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:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
[ ] Definitive Proxy Statement Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Additional Materials
[ ] Soliciting Material pursuant to Rule
14a-11(c) or Rule 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] No fee required.
[ ] 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 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[ ] 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:
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2) Form, Schedule or Registration Statement No.:
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3) Filing Party:
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4) Date Filed:
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FRONTIER ADJUSTERS OF AMERICA, INC.
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
__________, 1999
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The Annual Meeting of Shareholders of Frontier Adjusters of America,
Inc., an Arizona corporation (the "Company"), will be held on __________,
February __, 1999 at 9:00 a.m. (Phoenix, Arizona time) at_____
_______________________, for the following purposes:
1. To consider and vote upon the approval of the investment of an
aggregate of $6,836,067 in the Company by United Financial Adjusting Company, an
Ohio corporation ("UFAC"), which is a wholly-owned subsidiary of The Progressive
Corporation, an Ohio corporation, to be effected through the sale by the Company
of 5,258,513 shares of the Company's Series A Convertible Voting Preferred
Stock, par value $.01 per share, at a purchase price of $1.30 per share,
pursuant to the provisions of a Stock Purchase Agreement between the Company and
UFAC, as more fully described in the attached Proxy Statement;
2. To elect directors to serve until the next annual meeting of
shareholders and until their successors are elected and qualified;
3. To ratify the appointment of McGladrey and Pullen, LLP, Certified
Public Accountants, as the auditors of the Company for the Company's fiscal year
ending June 30, 1999; and
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 at the close of
business on January 5, 1999 are entitled to notice of and to vote at the
Meeting.
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 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
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
By Order of the Board of Directors,
Phoenix, Arizona James S. Rocke
__________, 1999 Secretary
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FRONTIER ADJUSTERS OF AMERICA, INC.
45 EAST MONTEREY WAY
PHOENIX, ARIZONA 85011
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PROXY STATEMENT
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Shareholders are urged to read this Proxy Statement in its entirety. As
used herein, the "Company" means Frontier Adjusters of America, Inc., an Arizona
corporation, and/or its subsidiaries and "UFAC" means United Financial Adjusting
Company, an Ohio corporation, which is a wholly-owned subsidiary of The
Progressive Corporation, an Ohio corporation ("Progressive"). Certain
capitalized terms used in this Summary are defined elsewhere in this Proxy
Statement.
GENERAL
The enclosed proxy is solicited on behalf of the Company by the
Company's board of directors (the "Board" or "Board of Directors") for use at
the Company's Annual Meeting of Shareholders to be held on _________, February
__, 1999 at 9:00 a.m. (Phoenix, Arizona time) (the "Meeting"), or at any
adjournment thereof, for the purposes set forth in this Proxy Statement and in
the accompanying Notice of Meeting of Shareholders. The Meeting will be held at
________________________________________________________.
These proxy solicitation materials were first mailed on or about
January 15, 1999, to all shareholders entitled to vote at the Meeting.
The mailing address of the Company's principal executive office is 45
East Monterey Way, Phoenix Arizona 85011.
RECORD DATE
The Board of Directors has fixed the close of business on January 5,
1999 as the record date (the "Record Date") for the determination of
shareholders entitled to notice of and to vote at the Meeting or any adjournment
thereof.
REVOCABILITY OF PROXIES
Any person giving a proxy may revoke the proxy at any time before its
use by delivering to 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 SECURITIES AND VOTING RIGHTS
On the Record Date, the Company had outstanding 4,605,358 shares of
common stock, par value $0.01 per share (the "Common Stock"), with each share
entitling its owner of record to one vote on all matters submitted to
shareholders at the Meeting. Each holder of Common Stock voting at the Meeting,
either in person or by proxy, may cast one vote per share of Common Stock held
on all matters to be voted upon at the Meeting.
The presence, in person or by proxy, at the Meeting of shareholders
entitled to cast a majority of all votes entitled to be cast at such meeting,
shall constitute a quorum. Assuming that a quorum is present, the affirmative
vote of a majority of the shares of the Company present in person or represented
by proxy at the
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Meeting and entitled to vote is required (i) to approve the Transaction (as
defined herein), (ii) for the election of directors, (iii) for the ratification
of the appointment of McGladrey and Pullen, LLP, as the independent auditors of
the Company for the fiscal year ending June 30, 1999, and (iv) to transact such
other business as may properly come before the Meeting or any adjournment
thereof.
Shareholders are not entitled under Arizona law to appraisal rights
with respect to the Transaction.
Arizona law requires cumulative voting in elections for directors,
which means that each shareholder may cast the number of votes that is equal to
the number of shares held of record, multiplied by the number of directors to be
elected. Each shareholder may cast the whole number of votes for one candidate
or distribute such votes among two or more candidates. The enclosed proxy does
not seek discretionary authority to cumulate votes in election of directors.
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 shareholders for a vote. Thus, an abstention will have the same
effect as a vote against the Transaction. 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.
VOTING OF PROXIES
When a proxy is properly executed and returned, the shares it
represents will be voted at the Meeting as directed. Unless otherwise
instructed, shares represented by proxy will be voted (i) "for" the Transaction,
(ii) "for" the election of the nominees set forth in this Proxy Statement, and
(iii) "for" the ratification of the appointment of McGladrey and Pullen, LLP, as
the independent auditors of the Company for the fiscal year ending June 30,
1999. If any other matters 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 best judgment on such matter.
SOLICITATION
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 materials 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.
ANNUAL REPORT AND OTHER MATTERS
The 1998 Annual Report to Shareholders, which was mailed to
shareholders with or preceding this Proxy Statement, contains financial and
other information about the Company, but, except for the Financial Statements
contained therein, is not incorporated into this Proxy Statement and is not to
be considered a part of these proxy soliciting materials 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"). 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 (the
"SEC") or subject to Regulations 14A or 14C or to the liabilities of Section 18
of the Exchange Act.
The Company will provide upon written request, without charge to each
shareholder of record as of the Record Date, a copy of the Company's annual
report on Form 10-K for the fiscal year ended June 30, 1998, as filed with the
SEC. Any exhibits listed in the Form 10-K report also will be furnished upon
request at the actual expense incurred by the Company in furnishing such
exhibit. Any such requests should be directed to the Company's Secretary at the
Company's executive office set forth in this Proxy Statement.
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PROPOSAL ONE
THE TRANSACTION
At the Meeting, and at any adjournments thereof, shareholders
of the Company will be asked to consider and vote upon the investment of an
aggregate of $6,836,067 in the Company by UFAC, to be effected through the sale
by the Company of 5,258,513 shares of the Company's Series A Convertible Voting
Preferred Stock, par value $.01 per share (the "Preferred Shares"), at a
purchase price of $1.30 per share (the "Transaction"), pursuant to the
provisions of the Stock Purchase Agreement, dated November 20, 1998, between the
Company and UFAC (the "Stock Purchase Agreement"). Upon the satisfaction of the
conditions to the closing (the "Closing") as set forth in the Stock Purchase
Agreement, the Company shall issue and deliver the Preferred Shares to UFAC and
UFAC shall deliver $6,836,067 to the Company in exchange for the Preferred
Shares. As soon as practicable after the Closing, pursuant to the Stock Purchase
Agreement, the Company plans to make a tender offer (the "Tender Offer") in
which the Company will offer to purchase up to 1,000,000 shares of Common Stock
at a price of $2.90 per share. The Company also plans to make a distribution to
shareholders in the amount of $1.60 (the "Distribution") per each share of
Common Stock not tendered in the Tender Offer (or not accepted by the Company if
tendered in the Tender Offer). See "Potential Benefits to the
Transaction--Return to Shareholders." After the Closing (assuming 1,000,000
shares have been tendered in the Tender Offer and assuming there have been no
other changes in the number of outstanding shares), UFAC will own, upon
conversion of the Preferred Shares, approximately 59.3% of the outstanding
Common Stock and 57.7% of the outstanding Common Stock on a fully diluted basis.
Pursuant to the terms thereof, each Preferred Share may be converted into one
(1) share of Common Stock. Such conversion may not occur prior to the earlier of
the record date for the Distribution or May __, 1999. Each member of the Board
of Directors has stated his or her intention to waive his or her right to
participate in the Tender Offer with respect to all shares of the Common Stock
beneficially owned by such director. UFAC has agreed not to participate in the
Tender Offer and will not participate in the Distribution. The full text of the
Stock Purchase Agreement is included as Appendix A to this Proxy Statement.
The Transaction also involves a number of additional terms established
pursuant to the Stock Purchase Agreement, the Service Agreement to be entered
into between the Company and UFAC (the "Service Agreement"), and the
Registration Rights Agreement to be entered into between the Company and UFAC
(the "Registration Rights Agreement"), including, among others: (i) the
application for listing by the Company of the Common Stock issuable upon
conversion of the Preferred Shares on the American Stock Exchange ("AMEX"); (ii)
the taking of all necessary actions by the Company to cause the Board of
Directors, after the Closing, to consist of a majority of nominees named by
UFAC; (iii) the grant to UFAC of certain registration rights that will enable
UFAC to resell the shares of the Common Stock acquired by it upon conversion of
the Preferred Shares in registered offerings to the public under certain
conditions; and (iv) the grant to UFAC of certain rights to information
regarding the Company. The full texts of the Registration Rights Agreement and
the Service Agreement are included as Appendices C and D, respectively, to this
Proxy Statement.
UFAC has informed the Company that it intends to designate eight
individuals as its initial nominees to the Board of Directors.
VOTES REQUIRED
Approval of the Transaction requires the affirmative vote of a majority
of the total number of shares present in person or represented by proxy at the
Meeting, provided that the total number of shares present in person or
represented by proxy at the Meeting represent over 50% of the shares of Common
Stock issued and outstanding on the Record Date. For the purpose of determining
the outcome of the vote, abstentions will have the same effect as a vote against
the Transaction. Broker non-votes will not be considered as present and entitled
to vote with respect to the Transaction. Approval of the Transaction by the
requisite vote of the shareholders of the Company is a condition to consummation
of the Transaction.
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William J. Rocke, Chairman of the Board of the Company, and James S.
Rocke, Secretary of the Company, Jean E. Ryberg, President of the Company,
George M. Hill, Vice-President and Assistant Secretary of the Company, Francis
J. LaPallo, Executive Vice-President of the Company, and Louis T. Mastos,
William W. Strawther, Jr., Merlin J. Schumann, and R. Scott Younker, Directors
of the Company, and certain other shareholders of the Company who are related to
them (collectively the "Insider Shareholders") who as of the Record Date
collectively owned 36.1% of the outstanding shares of Common Stock, have
executed Insider Support Agreements with UFAC (the "Insider Support
Agreements"), pursuant to which they have agreed to vote all of their shares in
favor of the Transaction. Accordingly, the Insider Shareholders intend to vote
their shares in favor of the Transaction. The full text of a form of the Insider
Support Agreements is included as Appendix G to this Proxy Statement. See "The
Transaction--Terms of the Transaction--No Solicitation of Competing
Transactions."
The Board of Directors of UFAC has approved the Transaction. UFAC
shareholders are not required to vote on the Transaction.
BACKGROUND OF THE TRANSACTION
In March 1998, representatives of the Company had an introductory
meeting with officers of UFAC and its parent, Progressive, concerning the
possibility of UFAC making an investment in the Company. The Company was aware
of Progressive's reputation in the insurance and insurance adjusting business
and was receptive to Progressive's expression of interest in exploring an
affiliation between the Company and Progressive. Management of the Company
briefed the Board of Directors on the contacts with Progressive and UFAC at a
Board meeting held on July 1, 1998.
During the next several weeks, the parties exchanged information and
had a number of meetings and telephone discussions concerning strategy,
philosophy, and possible structure and price. At a special meeting of the Board
of Directors on August 27, 1998, UFAC made a presentation to the Board with
respect to the proposed transaction. At that meeting, the Board discussed the
potential advantages and disadvantages of, and alternatives to, the proposed
transaction, emphasizing the opportunity to provide a return to the Company's
shareholders in a single transaction, the increase in shareholder value expected
by management to result from the proposed transaction and the resulting
affiliation with UFAC, and the ability to obtain continuing access to
Progressive's technology, expertise, and contacts in the insurance industry.
Among other things, the Board discussed with the Company's accountants the fact
that the per share price of $1.30 (after taking into account the Distribution to
the Company's shareholders) was higher than the 30-day average closing sale
price of the Common Stock on the AMEX. In the business judgment of the Board of
Directors, the terms of the proposed transaction, including the price, were
favorable for the Company. See "The Transaction--Discussion of Financial
Analysis." The Board authorized management to proceed with discussions with
UFAC, and authorized the Company to enter into a non-binding Letter of Intent
(the "Letter of Intent") with UFAC with respect to the proposed transaction.
During the ensuing twelve weeks, transaction document drafts were
prepared and revised drafts circulated, with representatives of the Company and
UFAC and their respective counsel conducting detailed negotiations concerning
legal and business points in the documentation. Prior to the Board of Directors'
meeting on November 12, 1998, management distributed to the members of the Board
of Directors complete drafts of the Stock Purchase Agreement, Service Agreement,
the Registration Rights Agreement, the Insider Support Agreements, the Rocke
Agreement (as described below) and the Ryberg Agreement (as described below). At
the meeting on November 12, 1998, the Board discussed the advantages and
disadvantages of, and alternatives to, the Transaction and a summary by Company
counsel of the terms of the documentation. After analyzing the financial terms
and the consideration to be received in the Transaction, as well as the on-going
operational advantages that could result from the Transaction, the Board of
Directors voted unanimously in favor of the Transaction. The parties executed
the Stock Purchase Agreement on November 20, 1998.
On August 31, 1998, the last trading day before the Company publicly
announced the Letter of Intent, the closing sale price for the Common Stock as
reported on the AMEX Composite Tape was $2.50. On November 25, 1998, the last
trading day before the Company publicly announced the execution of the Stock
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Purchase Agreement, the closing sale price for the Common Stock as reported on
the AMEX Composite Tape was $2.44. On [date of proxy], 1999 the closing sale
price was $______.
BACKGROUND OF THE COMPANY
The Company licenses and franchises independent insurance adjusters
(the "Adjusters") throughout the United States and Canada and provides support
services to the Adjusters. The Adjusters are engaged by insurance carriers and
self-insured companies to adjust claims made against them by claimants and by
policyholders. In addition, certain of the Adjusters offer risk management
services to their clients. As of December 15, 1998, the Company had entered into
___ license or franchise agreements with ___ entities, operating ___ offices
with ___ advertised locations in 50 states, the District of Columbia, and
Canada. In addition to licensing and franchising Adjusters, the Company owns and
operates independent insurance adjusting businesses in Arizona and Nevada.
BACKGROUND OF UFAC
UFAC provides claim and administrative services to insurance carriers,
managing general agents and large self-insured companies. The majority of UFAC's
employees and operations are centralized in Cleveland, Ohio.
UFAC, which is a wholly-owned subsidiary of The Progressive
Corporation, is also a majority shareholder of a vehicle inspection company and
a claim software company. The inspection and software companies market their
products and services to the same prospective customers as UFAC.
The Progressive Corporation is a Cleveland-based insurance holding
company. Its subsidiaries offer personal automobile and specialty
property-casualty insurance and related services throughout the United States
and in Canada. The Common Shares of The Progressive Corporation are listed on
the New York Stock Exchange.
TERMS OF THE TRANSACTION
UFAC INVESTMENT. Pursuant to the Stock Purchase Agreement, the Company
will sell the Preferred Shares to UFAC at a price of $1.30 per share, for an
aggregate purchase price of $6,836,067. The purchase price per share was
determined as a result of arm's length negotiations between the Company and
UFAC. The Preferred Stock is identical to the Common Stock in all respects other
than the right to receive the Distribution. The Preferred Shares shall be
convertible, in whole or in part, into shares of the Common Stock on a
one-for-one exchange basis at UFAC's option after the record date for the
Distribution and prior to June 30, 1999, at which date the Preferred Shares will
automatically be converted to shares of the Common Stock. The Preferred Shares
shall entitle UFAC to one vote per share on any matter properly submitted to
holders of the Common Stock for vote, consent, waiver, release, or other action,
including, without limitation, the election of members of the Board of
Directors. The Preferred Shares will rank equally with the Common Stock as to
payment of dividends, other than the Distribution, and as to dissolution of
assets upon liquidation, dissolution or winding up of the Company. A complete
description of the terms of the Preferred Shares is included as Appendix B to
this Proxy Statement.
USE OF PROCEEDS. The Company plans to use the proceeds of the
investment by UFAC to finance the Tender Offer and pay the Distribution. The
Company plans to make the Tender Offer to the Company's shareholders, as soon as
practicable after the Closing, pursuant to which the Company will offer to
purchase up to 1,000,000 shares of Common Stock at a price of $2.90 per share.
