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As filed with the Securities and Exchange Commission on May 8, 1997
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(PURSUANT TO SECTION 13(e) OF THE SECURITIES EXCHANGE ACT OF 1934)
CROP GROWERS CORPORATION
(Name of Issuer)
CROP GROWERS CORPORATION
FIREMAN'S FUND INSURANCE COMPANY
CG ACQUISITIONS CORP.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $0.01 PER SHARE
(Title of Class of Securities)
227297 10 8
(CUSIP Number of Class of Securities)
THOMAS A. SWANSON LAWRENCE T. MARTINEZ
SENIOR VICE PRESIDENT AND GENERAL COUNSEL CHIEF EXECUTIVE OFFICER
FIREMAN'S FUND INSURANCE COMPANY CROP GROWERS CORPORATION
777 SAN MARIN DRIVE 10895 LOWELL, SUITE 300
NOVATO, CALIFORNIA 94998 OVERLAND PARK, KANSAS 66201
(415) 899-2000 (913) 338-7800
(Name, Address and Telephone Number of Person Authorized to Receive
Notice and Communications on Behalf of Person(s) Filing Statement)
COPIES TO:
BARTLEY C. DEAMER JOHN W. MANNING
MCCUTCHEN, DOYLE, BROWN & ENERSEN, LLP DORSEY & WHITNEY LLP
THREE EMBARCADERO CENTER 507 DAVIDSON BUILDING
SAN FRANCISCO, CALIFORNIA 94111-4067 8 THIRD STREET NORTH
(415) 393-2000 GREAT FALLS, MONTANA 59401
(406) 727-3632
This statement is filed in connection with:
/X/ a. The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13d-3(c) under the
Securities Exchange Act of 1934.
/ / b. The filing of a registration statement under the Securities Act of
1933.
/ / c. A Tender Offer.
/ / d. None of the above.
Check the following box if the soliciting materials or information statement
referred to in check box (a) are preliminary copies: /X/
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CALCULATION OF FILING FEE
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Transaction Valuation Amount of Filing Fee
- --------------------------------------------------------------------------------
$63,860,801 $12,772
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* For purposes of calculating fee only. This amount assumes the purchase
at a price of $10.25 per share of 6,145,104 outstanding shares of
Company Common Stock and the settlement of 461,369 shares subject to
stock options at an average spread of $1.89 per share. The amount of
the filing fee, calculated in accordance with Regulation 240.0-11 of
the Securities Exchange Act of 1934, equals 1/50th of one percent of
the value of the shares purchased, plus 1/50th of one percent of the
average spread of the options settled.
/ / CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED IN RULE 0-11 (a) (2)
AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY
PAID. IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR
SCHEDULE AND THE DATE OF ITS FILING.
Amount Previously Paid: Filing Parties:
Form or Registration No.: Date Filed:
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CROSS REFERENCE SHEET
(PURSUANT TO GENERAL INSTRUCTION F TO SCHEDULE 13E-3)
INTRODUCTION
This Rule 13E-3 Transaction Statement is being filed in connection with
the proposed merger (the "Merger") of CG Acquisition Corp., a Delaware
corporation (the "Merger Subsidiary") and wholly owned subsidiary of
Fireman's Fund Insurance Company, a California corporation ("Fireman's
Fund"), with and into Crop Growers Corporation, a Delaware corporation (the
"Company"), pursuant to the terms and conditions of an Agreement and Plan of
Merger dated May 1, 1997 (the "Merger Agreement") among the Company,
Fireman's Fund and the Merger Subsidiary, a copy of which is attached hereto
as Exhibit (c)(4). Upon consummation of the Merger, (i) the separate
corporate existence of the Merger Subsidiary will cease and the Company will
continue as the surviving corporation and a wholly owned subsidiary of
Fireman's Fund, (ii) each outstanding share of Common Stock, par value $.01
per share, of the Company (the "Common Stock") will be converted into the
right to receive $10.25 in cash, and (iii) holders of options to acquire
shares of the Common Stock of the Company will receive a cash settlement, net
of withholding taxes, equal to the excess, if any, of $10.25 over the
exercise price of such options.
The Cross Reference Sheet is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Company's
preliminary proxy statement (the "Proxy Statement"), concurrently being filed
with the Securities and Exchange Commission (the "SEC") in connection with
the proposed Merger of information required to be included in response to
items of this Statement. A copy of the Proxy Statement is attached hereto as
Exhibit (d)(1). The information in the Proxy Statement, including all
exhibits thereto, is hereby expressly incorporated herein by reference and
the responses to each item are qualified in their entirety by the provisions
of the Proxy Statement. All information in, or incorporated by reference in,
the Proxy Statement or this Statement concerning the Company or its advisors,
or actions or events with respect to any of them, was provided by the
Company, and all information in, or incorporated by reference in, the Proxy
Statement or this Statement concerning Fireman's Fund, the Merger Subsidiary
or their affiliates, or actions or events with respect to them, was provided
by Fireman's Fund. The Proxy Statement incorporated by reference in this
filing is in preliminary form and is subject to completion or amendment. In
addition, the information in this preliminary Proxy Statement is intended to
be solely for the information and use of the SEC, and should not be relied
upon by any other person for any purpose. Capitalized terms used but not
defined in this Statement shall have the respective meanings given them in
the Proxy Statement.
As of March 5, 1997, the date upon which the Company and Fireman's Fund
entered into an Acquisition Agreement setting forth the principal terms of
the Merger (the "March 5 Agreement"), Fireman's Fund owned 10,000 shares of
the Series A Convertible Preferred Stock of the Company (the "Preferred
Stock"), which are convertible into 754,717 shares of Common Stock of the
Company and vote with the Common Stock on an as-converted basis, and which
are presented approximately 8.6% of the voting power of the total outstanding
capital stock of the Company. On that date, Fireman's Fund had the right to
acquire from certain stockholders of the Company 1,827,447 shares of Common
Stock which, together with the 754,717 votes attributable to the Preferred
Stock, represented approximately 29.6% of such voting power, but the exercise
of such right was subject to the Company's consent. Neither the Company nor
Fireman's Fund believes that Fireman's Fund or the Merger Subsidiary was then
an affiliate of the Company. Accordingly, the Company and Fireman's Fund do
not believe that Fireman's Fund, the Merger Subsidiary or the Company were
subject to the requirements of Rule 13e-3 under the Securities Exchange Act
of 1934, as amended, at the time the March 5 Agreement was entered into.
Fireman's Fund, the Merger Subsidiary and the Company are, however, filing
this Schedule 13E-3 to furnish information with respect to the transactions
described herein, although such entities expressly disclaim any obligation to
make this filing.
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SCHEDULE 13E-3 ITEM NUMBER AND RESPONSE AND/OR LOCATION IN PROXY STATEMENT
CAPTION
ITEM 1. ISSUER AND CLASS OF SECURITY
SUBJECT TO THE TRANSACTION
(a) Front Cover Page and "SUMMARY--The Company,"
which information is incorporated herein by
this reference.
(b) "SUMMARY--Record Date; Stockholders Entitled
to Vote; Quorum" and "THE SPECIAL MEETING--
Record Date; Stockholder Approval," which
information is incorporated herein by this
reference.
(c) "SUMMARY--Market Price and Dividend Data,"
which information is incorporated herein by
this reference.
(d) "SUMMARY--Market Price and Dividend Data,"
which information is incorporated herein by
this reference.
(e)-(f) "THE MERGER--FACTORS TO BE CONSIDERED--Public
Offerings and Repurchases of Common Stock,"
which information is incorporated herein by
this reference.
ITEM 2. IDENTITY AND BACKGROUND This Statement is being jointly filed by
the Company (the issuer of the equity
securities that are the subject of the
Merger), Fireman's Fund and the Merger
Subsidiary.
(a)-(d) "SUMMARY--The Company" and "--Fireman's
Fund" and "MANAGEMENT OF THE COMPANY,
FIREMAN'S FUND AND THE MERGER SUBSIDIARY,"
which information is incorporated herein by
this reference.
(e), (f) To the best of the undersigned's knowledge,
except as described under "MANAGEMENT OF THE
COMPANY, FIREMAN'S FUND AND THE MERGER
SUBSIDIARY--Certain Proceedings" in the
Proxy Statement, which information is
incorporated herein by this reference, none
of the persons will respect to whom
information is provided in response to this
Item was during the last five years
(i) convicted in a criminal proceeding
(excluding traffic violations or similar
misdemeanors) or (ii) party to a civil
proceeding of a judicial or administrative
body of competent jurisdiction and as a
result of such proceeding was or is subject
to a judgment, decree or final order
enjoining further violations of, or
prohibiting activities subject to, federal
or state securities laws or finding any
violations of such laws.
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ITEM 3. PAST CONTACTS,
TRANSACTIONS OR NEGOTIATIONS
(a)(1) "THE MERGER--FACTORS TO BE
CONSIDERED--Background of the
Merger--History of Relationship Between the
Company and Fireman's Fund" and
"--Relationship Between the Company and
Fireman's Fund--Intercompany Business
Relationship," which information is
incorporated herein by this reference.
(a)(2), (b) "THE MERGER--FACTORS TO BE
CONSIDERED--Background of the
Merger--Contacts and Negotiations with
Fireman's Fund" and "--Relationship Between
the Company and Fireman's Fund--Transactions
and Agreements," which information is
incorporated herein by this reference.
ITEM 4. TERMS OF THE TRANSACTION
(a) Front Cover Page, "SUMMARY--The Merger,"
"THE MERGER AGREEMENT" and "EXHIBIT
A--Agreement and Plan of Merger," which
information is incorporated herein by this
reference.
(b) "THE MERGER--FACTORS TO BE
CONSIDERED--Purpose and Structure of the
Merger," "--Relationship Between the
Company and Fireman's Fund--Transactions
and Agreements" and "--Interests of Certain
Persons in the Merger," which information
is incorporated herein by this reference.
ITEM 5. PLANS OR PROPOSALS OF
THE ISSUER OR AFFILIATE
(a)-(e) "THE MERGER--FACTORS TO BE
CONSIDERED--Plans for the Company After the
Merger" and "MANAGEMENT OF THE COMPANY,
FIREMAN'S FUND AND THE MERGER SUBSIDIARY,"
which information is incorporated herein by
this reference.
(f), (g) "THE MERGER--FACTORS TO BE
CONSIDERED--Certain Effects of the Merger,"
which information is incorporated herein by
this reference.
ITEM 6. SOURCE AND AMOUNT OF
FUNDS OR OTHER CONSIDERATION
(a), (b) "THE MERGER--FACTORS TO BE
CONSIDERED--Sources and Uses of Funds,"
which information is incorporated herein by
this reference.
(c) "THE MERGER--FACTORS TO BE
CONSIDERED--Relationship Between the
Company and Fireman's Fund" and "--Sources
and Uses of Funds," which information is
incorporated herein by this reference.
(d) Not applicable.
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ITEM 7. PURPOSE(S), ALTERNATIVES,
REASONS AND EFFECTS
(a)-(c) "THE MERGER--FACTORS TO BE
CONSIDERED--Background of the Merger,"
"--Purpose and Structure of the Merger,"
"--Recommendation of the Company's Board of
Directors," "--Perspective of Firemen's
Fund on the Merger" and "--Certain Effects
of the Merger," which information is
incorporated herein by this reference.
(d) "SUMMARY--The Merger," "--Interests of
Certain Persons in the Merger" and
"--Federal Income Tax Consequences," "THE
MERGER--FACTORS TO BE
CONSIDERED--Background of the Merger,"
"--Plans for the Company After the Merger,"
"--Certain Effects of the Merger,"
"--Interests of Certain Persons in the
Merger" and "--Certain Federal Income Tax
Consequences" and "MANAGEMENT OF THE
COMPANY, FIREMAN'S FUND AND THE MERGER
SUBSIDIARY," which information is
incorporated herein by this reference.
ITEM 8. FAIRNESS OF THE
TRANSACTION
(a) "SUMMARY--Recommendation of Board of
Directors" and "THE MERGER--FACTORS TO BE
CONSIDERED--Recommendation of the Company's
Board of Directors," which information is
incorporated herein by this reference.
(b) "SUMMARY--Recommendation of Board of
Directors" and "Opinion of Financial
Advisor" and "THE MERGER--FACTORS TO BE
CONSIDERED--Background of the Merger,"
"--Purpose and Structure of the Merger,"
"--Recommendation of the Company's Board of
Directors" and "--Relationship Between the
Company and Fireman's Fund," which
information is incorporated herein by this
reference.
(c) "THE SPECIAL MEETING--Record Date;
Stockholder Approval," which information is
incorporated herein by this reference.
(d)-(e) "THE MERGER--FACTORS TO BE
CONSIDERED--Background of the Merger" and
"--Opinion of Financial Advisor," which
information is incorporated herein by this
reference.
(f) "THE MERGER--FACTORS TO BE
CONSIDERED--Background of the Merger,"
which information is incorporated herein by
this reference.
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ITEM 9. REPORTS, OPINIONS,
APPRAISALS AND CERTAIN
NEGOTIATIONS
(a)-(c) "SUMMARY--Opinion of Financial Advisor," "THE
MERGER--FACTORS TO BE CONSIDERED--Background
of the Merger" and "--Opinion of Financial
Advisor" and "EXHIBIT B--Opinion of Dean
Witter Reynolds Inc.," which information is
incorporated herein by this reference.
ITEM 10. INTEREST IN SECURITIES
OF THE ISSUER
(a) "SUMMARY--Voting of Shares Owned by
Fireman's Fund," "THE SPECIAL MEETING--
Record Date Stockholder Approval," "THE
MERGER--FACTORS TO BE CONSIDERED--Background
of the Merger" and "--Interests of Certain
Persons in the Merger" and "STOCK OWNERSHIP
OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS,"
which information is incorporated herein by
this reference.
(b) "STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN
BENEFICIAL OWNERS--Transactions by Certain
Persons in Common Stock," which information
is incorporated herein by this reference.
ITEM 11. CONTRACTS, ARRANGEMENTS "THE MERGER--FACTORS TO BE CONSIDERED--
OR UNDERSTANDINGS WITH RESPECT Background of the Merger, Interests of
TO THE ISSUER'S SECURITIES Certain Persons in the Merger,"
"--Recommendation of the Company's Board of
Directors" "--Opinion of Financial Advisor"
and "--Relationship Between the Company and
Fireman's Fund," which information is
incorporated herein by this reference.
ITEM 12. PRESENT INTENTION AND
RECOMMENDATION OF CERTAIN
PERSONS WITH REGARD TO THE
TRANSACTION
(a), (b) "THE SPECIAL MEETING--Record Date;
Stockholder Approval," "THE MERGER--FACTORS
TO BE CONSIDERED--Background of the Merger,"
"--Recommendation of the Company's Board of
Directors" and "--Interests of Certain
Persons in the Merger" and "STOCK OWNERSHIP
OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS,"
which information is incorporated herein by
this reference.
ITEM 13. OTHER PROVISIONS OF
THE TRANSACTION
(a) "SUMMARY--Dissenters' Rights," "RIGHTS OF
DISSENTING STOCKHOLDERS" and "EXHIBIT C--
Provisions of Deleware General Corporation
Law Relating to Appraisal Rights," which
information is incorporated herein by this
reference.
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(b), (c) Not applicable.
ITEM 14. FINANCIAL INFORMATION The Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and its
Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997 (to be filed
on or before May 15, 1997) are incorporated
by reference in the Proxy Statement and
will be delivered to stockholders of the
Company with the Proxy Statement. The
Company's audited financial statements for
the periods covered by the Form 10-K and
unaudited financial statements for the
periods covered by the Form 10-Q are
incorporated herein by this reference.
ITEM 15. PERSON AND ASSETS
EMPLOYED, RETAINED OR UTILIZED
(a), (b) "SUMMARY--Opinion of Financial Advisor,"
"THE SPECIAL MEETING--Proxies" and "THE
MERGER--FACTORS TO BE CONSIDERED--Sources and
Uses of Funds" and "THE MERGER AGREEMENT--
Payment for Shares and Options," which
information is incorporated herein by this
reference.
ITEM 16. ADDITIONAL INFORMATION See the text of the Proxy Statement.
ITEM 17. MATERIALS TO BE FILED EXHIBIT NUMBER AND DESCRIPTION (EXHIBITS
AS EXHIBITS MARKED WITH AN ASTERISK (*) ARE FILED
HEREWITH)
(a) (a)(1) Business Loan Agreement effective
March 31, 1997 between the Company and
Fireman's Fund.*
(b) (b)(1) Opinion of Dean Witter Reynolds Inc.
dated March 5, 1997, which is Exhibit B to
the Proxy Statement and is incorporated
herein by this reference.
(c) (c)(1) Preferred Stock Purchase Agreement
dated July 10, 1996 between the Company and
Fireman's Fund, which is incorporated
herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
(c)(2) Acquisition Agreement dated March 5,
1997 between the Company and Fireman's
Fund, which is incorporated herein by
reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated February
28, 1997.
(c)(3) Consent Agreement dated March 5,
1997 between the Company and Fireman's Fund,
which is incorporated herein by reference
to Exhibit 2.2 to the Company's Current
Report on Form 8-K dated February 28, 1997.
(c)(4) Agreement and Plan of Merger dated
May 1, 1997 among the Company, Fireman's
Fund and the Merger Subsidiary, which is
Exhibit A to the Proxy Statement and is
incorporated herein by this reference.
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(c) (c)(5) Letter of Intent re Revolving
Credit Working Capital Facility dated
March 5, 1997 between the Company and
Fireman's Fund, which is incorporated
herein by reference to Exhibit 2.3 to the
Company's Current Report on Form 8-K dated
February 28, 1997.
(c)(6) Business Loan Agreement dated
effective March 31, 1997 between the
Company and Fireman's Fund. See Exhibit
(a)(1).
(c)(7) Right of First Offer and First
Refusal Agreement dated September 23, 1996
among the Company, Fireman's Fund and John
J. Hemmingson, which is incorporated
herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(c)(8) Right of First Offer and First
Refusal Agreement dated September 23, 1996
among the Company, Fireman's Fund and Gary
A. Black, which is incorporated herein by
reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
(c)(9) Non-Employee Director Stock Option
Plan, which is incorporated by reference
to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File
No. 33-85808).
(c)(10) Employment Agreement dated May 31,
1996 between the Company and Lawrence T.
Martinez, which is incorporated herein by
reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(c)(11) Agreement Granting Irrevocable
Proxy among John J. Hemmingson, Firstar
Bank of Minnesota, N.A. and the Company,
which is incorporated by reference to
Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1996.
(d) (d)(1) Preliminary copy of Letter to
Stockholders, Notice of Special Meeting,
Proxy Statement and form of Proxy for the
Special Meeting of Stockholders of the
Company to be held on a date to be
determined.*
(e) (e)(1) Section 262 of the Delaware General
Corporation Law, which is Exhibit C to the
Proxy Statement and is incorporated herein
by this reference.
(f) Not applicable.
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After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
May 8, 1997 FIREMAN'S FUND INSURANCE COMPANY
By: /s/ Harold N. Marsh, III
-------------------------------------
Name: Harold N. Marsh, III
Title: Senior Vice President and Treasurer
May 8, 1997 CG ACQUISITIONS CORP.
By: /s/ Harold N. Marsh, III
-------------------------------------
Name: Harold N. Marsh, III
Title: Senior Vice President and Treasurer
May 8, 1997 CROP GROWERS CORPORATION
By: /s/ Lawrence T. Martinez
-------------------------------------
Name: Lawrence T. Martinez
Title: Chief Executive Officer
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EXHIBIT INDEX
Exhibit Page
Number Description Number
------- ----------- ------
(a) (a)(1) Business Loan Agreement effective 13
March 31, 1997 between the Company and
Fireman's Fund.*
(b) (b)(1) Opinion of Dean Witter Reynolds Inc. B-1
dated March 5, 1997, which is Exhibit B to
the Proxy Statement and is incorporated
herein by this reference.
(c) (c)(1) Preferred Stock Purchase Agreement
dated July 10, 1996 between the Company and
Fireman's Fund, which is incorporated
herein by reference to Exhibit 10.1 to the
Company's Quarterly Report on Form 10-Q for
the quarter ended June 30, 1996.
(c)(2) Acquisition Agreement dated March 5,
1997 between the Company and Fireman's
Fund, which is incorporated herein by
reference to Exhibit 2.1 to the Company's
Current Report on Form 8-K dated February
28, 1997.
(c)(3) Consent Agreement dated March 5,
1997 between the Company and Fireman's Fund,
which is incorporated herein by reference
to Exhibit 2.2 to the Company's Current
Report on Form 8-K dated February 28, 1997.
(c)(4) Agreement and Plan of Merger dated
May 1, 1997 among the Company, Fireman's
Fund and the Merger Subsidiary, which is
Exhibit A to the Proxy Statement and is
incorporated herein by this reference.
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(c) (c)(5) Letter of Intent re Revolving
Credit Working Capital Facility dated
March 5, 1997 between the Company and
Fireman's Fund, which is incorporated
herein by reference to Exhibit 2.3 to the
Company's Current Report on Form 8-K dated
February 28, 1997.
(c)(6) Business Loan Agreement dated 13
effective March 31, 1997 between the
Company and Fireman's Fund. See Exhibit
(a)(1).
(c)(7) Right of First Offer and First
Refusal Agreement dated September 23, 1996
among the Company, Fireman's Fund and John
J. Hemmingson, which is incorporated
herein by reference to Exhibit 10.2 to the
Company's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1996.
(c)(8) Right of First Offer and First
Refusal Agreement dated September 23, 1996
among the Company, Fireman's Fund and Gary
A. Black, which is incorporated herein by
reference to Exhibit 10.4 to the Company's
Quarterly Report on Form 10-Q for the
quarter ended September 30, 1996.
(c)(9) Non-Employee Director Stock Option
Plan, which is incorporated by reference
to Exhibit 10.11 to the Company's
Registration Statement on Form S-1 (File
No. 33-85808).
(c)(10) Employment Agreement dated May 31,
1996 between the Company and Lawrence T.
Martinez, which is incorporated herein by
reference to Exhibit 10.28 to the
Company's Annual Report on Form 10-K for
the year ended December 31, 1996.
(c)(11) Agreement Granting Irrevocable
Proxy among John J. Hemmingson, Firstar
Bank of Minnesota, N.A. and the Company,
which is incorporated by reference to
Exhibit 10.26 to the Company's Annual
Report on Form 10-K for the year ended
December 31, 1996.
(d) (d)(1) Preliminary copy of Letter to 30
Stockholders, Notice of Special Meeting,
Proxy Statement and form of Proxy for the
Special Meeting of Stockholders of the
Company to be held on a date to be
determined.*
(e) (e)(1) Section 262 of the Delaware General C-1
Corporation Law, which is Exhibit C to the
Proxy Statement and is incorporated herein
by this reference.
(f) Not applicable.
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EXHIBIT (a)(1) and (c)(6)
BUSINESS LOAN AGREEMENT
THIS AGREEMENT (the "AGREEMENT") dated as of March 31, 1997, is by and
among Fireman's Fund Insurance Company, a California corporation (the "LENDER"),
Crop Growers Corporation, a Delaware corporation, Crop Growers Insurance, Inc.,
a Montana corporation, Crop Growers Software, Inc., a Texas corporation, and
Chapman Lampson Agency, Inc., a Washington corporation (collectively, the
"BORROWERS").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Lender will
provide a line of credit to the Borrowers. The amount of the line of credit
(the "COMMITMENT") is $15,000,000 or the Borrowing Base, whichever is less.
(b) This is a revolving line of credit. During the availability period,
the Borrowers may repay principal amounts and reborrow them unless the Borrowers
are in default under this Agreement.
(c) The Borrowers agree not to permit the outstanding principal balance of
the line of credit to exceed the Commitment.
1.2 AVAILABILITY PERIOD.
The line of credit is available between the date of this Agreement and the
first anniversary of the date of this Agreement (the "EXPIRATION DATE") unless
the Borrowers are in default.
1.3 INTEREST RATE.
(a) The interest rate is the Base Rate of Bank of America NT&SA in effect
from time to time. The interest rate under this Agreement shall be adjusted on
the same date as any changes in the Base Rate of Bank of America NT&SA become
effective.
(b) The Base Rate is the rate of interest publicly announced from time to
time by Bank of America NT&SA in San Francisco, California, as its base, prime
or reference rate. The Base Rate of Bank of America NT&SA as of March 28, 1997
was 8.50%.
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1.4 REPAYMENT TERMS.
(a) The Borrowers will pay interest monthly in arrears on the first day of
each month UNTIL THE FIRST MONTH FOLLOWING payment in full of any principal
outstanding under this line of credit.
(b) The Borrowers may prepay WITHOUT PENALTY. The Borrowers shall repay
the remaining principal balance plus any interest then due plus any additional
costs or other expenses.
(c) The Borrowers shall prepay the principal amount in full and maintain
an outstanding principal balance of zero for at least 30 consecutive calendar
days at least once per year not later than November 1 of each year during which
this Commitment remains in effect. This provision shall not constitute a
promise to renew the line of credit beyond its current Expiration Date.
(d) The Borrowers shall prepay the loan in full, and the Commitment shall
terminate, immediately upon the Borrowers (or the Borrowers' shareholders)
entering into an agreement with any party (other than the Lender) for purchase
of substantially all of the stock or assets of Crop Growers Corporation.
1.5 BORROWING BASE.
(a) The Available Borrowing Base shall be the sum of (i) the Net Available
Expense Reimbursement and (ii) the Net Available Profit Share.
(b) DEFINITIONS.
"ADVANCE RATE" shall mean the applicable percentage shown in the column
entitled "Advance Rate" on the Advance Rate Table.
"ADVANCE RATE TABLE" shall mean the advance rate table attached hereto as
EXHIBIT 2.
"AVAILABLE EXPENSE REIMBURSEMENT" shall mean the amount, on a consolidated
basis, of the Estimated Net Book Premium multiplied by (x) the applicable
first installment expense reimbursement rate under the SRA (or otherwise
agreed between the Borrowers and the Lender under this Agreement), less (y)
any first installment expense reimbursement actually received.
"AVAILABLE PROFIT SHARE" shall be the sum, on a consolidated basis, of
Estimated Profit Share less any Profit Share actually received with respect
to such Estimated Net Book Premium amount.
"BORROWING BASE CERTIFICATE" shall mean the borrowing base certificate
substantially in the form attached hereto as EXHIBIT 1.
"ESTIMATED NET BOOK PREMIUM" shall mean, for each crop year, sales closing
date and type of coverage shown on the Borrowing Base Certificate, the
premiums payable to Borrowers by policy holders plus the Federal Crop
Insurance Corporation premium subsidy, less cancellations and adjustments
with respect to such policies.
"ESTIMATED PROFIT SHARE" shall be profit share payable to the Borrowers
under the MPCI General Agency Agreement.
"MPCI General Agency Agreement" shall mean the General Agency Agreement
between the Lender and Crop Growers Corporation dated July 10, 1996, as
amended from time to time.
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"NET AVAILABLE EXPENSE REIMBURSEMENT" shall be determined by applying an
Advance Rate percentage to the Available Expense Reimbursement.
"NET AVAILABLE PROFIT SHARE" shall be determined by applying an Advance
Rate percentage to the Available Profit Share.
"PROFIT SHARE" shall be shall mean Underwriting Gain as defined in the MPCI
General Agency Agreement.
"SRA" shall mean the Standard Reinsurance Agreement dated June 1, 1994
between the Lender and the Federal Crop Insurance Corporation, as amended
from time to time.
2. FEES AND EXPENSES
2.1 NO LOAN FEE. No loan fee shall be due upon execution of this
Agreement.
2.2 EXPENSES. The Borrowers agree to reimburse the Lender for any
expenses it incurs in the preparation of this Agreement and any agreement or
instrument required by this Agreement up to a maximum of $10,000. Expenses
include, but are not limited to, reasonable attorneys' fees, including any
allocated costs of the Lender's in-house counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be
made in writing in a manner acceptable to the Lender, or by another means
acceptable to the Lender. Each request shall be accompanied by a new Borrowing
Base Certificate updated as of the last day of the month preceding such request
(as to the amount of the Available Borrowing Base) and as of the date of the
request (as to the amount outstanding on this line of credit). Requests for
credit may be submitted no more often than weekly. The representative of any
individual Borrower designated in writing by the Chief Financial Officer of Crop
Growers Corporation may make a request for credit under this Agreement.
3.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Lender and each
payment by the Borrowers will be:
(a) made at the Lender's office designated by the Lender from time to
time or made by wire transfer in immediately available funds, or
such other type of funds selected by the Lender;
(b) evidenced by records kept by the Lender, including one or more
promissory notes that Lender may, at its discretion, require the
Borrowers to sign; and
(c) except as otherwise designated in writing by the recipient, wired
in accordance with the following wire instructions:
(i) If to the Borrowers:
Receiving Bank: First Interstate Bank ABA
Number: 092900480 Address: Great Falls,
MT Account Name: Crop Growers Main Operating Account Account
Number: 95-711-9
(i) If to the Lender:
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<PAGE>
Receiving Bank: Chase Manhattan Bank ABA
Number: 021000021 Address: New York Account
Name: Chase Manhattan Bank Account
Number: 900-9-002206 Reference Number: For further credit to
Fireman's Fund Insurance Company #73136000
3.3 TELEPHONE AUTHORIZATION.
(a) The Lender may honor telephone instructions for advances given by any
one individual signer of this Agreement or a person or persons authorized IN
WRITING by any one signer of this Agreement. Borrowers shall promptly confirm
in writing all such telephone instructions.
(b) The Borrowers shall indemnify and excuse the Lender (including its
officers, employees, and agents) from all liability, loss, and costs in
connection with any act resulting from telephone instructions it reasonably
believes are made by any signer of this Agreement or a person authorized by a
signer. This idemnity and excuse will survive this Agreement's termination.
3.4 BANKING DAYS. Unless otherwise provided in this Agreement, a
banking day is a day other than a Saturday or a Sunday on which Bank of America
NT&SA is open for business in California. All payments and disbursements which
would be due on a day which is not a banking day will be due on the next banking
day. All payments received on a day which is not a banking day will be applied
to the credit on the next banking day.
3.5 ADDITIONAL COSTS. The Borrowers will pay the Lender, on demand,
for the Lender's costs or losses arising from any statute or regulation, or any
request or requirement of a regulatory agency which is applicable to insurance
companies with respect to extensions of credit of this type. The costs and
losses will be allocated to the loan in a manner determined by the Lender, using
any reasonable method. The costs include any capital requirements relating to
the Lender's assets and commitments for credit.
3.6 INTEREST CALCULATION. Except as otherwise stated in this
Agreement, all interest and fees, if any, will be computed on the basis of a
360-day year and the actual number of days elapsed.
3.7 DEFAULT RATE. Upon the occurrence and during the continuation of
any default under this Agreement, advances under this Agreement will at the
option of the Lender bear interest at two percent (2%) above the Base Rate of
Bank of America NT&SA from the payment due date. This will not constitute a
waiver of any event of default.
