. We also have hired an outside consulting firm to assist in this conversion process and have completed 100% of the Year 2000 modification of our mainframe computer applications. We performed a Year 2000 test of our systems and applications during June 1999. The test results were positive and all errors discovered were remediated and tested. The procedures used by these consultants for the Year 2000 conversion effort have been certified by Information Technology Association of America. The ITAA 2000 Certification Program evaluates the consultant's processes and methods used to develop new software or convert existing software to meet the date-related needs of the next century.

          We also have identified the non-IT systems that have Year 2000 issues and have a plan to assess, remediate and test, if necessary, these systems. We will continue to assess the impact of the Year 2000 issue on the remainder of our computer-based systems and applications.

          Management also has reviewed our Year 2000 exposure to third party customers, distributors, suppliers and banking institutions. We have evaluated the Year 2000 readiness of third parties. Significant third parties with

          Our contingency plans address both infrastructure and business resumption. Individual units within the company were responsible to identify critical processes and to plan actions to mitigate the potential impact of a Year 2000 disruption in their area. The individual plans were reviewed and modified as appropriate by our Year 2000 Project Manager.

          Contingency plans include back-up generators if electric power is interrupted, multiple vendors for telecommunications and relocation plans for call centers if telephones are available at some, but not all, of our facilities. We also established manual processes for critical functions such as claims, accounts receivable, operations and payroll. We have a comprehensive rollover plan in place, including complete back-ups of system data at year end 1999. Our major vendors, including IBM which operates our mainframe system, have their own contingency plans which we reviewed.

          We have a detailed plan for communication and command, including a team of 70 internal and IBM employees who operated our Year 2000 command center through the New Year's weekend and who will continue to do so as needed. There can be no assurance that our contingency plans can or will address all possible adverse events related to Year 2000 issues.

          We cannot predict what effect the failure of a third party to address, in a timely manner, the Year 2000 problem would have on our business. However, the extent to which the computer operations, utility infrastructures and other systems of our important third parties are adversely affected could, in turn, affect our ability to operate or communicate with these third parties and could materially affect our results of operations in any period or periods.

          In connection with the Year 2000 issue, we spent approximately $1.8 million before 1997, $3.8 million in 1997, $4.3 million in 1998 and $3.4 million in 1999. These costs primarily consisted of professional fees paid to third party providers of remedial services. It is our policy to expense all costs associated with these systems changes. We also may invest in new or upgraded technology, which has definable value lasting beyond 2000. In these instances, where Year 2000 compliance is merely ancillary, we may capitalize and depreciate the asset over its estimated useful life.

          Based on currently available information, management does not presently anticipate that the costs to address the Year 2000 issues will have a material adverse impact on our financial condition, results of operations or liquidity.

          Since January 1, 2000 to the date of this proxy statement we have not experienced any disruptions to our business due to Year 2000 issues. However, we cannot guarantee that additional costs will not be incurred in 2000. In addition, our estimates regarding the impact of the Year 2000 problem may not be achieved and actual results could differ from these estimates. Specific factors that might cause differences include, but are not limited to, the ability of other companies on which our systems rely to modify or convert their systems to be Year 2000 ready, the ability to locate and correct all relevant computer codes, the ability of all third parties who have business relationships with us to continue their businesses without interruption and similar uncertainties. As a result, we have established the above contingency plans that will address possible internal and external scenarios that might have an adverse effect on our business.

          This Year 2000 Readiness Disclosure is based upon and partially repeats information provided by our outside consultants and others regarding the Year 2000 readiness of us and our customers, suppliers, financial institutions and other parties. Although we believe this information to be accurate, we have not independently verified the information.

          Quantitative and Qualitative Disclosures About Market Risk

          Our investment portfolios are managed with the objective of maximizing after-tax investment income and total return, while minimizing credit and market risks to provide support for the insurance operations and overall results of our business. When developing our investment strategies, management considers many factors including underwriting results, tax impacts, regulatory requirements, fluctuations in interest rates and other market risks. Investment professionals manage investment decisions based on guidelines established by our management and approved by our board of directors.

          Market risk represents the potential for loss due to changes in the fair value of financial instruments caused primarily by fluctuations in interest rates and equity prices. We mitigate these risks by managing the maturity of financial instruments to provide adequate funding for the payout of our property and casualty reserves.