If more than 1,000,000 shares are tendered by the Company's shareholders in the
Tender Offer, the Company will accept shares for tender on a pro rata basis
based upon the total number of shares tendered. Each member of the Board of
Directors has stated his or her intention to waive his or her right to
participate in the Tender Offer with respect to all shares of the Common Stock
beneficially owned by such director. UFAC has agreed not to participate in the
Tender Offer. The Company plans to make the Distribution of $1.60 per each share
of Common Stock not tendered in the Tender Offer or, if tendered, not accepted
by the Company in the Tender Offer. Shareholders who participate in the Tender
Offer will not be entitled to receive the Distribution.
MANAGEMENT OF THE COMPANY; REPRESENTATION ON THE BOARD. If the
shareholders approve the Transaction, the Board of Directors and UFAC will take
all actions necessary to cause the Board to be structured to consist of fifteen
members, of which a majority will be designees of UFAC (the "UFAC Nominees"),
and the Board of Directors and UFAC will take all actions necessary to cause the
UFAC Nominees to become members of the
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Board as soon as practicable after the Closing. For so long as UFAC maintains
ownership of more than 50% of the Company's voting stock, at each annual meeting
of shareholders of the Company or at the taking of action by written consent of
shareholders of the Company with respect to which directors are to be elected,
UFAC shall have the ability to elect a majority of the Board of Directors and,
therefore, will be able to control the business and affairs of the Company.
William J. Rocke and Jean E. Ryberg have agreed to resign as officers
of the Company on June 30, 1999. See "The Transaction--Conflicts of Interest;
Interests of Certain Persons." At that time, the Board of Directors, upon the
direction of UFAC, will name a new Chief Executive Officer and President of the
Company.
INFORMATION RIGHTS. Until the Closing, the Company has the obligation
to provide to UFAC certain financial statements and other information concerning
the Company and its business.
LIMITATIONS ON CORPORATE ACTIONS. Until the Closing, the Company will
be subject to certain limitations on its operations, including (without
limitation) restrictions relating to transactions other than in the ordinary
course of business, the issuance of any securities of the Company, or any
amendments to the Company's Articles of Incorporation or Bylaws.
REGISTRATION RIGHTS. The Preferred Shares issued to UFAC pursuant to
the Stock Purchase Agreement and shares of Common Stock issuable upon conversion
of the Preferred Shares will not be registered under the Securities Act of 1933,
as amended (the "Securities Act"), and may not be sold in the absence of
registration under the Securities Act, unless an exemption from registration is
available. If the Transaction is approved by the shareholders, the Company and
UFAC will enter into the Registration Rights Agreement. Pursuant to the
Registration Rights Agreement to be executed at the Closing, the Company will
grant certain registration rights that will enable UFAC to resell the shares of
Common Stock acquired by it upon conversion of the Preferred Shares in
registered offerings to the public under certain conditions described below.
The Registration Rights Agreement will provide, among other things,
that, at any time after the Closing, UFAC will have the one-time right to
require the Company to file a registration statement (any such filing, the
"Demand Registration") under the Securities Act for any or all shares of Common
Stock acquired by UFAC as a result of the conversion of the Preferred Shares
acquired by UFAC pursuant to the Stock Purchase Agreement ("Registrable
Securities"). The right to a Demand Registration is limited, however, in that
(i) it may be invoked only with respect to a number of shares having a fair
market value equal to or greater than $250,000, (ii) the Company is not required
to effect more than one Demand Registration, and (iii) the Company will have the
right from time to time to delay the Demand Registration for a reasonable period
not to exceed thirty days in certain circumstances. UFAC also will have the
right, with respect to most registrations of Common Stock by the Company for its
own account, to require the Company to include Registrable Securities in such
registration. The Registration Rights Agreement provides that the Company will
pay the expenses, other than underwriting discounts and fees and commissions and
transfer taxes, relating to the first such registration requested by UFAC. The
Registration Rights Agreement contains terms that are generally customary for
registration rights agreements of its type.
CONDITIONS TO CLOSING. Each of the Company's and UFAC's obligations to
close the Transaction are subject to various mutual and unilateral conditions,
including, without limitation, (i) the Company's shareholders shall have
approved the Transaction; (ii) UFAC's obligations are subject to the continuing
accuracy of the Company's representations and warranties in the Stock Purchase
Agreement; and (iii) the receipt of any consents necessary for the Transaction.
NO SOLICITATION OF COMPETING TRANSACTIONS. Unless and until the Stock
Purchase Agreement is terminated in accordance with its terms, the Company may
not solicit, cooperate with, participate in any discussions with respect to, or
enter into any agreement with any person making a proposal or indication of
interest with respect to certain alternative transactions, such as a merger,
consolidation, share exchange, reorganization, recapitalization, business
combination or similar transaction, sale, transfer or disposition of more than
10% of its assets, or an
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acquisition by any person or a tender offer or exchange offer for more than 10%
of the Common Stock (a "Competing Transaction"). However, the Board may take
such actions as may be required by the Board's fiduciary obligations to the
Company's shareholders under applicable law as determined in good faith by the
Board on the advice of outside counsel. Unless and until the Stock Purchase
Agreement is terminated in accordance with its terms, the Company shall notify
UFAC of all of the relevant details relating to all inquiries beyond preliminary
inquiries and all proposals of substance that the Company may receive relating
to any such matters. If the Company receives a bona fide proposal for a
Competing Transaction that the Board determines in good faith may provide
greater value to the Company's shareholders than the Stock Purchase Agreement,
it may enter into negotiations with respect to such proposal (a "Superior
Proposal"). The Company will notify UFAC of any such Superior Proposal prior to
entering into any agreement with respect to such Superior Proposal, and will not
enter into any agreement with respect to such Superior Proposal if UFAC proposes
an improved transaction that the Board determines in good faith to provide
greater value to the Company's shareholders.
RELATED AGREEMENTS. In connection with the Stock Purchase Agreement,
UFAC also entered into the Insider Support Agreements with the Insider
Shareholders. Pursuant to the Insider Support Agreements, the Insider
Shareholders have agreed to vote all shares of the Common Stock owned by them in
favor of the Transaction. At the Closing, UFAC will enter into the Service
Agreement with the Company pursuant to which UFAC will provide the Company with
certain advisory and support services related to franchise operations, strategic
planning, sales and marketing, technology, human resources support and
accounting, and reporting. The Company will pay UFAC service fees of $25,000 per
month plus expenses for the services provided under the Service Agreement. The
Service Agreement will be reviewed after one year and any extension or amendment
thereof will be subject to the approval by a committee of directors who are not
affiliated with UFAC. At the Closing, the Company will also enter into the Rocke
Agreement and the Ryberg Agreement with William J. Rocke and Jean E. Ryberg,
respectively, pursuant to which Mr. Rocke and Ms. Ryberg will terminate their
employment with the Company on June 30, 1999 and will continue to act as
consultants to the Company until June 30, 2000. See "The Transaction--Conflicts
of Interest; Interests of Certain Persons."
POTENTIAL BENEFITS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, primarily
represents an opportunity to provide a significant return to the Company's
shareholders in the form of the Distribution or Tender Offer. The Company also
believes the Transaction presents the opportunity to improve long-term
shareholder value by providing the Company with a new generation of management
and access to advanced technology, expertise and contacts, which the Company
believes will provide strategic resources within the insurance industry not
otherwise readily available to the Company, and enhance the Company's long-term
growth prospects. In particular, the Company believes that the Transaction may
have a number of beneficial effects on the Company and its shareholders,
including the following:
RETURN TO SHAREHOLDERS. The Tender Offer will return $2.90 per each
share of Common Stock tendered and the Distribution will provide $1.60 per share
of Common Stock not sold pursuant to the Tender Offer.
ASSOCIATION WITH PROGRESSIVE. Progressive is highly regarded as a
sophisticated company in the automobile insurance and insurance-related
industries. The Company believes that it will benefit significantly from its
affiliation with Progressive through UFAC and its operating experience,
technological capabilities, and contacts within the insurance business.
Specifically, pursuant to the Service Agreement, UFAC has agreed to provide the
Company and the Adjusters with access to claims adjusting business and to
encourage its affiliates to do the same.
POTENTIAL ENHANCEMENT OF SHAREHOLDER VALUE. Other than the Distribution
and the Tender Offer, the Transaction will not result in any direct return to
shareholders of cash or other consideration. However, the Company believes that
the Transaction offers shareholders an opportunity to realize long-term value.
The Company's strategic plan calls for an affiliation with UFAC and Progressive
and the opportunity for the generation of claims adjusting business for the
Company and the Adjusters through the Company's affiliation with UFAC and
Progressive. It should be noted, however, that there is no assurance that the
Company will realize all
7
<PAGE>
or any of the potential benefits described above, all of which are forward
looking statements that are subject to numerous risks and uncertainty. The
Company's ability to enhance shareholder value will depend upon a number of
circumstances, many of which are outside the control of management.
POTENTIAL ADVERSE EFFECTS OF THE TRANSACTION
The Company believes that the Transaction, if consummated, could have
certain adverse effects on the Company and its shareholders, including the
following:
CONCENTRATION OF OWNERSHIP OF COMMON STOCK. UFAC will own up to 59.3%
of the Company's voting stock (57.7% on a fully diluted basis) and will be the
largest single shareholder of the Company. Assuming no other changes in the
number of outstanding shares of Common Stock, UFAC would be in a position to
control the election of the Board or the outcome of any corporate transaction or
other matter submitted to the shareholders for approval. This concentration of
ownership could be disadvantageous to other shareholders' interests.
ANTI-TAKEOVER EFFECT OF THE TRANSACTION. UFAC's acquisition of up to
59.3% of the Company's voting stock (57.7% on a fully diluted basis) and the
voting rights associated therewith may make it more difficult for other
shareholders to challenge the Company's director nominees, to elect their own
nominees as directors, or to remove incumbent directors and may render the
Company a less attractive target for an unsolicited acquisition by an outsider.
In addition, under Arizona law, a merger or consolidation involving the Company
requires the affirmative approval of a majority of the shares entitled to vote.
Accordingly, UFAC would have sufficient voting power to block any such
transaction.
OTHER NEGATIVE EFFECTS. The Board of Directors believes that the
limitations on the Company's ability to solicit or encourage Competing
Transactions or to agree to a Superior Proposal without notice to UFAC, the
composition of the Board following the Closing (and thereafter) if the Company's
shareholders approve the Transaction, and UFAC's majority ownership interest in
the Company, will likely discourage other persons from offering to acquire a
significant interest in the Company or all or substantially all of the assets of
the Company.
The members of the Board evaluated the factors referred to above in
light of their knowledge of the business and operations of the Company and UFAC,
their business judgment, and consultations with the Company's independent
accountants. In view of the wide variety of factors considered in connection
with the Board's evaluation of the Transaction, the Board did not find it
practicable to, and did not, quantify or attempt to assign relative weights to
the specific factors considered in reaching its determination.
CONFLICTS OF INTEREST; INTERESTS OF CERTAIN PERSONS
INSIDER SUPPORT AGREEMENTS. UFAC has entered into Insider Support
Agreements with the Insider Shareholders. Under the Insider Support Agreements,
the Insider Shareholders have agreed to vote for the Transaction and for the
election to the Board of a sufficient number of nominees selected by UFAC to
constitute a majority of the members of the Board. See "The Transaction--Votes
Required."
ROCKE AGREEMENT. William J. Rocke, Chairman of the Board and Chief
Executive Officer of the Company, will enter into an agreement with the Company
(the "Rocke Agreement") pursuant to which the Rocke Employment Agreement (as
described under "Election of Directors--Employment Agreements") will be
terminated on June 30, 1999. Pursuant to the Rocke Agreement, the Company will
employ Mr. Rocke as the Company's Chief Executive Officer until June 30, 1999,
at which time Mr. Rocke will resign as an officer and employee of the Company.
Mr. Rocke will continue to serve on the Board of Directors until the next annual
meeting of the Company's shareholders and until his successor is elected and
qualified. The terms of the Rocke Agreement provide for Mr. Rocke to receive
semi-monthly installments of his salary until June 30, 1999, and the annual
bonus for the fiscal year ending June 30, 1999, as per the Rocke Employment
Agreement. On June 30, 1999, Mr. Rocke will receive a lump-sum payment of the
amount equal to the salary Mr. Rocke would have been entitled to receive under
the Rocke Employment Agreement for the fiscal year ending June 30, 2000, and a
lump-sum payment of $20,000 in lieu of participating in the Company's bonus and
profit sharing plans for the fiscal year ending June 30, 2000. On June 30, 1999,
Mr. Rocke will also receive title to the Company automobile
8
<PAGE>
provided for his use, ownership of the life insurance policy maintained on Mr.
Rocke's life by the Company, and certain other benefits associated with his past
relationship to the Company. Mr. Rocke will provide consulting and advisory
services to the Company for a period of one year following his resignation at no
additional compensation. The full text of the Rocke Agreement is included as
Appendix E to this Proxy Statement.
RYBERG AGREEMENT. Jean E. Ryberg, President and Director of the
Company, will enter into an agreement with the Company (the "Ryberg Agreement")
pursuant to which the Ryberg Employment Agreement (as described under "Election
of Directors--Employment Agreements") will be terminated on June 30, 1999.
Pursuant to the Ryberg Agreement, the Company will employ Ms. Ryberg as the
Company's President until June 30, 1999, at which time Ms. Ryberg will resign as
an officer and employee of the Company. Ms. Ryberg will continue to serve on the
Board of Directors until the next annual meeting of the Company's shareholders
and until her successor is elected and qualified. The terms of the Ryberg
Agreement provide for Ms. Ryberg to receive semi-monthly installments of her
salary until June 30, 1999, and the annual bonus for the fiscal year ending June
30, 1999, as per the Ryberg Employment Agreement. On June 30, 1999, Ms. Ryberg
will receive a lump-sum payment of the amount equal to the salary Ms. Ryberg
would have been entitled to receive under the Ryberg Employment Agreement for
the fiscal year ending June 30, 2000, and a lump-sum payment of $20,000 in lieu
of participating in the Company's bonus and profit sharing plans for the fiscal
year ending June 30, 2000. On June 30, 1999, Ms. Ryberg will also receive title
to the Company automobile provided for her use, ownership of the life insurance
policy maintained on Ms. Ryberg's life by the Company, and certain other
benefits associated with her past relationship to the Company. Ms. Ryberg will
provide consulting and advisory services to the Company for a period of one year
following her resignation at no additional compensation. The full text of the
Ryberg Agreement is included as Appendix F to this Proxy Statement.
DISCUSSION OF FINANCIAL ANALYSIS
The Board of Directors appointed a special committee of outside
directors (the "Special Committee") to analyze the financial terms and the
consideration to be received in the Transaction. The members of the Special
Committee were Merlin Schumann, William W. Strawther, Jr., and R. Scott Younker.
The Special Committee considered the presentation made by representatives from
UFAC at the August 19, 1998 special meeting of the Board of Directors. The
Special Committee also acted in consultation with McGladrey & Pullen, LLP, the
Company's independent accountants. UFAC provided the Special Committee with a
"book value" and "EPS" analysis of the Company's value used by UFAC to make its
offer (the "UFAC Analysis"). The Special Committee and its guests discussed the
UFAC analysis. The Special Committee considered in its deliberations the fact
that UFAC is a member of The Progressive Group, a Fortune 500 company, and that
UFAC would likely bring business and potential customer service resources that
would otherwise be unavailable to the Company. In particular, the Special
Committee recognized that UFAC would likely be able to provide the Company and
the Adjusters with broad access to national accounts. The Special Committee also
took note that the Transaction contemplates that UFAC will provide the services
of Jeff Jordan, an employee of UFAC and a proven manager in the insurance
industry, who will provide energy and the perspective of a younger generation to
the Company. The Special Committee also considered that UFAC has the ability to
develop for the Company competitive computer capabilities, particularly in the
area of claims and systems capability. Through the Service Agreement, the
Company will have access to enhanced accounting, marketing, and strategic
planning support.
From a market perspective, the Special Committee took into
consideration the fact that the Company's securities are thinly traded, with
limited liquidity. The Special Committee also noted that the Transaction will
provide the Company's shareholders current liquidity with no discount to the
market price, and that the Distribution would give the Company's shareholders a
large return on their investment while still maintaining the growth potential of
stock ownership. Also, the Special Committee took into account that the Tender
Offer would give liquidity at a price in excess of the current market price to
those shareholders of the Company who want to liquidate their investment in the
Common Stock.
After carefully considering the factors set forth above, the Special
Committee recommended to the full Board of Directors that the Board accept the
UFAC offer.
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<PAGE>
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following summary is a general discussion of certain of the U.S.
federal income tax consequences of a Common Stock redemption pursuant to the
Tender Offer and the Distribution.
This summary does not purport to cover all aspects of federal income
taxation that may be relevant to shareholders. In addition, certain shareholders
(including insurance companies, tax-exempt organizations, financial
institutions, foreign persons, broker dealers, and shareholders who have
acquired their Common Stock upon the exercise of options or otherwise as
compensation) may be subject to special rules not discussed below.