4. CONDITIONS
The Lender must receive the following items, in form and content acceptable
to the Lender, before it is required to extend any credit to the Borrowers under
this Agreement:
4.1 AUTHORIZATIONS. Evidence that the execution, delivery and
performance by the Borrowers of this Agreement and any instrument or agreement
required under this Agreement have been duly authorized.
4.2 SECURITY AGREEMENT. A security agreement encumbering all assets
of the Borrowers, including all expirations rights and records, and a UCC-1
financing statement in a form appropriate for filing in the jurisdiction in
which the Borrowers' principal office is located and in each jurisdiction in
which any of such collateral is located.
4.3 OTHER ITEMS. Any other items that the Lender reasonably
requires, including a certificate from each of the Borrowers reasonably
satisfactory to the Lender to the effect that (i) the Borrower is duly
incorporated and in good standing, (ii) that this Agreement and the related
agreements are valid and binding obligations enforceable against the Borrowers
in accordance with their terms, subject to bankruptcy and
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<PAGE>
other general limitations on the rights of creditors and (iii) that the Borrower
will deliver within ten (10) days from the first funding date certified articles
of incorporation and good standing certificates in each of the states where such
Borrower is qualified to do business.
5. REPRESENTATIONS AND WARRANTIES
When the Borrowers sign this Agreement, and until the Lender is repaid in
full and the Commitment is terminated, the Borrowers make the following
representations and warranties. Each request for an extension of credit
constitutes a renewed representation:
5.1 ORGANIZATION OF BORROWERS. Each Borrower is a corporation duly
formed and existing under the laws of the state where organized.
5.2 AUTHORIZATION. This Agreement, and any instrument or agreement
required hereunder, are within each Borrower's powers, have been duly
authorized, and do not conflict with each Borrower's organizational papers.
5.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and
binding agreement of Borrowers, enforceable against the Borrowers in accordance
with its terms, and any instrument or agreement required hereunder, when
executed and delivered, will be similarly legal, valid, binding and enforceable.
5.4 GOOD STANDING. In each state in which each Borrower does
business, it is properly licensed, in good standing, and, where required, in
compliance with fictitious name statutes, except where failure to be so licensed
would not have a material adverse effect on the Borrowers' assets, properties,
liabilities, obligations, financial conditions, results of operations or
business.
5.5 NO CONFLICTS. This Agreement does not conflict with any law,
agreement, or obligation by which any Borrower is bound.
5.6 FINANCIAL INFORMATION. All financial and other information that
has been or will be supplied to the Lender by the Borrowers is:
(a) sufficiently complete to give the Lender accurate knowledge
of each Borrower's financial condition;
(b) in form and content required by the Lender;
(c) in compliance with all government regulations that apply;
and
(d) prepared in accordance with GAAP, as provided in Section
9.1.
5.7 LAWSUITS. There is no lawsuit, tax claim or other dispute
pending or threatened against any Borrower which, if lost, would materially
impair such Borrower's consolidated financial condition or ability to repay the
loan, except as have been disclosed in writing to the Lender.
5.8 PERMITS, FRANCHISES. The Borrowers possess all permits,
memberships, franchises, contracts and licenses required and all trademark
rights, trade name rights, patent rights and fictitious name rights necessary to
enable it to conduct the business in which it is now engaged without conflict
with the rights of others, except where failure to possess such permits,
memberships, franchises, contracts and licenses, trademark rights, tradename
rights, patent rights and fictitious name rights would not have a material
adverse effect on the Borrowers' assets, properties, liabilities, obligations,
financial conditions, results of operations or business.
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5.9 OTHER OBLIGATIONS. Except as otherwise disclosed in the
Borrowers' filings with the Securities and Exchange Commission, no Borrower has
any debt in excess of $100,000 to any one party. No Borrower is in default on
any obligation for borrowed money, any purchase money obligation or any other
material lease, commitment, contract, instrument or obligation.
5.10 INCOME TAX RETURNS. No Borrower has any knowledge of any pending
material assessments or adjustments of its income tax for any year.
5.11 NO EVENT OF DEFAULT. There is no event which is, or with notice
or lapse of time or both would be, a default under this Agreement.
6. COVENANTS
The Borrowers agree, so long as credit is available under this Agreement
and until the Lender is repaid in full and the Commitment is terminated:
6.1 USE OF PROCEEDS. To use the proceeds of the credit only for
working capital. The proceeds shall not be used to finance the purchase of any
securities.
6.2 FINANCIAL INFORMATION. For so long as any Borrower has the
obligation to prepare and file 10-K and 10-Q Reports with the Securities and
Exchange Commission, the Borrower shall supply the Lender with copies of such
10-K and 10-Q Reports within five (5) days after their filing with the
Securities and Exchange Commission. In the event any Borrower no longer is
obligated to prepare and file such 10-K or 10-Q Reports, or ceases to file such
reports for whatever reason, such Borrower shall:
(a) supply to the Lender, within ninety (90) days of the close
of each of the Borrower's fiscal years, a copy of the
audited consolidated financial statements of Borrower and
its subsidiaries, as of the end of such fiscal year,
consisting of balance sheets, statements of income and
expense, stockholders' equity, and changes in cash flow,
prepared in accordance with United States generally accepted
accounting principles accompanied by an unqualified opinion
of its independent accountants with respect to such
financial statements;
(b) at the request of the Lender, supply to the Lender within
forty-five (45) days of the close of each of the Borrower's
first three quarters of any fiscal year, a copy of financial
statements of the Borrower containing similar detail as
provided in Section 6.2(a) of this Agreement for the
quarters, prepared in accordance with United States
generally accepted accounting principles and certified as to
accuracy by the Borrower's chief financial officer;
(c) Within five (5) days after the end of each month, supply to
the Lender a Borrowing Base Certificate as of the last day
of such month; and
(d) At Lender's request, supply cash flow forecasts for such
periods as Lender may reasonably request.
6.3 LIMITATION ON DEBT. Not to create, incur, assume, or suffer to
exist or permit any subsidiary or affiliate (excluding the Lender to the extent
it should be deemed an affiliate of the Borrowers for any purpose) to create,
incur, assume, or suffer to exist, any Debt (as defined in Section 7.1) without
the Lender's prior written consent, except:
(a) Debt of the Borrowers under this Agreement, the agreements
listed on SCHEDULE 6.3 (a) attached hereto, and the debt
reported in documents filed by the Borrowers with the
Securities and Exchange Commission as of December 31, 1996;
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(b) Accounts payable to trade creditors for goods or services
incurred in the ordinary course of business, and paid within
the specified time, which are not delinquent or which are
being contested in good faith and by appropriate
proceedings;
(c) Debt for current taxes, assessments, governmental charges,
or levies, which are not delinquent or which are being
contested in good faith by appropriate proceedings;
(d) Capitalized lease obligations not in excess of $100,000 in
the aggregate in any calendar year;
(e) Any other Debt, singularly or in the aggregate, not in
excess of $100,000 in any one fiscal year of the Borrowers;
(f) Endorsing negotiable instruments received in the usual
course of business; or
6.4 LIMITATION ON DISTRIBUTIONS. Not to pay any dividends or
retire, redeem or purchase any stock of the Borrowers (except for Series A
Preferred Stock) or make any other form of distributions to shareholders.
6.5 LIMITATION ON ADVANCES OR CAPITAL CONTRIBUTIONS. Not to make any
advances of $100,000 outstanding at any one time or capital contributions in
excess of $50,000 to any subsidiary or affiliate of the Borrowers except with
respect to (i) payroll paid by Crop Growers Employers Organization, Inc., (ii)
advances from Crop Growers Corporation to Crop Gowers Software, Inc. and (iii)
advances from Crop Growers Corporation to Chapman Lampson Agency, Inc.
6.6 NOTICES TO LENDER. To promptly notify the Lender in writing of:
(a) any lawsuit claiming over $100,000 against the Borrowers.
(b) any substantial dispute between the Borrowers and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in any Borrower's financial
condition or operations.
(e) any change in any Borrower's name, address or legal
structure.
6.7 BOOKS AND RECORDS. To maintain adequate books and records.
6.8 AUDITS. To allow the Lender and its agents to inspect Borrowers'
properties and examine, audit and make copies of books and records at any
reasonable time. If any of Borrower's properties, books or records are in the
possession of a third party, such Borrower authorizes that third party to permit
the Lender or its agents to have access to perform inspections or audits and to
respond to the Lender's requests for information concerning such properties,
books and records.
6.9 COMPLIANCE WITH LAWS. To comply and cause each of its
subsidiaries to comply, in all respects with all applicable laws (including any
fictitious name statute), rules, regulations and orders of any government body
with authority over the Borrowers' business, such compliance to include, without
limitation, paying before the same become delinquent all taxes, assessments and
governmental charges imposed upon it or upon its property.
6.10 PRESERVATION OF RIGHTS. To maintain and preserve all rights,
privileges, and franchises the Borrowers now have.
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6.11 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or
replacements to keep Borrowers' properties in good working condition.
6.12 COOPERATION. To take any action requested by the Lender to carry
out the intent of this Agreement.
6.13 INSURANCE. To maintain insurance as provided in Section 11 of
the MPCI General Agency Agreement.
6.14 ADDITIONAL NEGATIVE COVENANTS. Without the Lender's written
consent:
(a) not to engage in any business activities substantially
different from any of the Borrower's present businesses.
(b) not to liquidate or dissolve the Borrowers or the Borrowers'
business.
(c) not to enter into any consolidation, merger, pool, joint
venture, syndicate, or other business combination except as
permitted by the Acquisition Agreement dated March 5, 1997
between Crop Growers Corporation and the Lender.
(d) not to lease, sell or dispose of all or a substantial part
of the Borrowers' business or assets.
(e) not to lease, sell or otherwise dispose of any assets for
less than fair market value, or enter into any sale and
leaseback agreement covering Borrowers' fixed or capital
assets except for real property located in Coeur d'Alene,
Idaho.
(f) not to create, incur, assume or suffer to exist, or permit
any of its subsidiaries to create, incur, assume or suffer
to exist any lien upon or with respect to any of its
properties, now or hereafter acquired.
(g) not to acquire or purchase a business or its assets if the
consideration for such purchase or acquisition would exceed
$500,000 in any fiscal year.
6.15 FIDUCIARY ACCOUNTS. Each Borrower shall maintain and cause its
subsidiaries to maintain in fiduciary accounts, separate and apart from all
assets of such Borrowers, at least such amounts as may be required under
applicable law and contracts which shall be invested only as permitted or
required by such applicable law and contracts. The Borrowers shall cause each
such fiduciary account to be properly designated as a fiduciary account on each
Borrower's records of the depository holding such account.
7. FINANCIAL COVENANTS
So long as the Note shall remain unpaid or the Lender shall have any
Commitment under this Agreement:
7.1 DEFINITIONS RELATED TO FINANCIAL COVENANTS. The following
definitions shall apply with respect to the following financial covenants and
other provisions of this Agreement using such terms. Terms not defined below
shall have the meanings given them under generally accepted accounting
principles.
"DEBT" shall mean all liabilities.
"DEBT SERVICE COVERAGE RATIO" shall mean, for any period (x) the
total sum of (A) net profits after tax, (B) depreciation or
amortization, (C) interest expenses and (D)
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nonrecurring items, DIVIDED BY (y) the total sum of (A) current
portion of long term debt, (B) capitalized lease payments due in
the next year, (C) interest expense and (D) dividends, including
preferred stock dividends.
"CURRENT RATIO" shall mean, for each fiscal quarter, (x) the
average of [assets minus net property plant and equipment and net
intangible assets] (not including assets held as a fiduciary) on
the last day of the fiscal quarter and on the last day of each of
the two preceding months, DIVIDED BY (y) the average of
[liabilities minus non-current portion of long term debt] (not
including liabilities incurred as a fiduciary with respect to
which sufficient fiduciary assets are available and not including
as current liabilities any mandatory prepayments required
hereunder) on the last day of the fiscal quarter and on the last
day of each of the two preceding months.
"TANGIBLE NET WORTH" shall mean, for any person or entity, total
assets excluding all intangible assets (such as goodwill,
trademarks, patents, copyrights, organizational expenses and
similar intangible items, but including leaseholds and leasehold
improvements), less Debt.
7.2 MINIMUM TANGIBLE NET WORTH.
The Borrowers shall maintain at the end of each fiscal quarter Tangible Net
Worth on a consolidated basis as follows:
(i) As of December 31, 1996, $22,000,000.00;
(ii) As of March 31, 1997 and the last day of each fiscal
quarter thereafter, $22,000,000.00 plus the greater of
75% of (i) the difference between (x) the sum of the
Borrowers' cumulative net income for each quarter
ending after December 31, 1996, and (y) the cumulative
preferred dividends paid after December 31, 1996, or
(ii) zero. In no event shall Tangible Net Worth be
less than $22,000,000.00.
7.3 DEBT SERVICE COVERAGE RATIO. The Borrowers shall maintain a Debt
Service Coverage Ratio on a consolidated basis of at least 1.3 to 1.0 for the
quarter ended December 31, 1996 and for each fiscal quarter thereafter.
7.4 CURRENT RATIO. The Borrowers shall maintain on a consolidated
basis as of the end of each fiscal quarter a Current Ratio of at least 1.0 to
1.0.
7.5 LIMITATION ON CAPITAL EXPENDITURES. Without the Lender's prior
written consent, the Borrowers shall not make, assume or incur any obligations
for capital expenditures if by reason thereof the aggregate of all such
expenditures payable by the Borrowers and all their subsidiaries during the then
current or during any subsequent fiscal year would exceed $500,000.00.
8. DEFAULT
If any of the following events occur (subject, in the case of nonwillful,
nonmonentary defaults, other than the filing of a voluntary bankruptcy petition,
to the right to cure within ten (10) days, or in the case of a nonwillful,
monetary default subject to the right to cure within three (3) days, following
written notice of either such event from the Lender), the Lender may do one or
more of the following: declare the Borrowers in default, stop making any
additional credit available to the Borrowers, and require the Borrowers to repay
the entire debt immediately and without prior notice. If a bankruptcy petition
is filed with respect to either Borrower, the entire debt outstanding under this
Agreement will automatically become due immediately.
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8.1 FAILURE TO PAY. The Borrowers fail to make a payment under this
Agreement when due.
8.2 NON-COMPLIANCE. The Borrowers fail to meet the conditions of, or
fails to perform any obligation under:
(a) this Agreement,
(b) any other agreement made in connection with this loan, or
(c) any other agreement any Borrower has with the Lender or any
affiliate of the Lender.
8.3 CROSS-DEFAULT. Any default occurs under any agreement in
connection with any credit any Borrower has obtained from anyone else or which
any Borrower has guaranteed.
8.4 FALSE INFORMATION. Any Borrower has given the Lender false or
misleading information or representations.
8.5 BANKRUPTCY. Any Borrower files a bankruptcy petition, a
bankruptcy petition is filed against any Borrower and remains undismissed for a
period of 60 days or more, or any Borrower makes a general assignment for the
benefit of creditors.
8.6 RECEIVERS. A receiver or similar official is appointed for any
Borrower's business, or the business is terminated.
8.7 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or
more trade creditors against any Borrower in an aggregate amount of $100,000 or
more or by any other person against any Borrower in the aggregate in an amount
of $100,000 or more in excess of any insurance coverage.
8.8 JUDGMENTS. Any judgments or arbitration awards are entered
against the Borrowers; or the Borrowers enter into any settlement agreements
with respect to any litigation or arbitration, in an aggregate amount of
$100,000 or more or against the Borrowers in the aggregate in an amount of
$100,000 or more in excess of any insurance coverage.
8.9 GOVERNMENT ACTION. Any government authority takes action that
the Lender believes materially adversely affects the Borrowers or the Borrowers'
financial condition or ability to repay.
8.10 MATERIAL ADVERSE CHANGE. A material adverse change occurs in any
Borrower's consolidated financial condition, properties or prospects, or ability
to repay the loan.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
9.1 GAAP. Except as otherwise stated in this Agreement, all
financial information provided to the Lender and all financial covenants will be
made under generally accepted accounting principles, consistently applied.
9.2 CALIFORNIA LAW. This Agreement is governed by California law.
9.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the
Borrowers' and the Lender's respective successors and assignees. The Borrowers
agree that no Borrower may assign this Agreement without the Lender's prior
written consent. The Lender may sell participations in or assign this loan, and
may exchange financial information about the Borrowers with actual or potential
participants or assignees. If a participation is sold or the loan is assigned,
the purchaser will have the right of set-off against the Borrowers.
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9.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrowers and the Lender, including but not limited to those that
arise from:
(i) This Agreement (including any renewals, extensions or
modifications of this Agreement);
(ii) Any document, agreement or procedure related to or
delivered in connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business
conducted between Borrowers and the Lender, including
claims for injury to persons, property or business
interests (torts).
(b) At the request of the Borrowers or the Lender, any such controversies
or claims will be settled by arbitration in accordance with the United States
Arbitration Act. The United States Arbitration Act will apply even though this
Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American
Arbitration Association and will be subject to its commercial rules of
arbitration.
(d) For purposes of the application of the statute of limitations, the
filing of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated under
this paragraph is subject to any applicable statute of limitations. The
arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss the
arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the
arbitrators will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be
submitted to any authorized court of law to be confirmed and enforced.
(g) This provision does not limit the right of the Borrowers or the Lender
to:
(i) exercise self-help remedies such as setoff;
(ii) act in a court of law, before, during or after the
arbitration proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(h) The pursuit of or a successful action for interim, additional or
supplementary remedies, or the filing of a court action, does not constitute a
waiver of the right of the Borrowers, guarantors or the Lender, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit.
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(i) If the Lender forecloses against any real property securing this
Agreement, the Lender has the option to exercise the power of sale under the
deed of trust or mortgage, or to proceed by judicial foreclosure.
9.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not
enforceable, the rest of the Agreement may be enforced. The Lender retains all
rights, even if it makes a loan after default. If the Lender waives a default,
it may enforce a later default. Any consent or waiver under this Agreement must
be in writing.
9.6 COSTS. If the Lender incurs any expenses in connection with
administering or enforcing this Agreement, or if the Lender takes collection
action under this Agreement, it is entitled to costs and reasonable attorneys'
fees, including any allocated costs of in-house counsel.
9.7 ATTORNEYS' FEES. In the event of a lawsuit or arbitration
proceeding, the prevailing party is entitled to recover costs and reasonable
attorneys fees (including any allocated costs of in-house counsel) incurred in
connection with the lawsuit or arbitration proceeding, as determined by the
court or arbitrator.
9.8 ONE AGREEMENT. This Agreement and any related security or other
agreements required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements
between the Lender and the Borrowers concerning this credit:
and
(b) replace any prior oral or written agreements between the
Lender and the Borrowers concerning this credit; and
(c) are intended by the Lender and the Borrowers as the final,
complete and exclusive statement of the terms agreed to by
them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.9 NOTICES. All notices required under this Agreement shall be
personally delivered or sent by first class mail, postage prepaid, or by
facsimile, to the addresses on the signature page of this Agreement, or to such
other addresses as the Lender and the Borrowers may specify from time to time in
writing.
9.10 HEADINGS. Article and paragraph headings are for reference only and
shall not affect the interpretation or meaning of any provisions of this
Agreement.
9.11 JOINT AND SEVERAL. The obligations of each Borrower are joint and
several.
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9.12 COUNTERPARTS. This Agreement may be executed in as many counterparts
as necessary or convenient, and by the different parties on separate
counterparts each of which, when so executed, shall be deemed an original but
all such counterparts shall constitute but one and the same agreement.
Address: Attn: Chief Financial Officer10895 Lowell, CROP GROWERS CORPORATION
3rd FloorP.O. Box 25951Overland Park, KS
66225-5951Fax: (913) 323-5745 By /s/ David E. Hill
-----------------
Its Chief Financial
Officer, Secretary
and Treasurer
Address: Attn: Chief Financial Officer10895 Lowell, CROP GROWERS INSURANCE,
3rd FloorP.O. Box 25951 Overland Park, KS INC.
66225-5951Fax: (913) 323-5745 By /s/ David E. Hill
-----------------
Its Secretary-Treasurer
Address: Attn: Chief Financial Officer10895 Lowell, CROP GROWERS SOFTWARE,
3rd FloorP.O. Box 25951 Overland Park, KS INC.
66225-5951Fax: (913) 323-5745 By /s/ David E. Hill
-----------------
Its Secretary-Treasurer
Address: Attn: Chief Financial Officer10895 Lowell, CHAPMAN LAMPSON AGENCY,
3rd FloorP.O. Box 25951 Overland Park, KS INC.
66225-5951Fax: (913) 323-5745 By /s/ David E. Hill
-----------------
Its Secretary-Treasurer
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Address: Treasurer's Office Fireman's Fund Insurance Company 777 San Marin Drive
Novato, CA 94998 Fax: (415) 899-2587
with copies to:
General Counsel's Office Fireman's Fund Insurance Company 777 San Marin Drive
Novato, CA 94998 Fax: (415) 899-3600
FIREMAN'S FUND INSURANCE COMPANY
By /s/ Harold N. Marsh, III Its Senior Vice President and Treasurer
------------------------ -----------------------------------
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EXHIBIT 1
BORROWING BASE CERTIFICATE
27
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EXHIBIT 2
ADVANCE RATE TABLE
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SCHEDULE 6.3(a)
EXISTING PERMITTED DEBT OF THE BORROWERS
Existing permitted debt of the Borrowers under the following agreements:
1. Crop Growers Farm Insurance General Agency Agreement by and between
Fireman's Fund Insurance Company and Crop Growers Insurance, Inc.,
effective 11/1/96, as amended from time to time.
2. Crop Growers Crop Hail/Named Peril Insurance General Agency Agreement by
and between Fireman's Fund Insurance Company and Crop Growers Insurance,
Inc., effective 1/1/97, as amended from time to time.
3. MPCI General Agency Agreement by and between Fireman's Fund Insurance
Company and Crop Growers Insurance, Inc., executed on or about 3/29/95, as
amended from time to time.
4. MPCI General Agency Agreement by and between Fireman's Fund Insurance
Company and Texas Crop Growers Insurance Services, Inc., executed on or
about 3/29/95, as amended from time to time.
5. MPCI General Agency Agreement by and between Fireman's Fund Insurance
Company and Crop Growers Insurance, Inc., executed on or about 7/10/96, as
amended from time to time.
6. Any other agreement between Lender and Borrowers now existing or that they
may enter into in the future.
29
<PAGE>
CROP GROWERS CORPORATION
PROXY STATEMENT
------------------
SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON , JUNE , 1997
------------------------
This Proxy Statement is being furnished to the stockholders of Crop Growers
Corporation, a Delaware corporation (the "Company"), in connection with the
solicitation by the Board of Directors of the Company of proxies to be voted at
a special meeting of stockholders of the Company to be held at the offices of
the Company, 10895 Lowell Avenue, Suite 300, Overland Park, Kansas, on
, June , 1997 at 9:00 a.m. local time, and any adjournments or
postponements thereof (the "Special Meeting"). At the Special Meeting, the
stockholders of the Company will consider and vote upon a proposal to approve
and adopt an Agreement and Plan of Merger, dated May 1, 1997 (the "Merger
Agreement"), by and among the Company, Fireman's Fund Insurance Company, a
California corporation ("Fireman's Fund"), and CG Acquisitions Corp., a Delaware
corporation and wholly owned subsidiary of Fireman's Fund (the "Merger
Subsidiary"), pursuant to which, among other things (i) the Merger Subsidiary
will be merged with and into the Company (the "Merger"), with the result that
the Company will become a wholly owned subsidiary of Fireman's Fund, (ii) each
outstanding share of Common Stock, par value $.01 per share, of the Company (the
"Common Stock"), except those shares as to which dissenters' rights have been
perfected ("Dissenting Shares"), will be converted into the right to receive
$10.25 in cash, and (iii) holders of options to acquire shares of the Common
Stock of the Company will receive a cash settlement, net of withholding taxes,
equal to the excess, if any, of $10.25 over the exercise price of such options.
See "THE MERGER AGREEMENT--Consideration To Be Received by Stockholders."
This Proxy Statement is accompanied by copies of the Company's Annual Report
on Form 10-K for the year ended December 31, 1996 and its Quarterly Report on
Form 10-Q for the quarter ended March 31, 1997. These materials are specifically
incorporated by reference in this Proxy Statement and are included to aid
stockholders in their consideration of the Merger.
Only holders of record of the Common Stock and the Series A Convertible
Preferred Stock, par value $.01 per share, of the Company (the "Preferred
Stock") at the close of business on [the record date, to be established pursuant
to Section 15 of the Merger Agreement] are entitled to notice of and to vote at
the Special Meeting. This Proxy Statement is first being sent to stockholders on
or about May , 1997.
------------------------
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
30
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SUMMARY.................................................................................................... 1
Date, Time and Place of Special Meeting.................................................................. 1
Record Date; Stockholders Entitled to Vote; Quorum....................................................... 1
Purpose of the Meeting................................................................................... 1
The Merger............................................................................................... 1
Effective Time of the Merger............................................................................. 2
Voting of Shares Owned by Fireman's Fund................................................................. 2
Recommendation of the Company's Board of Directors....................................................... 2
Opinion of Financial Advisor............................................................................. 2
Interests of Certain Persons in the Merger............................................................... 3
Federal Income Tax Consequences.......................................................................... 3
Additional Factors to be Considered...................................................................... 3
Payment for Shares and Options........................................................................... 3
Dissenters' Rights....................................................................................... 3
Regulatory Approvals..................................................................................... 3
The Company.............................................................................................. 4
Fireman's Fund........................................................................................... 4
Market Price and Dividend Data........................................................................... 4
Selected Consolidated Financial Data..................................................................... 6
THE SPECIAL MEETING........................................................................................ 7
General.................................................................................................. 7
Proposal to be Considered at the Special Meeting......................................................... 7
Record Date; Stockholder Approval........................................................................ 7
Proxies.................................................................................................. 8
THE MERGER--FACTORS TO BE CONSIDERED....................................................................... 8
Background of the Merger................................................................................. 8
Purpose and Structure of the Merger...................................................................... 13
Recommendation of the Company's Board of Directors....................................................... 13
Opinion of Financial Advisor............................................................................. 15
Perspective of Fireman's Fund on the Merger.............................................................. 20
Plans for the Company After the Merger................................................................... 20
Certain Effects of the Merger............................................................................ 21
Relationship Between the Company and Fireman's Fund...................................................... 21
Interests of Certain Persons in the Merger............................................................... 24
Sources and Uses of Funds................................................................................ 25
Certain Federal Income Tax Consequences.................................................................. 25
Public Offerings and Repurchases of Common Stock......................................................... 26
Regulatory Approvals..................................................................................... 27
THE MERGER AGREEMENT....................................................................................... 27
General.................................................................................................. 27
Effective Time........................................................................................... 28
Consideration To Be Received by Stockholders............................................................. 28
Payment for Shares and Options........................................................................... 28
Operations of the Company Prior to the Merger............................................................ 29
Conditions to Consummation of the Merger................................................................. 30
Termination.............................................................................................. 30
Termination Fee.......................................................................................... 31
Accounting Treatment..................................................................................... 31
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
RIGHTS OF DISSENTING STOCKHOLDERS.......................................................................... 31
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS................................................ 34
Stock Ownership.......................................................................................... 34
Transactions by Certain Persons in Common Stock.......................................................... 35
MANAGEMENT OF THE COMPANY, FIREMAN'S FUND AND THE MERGER SUBSIDIARY........................................ 36
The Company.............................................................................................. 36
Fireman's Fund and Affiliates............................................................................ 36
The Merger Subsidiary.................................................................................... 38
Certain Proceedings...................................................................................... 38
STOCKHOLDER PROPOSALS...................................................................................... 39
INDEPENDENT PUBLIC ACCOUNTANTS............................................................................. 39
INFORMATION INCORPORATED BY REFERENCE...................................................................... 39
AVAILABLE INFORMATION...................................................................................... 39
ADDITIONAL INFORMATION..................................................................................... 39
EXHIBIT A--Agreement and Plan of Merger.................................................................... A-1
EXHIBIT B--Opinion of Dean Witter Reynolds Inc............................................................. B-1
EXHIBIT C--Provisions of Delaware General Corporation Law Relating to Appraisal Rights..................... C-1
</TABLE>
ii
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. THE FOLLOWING SUMMARY IS NOT INTENDED TO BE COMPLETE AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION
CONTAINED IN THIS PROXY STATEMENT, IN THE MATERIALS ACCOMPANYING THIS PROXY
STATEMENT, IN THE EXHIBITS HERETO AND IN THE DOCUMENTS INCORPORATED HEREIN BY
REFERENCE. STOCKHOLDERS ARE URGED TO REVIEW THE ENTIRE PROXY STATEMENT AND
ACCOMPANYING MATERIALS CAREFULLY.
DATE, TIME AND PLACE OF SPECIAL MEETING
A Special Meeting of Stockholders of Crop Growers Corporation will be held
on , June , 1997 at 9:00 a.m. local time at the offices of the Company,
10895 Lowell Avenue, Suite 300, Overland Park, Kansas.
RECORD DATE; STOCKHOLDERS ENTITLED TO VOTE; QUORUM
Only holders of record of shares of the Common Stock and the Preferred Stock
at the close of business on [the record date, to be established pursuant to
Section 15 of the Merger Agreement] (the "Record Date") are entitled to notice
of and to vote at the Special Meeting. On that date, there were [approximately
7,972,551] shares of Common Stock outstanding, held of record by approximately
[approximately 110] stockholders, and 10,000 shares of Preferred Stock
outstanding, all of which are owned by Fireman's Fund. The holders of Common
Stock and the holder of the Preferred Stock will vote together as one class with
respect to the matters to be voted upon at the Special Meeting, with each share
of Common Stock entitled to one vote and the 10,000 shares of Preferred Stock
entitled to a total of 754,717 votes. See "THE SPECIAL MEETING--Record Date;
Stockholder Approval." The presence, in person or by proxy, at the Special
Meeting of the holders of a majority of the combined voting power of the
outstanding shares of the Common Stock and the Preferred Stock is necessary to
constitute a quorum at the Special Meeting.
PURPOSE OF THE MEETING
At the Special Meeting, stockholders will consider and vote upon a proposal
to approve and adopt the Merger Agreement, a copy of which is attached as
Exhibit A to this Proxy Statement. See "THE SPECIAL MEETING--Proposal To Be
Considered at the Special Meeting." The Merger Agreement provides for the merger
of the Merger Subsidiary with and into the Company, with the result that the
Company, as the surviving corporation (the "Surviving Corporation"), will become
a wholly owned subsidiary of Fireman's Fund. See "THE MERGER
AGREEMENT--General."
THE MERGER
Pursuant to the Merger Agreement, the Merger Subsidiary will merge with and
into the Company, with the Company being the Surviving Corporation. Each
outstanding share of Common Stock (except Dissenting Shares) will be converted
into the right to receive $10.25 in cash, without interest, and holders of
options to acquire shares of the Common Stock of the Company will receive a cash
settlement, net of withholding taxes, equal to the excess, if any, of $10.25
over the exercise price of such options. See "THE MERGER
AGREEMENT--Consideration To Be Received by Stockholders." After the Merger,
Fireman's Fund will own all of the outstanding shares of capital stock of the
Surviving Corporation. The shares of the Common Stock will no longer be traded
on the Nasdaq National Market and the registration of the Common Stock under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), will be
terminated. See "THE MERGER--FACTORS TO BE CONSIDERED--Certain Effects of the
Merger."
