SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange
Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Frontier Adjusters of America, Inc.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[X] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(l), or 14a-6(i)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11.*
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4) Proposed maximum aggregate value of transaction:
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*Set forth the amount on which the filing fee is calculated and state how it was
determined.
[ ] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:________________________________________________
2) Form Schedule or Registration Statement No.:___________________________
3) Filing Party:__________________________________________________________
4) Date Filed:____________________________________________________________
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OCTOBER 11, 1996
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The Annual Meeting of Shareholders of Frontier Adjusters of America,
Inc., an Arizona corporation (the "Company"), will be held on Friday, October
11, 1996 at 9:00 a.m. (Phoenix, Arizona time) at the Company's principal
executive office located at 45 East Monterey Way, Phoenix, Arizona for the
following purposes:
1. To elect directors to serve until the next annual meeting of
shareholders and until their successors are elected and qualified.
2. To approve the Frontier Adjusters of America, Inc. 1996 Stock
Option Plan.
3. To ratify the appointment of McGladrey & Pullen, LLP,
Certified Public Accountants, as the auditors of the Company for the Company's
fiscal year ending June 30, 1997.
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record as of the close of business on August 20,
1996 are entitled to notice of, and to vote at, the meeting and adjournment
thereof.
All shareholders are cordially invited to attend the meeting in person.
To assure your representation at the meeting, however, you are urged to mark,
sign, date and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she previously has returned a
proxy.
YOUR VOTE IS IMPORTANT, REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
SHAREHOLDERS WHO DO NOT EXPECT TO BE PRESENT AT THE MEETING ARE REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
James S. Rocke
Secretary
Phoenix, Arizona
September 13, 1996
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC.
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PROXY STATEMENT
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General
The enclosed Proxy is solicited on behalf of Frontier
Adjusters of America, Inc. an Arizona corporation (the "Company"), by the
Company's board of directors (the "Board of Directors") for use at the Annual
Meeting of Shareholders to be held on Friday, October 11, 1996 at 9:00 a.m.
(Phoenix, Arizona time) (the "Meeting"), and at any and all adjournments
thereof, for the purposes set forth in this proxy statement and in the
accompanying Notice of Annual Meeting of Shareholders. The Meeting will be held
at the Company's principal executive office, located at 45 East Monterey Way,
Phoenix, Arizona 85012.
These proxy solicitation materials were mailed to all
shareholders entitled to notice of, and to vote at, the Meeting on or about
September 13, 1996.
Record Date
The Board of Directors has fixed the close of business on
August 20, 1996 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of, and to vote at, the Meeting.
Revocability of Proxies
Any person giving a proxy may revoke the proxy at any time
before its use by delivering to the Secretary of the Company written notice of
revocation or a duly executed proxy bearing a later date, or by attending the
Meeting and voting in person.
Voting Solicitation
As of the close of business on the Record Date, there were
4,619,658 shares of the Company's common stock, par value $.01 per share
("Common Stock"), outstanding excluding 162,352 shares held by the Company as
treasury stock. The Company has no other category of stock outstanding. The
presence in person or by proxy of the holders of a majority of the outstanding
shares of Common Stock is required to constitute a quorum at the meeting.
Votes cast by proxy or in person at the Meeting will be
tabulated by the election inspectors appointed for the Meeting and will
determine whether a quorum is present. The election inspectors will treat
abstentions as shares that are present and entitled to vote for purposes of
determining the presence of a quorum but as unvoted for purposes of determining
the approval of any matter submitted to the stockholders for a vote. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares will not be
considered as present and entitled to vote with respect to that matter.
Shareholders have cumulative voting rights in the election of
directors. Each shareholder is entitled to that number of votes equal to the
number of shares of Common Stock owned by him or her multiplied by that number
of directors to be elected. The shareholder may cumulate the shares of Common
Stock and give one nominee all of the shareholder's votes or may distribute his
or her votes on the same principle among as many nominees as he or she thinks
fit to serve. The enclosed proxy does not seek discretionary authority to
cumulate votes in the election of directors.
With respect to all other matters to be submitted to
shareholders at the Meeting, each shareholder is entitled to one vote per share
with respect to each matter presented. The affirmative vote of the holders of a
majority of the shares of Common Stock then represented at the Meeting will
constitute the act of the shareholders.
See "Security Ownership of Principal Shareholders and
Management" with respect to the percentage of the outstanding shares of Common
Stock beneficially owned by the Company's directors and executive officers.
<PAGE>
The cost of this solicitation will be borne by the Company. In
addition, the Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for expenses incurred in forwarding
solicitation material to such beneficial owners. Proxies also may be solicited
by certain of the Company's directors and officers, personally or by telephone
or telegram, without additional compensation.
The 1996 Annual Report to Stockholders, which was mailed to
stockholders with or preceding this Proxy Statement, contains financial and
other information about the activities of the Company but is not incorporated
into this Proxy Statement and is not to be considered a part of these proxy
soliciting materials. The information contained in the "Report of Compensation
Committee" below and "Company Performance" below shall not be deemed "filed"
with the Securities and Exchange Commission or subject to Regulations 14A or 14C
or to the liabilities of Section 18 of the Securities Exchange Act of 1934, as
amended (the "Exchange Act").
Security Ownership of Certain Beneficial Owners and Management
As of the close of business on the Record Date, there were
4,619,658 shares of Common Stock outstanding excluding 162,352 shares held by
the Company as treasury stock. The following table sets forth the beneficial
ownership of shares of Common Stock as of the close of business on the Record
Date by each person known to the Company to own more than five percent of the
outstanding shares of Common Stock, by each director of the Company and by all
directors and executive officers of the Company as a group, which information as
to beneficial ownership is based upon statements furnished to the Company by
such persons:
<TABLE>
<CAPTION>
Amount of Beneficial Ownership
-----------------------------------
Common Stock $.01 Par Value
-----------------------------------
Name and Address (1) Number of Shares Percent
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<S> <C> <C>
Patric R. Greer and Nancy S. Greer, his wife (3) 66,316 1.42%
George M. Hill (4) 153,565 3.32%
Francis J. LaPallo and Wendy J. Harrison, his wife 20,000 *
Louis T. Mastos and Eva B. Mastos, his wife (5) 208,703 4.52%
William J. Rocke and Garnet Rocke, his wife (6) 446,268 9.56%
P. O. Box 7641
Phoenix, Arizona 85011
James S. Rocke (7) 469,803 10.06%
P. O. Box 7641
Phoenix, Arizona 85011
Jean E. Ryberg (8) 160,589 3.44%
Merlin J. Schumann and Donna L. Schumann, his wife 20,114 *
William W. Strawther, Jr. and Marjorie A. Strawther,
his wife (9) 442,138 9.57%
7108 North 15th Street
Phoenix, Arizona 85020
R. Scott Younker and Sandra L. Younker, his wife 93,469 2.02%
All officers and directors as a group
(ten persons) (10) 1,790,965 37.16%
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*Less than 1%
</TABLE>
<PAGE>
(1) The number of shares shown in the table, including the notes thereto,
have been rounded to the nearest whole share. Includes, when applicable,
shares owned of record by such person's minor children and spouse and by
other related individuals and entities over whose shares of Common Stock
such person has custody, voting control or power of disposition. Also
includes shares of Common Stock that the identified person had the right
to acquire within 60 days of August 1, 1996 by the exercise of stock
options.
(2) The percentages shown include the shares of Common Stock which the person
will have the right to acquire within 60 days of August 1, 1996. In
calculating the percentage of ownership, all shares of Common Stock which
the identified person will have the right to acquire within 60 days of
August 1, 1996 are deemed to be outstanding for the purpose of computing
the percentage of the shares of Common Stock owned by such person, but
are not deemed to be outstanding for the purpose of computing the
percentage of shares of common stock owned by any other stockholders.
(3) Includes 51,346 shares subject to a currently exercisable stock options
at an average exercise price of $3.2829 per share.
(4) Excludes 50,000 shares held by Nell S. Hill, Mr. Hill's wife, and 131,693
shares held by Mr. Hill's children and grandchildren, in which shares he
disclaims any beneficial interest.
(5) Includes 183,180 shares which are held in a trust under an agreement
dated February 10, 1981, in which Mr. and Mrs. Mastos hold equal
beneficial interests, and 25,523 shares which are held by the Louis T.
Mastos & Associates, Inc. Employees Profit Sharing Plan, of which Mr.
Mastos is a trustee and the majority beneficial owner.
(6) Includes 290,000 shares held by Old Frontier Investment, Inc., of
Arizona, of which Mr. Rocke holds 51% of the outstanding stock. Includes
48,654 shares subject to a currently exercisable stock options at an
average exercise price of $3.2829 per share.
(7) Includes 290,000 shares held by Old Frontier Investment, Inc. of Arizona
of which Mr. Rocke holds 49% of the outstanding stock. Includes 48,653
shares subject to a currently exercisable stock options at an average of
$3.2829 per share.
(8) Includes 51,347 shares subject to a currently exercisable stock options
at an average exercise price of $3.005 per share.
(9) Held as trustees under Trust Agreement, dated June 7, 1989, establishing
the William W. Strawther, Jr. and Marjorie A. Strawther Living Trust, of
which Mr. and Mrs. Strawther are beneficiaries. Excludes an aggregate of
200,000 shares beneficially owned by Mr. and Mrs. Strawther's son, in
which shares Mr. and Mrs. Strawther disclaim any beneficial interest.
(10) Excludes all duplicate reporting of holdings.
To the best of knowledge of the Company, no person or groups of persons, other
than officers and directors, beneficially own more than five percent of the
Frontier Adjusters of America, Inc. Common Stock (based upon present records of
the transfer agent).