This summary is based on laws, regulations, rulings and decisions now
in effect, all of which are subject to change. For example, after the Tender
Offer, Congress may change the tax rates that apply to gains realized in the
Tender Offer.
No rulings as to any of the matters discussed in this summary have been
requested or received from the Internal Revenue Service (the "Service"). The
consequences to any particular shareholder may differ depending on that
shareholder's own circumstances. Furthermore, this summary does not discuss any
aspects of state, local, foreign or other tax laws. Each shareholder is urged to
consult and rely on such shareholder's own tax adviser with respect to the tax
consequences to such shareholder of selling Common Stock pursuant to the Tender
Offer or receiving the Distribution.
SALE OF COMMON STOCK PURSUANT TO TENDER OFFER
IN GENERAL
A shareholder's sale of Common Stock for cash pursuant to the Tender
Offer will be a taxable transaction for federal income tax purposes. The amount
and characterization of income recognized by a shareholder in connection with a
sale of Common Stock pursuant to the Tender Offer will depend on whether the
sale is treated as a "dividend" or as an "exchange" for tax purposes. All or a
portion of the amount received by a shareholder who sells Common Stock pursuant
to the Tender Offer may be treated as a dividend. The amount received that is
not treated as a dividend will be treated as received in exchange for the Common
Stock sold pursuant to the Tender Offer. The determination of how much of the
amount received represents a dividend and how much represents exchange proceeds
depends on whether (a) the shareholders have a legally enforceable right to
receive a dividend and instead receive an amount in redemption of their shares
(see, "Legal Right to Dividend"), and (b) the application of the stock
redemption rules of Section 302 of the Internal Revenue Code of 1986, as amended
(the "Code") (see "Application of Section 302").
LEGAL RIGHT TO DIVIDEND
Judicial authorities have held and the Service has ruled that if a
shareholder has a legally enforceable right to a dividend and, in effect,
foregoes this dividend by selling shares to the corporation, the portion of the
sale proceeds that is equal to the foregone dividend will be taxed as a
dividend. In this case, the Stock Purchase Agreement provides that the Company
shall declare and pay a distribution in the amount of $1.60 per share on each
share of Common Stock not tendered in the Tender Offer or not accepted by the
Company if tendered in the Tender Offer, within 60 days after the final
expiration of the Tender Offer. The obligation of the Company to declare and pay
this distribution only arises under the Stock Purchase Agreement, which is
between the Company and UFAC. Shareholders are not parties to the Stock Purchase
Agreement, and therefore may not have any legally enforceable rights under the
Stock Purchase Agreement, including the right to force the Company to declare
and pay this distribution. If no such legal right exists, shareholders who
accept the Tender Offer may not be required to recognize a portion of the amount
received for their Common Stock as a dividend.
Nevertheless, the Service may successfully contend that the Stock
Purchase Agreement effectively assures that a shareholder will receive a
distribution of $1.60 per share and that $1.60 of the amount received by a
shareholder in exchange for each share of Common Stock pursuant to the Tender
Offer must be treated as a
10
<PAGE>
dividend. Due to the lack of authority directly on point, the Company can
provide no assurance with respect to this matter.
If the shareholders are regarded as having a legally enforceable right
to the distribution prior to the Tender Offer, at least $1.60 per share of the
amount received pursuant to the Tender Offer will be treated as a dividend and
the $1.30 per share balance of the amount received will be treated as a dividend
or an amount received in exchange for the Common Stock depending on the
application of Code Section 302 to a shareholder's specific circumstances as
discussed below. If a shareholder who sells Common Stock pursuant to the Tender
Offer is not regarded as having a legally enforceable right to the $1.60 per
share distribution, the entire $2.90 per share amount received upon sale of the
Common Stock pursuant to the Tender Offer will be treated as a dividend or an
amount received in exchange for the shares depending on the application of Code
Section 302 to a shareholder's specific circumstances as discussed below.
APPLICATION OF SECTION 302
EXCHANGE TREATMENT. If the redemption qualifies as an exchange under
any of the provisions of Code Section 302(b), except as described above, the
cash received pursuant to the Tender Offer will be treated as a distribution
from the Company in exchange for the Common Stock sold. That treatment will
result in a shareholder recognizing gain or loss equal to the difference between
(a) the amount treated as received in exchange for the Common Stock pursuant to
the Tender Offer and (b) the shareholder's adjusted tax basis in the Common
Stock surrendered. Assuming the Common Stock is held as a capital asset, such
recognized gain or loss will be capital gain or loss. If the Common Stock that
is sold was held longer than one year, such capital gain or loss will be
long-term.
Notwithstanding the foregoing, the rules on "collapsible corporations"
might, if they applied, cause a shareholder's gain to be ordinary income (rather
than long-term capital gain). Because of its long operating history, the nature
of its assets and other factors, the Company believes it is not a "collapsible
corporation."
Net capital gain, the excess of net long-term capital gain over net
short-term capital loss, realized by individuals, estates and trusts is
currently taxed at a maximum federal income tax rate of 20%. Short-term capital
gains of individuals, estates and trusts are taxed at ordinary income rates,
currently up to a maximum federal income tax rate of 39.6% (although, income at
certain levels may be subject to a higher effective rate due to the phase-out of
personal exemptions and certain itemized deductions). Capital gains of
corporations are taxed at the federal income tax rates applicable to corporate
ordinary income, a maximum of 35% (although income at certain levels may be
subject to a higher effective rate due to phase-out of the 15%, 25% and 34%
brackets). Each of the foregoing rates is subject to change, and any such change
could apply retroactively to transactions effected pursuant to the Tender Offer.
DIVIDEND TREATMENT. If none of the conditions of exchange treatment
under Code Section 302(b) are satisfied, a shareholder will be treated as having
received a dividend taxable as ordinary income in an amount equal to the entire
amount of cash received by the shareholder pursuant to the Tender Offer, to the
extent the Company has accumulated or current "earnings and profits." The
Company believes that no shareholder's dividend income will be limited by a lack
of earnings and profits.
Each shareholder's personal tax adviser should determine whether that
shareholder will qualify for exchange treatment under Code Section 302(b). In
the event that the sale of Common Stock pursuant to the Tender Offer is treated
as a dividend distribution to a shareholder for federal income tax purposes,
such shareholder's tax basis in the Common Stock actually redeemed will be added
to the tax basis of such shareholder's remaining Common Stock in the Company. In
the event that a shareholder actually owns no Common Stock in the Company after
the Tender Offer is completed but the transaction is nevertheless treated as a
dividend distribution because such shareholder constructively owns Common Stock
(see below), such shareholder's tax basis should be added to Common Stock in the
Company owned by related persons that was considered constructively owned by
such shareholder. Ordinary income is generally taxable to individuals up to a
maximum federal income tax rate of 39.6% (although income at certain levels may
be subject to a higher effective
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<PAGE>
rate due to the phase-out of personal exemptions and certain itemized
deductions) and to corporations at a maximum federal income tax rate of 35%
(although income at certain levels may be subject to a higher effective rate due
to phase-out of the 15%, 25% and 34% brackets). Each of the foregoing tax rates
is subject to change, and any such change could apply retroactively to include
the sale of Common Stock pursuant to the Tender Offer. As discussed below, a
corporate shareholder that is treated as receiving a dividend may be allowed a
dividends-received deduction and may be subject to the rules for "extraordinary
dividends."
CONSTRUCTIVE OWNERSHIP OF STOCK. In determining whether the provisions
under Code Section 302(b), as described below, are satisfied, a shareholder must
take into account not only Common Stock actually owned by such shareholder, but
also Common Stock that is constructively owned within the meaning of Code
Section 318. Under Code Section 318, a shareholder may constructively own Common
Stock actually owned, and in some cases constructively owned, by certain related
individuals and certain entities in which the shareholder or a related
individual or entity has an interest. Moreover, a shareholder may constructively
own Common Stock that such shareholder, or a related individual or entity, has
the right to acquire by exercise of an option or warrant. The rules of
constructive ownership are complex and must be applied to a particular
shareholder's situation by such shareholder's personal tax adviser.
ALTERNATIVE CONDITIONS FOR SECTION 302 EXCHANGE TREATMENT. Under Code
Section 302(b), a redemption will be taxed as an exchange, and not as a
dividend, if it (a) results in a "complete redemption" of all of the Common
Stock owned by a shareholder, (b) is "substantially disproportionate" with
respect to a shareholder, or (c) is "not essentially equivalent to a dividend"
with respect to a shareholder. Each shareholder should be aware that, under
certain circumstances, sales, purchases or transfers of Common Stock in the
market or to or from other parties contemporaneously with sales pursuant to the
Tender Offer may be taken into account in determining whether the tests under
clause (a), (b) or (c) above are satisfied. Furthermore, the Company believes
that in the event the Tender Offer is oversubscribed, resulting in a proration,
it is likely that less than all the Common Stock tendered by a shareholder will
be purchased by the Company. Proration may affect whether a sale by a
shareholder will satisfy the provisions described in clause (a), (b) or (c)
above.
The following is a brief description of the three major provisions of
Code Section 302(b):
A COMPLETE REDEMPTION OF INTEREST. The receipt of cash by a
shareholder will result in a "complete redemption" of all the Common Stock owned
by the shareholder within the meaning of Code Section 302(b)(3) if either (i)
all the Common Stock actually and constructively owned by the shareholder is
sold pursuant to the Tender Offer or (ii) all the Common Stock actually owned by
the shareholder is sold pursuant to the Tender Offer, the only Common Stock the
shareholder constructively owns is actually owned by such shareholder's family
members, and the shareholder is eligible to waive and effectively waives, under
procedures described in Code Section 302(c), such constructive ownership.
A SUBSTANTIALLY DISPROPORTIONATE REDEMPTION. The receipt of
cash by a shareholder will be "substantially disproportionate" with respect to
such shareholder within the meaning of Code Section 302(b)(2) if the percentage
of the total outstanding voting stock of the Company actually and constructively
owned by the shareholder immediately following the sale of Common Stock pursuant
to the Tender Offer is less than 80% of the percentage of the total outstanding
voting stock of the Company actually and constructively owned by such
shareholder immediately before such sale.
NOT ESSENTIALLY EQUIVALENT TO A DIVIDEND. Even if a sale by a
shareholder fails to meet the "complete redemption" or "substantially
disproportionate" tests, a shareholder may nevertheless meet the "not
essentially equivalent to a dividend" test. Whether a specific redemption is
"not essentially equivalent to a dividend" depends on the individual
shareholder's facts and circumstances. In any event, the redemption must result
in a "meaningful reduction" of the shareholder's proportionate interest in the
Company. The Service has indicated in a published ruling that, in the case of a
minority shareholder in a publicly held corporation whose relative stock
investment in the corporation was minimal and who exercised no control over
corporate affairs, a small reduction in the percentage ownership interest of
such shareholder in such corporation (from .0001118% to
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.0001081%) was sufficient to constitute a "meaningful reduction." Shareholders
seeking to rely on this test should consult their own tax advisers as to the
application of this particular standard to their own situations.
DISTRIBUTION
After acquisition of Common Stock pursuant to the Tender Offer, the
Company plans to make the Distribution of cash to each remaining Common Stock
holder in the amount of $1.60 per share.
The Distribution will be treated as a dividend, taxable as ordinary
income, to the extent of the Company's accumulated earnings and profits as of
the beginning of the current fiscal year and its "current" earnings and profits
for the entire current fiscal year. Assuming that the Company acquires one
million shares of its Common Stock in accordance with the terms of the Tender
Offer and the amount paid for the tendered shares is treated as paid in exchange
for shares (rather than as a dividend in whole or in part), the Company expects
that dividend income will not be limited by lack of earnings and profits.
SPECIAL RULES FOR CORPORATE SHAREHOLDERS
Upon receipt of a dividend from the Company, a corporate shareholder
who owns less than 20% of the Company generally is eligible for a dividends
received deduction equal to 70% of the amount of the distribution, subject to
applicable limitations, including those related to "debt-financed portfolio
stock" under Code Section 246A and to the holding period requirements of Code
Section 246.
In addition, any amount received by a corporate shareholder that is
treated as a dividend may constitute an "extraordinary dividend" subject to the
provisions of Section 1059 of the Code. Generally, Section 1059 requires a
corporate shareholder to reduce the tax basis of its stock in a corporation by
the portion of the dividend eligible for the dividends received deduction and,
if such portion exceeds the shareholder's adjusted tax basis for the stock, to
treat any such excess as gain from the sale of the stock in the year in which
the extraordinary dividend is received. The term "extraordinary dividend"
includes any dividend if the amount thereof exceeds the greater of 10% of the
adjusted tax basis of the shareholder's shares or 10% of the fair market value
of the shares. For this purpose, other dividends received that have ex-dividend
dates within the same period of eighty-five consecutive days of a dividend are
aggregated. Further, if a taxpayer receives an aggregate amount of dividends in
excess of 20% of the adjusted basis of the taxpayer's stock, such dividends
having ex-dividend dates within the same period of 365 consecutive days, then
the dividends also constitute "extraordinary dividends" and the taxpayer must
reduce its basis under Code Section 1059. Section 1059 applies only to stock
that has not been held for more than two years before the dividend announcement
date unless, among other conditions, the redemption is not pro rata to all
shareholders. The Company believes that the Tender Offer will likely not result
in a pro rata distribution to all shareholders. Additionally, if a corporate
shareholder is required under Section 1059 to reduce its stock basis, then the
non-taxed portion of all dividend distributions within an 85-day or 365-day
period referred to above reduces the corporate shareholder's basis in the stock
of the Company. Corporate shareholders should consult their tax advisers
concerning the application of Section 1059 to their particular situations.
BACKUP WITHHOLDING
A tendering shareholder or other payee who fails to complete fully and
sign the Substitute Form W-9 included in the letter of transmittal may be
subject to backup federal income tax withholding equal to 31% of the gross
payments made pursuant to the Tender Offer and Distribution.
BENEFICIAL OWNERSHIP OF COMMON STOCK PRIOR TO
AND AFTER THE TRANSACTION
As of the close of business on the Record Date, there were 4,605,358
shares of Common Stock outstanding. The following table sets forth information
regarding the beneficial ownership of shares of the Common Stock outstanding as
of November 25, 1998 and immediately following the Closing (assuming conversion
of all of the Preferred Shares and assuming 1,000,000 shares have been tendered
in the Tender Offer),
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<PAGE>
by (i) each person or group known to the Company who owns or who will own more
than 5% of the outstanding shares of Common Stock, (ii) each of the directors
and the executive officers of the Company and (iii) by all directors and
executive officers of the Company as a group. Unless otherwise indicated in the
footnotes, all of such interests are owned directly, and the indicated person
has sole voting and investment power. The number of shares represents the number
of shares of Common Stock the person holds, including shares that may be issued
upon the exercise of options that are exercisable as of November 25, 1998 or
which will vest upon the Closing. Information presented in the table and related
notes has been obtained from the beneficial owner and/or from reports filed by
the beneficial owner with the Securities and Exchange Commission pursuant to
Section 13 of the Exchange Act.
<TABLE>
<CAPTION>
Shares Beneficially Shares Beneficially Owned
Owned on November 25, 1998 Adjusted for Closing
--------------------------- ---------------------------
Amount and Amount and
Nature of Nature of
Beneficial Percent Beneficial Percent
Name of Beneficial Owner Ownership (1) of Class (2) Ownership (1) of Class (2)
- ------------------------ ------------- ------------ ------------- ------------
<S> <C> <C> <C> <C>
UFAC (3) -- -- 5,258,513 59.33%
George M. Hill (4) 155,000 3.37% 155,000 1.75%
Francis J. LaPallo and Wendy J. 91,564 1.99% 122,000 1.36%
Harrison, his wife (5)
Louis T. Mastos and Eva B. Mastos, 206,703 4.49% 206,703 2.33%
his wife (6)
William J. Rocke and Garnet Rocke, 442,268 9.50% 442,268 4.96%
his wife (7)
James S. Rocke and Kelly Rocke, 471,803 10.14% 471,803 5.29%
his wife (8)
Jean E. Ryberg (9) 140,589 3.02% 140,589 1.58%
Merlin J. Schumann and Donna L. 20,114 * 20,114 *
Schumann, his wife
William W. Strawther, Jr. and 444,138 9.64% 444,138 5.01%
Marjorie A. Strawther, his wife (10)
R. Scott Younker and Sandra L. 58,819 1.28% 58,819 *
Younker, his wife
All Directors and Executive 1,740,998 36.09% 1,771,434 19.44%
Officers as a group (nine
persons) (11)
</TABLE>
- ---------
* Less than 1%
(1) 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
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<PAGE>
or power of disposition. Also includes shares of Common Stock that the
identified person had the right to acquire as of November 25, 1998 by the
exercise of stock options.