Approval of the Merger requires the affirmative vote of the holders of a
majority of the voting power of all outstanding shares of the Common Stock and
the Preferred Stock, voting together as one class. See "THE SPECIAL
MEETING--Record Date; Stockholder Approval."
The Merger is subject to various closing conditions, including state
insurance regulatory approvals and the absence of any event that would have a
material adverse effect on the assets, properties, liabilities,
1
<PAGE>
obligations, financial condition, results of operations or business of the
Company. See "THE MERGER AGREEMENT--Conditions to Consummation of the Merger."
The Merger Agreement may, under specified circumstances, be terminated and
the Merger abandoned at any time prior to the filing of a Certificate of Merger
with the Delaware Secretary of State, notwithstanding approval of the Merger
Agreement by the stockholders of the Company. The Merger Agreement requires the
Company to pay Fireman's Fund a termination fee of $2.4 million plus a sum equal
to the amount of certain transaction costs incurred by Fireman's Fund if the
Merger is not consummated and (a) the Merger Agreement has not been terminated
by the mutual written consent of the parties, (b) Fireman's Fund has complied
with all its obligations under the Merger Agreement, and (c) if the termination
is the result of failure of the stockholders of the Company to approve the
Merger, the Company enters into a letter of intent, commitment letter or other
written agreement with a third party regarding a merger, consolidation,
recapitalization, sale of assets, sale of its securities or a similar
transaction involving a change in control of the Company. See "THE MERGER
AGREEMENT-- Termination" and "--Termination Fee."
EFFECTIVE TIME OF THE MERGER
Unless otherwise agreed by the parties to the Merger Agreement or otherwise
provided by law, the Merger will become effective upon the acceptance for
recording of the Certificate of Merger by the Delaware Secretary of State (the
"Effective Time"). Subject to approval of the Merger at the Special Meeting and
the satisfaction or waiver of the terms and conditions in the Merger Agreement,
the Effective Time is expected to occur as soon as practicable after the Special
Meeting. See "THE MERGER AGREEMENT--Effective Time."
VOTING OF SHARES OWNED BY FIREMAN'S FUND
The Board of Directors of Fireman's Fund, which has the right to acquire
approximately 22.9% of the issued and outstanding shares of the Common Stock and
owns all of the issued and outstanding shares of the Preferred Stock (together
representing 29.6% of the combined voting power of the Common Stock and the
Preferred Stock), has approved the Merger and has notified the Company that, to
the extent it is permitted to do so under its prior agreement with the Company,
it intends to vote its shares of the Common Stock and the Preferred Stock in
favor of the Merger. See the discussion with respect to the "Consent Agreement"
under the caption "THE MERGER--FACTORS TO BE CONSIDERED-- Relationship Between
the Company and Fireman's Fund--Transactions and Agreements." Because Fireman's
Fund is entitled to vote substantially less than 50.0% of the combined voting
power of the outstanding shares of the Common Stock and the Preferred Stock,
approval of the Merger is not assured as a result of the voting power held by
Fireman's Fund. See "THE SPECIAL MEETING--Record Date; Stockholder Approval."
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
The Board of Directors of the Company has determined that the Merger is fair
from a financial point of view to and in the best interests of the Company's
stockholders (other than Fireman's Fund). The Board of Directors has approved
the Merger Agreement and recommends that stockholders vote in favor of the
proposal to approve and adopt the Merger Agreement. See "THE MERGER--FACTORS TO
BE CONSIDERED--Recommendation of the Company's Board of Directors."
OPINION OF FINANCIAL ADVISOR
On March 5, 1997, Dean Witter Reynolds Inc. ("Dean Witter") delivered a
written opinion to the Board of Directors of the Company to the effect that the
cash consideration to be received by the holders of the Common Stock (other than
Fireman's Fund and its affiliates) in connection with the Merger is fair to such
stockholders from a financial point of view. A copy of the written opinion of
Dean Witter dated March 5, 1997 is attached as Exhibit B to this Proxy
Statement. Stockholders of the Company are urged to
2
<PAGE>
read the opinion of Dean Witter in its entirety. For discussion of the factors
considered and assumptions made by Dean Witter in reaching its opinion, see "THE
MERGER--FACTORS TO BE CONSIDERED--Opinion of Financial Advisor."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of the Company
with respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that certain officers and directors of the Company
have interests in connection with the consummation of the Merger that may
conflict with the interests of the Company's stockholders. See "THE
MERGER--FACTORS TO BE CONSIDERED--Interests of Certain Persons in the Merger."
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes, the Merger will be treated as a taxable
sale or exchange of shares of the Common Stock for cash by each holder of the
Common Stock (including any holder of Dissenting Shares). The amount of gain or
loss to be recognized by each stockholder will be measured by the difference
between the amount of cash received by such stockholder in connection with the
Merger for his or her shares of Common Stock (including Dissenting Shares) and
such stockholder's tax basis in such shares of Common Stock at the Effective
Time. See "THE MERGER--FACTORS TO BE CONSIDERED--Certain Federal Income Tax
Consequences."
ADDITIONAL FACTORS TO BE CONSIDERED
Stockholders of the Company should also consider the additional special
factors discussed elsewhere in this Proxy Statement under the caption "THE
MERGER--FACTORS TO BE CONSIDERED."
PAYMENT FOR SHARES AND OPTIONS
As promptly as possible after the Effective Time, instructions will be
furnished to holders of shares of the Common Stock regarding procedures to be
followed to surrender their certificates and receive payment for their shares.
Instructions will also be furnished to holders of options to purchase the Common
Stock concerning their rights, if any, to receive payments in settlement of the
options and procedures to be followed to exercise those rights. See "THE MERGER
AGREEMENT--Payment for Shares and Options."
DISSENTERS' RIGHTS
Under the Delaware General Corporation Law (the "DGCL"), any holder of the
Common Stock who does not vote in favor of the Merger and who strictly complies
with the procedural requirements of Section 262 of the DGCL, the full text of
which is attached as Exhibit C to this Proxy Statement, will have the right to
object to the Merger Agreement and make written demand for the payment of the
"fair value" of such holder's shares of the Common Stock. See "RIGHTS OF
DISSENTING STOCKHOLDERS."
REGULATORY APPROVALS
The approvals of insurance regulatory authorities in Kansas and certain
other states are required before the Merger may be consummated. Applications for
such approvals have been made, but approvals have not yet been received. In
addition, under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), the Merger may not be consummated unless notice has
been given and certain information has been furnished to the Antitrust Division
of the United States Department of Justice and the Federal Trade Commission. The
Company and Fireman's Fund submitted the filings required under the HSR Act on
May 2 and May 1, 1997, respectively. See "THE MERGER--FACTORS TO BE
CONSIDERED--Regulatory Approvals."
3
<PAGE>
THE COMPANY
The Company is a leading marketer and servicer of crop insurance. It markets
and services federal multi-peril crop insurance ("MPCI"), private crop hail
insurance and other insurance products underwritten primarily by Fireman's Fund,
as well as its own property and casualty insurance company subsidiaries. The
Company also markets a variety of farm-related software products. The Company's
principal source of revenues is fees for servicing policies and premiums that
are generated for Fireman's Fund through the Company's agency network. In
addition, the Company has underwriting gains and losses generated through its
insurance company subsidiaries.
The principal executive office of the Company is located at 10895 Lowell
Avenue, Suite 300, Overland Park, Kansas 66210, and the Company's telephone
number is (913) 338-7800.
FIREMAN'S FUND
Fireman's Fund is one of the top 20 property and casualty insurance
companies in the United States, with total assets of $16.6 billion and gross
premiums written of $4 billion. The 134-year old Fireman's Fund is assigned an
"A" rating from A.M. Best Company and an "Aa1" rating from Moody's. Fireman's
Fund has 8,157 employees who operate out of 40 major offices, distributing
business and personal lines insurance through approximately 6,000 independent
agents.
The principal executive office of Fireman's Fund is located at 777 San Marin
Drive, Novato, California 94998, and its telephone number is (415) 899-2000.
Fireman's Fund is a wholly owned subsidiary of Allianz of America, Inc.
("AZOA"). Allianz Aktiengesellschaft Holding ("AZ AG") holds 90% of the voting
securities of AZOA. AZ AG's business address is Koniginstrasse 28, 80802 Munich,
Federal Republic of Germany. AZOA's business address is 55 Green Farms Road,
Westport, Connecticut 06881.
MARKET PRICE AND DIVIDEND DATA
The Common Stock is traded on the Nasdaq National Market under the symbol
"CGRO." The following table sets forth the high and low trading prices per share
of the Common Stock on the Nasdaq National Market for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
1995
First Quarter............................................................ $ 28.00 $ 14.00
Second Quarter........................................................... 33.00 11.25
Third Quarter............................................................ 16.75 13.19
Fourth Quarter........................................................... 15.00 11.50
1996
First Quarter............................................................ $ 16.25 $ 6.00
Second Quarter........................................................... 11.75 7.00
Third Quarter............................................................ 10.50 6.88
Fourth Quarter........................................................... 7.88 5.88
1997
First Quarter............................................................ $ 10.00 $ 6.13
Second Quarter (through May 5)........................................... 9.88 9.50
</TABLE>
On February 14, 1997, the last full day of trading prior to the announcement
by the Company that certain stockholders of the Company intended to sell their
shares of Common Stock for $10 per share, which were approximately 23% of the
shares of the Common Stock then outstanding (see "THE MERGER--FACTORS TO BE
CONSIDERED--Relationship Between the Company and Fireman's Fund"), the reported
high and low trading prices per share of the Common Stock were $8.00 and $7.00,
4
<PAGE>
respectively. On March 5, 1997, the last full day of trading prior to the
announcement by the Company that it had entered into an agreement with Fireman's
Fund relating to the Merger, such reported high and low trading prices per share
of the Common Stock were $8.88 and $8.50, respectively. On May 5, 1997, the last
full day of trading prior to the printing of this Proxy Statement, the reported
high and low trading prices per share of the Common Stock were $9.75 and $9.69,
respectively. STOCKHOLDERS ARE URGED TO OBTAIN A CURRENT MARKET QUOTATION FOR
THEIR SHARES.
The Company has never paid a cash dividend on the Common Stock and does not
anticipate paying any such dividend in the foreseeable future.
5
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
Set forth below is a summary of selected consolidated financial data with
respect to the Company excerpted or derived from the information contained in
the Company's Annual Reports on Form 10-K for the years ended December 31, 1996,
1995 and 1994, and its Quarterly Report on Form 10-Q for the quarterly periods
ended March 31, 1997 and March 31, 1996. More comprehensive financial
information is included in such reports and other documents filed by the Company
with the Securities and Exchange Commission (the "Commission"), and the
following summary is qualified in its entirety by reference to such reports and
other documents and all of the financial information (including any related
notes) contained therein. Such reports and other documents may be inspected and
copies may be obtained from the offices of the Commission. See "AVAILABLE
INFORMATION." In addition, copies of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996 and its Quarterly Report on Form 10-Q for
the quarterly period ended March 31, 1997 accompany each copy of this Proxy
Statement being provided to stockholders and are incorporated herein by
reference. See "INFORMATION INCORPORATED BY REFERENCE."
<TABLE>
<CAPTION>
QUARTER ENDED MARCH
31, YEAR ENDED DECEMBER 31,
-------------------- -----------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Service fees........................................ $ $ 66,935 $ 104,602 $ 85,025 $ 48,100 $ 26,733 $ 19,122
Premiums earned and other income.................... 117 4,309 701 2,203 524 --
Investment income................................... 562 2,255 2,163 1,397 587 323
--------- --------- --------- --------- --------- --------- ---------
Total Revenues.................................... 67,614 111,166 87,889 51,700 27,844 19,445
Expenses:
Agent commissions and other direct costs............ 46,629 71,082 52,612 30,475 20,203 14,065
Losses incurred and other expenses.................. 97 2,420 (2,013) 1,428 -- --
General and administrative expenses................. 8,579 33,699 28,886 11,526 5,765 4,882
Restructuring and non-core expenses................. -- 6,510 -- -- -- --
Legal matters....................................... -- 7,458 -- -- -- --
Interest expense.................................... 834 1,478 859 394 431 505
--------- --------- --------- --------- --------- --------- ---------
Total Expenses.................................... 56,139 122,647 80,344 43,823 26,399 19,452
Income (loss) before income taxes and minority
interest............................................ 11,475 (11,481) 7,545 7,877 1,445
Income taxes........................................ (4,503) 3,345 (2,943) (2,274) -- --
Minority interest................................... -- (67) (307) (279) -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss)................................. 6,972 (8,203) 4,295 5,324 1,445
Redeemable preferred stock dividend................... -- (239) -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income (loss) attributable to common stock.... $ $ 6,972 $ (8,442) $ 4,295 $ 5,324 $ 1,445 $
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro Forma Data (1):
Historic net income (loss).......................... $ $ -- $ -- $ -- $ 5,324 $ 1,445 $
Pro forma provision for income taxes................ -- -- -- (281) (542) 3
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income (loss)......................... $ $ -- $ -- $ -- $ 5,043 $ 903 $
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
Pro forma net income per common share............... $ $ -- $ -- $ -- $ .91 $ .22 $ --
Net income (loss) per common share.................... $ $ .84 $ (1.04) $ .51 $ -- $ -- $ --
Ratio of earnings to fixed charges.................... 14.76 -- (2) 9.79 -- -- --
Weighted average common shares outstanding............ 8,348 8,109 8,353 5,562 4,074 --
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
--------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 1996 1996 1995 1994 1993 1992
---------- --------- ----------- --------- --------- --------- ---------
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER COMMON SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Total assets................................... $ $ 319,299 $ 158,929 $ 153,465 $ 88,175 $ 35,230 $ 20,337
Long-term debt, excluding current
installments................................. 3,838 2,654 3,374 1,978 1,621 618
Redeemable preferred stock..................... 10,000(3) -- 10,000(3) -- -- 3,250 --
Stockholders' equity........................... 50,935 33,752 44,342 38,669 1,960 1,176
Book value per share........................... $ 6.25 $ 4.23 $ 5.43 $ 4.78 $ .55 $ .33
</TABLE>
- ------------------------------
(1) Reflects federal and state income taxes as if the Company's subsidiaries had
not been treated as S Corporations during periods prior to the Company's
initial public offering in June 1994.
(2) In 1996, earnings were inadequate to cover fixed charges by $11,818,303.
(3) Represents issuance of the Preferred Stock to Fireman's Fund in July 1996.
6
<PAGE>
THE SPECIAL MEETING
GENERAL
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of the Company for a Special Meeting of
Stockholders to be held on June , 1997 at 9:00 a.m. local time at the offices
of the Company, 10895 Lowell Avenue, Suite 300, Overland Park, Kansas, and at
any adjournments thereof. Shares represented by properly executed proxies
received by the Company will be voted at the Special Meeting or any adjournment
thereof in accordance with the terms of such proxies, unless such proxies are
revoked. See "--Proxies" below.
PROPOSAL TO BE CONSIDERED AT THE SPECIAL MEETING
At the Special Meeting, the stockholders of the Company will consider and
vote upon a proposal to approve and adopt the Merger Agreement. Pursuant to the
Merger Agreement, the Merger Subsidiary will merge with and into the Company,
the separate corporate existence of the Merger Subsidiary will cease, and the
Company will be the Surviving Corporation. At the Effective Time, each
outstanding share of the Common Stock (except Dissenting Shares) will be
converted into the right to receive $10.25 in cash, and holders of options to
acquire shares of the Common Stock of the Company will receive a cash
settlement, net of withholding taxes, equal to the excess, if any, of $10.25
over the exercise price of such options. Holders of Dissenting Shares will be
entitled to receive from the Surviving Corporation a cash payment in the amount
of the "fair value" of such shares, determined in the manner provided in Section
262 of the DGCL, but after the Effective Time such shares will not represent any
interest in the Surviving Corporation other than the right to receive such cash
payment. See "RIGHTS OF DISSENTING STOCKHOLDERS." A copy of the Merger Agreement
is attached as Exhibit A to this Proxy Statement.
In addition to approval and adoption of the Merger Agreement and the
transactions contemplated thereby, stockholders of the Company may be asked to
approve a proposal to adjourn the Special Meeting to permit further solicitation
of proxies in the event there are not sufficient votes at the time of the
Special Meeting to approve and adopt the Merger Agreement. It is not anticipated
that any other matters will be brought before the Special Meeting. However, if
other matters should come before the Special Meeting, it is intended that the
holders of proxies solicited hereby will vote thereon in their discretion,
unless such authority is withheld.
RECORD DATE; STOCKHOLDER APPROVAL
Only holders of record of the Common Stock and the Preferred Stock at the
close of business on [the record date, to be established pursuant to Section 15
of the Merger Agreement] are entitled to notice of and to vote at the Special
Meeting. On that date, there were [approximately 7,972,551] shares of Common
Stock outstanding, which were held of record by [approximately 110]
stockholders, and 10,000 shares of Preferred Stock outstanding, all of which are
held of record by Fireman's Fund. Each share of Common Stock entitles its holder
to one vote, and the holder of the Preferred Stock is entitled to a total of
754,717 votes, concerning all matters properly coming before the Special
Meeting. A majority of the combined voting power of the shares of the Common
Stock and the Preferred Stock entitled to vote, represented in person or by
proxy, will constitute a quorum. Abstentions and broker non-votes (I.E. shares
held by brokers in street name, voting on certain matters due to discretionary
authority or instructions from the beneficial owner but not voting on other
matters due to lack of authority to vote on such matters without instructions
from the beneficial owner) are counted for the purpose of establishing a quorum
and will have the same effect as a vote against the approval of the Merger. The
Merger must be approved by the holders of at least a majority of the combined
voting power of all outstanding shares of the Common Stock and the Preferred
Stock. Fireman's Fund, which has the right to acquire approximately 22.9% of the
issued and outstanding shares of the Common Stock and owns all of the issued and
outstanding shares of the Preferred Stock (together representing approximately
29.6% of the combined voting power of the Common Stock and the Preferred Stock),
has notified the Company that, to the extent it is permitted to do so under its
prior agreement with the Company, it intends to vote its shares of Common Stock
and Preferred Stock in favor
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of the Merger. See the discussion with respect to the "Consent Agreement" under
the caption "THE MERGER--FACTORS TO BE CONSIDERED--Relationship Between the
Company and Fireman's Fund--Transactions and Agreements." Because Fireman's Fund
is entitled to vote substantially less than 50.0% of the combined voting power
of all outstanding shares of Common Stock and Preferred Stock, approval of the
Merger is not assured as a result of the voting power held by Fireman's Fund.
PROXIES
Any Company stockholder entitled to vote at the Special Meeting may vote
either in person or by duly authorized proxy. All shares of the Common Stock and
the Preferred Stock represented by properly executed proxies received prior to
or at the Special Meeting and not revoked will be voted in accordance with the
instructions indicated in such proxies. IF NO INSTRUCTIONS ARE INDICATED, SUCH
PROXIES WILL BE VOTED FOR THE PROPOSAL TO APPROVE AND ADOPT THE MERGER AGREEMENT
AND, IN THE DISCRETION OF THE PERSONS NAMED IN THE PROXY, ON SUCH OTHER MATTERS
AS MAY PROPERLY BE PRESENTED AT THE SPECIAL MEETING.
A stockholder may revoke his or her proxy at any time prior to its use by
delivering to the Secretary of the Company a signed notice of revocation or a
later dated and signed proxy or by attending the Special Meeting and voting in
person. Attendance at the Special Meeting will not in itself constitute the
revocation of a proxy.
Expenses in connection with the solicitation of proxies will be paid by the
Company. Upon request, the Company will reimburse brokers, dealers and banks, or
their nominees, for reasonable expenses incurred in forwarding copies of the
proxy material to the beneficial owners of the Common Stock which such persons
hold of record. Solicitation of proxies will be made principally by mail and by
the Company's agent for such purposes, W.F. Doring & Company (the "Proxy
Solicitation Agent"). Proxies may also be solicited in person, or by telephone
or telegraph, by officers and regular employees of the Company.
THE MERGER--FACTORS TO BE CONSIDERED
BACKGROUND OF THE MERGER
HISTORY OF RELATIONSHIP BETWEEN THE COMPANY AND FIREMAN'S FUND. The Company
and Fireman's Fund first entered into a business and contractual relationship in
1995. Effective for the 1995 crop year (beginning July 1, 1994), the Company and
Fireman's Fund entered into agreements pursuant to which Fireman's Fund agreed
to write a portion of the federal multi-peril crop insurance ("MPCI") policies
serviced by the Company, and the Company agreed to provide the services and
administration relating to such policies. For a description of those agreements,
see "--Relationship Between the Company and Fireman's Fund--Intercompany
Business Relationship" below.
In April 1996, representatives of the Company and Fireman's Fund began
discussing the possibility of expanding their business relationship in a manner
such that Fireman's Fund would become the primary writer of the Company's crop
insurance business and would also make an investment in the Company. On July 10,
1996, the Company and Fireman's Fund entered into a stock purchase agreement
(the "Preferred Stock Purchase Agreement") pursuant to which Fireman's Fund
purchased, for $10 million in cash, 10,000 shares of the Company's Preferred
Stock. The Preferred Stock is convertible into 754,717 shares of the Company's
Common Stock (at the time of purchase and assuming conversion, approximately
8.6%). Under the terms of the Preferred Stock Purchase Agreement, Fireman's Fund
has the right to select one nominee for election to the Company's Board of
Directors. Fireman's Fund selected John M. Meuschke, Fireman's Fund's Senior
Vice President in charge of its Central States Region, as its representative on
the Board of Directors.
At the same time, the Company and Fireman's Fund entered or agreed to enter
into new agreements relating to MPCI, crop hail insurance and farm and ranch
insurance under which Fireman's Fund obtained the right to underwrite
substantially all of such insurance originated by the Company other than the
portion underwritten by the Company's subsidiaries. Also as a part of this
transaction, and in connection
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with discussions among the Company, Fireman's Fund and the Federal Crop
Insurance Corporation (the federal agency that administers the MPCI program, the
"FCIC") related to the Company's indictment in an action brought by the
Independent Counsel investigating the affairs of former Secretary of
Agriculture, Mike Espy (see "MANAGEMENT OF THE COMPANY, FIREMAN'S FUND AND THE
MERGER SUBSIDIARY--Certain Proceedings"), Fireman's Fund assumed the Company's
standard reinsurance agreement with the FCIC that had previously been held by
one of the Company's insurance company subsidiaries, and agreed to service the
Company's MPCI business in the event the Company was unable to participate in
the MPCI program.
For a description of the agreements discussed above, see "--Relationship
Between the Company and Fireman's Fund--Intercompany Business Relationship" and
"--Transactions and Agreements" below.
FINANCIAL ADVISOR. In January 1996, the Company engaged Dean Witter to act
as its exclusive financial advisor in connection with the Company's review of
strategic and financial planning matters, including a possible merger or sale of
the Company. Dean Witter was the Company's financial advisor in connection with
the expansion of its business relationship with Fireman's Fund in July 1996 and
the related investment in the Company by Fireman's Fund. From time to time,
representatives of Dean Witter have had discussions with senior management of
the Company and the Company's Board of Directors concerning the Company's
potential strategic alternatives. Such discussions have been general in nature
and did not result in any formal actions by the Company's Board of Directors,
except as described below.
DISCUSSIONS WITH THIRD PARTY. In October 1996, the Company was approached
by a third party ("Party X") involved in the crop insurance industry, which
indicated a desire to hold discussions with Company management relating to
possible strategic transactions involving the Company and Party X. The initial
discussions that ensued were general in nature and related principally to
general economic and other issues facing the crop insurance industry. The
Company continued general discussions with Party X intermittently until February
1997 to determine whether a transaction would be possible. The parties did not
exchange confidential information.
CONTACTS AND NEGOTIATIONS WITH FIREMAN'S FUND. On January 20, 1997, a
representative of Dean Witter contacted Mr. Meuschke, Fireman's Fund's
representative on the Company's Board of Directors, to determine whether
Fireman's Fund had an interest in expanding its relationship with the Company,
particularly in light of the Company's recent discussions with Party X. Mr.
Meuschke indicated that Fireman's Fund's principal interest was to protect its
investment in and contracts with the Company. Lawrence T. Martinez, the Chief
Executive Officer of the Company, and Mr. Meuschke had a telephone conference
the same day, in which Mr. Meuschke gave Mr. Martinez similar information.
On January 21, 1997, the Company settled the charges brought against it by
the Independent Counsel investigating the affairs of former Secretary of
Agriculture, Mike Espy. Management of the Company believed that the case had
created a significant impediment to any strategic transaction involving the
Company. See "MANAGEMENT OF THE COMPANY, FIREMAN'S FUND AND THE MERGER
SUBSIDIARY--Certain Proceedings."
On January 27, 1997, Paul T. Horn, the Chairman of the Board of the Company,
spoke to Carl Lindner, the Chairman of the Board of American Financial Group,
who had called Mr. Horn to inquire whether Mr. Horn knew whether John Hemmingson
or Gary Black, former executives of the Company, or Kramer Spellman LP, an
institutional stockholder, might be interested in selling their Company stock.
American Financial Group's subsidiary, Great American Insurance Company ("Great
American"), serviced approximately $75 million of MPCI premiums in the 1996 crop
year. At that time, Mr. Hemmingson, Mr. Black and Kramer Spellman LP owned
approximately 15%, 9% and 10%, respectively, of the outstanding Common Stock of
the Company.
On January 29, 1997, at a meeting of the Company's Board of Directors that
was also attended by a representative of Dean Witter, the members of the Board
discussed recent events, including those described above and certain other
discussions that had occurred between representatives of the Company and Party
X. In response to a question, Mr. Meuschke informed the Board that Fireman's
Fund would be
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interested in exploring its options regarding an expanded relationship with the
Company if the Board decided to explore more aggressively the possibility of
entering into a strategic transaction.
On February 4 and 5, 1997, Mr. Martinez and Mr. Meuschke discussed,
generally, the possibility of a transaction involving the Company, Fireman's
Fund's and Party X. They also discussed, generally, the possibility of Fireman's
Fund deciding to expand its relationship with the Company.
On February 15, 1997, Mr. Meuschke telephoned Mr. Martinez to inform him
that Fireman's Fund had received notice from Mr. Hemmingson, pursuant to
Fireman's Fund's right of first refusal agreement with him, offering his
1,145,703 shares of stock to Fireman's Fund and informing Fireman's Fund that he
had an agreement to sell his stock to Great American for $10 per share. The
notice indicated that Mr. Black also had an agreement to sell his 681,774 shares
of stock to Great American. Mr. Meuschke stated that Fireman's Fund was
analyzing the issues presented by the proposed sales. The right of first refusal
agreements provided that Fireman's Fund had 20 days to respond if it wished to
exercise its rights to purchase the offered stock. For a description of the
right of refusal agreements, see "--Relationship between the Company and
Fireman's Fund--Transactions and Agreements" below. Mr. Lindner telephoned Mr.
Horn the same day to inform him of Great American's agreements to purchase all
of the stock of the Company owned by Messrs. Hemmingson and Black (the
"Hemmingson and Black Stock").
On February 17, 1997, Mr. Martinez telephoned Mr. Meuschke to inform him
that the Company would be issuing a press release the next day regarding
Hemmingson's and Black's agreements to sell their stock to Great American and
Fireman's Fund's right of first refusal with respect to the Hemmingson and Black
Stock.
On February 19 and 20, 1997, Mr. Martinez and David E. Hill, the Company's
Chief Financial Officer, had telephone conferences with Jeff Post, the Chief
Financial Officer of Fireman's Fund, Harold Marsh, the Treasurer of Fireman's
Fund, and Bruce Friedberg, the Chief Financial Officer of Fireman's Fund's
Commercial Insurance Division, to discuss Hemmingson's and Black's agreements
with Great American and related issues. Fireman's Fund indicated that it was
interested in purchasing Hemmingson's and, perhaps, Black's stock. Fireman's
Fund asked if the Company would waive the 20% standstill provision in the
Preferred Stock Purchase Agreement, if necessary, so that Fireman's Fund would
be in a position to purchase the Hemmingson and Black Stock. For a description
of the standstill provision, see "--Relationship Between the Company and
Fireman's Fund--Transactions and Agreements" below. Mr. Martinez indicated that
the Company was evaluating the standstill issues.
On February 22, 1997, the Company's Board of Directors held a meeting to
discuss these recent developments. Mr. Meuschke participated in the first
portion of the meeting, in which there were discussions of Fireman's Fund's
rights of first refusal, the proposed standstill waiver and Fireman's Fund's
intentions with respect to exercising its rights of refusal. Mr. Meuschke said
Fireman's Fund was inclined to purchase all of the Hemmingson and Black Stock.
Mr. Meuschke then withdrew from the meeting, and the members of the Board held
lengthy discussions, with the Board's financial advisor and legal counsel
present.
At the time of the February 22 meeting, the Board believed that it was
important to know Fireman's Fund's longer term intentions before it made a
decision to waive the standstill provision, and the Board did not want to
preclude Fireman's Fund, its primary business partner, from considering a
transaction with the Company. The Board also considered, among other things, the
impact on the Company of another party, particularly a competitor, obtaining an
approximately 23% interest in the Company, as well as the facts that (a) the
Company did not know Great American's intentions toward the Company, (b) refusal
to accommodate Fireman's Fund's purchase of the Hemmingson and Black Stock could
harm its relationship with Fireman's Fund, and (c) Great American's purchase of
the Hemmingson and Black Stock would likely result in uncertainty in the crop
insurance marketplace and could be harmful to the Company's business.
At the February 22 meeting, the Board took action authorizing Mr. Martinez
to inform Fireman's Fund that the Company would waive the standstill agreement
(subject to certain restrictions regarding Fireman's Fund's voting of its
Company stock) to accommodate Fireman's Fund's purchase of the
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Hemmingson and Black Stock, if Fireman's Fund would agree: (a) to consider
making a proposal for the acquisition of the Company within one week (i) at a
price above the $10 per share price offered by Great American for the Hemmingson
and Black Stock, and (ii) with the understanding that management of the Company
would have the right to seek out other parties who might be interested in a
similar transaction involving the Company and to terminate the acquisition
agreement with Fireman's Fund if a superior offer was obtained and a break-up
fee was paid to Fireman's Fund; and (b) to provide an interim working capital
facility to the Company, if needed. The Board's proposal was immediately
communicated by Mr. Martinez and a representative of Dean Witter to Mr.
Meuschke. Members of the Board, with Mr. Meuschke, representatives of Dean
Witter and the Company's legal counsel present, had a telephone conference with
Messrs. Post, Marsh and Friedberg and with Paul Saffert, the Chief Financial
Officer of Allianz of America Corporation ("Allianz"), a wholly-owned subsidiary
of AZOA, the parent company of Fireman's Fund, to discuss the Board's proposal.