PROPOSAL ONE
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ELECTION OF DIRECTORS
Nominees
A Board of ten directors is to be elected at the Meeting. The
nominees for directors are Patric R. Greer, George M. Hill, Francis J. LaPallo,
Louis T. Mastos, William J. Rocke, Jean E. Ryberg, Merlin J. Schumann, William
W. Strawther, Jr., R. Scott Younker and James S. Rocke, all of whom currently
are directors of the Company. In the absence of direction by shareholders
executing proxies, the persons named in the enclosed
<PAGE>
proxy will vote FOR the nominees named herein. In the event that any nominee of
the Company is unable or declines to serve as a director at the time of the
Meeting, the proxies will be voted for any nominee designated by the current
Board of Directors to fill the vacancy. It is not presently expected that any
nominee will be unable or will decline to serve as a director. The term of
office of each person elected as a director will continue until the next annual
meeting of shareholders and until a successor has been elected and qualified.
Biographical information with respect to the nominees for directors is set forth
below and under the heading "Information Concerning Directors and Executive
Officers of the Company".
Information Concerning Directors and Executive Officers of the Company
The following table sets forth certain information regarding
the Company's directors and executive officers:
<TABLE>
<CAPTION>
Name Age Position(s) With the Company Director Since
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<S> <C> <C> <C>
Patric R. Greer 41 Director, Controller 1994
George M. Hill 88 Director, Vice President, Assistant 1978
Secretary, Member Audit Committee
Francis J. LaPallo 48 Director, Executive Vice President 1996
Louis T. Mastos 75 Director, Member Audit Committee, 1978
Member Compensation Committee
James S. Rocke 28 Director, Secretary/Treasurer 1993
William J. Rocke 72 Director, Chairman of the Board, 1975
Chief Executive Officer
Jean E. Ryberg 64 Director, President 1975
Merlin J. Schumann 52 Director, Member Audit Committee, 1984
Member Compensation Committee
William W. Strawther, Jr. 70 Director, Vice Chairman of the Board 1978
R. Scott Younker 60 Director 1992
</TABLE>
Patric R. Greer is a certified public accountant and has been
with the Company as Controller since 1985. Mr. Greer was appointed a Director of
the Company in October 1994. Mr. Greer graduated from Northern Arizona
University with a B.S. degree in accounting. An employment agreement between Mr.
Greer and the Company provides that Mr. Greer will serve as the controller of
the Company through June 30, 2000.
George M. Hill has been associated with the Company in an
advisory capacity for more than 25 years, has been a Vice President of the
Company since 1985 and has been the Assistant Secretary of the Company since
1990. He has been a senior partner in the Phoenix law firm of George M. Hill &
Associates for over 30 years. Mr. Hill is a Director and Secretary of National
Car Rental, Phoenix, Denver and Colorado Springs, and Director and Vice
President of Precise Metal Products Co., Phoenix and Salt Lake City.
Francis J. LaPallo joined the Company on June 24, 1996. From
1977 until joining the Company he practiced law in Maryland, the District of
Columbia and California. From 1990 until joining the Company he was a partner
with the law firm Manatt, Phelps & Phillips in Los Angeles, California. He
represented the Company in various legal matters from 1994 until joining the
Company. An employment agreement between the Company and Mr. LaPallo provides
that Mr. LaPallo will serve as an executive officer of the Company through June
30, 2001.
<PAGE>
Louis T. Mastos has been the President of Louis T. Mastos &
Associates, Inc., a managing general agency located in Reno, Nevada, since 1971.
He is past President of the American Association of Managing General Agents. He
was the Insurance Commissioner of the State of Nevada from 1965 to 1971.
James S. Rocke has been employed by the Company since 1982 and
currently is an adjuster in the Company's Phoenix office. Mr. Rocke was elected
Secretary/Treasurer of the Company on January 29, 1993. Mr. Rocke graduated from
Arizona State University in 1991 with a B.S. degree in Finance. Mr. Rocke is the
son of William J. Rocke.
William J. Rocke is the founder of the Company and has served
as President of the Company and its predecessor entities since 1957. Mr. Rocke
has been in the claims adjusting business since 1952. He has a law degree from
the University of Denver and is a member of the Colorado Bar Association. The
employment agreement between Mr. Rocke and the Company provides that Mr. Rocke
will serve as the Chief Executive Officer of the Company through June 30, 2000.
Mr. Rocke is the father of James S. Rocke.
Jean E. Ryberg has been employed by the Company and its
predecessors since 1962. She has held several positions with the Company and has
been the Secretary/Treasurer of the Company and its predecessor entities since
1975. She also manages the Company's claims adjusting operations in Phoenix,
Arizona. The employment agreement between Mrs. Ryberg and the Company provides
that Mrs. Ryberg will serve as an executive officer of the Company through June
30, 2000.
Merlin J. Schumann has been a certified public accountant with
the firm of Murray & Murray, P.C., located in Phoenix, Arizona, for over 20
years. Since December, 1990, Mr. Schumann has also held the position of General
Securities Representative with H. D. Vest Investment Securities, Inc., a stock
brokerage and investment counseling firm located in Irving, Texas.
William W. Strawther, Jr. was the President and principal
shareholder of Continental American Securities, Inc., located in Phoenix,
Arizona from 1970 through 1982. He is a former member of the National Board of
Governors of the National Association of Securities Dealers, Inc. He has been an
independent business consultant since 1982.
R. Scott Younker has been a licensee of the Company in
Prescott, Arizona since 1979. He has been engaged in the claims adjusting
business for 32 years.
All directors are elected at each annual meeting of the
Company's shareholders for a term of one year and hold office until their
successors are elected and qualified. All officers serve at the discretion of
the Board of Directors.
Meetings and Committees of the Board of Directors
The Company's Board of Directors met four times in fiscal year
1996, and all members attended 75% or more of those meetings. The Board has two
committees, an audit committee and a compensation committee.
Board members are reimbursed for expenses incurred while
attending Board meetings, and each director, including employees of the Company,
is paid $750 per Board meeting attended. During fiscal 1996, each director,
except for Mr. William J. Rocke, received $3,000 for attendance at Board
meetings. Mr. Rocke received $2,250 for attendance at Board meetings during
fiscal 1996.
The Company has a standing audit committee of the Board of
Directors of which Messrs. Hill, Mastos, and Schumann are members. The Committee
held one meeting during the 1996 fiscal year.
<PAGE>
Compensation Committee Interlocks and Insider Participation
The Company's compensation committee of the Board of Directors
consists of Messrs. Mastos and Schumann. Messrs. Mastos and Schumann have not
nor are they presently serving as officers of the Company. The committee held
one meeting during the 1996 fiscal year.
Executive Compensation
The following table sets forth certain information concerning
compensation during its year ended June 30, 1996 to each executive officer whose
aggregate compensation exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation (1)
---------------------------------------------------------
a b c d e i
- --------------------------------------------------------------------------------------------- ---------------
Other Annual All Other
Compensation Compensation
Name and Principal Position Year Salary ($) Bonus ($) ($) (2) ($) (3)
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
William J. Rocke, CEO, 1996 225,000 71,981 -- 22,719
Chairman, Director 1995 206,636 50,000 -- 23,670
1994 196,796 50,000 -- 32,250
Jean E. Ryberg, 1996 160,000 71,981 -- 29,266
President, Director 1995 145,861 50,000 -- 29,168
1994 138,915 50,000 -- 32,250
Patric R. Greer 1996 90,000 11,224 -- 17,364
Controller, Director 1995 68,116 12,703 -- 14,756
1994 65,075 5,414 -- 11,205
</TABLE>
(1) Columns f, g and h have been omitted as there has been no long term
compensation awarded to, earned by or paid to any of the named executives
in any fiscal year covered by these columns.
(2) No perquisites were received by any person named above greater than the
lesser of $50,000 or 10% of salary plus bonus.
(3) "All Other Compensation" includes (i) directors fees of $2,250, $3,000 and
$2,250 for Mr. Rocke in years ended June 30, 1996, 1995 and 1994; $3,000,
$3,000 and $2,250 for years ended June 30, 1996, 1995 and 1994 for Mrs.
Ryberg and $3,000 in fiscal 1996 and $2,250 in fiscal 1995 for Mr. Greer;
(ii) profit sharing contributions of $20,469, $20,670 and $30,000 for years
ended June 30, 1996, 1995 and 1994 for Mr. Rocke; $26,266, $26,168 and
$30,000 for year ended June 30, 1996, 1995 and 1994 for Mrs. Ryberg;
$14,364, $12,506 and $11,205 for Mr. Greer for years ended June 30, 1996,
1995 and 1994, respectively.
Option/SAR Exercises and Holdings
During 1996 the Company did not grant any stock options.
The following table shows Company stock options that were
exercised during fiscal 1996 and the number of shares and value of grants
outstanding as of June 30, 1996 for each Named Executive.
<PAGE>
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1996 AND YEAR-END OPTION/SAR VALUES
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised,
Underlying Unexercised In-The-Money Options/SARs
Shares Options/SARs at 6/30/96 (#) at 6/30/96 ($)(a)
Acquired Value --------------------------- --------------------------
Name on Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ------------------ ---------------- ----------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
William J. Rocke -- -- 48,654 -- 5,430 --
Jean E. Ryberg -- -- 51,346 -- 10,859 --
Patric R. Greer -- -- 51,346 -- 10,859 --
</TABLE>
(a) Value of unexercised, in-the-money Company options based on a fair market
value of the Company's common stock of $3.00 per share as of June 30, 1996.
Director's Compensation
Each director, including employees of the Company, is paid
$750 per Board meeting attended. During fiscal 1996, each director, except for
Mr. William J. Rocke, received $3,000 for attendance at Board meetings. Mr.
Rocke received $2,250 for attendance at Board meetings during fiscal 1996.
Employment Agreements
The Company has entered into employment agreements with Mr.
Rocke, Mrs. Ryberg, Mr. Greer and Mr. LaPallo each for five-year terms. Mr.