(2) The percentages shown include the shares of Common Stock that the person
had the right to acquire as of November 25, 1998 or that will vest upon
Closing. In calculating the percentage of ownership, all shares of Common
Stock which the identified person had the right to acquire as of November
25, 1998 or upon Closing 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 shareholders.
(3) Assuming conversion of all of the Preferred Shares purchased by UFAC in the
Transaction.
(4) Excludes 52,000 shares held by Nell S. Hill, Mr. Hill's wife, and 134,258
shares held by Mr. Hill's children and grandchildren. Mr. Hill disclaims
beneficial ownership of such shares.
(5) Includes 69,564 shares subject to a currently exercisable stock option at
$2.875 per share. As adjusted for Closing includes 30,436 shares subject to
unexercisable options that will vest upon a change of control of the
Company.
(6) 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 23,523 shares which are held by the Louis T. Mastos in an
Individual Retirement Account.
(7) Includes 290,000 shares held by Old Frontier Investment, Inc., of Arizona,
of which William J. and Garnet Rocke hold 51% of the outstanding stock.
Includes 48,654 shares subject to currently exercisable stock options at a
weighted average of $3.2829 per share.
(8) Includes 290,000 shares held by Old Frontier Investment, Inc. of Arizona of
which James S. Rocke holds 49% of the outstanding stock. Includes 48,653
shares subject to currently exercisable stock options at a weighted average
of $3.2829 per share.
(9) Includes 51,347 shares subject to currently exercisable stock options at a
weighted average of $3.005 per share. Excludes 15,000 held by Mrs. Ryberg's
sons. Mrs. Ryberg disclaims any beneficial ownership of such shares.
(10) 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
140,000 shares beneficially owned by Mr. and Mrs. Strawther's son, in which
shares Mr. and Mrs. Strawther disclaim any beneficial interest.
(11) 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
Common Stock (based upon present records of the transfer agent).
RECOMMENDATION OF THE BOARD; FACTORS AND CONCLUSIONS OF THE BOARD
INVOLVED IN ITS DETERMINATION
The Board has unanimously approved the Transaction and has determined
that the Transaction is in the best interests of the Company and its
shareholders. THE BOARD UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR
APPROVAL OF THE TRANSACTION.
The recommendation of the Board is based on its belief that the
Transaction represents an opportunity to provide for a capital return to the
Company's shareholders through the Distribution or Tender Offer and to enhance
long-term shareholder value by providing the Company with an affiliation with
UFAC which provides
15
<PAGE>
strategic resources not otherwise readily available to it, thereby enhancing the
Company's short-term and long-term growth prospects.
REQUIRED VOTE, EFFECT OF SHAREHOLDER APPROVAL, AND RELATED MATTERS
The affirmative vote of a majority of the shares present in person or
represented by proxy at the Meeting, provided that the total number of shares
present in person or represented by proxy at the Meeting represents over 50% of
the shares of Common Stock issued and outstanding, is required to approve the
Transaction.
Approval of the Transaction by the shareholders will constitute
approval of the issuance by the Company of 5,258,513 shares of Preferred Stock
and 5,258,513 shares of Common Stock upon conversion of the Preferred Shares.
Approval of the Transaction by the requisite vote of the shareholders
of the Company is a condition to consummation of the Transaction. If the
Transaction is not approved the Transaction will not be consummated.
PROPOSAL TWO
ELECTION OF DIRECTORS
NOMINEES
A Board of nine directors is to be elected at the Meeting. The nominees
for directors are George M. Hill, Francis J. LaPallo, Louis T. Mastos, William
J. Rocke, James S. Rocke, Jean E. Ryberg, Merlin J. Schumann, William W.
Strawther, Jr., and R. Scott Younker, all of whom are currently directors of the
Company. In the absence of direction by shareholders executing proxies, the
persons named in the enclosed 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
director. The term of office of each person elected as 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 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:
Name Age Position(s) with the Company Director Since
- ---- --- ---------------------------- --------------
George M. Hill 90 Director, Vice President, Assistant 1978
Secretary, Member Audit Committee
Francis J. LaPallo 50 Director, Executive Vice President 1996
Louis T. Mastos 77 Director, Member Audit Committee, 1978
Member Compensation Committee
James S. Rocke 30 Director, Secretary/Treasurer 1993
William J. Rocke 74 Director, Chairman of the Board, 1975
Chief Executive Officer
Jean E. Ryberg 66 Director, President 1975
16
<PAGE>
Name Age Position(s) with the Company Director Since
- ---- --- ---------------------------- --------------
Merlin J. Schumann 54 Director, Member Audit Committee, 1984
Member Compensation Committee
William W. Strawther, Jr. 72 Director, Vice Chairman of 1978
the Board
R. Scott Younker 62 Director 1992
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 is a
senior partner in the Phoenix law firm of George M. Hill & Associates and has
been a practicing attorney in Arizona for over 50 years. Mr. Hill is a Director
and Secretary of National Car Rental, in Phoenix, Denver and Colorado Springs,
and a Director and Vice President of Precise Metal Products Co., in 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 of Manatt, Phelps & Phillips in Los Angles, 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.
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 in 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 Chief
Executive Officer of the Company and its predecessor entities since 1957. Mr.
Rocke has been in the insurance 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. The employment agreement will be amended by the Rocke Agreement
if the Transaction is approved by the shareholders. 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
President of the Company since 1993. She also manages the Company's insurance
adjusting operations in Phoenix and Tucson, Arizona, and Las Vegas, Nevada. The
employment agreement between Mrs. Ryberg and the Company provides that Mrs.
Ryberg will be an executive officer of the Company through June 30, 2000. The
employment agreement will be amended by the Ryberg Agreement if the Transaction
is approved by the shareholders.
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.
17
<PAGE>
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 insurance 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 three times in fiscal year 1998,
and all members attended 75% or more of the meetings of the Board and committees
he or she serves on. The board has two committees; an audit committee and a
compensation committee.
The Audit Committee, which consists of George Hill, Louis Mastos, and
Merlin Schumann, non-employee directors of the Company, reviews the annual
financial statements, the significant accounting issues, and the scope of the
audit with the Company's independent auditors and discusses with the auditors
any other audit related matters that may arise during the year. The Compensation
Committee, which consists of Louis Mastos and Merlin Schumann, non-employee
directors of the Company, reviews and acts on matters relating to compensation
levels and benefit plans for key executives of the Company.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's compensation committee of the Board of Directors consists
of Messrs. Mastos and Schumann. Neither Mr. Mastos nor Mr. Schumann had any
contractual or other relationships with the Company during such fiscal years
except as directors. The committee held one meeting during the fiscal 1998 year.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation during its year ended June 30, 1998 to the chief executive officer
and each other executive officer whose aggregate compensation exceeded $100,000
(the "Named Executives").
SUMMARY COMPENSATION TABLE
ALL OTHER
ANNUAL COMPENSATION COMPENSATION
------------------------ ------------
NAME AND PRINCIPAL POSITION YEAR SALARY ($)(1) BONUS ($) ($) (2)
- --------------------------- ---- ------------- --------- -------
William J. Rocke, CEO, 1998 237,776 39,794 29,898
Chairman, Director 1997 231,300 51,559 23,569
1996 225,000 71,981 22,719
Jean E. Ryberg, 1998 169,085 39,794 29,898
President, Director 1997 164,480 51,559 29,568
1996 160,000 71,981 29,266
Francis J. LaPallo, 1998 185,040 -- 29,898
Executive Vice President, 1997 180,000 -- 29,568
Director 1996 692 -- --
Patric R. Greer (3) 1998 95,111 19,897 103,421
1997 93,520 17,187 21,876
1996 90,000 11,224 17,364
18
<PAGE>
- ----------
(1) No perquisites were received by any person named above greater than the
lesser of $50,000 or 10% of salary plus bonus.
(2) "All Other Compensation" includes (i) directors' fees of $2,250, $3,750,
and $2,250 for Mr. Rocke in years ended June 30, 1998, 1997 and 1996
respectively; $2,250, $3,750, and $3,000 for Mrs. Ryberg in years ended
June 30, 1998, 1997 and 1996 respectively; $2,250 and $3,750 for Mr.
LaPallo in years ended June 30, 1998 and 1997 respectively; and $1,500,
$3,750, and $3,000 for Mr. Greer in years ended June 30, 1998, 1997, and
1996 respectively; (ii) profit sharing contributions of $27,648, $19,819,
and $20,469 for Mr. Rocke in years ended June 30, 1998, 1997 and 1996
respectively; $27,648, $25,818, and $26,266 for Mrs. Ryberg in years ended
June 30, 1998, 1997, and 1996 respectively; $27,648 and $25,818 for Mr.
LaPallo in years ended June 30, 1998 and 1997 respectively; $16,921,
$18,126, and $14,364 for Mr. Greer for years ended June 30, 1998, 1997,
and 1996, respectively, and (iii) an $85,000 severance package for Mr.
Greer for the year ended June 30, 1998. Excluded from all other
compensation is the increase and the amortization of the June 30, 1995
cash surrender value of life insurance policies that will transfer to Mr.
Rocke and Mrs. Ryberg upon termination of their employment. The amount
excluded is $18,166, $18,119, and $18,203 for Mr. Rocke for the years
ended June 30, 1998, 1997, and 1996, respectively, and $14,070, $13,678,
and $13,511 for Mrs. Ryberg for the years ended June 30, 1998, 1997, and
1996, respectively.
(3) Mr. Greer resigned from his position with the Company effective June 30,
1998. In connection with Mr. Greer's resignation, termination of Mr.
Greer's employment agreement, and as consideration for a Settlement and
Release Agreement between Mr. Greer and the Company, Mr. Greer received an
aggregate severance payment of $85,000.
OPTION/GRANTS, EXERCISES, AND HOLDINGS
The Company did not grant any stock options during fiscal 1998, and
none of the Named Executives exercised any stock options during fiscal 1998. The
following table shows the number and value of options outstanding as of June 30,
1998 for each Named Executive.
AGGREGATED YEAR-END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNEXERCISED,
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS AT 6/30/98 (#)(1) AT 6/30/98 ($)(2)
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- ------------- ----------- -------------
William J. Rocke 48,654 -- 8,253 --
Jean E. Ryberg 51,347 -- 13,682 --
Francis J. LaPallo (3) 34,782 65,218 8,696 16,304
Patric R. Greer (4) 51,346 -- 13,682 --
- ----------
(1) As of November 25, 1998, Mr. Rocke held exercisable options for 48,654
shares, Ms. Ryberg held exercisable options for 51,347 shares, and Mr.
LaPallo held exercisable options for 69,564 shares and unexercisable
options for 30,436 shares.
(2) Value of unexercised, in-the-money stock options based on a fair market
value of the Common Stock of $3.13 per share as of June 30, 1998.
19
<PAGE>
(3) As of the Closing, Mr. LaPallo will hold exercisable options for 100,000
shares.
(4) Mr. Greer resigned from his position with the Company effective June 30,
1998, and his stock options have expired unexercised.
DIRECTORS' COMPENSATION
Each director, including employees of the Company, is paid $750 per
Board meeting attended. During fiscal 1998, each director, except for Mr. Patric
R. Greer, received $2,250 for attendance to Board Meetings.
Mr. Greer received $1,500 for attendance at Board Meetings.
EMPLOYMENT AGREEMENTS
The Company has entered into five-year employment agreements with Mr.
Rocke, Mrs. Ryberg, and Mr. LaPallo. Mr. Rocke's and Mrs. Ryberg's agreements
were effective July 1, 1995 and expire June 30, 2000. Mr. LaPallo's agreement
was effective June 23, 1996 and expires June 30, 2001.
Mr. Rocke's agreement (the "Rocke Employment 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. If the
Transaction is approved by the Company's shareholders, the Rocke Employment
Agreement will be amended. See "The Transaction--Conflicts of Interest;
Interests of Certain Persons."
Mrs. Ryberg's (the "Ryberg Employment Agreement") 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. If the
Transaction is approved by the Company's shareholders, the Ryberg Employment
Agreement will be amended. See "The Transaction--Conflicts of Interest;
Interests of Certain Persons."
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.
REPORT OF THE COMPENSATION COMMITTEE
The Compensation Committee of the Board 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 1998.
20
<PAGE>
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 1998 COMPENSATION
The Company's fiscal 1998 executive compensation plan consisted of (i)
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 1998.
The Company's 1998 compensation to named executives is best exemplified
by examining the salary paid to William J. Rocke, the Company's Chairman and
Chief Executive Officer. The Rocke Employment 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, and a bonus of 3% of the Company's income before taxes and
bonuses and 5% of the increase in the Company's income 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 Committee believes that linking executive compensation to corporate
performance (i.e., income and stock performance) provides incentive to the
executive 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 with the Company's named executives.
Louis T. Mastos
Merlin J. Schumann
COMPANY PERFORMANCE
The following graph reflects a five-year comparison of cumulative total
returns for the Common Stock, the American Stock Exchange ("AMEX") 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 1993. The graph compares
the performance of the Company with AMEX and Peer Group Indexes with the
investment weighted based upon market capitalization.
Measurement Period Frontier Adjusters of American Stock Peer Group
(Fiscal Year Covered) America, Inc. Exchange of Stocks
- --------------------- ------------- -------- ---------
1994 101.22 96.53 97.89
1995 110.70 116.15 113.53
1996 129.70 132.99 133.29
1997 121.73 141.44 183.01
1998 149.35 163.53 239.85
21
<PAGE>
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 and risk management business
located in Scottsdale, Arizona, and is paid a 5% royalty on gross revenue
derived from services provided by certain other licensees in other Arizona
cities and towns. The Company paid that corporation $13,142 during fiscal year
1998 in connection with such 5% royalty agreement.
George M. Hill, Vice President, Assistant Secretary and Director of the
Company, acts as General Counsel to the Company. During the fiscal year 1998,
the Company paid Mr. Hill $92,510 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 1998 for business and financial consulting services.
The Company believes that the cost to 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 upon a review of copies of such forms received by the
Company during fiscal year ended June 30, 1998, and written representations that
no such 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 Common Stock complied with Section 16(a) filing
requirements during such fiscal year.
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. The Board requests that shareholders
vote to ratify this appointment at the Meeting.
Audit services provided by McGladrey & Pullen, LLP, during the year
ended June 30, 1998 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 or associates has
any relationship with the Company, other than as independent auditors.
Certain financial statements of the Company appear in the Company's
1998 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.
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The Company's Financial Statements filed with the Commission pursuant
to the Exchange Act in the Company's Annual Report on Form 10-K for the fiscal
year ended June 30, 1998 are incorporated herein by reference.
22
<PAGE>
OTHER MATTERS
Management of the Company knows of no other matters that will come
before the Meeting. However, if any other matters 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 best judgment on such matter.
SHAREHOLDER PROPOSALS
Proposals by shareholders that are intended to be presented at the next
annual meeting of shareholders of the Company must be received by the Company on
or before ______________, 1999 to be considered for inclusion in the Company's
proxy statement for such annual meeting. Pursuant to Rule 14a-4 under the
Exchange, the Company intends to retain discretionary authority to vote proxies
with respect to shareholder proposals for which the proponent does not seek
inclusion of the proposed matter in the Company's proxy statement for the 2000
Annual Meeting, except in circumstances where (i) the Company receives notice of
the proposed matter no later than ________, 1999, and (ii) the proponent
complies with the other requirements set forth in Rule 14a-4.
By Order of the Board of Directors,
/s/ James S. Rocke
James S. Rocke, Secretary
Phoenix, Arizona
________, 1999
23
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FRONTIER ADJUSTERS OF AMERICA, INC.
ANNUAL MEETING OF SHAREHOLDERS
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, or such substitute, to represent and to vote, as
designated below, all of the shares of common stock of Frontier Adjusters of
America, Inc. (the "Company") held of record by the undersigned as of the close
of business on January 5, 1999, at the annual meeting of shareholders to be held
on February, __, 1998, at 9:00 A.M. (Phoenix, Arizona time), and at any
adjournment thereof.
1. THE TRANSACTION. To approve the Transaction described in the Proxy Statement
dated ________.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. ELECTION OF DIRECTORS.
[ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as indicated) to vote for each nominee
listed below
If you wish to withhold authority to vote for any individual nominee, strike a
line through the nominee's name in the list below:
William J. Rocke Jean E. Ryberg William W. Strawther, Jr.
Louis S. Mastos George M. Hill James S. Rocke
R. Scott Younker Merlin J. Shumann Francis J. LaPallo
3. RATIFICATION OF ACCOUNTANTS. To ratify the selection of McGladrey and
Pullen, LLP, Certified Public Accountants, as the auditors of the Company
for the Company's fiscal year ending June 30, 1999.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the Meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED SHAREHOLDER. IF NO DIRECTION IS MADE, THIS PROXY WILL BE
VOTED FOR PROPOSALS 1 AND 3; FOR ALL OF THE NOMINEES LISTED IN PROPOSAL 2 ABOVE;
AND, WITH RESPECT TO PROPOSAL 4, AS APPROPRIATE IN THE JUDGMENT OF THE PROXIES
NAMED HEREIN.