Fireman's Fund agreed to consider the proposal.
On February 23, 1997, a representative of Dean Witter had a telephone
conference with Mr. Meuschke and a representative of Party X to discuss whether
it made sense for Fireman's Fund and Party X to structure a possible transaction
among the three companies, because Fireman's Fund had previously indicated to
the Company that it was not interested in owning all of the Company.
On February 24, 1997, Mr. Martinez spoke with Mr. Meuschke to determine
whether a meeting among Fireman's Fund, the Company and Party X was to take
place and to discuss the possibility of a transaction which could result in a
combination of the Company's and Party X's crop insurance books of business.
On February 25, 1997, Mr. Martinez met with Mr. Meuschke and Keith F. Curry,
the underwriting executive in charge of Fireman's Fund's Agricultural Unit, and
discussed recent events, including the Great American agreements with Hemmingson
and Black and Fireman's Fund's intention with respect to the exercise of its
rights of first refusal.
On February 26, 1997, Mr. Martinez attended a meeting involving Messrs.
Post, Marsh, Friedberg, Meuschke, Curry, Greg Wacker, the Vice President and
Actuary of Fireman's Fund, Mr. Saffert, Manfred Hoffman of Allianz, and
representatives of Party X. The parties discussed the possible role of Fireman's
Fund if Party X were to acquire or enter into a strategic transaction with the
Company.
On February 26, 1997, Mr. Martinez talked to Mr. Post about matters relating
to Fireman's Fund's request that the Company waive the standstill provision and
a possible meeting on March 3, 1997 between the Company and Fireman's Fund to
discuss a proposed transaction. Mr. Post indicated that Fireman's Fund would be
prepared on March 3 to address the Company's concerns that any Fireman's Fund
proposal provide all Company stockholders with an opportunity to sell their
shares. On February 27, 1997, Mr. Martinez had additional discussions with Mr.
Post regarding the same matters and to confirm the March 3 meeting date.
On March 1, a representative of Dean Witter had a conversation with a
representative of Party X to determine if Party X was willing to make a proposal
for consideration by the Board of Directors. A possible acquisition structure
was discussed by Party X, but no formal proposal was made. Dean Witter discussed
the possible structure on the telephone with several Board members on March 1
and with the Board as a group at the meeting on March 3. Relative to the
proposal discussed with Fireman's Fund on March 2, the members of the Board
concluded that Fireman's Fund proposal offered significantly more value than the
structure being discussed by Party X and consequently did not pursue discussions
with Party X.
On March 1, 1997, Mr. Martinez talked with Mr. Marsh to confirm the Board's
planned March 3 meeting. Mr. Marsh indicated that Fireman's Fund's had had
continuing discussions with Party X regarding a possible Fireman's Fund role in
the context of a transaction between the Company and Party X, but that
additional discussions would be necessary.
On March 2, 1997, Mr. Martinez met with Mr. Post, who indicated that
Fireman's Fund was preparing to exercise its rights of first refusal with
respect to the Hemmingson and Black Stock, to make an offer to
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acquire all remaining shares of the Company for $10 per share, and to agree to
provide a working capital line of credit (as necessary) for the Company. Mr.
Post indicated that Fireman's Fund would request that the Company waive the
standstill provision to permit Fireman's Fund to exercise its rights of first
refusal. Mr. Martinez and Mr. Post also discussed in general terms certain
business and operational issues involving the companies.
On March 3, 1997, the Company's Board of Directors held a meeting in
preparation for the scheduled meeting with representatives of Fireman's Fund.
During the day, Mr. Horn, Tom Vertin, Vice Chairman of the Company's Board of
Directors, Mr. Martinez, Mr. Hill and representatives of Dean Witter and the
Company's legal counsel had numerous discussions and negotiations with Messrs.
Post, Marsh, Friedberg, and Meuschke and Fireman's Fund's legal counsel
regarding Fireman's Fund's proposal as presented the previous day to Mr.
Martinez. The proposal also included (a) a no-solicitation provision, (b) a
break-up fee of 3% of the transaction value, plus an overbid option to acquire
19.9% of the Company's Common Stock, and (c) a waiver of the standstill
provision and a related voting restriction with respect to equity securities of
the Company owned by Fireman's Fund that represented more than 25% of the
combined voting power of all equity securities of the Company. Fireman's Fund
provided drafts of acquisition documents to the Company at that time. The Board,
Dean Witter and the Company's legal counsel reviewed the documents. The Company
negotiated throughout the day for a price higher than $10 and to eliminate or
change various provisions of the draft acquisition documents.
By the end of the day on March 3, the Company and Fireman's Fund had reached
agreement in principle on the acquisition of the Company by Fireman's Fund in
the form of a cash merger at $10.25 per share. The Company negotiated for and
obtained the opportunity to affirmatively solicit alternative proposals until
March 28, 1997 from a group of seven companies (some of the larger crop
companies in the United States and several companies with which the Company had
had contacts over the previous few years) whom the Company and Dean Witter
believed were possible purchasers of or partners for the Company, and to have
the right to terminate any agreement in the event the Company obtained a
superior offer. Although the Board and its financial advisor believed that it
was unlikely that a third party would be willing to offer a higher price, the
Board wanted the ability to contact those companies to ensure that the offer by
Fireman's Fund was the best opportunity available to the Company at that time.
In addition, the Company obtained a provision allowing the Company to terminate
any such agreement under certain conditions in the event the Board received an
unsolicited offer that it believed it had to consider. Upon termination of the
agreement, the Company was obligated to pay a breakup fee of $2.4 million plus
Fireman's Fund's out-of-pocket costs (including outside legal fees) and internal
legal costs. The Company also consented to Fireman's Fund's purchase of the
Hemmingson and Black Stock, waiving the 20% standstill provision with respect to
those purchases set forth in its prior agreement with the Company and consenting
to such purchases under Section 203 of the DGCL. See the discussions with
respect to the "Consent Agreement" and the "Preferred Stock Purchase Agreement"
under the caption "THE MERGER--FACTORS TO BE CONSIDERED--Relationship between
the Company and Fireman's Fund--Transactions and Agreements."
On March 4, 1997, Messrs. Martinez, Hill and Marsh, together with legal
counsel for the parties, negotiated the remainder of the terms of the definitive
acquisition documents. The negotiations primarily involved wording of the
provisions relating to the circumstances under which any agreement could be
terminated and other provisions negotiated in principle on the previous day.
On March 5, 1997, the Board of Directors held a meeting to consider and
approve the Merger and the definitive acquisition documents (together, the
"Acquisition Agreements"). Dean Witter delivered its written opinion to the
Board that the cash consideration to be paid in connection with the Merger was
fair, from a financial point of view, to the stockholders of the Company
(excluding Fireman's Fund and its affiliates). The Board took action to approve
the Merger and the Acquisition Agreements. The Acquisition Agreements were
executed and delivered by the Company and Fireman's Fund at the end of the day.
Following the March 5 meeting, at the request of the Board, Dean Witter
began to contact a limited group of potential purchasers or partners to
ascertain their interest in a strategic transaction with the
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Company. None of the contacts or discussions during the ensuing several weeks
between Dean Witter and those or other potential purchasers or partners resulted
in an acquisition proposal.
During the course of its negotiations with the Company and following
execution of the Acquisition Agreements, Fireman's Fund has had preliminary
contacts with other parties concerning a potential investment in the business of
the Company following the Merger. Such preliminary contacts did not result in
any agreement to pursue any such investment.
PURPOSE AND STRUCTURE OF THE MERGER
The purpose for the Merger is to enable Fireman's Fund to acquire the entire
equity interest in the Company. The transaction has been structured as a cash
merger in order to provide the stockholders of the Company with cash for all
their shares and to provide a prompt and orderly transfer of ownership of the
Company from the stockholders of the Company to Fireman's Fund.
The primary benefit of the Merger to the Company's stockholders is the
opportunity to sell all of their Common Stock at a price which represents a
substantial premium over trading prices in effect immediately prior to the
announcement of Messrs. Hemmingson's and Black's agreements to sell their stock
to Great American for $10 per share and the announcement of the Merger. The
structure of the transaction as a cash merger provides a cash payment at a
premium price to all holders of outstanding Common Stock (except for Messrs.
Hemmingson and Black, who have separate agreements to sell their stock to
Fireman's Fund) and ensures the acquisition by Fireman's Fund of all the
outstanding shares of the Company.
The primary reason for the Company entering into the Merger Agreement is the
Board of Directors' belief that it would be difficult for the Company to
significantly enhance operating performance and maximize stockholder value on a
stand-alone basis in the immediate future. The Board of Directors believes,
based upon the factors discussed below under "--Recommendation of the Company's
Board of Directors" that an internal restructuring of the Company's operations
in order to enhance its growth and profitability would not yield as favorable a
result to the Company's stockholders in the foreseeable future as the Merger
with Fireman's Fund. Consequently, the Board of Directors believes that the
Merger is the best available opportunity to maximize stockholder value at the
present time. The $10.25 per share price to be received by the stockholders
represents a premium of approximately 29% over the reported average closing
price of the Common Stock during the 30-day period prior to the announcement of
the Merger, and 41%, over the reported average closing price of the Common Stock
during the 30-day period prior to announcement that Messrs. Hemmingson and Black
had agreements to sell their stock to Great American for $10 per share.
RECOMMENDATION OF THE COMPANY'S BOARD OF DIRECTORS
On March 5, 1997, the Company's Board of Directors, by unanimous vote (with
the exception of Mr. Meuschke, Fireman's Fund's designee, who did not
participate in the deliberations or the vote) at a special board meeting held on
that date, determined that the transactions contemplated by the Merger are fair
from a financial point of view to and in the best interests of the stockholders
of the Company (other than Fireman's Fund), approved the Acquisition Agreements
and resolved to recommend that the Company's stockholders approve the
Acquisition Agreements and all related implementing agreements, including the
Merger Agreement.
In arriving at its recommendation and determination that the Merger is fair
to and in the best interests of stockholders of the Company (excluding Fireman's
Fund and its affiliates), the Board carefully considered the terms of the Merger
at its meetings held on March 3, 1997 and March 5, 1997. As part of this
process, the Board considered the advice and assistance of its outside financial
and legal advisors regarding fairness to the stockholders of the Company of the
terms of the Acquisition Agreements and all related agreements and management's
advice regarding business reasons that favored approval of the Merger.
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In determining to approve and adopt the Acquisition Agreements and related
implementing agreements, and in determining the fairness of the terms of the
Merger, the Board of Directors considered the following factors, each of which,
in the Board of Directors' view, supported the determination to recommend the
Merger:
(i) information with regard to the financial condition, results of
operation, liquidity, business and prospects of the Company, as well as
the risks involved in achieving those prospects, current market,
regulatory and economic conditions (including current conditions in the
crop insurance industry), the going concern value of the Company (as
reflected in part by its historical and projected operating results) and
the liquidation value of the Company, including, in particular,
disappointing financial results in 1996 caused in part by significant
expenses for restructuring and non-core expenses and for legal matters,
the expected decline in the Company's premium base in 1997, continuing
reductions in the amount the Company receives from the government for
servicing MPCI business, recently proposed changes to the MPCI program,
the lingering impact of the Independent Counsel matter, and uncertainty
as to revenue growth and operating performance from its agency
operations for the foreseeable future;
(ii) the historical market prices of and recent trading activity in the
Company's Common Stock, particularly the fact that the Merger will
enable the stockholders of the Company to realize a significant premium
over the prices at which the Common Stock traded prior to the Company's
public announcement that Messrs. Hemmingson and Black had entered into
agreements to sell their stock to Great American for $10 per share and
prior to the announcement of the Merger;
(iii) the written opinion of Dean Witter that the cash consideration to be
paid in the Merger is fair, from a financial point of view, to the
stockholders of the Company (excluding Fireman's Fund and its
affiliates);
(iv) the terms and conditions of the Acquisition Agreements, including the
special, limited shop provision and the fiduciary out provision
negotiated by the Company, which allowed the Company to seek additional
offers by contacting certain parties until March 28, 1997, and to
consider unsolicited offers thereafter; the fact that the Company may
terminate the Acquisition Agreements in certain circumstances; the
circumstances under which the breakup fee is payable; the restriction
of Fireman's Fund's voting or tendering of certain Company stock in
certain circumstances; and the relatively few substantive closing
conditions;
(v) the Company's positive working relationship with Fireman's Fund, and
Fireman's Fund's reputation in the insurance industry;
(vi) the likely positive effect of the Merger on stabilizing the Company's
premium base, agent network, key employees important to the premium
base and agent network and the relatively low level of expected
disruption to the Company's business prior to closing the Merger;
(vii) the likely decrease in the market price of the Company's Common Stock
if the Company was not sold, taking into account the likelihood of
downward pressure on the market price as a result of factors discussed
in subparagraph (i) above and the announcement, the day after the
announcement of the proposed Merger, of a significant reduction of the
Company's earnings estimates by an analyst, and advice from Dean Witter
that, based on financial projections furnished to Dean Witter by the
Company, it was unlikely that the price of the Common Stock would reach
$10.25 per share in the near future; and
(viii) the likelihood that the Merger would be viewed favorably by most of the
Company's stockholders.
In view of the wide variety of factors considered in connection with its
evaluation of the terms of the Merger, the Company's Board of Directors did not
find it practicable to, and did not, quantify or otherwise attempt to assign
relative weights to the specific factors considered in reaching its conclusions.
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If the Merger is not approved by the Company's stockholders and the Merger
does not occur, the Company will continue its current operations as an
independent company. However, for the reasons discussed above, it is possible
that the Company would seek a business combination with another company.
OPINION OF FINANCIAL ADVISOR
As described under "THE MERGER--FACTORS TO BE CONSIDERED--Background of the
Merger--Financial Advisor" above, the Company engaged Dean Witter to act as its
exclusive financial advisor in connection with the Company's review of strategic
and financial planning matters including the possible merger or sale of the
Company. In connection with the transaction discussed herein and pursuant to the
terms of the engagement, the Company requested that Dean Witter evaluate the
fairness to the holders of the Company's Common Stock other than Fireman's Fund
and its affiliates (the "Public Stockholders") from a financial point of view,
of the consideration to be received by the Public Stockholders in connection
with the Merger. It is contemplated that prior to the consummation of the
Merger, a subsidiary of Fireman's Fund will purchase all of the Common Stock now
owned by Messrs: Hemmingson and Black, so that Hemmingson and Black will not be
Public Stockholders. On March 5, 1997, Dean Witter delivered to the Board of
Directors its opinion to the effect that, as of such date and based upon and
subject to certain matters described to the Board of Directors, the
consideration to be received by the Public Stockholders is fair from a financial
point of view (the "Dean Witter Opinion"). The Dean Witter Opinion is directed
to the Board of Directors of the Company and does not constitute a
recommendation to any stockholder of the Company as to how such stockholder
should vote with respect to the Merger at the Special Meeting.
A copy of the Dean Witter Opinion, which sets forth the assumptions made and
matters considered in, and limits on the review undertaken, is attached to this
Proxy Statement as Exhibit B and should be read by stockholders carefully in its
entirety.
In connection with its opinion, Dean Witter, among other things, (i)
reviewed the Acquisition Agreement dated March 5, 1997 between the Company and
Fireman's Fund (the "March 5 Agreement"); (ii) reviewed the Annual Reports on
Form 10-K and related publicly available financial information of the Company
for the two most recent fiscal years ended December 31, 1994 and 1995, the
Quarterly Reports on Form 10-Q of the Company for the periods ended March 31,
1996, June 30, 1996 and September 30, 1996, and the Company's definitive Proxy
Statement dated May 8, 1996; (iii) reviewed the Right of First Refusal
Agreements between Fireman's Fund and Messrs. Hemmingson and Black (the
"Hemmingson and Black Transactions"); (iv) reviewed the Chief Financial
Officer's financial model of the income statement, balance sheet and cash flow
statement of the Company for the quarter ended December 31, 1996 and for
calendar years 1997 through 2006 created for the purpose of evaluating various
financial alternatives (the "Model"); (v) conducted discussions with members of
senior management of the Company concerning the past and current business,
operations, assets, present financial condition and future prospects of the
Company; (vi) reviewed the historical reported market prices and trading
activity for the Company's Common Stock; (vii) compared certain financial
information and operating statistics relating to the Company with published
financial information and operating statistics relating to selected public
companies that Dean Witter deemed to be most comparable to the Company; (viii)
compared the amount per share of the cash consideration proposed to be paid to
the holders of the Company's Common Stock upon approval of the Merger with the
financial terms, to the extent publicly available, of selected other recent
acquisitions that Dean Witter deemed to be relevant; (ix) reviewed certain other
information, including publicly available information relating to the business,
earnings, cash flow, assets and prospects of the Company; and (x) reviewed such
other financial studies and analyses and performed such other investigations and
took into account such other matters as Dean Witter deemed necessary.
Dean Witter relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by it for
purposes of rendering its opinion. Dean Witter also relied upon the management
of the Company as to the reasonableness and achievability of the Model (and the
assumptions and bases therefor) provided to Dean Witter and assumed for purposes
of such opinion that the Model was reasonably prepared on bases reflecting the
performance of the Company. Dean Witter
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was not requested to make, and did not make, an independent appraisal or
evaluation of the assets, properties, facilities or liabilities of the Company
and Dean Witter was not furnished with any such appraisal or evaluation. Dean
Witter was not directed to, and did not, solicit any third party indications of
interest in acquiring all or any part of the Company before delivering its
opinion, however, Dean Witter noted the provision of the March 5 Agreement which
gave the Company the ability to solicit indications of interest from a limited
group of other participants in the crop insurance and related industries from
the date of the signing of the March 5 Agreement until March 28, 1997 to
determine what, if any, interest certain parties would have in an acquisition of
the Company. Dean Witter also noted the "window shop" provision of the March 5
Agreement also gives the Company the right to consider certain unsolicited
offers before or after March 28, 1997. Dean Witter's opinion to the Company's
Board of Directors was based upon prevailing market conditions (including, then
current market prices for the Company's Common Stock) and other circumstances
and conditions existing on the date of such opinion and does not represent Dean
Witter's opinion as to what the actual value of the Company's Common Stock will
be after the date of such opinion. It is not contemplated that Dean Witter will
give any subsequent opinion with respect to the Merger.
The following is a brief summary of certain financial analyses performed by
Dean Witter in connection with its opinion dated March 5, 1997, which it
presented to the Company's Board of Directors at the Board meeting held on that
date or at previous meetings.
STOCK TRADING HISTORY. Dean Witter examined the history of the trading
prices and volume for the Company's Common Stock and the relationship between
movements in the prices of the Common Stock and certain events surrounding the
Company. For the 52-week period ending March 3, 1997, the Company's highest
trading price was $11.75 and its lowest trading price was $5.875. The Company's
average closing bid and asked prices for the 30 days ending February 14, 1997,
the trading date immediately prior to the public announcement of the Hemmingson
and Black Transactions (the "Hemmingson/Black Announcement"), was $7.24. The
last sale price on March 3, 1997 was $8.25.
ANALYST REPORTS. Dean Witter reviewed publicly available research reports
from ABN Amro Chicago Corporation ("ABN") relating to the Company's Common Stock
and noted that the earnings projections were lowered from $0.70 and $1.10 to
$0.39 and $0.14, respectively, for 1996 and 1997, on February 19, 1997, one day
after the Hemmingson/Black Announcement.
ANALYSIS OF CERTAIN OTHER PUBLICLY TRADED COMPANIES. Using publicly
available information, Dean Witter compared selected historical share prices,
earnings and operating and financial ratios for the Company to the corresponding
data and ratios of selected crop insurance participants, insurance brokers and
excess and surplus lines insurance companies. Such data and ratios included
equity market value on March 3, 1997 to announced and projected operating
earnings (based upon First Call earnings estimates for 1996, 1997 and 1998) and
to book value (adjusted to eliminate the effects of FASB 115 adjustments, which
require insurance companies to mark-to-market the bonds that are held as
available-for-sale in their portfolios, thus impacting stockholders' equity), as
well as dividend yield, price performance over the 30 and 60 days immediately
prior to March 3, 1997, the 52 week high and low trading prices, and the March 3
closing price relative to the 52 week trading range. For the Company, Dean
Witter compared both First Call earnings estimates and the projected operating
earnings data from the Model.
In performing its analyses, Dean Witter concluded that there were no
publicly traded companies which it considered directly comparable to the
Company. Dean Witter did, however, select two other crop insurance participants
(Acceptance Insurance Companies and Symons International, collectively the "Crop
Insurance Companies"), six insurance brokers (Acordia, Inc., E.W. Blanch
Holdings, A.J. Gallagher, Hilb, Rogal & Hamilton, Marsh & McLennan and Poe &
Brown, collectively the "Insurance Brokers") and nine excess and surplus lines
insurance companies (Acceptance Insurance Companies, W.R. Berkley Corp., Capsure
Holdings, Exel Ltd., Gainsco, Inc., HCC Insurance Holdings, Markel Corp.,
NYMAGIC, Inc., and RLI Corp., collectively the "E&S Companies") as to which Dean
Witter analyzed certain data. Although Dean Witter analyzed this data, due to
the differences between these companies and the Company, Dean Witter concluded
that the comparisons were of limited relevance.
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Dean Witter again noted that ABN adjusted its 1996 and 1997 earnings
forecast for the Company from $0.70 and $1.10 per share of Common Stock to $0.39
and $0.14, respectively, on February 19, 1997, one day after the
Hemmingson/Black Announcement. Dean Witter noted that the earnings multiples at
which the Crop Insurance Companies, the Insurance Brokers and the E&S Companies
traded were much lower than the Company's, and that Dean Witter believed this
difference was due in large part to the Hemmingson/Black Announcement. When Dean
Witter compared the Company to the other Crop Insurance Companies, the Insurance
Brokers and the E&S Companies, an analysis of market value to 1996 projected or
announced operating earnings yielded a range of 8.7x to 11.1x, 11.7x to 18.6x
and 9.9x to 19.4x and an adjusted average (excluding the high and the low of
each range, except for the Crop Insurance Companies) of 9.9x, 15.2x and 13.5x,
respectively, as compared to 21.7x ABN estimates for the Company and 68.8x
estimate of the Model (based on a share price of $8.25); market value to 1997
projected operating earnings yielded a range of 8.0x to 9.4x, 11.3x to 16.6x and
9.4x to 17.0x and an adjusted average (except for the Crop Insurance Companies)
of 8.7x, 13.4x and 12.3x, respectively, as compared to 58.9x ABN estimates for
the Company and 16.8x estimate of the Model (based on a share price of $8.25);
market value to 1998 projected operating earnings yielded a range of 10.1x to
14.7x and 8.6x to 13.3x and an adjusted average of 12.4x and 11.3x for the
Insurance Brokers and the E&S Companies (1998 earnings estimates were not
available for the Crop Insurance Companies), respectively, as compared to 21.2x
estimate of the Model (based on a share price of $8.25, no 1998 analyst earnings
projections were available). An analysis of market value to book value adjusted
to eliminate the effects of FASB 115 adjustments yielded a range of 1.6x to
2.8x, 2.0x to 5.4x and 1.2x to 3.6x and an adjusted average (except for the Crop
Insurance Companies) of 2.2x, 3.8x and 1.7x, respectively, as compared to 1.5x
for the Company (based on a share price of $8.25). An analysis of dividend yield
produced a range of 0.0% to 0.0%, 1.7% to 4.7% and 0.0% to 2.2% and an adjusted
average (except for the Crop Insurance Companies) of 0.0%, 2.9% and 0.8%,
respectively, as compared to 0.0% for the Company (based on a share price of
$8.25). An analysis of price performance over the 30 days immediately prior to
March 3, 1997 yielded a range of -3.7% to 9.7%, -0.9% to 15.0% and -17.2% to
15.0% and an adjusted average (except for the Crop Insurance Companies) of 3.0%,
7.0% and 8.4%, respectively, as compared to 24.5% for the Company (based on a
share price of $8.25). An analysis of price performance over the past 60 days
immediately prior to March 3, 1997 yielded a range of 0.0% to 3.7%, -0.9% to
21.1% and -10.5% to 27.8% and an adjusted average (except for the Crop Insurance
Companies) of 1.8%, 4.6% and 6.7%, respectively, as compared to 32.0% for the
Company (based on a share price of $8.25). An analysis of the March 3 closing
price relative to the 52 week trading range yielded a range of 59.5% to 85.1%,
17.3% to 94.7% and 16.7% to 100.0% and an adjusted average (except for the Crop
Insurance Companies) of 72.3%, 73.0% and 73.4%, respectively, as compared to
40.4% for the Company (based on a share price of $8.25).
TRANSACTION ANALYSIS. Dean Witter reviewed publicly available information
on certain acquisitions of crop insurers, as well as certain pending or
withdrawn acquisition transactions and completed acquisition transactions
involving companies in the property and casualty and brokerage markets. In
performing its analysis, Dean Witter concluded that there were no transactions
for which financial information was available which are directly comparable to
the Merger and that, given the differences between the Company and the companies
pending to be acquired and acquired in other transactions, these comparisons
were of limited relevance.
The completed acquisitions of crop insurers which Dean Witter reviewed were
the acquisitions of Dawson Hail Insurance Co. by the Company and Redland Group
Inc. by Acceptance Insurance Companies (collectively the "Crop Insurance
Transactions). Dean Witter calculated multiples for each of the Crop Insurance
Transactions based on the ratio of the offer price to such acquired company's
respective statutory net income in the year prior to and the year of the
transaction, direct premiums written, and policyholders' surplus for the year
ending before the transaction. With respect to the multiple of the offer price
to statutory net income in the year prior to the transaction, the multiple was
8.9x compared to 27.0x for the Company (based upon a $10.25 value per share).
The multiple of the offer price to statutory net income in the year of the
transaction was 4.1x compared to 73.2x for the Company (based upon a $10.25
value per share). The average multiple of the offer price to direct written
premiums in the year prior to the transaction was 0.3x and ranged from 0.2x to
0.3x compared to 0.3x for the Company (based upon a $10.25
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value per share). The average multiple of the offer price to policyholders'
surplus at year-end prior to the transaction was 1.4x and ranged from 1.4x to
1.4x compared to 2.4x for the Company (based upon a $10.25 value per share and
the Model's estimated book value per share). The multiple of the consideration
offered for Redland Group Inc.'s common stock to Redland Group Inc.'s statutory
net income in both the year prior to and the year of its acquisition is not
meaningful as Redland Group Inc. incurred losses in both years.
The pending and withdrawn transactions which Dean Witter reviewed were the
acquisitions of Avemco Corp. by HCC Insurance Holdings Inc.; Alexander &
Alexander Services by Aon Corp.; Pac Rim Holding Corp. by Superior National
Insurance Group; Financial Institutions Insurance Group by John Dore (company
president) and Castle Harlan; and Midland Financial Group, Inc. by Danielson
Holding Corp. (collectively the "Pending or Withdrawn Transactions"). Dean
Witter calculated multiples for each of the Pending or Withdrawn Transactions
based on the ratio of the offer price to such acquired company's respective
consensus earnings estimates for the current year and the following year, as
well as to the market value of such acquired company one day, one week, four
weeks, six months and one year prior to the transaction's announcement date.
With respect to the multiple of the offer price to consensus earnings estimates
for the current year, the adjusted mean was 17.1x and ranged from 9.0x to 23.3x
compared to 27.0x for the Company (based upon a $10.25 value per share). The
average multiple of the offer price to consensus earnings estimates for the
following year was 18.1x and ranged from 18.0x to 18.2x compared to an estimated
73.2x for the Company (based upon a $10.25 value per share). The adjusted
average premium to the market value of the companies one day prior to the
transaction's announcement was 18.8% and ranged from 0.0% to 46.7% compared to
19.7% for the Company (based upon a $10.25 value per share). The adjusted
average premium the market value of the companies one week prior to the
transaction's announcement was 20.9% and ranged from 6.7% to 49.7% compared to
17.1% for the Company (based upon a $10.25 value per share). The adjusted
average premium to the market value of the companies four weeks prior to the
transaction's announcement was 19.3% and ranged from 14.3% to 81.8% compared to
39.0% for the Company (based upon a $10.25 value per share). The adjusted
average premium to the market value of the companies six months prior to the
transaction's announcement was 9.4% and ranged from -22.7% to 83.3.% compared to
43.9% for the Company (based upon a $10.25 value per share). The adjusted
average premium to the market value of the companies one year prior to the
transaction's announcement was 21.6% and ranged from -19.4% to 80.3% compared to
2.5% for the Company (based upon a $10.25 value per share).
The other completed transactions which Dean Witter reviewed were the
acquisitions of American Re Corp. by Munich Re; National Re Corp. by General Re
Corp.; Capital Guaranty Corp. by Financial Security Assurance; Milwaukee
Insurance Group by Unitrin Inc.; CII Financial Inc. by Sierra Heath Services
Inc.; Employee Benefits Plans Inc. by First Financial Management; Kemper Corp.
by an investor group; Re Capital Corp. by Zurich Reinsurance Centre; Victoria
Financial Corp. by USF&G Corp.; and UniCare Financial Corp. by Wellpoint Health
Networks Inc. (collectively the "Completed P&C Transactions"). Dean Witter
calculated multiples for each of the Completed P&C Transactions based on the
ratio of the offer price to such acquired company's respective consensus
earnings estimates for the current year and the following year, as well as to
the market value of such acquired company one day, one week, four weeks, six
months and one year prior to the transaction's announcement date. With respect
to the multiple of the offer price to consensus earnings estimates for the
current year, the adjusted mean was 16.1x and ranged from 12.7x to 21.9x
compared to 27.0x for the Company (based upon a $10.25 value per share). The
adjusted average multiple of the offer price to consensus earnings estimates for
the following year was 13.0x and ranged from 10.8x to 15.1x compared to 73.2x
for the Company (based upon a $10.25 value per share). The adjusted average
premium to the market value of the companies one day prior to the transaction's
announcement was 43.0% and ranged from 13.0% to 63.0% compared to 19.7% for the
Company (based upon a $10.25 value per share). The adjusted average premium to
the market value of the companies one week prior to the transaction's
announcement was 49.2% and ranged from 18.0% to 63.8% compared to 17.1% for the
Company (based upon a $10.25 value per share). The adjusted average premium to
the market value of the companies four weeks prior to the transaction's
announcement was 55.1% and ranged from 20.7% to 91.3% compared to 39.0% for the
Company (based upon a $10.25 value
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per share). The adjusted average premium to the market value of the companies
six months prior to the transaction's announcement was 54.7% and ranged from
- -14.1% to 131.6% compared to 43.9% for the Company (based upon a $10.25 value
per share). The adjusted average premium to the market value of the companies
one year prior to the transaction's announcement was 33.8% and ranged from
- -14.7% to 72.8% compared to 2.5% for the Company (based upon a $10.25 value per
share).
No company or transaction used in the above analyses is believed by Dean
Witter to be directly comparable to the Company or the Merger. Accordingly, an
analysis of the results of the foregoing is not mathematical; rather, it
involves complex considerations and judgments concerning differences in the
financial and operating characteristics of the companies and other factors that
could affect the public trading values of the companies to which they are being
compared.