Rocke's, Mrs. Ryberg's and Mr. Greer's agreements were effective July 1, 1995
and expire June 30, 2000. Mr. LaPallo's agreement is effective July 1, 1996 and
expires June 30, 2001.
Mr. Rocke's agreement provides for an annual salary of
$225,000 with annual cost of living increases based upon the U.S. Department of
Labor's cost of living index, plus a bonus of 3% of the Company's income before
taxes and bonuses and 5% of the increase in the Company's income before taxes
and bonuses from the prior year.
Mrs. Ryberg's agreement provides for an annual salary of
$160,000 with annual cost of living increases based upon the U.S. Department of
Labor's cost of living index, plus a bonus of 3% of the Company's income before
taxes and bonuses and 5% of the increase in the Company's income before taxes
and bonuses from the prior year.
Mr. Greer's agreement provides for an annual salary of $90,000
with annual cost of living increases based upon the U.S. Department of Labor's
cost of living index, plus a bonus of .5% of the Company's income before taxes
and bonuses in year 1 and 1% in year two and 1.5% in years 3 and 4 and .5% of
the increase in the Company's income before taxes and bonuses from the prior
year in year one and increasing .5% annually to 2.5% in year five of the
agreement.
Mr. LaPallo's agreement provides for an annual salary of
$180,000 with annual cost of living increases based upon the U.S. Department of
Labor's cost of living index for the first two years. For the remaining three
years, the agreement provides for an annual salary of $150,000 with annual cost
of living increases based upon the U.S. Department of Labor's cost of living
index, plus a bonus of 3% of the Company's income before taxes and bonuses and
3% of the increase in the Company's income before taxes and bonuses from the
prior year. In connection with the Company's employment of Mr. LaPallo, the
Company sold Mr. LaPallo 20,000 shares of common stock from the treasury for an
aggregate of $55,547.
<PAGE>
Report of Compensation Committee
The Compensation Committee of the Board of Directors is
comprised of Louis T. Mastos and Merlin J. Schumann, both outside directors of
the Company. The Committee establishes policies relating to the compensation of
employees. All decisions by the Compensation Committee relating to the
compensation of the Company's executive officers are reviewed by the full Board.
The following is a report submitted by the above-listed
committee members in their capacity as the Board's Compensation Committee,
addressing the Company's compensation policy as it relates to the named
executive officers for fiscal 1996.
Compensation Policy
The goal of the Company's executive compensation policy is to
ensure that an appropriate relationship exists between executive pay and the
creation of shareholder value, while at the same time motivating and retaining
key employees. To achieve this goal, the Company's executive compensation
policies integrate annual base compensation with bonuses based upon corporate
performance. Annual cash compensation, together with equity-based, incentive
compensation is designed to attract and retain qualified executives and to
ensure that such executives have a continuing stake in the long-term success of
the Company. All executive officers and management are eligible to participate
in the Company's Incentive Stock Option Plan.
Fiscal 1996 Compensation
The Company's fiscal 1996 executive compensation consisted of:
(1) a base salary, (ii) bonuses based upon the Company's income before income
taxes and bonuses, and (iii) fixed contributions to a defined contribution
Profit Sharing Plan. Stock options are granted from time to time by the Board of
Directors. Options were not granted during fiscal 1996.
The Company's 1996 compensation to named executives is best
exemplified by examining the salary paid to William J. Rocke, the Company's
Chairman and Chief Executive Officer which is based upon an employment agreement
entered into in 1995 after negotiations with the Board of Directors. The
agreement calls for a base salary with annual cost of living increases based
upon the U.S. Department of Labor's cost of living index. Additionally, the
agreement provides for a bonus of 3% of the Company's income before taxes and
bonuses and 5% of the increase in the Company's income before taxes and bonuses
from the prior year. The base salary is believed to be in the range of those of
other executives in comparable companies, both regionally and nationally. The
bonus based upon the Company's income caused compensation to increase in fiscal
1996 as the Company's income increased from 1995 levels.
The Committee believes that linking executive compensation to
corporate performance (i.e., income and stock performance) provides incentive to
the executives to enhance corporate performance and the shareholders' interests.
It was with this in mind that the bonus portion of executive compensation was
revised to the current bonus arrangement effective July 1, 1995. This bonus
arrangement is effective until June 30, 2000, except with regard to Mr. LaPallo
which is effective until June 30, 2001, and the Committee believes that
compensation levels in 1996 reflect the Company's compensation policy.
Louis T. Mastos
Merlin J. Schumann
COMPANY PERFORMANCE
The following graph reflects a five-year comparison of
cumulative total returns for the Company's Common Stock, the American Stock
Exchange Market Value Index, and the Company's Peer Group of Stocks based on the
four-digit SIC Code Index. The total cumulative return on investment (change in
the year-end stock price plus reinvested dividends) for each of the periods and
indexes is based on the stock price or composite index at the end of fiscal
1991. The graph compares the performance of the Company with AMEX and Peer Group
Indexes with the investment weighted based upon market capitalization.
<PAGE>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
(GRAPH)
Measurement Period Frontier Adjusters of American Stock Peer Group
(Fiscal Year Covered) America, Inc. Exchange of Stocks
1991 100 100 100
1992 102.36 109.95 101.54
1993 92.44 120.21 105.74
1994 93.57 116.04 103.51
1995 102.33 139.63 120.05
1996 119.90 159.88 140.94
Certain Transactions
Old Frontier Investment, Inc. of Arizona, of which William J.
Rocke and Garnet Rocke, his wife, are owners of 51% of the issued and
outstanding stock of said corporation and James S. Rocke owns the remaining 49%,
has entered into a license agreement with the Company pursuant to which it
operates, under standard terms and conditions, an insurance adjusting business
covering Scottsdale, Arizona, and is paid a 5% royalty on gross revenues derived
from services provided by others in certain other Arizona cities and towns. The
Company paid that corporation $15,910 during fiscal year 1996 in connection with
such 5% royalty agreement.
George M. Hill, Vice President and Director of the Company,
acts as General Counsel to the Company. During the fiscal year 1996, the Company
paid Mr. Hill $90,376 for services rendered and disbursements. Such fees will
continue to accrue, pursuant to a retainer agreement, at the rate of $6,650 per
month effective September 1, 1995.
The Company paid its Vice Chairman, William W. Strawther, Jr.,
$20,000 during fiscal year 1996 for business and financial consulting services.
The Company believes that the cost of the Company for all of
the foregoing were and are competitive with charges for similar services and
facilities available from third parties.
Compliance With Section 16(a) of the Securities Exchange Act of 1934
Based solely on a review of the copies of such forms received
by the Company during the fiscal year ended June 30, 1996, and written
representations that no other reports were required, the Company believes that
each person who, at any time during such fiscal year, was a director, officer or
beneficial owner of more than 10% of the Company's Common Stock complied with
all Section 16(a) filing requirements during such fiscal year.
PROPOSAL TWO
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APPROVAL OF THE FRONTIER ADJUSTERS OF AMERICA, INC.
1996 STOCK OPTION PLAN
On May 21, 1996, the Board of Directors adopted, subject to
approval of the Company's stockholders at the Annual Meeting, the Frontier
Adjusters of America, Inc. 1996 Stock Option Plan (the "Stock Option Plan"). The
Stock Option Plan provides for the grant of incentive stock options ("Incentive
Stock Options") and non-qualified stock options ("Nonqualified Stock Options")
stock, stock appreciation rights, or other cash awards to certain key personnel
including officers and directors and consultants or independent contractors who
provide valuable services to the Company or its subsidiaries ("Key Persons").
<PAGE>
The following description of the Plan is qualified in its
entirety by reference of the text of the Stock Option Plan which is set forth in
Annex A to this proxy statement.
Purpose of the Plan
The purpose of the Stock Option Plan is to further interests
of the Company and its shareholders by encouraging Key Persons associated with
the Company and its subsidiaries to acquire shares of the Company's Stock,
thereby acquiring a proprietary interest in its business and an increased
personal interest in its continued success and progress.
Eligibility
Options under the Plan may be granted to certain Key Persons
of the Company and its subsidiaries.
Securities to be Utilized
The maximum number of the Company's stock for which options
may be granted under the Stock Option Plan is 300,000. Shares delivered by the
Company pursuant to the exercise of options may be authorized but unissued or
treasury shares of Common Stock, or any combination thereof. Shares subject to
options which expire or are terminated shall again be available for the granting
of other options under the Stock Option Plan.
Plan Administration and Termination
The Stock Option Plan will be administered by the Company's
Board of Directors or by a committee appointed by the Board of Directors. Unless
earlier terminated, the Stock Option plan will continue in effect until May 21,
2006. The Board of Directors of the Company may amend the Plan at any time
except that, without approval of the Company's stockholders, the Board of
Directors may not (i) increase the maximum number of shares of Common Stock
subject to the Plan (except in the case of certain organic changes to the
Company); (ii) reduce the exercise price at which Options may be granted or the
exercise price at which any outstanding Options may be exercised; (iii) extend
the term of the Plan; (iv) change the class of persons eligible to receive
Options or Awards under the Plan; or (v) materially increase the benefits
accruing to participants under the Plan. In addition, the Board may not, without
the consent of the optionholder, take any action that disqualifies any Option
previously granted under the Plan for treatment as an incentive stock option or
which adversely affects or impairs the rights of the optionholder of any
outstanding Option. Notwithstanding the foregoing, the Board of Directors may
amend the Plan from time to time as it deems necessary in order to meet the
requirements of any amendments to Rule 16b-3 of the Exchange Act.
Price, Exercise Period and Vesting of Options
The Board of Directors will determine the exercise price for
options granted under the Stock Option Plan. The exercise price for a
Nonqualified Stock Option may be less than fair market value per share. The
exercise price for an Incentive Stock Option may not be less than 100 percent of
the fair market value per share of the stock on the date the Incentive Stock
Option is granted (110 percent if the Incentive Stock Option is granted to a
shareholder who at the time the Option is granted owns or is deemed to own stock
possessing more than 10 percent of the total combined voting power of all Common
Stock of the Company). The fair market value of the Common Stock will be the
closing price of the Company's Common Stock on the American Stock Exchange for
the most recent day of trading.