Receipt of Notice of Annual Meeting of Shareholders and related Proxy Statement
dated ______, is hereby acknowledged.
Please sign exactly as the name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, or as executor, administer,
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
<PAGE>
- --------------------------------------------------------------------------------
APPENDIX A
STOCK PURCHASE AGREEMENT
between
FRONTIER ADJUSTERS OF AMERICA, INC.
and
UNITED FINANCIAL ADJUSTING COMPANY
dated as of
November 20, 1998
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
PAGE
----
ARTICLE 1 DEFINITIONS ......................................................1
ARTICLE 2 PURCHASE AND SALE OF SHARES; CLOSING .............................6
Section 2.1 Purchase and Sale; Purchase Price ...................6
Section 2.2 Closing; Termination ................................6
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF THE SELLER .....................6
Section 3.1 Organization and Qualification; Subsidiaries ........6
Section 3.2 Authority Relative to Agreements; Board Approval ....7
Section 3.3 Capital Stock .......................................7
Section 3.4 No Conflicts; No Defaults; Required Filings
and Consents .......................................8
Section 3.5 SEC Matters and Absence of Undisclosed Liabilities ..9
Section 3.6 Litigation; Compliance With Law ....................10
Section 3.7 Absence of Certain Changes or Events ...............10
Section 3.8 Tax Matters ........................................10
Section 3.9 Compliance with Agreements .........................11
Section 3.10 Financial Records; Seller Articles and By-Laws;
Corporate Records ................................12
Section 3.11 Title to Assets, Liens .............................12
Section 3.12 Environmental Matters ..............................12
Section 3.13 Employees and Benefit Plans ........................13
Section 3.14 Labor Matters ......................................13
Section 3.15 Proprietary Rights .................................14
Section 3.16 Insurance ..........................................14
Section 3.17 Year 2000 Compliance ...............................14
Section 3.18 Proxy Statement ....................................14
Section 3.19 Franchise Matters ..................................15
Section 3.20 Government Approvals; Compliance with Laws
and Orders ........................................16
Section 3.21 Takeover Statutes ..................................16
Section 3.22 Brokers and Finders ................................16
Section 3.23 Knowledge Defined ..................................16
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF BUYER .........................17
Section 4.1 Organization .......................................17
Section 4.2 Due Authorization ..................................17
Section 4.3 Conflicting Agreements and Other Matters ...........17
Section 4.4 Private Placement ..................................17
Section 4.5 Proxy Statement ....................................18
Section 4.6 Brokers or Finders .................................18
Section 4.7 Violations .........................................18
Section 4.8 Labor Matters ......................................18
Section 4.9 Rights in Software .................................19
Section 4.10 Year 2000 Compliance ...............................19
Section 4.11 Government Approvals; Compliance with Laws
and Orders ........................................19
ARTICLE 5 COVENANTS RELATING TO THE CLOSING ..............................20
Section 5.1 Taking of Necessary Action .........................20
Section 5.2 Public Announcement; Confidentiality ...............20
Section 5.3 Conduct of Business ................................21
- --------------------------------------------------------------------------------
Page i
<PAGE>
Section 5.4 Acquisition Proposal ...............................22
Section 5.5 Notification of Certain Matters ....................23
Section 5.6 Provision of Certain Documents .....................23
Section 5.7 Registration Rights Agreement ......................23
Section 5.8 Service Agreement ..................................24
Section 5.9 Agreement with William Rocke .......................24
Section 5.10 Agreement with Jean Ryberg .........................24
ARTICLE 6 CERTAIN ADDITIONAL COVENANTS ...................................24
Section 6.1 Resale .............................................24
Section 6.2 Board Representation; Visitation Rights;
Voting Agreements .................................24
Section 6.3 Listing ............................................25
Section 6.4 Disinterested Directors ............................25
Section 6.5 Tender Offer; Distribution .........................25
Section 6.6 Legends; Stop-Transfer Orders ......................26
Section 6.7 Access to Information ..............................27
ARTICLE 7 CLOSING DELIVERIES ..............................................27
Section 7.1 Seller Closing Deliveries ..........................27
Section 7.2 Buyer Closing Deliveries ...........................28
ARTICLE 8 CONDITIONS TO CLOSING ...........................................29
Section 8.1 Conditions to Purchase at Closing ..................29
Section 8.2 Conditions of Sale at Closing ......................30
ARTICLE 9 SURVIVAL; INDEMNIFICATION .......................................31
Section 9.1 Survival ...........................................31
Section 9.2 Indemnification by Buyer or the Seller .............31
Section 9.3 Third-Party Claims .................................31
Section 9.4 Limitations on Indemnification; Survival ...........32
ARTICLE 10 TERMINATION ....................................................33
Section 10.1 Termination ........................................33
Section 10.2 Procedure and Effect of Termination ................33
Section 10.3 Expenses ...........................................34
ARTICLE 11 MISCELLANEOUS ..................................................34
Section 11.1 Counterparts .......................................34
Section 11.2 Governing Law ......................................34
Section 11.3 Jurisdiction .......................................34
Section 11.4 Entire Agreement ...................................34
Section 11.5 Notices ............................................35
Section 11.6 Successors and Assigns .............................35
Section 11.7 Amendments and Waivers .............................35
Section 11.8 Interpretation; Absence of Presumption .............36
Section 11.9 Severability .......................................36
Section 11.10 Further Assurances .................................36
Section 11.11 Specific Performance ...............................36
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SCHEDULES
(not included in Proxy Statement)
Schedule 3.1(d) Subsidiaries
Schedule 3.3(a) Options and Option Plans
Schedule 3.3(c) Investments
Schedule 3.4(d) Conflicts or Defaults
Schedule 3.6(a) Litigation
Schedule 3.6(c) Known Material Violations
Schedule 3.7 Absence of Certain Changes or Events
Schedule 3.8(a) Tax Matters
Schedule 3.9(b) Unresolved Violations
Schedule 3.9(c) Joint Venture and Partnership Agreements
Schedule 3.9(d) Directory; Material Agreements
Schedule 3.9(e) Conflict Policies & Agreements; Waivers
Schedule 3.10(b) Corporate Records
Schedule 3.11 Real Property and Permitted Liens
Schedule 3.13(a) Employment Agreements
Schedule 3.13(b) Employee Benefit Plans
Schedule 3.14 Labor Matters
Schedule 3.15 Intellectual Property
Schedule 3.16 Insurance Policies
Schedule 3.17 Year 2000
Schedule 3.19(e) Franchisee and Licensee Litigation
Schedule 3.20(b) Compliance with Laws
Schedule 4.8 Buyer Labor Matters
Schedule 4.10 Year 2000 Compliance of Buyer Software
EXHIBITS
(included in Proxy Statement as Appendices B through G)
Exhibit A Terms of the Shares
Exhibit B Registration Rights Agreement
Exhibit C Service Agreement
Exhibit D William Rocke Agreement
Exhibit E Jean Ryberg Agreement
Exhibit F Insider Support Agreement
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THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of November 20,
1998, is made between Frontier Adjusters of America, Inc, an Arizona corporation
(the "Seller"), and United Financial Adjusting Company, an Ohio corporation (the
"Buyer").
RECITALS:
WHEREAS, Buyer wishes to purchase from the Seller, and the Seller wishes to
sell to Buyer, an aggregate of 5,258,513 shares of the Seller's Series A
Convertible Voting Preferred Stock, $.01 par value per share, having the terms
set forth on Exhibit A (the "Shares"), in exchange for the payment by Buyer to
Seller of $6,836,067 (the "Purchase Price"); and
WHEREAS, Buyer and the Seller are entering into this Agreement to provide
for such purchase and sale and to establish various rights and obligations in
connection with such transaction;
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto
hereby agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms have the following
respective meanings:
"ACQUISITION PROPOSAL" has the meaning set forth in Section 5.4.
"ADDITIONAL DOCUMENTS" has the meaning set forth in Section 9.1.
"ACTION" means any actual or, to the Seller's knowledge, threatened action,
claim, suit, litigation, arbitration, inquiry, proceeding or investigation by or
before any Government Authority.
"AFFILIATE" has the meaning ascribed thereto in Rule 12b-2 promulgated
under the Exchange Act, as in effect on the date hereof.
"AGREEMENT" has the meaning set forth in the first paragraph hereof.
"AMEX" means the American Stock Exchange, Inc.
"ACQUISITION PROPOSAL" means any of the following transactions involving
the Seller or any of its Subsidiaries, other than the transactions as
contemplated by this Agreement: (i) any merger, consolidation, share exchange,
reorganization, recapitalization, business combination, or other similar
transaction; (ii) any sale, lease, exchange, mortgage, pledge, transfer, or
other disposition (whether in a single transaction or series of transactions),
of assets either constituting 10% or more of the assets of the Seller and its
Subsidiaries, taken as a whole, or which generate 10% or more of the
consolidated revenue of the Seller and its Subsidiaries; (iii) any tender offer
or exchange offer for 10% or more of the outstanding shares of capital stock of
the Seller or the filing of a registration statement under the Securities Act in
connection therewith; (iv) any person having acquired beneficial ownership or
the right to acquire beneficial
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ownership of, or any "group" (as such term is defined under Section 13(d) of the
Exchange Act and the rules and regulations promulgated thereunder) having been
formed, which beneficially owns or has the right to acquire beneficial ownership
of, 10% or more of the then outstanding shares of capital stock of the Seller
(other than Persons or "groups" which beneficially own or have the right to
acquire beneficial ownership of 10% or more of the outstanding shares of capital
stock of the Seller as of the date of this Agreement); or (v) any public
announcement of a proposal, plan or intention to do any of the foregoing or any
agreement to engage in any of the foregoing.
"BENEFICIAL OWNERSHIP" has the meaning set forth in Rule 13d-3 promulgated
under the Exchange Act.
"BLUE SKY LAWS" has the meaning set forth in Section 3.4(e).
"BOARD OF DIRECTORS" means the Board of Directors of the Seller.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a bank
holiday in Cleveland, Ohio or Phoenix, Arizona.
"BUYER" has the meaning set forth in the first paragraph hereof.
"BUYER PERMITS" has the meaning set forth in Section 4.11.
"CERCLA" means the federal Comprehensive, Environmental Response,
Compensation, and Liability Act, 42 U.S.C. ss. 9601 ET SEq., as amended.
"CLOSING" has the meaning set forth in Section 2.1.
"CLOSING DATE" has the meaning set forth in Section 2.2.
"CODE" means the Internal Revenue Code of 1986, as amended, and any
successor thereto, including all of the rules and regulations promulgated
thereunder.
"COMMITMENT" means any commitment, contractual obligation, agreement,
borrowing, capital expenditure or transaction entered into by the Seller or any
of its Subsidiaries.
"COMMON SHARES" means the shares of common stock, $.01 par value per share,
of the Seller.
"CURRENT REPORTS" has the meaning set forth in Section 3.5(b).
"DEPOSITARY" has the meaning set forth in Section 6.5(a).
"DIRECTOR" means a member of the Board of Directors.
"DIRECTORY" has the meaning set forth in Section 3.9(d).
"DISINTERESTED DIRECTORS" has the meaning set forth in Section 6.4.
"EMPLOYEES" means all current, former and retired employees, officers and
directors of the Seller or any of its Subsidiaries, including current, former
and retired employees, officers and directors on disability, layoff or leave
status.
"ENVIRONMENTAL CLAIM" means any claim, investigation or notice (written or
oral) by any Person alleging potential liability (including potential liability
for investigatory costs, cleanup costs, governmental response costs, natural
resources damages, property damages, personal injuries or fatalities, or
penalties) arising out of, based on or resulting from (A) the presence,
generation, transportation, treatment, use, storage, disposal or release of
Materials of Environment Concern or the threatened release of Materials of
Environmental Concern at any
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location, or (B) activities or conditions forming the basis of any violation, or
alleged violation of, or liability or alleged liability under, any Environmental
Law.
"ENVIRONMENTAL LAWS" means any federal, state, or local statute, law,
ordinance, code, order, injunction, decree or ruling, and any regulation
promulgated thereunder, which regulates or controls (i) pollution,
contamination, or the condition of groundwater, surface water, soil, sediment or
air, or (ii) a spill, leak, emission, discharge, release or disposal into
groundwater, surface water, soil, sediment or air, including without limitation
CERCLA; the Federal Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901
ET SEq., as amended; the Hazardous Materials Transportation Act, 49 U.S.C. ss.
1801 ET seq., as amended; the Toxic Substances Control Act, 15 U.S.C. ss. 2601
Et seq., as amended; the Clean Air Act, 42 U.S.C sS. 7401 et seq., as amended;
the Clean Water Act, 33 U.S.C. SS. 1251 et seq., as amended; the Safe Drinking
Water Act, 42 U.S.C. SS. 300f et seq., as amended; the Emergency Planning and
Community Right to Know Act, 42 U.S.C. SS. 11001 et seq., as amended; the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. ss. 136 ET SEq., as
amended; the National Environmental Policy Act, 42 U.S.C. ss. 4321 ET seq., as
amended; any similar state or local statutes or ordinances, and the regulations
promulgated thereunder.
"ERISA" means the Employee Income Security Act of 1974, as amended, and any
successor thereto, including all of the rules and regulations promulgated
thereunder.
"ERISA AFFILIATE" means, with respect to any entity, trade or business, any
other entity, trade or business that is a member of a group described in Section
414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes
the first entity, trade or business, or that is a member of the same "controlled
group" as the first entity, trade or business within the meaning of Section
4001(a)(14) of ERISA.
"EXCHANGE ACT" has the meaning set forth in Section 3.4(e).
"EXTENSION PERIOD" has the meaning set forth in Section 6.5(d).
"FILINGS" has the meaning set forth in Section 3.4(e).
"FORM 10-K" has the meaning set forth in Section 3.5(a).
"GAAP" has the meaning set forth in Section 3.5(b).
"GOVERNMENT AUTHORITY" means any government or state (or any subdivision
thereof) of or in the United States or Canada, or any agency, authority, bureau,
commission, department or similar body or instrumentality thereof, or any
governmental court or tribunal.
"INDEMNIFIED PARTY" has the meaning set forth in Section 9.3.
"INDEMNIFYING PARTY" has the meaning set forth in Section 9.3.
"INDEMNITY THRESHOLD" has the meaning set forth in Section 9.4(a).
"INITIAL TENDER EXPIRATION DATE" has the meaning set forth in Section
6.5(c).
"INSURANCE POLICIES" has the meaning set forth in Section 3.16.
"IRS" means the Internal Revenue Service or any successor thereto.
"LIABILITIES" means, as to any Person, all debts, adverse claims,
liabilities and obligations, direct, indirect, absolute or contingent of such
Person, whether accrued, vested or otherwise.
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"LIENS" means all liens, mortgages, deeds of Seller or any of its
Subsidiaries, title retention arrangements, security interests, pledges, claims,
charges, easements and other encumbrances of any nature whatsoever.
"LOSS AND EXPENSE" has the meaning set forth in Section 9.2(a).
"MATERIAL ADVERSE EFFECT" means a material adverse effect on the financial
condition, results of operations, business or prospects of the Seller and its
Subsidiaries (to the extent of the Seller's interests therein), taken as a
whole.
"MATERIALS OF ENVIRONMENTAL CONCERN" means all chemicals, pollutants,
contaminants, wastes, toxic substances, petroleum or any fraction thereof,
petroleum products and hazardous substances (as defined in Section 101(14) of
CERCLA, 42 U.S.C. ss. 6601(14)), or solid or hazardous wastes as now defined and
regulated under any Environmental Laws.
"MATERIAL TRANSACTION" means any transaction between Buyer and its
Affiliates, on the one hand, and the Seller and its Affiliates, on the other
hand, that would be required to be disclosed in the Seller's reports or proxy
materials filed under the Exchange Act by Item 404 of Regulation S-K.
"NOTICE OF SUPERIOR ACQUISITION PROPOSAL" has the meaning set forth in
Section 5.4(c).
"OTHER FILINGS" has the meaning set forth in Section 5.1(b).
"PERSON" means any individual, corporation, partnership, limited liability
company, joint venture, trust, unincorporated organization, other form of
business or legal entity or Government Authority.
"PERMITTED LIENS" means: (A) statutory liens for obligations which are not
overdue, or are being contested in good faith and are listed on Schedule 3.11;
(B) rights of way disclosed on an ALTA survey of the property; and (C) items
listed on Schedule 3.11.
"PROXY STATEMENT" has the meaning set forth in Section 5.1(b).
"PURCHASE PRICE" has the meaning set forth in the first paragraph of the
recitals to this Agreement.
"PURCHASED SHARES" means the Shares purchased by Buyer pursuant to this
Agreement, including all Common Shares issuable upon conversion of the Shares,
as adjusted for any share split, subdivision, combination, merger,
reclassification or share dividend related to the Common Shares occurring at or
prior to the time of such conversion.