DISCOUNTED CASH FLOW ANALYSIS. Using discounted cash flow analysis, Dean
Witter estimated the present value of the future streams of after-tax cash flows
that the Company would produce through 2006, assuming the Company performed in
accordance with the Model provided by the Company's Chief Financial Officer.
After-tax cash flows were calculated as the total cash generated by the Model
for each of the ten years 1997 through 2006. Dean Witter estimated the terminal
value of the Company by applying a range of multiples (from 8.0 to 10.0) to net
income and (from 1.0x to 2.0x) to book value projected for the Company in 2006.
The cash flow streams and terminal values were then discounted to present values
using different discount rates (ranging from 13% to 17%) chosen to reflect
different assumptions regarding the required rates of return of holders or
prospective buyers of the Company's Common Stock. This discounted cash flow
analysis indicated a reference range for the Company's Common Stock of between
$5.81 and $8.86 per share and $3.84 and $6.55 per share, respectively.
LIQUIDATION VALUE. After consulting with management of the Company, Dean
Witter determined that the liquidation value of the Company would be an amount
substantially less than the consideration that would be paid to the Public
Stockholders (assuming $10.25 per share total consideration). The Model projects
the Company's book value to be approximately $4.30 per share and tangible book
value (book value less intangibles) to be approximately $3.27 per share at year
end 1996.
GENERAL. The summary set forth above does not purport to be a complete
description of the analyses performed by Dean Witter. The preparation of a
fairness opinion involves various determinations as to the most appropriate and
relevant methods of financial analysis and the application of these methods to
the particular circumstances and, therefore, such an opinion is not readily
susceptible to summary description. Accordingly, notwithstanding the separate
factors summarized above, Dean Witter believes that its analyses must be
considered as a whole and that selected portions of its analyses and the factors
considered by it, without considering all analyses and factors, could create an
incomplete view of the evaluation process underlying its opinion. In performing
its analyses, Dean Witter made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company. The analyses performed by Dean
Witter are not necessarily indicative of actual values or future results, which
may be significantly more or less favorable than suggested by such analyses.
Additionally, analyses relating to the values of businesses do not purport to be
appraisals or to reflect the prices at which businesses actually may be sold.
Dean Witter is an investment banking firm engaged, among other things, in
the valuation of businesses and securities in connection with mergers,
acquisitions, underwritings, sales and distributions of listed and unlisted
securities, private placements and valuations for estate, corporate and other
purposes. Dean Witter is a nationally recognized investment banking firm which
has substantial experience in merger and acquisition transactions and was
familiar with the Company. In the ordinary course of business, Dean Witter may
actively trade in the securities of the Company for its own account and the
accounts of its customers, and accordingly, may at any time hold a long or short
position in such securities.
Pursuant to the terms of the an engagement letter dated January 5, 1996 (the
"Engagement Letter") and its amendment dated May 28, 1996, Dean Witter acted as
financial advisor to the Company in July 1996 in the formation of a strategic
alliance with Fireman's Fund which included a $10,000,000
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investment by Fireman's Fund in the Preferred Stock. Dean Witter received a fee
of $500,000 plus reimbursement of out-of-pocket expenses, as the exclusive
financial advisor in this transaction.
The Company has paid Dean Witter $400,000 for acting as financial advisor in
connection with rendering the Dean Witter Opinion, and will pay Dean Witter an
additional $515,000 upon consummation of the Merger. The Company also has agreed
to reimburse Dean Witter for its out-of-pocket expenses, including the
reasonable fees and expenses of its legal counsel, and to indemnify Dean Witter
and certain related parties against certain liabilities, including liabilities
under the federal securities laws, arising out of or in connection with the
services rendered by Dean Witter under the engagement letter. The Company's
Board of Directors was aware of the fact that a significant portion of the
aggregate fee payable to Dean Witter is contingent upon consummation of the
Merger or another Transaction (as defined hereafter). Such additional fee (the
amount of which would depend upon the value of the underlying transaction) also
would be payable upon consummation of a transaction or series of transactions
(including, without limitation, a sale or exchange of capital stock or assets, a
lease of assets with or without a purchase option, a merger (other than the
Merger) or consolidation, a leveraged buy-out or recapitalization, the formation
of a joint venture, a minority investment or partnership, or any similar
transaction) whereby, directly or indirectly, control of or a material interest
in the securities, assets or business of the Company or any of its affiliates is
transferred (collectively, a "Transaction") if such Transaction were to occur
within six months from the termination of the engagement letter (which
termination date is upon 15 days' prior written notice).
PERSPECTIVE OF FIREMAN'S FUND ON THE MERGER
The determination of the Merger Consideration resulted from extensive
arm's-length negotiation between the Company and Fireman's Fund and their
respective representatives. See "--Background of the Merger." At the conclusion
of the negotiation process, Fireman's Fund offered to acquire the Company for a
price of $10.25 per share. In determining such price, Fireman's Fund analyzed
the potential effect of the Merger on the projected combined consolidated income
statement of Fireman's Fund and the Company for Fireman's Fund's 1998, 1999 and
2000 fiscal years, giving effect to possible synergies in the Merger and
potential increases in revenue growth and margins.
Fireman's Fund did not undertake any formal or informal evaluation of its
own as to the fairness of the Merger Consideration to the Company stockholders.
Based solely upon the determination by the Company's Board of Directors that the
Merger is fair to, and in the best interests of, the stockholders of the Company
other than Fireman's Fund, Fireman's Fund believes that the Merger Consideration
is fair to such stockholders from a financial point of view. Fireman's Fund did
not attach specific weights to any factors in reaching its belief as to
fairness.
PLANS FOR THE COMPANY AFTER THE MERGER
After the Merger, Fireman's Fund anticipates that it will continue its
review of the Company and its assets, businesses, operations, properties,
policies, corporate structure, dividend policy, capitalization and management
and consider whether any changes would be desirable in light of the
circumstances then existing. At this time Fireman's Fund does not intend to
close the Company's corporate headquarters located in Overland Park, Kansas.
Effective upon consummation of the Merger, the directors of the Merger
Subsidiary will be the initial directors of the Surviving Corporation.
Except for the foregoing, and as otherwise indicated in this Proxy
Statement, Fireman's Fund does not have any other present plans or proposals
which relate to or would result in an extraordinary corporate transaction, such
as a merger, reorganization or liquidation, involving the Company or any of its
subsidiaries, a sale or transfer of a material amount of assets of the Company
or any of its subsidiaries or any material change in the Company's
capitalization or any other material changes in the Company's corporate
structure or business or the composition of the Company's Board of Directors or
management.
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CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest of the Company will be
owned by Fireman's Fund, and the current stockholders will have no continuing
interest in the Company. Therefore, following the Merger, the stockholders of
the Company other than Fireman's Fund will no longer benefit from any increases
in the value of the Company and will no longer bear the risk of any decreases in
the value of the Company. Following the Merger, Fireman's Fund and its
affiliates will own 100% of the Company and will have complete control over the
management and conduct of the Company's business, all income generated by the
Company and any future increase in the Company's value. Similarly, Fireman's
Fund will also bear the risk of any losses incurred in the operation of the
Company and any decrease in the value of the Company.
Following the Merger, the Common Stock will no longer meet the requirements
of the Nasdaq National Market for continued listing and will, therefore, be
delisted from the Nasdaq National Market.
The Common Stock is currently registered as a class of securities under the
Exchange Act. Registration of the Common Stock under the Exchange Act may be
terminated upon application of the Company to the Commission if the Common Stock
is not listed on a national securities exchange or quoted on the Nasdaq National
Market and there are fewer than 300 record holders of the Common Stock.
Termination of registration of the Common Stock under the Exchange Act would
substantially reduce the information required to be furnished by the Company to
its stockholders and to the Commission and would make certain provisions of the
Exchange Act, such as the short-swing trading provisions of Section 16(b), the
requirement of furnishing a proxy statement in connection with stockholders'
meetings pursuant to Section 14(a), and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions, no longer applicable
to the Company. It is the present intention of Fireman's Fund to cause the
Company to make an application for the termination of the registration of the
Common Stock under the Exchange Act as soon as practicable after the Effective
Time of the Merger.
RELATIONSHIP BETWEEN THE COMPANY AND FIREMAN'S FUND
INTERCOMPANY BUSINESS RELATIONSHIP. In 1996 and 1995, 21% and 9.8%,
respectively, of the Company's service fees were derived from premiums
underwritten by Fireman's Fund, pursuant to a MPCI general agency agreement. The
Company's business relationship with Fireman's Fund with respect to MPCI, crop
hail/named peril insurance and farm and ranch insurance is governed by the terms
of certain agency agreements and reinsurance arrangements, the principal terms
of which are summarized below.
MPCI AGREEMENTS. Effective with the 1995 crop year, the Company and
Fireman's Fund entered into a general agency agreement to market and service
MPCI policies underwritten by Fireman's Fund. The Company's responsibilities
under the agreement included production, processing, claims administration,
accounting and statistical reporting and risk management strategy. Under the
agreement, the Company was responsible for all expenses allocable to the
business generated under the agreement, including marketing and claims
administration and adjusting services. The Company received as its compensation,
(i) the expense reimbursement allowance and excess loss adjustment expenses
(both of which amounts are established by the federal government under the MPCI
program) payable by the federal government for premiums serviced under the MPCI
program, and (ii) a portion of certain of the underwriting gains on MPCI
premiums for policies written under Fireman's Fund's standard reinsurance
agreement. In addition, Fireman's Fund received fronting fees under the parties'
MPCI agreement. In the Company's fiscal years ended December 31, 1995 and 1996,
the net amounts of such compensation were $9.7 million and $21.4 million,
respectively. In addition, for the 1995, 1996 and 1997 crop years, Fireman's
Fund insured or reinsured 17%, 45% and 100%, respectively, of the MPCI premium
serviced by the Company.
Concurrent with Fireman's Fund's purchase of the Preferred Stock in July
1996, the Company and Fireman's Fund entered into a new general agency agreement
effective for the 1997 crop year (the "New Agreement"). The Company's
responsibilities for servicing the business remained the same as in the prior
agreement. The profit sharing formula was changed to provide the Company with a
greater share of underwriting gain. The New Agreement also provides for an
additional profit and growth bonus based on
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certain profit levels for combined MPCI and Crop Hail business. See "--Crop
Hail/Named Peril Agency Agreement" below.
On November 27, 1996, the Company and Fireman's Fund entered into an
amendment to the original MPCI agency agreement, pursuant to which Fireman's
Fund agreed, for the 1996 crop year only, to finance up to $50 million of MPCI
premium payments on behalf of insureds who did not pay their premiums by the
applicable due date. Fireman's Fund agreed to pay the Company an administrative
fee.
The Company has granted Fireman's Fund a security interest in the Company's
expiration rights and records as security for the Company's obligations under
the MPCI Agreements. The Company has the right to effect a bulk transfer to
another insurance company(ies) of the MPCI business upon termination of the
Agreements. The New Agreement can terminate as of June 30, 1999, if 12 months
advance notice is given by either party. Thereafter, the Company may terminate
the agreement upon 12 months advance notice and Fireman's Fund may terminate the
agreement upon 24 months advance notice. Fireman's Fund also has the right to
terminate the agreement immediately in the event of certain specified breaches
of the agreement.
CROP HAIL/NAMED PERIL AGENCY AGREEMENT. In July 1996, the parties also
agreed that Fireman's Fund would underwrite crop hail and other named peril
(collectively referred to as "Crop Hail") policies serviced by the Company
beginning in 1997. The Company's responsibilities under this agreement are
similar to its responsibilities under the MPCI agency agreements described
above. Under the agreement, Fireman's Fund will insure or reinsure 100% of the
premiums serviced by the Company, and the Company will receive commissions as
its compensation for marketing and servicing Crop Hail premiums. As of April 30,
1997, approximately $900,000 of payments had been made under this agreement.
Fireman's Fund has been granted a security interest in the Crop Hail
expiration rights and records. The term of the agreement coincides with the term
of the MPCI agency agreement. The agreement may be terminated by Fireman's Fund
for cause upon the occurrence of certain enumerated events.
FARM AND RANCH AGENCY AGREEMENT. The Company and Fireman's Fund also
entered into a farm and ranch general agency agreement effective November 1,
1996. The Company is responsible for marketing and servicing farm and ranch
insurance in certain agreed upon states and will receive income under a
specified commission structure. As of March 31, 1997, the Company had not
written any premiums under this agreement. The Company does not expect this
agreement to have a material impact on its revenues in the near future. The
agreement may be terminated by either party without cause, as of October 31,
1999 or any October 31 thereafter, upon three months prior notice.
TRANSACTIONS AND AGREEMENTS. The Company and certain of its principal
stockholders have entered into certain transactions and agreements on and after
July 10, 1996 that are related directly and indirectly to the Merger. Such
transactions and agreements are described below:
PREFERRED STOCK PURCHASE AGREEMENT. On July 10, 1996, Fireman's Fund and
the Company entered into a stock purchase agreement (the "Preferred Stock
Purchase Agreement") pursuant to which Fireman's Fund purchased 10,000 shares of
the Company's Series A Convertible Preferred Stock, par value $.01 per share,
for an aggregate purchase price of $10 million. The Preferred Stock is
convertible into 754,717 shares of the Company's Common Stock, or approximately
9% of the outstanding Company Common Stock, assuming conversion of the Preferred
Stock and assuming that any other outstanding rights to purchase, convert into
or exchange for the Company's Common Stock are not exercised. Such conversion is
at an initial price per share of Common Stock of $13.25, which represents a
premium of $2.25 per share over the last traded price of the Common Stock on May
29, 1996, the day prior to the public announcement that the Company and
Fireman's Fund had entered into discussions concerning the Preferred Stock
transaction. The Preferred Stock has a liquidation value of $1,000 per share and
holders of the Preferred stock are entitled to dividends thereon at the rate of
$50.00 per annum, payable quarterly. The Company has paid Fireman's Fund
$239,000 in 1996 and $250,000 in 1997 in dividends on the Preferred Stock. The
Preferred Stock Purchase Agreement contains a "standstill" provision which, in
general terms, requires the Company to consent to any Fireman's Fund acquisition
of Common Stock
22
<PAGE>
which results in Fireman's Fund beneficially owning greater than 20% of the
outstanding Common Stock of the Company. It also gives Fireman's Fund the right
to select one nominee for election to the Company's Board of Directors.
RIGHT OF FIRST REFUSAL AGREEMENTS. On September 23, 1996, Fireman's Fund
and each of John J. Hemmingson and Gary A. Black entered into separate Right of
First Offer and First Refusal Agreements (together, the "Right of First Refusal
Agreements"). Under the Right of First Refusal Agreements, Fireman's Fund was
granted certain first offer and first refusal rights with respect to the shares
of the Company's Common Stock owned by each of Messrs. Hemmingson and Black.
Such first offer and first refusal rights became operative at such time as
either Mr. Hemmingson or Mr. Black notified Fireman's Fund of their intent to
sell shares of the Company's Common Stock.
On February 14, 1997, Mr. Hemmingson, and on February 17, 1997, Mr. Black
notified Fireman's Fund that they each had received an offer for the Hemmingson
and Black Stock and were offering to sell such shares to Fireman's Fund on the
same terms as those contained in the offer they had received. On March 5, 1997,
Fireman's Fund notified each of Messrs. Hemmingson and Black that Fireman's Fund
would exercise its rights under the Right of First Refusal Agreements and
purchase the Hemmingson and Black Stock. According to their written notices to
Fireman's Fund, Messrs. Hemmingson and Black then owned 1,145,703 and 681,774
shares, respectively, of the Company's Common Stock.
As result of the purchase of the shares of the Hemmingson and Black Stock,
Fireman's Fund would beneficially own 2,582,194 shares of the Company's Common
Stock, or approximately 30% of the Company's Common Stock, assuming conversion
of the Preferred Stock and assuming that any other outstanding rights to
purchase, convert into or exchange for the Company's Common Stock are not
exercised. Upon consummation of the Merger, Fireman's Fund will own, directly or
through an affiliate, 100% of the outstanding shares of the Company's Common
Stock.
ACQUISITION AGREEMENT. On March 5, 1997, the Company and Fireman's Fund
entered into an Acquisition Agreement pursuant to which they agreed to the
principal terms of the Merger. Subsequently, the Company, Fireman's Fund and the
Merger Subsidiary entered into the Merger Agreement dated May 1, 1997, which
includes the essential terms of and supercedes the Acquisition Agreement. See
"THE MERGER AGREEMENT."
LOAN AGREEMENT. On March 5, 1997, the Company and Fireman's Fund also
entered into a Letter of Intent re Revolving Credit Working Capital Facility,
pursuant to which, as an express condition of the Acquisition Agreement,
Fireman's Fund agreed to extend a $15,000,000 revolving credit working capital
facility to the Company in the event that the Company, after using its
reasonable best efforts, was unable by March 31, 1997 to obtain a working
capital facility from a commercial bank on reasonable terms not involving any
guarantee or similar support from Fireman's Fund. Effective March 31, 1997, the
Company entered into a Business Loan Agreement with Fireman's Fund to borrow
$15,000,000 on a revolving basis and thereby provide the Company with working
capital. The loan bears interest at Bank of America's Base Rate (currently 8.5%)
and will mature in one year. The loan is secured with the inventory, accounts
receivable, equipment and general intangibles of the Company and certain of its
subsidiaries and affiliates.
CONSENT AGREEMENT. On March 5, 1997, the Company and Fireman's Fund also
entered into a Consent Agreement (the "Consent Agreement"). As discussed above,
the Preferred Stock Purchase Agreement contains a "standstill" provision which,
in general requires the Company to consent to any Fireman's Fund acquisition of
Common Stock which results in Fireman's Fund beneficially holding more than 20%
of the voting power of the Company's outstanding securities, assuming the
exercise of in-the-money stock options and stock rights. Under the terms of the
Consent Agreement, the Company gave its consent, to the extent required to
permit Fireman's Fund's acquisition of more than 20% of such outstanding shares
under the standstill provision and for purposes of Section 203 of the DGCL.
Under the Consent Agreement, Fireman's Fund agreed, with respect to any
stockholder vote on an acquisition or other specified transactions, to vote its
shares which exceed 20% of the voting power of the Company's outstanding
securities in accordance with the pro rata voting of other Company stockholders
who are not
23
<PAGE>
"interested stockholders" of the Company under Section 203 of the Delaware
General Corporation Law. In addition, the Consent Agreement contains a provision
which amends the standstill provision of the Preferred Stock Purchase Agreement.
Under this provision, the restrictions of the standstill provision will
immediately terminate at the time when any person or group (as defined in
Commission regulations) publicly announces an intention to make or makes or
commences a tender or exchange offer, other than a tender or exchange offer
which has been approved by the Board of Directors of the Company before the
earliest to occur of such announcement, making or commencement, for more than
15% of the outstanding Common Stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the recommendation of the Board of Directors of the Company
with respect to the Merger Agreement and the transactions contemplated thereby,
stockholders should be aware that certain members of the management and the
Board of Directors of the Company have certain interests in the Merger in
addition to the interests of stockholders of the Company generally. In
connection with the Board of Directors' determination that the Merger is fair to
the Company's stockholders (excluding Fireman's Fund and its affiliates), the
Board carefully considered conflict of interest issues relating to the matters
described below.
EMPLOYMENT AGREEMENT. Larry Martinez, Chief Executive Officer of the
Company, has a three-year employment agreement ending in May 1999, under which
he is currently paid an annual base salary of $275,000. Mr. Martinez's
employment agreement provides for severance benefits in the event of certain
"changes in control" of the Company, including a merger involving the Company.
Upon consummation of the Merger, Mr. Martinez may resign and continue to receive
his then current base salary and continuation of health and life insurance
benefits for the remainder of the contract term.
STOCK OPTIONS. Under the terms of the Company's stock option plans and the
agreements relating to certain outstanding stock options, the Merger will cause
the acceleration of vesting of all outstanding stock options of the Company. The
following table sets forth, with respect to each of the individuals who are, or
since January 1, 1996 have been (as indicated with an asterisk), executive
officers and directors of the Company, information concerning cash settlements
of "in-the-money" stock options that will be paid in connection with the
consummation of the Merger. See "THE MERGER AGREEMENT--Payment for Shares and
Options" and "MANAGEMENT OF THE COMPANY, FIREMAN'S FUND AND THE MERGER
SUBSIDIARY--The Company." The cash settlement amounts are based upon the spread
between $10.25 and the exercise price of such options and do not take into
account any income taxes that may be required to be withheld.
<TABLE>
<CAPTION>
NUMBER OF
OPTION CASH SETTLEMENT
SHARES AMOUNT
----------- ---------------
<S> <C> <C>
Tony Cid......................................................... 10,888 $ 12,930
Rafe Hargrove.................................................... 17,150 35,991
Paul Horn........................................................ 1,500 4,125
John Meuschke.................................................... 1,500 2,625
Manuel Sanchez................................................... 1,500 4,125
David Hill....................................................... 10,888 12,930
Richard Bartlett*................................................ 20,888 40,429
Gary Black*...................................................... 65,672 123,689
Tony Coelho*..................................................... 22,500 5,625
John Hemmingson*................................................. 102,638 182,820
</TABLE>
24
<PAGE>
INDEMNIFICATION OF OFFICERS AND DIRECTORS. The Merger Agreement provides
that, for a period of not less than four years following the Effective Time, the
Surviving Corporation will maintain in effect all rights of indemnification of
the officers, directors, employees or agents of the Company and its subsidiaries
of the Company provided in its certificate of incorporation, bylaws or in
indemnification agreements with the Company or any of its subsidiaries, and will
indemnify and hold harmless such persons to the full extent permitted by law
against losses, claims, damages, liabilities, costs, expenses, judgments, fines
and amounts paid in settlement in connection with any threatened or actual
claim, action, suit, proceeding or investigation, asserted or arising before or
after the Effective Time. Fireman's Fund has also agreed to cause the Surviving
Corporation to maintain, or for Fireman's Fund itself to provide, for the
benefit of such persons, for a period of not less than four years after the
Effective Time, any current officer's and director's liability insurance
policies maintained by the Surviving Corporation, or policies with at least the
same coverage, provided that if the cost of such continuing coverage exceeds
200% of the last annual premium paid by the Surviving Corporation prior to March
5, 1997, Fireman's Fund will purchase as much comparable insurance as possible
for an annual premium equal to such maximum amount.
SOURCES AND USES OF FUNDS
MERGER CONSIDERATION, FEES AND EXPENSES. Fireman's Fund estimates that the
total consideration payable to stockholders other than Fireman's Fund upon
consummation of the Merger, including amounts needed to settle outstanding
Company stock options will be approximately $64,250,000. It further estimates
that the aggregate purchase price that it will pay Messrs. Hemmingson and Black
will be approximately $18,275,000 for their shares. The estimated fees and
expenses incurred or to be incurred by Fireman's Fund in connection with the
Merger are legal fees and expenses of $200,000 and miscellaneous fees of
$50,000. Fireman's Fund expects to use working capital funds to make such
payments and pay such fees and expenses.
The estimated fees and expense incurred or to be incurred by the Company in
connection with the Merger, which will be paid using working capital funds , are
approximately as follows. Certain of those funds may be borrowed by the Company
from Fireman's Fund under the Business Loan Agreement referred to above under
"THE MERGER--FACTORS TO BE CONSIDERED--Relationships Between the Company and
Fireman's Fund--Transactions and Agreements--Loan Agreement."
<TABLE>
<S> <C>
Investment banking fees and expenses.............................. $ 935,000
Legal fees and expenses...........................................
Printing and mailing fees.........................................
Accounting fees and expenses...................................... 10,000
Commission filing fee............................................. 12,772
Paying Agent fees................................................. 10,000
Proxy Solicitation Agent fees..................................... 5,000
Miscellaneous expenses............................................
---------
Total Fees and Expenses...........................................
</TABLE>
For information regarding Dean Witter's engagement by the Board of
Directors, see "--Opinion of Financial Advisor." Certain of the Company's
officers will receive certain payments if the Merger is consummated. See
"--Interest of Certain Persons in the Merger."
SOLICITATION FEES AND EXPENSES. Neither Fireman's Fund nor the Company will
pay any fees or commissions to any broker or dealer or any other person (other
than the Proxy Solicitation Agent) for soliciting Company stockholders with
respect to the Merger. Brokers, dealers, commercial banks and trust companies
will, upon request, be reimbursed by the Company for reasonable and necessary
costs and expenses incurred by them in forwarding materials to their customers.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
Under currently existing provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), the Treasury Regulations promulgated thereunder,
applicable judicial decisions and administrative rulings,
25
<PAGE>
all of which are subject to change, the federal income tax consequences
described below are expected to arise in connection with the Merger. Due to the
complexity of the Code, the following discussion is limited to the material
federal income tax aspects of the Merger for a Company stockholder who is a
citizen or resident of the United States. The general tax principles discussed
below are subject to retroactive changes that may result from subsequent
amendments to the Code. The following discussion does not address potential
foreign, state, local and other tax consequences, nor does it address taxpayers
subject to special treatment under the federal income tax laws, such as
insurance companies, Fireman's Fund as the holder of all of the outstanding
shares of Preferred Stock, tax-exempt organizations, S corporations and
taxpayers subject to the alternative minimum tax. In addition, the following
discussion may not apply to Company stockholders who acquired their shares upon
the exercise of employee stock options or otherwise as compensation. Neither the
Company nor Fireman's Fund has requested either the Internal Revenue Service or
counsel to rule or issue an opinion on the federal income tax consequences of
the Merger. ALL STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS
REGARDING THE FEDERAL, FOREIGN, STATE AND LOCAL TAX CONSEQUENCES OF THE
DISPOSITION OF THEIR SHARES IN THE MERGER.
For federal income tax purposes, the Merger will be treated as a taxable
sale or exchange of shares of Common Stock for cash by each holder of such
shares (including any holder of Dissenting Shares). Accordingly, the federal
income tax consequences to the holders of Common Stock will generally be as
follows:
(a) Assuming that the shares of Common Stock exchanged by a Company
stockholder for cash in connection with the Merger are capital assets in
the hands of the stockholder at the Effective Time, such stockholder will
recognize capital gain or loss by reason of the consummation of the
Merger.
(b) The capital gain or loss, if any, will be long-term with respect to
shares of Common Stock held for more than 12 months as of the Effective
Time and short-term with respect to such shares held for 12 months or
less as of the Effective Time.
(c) The amount of capital gain or loss to be recognized by each holder of
Common Stock will be measured by the difference between the amount of
cash payable for the account of such stockholder in connection with the
Merger (including cash received for Dissenting Shares) and such
stockholder's tax basis in the Common Stock at the Effective Time.
Cash payments made pursuant to the Merger (including any cash paid to
holders of Dissenting Shares) will be reported to the extent required by the
Code to stockholders of the Company and the Internal Revenue Service. Such
amounts will ordinarily not be subject to withholding of federal income tax.
However, backup withholding of such tax at a rate of 31% may apply to certain
stockholders by reason of the events specified in Section 3406 of the Code and
the Treasury Regulations promulgated thereunder, which include failure of a
stockholder to supply the Company or its agent with such stockholder's taxpayer
identification number. Accordingly, each Company stockholder will be asked to
provide the stockholder's correct taxpayer identification number on a Substitute
Form W-9 which is to be included in the letter of transmittal to be sent to
stockholders relating to their shares of Common Stock. Withholding may also
apply to Company stockholders who are otherwise exempt from such withholding,
such as a foreign person, if such person fails to properly document its status
as an exempt recipient.
The cash settlement amounts distributed in connection with the Merger to
holders of options to acquire shares of the Common Stock will constitute
"wages," and will be subject to income tax withholding. The gross amount due,
the withheld amount and the net payment will be included in each optionholder's
W-2 form for 1997.
PUBLIC OFFERINGS AND REPURCHASES OF COMMON STOCK
PUBLIC OFFERINGS. On June 30, 1994, the Company completed an underwritten
initial public offering of 2,780,748 newly issued shares of its Common Stock, at
an initial public offering price to the public of $7.50, which was registered on
a Registration Statement on Form S-1 under the Securities Act of 1933, as
26
<PAGE>
amended. The Company retained net proceeds of the offering in the amount of
$18,096,107, after deducting underwriting commissions and discounts of
$1,459,893 and other costs of $1,299,610.
On December 6, 1994, the Company completed an underwritten public offering
of 1,400,000 newly issued shares of its Common Stock, at a public offering price
to the public of $14.00, which was registered on a Registration Statement on
Form S-1 under the Securities Act of 1933, as amended. The Company retained net
proceeds of the offering of $17,774,886, after deducting underwriting
commissions and discounts of $1,274,000 and other costs of $551,114.
REPURCHASES. Pursuant to an agreement relating to the acquisition of their
agency business, in 1996 the Company purchased 14,250 and 10,000 shares of its
Common Stock from John Chapman, Sr. and Jack Chapman, respectively, for $16.25
per share. Also, pursuant to separation agreements with Messrs. Hemmingson and
Black, in 1996 and 1997 the Company purchased 108,000 and 84,000 shares of its
Common Stock from Hemmingson and Black, respectively, at prices ranging from
$10.00 to $6.65 per share. The average repurchase price paid for each applicable
quarterly period was as follows:
<TABLE>
<CAPTION>
AVERAGE
REPURCHASE
PRICE PAID
-----------
<S> <C>
1996
First Quarter.................................................................. $ 16.25
Third Quarter.................................................................. $ 9.78
Fourth Quarter................................................................. $ 7.14
1997
First Quarter.................................................................. $ 6.50
</TABLE>
REGULATORY APPROVALS
STATE REGULATORY AUTHORITIES. Certain filings are required to be made with,
and approvals obtained from insurance regulatory authorities in Kansas and
certain other states in connection with the Merger.
HSR ACT FILINGS. Under the Hart-Scott-Rodino Antitrust Improvements Act of
1976 and the rules promulgated thereunder by the Federal Trade Commission (the
"FTC"), certain acquisition transactions may not be consummated unless notice
has been given and certain information has been furnished to the Antitrust
Division of the United States Department of Justice (the "Antitrust Division")
and the FTC and certain waiting period requirements have been satisfied. The
Merger is subject to these requirements.
The Company and Fireman's Fund each filed with the Antitrust Division and
the FTC a Notification and Report Form with respect to the Merger on May 2 and
May 1, 1997, respectively. Under the HSR Act, the Merger may not be consummated
until the expiration of a waiting period of at least 30 days following the
receipt of each filing, unless the waiting period is earlier terminated by the
FTC and the Antitrust Division or unless the waiting period is extended by a
request for additional information.
State Attorneys General and private parties may also bring legal actions
under the federal or state antitrust laws under certain circumstances. There can
be no assurance that a challenge to the proposed Merger on antitrust grounds
will not be made or of the result if such a challenge is made.
THE MERGER AGREEMENT
The information under this caption is qualified in its entirety by reference
to the full text of the Merger Agreement, a copy of which is attached as Exhibit
A to this Proxy Statement.