Vesting of Stock Options may be determined at the discretion
of the Board of Directors. For Incentive Stock Options, the aggregate fair
market value (determined as of the respective date or dates of grant) of the
stock for which one or more Incentive Stock Options granted to any person under
this plan may for the first time become exercisable as Incentive Stock Options
during any one calendar year shall not exceed the sum of $100,000. To the extent
that any person holds two or more Options which become exercisable for the first
time in the same calendar year, the foregoing limitation on the exercisability
as an Incentive Stock Option shall be applied on the basis of the order in which
such Options are granted.
<PAGE>
Generally, payment for shares purchased upon exercise of an
option is to made in cash, The Board of Directors, may permit payment by (i)
delivery of shares of Frontier Adjusters of America, Inc. Common Stock already
owned by the Optionee having a fair market value equal to the cash option price
of the shares; or (ii) a cash payment.
Federal Income Tax Consequences
Incentive Stock Options. The Company intends that certain of
the options granted under the Stock Option Plan will qualify as incentive stock
options under Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"). Assuming that the options are so qualified, the tax consequences of the
Stock Option Plan will vary depending on whether certain holding period
requirements are met.
If an optionee acquiring stock pursuant to an incentive stock
option does not dispose of the stock until at least one year after the transfer
of the stock to the optionee and at least two years from the date of grant of
the option, then subject to the alternative minimum tax rules discussed below,
there will be no tax consequences to the optionee or the Company when the
incentive stock option is granted or when it is exercised.
If stock acquired upon exercise of an option is sold by the
optionee and the holding period requirements described in the preceding
paragraph have not been met, the federal income tax consequences to the optionee
and the Company will be as follows: first, the optionee will be required to
report, in his or her federal income tax return for the year in which the sale
occurs, additional compensation income equal to the difference between the fair
market value of the stock at the time of exercise of the option and the purchase
price at which the stock was acquired (the Company will generally be entitled to
a compensation deduction in an equivalent amount). Next, for purposes of
determining gain or loss upon sale of the stock an amount equal to this
compensation income will be added to the exercise price of the stock and the
total will be the optionee's adjusted basis of the stock. Gain or loss will be
determined, based upon the difference between the optionee's adjusted basis of
the stock and the net proceeds of the sale, and the optionee will be required to
report such gain or loss as long-term or short-term (depending on how long the
optionee held the stock) capital gain or loss on his or her federal income tax
return for the year in which the sale occurs.
Although an optionee who receives an Incentive Stock Option
under the Stock Option Plan realizes no taxable income when the Optionee
receives or exercises the Incentive Stock Option, the difference between the
fair market value of the stock on the date of exercise and the exercise price
results in an adjustment in computing alternative minimum taxable income for
purposes of Sections 55 et. seq. of the Code, which may trigger alternative
minimum tax consequences for optionees. Any alternative minimum tax that is
payable may ultimately be credited against taxes owed upon disposition of the
stock.
Nonqualified Options. The Company may also grant Nonqualified
Options under the Stock Option Plan. In general, there will be no tax
consequences to the optionee for the Company when the option is granted. Upon
exercise of the option, the optionee will be required to report, on his or her
federal income tax return for the year in which the exercise occurs, additional
compensation income equal to the difference between the fair market value of the
stock at the time of exercise of the option and the exercise price (the Company
will generally be entitled to a compensation deduction in an equivalent amount.)
Cash Awards. Generally, all cash awards granted will be
treated as compensation income to the recipient when the cash payment is made
pursuant to the award. Such cash payment will also result in a federal income
tax deduction for the Company.
The foregoing is only a summary of the federal income tax
rules applicable to options granted under the Stock Option Plan and is not
intended to be complete. In addition, this summary does not discuss the effect
of the income or other tax laws of any state or foreign country in which a
participant may reside.
The Board of Directors recommends that stockholders vote FOR the proposal to
approve the Stock Option Plan.
<PAGE>
PROPOSAL THREE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed McGladrey & Pullen, LLP,
independent public accountants, as the auditors of the Company, to serve as such
at the pleasure of the Board of Directors. Audit services provided by McGladrey
& Pullen, LLP during the year ended June 30, 1996 consisted of the examination
of consolidated financial statements of the Company and its subsidiaries,
reviews of information in certain filings with the Securities and Exchange
Commission and periodic consultation regarding accounting and financial matters.
The Company is informed that neither McGladrey & Pullen, LLP nor any of its
partners of associates has any relationship with the Company, other than as
independent auditors.
Certain financial statements of the Company appear in the
Company's 1996 Annual Report. A representative of McGladrey & Pullen, LLP will
be present at the Meeting and will be available to make a statement and to
respond to questions concerning the financial statements.
OTHER MATTERS
Management of the Company knows of no other matters which will
come before the Meeting. However, if any other matter should properly come
before the Meeting, it is the intention of the persons named in the enclosed
proxy to vote each proxy in accordance with their judgment on such matter.
SHAREHOLDER PROPOSALS
Proposals by shareholders which are intended to be presented
at the next annual meeting of shareholders of the Company must be received by
the Company on or before May 11, 1997 to be considered for inclusion in the
Company's proxy statement for the 1997 Annual Meeting of Shareholders.
By Order of the Board of Directors
James S. Rocke
Secretary
Phoenix, Arizona
September 13, 1996
<PAGE>
ANNEX A
FRONTIER ADJUSTERS OF AMERICA, INC.
1996 STOCK OPTION PLAN
ARTICLE I
General
1.1 Purpose of Plan; Term
(a) Adoption. On May 21, 1996, the Board of Directors (the
"Board") of Frontier Adjusters of America, Inc., an Arizona corporation (the
"Company"), adopted a stock option plan to be known as the 1996 Stock Option
Plan (the "Plan").
(b) Defined Terms. All initially capitalized terms used
hereby shall have the meaning set forth in Article V hereto.
(c) General Purpose. The purpose of the Grant Program is to
further the interests of the Company and its shareholders by encouraging key
persons associated with the Company (or Parent or Subsidiary Corporations) to
acquire shares of the Company's Stock, thereby acquiring a proprietary interest
in its business and an increased personal interest in its continued success and
progress. Such purpose shall be accomplished by providing for the granting of
options to acquire the Company's Stock ("Options"), the direct granting of the
Company's Stock ("Stock Awards"), the granting of stock appreciation rights
("SARs"), or the granting of other cash awards ("Cash Awards") (Stock Awards,
SARs and Cash Awards shall be collectively referred to herein as "Awards").
(d) Character of Options. Options granted under this Plan to
employees of the Company (or Parent or Subsidiary Corporations) that are
intended to qualify as an "incentive stock option" as defined in Code section
422 ("Incentive Stock Option") will be specified in the applicable stock option
agreement. All other Options granted under this Plan will be nonqualified
options.
(e) Rule 16b-3 Plan. The Company is subject to the reporting
requirements of the Securities Exchange Act of 1934, and therefore the Plan is
intended to comply with all applicable conditions of Rule 16b-3 (and all
subsequent revisions thereof) promulgated under the 1934 Act. To the extent any
provision of the Plan or action by a Plan Administrator fails to so comply, it
shall be deemed null and void, to the extent permitted by law and deemed
advisable by such Plan Administrator. In addition, the Board may amend the Plan
from time to time as it deems necessary in order to meet the requirements of any
amendments to Rule 16b-3 without the consent of the shareholders of the Company.
(f) Duration of Plan. The term of the Plan is 10 years
commencing on the date of adoption of the original Plan by the Board as
specified in Section 1.1(a) hereof. No Option or Award shall be granted under
the Plan unless granted within 10 years of the adoption of the Plan by the
Board, but Options or Awards outstanding on that date shall not be terminated or
otherwise affected by virtue of the Plan's expiration.
1.2 Stock and Maximum Number of Shares Subject to Plan.
(a) Description of Stock and Maximum Shares Allocated. The
shares of stock subject to the provisions of the Plan and issuable upon the
grant of Stock Awards or upon the exercise of SARs or Options granted under the
Plan are shares of the Company's common stock, $0.01 par value per share (the
"Stock"), which may be either unissued or treasury shares. The Company may not
issue more than 300,000 shares of Stock pursuant to the Plan, unless the Plan is
amended as provided in Section 1.3 or the maximum number of shares subject to
the Plan is adjusted as provided in Section 3.1.
<PAGE>
(b) Calculation of Available Shares. The number of shares of
Stock available under the Plan shall be reduced: (i) by any shares of Stock
issued (including any shares of Stock withheld for tax withholding requirements)
upon exercise of an Option and (ii) by any shares of Stock issued (including any
shares of Stock withheld for tax withholding requirements) upon the grant of a
Stock Award or the exercise of a SAR.
(c) Restoration of Unpurchased Shares. If an Option or SAR
expires or terminates for any reason prior to its exercise in full and before
the term of the Plan expires, the shares of Stock subject to, but not issued
under, such Option or SAR shall, without further action or by or on behalf of
the Company, again be available under the Plan.
1.3 Approval; Amendments.
(a) Approval by Shareholders. The Plan shall be submitted to
the shareholders of the Company for their approval at a regular or special
meeting to be held within 12 months after the adoption of the Plan by the Board.
Shareholder approval shall be evidenced by the affirmative vote of the holders
of a majority of the shares of the Company's Common Stock present in person or
by proxy and voting at the meeting. The date such shareholder approval has been
obtained shall be referred to herein as the "Effective Date."
(b) Commencement of Programs. The Grant Program is effective
immediately, but if the Plan is not approved by the shareholders within 12
months after its adoption by the Board, the Plan and all Options and Awards made
under the Grant Program will automatically terminate and be forfeited to the
same extent and with the same effect as though the Plan had never been adopted.