          The only change in the quantitative information since year-end 1998 was the restructuring of the interest rate swap. On June 24, 1999, we restructured the interest rate swap on the $30 million of the term loan that is amortizing. The interest rate was lowered from 5.705% to 5.09% plus credit spread and the term was shortened by three years to terminate in May 2001. The starting notional amount was $25 million. The following table presents the maturities of long-term debt with the corresponding interest rate swaps on this debt. Since the interest rate swaps effectively fix the interest rate on the notional amount of debt, changes in interest rates have no current effect on the interest expense that we record. Further quantitative information can be found in Item 7A "Quantitative and Qualitative Disclosures About Market Risk" in the Company's Form 10-K for the year ended December 31, 1998, which is incorporated by reference in this proxy statement.

          As of September 30, 1999 (in thousands):

          Average interest rate is a floating rate that is fixed by the swaps below (in thousands):

Pay Variable/Receive Fixed:
    Average Receive Fixed Interest Rate - 6.05% plus weighted average credit spread of 0.578%

          Management uses duration to estimate the value change in our fixed income securities. Price volatility and duration are directly related. Duration is the present value of all future cash flows to be received. The duration of our fixed income portfolio as of September 30, 1999 was four years and the market value was $389.4 million. Therefore, a 1% increase in interest rates would equate to a decrease in market value of approximately $15 million or 4%. Conversely, a 1% decline in interest rates would equate to an increase in market value of approximately $15 million. Other factors such as spread changes, call features, special redemption features and prepayment changes will affect the duration of the portfolio. While duration is expressed in years, it is regarded as a percent change.

          Equity price risk is the potential loss due to changes in the value of equity securities. Equities have more price variability than fixed securities. Historically, equities have provided higher returns over a long period of time. As of September 30, 1999, our investment in equity securities had a market value of $62.4 million. A 10% change in the portfolio's equity prices would impact their value by approximately $6.2 million. All equity securities are marketable.

          All of the above risks are monitored on an ongoing basis. Management's need to react to significant changes in interest rates and equity prices is minimized by the fact that the annual maturities of investments and cash flow from insurance operations are sufficient to meet the cash flow requirements of our business. Therefore, management has the ability to wait out these changes.

Fiscal Years Ended December 31, 1998, 1997 and 1996

          Results of Operations

          Written Premium. Written premium for property and casualty insurance was approximately $442 million in 1998, which represented an increase of 1.5% over the approximately $435 million written in 1997. The 1997 writings were 3.3% greater than the approximately $421 million written in 1996.

          Within the property and casualty insurance business, combined written premium for our specialty line products of mobile home, motor home and travel trailer increased 1% in 1998 to $409.4 million following an increase of 2% in 1997 to $405 million and a decline of 1% to $397 million in 1996. Over the past three years, our catastrophe exposure management programs have slowed the growth in these lines. Mobile home written premium, which was flat the first six months of 1998, recovered in the second half of 1998 to post an increase of 1.5% for the year. This increase offset the effects of our catastrophe management program. Our BASIC product, a dwelling fire and ACV homeowners insurance program distributed through independent agents, grew by 15% in 1998. We wrote $8.5 million of this specialty product in 1998 and $7.4 million in 1997. Management expects moderate growth in these specialty lines in the future as we continue to pursue profitable opportunities.

          Our standard lines of automobile and homeowners insurance combined for total written premium of $20.3 million in 1998, an increase of 17% over the $17.3 million written in 1997, which was 27% more than the $13.6 million written in 1996. The direct response automobile premium increased to $8.9 million in 1998 compared with $2.8 million in 1997. We believe that the direct automobile and homeowners insurance program provides favorable growth opportunities in the future.

          On October 13, 1997, we signed an extension of our exclusive endorsement by AARP to offer mobile home insurance to its members through the year 2004. This program has had positive results since its inception in 1989, which encouraged both parties to extend their relationship five years beyond the original agreement's expiration date.