GENERAL
The Company and Fireman's Fund entered into the Merger Agreement effective
May 1, 1997. If the stockholders of the Company approve the Merger Agreement,
the Merger Subsidiary will be merged with and into the Company, with the result
that the separate corporate existence of the Merger Subsidiary will then cease.
The Company will be the Surviving Corporation and will be an wholly owned
subsidiary of
27
<PAGE>
Fireman's Fund. At the Effective Time, the Common Stock will be converted
automatically into the right to receive cash, as described below. See
"--Consideration to be Received by Stockholders." The shares of the Common Stock
will no longer be listed or traded on the Nasdaq National Market, and the
registration of the Common Stock under the Exchange Act will be terminated.
EFFECTIVE TIME
If the Merger Agreement is adopted by the requisite vote of the Company's
stockholders, the Merger will be consummated and become effective upon the
acceptance for record of the Certificate of Merger by the Delaware Secretary of
State on a date as soon as practicable after conditions to the Merger are
satisfied (or waived to the extent permitted), or such other date agreed on by
the parties. It is currently contemplated that the Effective Time will occur on
or about June , 1997. There can be no assurance that all conditions to the
Merger will be satisfied. See "--Conditions to Consummation of the Merger."
CONSIDERATION TO BE RECEIVED BY STOCKHOLDERS
In connection with the Merger, each share of Common Stock outstanding
immediately prior to the Effective Time (other than Dissenting Shares) will be
converted into the right to receive $10.25 in cash, without interest (the cash
consideration per share to be paid to the Company's stockholders in the Merger
being sometimes referred to herein as the "Merger Consideration"), and each
holder of an option to acquire shares of the Common Stock of the Company will
receive a cash settlement, net of withholding taxes, equal to the excess, if
any, of the Merger Consideration over the exercise price of such options.
Dissenting Shares will be converted to cash in the manner described under the
caption "RIGHTS OF DISSENTING STOCKHOLDERS."
PAYMENT FOR SHARES AND OPTIONS
PAYMENT FOR SHARES. ChaseMellon Shareholder Services, L.L.C. (the "Paying
Agent") will act as the paying agent for payment of the Merger Consideration to
the holders of the Common Stock. Instructions with regard to the surrender of
certificates formerly representing shares of Common Stock, together with the
letter of transmittal to be used for that purpose, will be mailed to
stockholders as soon as practicable after the Effective Time. As soon as
practicable following receipt from the stockholder of a duly executed letter of
transmittal, together with certificates formerly representing Common Stock and
any other items specified by the letter of transmittal, the Paying Agent will
pay the Merger Consideration to such stockholder, by check or draft.
After the Effective Time, the holder of a certificate formerly representing
Common Stock will cease to have any rights as a stockholder of the Company, and
such holder's sole right will be to receive the Merger Consideration with
respect to such shares (or, in the case of Dissenting Shares, the statutorily
determined "fair value"). If payment is to be made to a person other than the
person in whose name the surrendered certificate is registered, it will be a
condition of payment that the certificates so surrendered be properly endorsed
or otherwise in proper form for transfer and that the person requesting such
payment shall pay any transfer or other taxes required by reason of such payment
or establish to the satisfaction of the Surviving Corporation that such taxes
have been paid or are not applicable. No transfer of shares outstanding
immediately prior to the Effective Time will be made on the stock transfer books
of the Surviving Corporation after the Effective Time.
To the extent permitted by law, the appointment of the Paying Agent may be
terminated at any time by Fireman's Fund upon notice to the Paying Agent, or by
the Paying Agent upon 30 days notice to Fireman's Fund. Any portion of the
Merger Consideration remaining undistributed upon termination of the Paying
Agent's appointment will be returned to the Surviving Corporation, and any
holders of theretofore unsurrendered Common Stock certificates may thereafter
surrender to the Surviving Corporation such stock certificates and (subject to
abandoned property, escheat or similar laws) receive in exchange therefor the
Merger Consideration to which they are entitled.
28
<PAGE>
STOCKHOLDERS OF THE COMPANY SHOULD NOT FORWARD THEIR STOCK CERTIFICATES TO
THE PAYING AGENT WITHOUT A LETTER OF TRANSMITTAL, AND SHOULD NOT RETURN THEIR
STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
OPTION SETTLEMENT PAYMENTS. As of the Effective Time, the Company will
cause the outstanding options to purchase shares of the Company's Common Stock
to become fully exercisable and vested and to be canceled. In consideration of
such cancellation, unless Fireman's Fund and the holder of any such option
otherwise agree, Fireman's Fund will cause the Company or the Surviving
Corporation to pay to the holder of each such option an amount (the "Option
Settlement Amount"), net of withholding taxes, equal to the excess, if any, of
$10.25 over the exercise price of such options. Under the Merger Agreement, the
Company has agreed to take such actions as are necessary to fully advise holders
of options of their rights under the Merger Agreement and their respective stock
option agreements. After the Effective Time, no holder of an option will have
any rights other than to receive payment for such holder's options equal to the
Option Settlement Amount.
NO INTEREST ON PAYMENT AMOUNTS. In no event will holders of shares of
Common Stock or options to purchase Common Stock be entitled to receive payment
of any interest on the Merger Consideration or the Option Settlement Amounts.
OPERATIONS OF THE COMPANY PRIOR TO THE MERGER
The Company has agreed that, prior to the Effective Time, the business of
the Company will be conducted in accordance with certain restrictions set forth
in the Merger Agreement. Among other things, the Company has agreed that, except
as the Company and Fireman's Fund may otherwise agree, the Company will, and
will cause its subsidiaries to, operate only in the ordinary course of business,
and neither the Company nor any of its subsidiaries will do any of the
following: (a) take any action which would or could reasonably be expected to
jeopardize any of its material contracts or its good standing with any
applicable state department of insurance or similar regulatory agency with
jurisdiction over the Company, (b) take any extraordinary action or fail to take
any action, the failure of which to be taken would be an extraordinary action,
or (c) not declare, set aside or pay any dividend (other than stated dividends
on the Preferred Stock) or other distribution in respect of its capital stock,
whether in stock, cash, indebtedness or other property, redeem, repurchase or
otherwise acquire any of its outstanding capital stock, whether for cash,
indebtedness or property, or issue any capital stock or any right to acquire,
convert into or exchange for capital stock except pursuant to stock options
outstanding on March 5, 1997. The Company has also agreed that, in the event it
adopts a "rights plan," "poison pill," or similar plan or arrangement, it will
include a provision expressly exempting Fireman's Fund from the operation
thereof.
In addition, the Company has agreed that until the earlier of the
termination of the Merger Agreement or the Effective Time, neither the Company
nor any of its subsidiaries or representatives will, directly or indirectly,
take any action to encourage, solicit or initiate the submission of any
Acquisition Proposal (as defined below), enter into any agreement for or
relating to any Acquisition Proposal, or participate in any way in any
discussions or negotiations with, or furnish any nonpublic information to, any
party in connection with any Acquisition Proposal. Notwithstanding the
foregoing, the Company may, in response to an unsolicited bona fide offer or
proposal made by a third party to the Company and upon written notice to
Fireman's Fund, provide information to or have discussions or negotiations with
such third party if the Board of Directors of the Company, after having
considered the advice of outside counsel, has determined in good faith that it
is the fiduciary duty under applicable law of such directors to do so.
An Acquisition Proposal is defined in the Merger Agreement as a proposal for
any (i) merger, consolidation or similar transaction involving the Company, (ii)
sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of any assets of the Company and its
subsidiaries representing 15% or more of the consolidated assets of the Company
and its subsidiaries, (iii) issuance, sale or other disposition of (including by
way of merger, consolidation, share exchange or any similar transaction)
securities (or options, rights or warrants to purchase, or securities
convertible into, such securities) representing 15% or more of the votes
attached to the outstanding securities of the
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Company, (iv) transaction in which any person or group of persons will acquire
beneficial ownership or the right to acquire beneficial ownership of 15% or more
of the outstanding shares of Company's Common Stock, (v) recapitalization,
restructuring, liquidation, dissolution or similar type of transaction with
respect to the Company or any of its subsidiaries, or (vi) transaction which is
similar in form, substance or purpose to any of the foregoing transactions.
CONDITIONS TO CONSUMMATION OF THE MERGER
The Merger will occur only if the Merger Agreement is approved and adopted
by the requisite votes of the holders of the Common Stock and Preferred Stock
voting as a single class. Consummation of the Merger also is subject to the
satisfaction of certain other conditions specified in the Merger Agreement,
unless such conditions are waived (to the extent such waiver is permitted by
law). The failure of any such condition to be satisfied, if not waived, would
prevent consummation of the Merger.
The obligations of Fireman's Fund to consummate the Merger are subject to
satisfaction of, among others, the following conditions: (i) all waivers,
consents, authorizations, orders, approvals and expirations of waiting periods
required under any applicable law, rule, regulation, judgment or decree ("Law"),
or any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which any party to the
Merger Agreement or any of its subsidiaries is bound or by which the property or
assets of any such party or subsidiary is bound or affected ("Contract"),
required to be obtained by any such party in order to consummate the Merger
shall have been obtained, except where the failure to do so would not have a
material adverse effect on the assets, properties, liabilities, obligations,
business, financial condition or results of operations ("Material Adverse
Effect") of the Company and its subsidiaries taken as a whole; (ii) each of the
representations and warranties of the Company contained in the Merger Agreement
shall have been true and correct as of the date of execution of the Merger
Agreement and as of the Effective Time (except for any inaccuracies which in the
aggregate would not be expected to have a Material Adverse Effect on the Company
and its subsidiaries taken as a whole); (iii) the Company shall have complied in
all material respects with all covenants and agreements required under the terms
of the Merger Agreement to be performed by it; (iv) no injunction, restraining
order or other order of any federal or state court which prevents the Merger
shall be in effect; (v) no statute, rule or regulation shall have been enacted
by any state or governmental agency that would prevent consummation of the
Merger; (vi) between March 5, 1997 and the Effective Time no Material Adverse
Effect shall have occurred with respect to the Company other than any
developments that generally affect the industry in which the Company operates;
and (vii) the Merger shall have been approved by the stockholders of the
Company.
The obligations of Company to consummate the Merger are subject to
satisfaction of the following conditions, among others: (i) all waivers,
consents, authorizations, orders, approvals and expirations of waiting periods
required under any applicable Law or Contract to be obtained by any party to the
Merger Agreement in order to consummate the Merger shall have been obtained,
except where the failure to do so would not have a Material Adverse Effect on
the Company and its subsidiaries taken as a whole ; (ii) each of the
representations and warranties of Fireman's Fund contained in the Merger
Agreement shall have been true and correct as of the date of execution of the
Merger Agreement and as of the Effective Time (except for any inaccuracies which
in the aggregate would not be expected to have a Material Adverse Effect on
Fireman's Fund and its subsidiaries taken as a whole); (iii) Fireman's Fund
shall have complied in all material respects with all covenants and agreements
required under the terms of the Merger Agreement to be performed by it; (iv) no
injunction, restraining order or other order of any federal or state court which
prevents the Merger shall be in effect; (v) no statute, rule or regulation shall
have been enacted by any state or governmental agency that would prevent
consummation of the Merger; and (vi) the Merger shall have been approved by the
stockholders of the Company.
TERMINATION
The Merger Agreement may be terminated and the Merger abandoned at any time
prior to the filing of Certificate of Merger with the Delaware Secretary of
State whether before or after action by the Company's stockholders and without
further approval by the Company's stockholders under any of the
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<PAGE>
following circumstances: (i) by mutual written consent of the Company and
Fireman's Fund; (ii) by either the Company or Fireman's Fund on or after
December 31, 1997 if the conditions of such party's obligation to consummate the
Merger have not been satisfied or waived; and (iii) by the Company and Fireman's
Fund if the Company stockholders do not approve the Merger. In addition, (a) the
Board of Directors of the Company may modify or withdraw its approval or
recommendation of the Merger, approve or recommend a Superior Proposal (as
defined below) or terminate the Merger Agreement if it determines in good faith,
after hearing advice of outside counsel, that such action is necessary in order
for the Board of Directors to comply with its fiduciary duties to the Company's
stockholders under applicable law, and (b) Fireman's Fund may terminate the
Merger Agreement if the Board of Directors of the Company or any committee of
the Board withdraws or modifies its approval or recommendation of the Merger
Agreement or the Merger, fails to recommend that the stockholders of the Company
vote in favor of the Merger, approves or recommends any Acquisition Proposal
other than the Merger, or resolves to do any of the foregoing. A "Superior
Proposal" is a bona fide Acquisition Proposal the terms of which the Board of
Directors of the Company determines, after hearing the advice of a financial
advisor of nationally recognized reputation, to be more favorable to the
Company's stockholders than the terms of the Merger.
TERMINATION FEE
The Merger Agreement requires the Company to pay Fireman's Fund a
termination fee of $2.4 million plus costs and expenses incurred by Fireman's
Fund in connection with the Merger (the "Termination Fee Amount") if the Board
of Directors of the Company takes any of the actions described in clause (a)
above under the caption "--Termination," or the Merger Agreement is terminated
by Fireman's Fund for any of the reasons set forth in clause (b) above under
such caption. In the event that the Merger Agreement is terminated because the
stockholders of the Company do not approve the Merger, and if within the 18
months following such termination the Company enters into a binding agreement
for an Acquisition Transaction with a party not affiliated with Fireman's Fund,
the Company must pay Fireman's Fund the Termination Fee Amount upon entering
into such binding agreement.
ACCOUNTING TREATMENT
The Merger will be accounted for under the purchase method of accounting
under which the total consideration paid in the Merger will be allocated among
the Surviving Corporation's consolidated assets and liabilities based on the
fair values of the assets acquired and liabilities assumed.
RIGHTS OF DISSENTING STOCKHOLDERS
When the Merger is effected, stockholders of the Company who comply with the
procedures prescribed in Section 262 of the DGCL ("Section 262") will be
entitled to a judicial determination of the "fair value" of their shares
(exclusive of any element of value arising from the accomplishment or
expectation of the Merger) and to receive from the Company payment of such fair
value in cash. Shares of Common Stock which are outstanding immediately prior to
the Effective Time and with respect to which appraisal shall have been properly
demanded in accordance with Section 262 shall not be converted into the right to
receive the Merger Consideration at or after the Effective Time unless and until
the holder of such shares withdraws his or her demand for such appraisal or
becomes ineligible for such appraisal.
The following is a brief summary of the statutory procedures to be followed
by a stockholder of the Company in order to dissent from the Merger and perfect
appraisal rights under the DGCL. This summary is not intended to be complete and
is qualified in its entirety by reference to Section 262, the text of which is
included as Appendix C of this Proxy Statement. Any stockholder considering
demanding appraisal is advised to consult legal counsel.
A written demand for appraisal of shares of Common Stock must be delivered
to the Company by a stockholder seeking appraisal before the taking of the vote
on the Merger. This written demand must be separate from any proxy or vote
abstaining from or voting against approval of the Merger. Voting against
approval of the Merger, abstaining from voting or failing to vote with respect
to approval of the Merger will not constitute a demand for appraisal within the
meaning of Section 262.
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<PAGE>
Stockholders electing to exercise their appraisal rights under Section 262
must not vote for approval of the Merger. A vote by a stockholder against
approval of the Merger is not required in order for that stockholder to exercise
appraisal rights. However, if a stockholder returns a signed proxy but does not
specify a vote against approval of the Merger or a direction to abstain, the
proxy, if not revoked, will be voted for approval of the Merger, which will have
the effect of waiving that stockholder's appraisal rights.
A written demand for appraisal must reasonably inform the Company of the
identity of the stockholder of record and that such stockholder intends thereby
to demand appraisal. Accordingly, a demand for appraisal should be executed by
or for the stockholder of record, fully and correctly, as such stockholder's
name appears on the stock certificates. If Common Stock is owned of record in a
fiduciary capacity, such as by a trustee, guardian or custodian, such demand
must be executed by the fiduciary. If, for example, a stockholder holds shares
of Common Stock through a broker, who in turn holds shares through a central
securities depository nominee, such as Cede & Co., a demand for appraisal of
such shares must be made by or on behalf of such depository nominee. If Common
Stock is owned of record by more than one person, as in a joint tenancy or
tenancy in common, such demand must be executed by or for all joint owners. An
authorized agent, including an agent for two or more joint owners, may execute
the demand for appraisal for a stockholder of record; however, the agent must
identify the record owner and expressly disclose the fact that, in exercising
the demand, he is acting as agent for the record owner.
A record owner, such as a broker, who holds Common Stock as a nominee for
others, may exercise appraisal rights with respect to the Common Stock held for
all or less than all beneficial owners of Common Stock as to which the holder is
the record owner. In such case, the written demand must set forth the number of
shares of Common Stock covered by such demand. Where the number of shares of
Common Stock is not expressly stated, the demand will be presumed to cover all
shares of Common Stock outstanding in the name of such record owner. Beneficial
owners who are not record owners and who intend to exercise appraisal rights
should instruct the record owner to comply strictly with the statutory
requirements with respect to the delivery of written demand prior to the taking
of the vote on the Merger.
A Company stockholder who elects to exercise appraisal rights must mail or
deliver the written demands for appraisal to: Secretary, Crop Growers
Corporation, 10895 Lowell, Suite 300, Overland Park, Kansas, 66210, or deliver
such demand to the Company in person at the Special Meeting. The written demand
for appraisal should specify the stockholder's name and mailing address and the
number of shares of Common Stock covered by the demand, and should state that
the stockholder is thereby demanding appraisal in accordance with Section 262.
Within ten days after the Effective Time, the Company must provide notice as
to the date of effectiveness of the Merger to all stockholders who have duly and
timely delivered demands for appraisal and who have not voted for approval of
the Merger Agreement.
Within 120 days after the Effective Time, any dissenting stockholder is
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of shares not voted in favor of approval of the
Merger Agreement and with respect to which demands for appraisal have been
received by the Company and the number of holders of such shares. Such statement
must be mailed within 10 days after the written request therefor has been
received by the Company.
Within 120 days after the Effective Time, either the Company or any
dissenting stockholder may file a petition in the Delaware Court of Chancery
demanding a determination of the fair value of shares of Common Stock of all
dissenting stockholders. If a petition for an appraisal is timely filed, after a
hearing on such petition, the Delaware Court of Chancery will determine which of
the Company stockholders are entitled to appraisal rights and thereafter will
appraise the shares of Common Stock owned by such stockholders, determining the
fair value of such shares, exclusive of any element of value arising from the
accomplishment or expectation of the Merger, together with the fair rate of
interest to be paid, if any, upon the amount determined to be fair value. In
determining fair value, the Delaware Court of Chancery is to take into account
all relevant factors. In WEINBERGER V. UOP, INC, ET AL., the Delaware Supreme
Court discussed the factors that could be considered in determining fair value
in an appraisal proceeding, stating that "proof of value by any techniques or
methods which are generally considered acceptable in the
32
<PAGE>
financial community and otherwise admissible in court" should be considered and
the "fair price obviously requires consideration of all relevant factors
involving the value of a company." The Delaware Supreme Court stated that in
making this determination of fair value the court and the appraiser may consider
"all factors and elements which reasonably might enter into the fixing of
value," including "market value, asset value, dividends, earnings prospects, the
nature of the enterprise and any other facts which were known or which could be
ascertained as of the date of the merger and which throw any light on future
prospects of the merged corporation.... " The Delaware Supreme Court has
construed Section 262 to mean that "elements of future value, including the
nature of the enterprise, which are known or susceptible of proof as of the date
of the merger and not the product of speculation, may be considered." However,
such court noted that Section 262 provides that fair value is to be determined
"exclusive of any element of value arising from the accomplishment or
expectation of the merger."
Stockholders considering whether to seek appraisal should bear in mind that
the fair value of their Common Stock determined under Section 262 could be more
than, the same as, or less than the value of the Merger Consideration to be
exchanged in the Merger, and that opinions of investment banking firms as to
fairness from a financial point of view are not necessarily opinions as to fair
value under Section 262. Moreover, the Company reserves the right to assert in
any appraisal proceeding that, for purposes thereof, the "fair value" of the
Common Stock is less than the value of the Merger Consideration.
The cost of the appraisal proceeding may be determined by the Delaware Court
of Chancery and taxed upon the parties as the court deems equitable in the
circumstances. Upon application of a dissenting stockholder, the court may order
that all or a portion of the expenses incurred by any dissenting stockholder in
connection with the appraisal proceeding, including, without limitation,
reasonable attorneys' fees, and the fees and expenses of experts, be charged pro
rata against the value of all shares entitled to appraisal. In the absence of
such a determination or assessment, each party bears its own expenses.
A dissenting stockholder who has duly demanded appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote for any
purpose the Common Stock subject to such demand or to receive payment of
dividends or other distributions on such Common Stock, except for dividends or
other distributions payable to stockholders of record at a date prior to the
Effective Time.
At any time within 60 days after the Effective Time, any dissenting
stockholder will have the right to withdraw his or her demand for appraisal and
to accept the Merger Consideration. After this period, a dissenting stockholder
may withdraw his or her demand for appraisal only with the consent of the
Company. If no petition for appraisal is filed with the Delaware Court of
Chancery within 120 days after the Effective Time, dissenting stockholders'
rights to appraisal shall cease and they shall be entitled only to receive the
Merger Consideration. Inasmuch as the Company has no obligation to file such a
petition, any stockholder who desires such a petition to be filed is advised to
file it on a timely basis. However, no petition timely filed in the Delaware
Court of Chancery demanding appraisal shall be dismissed as to any stockholder
without the approval of the Delaware Court of Chancery, and such approval may be
conditioned upon such terms as the Delaware Court of Chancery deems just.
A vote for the Merger will constitute a waiver of appraisal rights. A
failure to vote against the Merger will not, under Delaware law, constitute a
waiver of appraisal rights. If a stockholder returns a proxy which does not
contain instructions as to how it should be voted, such proxy will be voted in
favor of the Merger and, accordingly, appraisal rights will be waived. As
described above, a vote against the Merger is not sufficient to perfect
appraisal rights. A stockholder's failure to make the written demand prior to
the Special Meeting (under Delaware law) as described above will constitute a
waiver of appraisal rights.
Cash received pursuant to the exercise of dissenters' rights may be subject
to federal or state income tax. See "THE MERGER--FACTORS TO BE
CONSIDERED--Certain Federal Income Tax Consequences."
ANY HOLDER WHO FAILS TO COMPLY FULLY WITH THE STATUTORY PROCEDURE SUMMARIZED
ABOVE WILL FORFEIT HIS OR HER RIGHTS OF DISSENT AND WILL RECEIVE THE MERGER
CONSIDERATION FOR HIS OR HER SHARES. See Exhibit C.
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<PAGE>
STOCK OWNERSHIP OF MANAGEMENT AND CERTAIN BENEFICIAL OWNERS
STOCK OWNERSHIP
The following table sets forth, as of April 30, 1997, certain information
with respect to beneficial ownership of the Common Stock by (i) each person or
entity known by the Company to own beneficially more than 5% of the Company's
Common Stock; (ii) each director of the Company; (iii) each executive officer of
the Company; and (iv) all executive officers and directors as a group. For
purposes of this table, beneficial ownership of securities is defined in
accordance with the rules of the Commission and means generally the power to
vote or dispose of securities, regardless of any economic interest therein.
Except as otherwise indicated, the stockholders listed in the table have sole
voting and investment power with respect to the shares indicated. For the
purpose of determining "Percent of Outstanding Shares," (i) the number of shares
of Common Stock outstanding at April 30, 1997 was 8,727,268, including 754,717
shares of Common Stock issuable upon conversion of 10,000 shares of the
Preferred Stock (which will vote with the Common Stock with respect to the
Merger on an as converted basis), and (ii) stock options exercisable within 60
days from April 30, 1997 are assumed to be exercised by the individual or entity
with respect to whom the percentage is calculated.
<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF BENEFICIALLY PERCENT OF
BENEFICIAL OWNER OWNED OUTSTANDING SHARES
- -------------------------------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
Fireman's Fund Insurance Company (1) ..................................... 2,582,164 29.6%
777 San Marin Drive
Novato, California 94998
Firstar Bank of Minnesota, N.A. (2) ...................................... 1,511,166 16.6%
77 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Gary A. Black (3) ........................................................ 727,103 8.3%
3325 15th Avenue South
Great Falls, Montana 59405
Thomas Vetter (4) ........................................................ 457,735 5.2%
955 West Chandler Blvd., Suite 15
Chandler, Arizona 84244
Michael A. Roth and Brian J. Stark ....................................... 788,200 9.0%
1500 West Market Street
Mequon, Wisconsin 53092 (5)
Tony Cid (4)(6)........................................................... 16,963 *
David E. Hill (4)......................................................... 9,029 *
Raford S. Hargrove, Jr. (4)............................................... 15,483 *
Paul T. Horn (4)(7)....................................................... 83,500 *
Lawrence T. Martinez (4).................................................. 40,635 *
John M. Meuschke (4)...................................................... 2,500 *
Manuel Sanchez (4)........................................................ 4,500 *
Thomas M. Vertin (4)(8)................................................... 129,779 1.5%
All executive officers and directors as a group (8 individuals) 302,389 3.4%
(4)(6)(7)(8)............................................................
</TABLE>
- ------------------------
* Less than 1%.
(1) Includes 754,717 shares of Common Stock issuable upon conversion of 10,000
shares of the Preferred Stock, which currently votes with the Common Stock
on an as converted basis, and 1,827,447 shares
34
<PAGE>
which Fireman's Fund has agreed to purchase under right of first refusal
agreements with Messrs. Hemmingson and Black. See "THE MERGER--FACTORS TO BE
CONSIDERED-- Relationship Between the Company and Fireman's
Fund--Transactions and Agreements." Pending such purchases, Messrs.
Hemmingson and Black retain sole voting power with respect to such shares
(subject to footnote (2) below in the case of Mr. Hemmingson).
(2) On the basis of information contained in a Schedule 13G filed by Firstar
Bank of Minnesota, N.A. ("Firstar"), with the Commission on March 7,1997,
Firstar holds an irrevocable proxy to vote 1,511,166 shares of Common Stock
(which includes 365,463 shares of Common Stock which could be acquired
within 60 days of April 30, 1997 through the exercise of stock options) of
John Hemmingson. Firstar has no power to dispose of, or direct the
disposition of, and no pecuniary interest in, any of such shares of Common
Stock. Firstar Corporation, as the parent holding company of Firstar may be
deemed to beneficially own such shares. See footnote (1) above regarding
Fireman's Fund agreement to purchase all of Mr. Hemmingson's shares.
(3) Includes 45,329 shares of Common Stock which could be acquired within 60
days of April 30, 1997 through the exercise of stock options. See footnote
(1) above.
(4) Includes the following number of shares of Common Stock which could be
acquired within 60 days of April 30, 1997 through the exercise of stock
options: Mr. Vetter, 837 shares; Mr. Cid, 3,629 shares; Mr. Hill, 8,629
shares; Mr. Hargrove, 11,883 shares; Mr. Martinez, 40,000 shares; Mr. Horn,
79,500 shares; Mr. Meuschke, 1,500 shares; Mr. Sanchez, 4,500 shares; Mr.
Vertin, 69,500 shares; and all directors and executive officers as a group,
219,141 shares.
(5) On the basis of information contained in a Schedule 13D filed by Messrs.
Roth and Stark with the Commission on April 3, 1997, includes 394,100 shares
owned by Reliant Trading and 394,100 shares owned by Shepard Trading
Limited, investment entities. Messrs. Roth and Stark have shared voting and
investment power with respect to such shares by virtue of their positions as
members of Stark Asset Management L.L.C., the managing partner of Reliant
Trading, and as investment managers of Shepard Trading Limited.
(6) Includes 6,667 shares of restricted stock, which will vest on June 23, 1997.
(7) Includes 2,000 shares of Common Stock beneficially owned by Mr. Horn's
spouse.
(8) Includes 5,000 shares of Common Stock held jointly with another individual
(2,500 shares of which Mr. Vertin disclaims beneficial ownership of), 3,750
shares of which are held by a corporation owned by Mr. Vertin, and 1,125
shares are held by Mr. Vertin's wife and daughters, all of which Mr. Vertin
is deemed to beneficially own. With respect to 6,225 shares of Common Stock,
Mr. Vertin shares investment power with another individual or individuals.
TRANSACTIONS BY CERTAIN PERSONS IN COMMON STOCK
No transactions in the Company's Common Stock were effected by any person
named in the table above during the 60 day period preceding the date of this
Proxy Statement.
35
<PAGE>
MANAGEMENT OF THE COMPANY, FIREMAN'S FUND
AND THE MERGER SUBSIDIARY
Certain information concerning the directors and executive officers of the
Company, Fireman's Fund and the Merger Subsidiary is set forth below. Unless
otherwise indicated, each such person is a citizen of the United States and the
address of each such person is that of the Company, Fireman's Fund or the Merger
Subsidiary, as the case may be. Such addresses are set forth under the caption
"SUMMARY--The Company" and "--Fireman's Fund."
THE COMPANY
The names, ages, principal occupations and employment history for the past
five years of the members of the directors and executive officers of the Company
are set forth below.
PAUL T. HORN, 53, has been Chairman of the Board of Directors since March
1996, and a Director since June 1994. He has been the Chief Operating Officer of
R.D. Offutt Company, which provides a variety of agribusiness services and
products to rural communities, since 1985. He has been President, Chief
Operating Officer and a Director of RDO Equipment Corp., which owns and operates
John Deere industrial and agricultural stores in the United States, since August
1996. He also serves as a Director of Northern Grain Company, a regional grain
elevator.
LAWRENCE T. MARTINEZ, 34, has been the Chief Executive Officer and a
Director of the Company since August 1996. He was Acting Chief Executive Officer
from June 1996 to August 1996, and was with the law firm of Dorsey & Whitney LLP
from November 1990 to June 1996.
JOHN M. MEUSCHKE, 51, has held various positions at Fireman's Fund since
1968, and is currently Senior Vice President of Fireman's Fund Insurance
Company. He has been a Director of the Company since July 1996.
MANUEL SANCHEZ, 52, has been a Director of the Company since June 1994. He
has been the Chief Executive Officer of Tower Health, a health maintenance
organization, since February 1997. He had a private law practice from May 1996
to February 1997, and served as President and Chief Executive Officer of Gulf
Atlantic Life Insurance Company from 1991 to May 1996.
THOMAS M. VERTIN, 50, has been Vice Chairman of the Board of Directors since
March 1996, and has been a Director since October 1994. He has been the owner
and operator of Vertin Company, a business management firm with a variety of
commercial business and real estate interests, primarily involving multi-state
funeral homes, since its inception in 1981. He is also a partner in The Coveda
Company, a management firm that operates Hardee's restaurants in Minnesota,
North Dakota and South Dakota.
TONY CID, 35, has been the Senior Vice President of the Company since April
1994. He held various positions with Continental Insurance Companies from March
1989 to February 1994.
RAFORD S. HARGROVE, JR., 28, has been President of Crop Growers Software,
Inc. since October 1994. He was General Manager of Crop Growers Software, Inc.
from January 1991 to October 1994, and was a Director of the Company from
October 1994 to July 1996.