(c) Amendments to Plan. The Board may, without action on the
part of the Company's shareholders, make such amendments to, changes in and
additions to the Plan as it may, from time to time, deem necessary or
appropriate and in the best interests of the Company; provided, the Board may
not, without the consent of the applicable Optionholder, take any action which
disqualifies any Option previously granted under the Plan for treatment as an
Incentive Stock Option or which adversely affects or impairs the rights of the
Optionholder of any Option outstanding under the Plan, and further provided
that, except as provided in Article III hereof, the Board may not, without the
approval of the Company's shareholders, (i) increase the aggregate number of
shares of Stock subject to the Plan, (ii) reduce the exercise price at which
Options may be granted or the exercise price at which any outstanding Option may
be exercised, (iii) extend the term of the Plan, (iv) change the class of
persons eligible to receive Options or Awards under the Plan, or (v) materially
increase the benefits accruing to participants under the Plan. Notwithstanding
the foregoing, Options or Awards may be granted under this Plan to purchase
shares of Stock in excess of the number of shares then available for issuance
under the Plan if (A) an amendment to increase the maximum number of shares
issuable under the Plan is adopted by the Board prior to the initial grant of
any such Option or Award and within one year thereafter such amendment is
approved by the Company's shareholders and (B) each such Option or Award granted
does not become exercisable or vested, in whole or in part, at any time prior to
the obtaining of such shareholder approval.
ARTICLE II
Grant Program
2.1 Participants; Administration.
(a) Eligibility and Participation. Options and Awards may be
granted only to persons ("Eligible Persons") who at the time of grant are (i)
key personnel (including officers and directors) of the Company or Parent or
Subsidiary Corporations, or (ii) consultants or independent contractors who
provide valuable services to the Company or Parent or Subsidiary Corporations;
provided that (1) Incentive Stock Options may only be granted to key personnel
of the Company (and its Parent or Subsidiary Corporation) who are also employees
of the Company (or its Parent or Subsidiary Corporation) and (2) the maximum
number of shares of stock with respect to which Options or SARs may be granted
to any employee during the term of the Plan shall not exceed 50 percent of the
shares of stock covered by the Plan. A Plan Administrator shall have full
authority to determine which
<PAGE>
Eligible Persons in its administered group are to receive Option grants under
the Plan, the number of shares to be covered by each such grant, whether or not
the granted Option is to be an Incentive Stock Option, the time or times at
which each such Option is to become exercisable, and the maximum term for which
the Option is to be outstanding. A Plan Administrator shall also have full
authority to determine which Eligible Persons in such group are to receive
Awards under the Grant Program and the conditions relating to such Award.
(b) General Administration. The Eligible Persons under the
Grant Program shall be divided into two groups and there shall be a separate
administrator for each group. One group will be comprised of Eligible Persons
that are Affiliates. For purposes of this Plan, the term "Affiliates" shall mean
all "officers" (as that term is defined in Rule 16a-1(f) promulgated under the
1934 Act) and directors of the Company and all persons who own ten percent or
more of the Company's issued and outstanding equity securities. Initially, the
power to administer the Grant Program with respect to Eligible Persons that are
Affiliates shall be vested with the Board. At any time, however, the Board may
vest the power to administer the Grant Program with respect to Persons that are
Affiliates exclusively with a committee (the "Senior Committee") comprised of
two or more Non-Employee Directors which are appointed by the Board. The Senior
Committee, at its sole discretion, may require approval of the Board for
specific grants of Options or Awards under the Grant Program. The administration
of all Eligible Persons that are not Affiliates ("Non-Affiliates") shall be
vested exclusively with the Board. The Board, however, may at any time appoint a
committee (the "Employee Committee") of two or more persons who are members of
the Board and delegate to such Employee Committee the power to administer the
Grant Program with respect to the Non-Affiliates. In addition, the Board may
establish an additional committee or committees of persons who are members of
the Board and delegate to such other committee or committees the power to
administer all or a portion of the Grant program with respect to all or a
portion of the Eligible Persons. Members of the Senior Committee, Employee
Committee or any other committee allowed hereunder shall serve for such period
of time as the Board may determine and shall be subject to removal by the Board
at any time. The Board may at any time terminate all or a portion of the
functions of the Senior Committee, the Employee Committee, or any other
committee allowed hereunder and reassume all or a portion of powers and
authority previously delegated to such committee. The Board in its discretion
may also require the members of the Senior Committee, the Employee Committee or
any other committee allowed hereunder to be "outside directors" as that term is
defined in any applicable regulations promulgated under Code section 162(m).
(c) Plan Administrators. The Board, the Employee Committee,
Senior Committee, and/or any other committee allowed hereunder, whichever is
applicable, shall be each referred to herein as a "Plan Administrator." Each
Plan Administrator shall have the authority and discretion, with respect to its
administered group, to select which Eligible Persons shall participate in the
Grant Program, to grant Options or Awards under the Grant Program, to establish
such rules and regulations as they may deem appropriate with respect to the
proper administration of the Grant Program and to make such determinations
under, and issue such interpretations of, the Grant Program and any outstanding
Option or Award as they may deem necessary or advisable. Unless otherwise
required by law or specified by the Board with respect to any committee,
decisions among the members of a Plan Administrator shall be by majority vote.
Decisions of a Plan Administrator shall be final and binding on all parties who
have an interest in the Grant Program or any outstanding Option or Award.
(d) Guidelines for Participation. In designating and selecting
Eligible Persons for participation in the Grant Program, a Plan Administrator
shall consult with and give consideration to the recommendations and criticisms
submitted by appropriate managerial and executive officers of the Company. A
Plan Administrator also shall take into account the duties and responsibilities
of the Eligible Persons, their past, present and potential contributions to the
success of the Company and such other factors as a Plan Administrator shall deem
relevant in connection with accomplishing the purpose of the Plan.
2.2 Terms and Conditions of Options
<PAGE>
(a) Allotment of Shares. A Plan Administrator shall determine
the number of shares of Stock to be optioned from time to time and the number of
shares to be optioned to any Eligible Person (the "Optioned Shares"). The grant
of an Option to a person shall neither entitle such person to, nor disqualify
such person from, participation in any other grant of Options or Stock Awards
under this Plan or any other stock option plan of the Company.
(b) Exercise Price. Upon the grant of any Option, a Plan
Administrator shall specify the option price per share. If the Option is
intended to qualify as an Incentive Stock Option under the Code, the option
price per share may not be less than 100 percent of the fair market value per
share of the stock on the date the Option is granted (110 percent if the Option
is granted to a shareholder who at the time the Option is granted owns or is
deemed to own stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company or of any Parent or Subsidiary
Corporation). The determination of the fair market value of the Stock shall be
made in accordance with the valuation provisions of Section 3.5 hereof.
(c) Individual Stock Option Agreements. Options granted under
the Plan shall be evidenced by option agreements in such form and content as a
Plan Administrator from time to time approves, which agreements shall
substantially comply with and be subject to the terms of the Plan, including the
terms and conditions of this Section 2.2. As determined by a Plan Administrator,
each option agreement shall state (i) the total number of shares to which it
pertains, (ii) the exercise price for the shares covered by the Option, (iii)
the time at which the Options vest and become exercisable and (iv) the Option's
scheduled expiration date. The option agreements may contain such other
provisions or conditions as a Plan Administrator deems necessary or appropriate
to effectuate the sense and purpose of the Plan, including covenants by the
Optionholder not to compete and remedies for the Company in the event of the
breach of any such covenant.
(d) Option Period. No Option granted under the Plan that is
intended to be an Incentive Stock Option shall be exercisable for a period in
excess of 10 years from the date of its grant (five years if the Option is
granted to a shareholder who at the time the Option is granted owns or is deemed
to own stock possessing more than 10 percent of the total combined voting power
of all classes of stock of the Company or of any Parent or any Subsidiary
Corporation), subject to earlier termination in the event of termination of
employment, retirement or death of the Optionholder. An Option may be exercised
in full or in part at any time or from time to time during the term of the
Option or provide for its exercise in stated installments at stated times during
the Option's term.
(e) Vesting; Limitations. The time at which Options may be
exercised with respect to an Optionholder shall be in the discretion of that
Optionholder's Plan Administrator. Notwithstanding the foregoing, to the extent
an Option is intended to qualify as an Incentive Stock Option, the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Stock for which one or more Options granted to any person under this Plan
(or any other option plan of the Company or its Parent or Subsidiary
Corporations) may for the first time become exercisable as Incentive Stock
Options during any one calendar year shall not exceed the sum of $100,000
(referred to herein as the "$100,000 Limitation"). To the extent that any person
holds two or more Options which become exercisable for the first time in the
same calendar year, the foregoing limitation on the exercisability as an
Incentive Stock Option shall be applied on the basis of the order in which such
Options are granted.
(f) No Fractional Shares. Options shall be exercisable only
for whole shares; no fractional shares will be issuable upon exercise of any
Option granted under the Plan.
(g) Method of Exercise. To exercise an Option, an
Optionholder (or in the case of an exercise after an Optionholder's death, such
Optionholder's executor, administrator, heir or legatee, as the case may be)
must take the following action:
(i) execute and deliver to the Company a written notice
of exercise signed in writing by the person exercising the Option specifying the
number of shares of Stock with respect to which the Option is being exercised;
<PAGE>
(ii) pay the aggregate Option Price in one of the
alternate forms as set forth in Section 2.2(h) below; and
(iii)furnish appropriate documentation that the person
or persons exercising the Option (if other than the Optionholder) has the right
to exercise such Option.
As soon as practical after the Exercise Date, the Company will mail or deliver
to or on behalf of the Optionholder (or any other person or persons exercising
this Option under the Plan) a certificate or certificates representing the Stock
acquired upon exercise of the Option.