"REAL PROPERTY" means the land owned, leased, or occupied by the Seller or
any of its Subsidiaries.
"REGISTRATION RIGHTS AGREEMENT" means a registration rights agreement
between Buyer and the Seller in substantially the same form as the agreement
attached hereto as Exhibit B.
"SEC" has the meaning set forth in Section 3.5(a).
"SECURITIES ACT" has the meaning set forth in Section 3.4(e).
"SECURITIES LAWS" has the meaning set forth in Section 3.5(a).
"SELLER" has the meaning set forth in the first paragraph hereof.
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"SELLER ARTICLES" means the Articles of Incorporation of the Seller as in
effect on the date of this Agreement.
"SELLER PERMITS" has the meaning set forth in Section 3.20(a).
"SELLER PLANS" means, collectively, each of the Seller's or any of its
Subsidiaries' benefit, bonus, pension, profit sharing, deferred compensation,
incentive compensation, stock ownership, stock purchase, stock option, phantom
stock, retirement, vacation, severance, disability, death benefit,
hospitalization, medical or other employee benefit arrangements, understandings
or plans (whether under Section 414(b), (c), (m) or (o) of the Code or
otherwise) with regard to any Employee or any Person affiliated with the Seller
or any of its Subsidiaries.
"SELLER PROPERTIES" has the meaning set forth in Section 3.11.
"SELLER REPORTS" has the meaning set forth in Section 3.5(a).
"SERVICE AGREEMENT" means a Service Agreement between Buyer and the Seller
and its Subsidiaries, as applicable, in substantially the same form as the
agreement attached hereto as Exhibit C.
"SHAREHOLDERS" means the holders of all of the issued and outstanding
Common Shares.
"SHARE PURCHASE" has the meaning set forth in Section 6.5(d).
"SHARES" has the meaning set forth in the first paragraph of the recitals
to this Agreement.
"STATE REGISTRATIONS" has the meaning set forth in Section 3.19(b).
"SUBSIDIARY" means each entity of which the Seller, directly or through one
or more intermediary entities (i) has the right to elect a majority of the board
of directors or other governing body, (ii) owns a majority of the issued and
outstanding common stock, or (iii) has the right to receive 50% or more of the
economic value of any business or activity in which such entity is engaged.
"SUPERIOR ACQUISITION PROPOSAL" has the meaning set forth in Section
5.4(a).
"TAX" means any federal, state, local, or foreign income, gross receipts,
license, payroll, employment, excise, severance, stamp, occupation, premium,
windfall profits, environmental (including taxes under Code Section 54A),
customs duties, capital stock, profits, withholding, social security (or
similar), unemployment, disability, real property, personal property, sales,
use, transfer, registration, value added, alternative or add-on minimum,
estimated, or other tax of any kind whatsoever, including any interest, penalty,
or addition thereto, whether disputed or not. The term "Tax" also includes any
amount payable pursuant to any tax sharing agreement pursuant to which any
relevant party is liable and any amount payable pursuant to any similar
contract.
"TAX RETURN" means any return, declaration, report, claim for refund, or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof.
"TENDER OFFER" has the meaning set forth in Section 6.5(a).
"TENDER OFFER MATERIALS" has the meaning set forth in Section 6.5(a).
"UFOC" has the meaning set forth in Section 3.19(b).
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ARTICLE 2
PURCHASE AND SALE OF SHARES; CLOSING
Section 2.1 PURCHASE AND SALE; PURCHASE PRICE. On the terms and subject to
the conditions hereof, at the closing of the purchase of the Shares (the
"Closing"), the Seller shall issue and deliver the Shares to Buyer, duly
registered in the name of Buyer or its designee, in exchange for the Purchase
Price and Buyer shall deliver to the Seller the Purchase Price, by wire transfer
of immediately available funds, in exchange for the Shares.
Section 2.2 CLOSING; TERMINATION. The Closing shall take place at 10:00
a.m., local time, at the offices of the Seller, 45 East Monterey Way, Phoenix,
Arizona 85012, on the Business Day following the satisfaction or waiver of the
last to be satisfied or waived of the conditions set forth in Sections 8.1 and
8.2 (other than those conditions that are to be satisfied concurrently with the
Closing), or on such other date or at such other time and place as the parties
shall agree on in writing (the "Closing Date"). If the Closing has not occurred
on or before the first anniversary of this Agreement and this Agreement has not
been previously terminated under Article 10, this Agreement shall terminate on
such anniversary without further action by the parties hereto, and this
Agreement shall be null and void and have no further effect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE SELLER
The Seller hereby represents and warrants to Buyer as follows:
Section 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) The Seller is
a corporation duly organized, validly existing and in good standing under the
laws of the State of Arizona. The Seller has all requisite power and authority
to own, operate, lease and encumber its properties and carry on its business as
now conducted, and to enter into this Agreement and to perform its obligations
hereunder.
(b) Each Subsidiary of the Seller is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, and has the corporate power and authority to own,
operate, lease and encumber its properties and carry on its business as it is
now being conducted.
(c) The Seller and each of its Subsidiaries is duly qualified to do
business and is in good standing in each jurisdiction in which the ownership or
lease of its properties or the conduct of its business requires such
qualification, except for any such failures to so qualify that would not,
individually or in the aggregate, have a Material Adverse Effect.
(d) Schedule 3.1(d) sets forth the name of each Subsidiary (whether owned
directly or indirectly through one or more intermediaries). All of the
outstanding shares of capital stock of, or other equity interests in, each of
the Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable, and are owned, directly or indirectly, by the Seller free and
clear of all Liens, except as set forth in Schedule 3.1(d). The following
information for each Subsidiary is set forth in Schedule 3.1(d), if applicable:
(i) its name and jurisdiction of incorporation or organization; and (ii) the
type of and percentage interest held by the Seller in the Subsidiary and the
names of and percentage interest held by the other interest holders, if any, in
the Subsidiary.
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Section 3.2 AUTHORITY RELATIVE TO AGREEMENTS; BOARD APPROVAL. (a) The
execution, delivery and performance of this Agreement and of all of the
documents and instruments delivered in connection herewith by the Seller are
within the corporate power of the Seller. This Agreement has been duly executed
and delivered on behalf of the Seller. This Agreement is, and the other
documents and instruments required hereby will be, when executed and delivered
by the Seller, subject to approval by the Shareholders, the valid and binding
obligations of the Seller, enforceable against the Seller in accordance with
their respective terms, subject only to bankruptcy, insolvency, reorganization,
moratorium or similar laws at the time in effect affecting the enforceability or
right of creditors generally and to general equitable principles which may limit
the right to obtain equitable remedies.
(b) The Board of Directors and a committee of "disinterested directors" (as
defined in Chapter 23, Section 10-2741(d) of the Arizona Corporate Takeover
Statute) have approved this Agreement and the transactions contemplated hereby
and have determined to recommend that the Shareholders vote in favor of and
approve the issuance of the Purchased Shares pursuant to this Agreement.
(c) The Purchased Shares to be issued pursuant to this Agreement have been
duly authorized, and upon issuance on the terms set forth in this Agreement will
be duly and validly issued, fully paid and nonassessable. At Closing and subject
to the restrictions described in Section 6.6, the Seller will deliver to Buyer
good and marketable title to the Purchased Shares, free and clear of all Liens
(other than Liens created as a result of actions of Buyer). The Common Shares
issuable upon conversion of the Shares will be duly and validly issued, fully
paid and nonassessable and, if converted immediately after Closing or within 120
days thereafter, Buyer will own not less than 52% of the outstanding Common
Shares on a fully diluted basis and such Common Shares will represent not less
than 52% of the voting power on a fully diluted basis entitled to be voted on
any issue, whether at a meeting of the Shareholders or otherwise.
(d) Neither the sale nor the conversion of the Purchased Shares pursuant to
this Agreement will give any Shareholder: the right to demand payment for that
Shareholder's Common Shares under the laws of the State of Arizona; any
appraisal or similar rights under the laws of the State of Arizona; any
dissenters' or similar rights under the laws of the State of Arizona; any
preemptive or similar right to purchase additional shares of the Seller's
capital stock; or any rights under any shareholders' rights, "poison pill" or
similar plan adopted by the Board of Directors or the Shareholders or contained
in the Seller Articles or other organizational documents of the Seller.
Section 3.3 CAPITAL STOCK. (a) The authorized capital stock of the Seller
on the date hereof consists of 100,000,000 Common Shares, and 100,000,000 shares
of preferred stock, $.01 per share. As of the date hereof, there are 4,605,358
Common Shares issued and outstanding, and no shares of preferred stock issued
and outstanding. All such issued and outstanding Common Shares are duly
authorized, validly issued, fully paid, nonassessable and free of preemptive
rights. The Seller has no outstanding securities or bonds, debentures, notes or
other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities the holders of which have the
right to vote) with the Shareholders or separately with respect to the
transactions contemplated hereby. Other than options described in Schedule
3.3(a) which have heretofore been granted under the option plans also described
in Schedule 3.3(a), there are no existing options, warrants, calls,
subscriptions, convertible
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securities, or other rights, agreements or commitments which obligate the Seller
to issue, transfer or sell any shares of capital stock or other equity interests
of the Seller.
(b) No Subsidiary has issued or granted securities convertible into or
exchangeable for interests in the Seller or in any Subsidiary and no Subsidiary
is a party to any outstanding commitment of any kind relating to, or any
presently effective agreement or understanding with respect to, interests in the
Seller or in any Subsidiary, whether issued or unissued.
(c) Except for its interests in the Subsidiaries, none of the Seller or any
of its Subsidiaries owns directly or indirectly any material interest or
investment (whether equity or debt) in any corporation, partnership, joint
business venture, trust or other legal entity (other than the list set forth on
Schedule 3.3(c), which is a list of all of the investments of the Seller and its
Subsidiaries).
Section 3.4 NO CONFLICTS; NO DEFAULTS; REQUIRED FILINGS AND CONSENTS.
Neither the execution and delivery by the Seller of this Agreement, nor the
consummation by the Seller of the transactions contemplated hereby in accordance
with the terms hereof, will:
(a) conflict with or result in a breach of any provisions of the Seller
Articles or By-laws of the Seller;
(b) result in a breach or violation of, a default under, or the triggering
of any payment or other obligation pursuant to, or accelerate vesting or have
any other consequence under, any Seller or Subsidiary stock option plan, option
plan or similar compensation plan or any grant or award made under any of the
foregoing, except for the accelerated vesting of stock options granted under the
Company's existing stock option plans, which options and plans are listed on
Schedule 3.3(a);
(c) violate or conflict with any statute, regulation, judgment, order,
writ, decree or injunction applicable to the Seller or to any of its
Subsidiaries;
(d) except as disclosed in Schedule 3.4(d), violate or conflict with or
result in a breach of any provision of, or constitute a default (or any event
which, with notice or lapse of time or both, would constitute a default) under,
or result in the termination or in a right of termination or cancellation of, or
accelerate the performance required by, or result in the creation of any Lien
upon any of the properties of the Seller or of any of its Subsidiaries under, or
result in being declared void, voidable or without further binding effect, any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
deed or any franchise, license, permit, lease, contract, agreement or other
instrument, commitment or obligation to which the Seller or any of its
Subsidiaries is a party, or by which the Seller or any of its Subsidiaries or
any of their properties is bound or affected, except as would not, individually
or in the aggregate, reasonably be expected to result in a Material Adverse
Effect; or
(e) require any consent, approval or authorization of, or declaration,
filing or registration with, any Government Authority or private organization,
other than any filings required under the Securities Act of 1933, as amended
(the "Securities Act"), the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), state securities laws ("Blue Sky Laws") or the AMEX
(collectively, the "Filings").
Section 3.5 SEC MATTERS AND ABSENCE OF UNDISCLOSED LIABILITIES. (a) The
Seller has delivered or made available to Buyer the Seller's Annual Report on
Form 10-K for the fiscal year ended June 30, 1998 filed by the Seller with the
Securities and Exchange Commission
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("SEC") and all exhibits, amendments and supplements thereto, including all
documents incorporated by reference therein (collectively, the "Form 10-K"), and
each registration statement, report, proxy statement or information statement
and all exhibits thereto prepared by or relating to the Seller for the three
years prior to the date of this Agreement, each in the form (including exhibits
and any amendments thereto) filed with the SEC (collectively the "Seller
Reports"). The Seller Reports were filed with the SEC in a timely manner and
constitute all forms, reports and documents required to be filed by the Seller
under the Securities Act and the Exchange Act and the rules and regulations
promulgated thereunder (the "Securities Laws"). As of their respective dates,
the Seller Reports (i) complied as to form in all material respects with the
applicable requirements of the Securities Laws and (ii) did not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. To the Seller's
knowledge, there is no unresolved violation asserted by any Government Authority
with respect to any of the Seller Reports.
(b) Each of the balance sheets (including the related notes and schedules)
included in or incorporated by reference into the Form 10-K and each Exchange
Act report filed between the date such annual report was filed with the SEC and
the Closing Date (the Form 10-K and such reports collectively, the "Current
Reports") fairly and accurately present the consolidated financial position of
the Seller and its Subsidiaries as of its date and each of the statements of
operations, shareholders' equity (deficit) and cash flows included in or
incorporated by reference into the Current Reports (including any related notes
and schedules) fairly and accurately present the consolidated results of
operations, retained earnings or cash flows, as the case may be, of the Seller
and its Subsidiaries for the period covered thereby, in each case in accordance
with United States generally accepted accounting principles consistently applied
during the periods involved ("GAAP") and in accordance with Regulation S-X
promulgated by the SEC, except as may be noted therein and except, in the case
of the unaudited statements, for normal recurring year-end adjustments which
would not, individually or in the aggregate, reasonably be expected to result in
a Material Adverse Effect. All such balance sheets and statements are free of
material errors, omissions and misstatements. None of the receivables of the
Seller and its Subsidiaries are materially overstated, and no payables and other
liabilities of the Seller and its Subsidiaries are materially understated, on
any such balance sheet or statement.
(c) Except as and to the extent set forth in the Current Reports or in any
Schedule hereto, to the Seller's knowledge, none of the Seller or any of its
Subsidiaries has any material Liabilities, nor do there exist any circumstances
that would, individually or in the aggregate, reasonably be expected to result
in a Material Adverse Effect.
Section 3.6 LITIGATION; COMPLIANCE WITH LAW. (a) Schedule 3.6(a) sets forth
a list and a brief description of all pending Actions involving the Seller or
any of its Subsidiaries of which the Seller or any of its Subsidiaries have
notice, in which the amount of damages prayed for in any complaint or pleading
exceeds $10,000 or which is reasonably likely to result in damages of $10,000 or
more.
(b) Except as set forth on Schedule 3.6(a), there are no Actions pending
or, to the knowledge of the Seller threatened, against the Seller or any of its
Subsidiaries (or any Seller Plan), or any property (including proprietary
rights) of the Seller or any of its Subsidiaries in any court or other forum or
before any arbitrator of any kind or before or by any Governmental Authority of
which the Seller or any of its Subsidiaries have notice, in which the amount of
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damages prayed for in any complaint or pleading exceeds $10,000 or which is
reasonably likely to result in damages of $10,000 or more.
(c) To the knowledge of the Seller, none of the Seller or any of its
Subsidiaries is in material violation of any statute, rule, regulation, order,
writ, decree or injunction of any Government Authority or any body having
jurisdiction over them or any of their respective properties. Schedule 3.6(c)
sets forth all such violations known to the Seller or its Subsidiaries.
Section 3.7 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
Schedule 3.7 or in any other Schedule hereto, since July 1, 1998, the Seller and
each of its Subsidiaries has conducted its business only in the ordinary course
of such business, and there has not been (a) any change, circumstance or event
that had or that could reasonably be expected to have a Material Adverse Effect,
or (b) any change in the Seller's accounting principles, practices or methods,
except as required by changes in GAAP.
Section 3.8 TAX MATTERS . (a) The Seller and each of its Subsidiaries has
timely filed with the appropriate taxing authority all Tax Returns required to
be filed by it or has timely requested extensions and any such request has been
granted and has not expired. Each such Tax Return is complete and accurate in
all material respects and all information shown thereon is correct in all
material respects. All Taxes required to have been paid by the Seller or any of
its Subsidiaries have been paid when due, except for Taxes contested in good
faith and for which adequate reserves as required by GAAP have been taken and
which are listed on Schedule 3.8(a). The Seller and each of its Subsidiaries
have properly accrued its liability for all Taxes for periods subsequent to the
periods covered by such Tax Returns as required by GAAP. None of the Seller or
any of its Subsidiaries has executed or filed with the IRS or any other taxing
authority any agreement now in effect extending the period for assessment or
collection of any Tax. Except as set forth on Schedule 3.8(a), none of the
Seller or any of its Subsidiaries is a party to any pending action or proceeding
by any taxing authority for assessment or collection of any Tax, and no claim
for assessment or collection of any Tax has been asserted against it. Except as
set forth on Schedule 3.8(a), no claim has been made by any authority in a
jurisdiction where the Seller or any of its Subsidiaries does not file Tax
Returns that it is or may be subject to taxation or reporting in that
jurisdiction. There is no dispute or claim concerning any information, reporting
or tax liability of the Seller or of any of its Subsidiaries, (i) claimed or
raised by any taxing authority in writing or (ii) as to which the Seller or any
of its Subsidiaries has knowledge. Except as set forth on Schedule 3.8(a),
neither the Seller nor any of its Subsidiaries has had its tax returns audited
by any Government Authority within the last four years.