DAVID E. HILL, 34, has been Chief Financial Officer of the Company since
December 1995, and Secretary and Treasurer since May 1996. He served as Chief
Accounting Officer from March 1995 to December 1995, and Vice President and
Controller of Insurance Company Operations from September 1994 to March 1995. He
was with the accounting firm of KPMG Peat Marwick LLP from January 1985 to
September 1994.
FIREMAN'S FUND AND AFFILIATES
Fireman's Fund is a wholly owned subsidiary of AZOA, and AZ AG holds 90% of
the voting securities of AZOA. See "SUMMARY--Fireman's Fund.
36
<PAGE>
FIREMAN'S FUND. The names, principal occupations and employment history for
the past five years of the directors and executive officers of Fireman's Fund
are set forth below. Mr. Hansmeyer and Dr. Schulte-Noelle are German citizens.
Dr. Schulte-Noelle's address is K(3)niginstrasse 28, 80802 Munich Federal
Republic of Germany, and Mr. Marks' address is 55 Green Farms Road, Westport,
Connecticut 06881.
GARY E. BLACK, Director; President, Claims Division, since 1997; Executive
Vice President of Fireman's Fund since 1987.
HERBERT HANSMEYER, Director and Chairman of the Board since 1991; Member of
the Board of Management of AZ AG since 1994.
DAVID R. POLLARD, Director; Executive Vice President of Fireman's Fund.
JEFFREY H. POST, Director; Executive Vice President, Chief Financial Officer
and Actuary of Fireman's Fund since 1994; Senior Actuary with St. Paul Companies
Inc. from 1985 to 1994.
THOMAS E. ROWE, Director; Executive Vice President of Fireman's Fund since
1993; Senior Vice President from 1987 to 1993.
DR. HENNING SCHULTE-NOELLE, Director; Chairman of the Board of Management of
AZ AG and Director, President and Chief Executive Officer of AZOA since 1991.
JOE L. STINNETTE, JR., Director; President and Chief Executive Officer of
Fireman's Fund since 1994; Chief Administrative Officer from 1991 to 1994;
Director of AZOA since 1994.
DAVID P. MARKS, Executive Vice President of Fireman's Fund; Director,
Secretary and Assistant Treasurer of AZOA since 1991.
HAROLD N. MARSH, III, Senior Vice President and Treasurer of Fireman's Fund
since 1991.
THOMAS A. SWANSON, Senior Vice President and General Counsel of Fireman's
Fund since 1988; Corporate Secretary since 1993.
AZOA. The names and, unless already set forth under "--Fireman's Fund"
above, the principal occupations and employment history for the past five years
of the directors and executive officers of AZOA are set forth below. Mr.
Hansmeyer and Drs. Schulte-Noelle, Breipohl and Schinzler are German citizens.
The address of Mr. Hansmeyer and Drs. Schulte-Noelle and Breipohl is
Koniginstrasse 28, 80802 Munich Federal Republic of Germany; the address of
Messrs. Clark and Marks is 55 Green Farms Road, Westport, Connecticut 06881; the
address of Mr. Stinnette is 777 San Marin Drive, Novato, California 94998; the
address of Mr Anderson is 1750 Hennepin Avenue, Minneapolis, Minnesota 55403;
and the address of Dr. Schinzler is 500 Lexington Avenue, New York, New York
10022.
DR. HENNING SCHULTE-NOELLE, Director, President and Chief Executive Officer.
LOWELL C. ANDERSON, Director.
DR. DIETHART BREIPOHL, Director; Member of the Board of Management of AZ AG.
HERBERT HANSMEYER, Director.
DAVID P. MARKS, Director, Secretary and Assistant Treasurer.
DR. HANS JURGEN SCHINZLER, Director.
JOE L. STINNETTE, JR., Director.
RONALD M. CLARK, Treasurer and Assistant Secretary.
37
<PAGE>
AZ AG. The names and, unless already set forth under "--Fireman's Fund" or
- --AZOA" above, the principal occupations and employment history for the past
five years of the members of the Board of Management of AZ AG are set forth
below. With the exception of Dr. Gavazzi, who is an Italian citizen, all of the
named individuals are German citizens. The address of each of the named
individuals is Koniginstrasse 28, 80802 Munich Federal Republic of Germany.
DR. HENNING SCHULTE-NOELLE, Chairman of the Board of Management.
DETLAV BREMKAMP, Member.
DR. REINER HAGEMANN, Member.
DR. GERHARD RUPPRECHT, Member.
DR. DIETHART BREIPOHL, Member.
DR. ROBERTO GAVAZZI, Member since 1994; Chairman of the Board of Riunione
Adriatica di Sicurata since 1991; Chairman of the Board of Allianz Via
Assurances since 1993.
HERBERT HANSMEYER, Member.
THE MERGER SUBSIDIARY
The names and, unless already set forth under "--Fireman's Fund" above,
principal occupations and employment history for the past five years of the
directors and executive officers of The Merger Subsidiary are set forth below.
HAROLD N. MARSH, III, Director and Senior Vice President and Treasurer.
JEFFREY H. POST, Director and Executive Vice President, Chief Financial
Officer and Actuary.
JOE L. STINNETTE, JR., Director and Chairman of the Board, President and
Chief Executive Officer.
THOMAS A. SWANSON, Senior Vice President, General Counsel and Corporate
Secretary.
RICHARD G. WARREN, Senior Vice President and Controller.
CERTAIN PROCEEDINGS
On January 21, 1997, the Company entered a NOLO CONTENDERE plea to two
charges in the matter of UNITED STATES OF AMERICA V. CROP GROWERS CORPORATION,
JOHN J. HEMMINGSON AND GARY A. BLACK (Crim. No. 96-0181 (GK)), filed in the
United States Federal District Court in Washington, D.C. The case was brought
against the Company by the Independent Counsel appointed to investigate former
United States Secretary of Agriculture Mike Espy. The Company paid a fine in the
amount of $2 million. The counts with respect to which the Company entered its
plea alleged conspiracy to make and conceal illegal campaign contributions and
the making and keeping of false records and accounts under provisions of the
Securities and Exchange Act of 1934. A nolo contendere plea is neither an
admission nor a denial of guilt.
Except as described in the preceding paragraph, during the past five years,
neither the Company, Fireman's Fund, AZOA, AZ AG, the Merger Subsidiary, nor any
of the individuals named above with respect to those entities has been convicted
in a criminal proceeding (excluding traffic violations and similar
misdemeanors), or been a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction and as a result of such proceeding
been or become subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws of finding any violation with respect to such laws.
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STOCKHOLDER PROPOSALS
In the event the Merger is not consummated for any reason, proposals of
stockholders intended to be presented at the 1997 annual meeting of stockholders
must be received by the Company at its principal executive offices not later
than May , 1997 for inclusion in the Company's proxy statement and form of proxy
relating to that meeting. Stockholders should mail any proposals by certified
mail return receipt requested.
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements of the Company as of December 31,
1996, December 31, 1995, and December 31, 1994, and for each of the years in the
three-year period ended December 31, 1996, incorporated by reference in this
Proxy Statement, have been audited by KPMG Peat Marwick LLP, independent public
accountants.
A representative of KPMG Peat Marwick LLP will be at the Special Meeting to
answer questions by stockholders and will have the opportunity to make a
statement if so desired.
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the year ended December 31,
1996, its Quarterly Report on Form 10-Q for the quarter ended March 31, 1997,
and its Current Reports on Form 8-K dated January 3, 1997, January 21, 1997 and
February 28, 1997 as filed by the Company with the Commission (Commission File
No. 0-23830), are incorporated by reference into this Proxy Statement.
All documents filed by the Company pursuant to sections 13(a), 13(c), 14 or
15(d) or the Exchange Act after the date of this Proxy Statement and prior to
the date of the Special Meeting shall be deemed to be incorporated by reference
herein and to be a part hereof from the date of filing of such documents. Copies
of the documents (without exhibits) incorporated by reference in this Proxy
Statement are available without charge upon written or oral request from David
E. Hill, Chief Financial Officer, Crop Growers Corporation, 10895 Lowell Avenue,
Suite 300, Overland Park, Kansas 66210 (telephone (913) 338-7800).
AVAILABLE INFORMATION
The Company is subject to the informational reporting requirements of the
Exchange Act and, in accordance therewith, files reports, proxy statements and
other information with the Commission. Such reports, proxy statements and other
information can be inspected and copies made at the public reference facilities
of the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and the Commission's regional offices at Seven World Trade Center, Suite 1300,
New York, New York 10048 and Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661. Copies of such material can also be obtained from
the Public Reference Section of Commission at its Washington, D.C. address at
prescribed rates. The Commission also maintains a Web site address,
http://www.sec.gov. The Company's Common Stock is listed and traded on the
Nasdaq National Market, and such reports, proxy statements and other information
may be inspected at the offices of Nasdaq Operations, 1735 K Street, N.W.,
Washington, D.C. 20006.
ADDITIONAL INFORMATION
This Proxy Statement contains information disclosed pursuant to Rule 13e-3
under the Exchange Act, which governs so-called "going private" transactions by
certain issuers and their affiliates. At the time the Company and Fireman's Fund
entered into the March 5 Agreement, Fireman's Fund owned 10,000 shares of the
Company's Preferred Stock, which, on an as converted basis, represented 8.6% of
the combined voting power of the Company's Common Stock and Preferred Stock. At
such time, Fireman's Fund had the right to acquire from Messrs. Hemmingson and
Black 1,827,447 shares of Common Stock, which, together with the Preferred
Stock, represented 29.6% of such combined voting power, but the exercise of such
right was subject to the Company's consent. Although neither the Company nor
Fireman's Fund believes that
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Fireman's Fund or the Merger Subsidiary was then an "affiliate" of the Company
within the meaning of Rule 13e-3(a)(1) of the Exchange Act, and both Fireman's
Fund and the Merger Subsidiary deny being affiliates of the Company at the time
the March 5 Agreement was entered into, Fireman's Fund, the Merger Subsidiary
and the Company are filing a Rule 13e-3 Transaction Statement ("Schedule 13E-3")
with the Commission to furnish information with respect to the transactions
described herein. This Proxy Statement does not contain all of the information
set forth in the Schedule 13E-3, parts of which are omitted in accordance with
the regulations of the Commission. The Schedule 13E-3, and any amendments
thereto, including exhibits filed as part thereof, will be available for
inspection and copying at the offices of the Commission as set forth above.
By Order of the Board of Directors
David E. Hill
SECRETARY
Overland Park, Kansas
May , 1997
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EXHIBIT A
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger (this "AGREEMENT") dated May 1, 1997 is
entered into among CROP GROWERS CORPORATION, a Delaware corporation (the
"COMPANY"), FIREMAN'S FUND INSURANCE COMPANY, a California corporation (the
"BUYER"), and CG ACQUISITIONS CORP., a Delaware corporation and direct
subsidiary of the Buyer (the "BUYER SUBSIDIARY").
The Company and the Buyer entered into a binding acquisition agreement dated
March 5, 1997 (the "ACQUISITION AGREEMENT") pursuant to which the parties agreed
that an affiliate of the Buyer would merge into the Company, with the Company
being the surviving corporation, in which (i) the common stockholders of the
Company will be entitled to receive cash in the amount of $10.25 per share upon
surrender of the relevant stock certificate following the closing, (ii) the
holders of options to acquire common stock of the Company will receive a cash
settlement equal to the spread (if any) represented by each option, based on
such price per share, and (iii) the Buyer or an affiliate of the Buyer will
become the holder of all the outstanding common stock and rights to acquire
common stock of the Company.
The Acquisition Agreement contemplates that Implementation Agreements (as
defined therein) will be entered into to carry out the acquisition contemplated
thereby. This Agreement is such an Implementation Agreement.
The Company's outstanding capital stock consists of two classes: (i) common
stock, par value $0.01 per share (the "COMMON STOCK"), and (ii) Series A
Convertible Preferred Stock, par value $0.01 per share (the "PREFERRED STOCK").
The Buyer Subsidiary's outstanding capital stock consists of common stock,
$1.00 per share (the "BUYER SUBSIDIARY COMMON STOCK").
NOW, THEREFORE, the parties hereby agree as follows:
SECTION 1. THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement, at
the Effective Time (as defined in Section 1.3 hereof), the Buyer Subsidiary
shall be merged with and into the Company in accordance with this Agreement and
the separate corporate existence of the Buyer Subsidiary shall thereupon cease
(the "MERGER"). The Company shall be the surviving corporation in the Merger
(sometimes hereinafter referred to as the "SURVIVING CORPORATION"). The Merger
shall have the effects specified in Section 259 of the Delaware General
Corporation Law (the "DGCL").
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the consummation of the Merger (the "CLOSING") shall take place within 5
business days after the satisfaction or waiver (the party or parities entitled
to waive) all conditions to Closing set forth in this Agreement. The date on
which the Closing occurs is herein called the "CLOSING DATE."
1.3 EFFECTIVE TIME. If all the conditions to the Merger set forth in
Sections 12 and 13 shall have been fulfilled or waived in accordance herewith
and this Agreement shall not have been terminated as provided in Section 14, the
parties hereto shall cause a Certificate of Merger satisfying the requirements
of the DGCL to be properly executed, verified and delivered for filing in
accordance with the DGCL on the Closing Date. The Merger shall become effective
upon the acceptance for record of the Certificates of Merger by the Secretary of
State of Delaware in accordance with the DGCL (the "EFFECTIVE TIME").
SECTION 2. THE SURVIVING CORPORATION
2.1 ARTICLES OF INCORPORATION. The Certificate of Incorporation of the
Company shall be the Certificate of Incorporation of the Surviving Corporation.
2.2 BYLAWS. The Bylaws of the Company shall be the Bylaws of the Surviving
Corporation.
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2.3 BOARD OF DIRECTORS. The Board of Directors of the Surviving Company
will consist of individuals designated by the Buyer on or before the Effective
Time.
2.4 OFFICERS. The officers of the Surviving Company will consist of
individuals designated by the Buyer on or before the Effective Time.
SECTION 3. CONVERSION OF SECURITIES
3.1 CAPITAL STOCK. As of the Effective Time, by virtue of the Merger and
without any action on the part of the holders of any shares of capital stock of
the Company:
(a) BUYER SUBSIDIARY CAPITAL STOCK. Each issued and outstanding share
of Buyer Subsidiary Common Stock shall be converted into and become one fully
paid and nonassessable share of common stock, $0.01 par value per share of the
Surviving Corporation.
(b) COMPANY CAPITAL STOCK.
(i) COMMON STOCK. Each issued and outstanding Share (a "SHARE") of
the Common Stock (other than any Shares which are held by stockholders
exercising appraisal rights pursuant to Section 262 of the DGCL (the "DISSENTING
STOCKHOLDERS") and other than any Shares held by the Buyer or the Buyer's
designee) shall be converted into the right to receive $10.25 in cash, payable
to the holder thereof, without interest (the "MERGER CONSIDERATION"), upon
surrender of the certificate formerly representing such Share in the manner
provided in Section 3.2. All such Shares, when so converted, shall no longer be
outstanding and shall automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any such Shares shall cease
to have any rights with respect thereto, except the right to receive the Merger
Consideration therefor upon surrender of such certificate in accordance with
Section 3.2, without interest, or, in the case of Dissenting Stockholders, the
right, if any, to receive payment from the Surviving Corporation of the "fair
value" of such Shares as determined in accordance with Section 262 of the DGCL.
(ii) COMMON STOCK HELD BY THE BUYER. All Shares of Common Stock
held by the Buyer or the Buyer's designee shall be canceled.
(iii) PREFERRED STOCK. Each issued and outstanding share of the
Preferred Stock shall continue as an identical share of preferred stock of the
Surviving Corporation.
(c) CANCELLATION OF TREASURY STOCK. All Shares that are owned by the
Company shall be canceled and retired and shall cease to exist and no
consideration shall be delivered in exchange therefor.
3.2 SURRENDER OF CERTIFICATES.
(a) PAYING AGENT. Prior to the Effective Time, the Buyer shall
designate a bank or trust company to act as agent for the holders of the Shares
in connection with the Merger (the "PAYING AGENT") to receive the funds to which
the holders of the Shares shall become entitled pursuant to Section 3.1(b)(i).
The Buyer shall pay the Merger Consideration under Section 3.1(b)(i) to the
Paying Agent on or before the date on which the Effective Time occurs. All
interest earned on such funds shall be paid the Surviving Corporation.
(b) SURRENDER PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Paying Agent shall mail each holder of record of a
certificate or certificates, which immediately prior to the Effective Time
represented outstanding Shares (the "CERTIFICATES"), whose shares were converted
pursuant to Section 3.1(b)(i) into the right to receive the Merger Consideration
(i) a letter of transmittal (which shall specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent and shall be in such form and
have such other provisions as the Buyer and the Company may reasonably specify)
and (ii) instructions for use in effecting the surrender of the Certificates in
exchange for payment of the Merger Consideration. Upon surrender of a
Certificate for cancellation to the Paying Agent or to such other agent or
agents as may by appointed by the Buyer, together with such letter of
transmittal, duly executed, the holder of such Certificate shall be entitled to
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receive in exchange therefor the Merger Consideration for each Share formerly
represented by such Certificate and the Certificate so surrendered shall
forthwith be canceled. If payment of the Merger Consideration is to be made to a
person other than the person in whose name the surrendered Certificate is
registered, it shall be a condition of payment that the Certificate so
surrendered shall be properly endorsed or shall be otherwise in proper form for
transfer and that the person requested in such payment shall have paid any
transfer and other taxes required by reason of the payment of the Merger
Consideration to a person other than the registered holder of the Certificate
surrendered or shall have established to the satisfaction of the Surviving
Corporation that such tax either has been paid or is not applicable. Until
surrendered as contemplated by this Section 3.2, each Certificate shall be
deemed at any time after the Effective Time to represent only the right to
receive the Merger Consideration as contemplated by this Section 3.2. The right
of any holder of Shares to receive the Merger Consideration shall be subject to
and reduced by any applicable withholding obligation.
(c) TRANSFER BOOKS; NO FURTHER OWNERSHIP RIGHTS IN THE SHARES. At the
Effective Time, the stock transfer books of the Company shall be closed and
thereafter there shall be no further registration of transfers of the Shares on
the records of the Company. From and after the Effective Time, the holders of
Certificates evidencing ownership of the Shares outstanding immediately prior to
the Effective Time shall cease to have any rights with respect to such Shares,
except as otherwise provided for herein or by applicable law.
(d) TERMINATION OF FUND; NO LIABILITY. At any time following six
months after the Effective Time, the Surviving Corporation shall be entitled to
require the Paying Agent to deliver to it any funds (including any interest
received with respect thereto) which had been made available to the Paying Agent
and which have not been disbursed to holders of Certificates, and thereafter
such holders shall be entitled to look to the Surviving Corporation (subject to
abandoned property, escheat or other similar laws) only as general creditors
thereof with respect to the Merger Consideration payable upon due surrender of
their Certificates, without any interest thereon. In no event shall the Buyer,
the Surviving Corporation or the Paying Agent shall be liable to any holder of a
Certificate for Merger Consideration delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
(e) LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of an
affidavit of that fact by the registered holder thereof or such holder's duly
authorized attorney-in-fact, the Surviving Company may pay, or authorize the
Paying Agent to pay, the Merger Consideration with respect thereto, subject to
Section 3.2(d) if applicable, PROVIDED, HOWEVER, that the Board of Directors of
the Surviving Company may, it its discretion and as a condition precedent to the
payment thereof, require the registered holder(s) and/or beneficial owner(s) of
such Certificate to give the Surviving Corporation a bond in such sum as it may
direct as indemnity against any claim that may be made against the Surviving
Corporation, the Company, the Buyer or the Buyer Subsidiary with respect to the
Certificate alleged to have been lost, stolen or destroyed.
3.3 DISSENTER'S RIGHTS. If any Dissenting Stockholder shall be entitled to
be paid the "fair value" of such holder's Shares, as provided in Section 262 of
the DGCL, the Company shall give the Buyer and Buyer Subsidiary notice thereof
and the Buyer and Buyer Subsidiary shall have the right to participate in all
negotiations and proceedings with respect to any such demands. The Surviving
Corporation shall not, except with the prior written consent of the Buyer or the
Buyer Subsidiary, voluntarily make any payment with respect to, or settle or
offer to settle, any such demand for payment. If any Dissenting Stockholder
shall fail to perfect or shall have effectively withdrawn or lost the right to
dissent, the Shares held by such Dissenting Stockholder shall thereupon be
treated as though such Shares had been converted into the right to receive the
Merger Consideration pursuant to Section 3.1(b)(i).
3.4 COMPANY STOCK PLANS. On the Effective Time, (i) cause each outstanding
stock option (the "OPTIONS") to purchase Shares granted under the Company's
option arrangements set forth in Section 8(b) of the Company's disclosure
schedule delivered concurrently with the Acquisition Agreement (the "DISCLOSURE
SCHEDULE"), whether or not then exercisable or vested, will become fully
exercisable and vested. The Company will cause each Option that is then
outstanding to be canceled as of the Effective
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Time. In consideration of such cancellation, and except that the Buyer or the
Buyer Subsidiary and the holder of any such Option otherwise agree, the Buyer
will cause the Company (or, at the Buyer's option, the Buyer Subsidiary) to pay
such holders of Options an amount in respect thereof equal to the product of (A)
the excess, if any, of the Merger Consideration over the exercise price of each
such Option and (B) the number of Shares previously subject to the Option
immediately prior to its cancellation (such payment to be net of withholding
taxes).
SECTION 4. NO SOLICITATION, ETC.
(a) Until the earlier of the termination of this Agreement pursuant to its
terms or the Effective Time, neither the Company nor any of its subsidiaries nor
any representative of the Company or any of its subsidiaries shall, directly or
indirectly, take any action to (i) encourage, solicit or initiate the submission
of any Acquisition Proposal, (ii) enter into any agreement for or relating to a
Third Party Transaction, or (iii) participate in any way in discussions or
negotiations with, or furnish any non-public information to, any Person in
connection with any Acquisition Proposal. Notwithstanding any other provision of
this Section 4(a), the Company may, in response to an unsolicited BONA FIDE
offer or proposal made by a third party to it, provide information to or have
discussions or negotiations with such third party; PROVIDED, HOWEVER, that if
such offer or proposal is received after March 28, 1997, the Board of Directors
must first make a determination in good faith, after hearing advice of its
outside counsel, that such action is necessary in order for the Board of
Directors to comply with its fiduciary duties under applicable law. The Company
will immediately communicate to the Buyer the receipt of any third party
solicitation, proposal or BONA FIDE inquiry that the Company, any of its
subsidiaries or any representative of the Company or any of its subsidiaries may
receive in respect of any such transaction, or of any request for such
information, including in each case a copy thereof and all other particulars
thereof.
(b) "ACQUISITION PROPOSAL" means any proposed Acquisition Transaction.
"ACQUISITION TRANSACTION" means any (i) merger, consolidation or similar
transaction involving the Company, (ii) sale, lease or other disposition
directly or indirectly by merger, consolidation, share exchange or otherwise of
any assets of the Company or its subsidiaries representing 15% or more of the
consolidated assets of the Company and its subsidiaries, (iii) issue, sale or
other disposition of (including by way of merger, consolidation, share exchange
or any similar transaction) securities (or options, rights or warrants to
purchase, or securities convertible into, such securities) representing 15% or
more of the votes attached to the outstanding securities of the Company, (iv)
transaction in which any person shall acquire Beneficial Ownership or the right
to acquire Beneficial Ownership, or any Group shall have been formed which has
Beneficial Ownership or has the right to acquire Beneficial Ownership, of 15% or
more of the outstanding shares of common stock of the Company, (v)
recapitalization, restructuring, liquidation, dissolution or other similar type
of transaction with respect to the Company or any of its subsidiaries, or (vi)
transaction which is similar in form, substance or purpose to any of the
foregoing transactions. "THIRD PARTY TRANSACTION" shall mean an Acquisition
Transaction with a party unrelated to the Buyer. "BENEFICIAL OWNERSHIP" and
"GROUP" shall have the meanings stated in Regulation 13D-G under the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT").
(c) The Company will use its best efforts to take all action necessary in
accordance with applicable law and its certificate of incorporation and bylaws
to convene a meeting of its stockholders as promptly as practicable to consider
and vote upon the approval of the Merger. The Board of Directors of the Company
shall recommend and declare advisable to its stockholders such approval and the
Company shall take all lawful action to solicit, and use all best efforts to
obtain, approval of its stockholders, and neither the Board of Directors of the
Company nor any committee of such Board of Directors shall (i) withdraw or
modify the approval or recommendation by such Board of Directors or such
committee of the Merger, (ii) approve or recommend any Acquisition Proposal
other than the Merger, or (iii) cause the Company to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar agreement
with respect to any Acquisition Proposal other than the Merger. Notwithstanding
the foregoing, the Board of Directors of the Company may withdraw or modify its
approval or recommendation of the Merger,
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approve or recommend a Superior Proposal or terminate this Agreement, but in
each case only concurrently with the payment of the amount required by Section
14(d) or 14(e), as applicable, and after a determination in good faith, after
hearing advice of its outside counsel, that such action is necessary in order
for the Board of Directors to comply with its fiduciary duties to stockholders
under applicable law. A "SUPERIOR PROPOSAL" means any bona fide Acquisition
Proposal, the terms of which the Board of Directors of the Company determines in
its good faith judgment (after hearing the advice of a financial advisor of
nationally recognized reputation) to be more favorable to the Company's
stockholders than the Merger.
SECTION 5. ACCESS
The Company shall (and shall cause each of its subsidiaries to) afford to
the Buyer and its agents and representatives full access during normal business
hours throughout the period prior to the Effective Time to all of its
properties, books, contracts, commitments and records and during such period
shall (and shall cause each of its subsidiaries to) furnish promptly to such
parties (i) a copy of each report, schedule and other document filed or received
by it pursuant to the requirements of federal or state securities or insurance
laws and (ii) all other information concerning its business, properties and
personnel as such party may reasonably request, including any financial and
operating data. Any such access shall commence forthwith, and shall be conducted
in such a manner so as not to interfere unreasonably with the business or
operations of the Company. The Buyer shall maintain the confidentiality of any
nonpublic information received by it or its representatives pursuant to this
Section 5.
SECTION 6. CONSENTS
The parties hereto will use their respective reasonable best efforts to (i)
obtain all material consents, authorizations, orders and approvals of or from
private parties or Government Entities, required, proper or advisable in
connection with this Agreement and the Merger and (ii) resolve any action, suit,
proceeding or investigation which shall have been instituted or which a
Government Entity shall have indicated its intention to institute which
jeopardizes the Merger; PROVIDED, HOWEVER, that no party hereto shall be
obligated to take any such action which, in the reasonable opinion of such party
(following consultation with its counsel), would (x) have a material adverse
effect on the assets, properties, liabilities, obligations, financial
conditions, results of operations or business (a "MATERIAL ADVERSE EFFECT") of
such party and its subsidiaries taken as a whole or (y) have a Material Adverse
Effect or materially restrict or impair the effective ownership, operation or
control of the Company by the Buyer following the consummation of the Merger.
"GOVERNMENTAL ENTITY" means any federal, state or local governmental or
regulatory agency, authority or instrumentality, whether domestic or foreign.
SECTION 7. ANNOUNCEMENTS
The parties hereto will consult and cooperate with each other and agree upon
the terms and substance of all press releases, announcements and public
statements with respect to this Agreement and the Merger, PROVIDED, HOWEVER,
that such consultation and cooperation shall not interfere with any obligation
of either party hereto to disclose any information as required by applicable
law. Any press release or other announcement by any party with respect to the
Merger will be subject to the consent and approval of the other party, which
consent or approval will not be unreasonably withheld.
SECTION 8. INTERIM OPERATIONS
Except as set forth on the Disclosure Schedule, or expressly required or
permitted by this Agreement, from and after the date hereof until the earlier of
(i) the Effective Time or (ii) the termination of this Agreement pursuant to its
terms, the Company will and will cause its subsidiaries to (w), except as
otherwise agreed to by the Buyer orally or in writing, operate its businesses in
the ordinary course of business, (x) not take any action or fail to take any
action which would or could reasonably be expected to jeopardize any of its
material contracts or its good standing with all applicable Departments of
Insurance and similar regulatory agencies with jurisdiction over the Company,
(y) not take any extraordinary action or fail to take any action, the failure of
which to be taken would be an extraordinary action, and (z) not
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declare, set aside or pay any dividend (other than stated dividends on the
Preferred Stock) or other distribution in respect of its capital stock, whether
in stock, cash, indebtedness or other Property, redeem, repurchase or otherwise
acquire any of its outstanding capital stock, whether for stock, cash,
indebtedness or Property, or issue any capital stock or any right to acquire,
convert into or exchange for capital stock except pursuant to stock options
outstanding on March 5, 1997. The Company agrees that, in the event it adopts a
"rights plan," "poison pill" or similar plan or arrangement, it will include a
provision expressly exempting the Buyer from the operation thereof.
SECTION 9. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Buyer and the Buyer
Subsidiary that, as of the date of this Agreement:
(a) ORGANIZATION AND QUALIFICATIONS. The Company and each subsidiary
of the Company is a corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite corporate power and authority, and all governmental permits, approvals
and other authorizations, necessary to own, lease and operate its Properties and
to carry on its business as it is now being conducted, except for such
exceptions as would not, individually or in the aggregate, have a Material
Adverse Effect on the Company and its subsidiaries taken as a whole (a "COMPANY
MATERIAL ADVERSE EFFECT").
(b) CAPITALIZATION. The authorized capital stock of the Company is as
set forth on the Disclosure Schedule. Except as set forth thereon, no shares of
capital stock or other voting securities of the Company are issued, reserved for
issuance or outstanding. Except as set forth above and except as contemplated
herein, there are no options or agreements relating to the issued or unissued
capital stock of the Company or any subsidiary of the Company, or obligating the
Company or any subsidiary to issue, transfer, grant or sell any shares of
capital stock of, or other equity interests in, or securities convertible into
or exchangeable for any capital stock or other equity interests in, the Company
or any subsidiary. There are no outstanding contractual obligations of the
Company or any subsidiary to repurchase, redeem or otherwise acquire any shares
of capital stock of the Company or any subsidiary. Attached hereto as Exhibit 1
is a complete and accurate list of each holder of an option to acquire Shares,
showing the number of shares and exercise price under each option.
(c) AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and, subject to adoption of this Agreement
by the stockholders of the Company as contemplated hereby (the "STOCKHOLDER
APPROVAL"), to consummate the Merger. The execution and delivery of this
Agreement by the Company and the consummation by it of the Merger have been duly
and validly authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company is necessary to authorize this Agreement
or to consummate the Merger (other than the Stockholder Approval). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by each other
party hereto, constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium or other
similar laws relating to creditors' rights generally and by equitable
principles.