(h) Payment Price. The aggregate Option Price shall be
payable in one of the alternative forms specified below:
(i) Full payment in cash or check made payable to the
Company's order; or
(ii) Full payment in shares of Stock held for the
requisite period necessary to avoid a charge to the Company's reported earnings
and valued at fair market value on the Exercise Date (as determined in
accordance with Section 3.5 hereof); or
(iii) If a cashless exercise program has been
implemented by the Board, full payment through a sale and remittance procedure
pursuant to which the Optionholder (A) shall provide irrevocable written
instructions to a designated brokerage firm to effect the immediate sale of the
Optioned Shares to be purchased and remit to the Company, out of the sale
proceeds available on the settlement date, sufficient funds to cover the
aggregate exercise price payable for the Optioned Shares to be purchased and (B)
shall concurrently provide written directives to the Company to deliver the
certificates for the Optioned Shares to be purchased directly to such brokerage
firm in order to complete the sale transaction.
(i) Rights of a Shareholder. An Optionholder shall not have
any of the rights of a shareholder with respect to Optioned Shares until such
individual shall have exercised the Option and paid the Option Price for the
Optioned Shares. No adjustment will be made for dividends or other rights for
which the record date is prior to the date such stock certificate is issued.
(j) Repurchase Right. The Plan Administrator may, in its
sole discretion, set forth other terms and conditions upon which the Company (or
its assigns) shall have the right to repurchase shares of Stock acquired by an
Optionholder pursuant to an Option. Any repurchase right of the Company shall be
exercisable by the Company (or its assignees) upon such terms and conditions as
the Plan Administrator may specify in the Stock Repurchase Agreement evidencing
such right. The Plan Administrator may also in its discretion establish as a
term and condition of one or more Options granted under the Plan that the
Company shall have a right of first refusal with respect to any proposed sale or
other disposition by the Optionholder of any shares of Stock issued upon the
exercise of such Options. Any such right of first refusal shall be exercisable
by the Company (or its assigns) in accordance with the terms and conditions set
forth in the Stock Repurchase Agreement.
(k) Termination of Incentive Stock Options.
(i) Termination of Service. If any Optionholder ceases
to be in Service to the Company for a reason other than permanent disability or
death and the Option held by such Optionholder is an Incentive Stock Option,
then such Optionholder must, within 90 days after the date of termination of
such Service, but in no event after the Option's stated expiration date,
exercise some or all of the Options that the Optionholder was entitled to
exercise on the date the Optionholder's Service terminated; provided, that if
the Optionholder is discharged for Cause or commits acts detrimental to the
Company's interests after the Service of the Optionholder has been terminated,
then the Option will thereafter be void for all purposes. "Cause" shall mean a
termination of Service based upon a finding by the applicable Plan Administrator
that the Optionholder: (i) has committed a felony involving dishonesty, fraud,
theft or embezzlement; (ii) after written notice from the Company has repeatedly
failed
<PAGE>
or refused, in a material respect, to follow reasonable policies or directives
established by the Company; (iii) after written notice from the Company, has
willfully and persistently failed to attend to material duties or obligations;
(iv) has performed an act or failed to act, which, if he were prosecuted and
convicted, would constitute a theft of money or property of the Company; or (v)
has misrepresented or concealed a material fact for purposes of securing
employment with the Company. If any Optionholder ceases to be in Service to the
Company by reason of permanent disability within the meaning of section 22(e)(3)
of the Code (as determined by the applicable Plan Administrator), the
Optionholder will have 12 months after the date of termination of Service, but
in no event after the stated expiration date of the Optionholder's Options, to
exercise Options that the Optionholder was entitled to exercise on the date the
Optionholder's Service terminated as a result of the disability.
(ii) Death of Optionholder. If an Optionholder dies
while in the Company's Service, any Options that are Incentive Stock Options
that the Optionholder was entitled to exercise on the date of death will be
exercisable within three months after such date or until the stated expiration
date of the Optionholder's Option, whichever occurs first, by the person or
persons ("successors") to whom the Optionholder's rights pass under a will or by
the laws of descent and distribution. As soon as practicable after receipt by
the Company of such notice and of payment in full of the Option Price, a
certificate or certificates representing the Optioned Shares shall be registered
in the name or names specified by the successors in the written notice of
exercise and shall be delivered to the successors.
(l) Termination of Nonqualified Options. Any Options which are
not Incentive Stock Options and which are outstanding at the time an
Optionholder ceases to be in Service to the Company shall remain exercisable for
such period of time thereafter as determined by the Plan Administrator and set
forth in the documents evidencing the Options. In the absence of any provision
in such documents, the Option shall remain exercisable (i) for a period of one
year after termination resulting from death or permanent disability within the
meaning of Section 22(e)(3) of the Code (as determined by the Plan
Administrator); (ii) for no period should the Optionholder be discharged for
Cause; and (iii) for 90 days after termination for any other reason; provided
however, that no Option shall be exercisable after the Option's stated
expiration date.
(m) Other Plan Provisions Still Applicable. If an Option is
exercised upon the termination of Service or death of an Optionholder under this
Section 2.2, the other provisions of the Plan will continue to apply to such
exercise, including the requirement that the Optionholder or its successor may
be required to enter into a Stock Repurchase Agreement.
(n) Definition of "Service". For purposes of this Plan, unless
it is evidenced otherwise in the option agreement with the Optionholder, the
Optionholder is deemed to be in "Service" to the Company so long as such
individual renders continuous services on a periodic basis to the Company (or to
any Parent or Subsidiary Corporation) in the capacity of an employee, director,
or an independent consultant or advisor. In the discretion of the applicable
Plan Administrator, an Optionholder will be considered to be rendering
continuous services to the Company even if the type of services change, e.g.,
from employee to independent consultant. The Optionholder will be considered to
be an employee for so long as such individual remains in the employ of the
Company or one or more of its Parent or Subsidiary Corporations.
2.3 Terms and Conditions of Stock Awards
(a) Eligibility. All Eligible Persons shall be eligible to
receive Stock Awards. The Plan Administrator of each administered group shall
determine the number of shares of Stock to be awarded from time to time to any
Eligible Person in such group. Except as provided otherwise in this Plan, the
grant of a Stock Award to a person (a "Grantee") shall neither entitle such
person to, nor disqualify such person from participation in, any other grant of
options or awards by the Company, whether under this Plan or under any other
stock option or award plan of the Company.
(b) Award for Services Rendered. Stock Awards shall be
granted in recognition of an Eligible Person's services to the Company. The
grantee of any such Stock Award shall not be required to pay any
<PAGE>
consideration to the Company upon receipt of such Stock Award, except as may be
required to satisfy any applicable Arizona corporate law, employment tax and/or
income tax withholding requirements.
(c) Conditions to Award. All Stock Awards shall be subject to
such terms, conditions, restrictions, or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance or the financial performance of the Company,
or payment by the recipient of any applicable employment or withholding taxes.
Such Plan Administrator may modify or accelerate the termination of the
restrictions applicable to any Stock Award under the circumstances as it deems
appropriate.
(d) Award Agreements. A Plan Administrator may require as a
condition to a Stock Award that the recipient of such Stock Award enter into an
award agreement in such form and content as that Plan Administrator from time to
time approves.
2.4 Terms and Conditions of SARs
(a) Eligibility. All Eligible Persons shall be eligible to
receive SARs. The Plan Administrator of each administered group shall determine
the SARs to be awarded from time to time to any Eligible Person in such group.
The grant of a SAR to a person shall neither entitle such person to, nor
disqualify such person from participation in, any other grant of options or
awards by the Company, whether under this Plan or under any other stock option
or award plan of the Company.
(b) Award of SARs. Concurrently with or subsequent to the
grant of any Option to purchase one or more shares of Stock, the Plan
Administrator may award to the Optionholder with respect to each share of Stock,
underlying the Option, a related SAR permitting the Optionholder to be paid any
appreciation on that Stock in lieu of exercising the Option. In addition, a Plan
Administrator may award to any Eligible Person a SAR permitting the Eligible
Person to be paid the appreciation on a designated number of shares of the
Stock, whether or not such Shares are actually issued.
(c) Conditions to SAR. All SARs shall be subject to such
terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, including, by way of illustration but not by
way of limitation, restrictions on transferability, requirements of continued
employment, individual performance, financial performance of the Company, or
payment by the recipient of any applicable employment or withholding taxes. Such
Plan Administrator may modify or accelerate the termination of the restrictions
applicable to any SAR under the circumstances as it deems appropriate.
(d) SAR Agreements. A Plan Administrator may require as a
condition to the grant of a SAR that the recipient of such SAR enter into a SAR
agreement in such form and content as that Plan Administrator from time to time
approves.
(e) Exercise. An Eligible Person who has been granted a SAR
may exercise such SAR subject to the conditions specified in the SAR agreement
by the Plan Administrator.
(f) Amount of Payment. The amount of payment to which the
grantee of a SAR shall be entitled upon the exercise of each SAR shall be equal
to the amount, if any, by which the fair market value of the specified shares of
Stock on the exercise date exceeds the fair market value of the specified shares
of Stock on the date the Option related to the SAR was granted or became
effective, or, if the SAR is not related to any Option, on the date the SAR was
granted or became effective.
(g) Form of Payment. The SAR may be paid in either cash or
Stock, as determined in the discretion of the applicable Plan Administrator and
set forth in the SAR agreement. If the payment is in Stock, the number of shares
to be paid to the participant shall be determined by dividing the amount of the
payment determined pursuant to Section 2.4(f) by the fair market value of a
share of Stock on the exercise date of such SAR. As soon
<PAGE>
as practical after exercise, the Company shall deliver to the SAR grantee a
certificate or certificates for such shares of Stock.
(h) Termination of Employment; Death. Sections 2.2(k) and
(l), applicable to Options, shall apply equally to SARs.