(b) No amount or other entitlement that could be received (whether in cash
or property or the vesting of property) as a result of any of the transactions
contemplated hereby by any Employee of the Seller or of any of its Subsidiaries
or of any of their Affiliates who is a "disqualified individual" (as such term
is defined in proposed Treasury Regulation Section 1.28OG-1) under any
employment, severance or termination agreement, other compensation arrangement
or plan currently in effect would be characterized as an "excess parachute
payment" (as such term is defined in Section 280G(b)(2) of the Code).
Section 3.9 COMPLIANCE WITH AGREEMENTS. (a) Neither the Seller
nor any of the Subsidiaries is in default under or in violation of any provision
of its articles of incorporation or by-laws or any similar organizational
document.
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(b) Each of the Seller and its Subsidiaries has filed all material reports,
registrations, documents and statements, together with any amendments and
supporting materials required with respect thereto, that it was required to file
with any Government Authority and all other material reports, documents,
materials and statements required to be filed by it, and has paid all fees or
assessments due and payable in connection therewith. Except as disclosed on
Schedule 3.8(a) or 3.9(b), there is no unresolved violation asserted by any
Government Authority of which the Seller or any of its Subsidiaries has received
notice.
(c) Neither the Seller nor any of the Subsidiaries is in default, and, to
the Seller's knowledge, no event has occurred which, with the giving of notice
or the lapse of time or both, would constitute a default, in any material
respect, under any Commitment to which the Seller or any of its Subsidiaries are
bound, whether as a party or otherwise or in respect of any payment obligations
thereunder. Except as set forth in Schedule 3.9(c), neither the Seller nor any
of its Subsidiaries is a party to any joint venture or partnership agreements.
For purposes of this Section 3.9(c), license agreements, franchise agreements
and group services arrangements with purchasers of adjusting services shall not
be deemed to be joint venture or partnership agreements. To the Seller's
knowledge, there is no condition with respect to the Seller or any of its
Subsidiaries that, individually or in the aggregate, could reasonably be
expected to result in a Material Adverse Effect.
(d) The Seller has delivered to Buyer the Seller's most current directory
of its franchisees and licensees (the "Directory"). Schedule 3.9(d) sets forth
all additions and deletions of franchisees or licensees between the date of the
Directory and the date of this Agreement. The franchise and license agreements
listed in the Directory, as supplemented by Schedule 3.9(d), sets forth a
complete and accurate list of all material agreements to which the Seller or any
Subsidiary is a party as of the date hereof which are not listed in any other
Schedule hereto. Each agreement with the parties, and for the geographic areas,
listed in the Directory (as modified by Schedule 3.9(d)) and each additional
agreement listed on Schedule 3.9(d) is in full force and effect and no payments
thereunder, if any, are delinquent, no notice of default thereunder has been
sent or received by the Seller or any of the Subsidiaries, and, to the Seller's
knowledge, no event has occurred which, with notice or lapse of time or both,
would constitute such a default, except for any such defaults or events that
would not, individually or in the aggregate, have a Material Adverse Effect.
(e) Schedule 3.9(e) sets forth a complete and accurate list of all material
agreements and written policies of the Seller or any of its Subsidiaries in
effect on the date hereof relating to transactions with Affiliates and potential
conflicts of interest. Each agreement or policy listed on Schedule 3.9(e) is in
full force and effect, and the Seller, each of the Subsidiaries and, to the
Seller's knowledge, the other parties thereto, are in compliance with such
agreements or policies. Solely for purposes of this Section 3.9(e), material
agreements shall mean agreements that involve an expense to the Seller or any of
its Subsidiaries of over $5,000 per month or $25,000 in the aggregate.
Section 3.10 FINANCIAL RECORDS; SELLER ARTICLES AND BY-LAWS; CORPORATE
RECORDS. (a) The books of account and other financial records of the Seller and
of each of the Subsidiaries are true and complete in all material respects, have
been maintained in accordance with GAAP, and are accurately reflected in all
material respects in the financial statements included in the Seller Reports.
(b) The Seller has delivered or made available to Buyer true and complete
copies of the Seller Articles and the By-laws of the Seller, as amended to date,
and the charter,
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by-laws, organizational documents and joint venture agreements of the Seller and
each of its Subsidiaries, and all amendments thereto. For purposes of this
Section 3.10(b), license agreements, franchise agreements and group services
arrangements with the purchasers of adjusting services shall not be deemed to be
joint venture agreements. All such documents are listed in Schedule 3.10(b).
(c) The corporate minute books and other records of proceedings of the
Seller and of its Subsidiaries contain accurate records of all meetings and
consents of the equity holders, directors and other governing bodies thereof and
accurately reflect in all material respects all other corporate action of the
directors and shareholders and any committees of the board of directors of the
Seller and its Subsidiaries.
Section 3.11 TITLE TO ASSETS; LIENS. The Seller or a Subsidiary has good
and marketable title (insurable and indefeasible fee simple title in the case of
owned Real Property), to all of their respective property, equipment and other
assets, including those reflected as owned in the Seller Reports or on Schedule
3.11 (the "Seller Property"), and such assets are free and clear of any and all
mortgages, liens, security interests, charges, encumbrances or title defects of
any nature whatsoever other than Permitted Liens, except for any lease of office
equipment made in the ordinary course of business of the Seller or any of its
Subsidiaries requiring payments of less than $10,000 annually. Schedule 3.11
contains a complete and accurate list of each parcel of Real Property owned,
leased or used by the Seller or any Subsidiary in the conduct of its business.
The Seller has provided Buyer with a complete and accurate legal description of
each parcel of Real Property owned, leased or used by the Seller or any
Subsidiary in the conduct of its business and a complete and accurate
description of the Permitted Liens. There are no pending or, to the best
knowledge of the Seller, threatened zoning, condemnation or eminent domain
proceedings, building, utility or other moratoria, or injunctions or court
orders which would materially effect such continued operation. The current use
of the owned Real Property is permissible and in material compliance with all
applicable zoning ordinances and other regulations of any Government Authority.
Section 3.12 ENVIRONMENTAL MATTERS. (a) The Seller's and each of its
Subsidiaries ownership, operation and use of its respective property have been
and currently are in compliance in all material respects with all applicable
Environmental Laws.
(b) No Environmental Claim with respect to the operations or the businesses
of the Seller or of its Subsidiaries, or with respect to any Real Property, has
been asserted or, to the Seller's knowledge, threatened, and, to the Seller's
knowledge, no circumstances exist with respect to the Seller or any of its
Subsidiaries or any Real Property that would reasonably be expected to result in
any Environmental Claim being asserted, in any such case, against (i) the Seller
or any of its Subsidiaries, or (ii) any Person whose liability for any
Environmental Claims the Seller or any of its Subsidiaries has or may have
retained or assumed either contractually or by operation of law.
(c) (i) None of the Seller nor any of the Subsidiaries has been notified or
has reason to anticipate being notified of potential responsibility in
connection with any site that has been placed on, or proposed to be placed on,
the National Priorities List or its state or foreign equivalent pursuant
CERCLA., or analogous state or foreign laws, (ii) no Materials of Environmental
Concern are present on, in or under any Real Property, (iii) none of the Seller,
any Subsidiary or any tenant of any Real Property has released or arranged for
the release of any Materials of Environmental Concern at or on any Real
Property, (iv) no underground storage tanks, surface disposal areas, pits,
ponds, lagoons or open trenches are present at any Real
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Property, (v) no transformers, capacitors or other equipment containing fluid
with more than 50 parts per million polychlorinated biphenyls are present at, on
or under any Real Property, except for any such transformers, capacitation or
other equipment owned by any utility company, and (vi) to the Seller's
knowledge, no employee, agent, contractor, subcontractor or tenant of the Seller
or of any of the Subsidiaries is now or has in the past been exposed to friable
asbestos or asbestos-containing material at any Real Property whether now or
previously owned or occupied by the Seller or any of its Subsidiaries.
Section 3.13 EMPLOYEES AND BENEFIT PLANS. (a) Schedule 3.13(a) sets forth a
complete and accurate list of all employment agreements with Employees of the
Seller or of any of its Subsidiaries. Except for the Employees who are parties
to such employment agreements, all of the Employees of the Seller and of each of
its Subsidiaries are employed in an at-will status (except for restrictions or
limitations on the at-will status of such employees imposed by general
principles of law or equity).
(b) Schedule 3.13(b) sets forth a complete and accurate list of each of the
Seller Plans. Since July 1, 1998, there has been no adoption, modification,
amendment or alteration of any Seller Plan by the Seller or any of its
Subsidiaries. All Seller Plans, including any such plan that is an "employee
benefit plan" as defined in Section 3(3) of ERISA, are in compliance, in all
material respects, with all applicable requirements of law, including ERISA and
the Code, and neither the Seller nor any of its Subsidiaries has any liabilities
or obligations with respect to any Seller Plan, whether accrued, contingent or
otherwise (other than obligations to make contributions and pay benefits and
administrative costs incurred in the ordinary course that are accrued in the
balance sheet included in the Form 10-K or, as to such obligations incurred
after June 30, 1998, that do not, individually or in the aggregate, exceed
$10,000 annually).
Section 3.14 LABOR MATTERS. Except as disclosed in Schedule 3.14, there are
no pending or, to the knowledge of the Seller, threatened Actions or work
stoppages relating to any Employee. Neither the Seller nor any of its
Subsidiaries is a party to any collective bargaining agreement with respect to
employees, and, to the knowledge of the Seller, there are no activities of any
labor union seeking to represent or organize the employees of the Seller or any
of its Subsidiaries. No unfair labor practice or labor arbitration, or race,
sex, age, disability or other discrimination complaint is pending, nor is any
such complaint, to the knowledge of the Seller, threatened against the Seller or
any of its Subsidiaries before the National Labor Relations Board, Equal
Employment Opportunity Commission, Department of Labor or any other Governmental
Authority, and no grievance is pending, nor is any grievance, to the knowledge
of the Seller, threatened against the Seller or any of its Subsidiaries. The
Seller and its Subsidiaries are in compliance in all material respects with all
applicable federal, state and local laws relating to employment, including
without limitation, the provisions thereof relating to wages, non-discriminatory
hiring and employment practices, collective bargaining, and payment of Social
Security and Unemployment Compensation taxes or similar taxes, and neither the
Seller nor any of its Subsidiaries is liable for any arrears of wages or subject
to any liabilities or penalties for failure to comply with any of the foregoing
laws.
Section 3.15 PROPRIETARY RIGHTS. The Seller has provided Buyer with copies
of all relevant materials pertaining to (a) the registration of all trademarks,
service marks or trade names, and all pending applications for any such
registration, (b) the registration of all patents and copyrights and all pending
applications therefor, and (c) all other trademarks, service marks or trade
names, whether or not registered (the items in clauses (a), (b) and (c)
collectively, the
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"Proprietary Rights"), that are owned or used by the Seller or any of its
Subsidiaries. To the knowledge of the Seller, the use of any of the Proprietary
Rights by the Seller or any of its Subsidiaries has not infringed, is not
infringing upon, and is not otherwise violating the rights of any Person or
other entity in or to such Proprietary Rights or the asserted Proprietary Rights
of others. No notices have been received by the Seller or any of its
Subsidiaries that the use of the Proprietary Rights by the Seller or any of its
Subsidiaries infringes upon or otherwise materially violates any rights of a
person or other entity in or to such Proprietary Rights or the proprietary
rights of others. Except as disclosed in Schedule 3.15, to the knowledge of the
Seller, no person or other entity is infringing on the Proprietary Rights owned
by the Seller or any of its Subsidiaries.
Section 3.16 INSURANCE. The Seller maintains insurance policies covering
the assets, business, equipment, properties, operations and Employees of the
Seller and of each of its Subsidiaries (collectively, the "Insurance Policies")
which are of a type and in amounts customarily carried by Persons similar in
size to the Seller and its Subsidiaries conducting businesses similar to those
of the Seller and its Subsidiaries. Schedule 3.16 sets forth a list of all
insurance coverages or policies currently maintained by the Seller or its
Subsidiaries. All such coverages or policies shall be maintained in full force
and effect until the Closing. There is no material claim by the Seller or by any
of its Subsidiaries pending under any of the Insurance Policies as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies.
Section 3.17 YEAR 2000 COMPLIANCE. Schedule 3.17 describes the year 2000
computer problem compliance efforts of the Seller and its Subsidiaries and sets
forth the current status of such efforts.
Section 3.18 PROXY STATEMENT. The Proxy Statement and all of the
information included or incorporated by reference therein (other than any
information supplied or to be supplied by Buyer for inclusion or incorporation
by reference therein) will not, as of the date such Proxy Statement is first
made available to the Shareholders and as of the time of the meeting of the
Shareholders in connection with the transactions contemplated hereby, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not
misleading. The Proxy Statement will comply as to form in all material respects
with the provisions of the Exchange Act and the rules and regulations
promulgated by the SEC thereunder.
Section 3.19 FRANCHISE MATTERS. (a) The Seller and its Subsidiaries have
obtained and maintain valid and effective registrations in each and every
jurisdiction wherein registration is required in connection with the offering or
sale of franchises, business opportunities or similar arrangements of the type
offered by the Seller and its Subsidiaries. The Seller and each of its
Subsidiaries are and have been in material compliance with all applicable
federal and state franchise laws and have no knowledge of any circumstance that
may prevent or interfere with such compliance in the future.
(b) The Seller and its Subsidiaries have delivered or made available to
Buyer, the Seller's Uniform Franchise Offering Circular ("UFOC") and all
exhibits, amendments and supplements thereto and each registration statement and
all exhibits thereto filed with any state franchise authority ("State
Registrations"). The UFOC and State Registrations (i) comply as to form and in
all material respects with the applicable requirements of all federal and state
laws, and (ii) do not contain any untrue statement of a material fact or omit to
state a material fact
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required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
(c) Other than routine claims in the ordinary course of business of the
Seller or any of its Subsidiaries that the Seller reasonably believes will not
result in the incurrence of liability of $20,000 or more, neither the Seller nor
any of its Subsidiaries has received any claims, deficiency notices, complaints,
orders, notice of violation or threat of legal action from any Governmental
Authority or by or on behalf of any Person with respect to the offering and sale
of franchises or licenses or the operation of its franchise or license system.
(d) The franchise or license agreement with each party listed in the
Directory, as updated by Schedule 3.9(d), is in compliance, in all material
respects, with all applicable laws, ordinances, rules and regulations and is in
full force and effect, and no event has occurred which, with notice or lapse of
time or both, would constitute a material default under any such agreement by
the Seller or any of its Subsidiaries or, to the knowledge of the Seller, by any
other party thereto, except as are not, individually or in the aggregate, likely
to have a Material Adverse Effect.
(e) Except as set forth on Schedule 3.19(e), neither the Seller nor any of
its Subsidiaries is a party to any Action by, against or involving any of its
current or former franchisees or licensees. Except as set forth on Schedule
3.19(e), the Seller has not been threatened with any litigation or other
proceeding by any current or former franchisee or licensee and is not aware of
any facts or circumstances that might reasonably be expected to give rise to any
such threat, litigation or other proceeding, other than matters which,
individually or in the aggregate, are not reasonably likely to have a Material
Adverse Effect. The Seller's relationship with each of its franchisees and
licensees is defined by a franchise or license agreement, as applicable,
substantially in the form heretofore furnished to Buyer, between the Seller or a
Subsidiary and such franchisee or licensee, as applicable. Neither the Seller
nor any of its Subsidiaries, nor, to the knowledge of the Seller, any franchisee
or licensee is currently in default in any material respect of any of
its/his/her obligations under any such franchise or license agreement and each
such agreement complies in all material respects with all federal, state and
other franchise and license or other laws promulgated by any Government
Authority, and all rules and regulations which are applicable to the
relationship between the Seller and any of its franchisees and licensees, except
for any such defaults and incidents of noncompliance which, individually or in
the aggregate, have not had, and are not reasonably likely to have, a Material
Adverse Effect. The Seller has no knowledge of any proposed or contemplated
termination, revision or amendment of any such agreement or any material adverse
change in the relationship between the Seller and any of its Subsidiaries and
any of its franchisees or licensees, other than the normal expiration of
franchise or license agreements in accordance with their terms.
Section 3.20 GOVERNMENT APPROVALS; COMPLIANCE WITH LAWS AND ORDERS.