(d) NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(i) The execution and delivery of this Agreement by the Company does
not, and the performance of its obligations hereunder and the
consummation of the Merger by it will not, (A) conflict with or violate
the certificate of incorporation or bylaws of the Company or any of its
subsidiaries, (B) subject to the making of the filings and obtaining the
approvals identified in Section 9(d)(ii), conflict with or violate any
law, rule, regulation, order, judgment or decree (collectively, "LAWS")
applicable to the Company or any of its subsidiaries or by which any
Property or asset of the Company or any of its subsidiaries is bound or
affected, or (C) except as disclosed in the Disclosure Schedule, conflict
with, result in any breach of, constitute a default (or
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an event which with notice or lapse of time or both would become a
default) under, result in a loss or modification adverse to the Company
or its subsidiaries of any right or benefit under, give to others any
right of termination, amendment, acceleration, repurchase, repayment,
increased payments or cancellation of, or result in the creation of a
lien or other encumbrance on any Property or asset of the Company or any
subsidiary pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or
obligation, whether written or oral (collectively, a "CONTRACT"), to
which the Company or any subsidiary is a party or by which the Company or
any subsidiary or any Property or asset of the Company or any subsidiary
is bound or affected, except, in the case of clauses (B) and (C), for any
such conflicts, violations or other consequences which would not,
individually or in the aggregate, prevent or delay in any material
respect the consummation of the Merger or prevent the Company from
performing its obligations under this Agreement in any material respect
and which, in any case, would not, individually or in the aggregate, have
a Company Material Adverse Effect.
(ii) The execution and delivery of this Agreement by the Company does
not, and the performance of its obligations hereunder and the
consummation of the Merger by it will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
Government Entity for or by any party, except (A) for applicable
requirements of (l) the Exchange Act (in the case of the Company only)
and the filing, of a certificate of merger under the DGCL, (2), to the
knowledge of the Company on the date hereof, the state insurance holding
company laws of the states previously agreed by the parties (in the case
of the Buyer only) and (3) the Hart-Scott-Rodino Antitrust Improvement
Act (the "HSR ACT") and (B) where the failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not, individually or in the aggregate, prevent or
delay in any material respect consummation of the Merger, or otherwise
prevent the Company from performing its obligations hereunder in any
material respect, and would not, individually or in the aggregate, have a
Company Material Adverse Effect.
(e) SECURITIES REPORTS AND FINANCIAL STATEMENTS. Except as set forth
on the Disclosure Schedule, each form, report, schedule, registration statement
and definitive proxy statement filed by the Company with the Securities and
Exchange Commission ("SEC") since December 31, 1995 and prior to the date hereof
(as such documents have been amended prior to the date hereof, collectively the
"COMPANY SEC REPORTS"), as of their respective dates, complied in all material
respects with the applicable requirements of the Securities Act and the Exchange
Act and the rules and regulations thereunder. Except as set forth in the
Disclosure Schedule, none of the Company SEC Reports, as of their respective
dates, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, except for such statements, if any, as have been modified or
superseded by subsequent Company SEC Reports filed prior to the date hereof. The
consolidated financial statements of the Company and its subsidiaries included
in such reports comply in all material respects with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
involved (except as may be indicated in the notes thereto or, in the case of the
unaided interim financial statements, as permitted by Form 10-Q of the SEC) and
fairly present (subject, in the case of the unaudited interim financial
statements, to normal year-end audit adjustments) the consolidated financial
position of the Company and its subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended. Except as set forth in the Disclosure Schedule, since December 31, 1996,
neither the Company nor any of its subsidiaries has incurred any liabilities or
obligations (whether absolute, accrued, fixed, contingent, liquidated,
unliquidated or otherwise and whether due or to become due) of any nature,
except liabilities, obligations or contingencies which (i) were incurred in the
ordinary course of business after such interim date and are consistent with past
practices, (ii) are disclosed in the Company SEC Reports filed after such date,
or (iii) would not, individually or in the aggregate, have a Company Material
Adverse Effect. Since
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December 31, 1996, there has been no change in any of the significant accounting
(including tax accounting) policies, practices or procedures of the Company or
any material subsidiary.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as contemplated by
this Agreement, as disclosed in any Company SEC Report or as set forth in the
Disclosure Schedule, since December 31, 1996, (i) the Company and its
subsidiaries have conducted their respective businesses only in the ordinary
course, consistent with past practice, and have not taken any action that would
be inconsistent with the covenants set forth in Section 8 if they had applied
during such period, and (ii) there has not occurred or arisen any event that,
individually or in the aggregate, has had or, insofar as reasonably can be
foreseen, is likely in the future to have, a Company Material Adverse Effect
other than any developments that generally affect the industry in which the
Company operates.
SECTION 10. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer hereby represents and warrants to the Company that, as of the date
of this Agreement:
(a) ORGANIZATION AND QUALIFICATIONS. The Buyer is a corporation duly
incorporated or organized, validly existing and in good standing under the laws
of the jurisdiction of its incorporation and has the requisite power and
authority and all governmental permits, approvals and other authorizations
necessary to own, lease and operate its Properties and to carry on its business
as it is now being conducted, except for such exceptions as would not,
individually or in the aggregate, have a Material Adverse Effect on the Buyer
and its subsidiaries, taken as a whole (a "BUYER MATERIAL ADVERSE EFFECT").
(b) AUTHORITY RELATIVE TO THIS AGREEMENT. The Buyer has all necessary
corporate power and authority to execute and deliver this Agreement, to perform
its obligations hereunder and to consummate the Merger. The execution and
delivery of this Agreement by the Buyer and the consummation by it of the Merger
have been duly and validly authorized by all necessary corporate action and no
other corporate proceedings on the part of the Buyer is necessary to authorize
this Agreement or to consummate the Merger. This Agreement has been duly and
validly executed and delivered by the Buyer and, assuming the due authorization,
execution and delivery thereof by the Company, constitutes the legal, valid and
binding obligation of the Buyer, except as enforcement may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to creditors'
rights generally and by equitable principles.
(c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(i) The execution and delivery of this Agreement by the Buyer does
not, and the performance of its obligations hereunder and the
consummation of the Merger by it will not (A) conflict with or violate
the certificate of incorporation or bylaws of the Buyer, (B) subject to
the making of the filings and obtaining the approvals identified in
Section 10(c)(ii), conflict with or violate any Laws applicable to the
Buyer or by which any Property or asset of the Buyer is bound or
affected, or (C) conflict with or result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would
become a default) under, result in the loss or modification in a manner
materially adverse to the Buyer of any material right or benefit under,
or give to others any right of termination, amendment, acceleration,
repurchase or repayment, increased payments or cancellation of, or result
in the creation of a lien or other encumbrance on any Property or asset
of the Buyer pursuant to, any Contract to which the Buyer is a party or
by which the Buyer or any Property or asset of the Buyer is bound or
affected, except, in the case of clauses (B) and (C), for any such
conflicts or violations which would not prevent or delay in any material
respect the consummation of the Merger, or otherwise, individually or in
the aggregate, prevent the Buyer from performing its obligations under
this Agreement in any material respect.
(ii) The execution and delivery of this Agreement by the Buyer does
not, and the performance of its obligations hereunder and the
consummation of the Merger by it will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any
Governmental Entity for or by the Buyer, except (A) for applicable
requirements of (1) the insurance company holding laws of certain states
and (2) the HSR Act, and (B) where the failure to obtain such
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consents, approvals, authorizations or permits, or to make such filings
or notifications, would not, individually or in the aggregate, prevent or
delay in any material respect consummation of the Merger, or otherwise
prevent the Buyer from performing its obligations hereunder in any
material respect.
SECTION 11. REPRESENTATIONS AND WARRANTIES OF THE BUYER SUBSIDIARY
The Buyer Subsidiary hereby represents and warrants to the Company that, as
of the date of this Agreement:
(a) ORGANIZATION AND QUALIFICATIONS. The Buyer Subsidiary is a
corporation duly incorporated or organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has the
requisite power and authority and all governmental permits, approvals and other
authorizations necessary to own, lease and operate its Properties and to carry
on its business as it is now being conducted, except for such exceptions as
would not, individually or in the aggregate, have a Buyer Material Adverse
Effect.
(b) AUTHORITY RELATIVE TO THIS AGREEMENT. The Buyer Subsidiary has all
necessary corporate power and authority to execute and deliver this Agreement,
to perform its obligations hereunder and to consummate the Merger. The execution
and delivery of this Agreement by the Buyer Subsidiary and the consummation by
it of the Merger have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of the Buyer
Subsidiary is necessary to authorize this Agreement or to consummate the Merger.
This Agreement has been duly and validly executed and delivered by the Buyer
Subsidiary and, assuming the due authorization, execution and delivery thereof
by the Company, constitutes the legal, valid and binding obligation of the Buyer
Subsidiary, except as enforcement may be limited by bankruptcy, insolvency,
moratorium or other similar laws relating to creditors' rights generally and by
equitable principles.
(c) NO CONFLICT; REQUIRED FILINGS AND CONSENTS.
(i) The execution and delivery of this Agreement by the Buyer
Subsidiary does not, and the performance of its obligations hereunder and
the consummation of the Merger by it will not (A) conflict with or
violate the certificate of incorporation or bylaws of the Buyer
Subsidiary, (B) subject to the making of the filings and obtaining the
approvals identified in Section 11(c)(ii), conflict with or violate any
Laws applicable to the Buyer Subsidiary or by which any Property or asset
of the Buyer Subsidiary is bound or affected, or (C) conflict with or
result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, result in
the loss or modification in a manner materially adverse to the Buyer
Subsidiary of any material right or benefit under, or give to others any
right of termination, amendment, acceleration, repurchase or repayment,
increased payments or cancellation of, or result in the creation of a
lien or other encumbrance on any Property or asset of the Buyer
Subsidiary pursuant to, any Contract to which the Buyer Subsidiary is a
party or by which the Buyer Subsidiary or any Property or asset of the
Buyer Subsidiary is bound or affected, except, in the case of clauses (B)
and (C), for any such conflicts or violations which would not prevent or
delay in any material respect the consummation of the Merger, or
otherwise, individually or in the aggregate, prevent the Buyer Subsidiary
from performing its obligations under this Agreement in any material
respect.
(ii) The execution and delivery of this Agreement by the Buyer
Subsidiary does not, and the performance of its obligations hereunder and
the consummation of the Merger by it will not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any Governmental Entity for or by the Buyer Subsidiary, except (A) for
applicable requirements of (1) the insurance company holding laws of
certain states and (2) the HSR Act, and (B) where the failure to obtain
such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not, individually or in the aggregate,
prevent or delay in any material respect
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consummation of the Merger, or otherwise prevent the Buyer Subsidiary
from performing its obligations hereunder in any material respect.
SECTION 12. CONDITIONS TO THE COMPANY'S OBLIGATIONS
The obligation of the Company to consummate the Merger is subject to the
satisfaction of each of the following conditions:
(a) All waivers, consents, authorizations, orders, approvals or
expiration of waiting periods required under any Law or Contract to be
obtained by the Company in order to consummate the Merger shall have been
obtained, except where the failure to have obtained any such waiver,
consent, authorization, order or approval would not have a Company Material
Adverse Effect.
(b) The representations and warranties of the Buyer and the Buyer
Subsidiary set forth herein shall be true and correct in all respects as of
the date hereof, and as of the time the Merger is consummated, other than,
in all such cases, such failures to be true and/or correct as would not in
the aggregate reasonably be expected to have a Buyer Material Adverse
Effect; PROVIDED, HOWEVER, that if any of the representations and warranties
are already qualified in any respect by materiality or as to a Buyer
Material Adverse Effect, for purposes of this Section 12(b) such materiality
or Buyer Material Adverse Effect qualification will be in all respects
ignored (but subject to the overall standard as to Buyer Material Adverse
Effect set forth immediately prior to this proviso); and the Buyer and the
Buyer Subsidiary shall have complied in all material respects with all
covenants and agreements set forth herein to be performed by it.
(c) No injunction, restraining order or other order of any federal or
state court which prevents the consummation of the Merger shall be in
effect.
(d) No statute, rule or regulation shall have been enacted by any state
or governmental agency that would prevent the consummation of the Merger.
(e) The Stockholder Approval shall have been obtained.
SECTION 13. CONDITIONS TO THE BUYER'S AND THE BUYER SUBSIDIARY'S OBLIGATIONS
The respective obligations of the Buyer and the Buyer Subsidiary to
consummate the Merger are subject to the satisfaction of each of the following
conditions:
(a) All waivers, consents, authorizations, orders, approvals or
expiration of waiting periods required under any Law or Contract to be
obtained by any of the parties hereto in order to consummate the Merger
shall have been obtained, except where the failure to have obtained any
waiver, consent, authorization, order or approval would not have a Company
Material Adverse Effect or a Buyer Material Adverse Effect.
(b) The representations and warranties of the Company set forth herein
shall be true and correct in all respects as of the date hereof, and as of
the time the Merger is consummated, other than, in all such cases, such
failures to be true and/or correct as would not in the aggregate reasonably
be expected to have a Company Material Adverse Effect; PROVIDED, HOWEVER,
that if any of the representations and warranties is already qualified in
any respect by materiality or as to a Company Material Adverse Effect, for
purposes of this Section 13(b) such materiality or Company Material Adverse
Effect qualification will be in all respects ignored (but subject to the
overall standard as to Material Adverse Effect set forth immediately prior
to this proviso); and the Company shall have complied in all material
respects with all covenants and agreements set forth herein to be performed
by it.
(c) No injunction, restraining order or other order of any federal or
state court which prevents the consummation of the Merger shall be in
effect.
(d) No statute, rule or regulation shall have been enacted by any state
or governmental agency that would prevent the consummation of the Merger.
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(e) Except as set forth in the Disclosure Schedule, no Company Material
Adverse Effect shall have occurred between March 5, 1997 and the Effective
Time other than any developments that generally affect the industry in which
the Company operates.
(f) The Stockholder Approval shall have been obtained.
SECTION 14. TERMINATION
This Agreement shall terminate at the earlier of:
(a) Such time as the parties shall mutually agree.
(b) At the option of the Company, on or after December 31, 1997, if by
that date all of the conditions set forth in Section 12 shall not have been
satisfied or waived.
(c) At the option of the Buyer or the Buyer Subsidiary, on or after
December 31, 1997, if by that date all of the conditions set forth in
Section 13 shall not have been satisfied or waived.
(d) At the option of the Company in accordance with Section 4(c),
provided the Company has complied with all provisions thereof, and provided
further that the Company simultaneously pays to the Buyer the sum of $2.4
million plus the Buyer's out-of-pocket costs (including, without limitation,
outside legal fees and expenses) and internal legal costs as the Buyer shall
reasonably determine (collectively, the "TERMINATION FEE AMOUNT") in
immediately available funds.
(e) At the option of the Buyer, if (i) the Board of Directors of the
Company or any committee of such Board of Directors shall have (A) withdrawn
or modified its approval or recommendation of this Agreement (or the
Acquisition Agreement) or the Merger, or (B) failed to recommend that the
stockholders of the Company vote in favor of the Merger, or (C) approved or
recommended any Acquisition Proposal other than the Merger, or (ii) the
Board of Directors of the Company or any committee of such Board of
Directors shall have resolved to do any of the foregoing. The Company shall
promptly following termination for any of the reasons set forth in this
clause (e) pay to the Buyer the Termination Fee Amount in immediately
available funds.
(f) At the option of any of the parties hereto if the stockholders of
the Company do not approve the Merger.
In the event this Agreement is terminated pursuant to Section 14(f) because the
Company stockholders did not approve the Merger and prior to 18 months following
such termination the Company enters into a binding agreement for a Third Party
Transaction, the Company shall pay to the Buyer the Termination Fee Amount in
immediately available funds simultaneously with its entry into such binding
agreement.
SECTION 15. RECORD DATE
The Company agrees that the record date for determining stockholders
entitled to vote on (or give consents or exercise appraisal rights with respect
to) the Merger or any Third Party Transaction will be no earlier than 10
business days after the Buyer's receipt of all required approvals under the
insurance holding company laws of states with applicable jurisdiction, and the
expiration of the applicable waiting period under the HSR Act, with respect to
the Buyer's purchase of 1,145,703 shares of Company common stock from John J.
Hemmingson and 681,774 shares of Company common stock from Gary A. Black,
provided that, in the case of a Third Party Transaction, this Section 15 shall
not require the Company to set a record date later than December 31, 1997. This
Section 15 shall continue in effect (with respect to any Third Party
Transaction) notwithstanding any termination of this Agreement in accordance
with its terms or otherwise
SECTION 16. MISCELLANEOUS
(a) AMENDMENTS AND WAIVERS. This Agreement may not be modified or
amended except by an instrument or instruments in writing signed by the party
against whom enforcement of any such modification or amendment is sought. Any
party hereto may, in its sole election, solely as to itself and not as to any
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other party hereto, only by an instrument in writing, waive compliance by
another party hereto with any term or provision hereof on the part of such other
party hereto to be performed or complied with. The waiver by any party hereto of
a breach of any term or provision hereof shall not be construed as a waiver of
any subsequent breach.
(b) ENTIRE AGREEMENT. This Agreement, the Consent Agreement dated
March 5, 1997 and the Business Loan Agreement dated as of March 31, 1997 each
between the Company and the Buyer, contain the entire agreement between the
parties hereto with respect to the transactions contemplated hereby and thereby.
This Agreement supersedes the Acquisition Agreement, except for the Disclosure
Schedule, which is incorporated into this Agreement. This Agreement is not
intended to confer upon any other person any rights or remedies hereunder.
(c) APPLICABLE LAW. This Agreement shall be exclusively governed by
and construed in accordance with the internal laws of the State of Delaware
without regard to its rules of conflicts of laws.
(d) EXPENSES. Except as otherwise included herein, in the event the
Merger contemplated hereby is not consummated for any reason, then all expenses
incurred by each party will be borne by the party incurring such expenses.
(e) DESCRIPTIVE HEADINGS, SECTION REFERENCES, DATE. The descriptive
headings contained herein are for convenient reference only and shall not affect
in any way the meaning or interpretation of this Agreement. Reference herein to
Sections refer, unless otherwise specified, to the designated Section of this
Agreement. The date of this Agreement is for identification only and is not
necessarily the date on which it was entered into.
(f) COUNTERPARTS. This Agreement and any amendments hereto may be
executed in any number of counterparts, each of which shall be deemed to be an
original but all of which together shall constitute but one agreement.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors. This
Agreement may not be assigned by any party without prior consent of all parties
hereto, provided that any party hereto may assign its rights and obligations
hereunder to any affiliate to implement the Merger, provided that such affiliate
agrees to be bound hereby, provided that such party remains liable hereunder,
and that such assignment does not adversely effect the Merger from the
perspective of the other parties.
(h) BINDING EFFECT. This Agreement shall, subject to the terms and
conditions hereof, be in all respects binding upon each of the Company and the
Buyer from and after the date hereof.
(i) SURVIVAL. None of the representations or warranties set forth in
Sections 9, 10 or 11 shall survive the consummation of the Merger.
(j) INDEMNIFICATION; INSURANCE. Following the Effective Time, the
Surviving Corporation will maintain in effect all rights to indemnification
existing in favor of any director, officer, employee or agent of the Company and
its subsidiaries (the "INDEMNIFIED PARTIES") as provided in its certificate of
incorporation, by-laws or in indemnification agreements with the Company or any
of its subsidiaries, all of which shall survive the consummation of the Merger
and shall continue in full force and effect for a period of not less than four
years from the Effective Time; PROVIDED, HOWEVER, that in the event any claim or
claims are asserted or made within such four-year period, all rights to
indemnification in respect of any such claim or claims shall continue until
final disposition of any and all such claims. It is understood and agreed that
the Surviving Corporation shall advance, indemnify, and hold harmless, as and to
the full extent permitted by applicable law, each Indemnified Party against any
losses, claims, damages liabilities, costs, expenses (including attorneys' fees
and expenses), judgments, fines and amounts paid in settlement in connection
with any threatened or actual claim, action, suit, proceeding or investigation
(whether asserted or arising before or after the Effective Time). In addition,
the Surviving Corporation shall cause to be maintained in effect for not less
than four years from the Effective Time any current policies of the directors'
and officers' liability insurance maintained by the Surviving Corporation;
PROVIDED, HOWEVER, that the Surviving
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Corporation will be permitted to substitute therefor policies, issued by the
Buyer or other insurers, of at least the same coverage containing terms and
conditions which are no less advantageous and provided that such substitution
shall not result in any gaps or lapses in coverage with respect to matters
occurring prior to the Effective Time; PROVIDED, FURTHER, that the Surviving
Corporation shall not be required to pay an annual premium in excess of 200% of
the last annual premium paid by the Surviving Corporation prior to March 5, 1997
and if it is unable to obtain the insurance required, it shall obtain as much
comparable insurance as possible for an annual premium equal to such maximum
amount
SECTION 17. GLOSSARY
As used in this Agreement, the following terms have the meaning indicated:
ACQUISITION AGREEMENT--introductory paragraphs.
ACQUISITION PROPOSAL--Section 4(b).
ACQUISITION TRANSACTION--Section 4(b).
AGREEMENT--introductory paragraphs.
BENEFICIAL OWNERSHIP--Section 4(b).
BUYER--introductory paragraphs.
BUYER MATERIAL ADVERSE EFFECT--Section 10(a).
BUYER SUBSIDIARY--introductory paragraphs.
BUYER SUBSIDIARY COMMON STOCK--introductory paragraphs.
CERTIFICATES--Section 3.2(b).
CLOSING--Section 1.2.
CLOSING DATE--Section 1.2.
COMMON STOCK--introductory paragraphs.
COMPANY--introductory paragraphs.
COMPANY SEC REPORTS--Section 9(e).
COMPANY MATERIAL ADVERSE EFFECT--Section 9(a).
CONTRACT-- ection 9(d)(i)(C).
DGCL--Section 1.1.
DISCLOSURE SCHEDULE--Section 3.4.
DISSENTING STOCKHOLDERS--Section 3.1(b)(i).
EFFECTIVE TIME--Section 1.3.
EXCHANGE ACT--Section 4(b).
GOVERNMENTAL ENTITY--Section 6.
GROUP--Section 4(b).
HSR ACT--Section 9(d)(ii)(A)(3).
INDEMNIFIED PARTIES--Section 16(j).
LAWS--Section 9(d)(i)(B).
MATERIAL ADVERSE EFFECT--Section 6.
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MERGER--Section 1.1.
MERGER CONSIDERATION--Section 3.1(b)(i).
PAYING AGENT--Section 3.2(a).
PERSON--a natural individual, corporation, partnership, limited liability
company, trust, business trust, association or entity of any kind, including
without limitation a Governmental Entity.
PREFERRED STOCK--introductory paragraphs.
PROPERTY--any interest in real, personal or mixed property, whether tangible
or intangible, including without limitation cash.
OPTIONS--Section 3.4.
SEC--Section 9(e).
SHARE--Section 3.1(b)(i).
STOCKHOLDER APPROVAL--Section 9(c).
SUPERIOR PROPOSAL--Section 4(c).
SURVIVING CORPORATION--Section 1.1.
TERMINATION FEE AMOUNT--Section 14(d).
THIRD PARTY TRANSACTION--Section 4(b).
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement and Plan
of Merger.
CROP GROWERS CORPORATION
By: /s/ Lawrence T. Martinez
----------------------------------
Name: Lawrence T. Martinez
Title: Chief Executive Officer
FIREMAN'S FUND INSURANCE COMPANY
By: /s/ Harold N. Marsh, III
----------------------------------
Name: Harold N. Marsh, III
Title: Senior Vice President and
Treasurer
CG ACQUISITIONS CORP.
By: /s/ Harold N. Marsh, III
----------------------------------
Name: Harold N. Marsh, III
Title: Senior Vice President and
Treasurer
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EXHIBIT B
March 5, 1997
Board of Directors
Crop Growers Corporation
10895 Lowell, Suite 300
Overland Park, Kansas 66210
Gentlemen:
Crop Growers Corporation, a Delaware corporation ("Crop Growers"), and
Fireman's Fund Insurance Company, a California corporation ("Fireman's Fund"),
contemplate entering into an acquisition agreement (the "Acquisition
Agreement"), dated as of the date hereof, providing for the acquisition by
Fireman's Fund through merger of all of the issued and outstanding shares of
common stock (the "Common Shares") of Crop Growers from all holders of Common
Shares (the "Public Shareholders") other than Fireman's Fund and its affiliates.
It is contemplated that prior to the consummation of the merger, a subsidiary of
Fireman's Fund ( "Acquisition Sub") will purchase all of the Common Shares now
owned by John Hemmingson and Gary Black, former Chief Executive Officer and
Executive Vice President of Crop Growers, respectively, for a purchase price of
$10.00 per share in cash, so that Messrs. Hemmingson and Black will not be
Public Shareholders. The Acquisition Agreement provides, among other things,
that at the Effective Time (as defined in the Acquisition Agreement),
Acquisition Sub will be merged into Crop Growers with the Common Shares held by
Public Shareholders being converted into the right to receive $10.25 per share
in cash (the "Cash Consideration"). The Acquisition Agreement provides that Crop
Growers will waive the standstill agreement to which Fireman's Fund is subject
in order for Fireman's Fund to exercise its right of first refusal under
existing agreements to purchase from Messrs. Hemmingson and Black 1,145,703 and
681,744 Common Shares, respectively, which shares represent approximately 23% of
Crop Grower's outstanding Common Shares.
You have requested Dean Witter Reynolds Inc.'s opinion ("Dean Witter"), as
investment bankers, as to the fairness, from a financial point of view, of the
Cash Consideration, taken as a whole, to the Public Shareholders.
In arriving at the opinion set forth below, we have, among other things:
(1) reviewed the Acquisition Agreement;
(2) reviewed the Annual Report on Form 10-K and related publicly
available financial information of Crop Growers for the two most recent
fiscal years ended December 31, 1994 and 1995, the Quarterly Reports on Form
10-Q of Crop Growers for the periods ended March 31, 1996, June 30, 1996 and
September 30, 1996, and the definitive Proxy Statement on Form 14A, dated
May 8, 1996;
(3) reviewed the Right of First Refusal agreements between Fireman's
Fund and Messrs. Hemmingson and Black;
(4) reviewed the Chief Financial Officer's financial model of the income
statement, balance sheet and cash flow statement of Crop Growers for the
quarter ended December 31, 1996 and for calendar years 1997 through 2006
created for the purpose of evaluating various financial alternatives (the
"Model");
(5) conducted discussions with members of senior management of Crop
Growers concerning the past and current business, operations, assets,
present financial condition and future prospects of Crop Growers;
(6) reviewed the historical reported market prices and trading activity
for Crop Growers' Common Shares;
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(7) compared certain financial information and operating statistics
relating to Crop Growers with published financial information and operating
statistics relating to selected public companies that we deemed to be most
comparable to Crop Growers;
(8) compared the proposed Cash Consideration with the financial terms,
to the extent publicly available, of selected other recent acquisitions that
we deemed to be relevant;
(9) reviewed certain other information, including publicly available
information relating to the business, earnings, cash flow, assets and
prospects of Crop Growers; and
(10) reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary.
In preparing our opinion, we have assumed and relied upon the accuracy and
completeness of all financial and other information supplied to us by Crop
Growers, or that is publicly available, and we have not independently verified
such information. We also have relied upon the management of Crop Growers, as to
the reasonableness and achievability of the financial results of Crop Growers as
set forth in the Model (and the assumptions and bases thereof) provided to us or
prepared on the basis of information and assumptions furnished to us, and with
your consent we have assumed that the Model has been reasonably prepared on the
basis reflecting the best currently available estimates and judgments of
management as to the future operating performance of Crop Growers. We have not
been requested to make, and we have not made, an independent appraisal or
evaluation of the assets, properties, facilities or liabilities of Crop Growers,
and we have not been furnished with any such appraisal or evaluation.
It should be noted that this opinion necessarily is based upon prevailing
market conditions and other circumstances and conditions as they exist and can
be evaluated at this time, and does not represent our opinion as to what the
actual value of the Common Shares will be after the date hereof.
In the past, we have acted as financial advisor to Crop Growers concerning a
strategic alliance with Fireman's Fund, which included an investment by
Fireman's Fund in Crop Growers, and we received a fee for our services.
We have acted as financial advisor to the Board of Directors of Crop Growers
in connection with this transaction and will receive a fee for our services, a
portion of which is contingent upon the consummation of the transaction.
On the basis of, and subject to the foregoing and other matters that we
consider pertinent, we are of the opinion that as of the date hereof the
proposed Cash Consideration to be paid for the Common Shares of the Public
Shareholders, taken as a whole, is fair, from a financial point of view, to such
Public Shareholders.
Very truly yours,
DEAN WITTER REYNOLDS INC.
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EXHIBIT C
SECTION 262 OF THE GENERAL
CORPORATION LAW OF THE STATE OF DELAWARE
Section 262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to Section 228 of this title shall be entitled to an appraisal by the
Court of Chancery of the fair value of his shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to Section Section 251, 252, 254, 257, 258, 263 or 264 of this
title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the holders of the surviving corporation as provided in
subsection (f) of Section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to Section
Section 251, 252, 254, 257, 258, 263 and 264 of this title to accept for
such stock anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock or depository receipts at the
effective date of the merger or consolidation will be either listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under Section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
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(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsections (b) or (c) hereof that appraisal rights are
available for any or all of the shares of the constituent corporations, and
shall include in such notice a copy of this section. Each stockholder
electing to demand the appraisal of his shares shall deliver to the
corporation, before the taking of the vote on the merger or consolidation, a
written demand for appraisal of his shares. Such demand will be sufficient
if it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must do
so by a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation
who has complied with this subsection and has not voted in favor of or
consented to the merger or consolidation of the date that the merger or
consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to Section228
or Section253 of this title, each constituent corporation, either before the
effective date of the merger or consolidation or within ten days thereafter,
shall notify each of the holders of any class or series of stock of such
constituent corporation who are entitled to appraisal rights of the approval
of the merger or consolidation and that appraisal rights are available for
any or all shares of such class or series of stock of such constituent
corporation, and shall include in such notice a copy of this section;
provided that, if the notice is given on or after the effective date of the
merger or consolidation, such notice shall be given by the surviving or
resulting corporation to all such holders of any class or series of stock of
a constituent corporation that are entitled to appraisal rights. Such notice
may, and, if given on or after the effective date of the merger or
consolidation, shall, also notify such stockholders of the effective date of
the merger or consolidation. Any stockholder entitled to appraisal rights
may, within twenty days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such
notice did not notify stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a
second notice before the effective date of the merger or consolidation
notifying each of the holders of any class or series of stock of such
constituent corporation that are entitled to appraisal rights of the
effective date of the merger or consolidation or (ii) the surviving or
resulting corporation shall send such a second notice to all such holders on
or within 10 days after such effective date; provided, however, that if such
second notice is sent more than 20 days following the sending of the first
notice, such second notice need only be sent to each stockholder who is
entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein. For
purposes of determining the stockholders entitled to receive either notice,
each constituent corporation may fix, in advance, a record date that shall
be not more than 10 days prior to the date the notice is given; provided,
however, that if the notice is given on or after the
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effective date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior to
the effective date, the record date shall be the close of business on the
day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by one or more publications at least one week before the day
of the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
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(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged PRO RATA against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation.
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