2.5 Other Cash Awards
(a) In General. The Plan Administrator of each administered
group shall have the discretion to make other awards of cash to Eligible Persons
in such group ("Cash Awards"). Such Cash Awards may relate to existing Options
or to the appreciation in the value of the Stock or other Company securities.
(b) Conditions to Award. All Cash Awards shall be subject to
such terms, conditions, restrictions or limitations as the applicable Plan
Administrator deems appropriate, and such Plan Administrator may require as a
condition to such Cash Award that the recipient of such Cash Award enter into an
award agreement in such form and content as the Plan Administrator from time to
time approves.
ARTICLE III
Miscellaneous
3.1 Capital Adjustments. The aggregate number of shares of Stock
subject to the Plan, the number of shares of Stock covered by outstanding
Options and Awards, and the price per share stated in all outstanding Options
and Awards shall be proportionately adjusted for any increase or decrease in the
number of outstanding shares of Stock of the Company resulting from a
subdivision or consolidation of shares or any other capital adjustment or the
payment of a stock dividend or any other increase or decrease in the number of
such shares effected without the Company's receipt of consideration therefor in
money, services or property.
3.2 Mergers, Etc. If the Company is the surviving corporation in any
merger or consolidation (not including a Corporate Transaction), any Option or
Award granted under the Plan shall pertain to and apply to the securities to
which a holder of the number of shares of Stock subject to the Option or Award
would have been entitled prior to the merger or consolidation. Except as
provided in Section 3.3 hereof, a dissolution or liquidation of the Company
shall cause every Option or Award outstanding hereunder to terminate.
3.3 Corporate Transaction. In the event of shareholder approval of a
Corporate Transaction, the Plan Administrator shall have the discretion and
authority, exercisable at any time, to provide for the automatic acceleration of
one or more of the outstanding Options or Awards granted by it under the Plan.
Upon the consummation of the Corporate Transaction, all Options shall, to the
extent not previously exercised, terminate and cease to be outstanding.
3.4 Change in Control.
(a) Grant Program. In the event of a Change in Control, a Plan
Administrator shall have the discretion and authority, exercisable at any time,
whether before or after the Change in Control, to provide for the automatic
acceleration of one or more outstanding Options or Awards granted by it under
the Plan upon the occurrence of such Change in Control. A Plan Administrator may
also impose limitations upon the automatic acceleration of such Options or
Awards to the extent it deems appropriate. Any Options or Awards accelerated
upon a Change in Control will remain fully exercisable until the expiration or
sooner termination of the Option term.
(b) Incentive Stock Option Limits. The exercisability of any
Options which are intended to qualify as Incentive Stock Options and which are
accelerated by the Plan Administrator in connection with a pending Corporation
Transaction or Change in Control shall, except as otherwise provided in the
discretion of the Plan Administrator and the Optionholder, remain subject to the
$100,000 Limitation and vest as quickly as possible without violating the
$100,000 Limitation.
<PAGE>
3.5 Calculation of Fair Market Value of Stock. The fair market
value of a share of Stock on any relevant date shall be determined in accordance
with the following provisions:
(a) If the Stock is not at the time listed or admitted to
trading on any stock exchange but is traded in the over-the-counter market, the
fair market value shall be the mean between the highest bid and lowest asked
prices (or, if such information is available, the closing selling price) per
share of Stock on the date in question in the over-the-counter market, as such
prices are reported by the National Association of Securities Dealers through
its Nasdaq system or any successor system. If there are no reported bid and
asked prices (or closing selling price) for the Stock on the date in question,
then the mean between the highest bid price and lowest asked price (or the
closing selling price) on the last preceding date for which such quotations
exist shall be determinative of fair market value.
(b) If the Stock is at the time listed or admitted to trading
on any stock exchange, then the fair market value shall be the closing selling
price per share of Stock on the date in question on the stock exchange
determined by the Board to be the primary market for the Stock, as such price is
officially quoted in the composite tape of transactions on such exchange. If
there is no reported sale of Stock on such exchange on the date in question,
then the fair market value shall be the closing selling price on the exchange on
the last preceding date for which such quotation exists.
(c) If the Stock at the time is neither listed nor admitted to
trading on any stock exchange nor traded in the over-the-counter market, then
the fair market value shall be determined by the Board after taking into account
such factors as the Board shall deem appropriate, including one or more
independent professional appraisals.
3.6 Use of Proceeds. The proceeds received by the Company from the sale
of Stock pursuant to the exercise of Options or Awards hereunder, if any, shall
be used for general corporate purposes.
3.7 Cancellation of Options. Each Plan Administrator shall have the
authority to effect, at any time and from time to time, with the consent of the
affected Optionholders, the cancellation of any or all outstanding Options
granted under the Plan by that Plan Administrator and to grant in substitution
therefore new Options under the Plan covering the same or different numbers of
shares of Stock as long as such new Options have an exercise price per share of
Stock no less than the minimum exercise price as set forth in Section 2.2(b)
hereof on the new grant date.
3.8 Regulatory Approvals. The implementation of the Plan, the granting
of any Option or Award hereunder, and the issuance of Stock upon the exercise of
any such Option or Award shall be subject to the procurement by the Company of
all approvals and permits required by regulatory authorities having jurisdiction
over the Plan, the Options or Awards granted under it and the Stock issued
pursuant to it.
3.9 Indemnification. In addition to such other rights of
indemnification as they may have, the members of a Plan Administrator shall be
indemnified and held harmless by the Company, to the extent permitted under
applicable law, for, from and against all costs and expenses reasonably incurred
by them in connection with any action, legal proceeding to which any member
thereof may be a party by reason of any action taken, failure to act under or in
connection with the Plan or any rights granted thereunder and against all
amounts paid by them in settlement thereof or paid by them in satisfaction of a
judgment of any such action, suit or proceeding, except a judgment based upon a
finding of bad faith.
3.10 Plan Not Exclusive. This Plan is not intended to be the exclusive
means by which the Company may issue options or warrants to acquire its Stock,
stock awards or any other type of award. To the extent permitted by applicable
law, any such other option, warrants or awards may be issued by the Company
other than pursuant to this Plan without shareholder approval.
<PAGE>
3.11 Company Rights. The grants of Options shall in no way affect the
right of the Company to adjust, reclassify, reorganize or otherwise change its
capital or business structure or to merge, consolidate, dissolve, liquidate or
sell or transfer all or any part of its business or assets.
3.12 Assignment. The right to acquire Stock or other assets under the
Plan may not be assigned, encumbered or otherwise transferred by any
Optionholder except as specifically provided herein. No Option or Award granted
under the Plan or any of the rights and privileges conferred thereby shall be
assignable or transferable by an Optionholder or grantee other than by will or
the laws of descent and distribution, and such Option or Award shall be
exercisable during the Optionholder's or grantee's lifetime only by the
Optionholder or grantee. Notwithstanding the foregoing, any Options or Awards
granted pursuant to the Grant Program may be assigned, encumbered or otherwise
transferred by the Optionholder or grantee if specifically allowed by the Plan
Administrator upon the grant of such Option or Award. The provisions of the Plan
shall inure to the benefit of, and be binding upon, the Company and its
successors or assigns, and the Optionholders, the legal representatives of their
respective estates, their respective heirs or legatees and their permitted
assignees.
3.13 Securities Restrictions
(a) Legend on Certificates. All certificates representing
shares of Stock issued under the Plan shall be endorsed with a legend reading as
follows:
The shares of Common Stock evidenced by this
certificate have been issued to the registered
owner in reliance upon written representations
that these shares have been purchased solely for
investment. These shares may not be sold,
transferred or assigned unless in the opinion of
the Company and its legal counsel such sale,
transfer or assignment will not be in violation of
the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
(b) Private Offering for Investment Only. The Options and
Awards are and shall be made available only to a limited number of present and
future key executives, directors and employees who have knowledge of the
Company's financial condition, management and its affairs. The Plan is not
intended to provide additional capital for the Company, but to encourage
ownership of Stock among the Company's key personnel. By the act of accepting an
Option or Award, each grantee agrees (i) that, any shares of Stock acquired will
be solely for investment not with any intention to resell or redistribute those
shares and (ii) such intention will be confirmed by an appropriate certificate
at the time the Stock is acquired if requested by the Company. The neglect or
failure to execute such a certificate, however, shall not limit or negate the
foregoing agreement.
(c) Registration Statement. If a Registration Statement
covering the shares of Stock issuable under the Plan as filed under the
Securities Exchange Act of 1933, as amended, and as declared effective by the
Securities Exchange Commission, the provisions of Sections 3.13(a) and (b) shall
terminate during the period of time that such Registration Statement, as
periodically amended, remains effective.
3.14 Tax Withholding.
(a) General. The Company's obligation to deliver Stock under
the Plan shall be subject to the satisfaction of all applicable federal, state
and local income tax withholding requirements.
(b) Shares to Pay for Withholding. The Board may, in its
discretion and in accordance with the provisions of this Section 3.14(b) and
such supplemental rules as it may from time to time adopt (including the
applicable safe-harbor provisions of SEC Rule 16b-3), provide any or all
Optionholders or Grantees with the right to use shares of Stock in satisfaction
of all or part of the federal, state and local income tax liabilities incurred
by such Optionholders or Grantees in connection with the receipt of Stock
("Taxes"). Such right may be provided to any such Optionholder or Grantee in
either or both of the following formats:
<PAGE>
(i) Stock Withholding. An Optionholder or Grantee may
be provided with the election, which may be subject to approval by the Plan
Administrator, to have the Company withhold, from the Stock otherwise issuable,
a portion of those shares of Stock with an aggregate fair market value equal to
the percentage of the applicable Taxes (not to exceed 100 percent) designated by
the Optionholder or Grantee.
(ii) Stock Delivery. The Board may, in its discretion,
provide the Optionholder or Grantee with the election to deliver to the Company,
at the time the Option is exercised or Stock is awarded, one or more shares of
Stock previously acquired by such individual (other than pursuant to the
transaction triggering the Taxes) with an aggregate fair market value equal to
the percentage of the taxes incurred in connection with such Option exercise or
Stock Award (not to exceed 100 percent) designated by the Optionholder or
Grantee.