          Underwriting Results and Loss Reserves. The combined loss and expense ratio for our property and casualty insurance operations was 92.4% in 1998, 91.0% in 1997 and 98.7% in 1996. The underwriting profit from these operations was $33 million in 1998, $38.6 million in 1997 and $5.5 million in 1996. We believe that our emphasis on rate adequacy, disciplined underwriting, catastrophe exposure management and strategic expense management programs has contributed significantly to the positive underwriting results over the last several years.

          The impact of catastrophe losses on property and casualty results increased in 1998 to, net of reinsurance, $40.3 million, compared to $36.9 million in 1997 and the record level of $69.7 million in 1996. The property and casualty insurance industry recorded catastrophe losses for 1998 at an estimated $10.1 billion, making 1998 the third worst year for catastrophe losses in the last 10 years and quadruple the amount recorded in 1997. Despite the industry experience, we posted only a small increase in catastrophe losses in 1998, which reflects the success of our catastrophe exposure management efforts. The only major storms of 1997 occurred in the Northwest during the first quarter of 1997. The record catastrophe losses of 1996 resulted from significant storms in the Northwest and Northeast portions of the country during the first and fourth quarters of 1996. These storms created massive damage in Oregon, Washington, Pennsylvania and New York. Hurricane Fran also struck North Carolina in the third quarter of 1996. The Property Claims Services Unit of the Insurance Services Office, Inc. reported this industry catastrophe data.

          We monitor our exposure to catastrophic risk and have taken aggressive action in coastal areas and earthquake-prone areas to reduce our risk to hurricane and earthquake losses. During 1997, we took action against another catastrophic risk by starting the process of eliminating flood from our mobile home policy coverages. As of December 31, 1998, flood coverage was removed in 47 states. Accordingly, based on our policy renewal schedule,

          Management is committed to controlling expenses and has aggressively managed acquisition costs and general and administrative expenses. All expense categories are closely monitored, and employees are challenged to develop ideas and programs to improve results. These actions have helped reduce our expense ratio from a high of 42.7 in 1988 to its current level of 35.1 in 1998. Expenses increased by 1.1 points in 1998 compared to 1997 because of the costs associated with the start-up of the new direct automobile and homeowners program. As this standard business grows, these costs as a percentage of premiums earned will decline.

          In connection with the new direct marketing of auto and homeowners insurance, we have invested in a new policy processing system that was operational beginning in 1999. We incurred costs of $8 million in 1998 and $4.1 million in 1997 related to this system. These costs include direct costs of external materials, consultants associated with developing internal-use software and payroll and related costs of employees directly devoted to the internal-use computer software project. In accordance with SOP 98-1 which we adopted in 1997, we capitalized the costs of the system and will expense the costs over the life of the system starting in 1999.

          We believe that inflation is unlikely to be a significant factor in our results of operations given the relatively short-term nature of premiums receivable and expected loss payments from reserves for losses and loss expenses. Management implicitly considers the anticipated effect of inflation when estimating reserves for losses and loss expenses, product pricing and investment decisions.

          We engage an outside actuarial firm to attest to the adequacy of our carried property and casualty reserves. This firm has rendered their opinion for the year ended December 31, 1998, and have attested to the adequacy of our held reserves as of that date. We are committed to maintaining adequate loss reserves and place a high priority on balance sheet integrity.

          We discontinued writing private credit insurance in 1985 and established a reserve to cover anticipated losses from the runoff of the product. Management continues to be satisfied with the experience in the runoff of this business. The reserve was not adjusted in 1998, but was reduced by $650,000 in both 1997 and 1996. These reductions are not reflected in the underwriting results of the insurance operations, but are a component of the parent company and other operational results. The majority of these policies will runoff in 1999. Management believes that the aggregate reserves for this discontinued product are adequate at December 31, 1998, but will continue to review and adjust them as needed.