3.15 Governing Law. The Plan shall be governed by and all questions
hereunder shall be determined in accordance with the laws of the State of
Arizona.
ARTICLE IV
Definitions
The following capitalized terms used in this Plan shall have the
meaning described below:
"Affiliates" shall mean all "executive officers" (as that term is
defined in Rule 16a-1(f) promulgated under the 1934 Act) and directors of the
Company and all persons who own ten percent or more of the Company's issued and
outstanding Stock.
"Annual Grant Date" shall mean the date of the Company's annual
shareholder meeting.
"Award" shall mean a Stock Award, SAR or Cash Award under the Grant
Program.
"Board" shall mean the Board of Directors of the Company.
"Cash Award" shall mean an award to be paid in cash and granted under
Section 2.5 hereunder.
"Change in Control" shall mean and include the following transactions
or situations:
(i) A sale, transfer, or other disposition by the Company
through a single transaction or a series of transactions of securities of the
Company representing 30 percent or more of the combined voting power of the
Company's then outstanding securities to any "Unrelated Person" or "Unrelated
Persons" acting in concert with one another. For purposes of this Section, the
term "Person" shall mean and include any individual, partnership, joint venture,
association, trust corporation, or other entity (including a "group" as referred
to in Section 13(d)(3) of the 1934 Act). For purposes of this Section, the term
"Unrelated Person" shall mean and include any Person other than the Company, a
wholly-owned subsidiary of the Company, or an employee benefit plan of the
Company.
(ii) A sale, transfer, or other disposition through a single
transaction or a series of transactions of all or substantially all of the
assets of the Company to an Unrelated Person or Unrelated Persons acting in
concert with one another.
(iii) A change in the ownership of the Company through a
single transaction or a series of transactions such that any Unrelated Person or
Unrelated Persons acting in concert with one another become the "Beneficial
Owner," directly or indirectly, of securities of the Company representing at
least 30 percent of the combined voting power of the Company's then outstanding
securities. For purposes of this Section, the term "Beneficial Owner" shall have
the same meaning as given to that term in Rule 13d-3 promulgated under the Act,
provided that any pledgee of voting securities is not deemed to be the
Beneficial Owner thereof prior to its acquisition of voting rights with respect
to such securities.
<PAGE>
(iv) Any consolidation or merger of the Company with or into
an Unrelated Person, unless immediately after the consolidation or merger the
holders of the common stock of the Company immediately prior to the
consolidation or merger are the Beneficial Owners of securities of the surviving
corporation representing at least 50 percent of the combined voting power of the
surviving corporation's then outstanding securities.
(v) During any period of two years, individuals who, at the
beginning of such period, constituted the Board of Directors of the Company
cease, for any reason, to constitute at least a majority thereof, unless the
election or nomination for election of each new director was approved by the
vote of at least two-thirds of the directors then still in office who were
directors at the beginning of such period.
(vi) A change in control of the Company of a nature that would
be required to be reported in response to item 6(e) of Schedule 14A of
Regulation 14A promulgated under the 1934 Act, or any successor regulation of
similar import, regardless of whether the Company is subject to such reporting
requirement.
Notwithstanding any provision hereof to the contrary, the filing of a
proceeding for the reorganization of the Company under Chapter 11 of the General
Bankruptcy Code or any successor or other statute of similar import shall not be
deemed to be a Change of Control for purposes of this Plan.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company" shall mean Frontier Adjusters of America, Inc., an Arizona
corporation.
"Corporate Transaction" shall mean (a) a merger or consolidation in
which the Company is not the surviving entity, except for a transaction the
principal purposes of which is to change the state in which the Company is
incorporated; (b) the sale, transfer of or other disposition of all or
substantially all of the assets of the Company and complete liquidation or
dissolution of the Company, or (c) any reverse merger in which the Company is
the surviving entity but in which the securities possessing more than 50 percent
of the total combined voting power of the Company's outstanding securities are
transferred to a person or persons different from those who held such securities
immediately prior to such merger.
"Effective Date" shall mean the date that the Plan has been approved by
the shareholders as required by Section 1.3(a) hereof.
"Eligible Persons" shall mean, with respect to the Grant Program, those
persons who, at the time that the Option or Award is granted, are (i) key
personnel (including officers and directors) of the Company or Parent or
Subsidiary Corporations, or (ii) consultants or independent contractors who
provide valuable services to the Company or Parent or Subsidiary Corporations.
"Employee Committee" shall mean that committee appointed by the Board
to administer the Plan with respect to the Non-Affiliates and comprised of one
or more persons who are members of the Board.
"Exercise Date" shall be the date on which written notice of the
exercise of an Option is delivered to the Company in accordance with the
requirements of the Plan.
"Grantee" shall mean an Eligible Person or Eligible Director that has
received an Award.
"Grant Program" shall mean the program described in Article II of this
Agreement pursuant to which certain Eligible Persons are granted Options or
Awards in the discretion of the Plan Administrator.
"Incentive Stock Option" shall mean an Option that is intended to
qualify as an "incentive stock option" under Code section 422.
"Non-Affiliates" shall mean all persons who are not Affiliates.
<PAGE>
"Non-Employee Directors" shall mean those Directors who satisfy the
definition of "Non-Employee Director" under Rule 16b-3(b)(3)(i) promulgated
under the 1934 Act.
"$100,000 Limitation" shall mean the limitation in which the aggregate
fair market value (determined as of the respective date or dates of grant) of
the Stock for which one or more Options granted to any person under this Plan
(or any other option plan of the Company or any Parent or Subsidiary
Corporation) may for the first time be exercisable as Incentive Stock Options
during any one calendar year shall not exceed the sum of $100,000.
"Optionholder" shall mean an Eligible Person to whom Options have been
granted.
"Optioned Shares" shall be those shares of Stock to be optioned from
time to time to any Eligible Person.
"Option Price" shall mean the option price per share as specified by
the Plan Administrator or by the terms of the Plan.
"Options" shall mean options granted under the Plan to acquire Stock.
"Parent Corporation" shall mean any corporation in the unbroken chain
of corporations ending with the employer corporation, where, at each link of the
chain, the corporation and the link above owns at least 50 percent of the
combined total voting power of all classes of the stock in the corporation in
the link below.
"Plan" shall mean this stock option plan for Frontier Adjusters of
America, Inc.
"Plan Administrator" shall mean (a) either the Board, the Senior
Committee, or any other committee, whichever is applicable, with respect to the
administration of the Grant Program as it relates to Affiliates and (b) either
the Board, the Employee Committee, or any other committee, whichever is
applicable, with respect to the administration of the Grant Program as it
relates to Non-Affiliates.
"SAR" shall mean stock appreciation rights granted pursuant to Section
2.4 hereof.
"Senior Committee" shall mean that committee appointed by the Board to
administer the Grant Program with respect to the Affiliates and comprised of two
or more Non-Employee Directors.
"Service" shall have the meaning set forth in Section 2.2(n) hereof.
"Stock" shall mean shares of the Company's common stock, $.01 par value
per share, which may be unissued or treasury shares, as the Board may from time
to time determine.
"Stock Awards" shall mean Stock directly granted under the Grant
Program.
"Subsidiary Corporation" shall mean any corporation in the unbroken
chain of corporations starting with the employer corporation, where, at each
link of the chain, the corporation and the link above owns at least 50 percent
of the combined voting power of all classes of stock in the corporation below.
EXECUTED as of the 21st day of May, 1996.
FRONTIER ADJUSTERS OF AMERICA, INC.
By: /s/ Jean E. Ryberg
-------------------
Name: Jean E. Ryberg
<PAGE>
Its: President
ATTESTED BY:
/s/ James S. Rocke
- ------------------
Secretary
<PAGE>
FRONTIER ADJUSTERS OF AMERICA, INC. THIS PROXY IS SOLICITED
P.O. Box 7680 ON BEHALF OF THE BOARD
Phoenix, Arizona 85011 OF DIRECTORS
- --------------------------------------------------------------------------------
P R O X Y
The undersigned hereby appoints WILLIAM J. ROCKE and JEAN E. RYBERG as Proxies,
each with the power to appoint his or her substitute, and hereby authorizes
them, or either of them, to represent and to vote, as designated below, all the
shares of common stock of Frontier Adjusters of America, Inc. held of record by
the undersigned as of the close of business on August 20, 1996, at the annual
meeting of shareholders to be held on October 11, 1996 at 9:00 A.M. (Phoenix,
Arizona time) and at any adjournment thereof.
1. ELECTION OF DIRECTORS WITHHOLD AUTHORITY
FOR all nominees listed below to vote for each nominee
(except as marked to indicated by X ___
the contrary below)______
___ William J. Rocke ___ Jean E. Ryberg
___ James S. Rocke ___ R. Scott Younker
___ William W. Strawther, Jr. ___ Louis T. Mastos
___ Merlin J. Schumann ___ Francis J. LaPallo
___ George M. Hill
___ Patric R. Greer
2. To approve the Company's 1996 Stock Option Plan.
FOR________________ AGAINST_________________ ABSTAIN___________________
3. To ratify the selection of McGladrey & Pullen, LLP, Certified Public
Accountants, as the auditors of Frontier Adjusters of America, Inc. for the
Company's fiscal year ending June 30, 1997.
FOR________________ AGAINST_________________ ABSTAIN___________________
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
<PAGE>
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is made, this Proxy will be
voted FOR Proposals 1, 2 and 3 and, with respect to Proposal 4, as appropriate
in the Board's judgment.
Please sign exactly as the name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, as executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
Dated:
------------------------------------------
PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY
PROMPTLY, USING THE ENCLOSED ENVELOPE.
------------------------------------------------------
Signature
------------------------------------------------------
Signature if held jointly