          Extraordinary Item. On May 5, 1998, we prepaid the $30.8 million mortgage on our corporate headquarters and incurred a $3.3 million after-tax prepayment penalty to extinguish this debt. This cost was classified as an extraordinary item in the consolidated financial statements for the second quarter of 1998 and reduced earnings by $.12 per share. We prepaid the mortgage to eliminate the restrictive operating covenants attached to this debt. These restrictive covenants hindered our ability to manage our capital base and leverage ratios through stock repurchases. We will recoup the cost of this prepayment penalty over time through our ability to

          Sale of Life Insurance Subsidiary. On June 11, 1996, we completed the sale of our life insurance subsidiary, Foremost Life Insurance Company, to Woodmen Accident and Life Company. The sale yielded net after-tax proceeds of $17.4 million and we incurred an after-tax loss of $698,000 as a result of the sale. The majority of the net proceeds were utilized to repurchase Foremost common stock under the previously announced stock buy-back program approved by the board. The financial results of the life insurance segment and the sale are reflected as discontinued operations in the consolidated financial statements included in this proxy statement.

          In 1989 and 1990, Foremost Life Insurance Company assumed credit life premium under various reinsurance treaties. In the fourth quarter of 1990, the ceding companies were declared insolvent and placed into liquidation. In accordance with the sales document, in June of 1996 the amount reserved to cover these reinsurance treaties was transferred to an escrow account. On July 11, 1997, Foremost and the liquidator settled all outstanding reinsurance and legal issues regarding these treaties. The escrow account was closed and we recorded an after tax gain of $110,000, which is included in discontinued operations.

          Liquidity and Capital Resources

          Cash Flow. From 1996 to 1998, we generated positive cash flow of $95.7 million from operations and paid back $9.1 million on long-term borrowings. During the same period, we paid $30.6 million in dividends to shareholders, repurchased $61.5 million of Foremost common stock and purchased $28.5 million of real estate and equipment, including a new policy processing system. In 1996, we received $17.4 million in proceeds from the sale of Foremost Life Insurance Company.

          We expect continuing positive cash flow from operations. Additionally, the investment portfolios of our insurance operations have been structured to provide liquidity for operations. The portfolios are structured so that, on average, approximately $26.7 million of investments mature every year over the next 10 years, and are available for reinvestment or use in operations as required. The insurance products written by our insurance subsidiaries are primarily property coverages that result in rapid claims payments. The average maturity of investments is between five and six years, which provides adequate asset/liability matching. We believe that our liquid assets plus cash flow from operations will be adequate to meet all foreseeable cash requirements.

          In February 1994, the board approved a stock buy-back program of up to 3,000,000 shares of Foremost common stock. The board increased the program to 6,000,000 shares by approval of 1,500,000 share increments in March and December of 1996. In December 1997, the board increased the program to 9,000,000 shares. Since the inception of this buy-back program, we have purchased 6,064,372 shares through December 31, 1998. During 1998, we purchased 777,658 shares. The total shares available under the authorization for the repurchase program at December 31, 1998 was 2,935,628 shares. All of the above stock repurchase authorizations and purchases have been adjusted for the January 1998 three-for-one stock split. The merger agreement prohibits us from purchasing additional shares of Foremost common stock, without the prior approval of Spartan.

          Our insurance subsidiaries are subject to certain restrictions on their ability to transfer funds to us in the form of cash dividends, loans or advances without regulatory approval. We do not expect these restrictions to impair our ability to meet our cash obligations.

          Capital Structure. At December 31, 1998, we had 27,166,240 shares of Foremost common stock outstanding after giving effect to the three-for-one stock split in January 1998. In April 1998, the shareholders approved an amendment to our articles of incorporation that increased the authorized common stock from 35,000,000 to 70,000,000 shares and authorized a class of 10,000,000 shares of preferred stock. The shareholders also adopted an agreement and plan of merger which changed our state of incorporation from Delaware to Michigan effective June 30, 1998.

          In June 1998, we entered into a credit agreement under which our lenders committed to provide a five-year, $40 million revolving credit facility and a seven-year term loan of $80 million, of which $30 million of the term loan is amortizing over six years at $1.25 million per quarter. At December 31, 1998, $77.5 million remained

          During 1995, we entered into an interest rate swap agreement to effectively fix the interest rate at 6.545% plus credit spread on the $58 million then outstanding under the credit agreement. The swap will expire on August 31, 2000. In November 1997, the swap agreement was amended with the following changes: (a) the interest rate was dropped to 6.47% plus credit spread; (b) the maturity was extended to August 31, 2002; and (c) the notional amount will be decreased from $58 million to $50 million on August 31, 2000. The interest rate swap is non-amortizing. In August 1998, we entered into an interest rate swap agreement in the notional principle amount equal to the $30 million of the term loan that is amortizing. This agreement effectively fixes the interest rate at 5.705% plus credit spread until May 31, 2004. On June 24, 1999 we restructured the interest rate swap to reduce the interest rate to 5.09% plus credit spread and to shorten the term by three years to terminate in May 2001. Our exposure to credit risk is limited to interest movements and is considered to be negligible. We do not hold or issue any other material amounts of derivative financial instruments.

          Investments. After-tax investment income contributed $.74 per share on a diluted basis in both 1998 and 1997, compared to $.72 per share in 1996. The relatively flat results over this period of time were primarily due to the impact of declining interest rates which offset the positive cash flow generated from the strong underwriting performance. The record catastrophe losses in 1996 also impacted the investment results of that year.

          Unrealized capital gains, net of tax, were $10.3 million at December 31, 1998 compared to $20.9 million at December 31, 1997 and $25 million at December 31, 1996. We also realized gains after taxes of $4.7 million in 1998 compared to $7.9 million in 1997 and $2 million in 1996.

          Our financial results over the last several years allow management to take a longer term, total return view of investments. As opportunities become available, we expect to continue the strategy of increasing our asset allocation to total return investments. These investments consist of common and preferred stock as well as lower-rated bonds and other assets that achieve equity-like returns over a market cycle. The merger agreement prohibits us, without Spartan's prior approval, from purchasing investment assets, other than cash and cash equivalents, United States treasury obligations and investment grade municipal or fixed income securities with maturities of not greater than eight years traded on a national securities exchange or the Nasdaq National Market.

          At December 31, 1998, our investment portfolio included securities which were either unrated or less than investment grade, high-yield corporate debt securities, including certain preferred stocks, and limited partnerships. These securities had a cost basis of $39.6 million, with an aggregate market value of $36.6 million, and none of them individually exceeded $6.2 million. These securities have different risks than other investment grade securities. Risk of loss upon the borrower's default is greater with these investments than with other corporate or governmental debt securities because these securities generally are unsecured and are often subordinated to other creditors of the issuer. These issuers usually have high levels of indebtedness and are more sensitive to adverse economic conditions than are investment grade issuers. Management believes the unrealized loss in these securities will be temporary.

          The remaining three real estate properties which we foreclosed upon in 1991, totaling $3.8 million, were sold or disposed of during 1996 without any adjustments to their carrying values. We have not foreclosed on other real estate, nor were any of our real estate related securities in default at December 31, 1998.

          In accordance with FASB Statement No. 115, "Accounting for Certain Investments in Debt and Equity Securities," we have classified a portion of our fixed maturity investments and equity securities into a category entitled "securities available for sale" which are adjusted to reflect market value. Due to the restrictive definition of assets qualifying to be categorized as held to maturity, most of our fixed investment securities are considered to be available for sale, and are therefore adjusted to reflect market values. Unrealized investment gains and losses on securities available for sale are credited or charged directly to shareholders' equity net of applicable tax provisions or credits. The net unrealized gain on securities available for sale was $10.3 million at December 31, 1998, and $20.9 million at December 31, 1997. Although we have the general intent and ability to hold most of our fixed

          At December 31, 1998, we had $39.1 million of consolidated assets in cash and other short-term investments.

          Income Taxes

          In accordance with FASB Statement No. 109, "Accounting for Income Taxes," we recognized certain tax assets whose realization depends upon generating future taxable income. We anticipate realizing these tax assets through the generation of future taxable income and other tax planning strategies. No tax credit or capital loss carryforwards existed as of December 31, 1998.

          Litigation

          We routinely are engaged in litigation as plaintiff and defendant in the normal course of business. In the opinion of management, all litigation matters are not expected to have a material effect on our consolidated financial position, operating results or cash flows. Our aggregate ultimate liability, if any, was not determinable at December 31, 1998 or September 30, 1999.

          Stock Option Plan of 1998

          In April 1998, the shareholders approved the Stock Option Plan of 1998, which granted Mr. Antonini, Foremost's Chairman, President and Chief Executive Officer, an option to purchase 750,000 shares of Foremost common stock at a purchase price of $24 per share. Except upon a change in control or the occurrence of other events, the options vest only if the closing price of Foremost common stock on the NYSE is equal to or greater than $48 per share on at least 10 trading days on or before February 23, 2003. If our shareholders approve the merger agreement, the options granted under this plan will vest immediately upon completion of the merger. If the merger is approved, Mr. Antonini will receive a total cash payment of $3,937,500 under this plan. The total cash payments payable to Mr. Antonini and other participants in all other stock option plans are described in "The Merger--Interests of Certain Persons in the Merger."

          Risk-Based Capital

          The National Association of Insurance Commissioners requires property and casualty insurance companies to calculate and report information under a risk-based capital formula in their statutory annual statements. The risk-based capital requirements are intended to assist regulators in identifying inadequately capitalized companies. The risk-based capital calculation is based on the type and mix of risks inherent in our business and includes components for underwriting, asset, interest rate and other risks. Our insurance subsidiaries exceeded their risk-based capital statutory surplus standards as of December 31, 1998.

          1999 Event

          On January 19, 1999, Foremost and First USA Bank settled the action filed in 1998 by us against First USA Bank and Banc One in the United States District Court for the Western District of Michigan arising out of a dispute concerning an insurance services agreement made in 1996. The settlement required First USA Bank to pay us $6.75 million in connection with the termination of the insurance services agreement which had provided us the exclusive right to offer certain insurance products to First USA Bank's credit card customers. The settlement proceeds were recorded in our financial results for the first quarter of 1999.

FOREMOST'S MANAGEMENT

          The following table sets forth information concerning our executive officers and directors:

*          Mr. Heatherly terminated his employment on December 31, 1999.

          Richard L. Antonini has been a director of Foremost since 1973 and has served as Chairman of the board since 1991. Mr. Antonini has served as the President and Chief Executive Officer of Foremost since July 1986, and has been employed by Foremost in various other capacities since 1969. Mr. Antonini also is a director of Old Kent Financial Corporation and Old Kent Bank, Chairman of the board of the Mackinac Center for Public Policy and a member of the Board of Trustees of Cornerstone College. Mr. Antonini resides near Grand Rapids, Michigan.

          F. Robert Woudstra has been a director of Foremost since 1988. Mr. Woudstra was appointed as Chief Operating Officer and Chief Financial Officer of Foremost on February 25, 1999. Before that date, Mr. Woudstra served as Executive Vice President and Treasurer of Foremost since 1987. Mr. Woudstra has been employed by Foremost Insurance Company since 1973 and has served in various capacities since that time. Mr. Woudstra resides near Grand Rapids, Michigan.

          Larry J. Orange has been a director of Foremost since 1993. Mr. Orange has served as Executive Vice President of Foremost since 1987. Mr. Orange has been employed by Foremost Insurance Company since 1970 and has served in various capacities since that time. Mr. Orange resides near Grand Rapids, Michigan.

          John J. Hannigan has served as Executive Vice President of Foremost since 1987. Mr. Hannigan joined Foremost Insurance Company as Vice President in 1983 and was appointed to the position of Executive Vice President of that company in 1986.

          David A. Heatherly served as Executive Vice President of Foremost from 1987 to December 31, 1999. Mr. Heatherly joined Foremost Insurance Company as Vice President in 1984 and was appointed to the position of Executive Vice President of that company in 1986.

          Paul D. Yared has been Foremost's Secretary and General Counsel since 1986 and has served as Senior Vice President since 1992. Mr. Yared has been employed as a corporate attorney for Foremost and its subsidiaries since 1974.

          Donald D. Welsh has served as the Treasurer of Foremost since February 25, 1999 and served as Assistant Treasurer from May 9, 1985 until February 25, 1999. Mr. Welsh has been employed in the financial division of Foremost and its subsidiaries since 1970.

          John C. Canepa has been a director of Foremost since 1994. Mr. Canepa has been employed as a Consulting Principal for Crowe Chizek, LLP since November 1995. Mr. Canepa served as Chairman of the board of directors of Old Kent Financial Corporation from 1988 until 1995. Mr. Canepa also is a director of Universal Forest Products, a manufacturer, treater and distributor of lumber products. Mr. Canepa resides near Grand Rapids, Michigan.

          Michael de Havenon has been a director of Foremost since May 8, 1997. Mr. de Havenon has served since January 1997 as President of Kulen Capital Corp., a firm engaged primarily in managing private investments. From 1992 to December 1996, Mr. de Havenon served as President of Merrill Lynch Capital Corporation and its predecessor, a wholly owned subsidiary of M L & Co., which managed leveraged private investments. Mr. de Havenon resides in New York City.

          Arthur E. Hall has been a director of Foremost since 1994. Mr. Hall is a Chartered Financial Analyst by the Association of Investment Management and Research and a portfolio manager. Mr. Hall has been the sole general partner of Valarian Associates, a Nevada limited partnership which purchases, sells and holds investment securities. Mr. Hall resides in Minden, Nevada.

          Richard A. Kayne has been a director of Foremost since 1994. Mr. Kayne serves as President and a director of KA Holdings, Inc., and administrative manager of Kayne Anderson Investment Management, LLC, the parent entities of the investment advisory businesses of the Kayne Anderson Investment Management Group. Mr. Kayne also serves as President and Chief Executive Officer and director of K.A. Associates, Inc., a registered broker-dealer. Mr. Kayne is a director of Glacier Water Services, Inc., a provider of drinking water services, and The Right Start, Inc., a children's products retailer. Mr. Kayne resides near Los Angeles, California.

          Joseph A. Parini has been a director of Foremost since 1981. Mr. Parini has served as Chairman and an officer of EFW, Inc., a defense electronics firm, since January 1997. Mr. Parini served as President of Elbit Systems, Inc., a manufacturer of electronic systems for the medical and defense industries, from 1990 through 1996. Mr. Parini has served as President of Olive Tree Enterprises, a systems engineering consulting firm, since January 1997. Mr. Parini is a director of Wolverine World Wide, Inc., a manufacturer of footwear. Mr. Parini resides near Grand Rapids, Michigan.

          Robert M. Raives has been a director of Foremost since 1988. Mr. Raives has been of counsel to the law firm of Gilbert, Segall and Young, LLP, of New York City since July 1997. From 1993 to July 1997, Mr. Raives was a partner in the New York City law firm of Rosenman & Colin. Mr. Raives also is a member of the United States Advisory Board of Zurich Insurance Company, a wholly owned subsidiary of Zurich Financial Services. Farmers Group, Inc., which with its subsidiaries provides management services to the Exchanges, is an affiliate of Zurich Financial Services. Mr. Raives resides in New York City.

          Michael B. Targoff has been a director of Foremost since August 7, 1997. Mr. Targoff has served as Chairman and Chief Executive Officer of CineComm, a company involved in the satellite transmission of digital video, since May 1998. Mr. Targoff has served as Chief Executive Officer of Michael Targoff and Co., a company seeking to acquire operating control of telecommunication companies, since May 1998. From April 1996 to January 1998, Mr. Targoff served as President and Chief Operating Officer of Loral Space & Communications, Ltd., a manufacturer of satellites and a provider of satellite-based services. From April 1993 to April 1996, Mr. Targoff served as Senior Vice President of Loral Corporation, a defense electronics and telecommunications contractor. Mr. Targoff is also Director of Globalstar Telecommunications, Ltd., a worldwide satellite-based telecommunications company, and Leap Wireless International, an operator of wireless telephone systems. Mr. Targoff resides in New York City.

OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT OF FOREMOST

          The following table sets forth information regarding beneficial ownership of Foremost common stock as of January 19, 2000 by:

          The percentage ownership is based on 26,617,451 shares of Foremost common stock outstanding as of January 19, 2000. The number of shares beneficially owned is determined in accordance with Rule 13d-3 of the Exchange Act and the information is not necessarily indicative of beneficial ownership for any other purpose. Under this rule, beneficial ownership includes any shares as to which the individual or entity has voting power or investment power and any shares that the individual has the right to acquire within 60 days of January 19, 2000 through the exercise of any stock option.

          Unless otherwise noted below, the persons or entities named in the table have sole voting and investment power with respect to all shares beneficially owned, and have addresses of c/o Foremost Corporation of America, 5600 Beech Tree Lane, Caledonia Township, Michigan 49316.