(a) The Seller and each of its Subsidiaries has obtained from the
appropriate Government Authority which is charged with regulating or supervising
any business conducted by the Seller or any of its Subsidiaries all permits,
variances, exemptions, orders, approvals, certificates of authority and licenses
necessary for the conduct of its business and operations as and to the extent
currently conducted (the "Seller Permits"), which Seller Permits are valid and
remain in full force and effect. The Seller and its Subsidiaries are in
compliance in all material respects with the terms of all such Seller Permits.
(b) Except as set forth on Schedule 3.20(b), neither the Seller nor any of
its Subsidiaries has received notice of or, to the knowledge of the Seller, is
subject to any Action,
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order or any complaint, proceeding or investigation of any Government Authority
which is charged with regulating or supervising any business conducted by the
Seller or any of its Subsidiaries, which is pending or threatened, which affects
or which could affect the effectiveness or validity of any such Seller Permit or
which could impair the renewal thereof or which is likely to result in any such
Action, agreement, consent decree or order or in any fine, penalty or other
liability in excess of $20,000 or the forfeiture of the certificate of authority
of the Seller or any of its Subsidiaries. As of the date hereof, neither the
Seller nor any of its Subsidiaries is a party or subject to any Action,
agreement, consent decree or order, or other understanding or arrangement with,
or any directive of, any Government Authority that is charged with regulating or
supervising any business conducted by the Seller or any of its Subsidiaries
which imposes any material restrictions on or otherwise affects in any material
way the conduct of the business of the Seller and its Subsidiaries, as currently
conducted (taken as a whole).
Section 3.21 TAKEOVER STATUTES. No "fair price," "moratorium," "business
combination," "control share acquisition" or other anti-takeover statute or
similar statute or regulation enacted by the State of Arizona applies to the
transactions contemplated by this Agreement. All actions have been taken to
ensure that no statute or regulation of the State of Arizona, including the
"business combination act," limits Buyer's ability to engage in further
transactions with the Sellers and its Subsidiaries.
Section 3.22 BROKERS AND FINDERS. No agent, broker, investment banker or
other Person, including any of the foregoing that is an Affiliate of the Seller
or any of its Subsidiaries, is or will be entitled to any broker's or finder's
fee or any other commission or similar fee agreed to or arranged by the Seller
in connection with this Agreement or any of the transactions contemplated
hereby.
Section 3.23 KNOWLEDGE DEFINED. As used herein, the phrase "to the Seller's
knowledge" (or words of similar import) means the knowledge, after reasonable
inquiry, of any of the officers or inside directors of the Seller or its
Subsidiaries.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to the Seller as follows:
Section 4.1 ORGANIZATION. Buyer is a corporation duly incorporated, validly
existing and in good standing under the laws of Ohio. Buyer has all requisite
corporate power and authority to own, operate, lease and encumber its properties
and carry on its business as now conducted, and to enter into this Agreement and
to perform its obligations hereunder. Buyer is a wholly-owned subsidiary of The
Progressive Corporation, an Ohio corporation.
Section 4.2 DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and of all of the documents and instruments delivered in
connection herewith by Buyer has been duly and validly authorized by all
necessary corporate action on the part of Buyer. This Agreement has been duly
executed and delivered on behalf of Buyer. This Agreement is, and the other
documents and instruments required hereby will be, when executed and delivered
by Buyer, the valid and binding obligations of Buyer, enforceable against Buyer
in accordance with their respective terms, subject only to bankruptcy,
insolvency, reorganization, moratorium or similar laws at the time in effect
affecting the enforceability or right of creditors
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generally and to general equitable principles which may limit the right to
obtain equitable remedies.
Section 4.3 CONFLICTING AGREEMENTS AND OTHER MATTERS. Neither the execution
and delivery of this Agreement nor the performance by Buyer of its obligations
hereunder will conflict with, result in a breach of the terms, conditions or
provisions of, constitute a default under, result in the creation of any
mortgage, security interest, encumbrance, lien or of any kind upon any of the
properties or assets of Buyer pursuant to, or require any consent, approval or
other action by or any notice to or filing with any Government Authority
pursuant to, the organizational documents of Buyer or any agreement, instrument,
order, judgment, decree, statute, law, rule or regulation by which Buyer is
bound, except for any filings required by Sections 13(d) and 16 of the Exchange
Act.
Section 4.4 PRIVATE PLACEMENT. (a) Buyer acknowledges that the Seller is
relying on exemptions from the registration requirements of the Securities Act
and on applicable state statutes and regulations. Buyer hereby affirms that it
is an "accredited investor" as defined in Regulation D promulgated by the SEC
under the Securities Act.
(b) Buyer (i) can bear the economic risk of the purchase of the Shares,
including the total loss of Buyer's investment; and (ii) has such knowledge and
experience in business and financial matters as to be capable of evaluating the
merits and risks of an investment in the Shares.
(c) Buyer warrants that any financial information relating to Buyer which
is provided herewith by Buyer, or is subsequently submitted by Buyer at the
request of the Seller, does or will fairly and accurately reflect Buyer's
financial condition as of the date thereof with respect to which Buyer does not
anticipate any material adverse change.
(d) Buyer has been provided the opportunity to ask questions with respect
to the business, operations and financial condition of the Seller, and the terms
and conditions of the purchase of the Shares.
(e) Buyer understands that the Shares have not been registered under the
Securities Act, or the securities laws of any state and are subject to certain
restrictions on transfer.
(f) Buyer acknowledges that the Shares being acquired are being acquired
for Buyer's own account without a view to public distribution or resale and that
Buyer has no contract, undertaking, agreement, or arrangement to sell or
otherwise transfer or dispose of the Shares or any portion thereof to any other
person or entity.
(g) Buyer agrees that Buyer will not sell or otherwise transfer or dispose
of the Shares or the Common Shares underlying the Shares, or any portion
thereof, unless such Shares or Common Shares, are registered under the
Securities Act and any applicable state securities laws or the Buyer obtains an
opinion of reputable securities counsel that such Shares, or Common Shares, may
be sold in reliance on an exemption from such registration requirements.
(h) Buyer understands that no federal or state agency including the SEC,
the Arizona Corporation Commission or the securities commission or authorities
of any other state has approved or disapproved the Shares, passed upon or
endorsed the merits of the offering or the adequacy of the disclosure given in
connection with the offering, or made any finding or determination as to the
fairness of the Shares for investment.
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Section 4.5 PROXY STATEMENT. None of the information supplied or to be
supplied by Buyer for inclusion or incorporation by reference in the Proxy
Statement, as of the date the Proxy Statement is mailed to the Shareholders and
as of the time of the meeting of the Shareholders in connection with the
transactions contemplated hereby, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading.
Section 4.6 BROKERS OR FINDERS. No agent, broker, investment banker or
other firm or Person, including any of the foregoing that is an Affiliate of
Buyer, is or will be entitled to any broker's or finder's fee or any other
commission or similar fee agreed to or arranged by Buyer in connection with this
Agreement or any of the transactions contemplated hereby.
Section 4.7 VIOLATIONS. To the knowledge of Buyer, Buyer is not in material
violation of any statute, rule, regulation, order, writ, decree or injunction of
any Government Authority or any body having jurisdiction over Buyer or any of
its properties.
Section 4.8 LABOR MATTERS. Except as set forth on Schedule 4.8, there are
no present or, to the knowledge of Buyer, threatened Actions or work stoppages
relating to any employee of Buyer. Buyer is not a party to any collective
bargaining agreement with respect to employees, and, to the knowledge of Buyer,
there are no activities of any labor union seeking to represent or organize the
employees of Buyer. Except as set forth in Schedule 4.8, no unfair labor
practice or labor arbitration, or race, sex, age, disability or other
discrimination complaint is pending, nor is any such complaint, to the knowledge
of Buyer, threatened against Buyer before the National Labor Relations Board,
Equal Employment Opportunity Commission, Department of Labor or any other
Governmental Authority, and no grievance is pending, nor is any grievance, to
the knowledge of Buyer, threatened against Buyer. Buyer is in compliance, in all
material respects, with all applicable federal, state and local laws relating to
employment, including without limitation, the provisions thereof relating to
wages, non-discriminatory hiring and employment practices, collective
bargaining, and payment of Social Security and Unemployment Compensation taxes
or similar taxes, and Buyer is not liable for any arrears of wages or subject to
any liabilities or penalties for failure to comply with any of the foregoing
laws.
Section 4.9 RIGHTS IN SOFTWARE. To the knowledge of Buyer, the software to
be provided by Buyer to the Seller, its Subsidiaries, and their respective
licensees and franchisees, and the provision of such software to the Seller, its
Subsidiaries, and their respective licensees and franchisees, has not infringed,
is not infringing upon, and is not otherwise violating the proprietary rights of
any Person or other entity in or to such software or the asserted proprietary
rights of others in such software. No notices have been received by Buyer that
the use of such software infringes upon or otherwise materially violates any
rights of a person or other entity in or to such software or the proprietary
rights of others. To the knowledge of Buyer, no person or other entity is
infringing on the proprietary rights of Buyer in such software.
Section 4.10 YEAR 2000 COMPLIANCE. Schedule 4.10 describes the year 2000
computer problem compliance efforts of Buyer related to the software to be
provided by Buyer to the Seller, its Subsidiaries, and their respective
licensees and franchisees, and sets forth the current status of such efforts.
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Section 4.11 GOVERNMENT APPROVALS; COMPLIANCE WITH LAWS AND ORDERS.
(a) Buyer has obtained from the appropriate Government Authority which is
charged with regulating or supervising any business conducted by Buyer all
permits, variances, exemptions, orders, approvals, certificates of authority and
licenses necessary for the conduct of its business and operations as and to the
extent currently conducted (the "Buyer Permits"), which Buyer Permits are valid
and remain in full force and effect. Buyer is in compliance in all material
respects with the terms of all such Buyer Permits.
(b) Buyer has not received notice of or, to the knowledge of Buyer, is not
subject to any Action, order or any complaint, proceeding or investigation of
any Government Authority which is charged with regulating or supervising any
business conducted by Buyer, which is pending or threatened, which affects or
which could affect the effectiveness or validity of any such Buyer Permit or
which could impair the renewal thereof or which is likely to result in any such
Action, agreement, consent decree or order or in any fine, penalty or other
liability in excess of $20,000 or the forfeiture of the certificate of authority
of authority of Buyer. As of the date hereof, Buyer is not a party or subject to
any Action, agreement, consent decree or order, or other understanding or
arrangement with, or any directive of, any Government Authority that is charged
with regulating or supervising any business conducted Buyer which imposes any
material restrictions on or otherwise affects in any material way the conduct of
the business of Buyer.
ARTICLE 5
COVENANTS RELATING TO THE CLOSINGS
Section 5.1 TAKING OF NECESSARY ACTION. (a) Each party hereto agrees to use
its commercially reasonable best efforts promptly to take or cause to be taken
all action and promptly to do or cause to be done all things reasonably
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement,
subject to the terms and conditions of this Agreement.
(b) As promptly as practicable after the execution of this Agreement, the
Seller shall prepare and file with the SEC a preliminary proxy statement by
which the Shareholders will be asked to approve, in accordance with the rules of
the AMEX and any applicable laws, the issuance and sale to Buyer of the
Purchased Shares. The preliminary proxy statement, as initially filed with the
SEC, as it may be amended and refiled with the SEC, and the definitive proxy
statement filed with the SEC and mailed to the Shareholders (such definitive
proxy statement, the "Proxy Statement"), shall be in form and substance
reasonably satisfactory to Buyer. The Seller shall respond to any comments of
the SEC, and mail the Proxy Statement to the Shareholders and shall cause any
meeting of the Board of Directors or the Shareholders required to be held to
consider the approval of the issuance and sale to Buyer of the Purchased Shares
and the transactions contemplated hereby at the earliest practicable time. As
promptly as practicable after the date hereof, the Seller shall prepare and file
any other filings required under the Exchange Act, the Securities Act or any
other federal, state or local laws relating to this Agreement and the
transactions contemplated hereby, including any state takeover laws (the "Other
Filings"). The Seller will notify Buyer promptly of the receipt of any comments
from the SEC or its staff or any other governmental official and of any request
by the SEC or its staff or any other government official for amendments or
supplements to the Proxy Statement or any Other Filing or for additional
information and will supply Buyer with copies of all correspondence between the
Seller or any of its representatives, on the one hand, and the SEC or its staff
or any other government official, on the other hand, with respect to the Proxy
Statement
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or any Other Filing. The Seller shall cause the Proxy Statement and any Other
Filing to comply in all material respects with all applicable requirements of
law. Buyer shall provide the Seller all information about Buyer required to be
included or incorporated by reference in the Proxy Statement or any Other Filing
and shall otherwise cooperate with the Seller in taking the actions described in
this Section 5.1(b). Whenever any event occurs which is required to be set forth
in an amendment or supplement to the Proxy Statement or any Other Filing, the
Seller or Buyer, as applicable, shall promptly inform the other party of such
occurrence and cooperate in the preparation and filing with the SEC or its staff
or any other government officials, or mailing to the Shareholders, as required,
such amendment or supplement. Subject to the provisions of Section 5.4, the
Proxy Statement shall include the recommendation of the Board of Directors that
the Shareholders vote in favor of the issuance and sale to Buyer of the
Purchased Shares pursuant to this Agreement.
Section 5.2 PUBLIC ANNOUNCEMENT; CONFIDENTIALITY. (a) For as long as this
Agreement is in effect, neither the Seller nor Buyer shall issue or cause the
publication of any press release or any other announcement with respect to this
Agreement, the Registration Rights Agreement, or the transactions contemplated
hereby or thereby without the consent of the other (which consent shall not be
unreasonably withheld or delayed), except when, in the reasonable judgment of
the Seller, such release or announcement is required by applicable law or
pursuant to any listing agreement with, or the rules or regulations of, any
securities exchange or any other regulatory requirement.
(b) Buyer agrees that all information provided to Buyer or any of its
representatives pursuant to this Agreement shall be kept confidential, and Buyer
shall not disclose such information to any Persons other than the directors,
officers, employees, financial advisors, legal advisors, accountants,
consultants and affiliates of Buyer who reasonably need to have access to the
confidential information and who are advised of the confidential nature of such
information, but the foregoing obligation of Buyer shall not (i) relate to any
information that (A) is or becomes generally available other than as a result of
unauthorized disclosure by Buyer or by Persons to whom Buyer has made such
information available, (B) is or becomes available to Buyer on a nonconfidential
basis from a third party that is not, to Buyer's knowledge, bound by any other
confidentiality agreement with the Seller, or (C) is independently developed or
already known to Buyer prior to disclosure by the Seller, or (ii) prohibit
disclosure of any information if required by law, rule, regulation, court order
or other legal or governmental process.
Section 5.3 CONDUCT OF BUSINESS. Except as agreed to by Buyer, during the
period from the date of this Agreement to the Closing Date: (i) the Seller will,
and will cause each of its Subsidiaries to, conduct its business only in the
ordinary course consistent with past practice, (ii) the Seller will not, and the
Seller will cause each of its Subsidiaries not to, take any action or enter into
any material transaction other than in the ordinary course of business
consistent with past practice, and (iii) to the extent consistent with the
foregoing, the Seller will, and will cause each of its Subsidiaries to, use its
commercially reasonable best efforts to preserve intact its current business
organization and reputation, existing relationships with customers, franchisees,
licensees, suppliers, government officials, regulatory authorities and others
having business dealings with it or regulatory authority over it and shall
comply in all material respects with all laws and orders of each Governmental
Authority and regulatory authority having jurisdiction over it. Without limiting
the generality of the foregoing and except as otherwise expressly permitted in
this Agreement, prior to the Closing Date, the Seller will not, and will not
permit any of its Subsidiaries to, without the prior written consent of Buyer:
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(a) (i) issue, deliver or sell, or authorize or enter into any agreement or
commitment to issue, deliver or sell (y) any additional shares of its capital
stock of any class, or any securities or rights which are convertible into,
exchangeable for, or evidencing the right to subscribe for any shares of its
capital stock, or any rights, warrants, options, calls, commitments or any other
agreements to purchase or acquire any shares of its capital stock or any
securities or rights convertible into, exchangeable for, or evidencing the right
to subscribe for, any shares of its capital stock, or (z) any other securities
of the Seller or any of its Subsidiaries; (ii) split, combine, subdivide,
reclassify, redeem, repurchase or otherwise acquire or take similar action with
respect to any shares of its capital stock, or (iii) declare, set aside for
payment or pay any dividend, or make any other distribution in respect of any
shares of its capital stock or other outstanding securities or make any payments
to shareholders in their capacity as such, other than in a manner and amount
consistent with prior business practices and the distribution provided for in
Section 6.5 (e);
(b) (i) create, increase the benefits payable or accruing under, or modify
in any manner any Seller Plan or the compensation, pension, welfare, medical or
fringe benefits of any of its directors, officers or Employees, except for
normal increases in the ordinary course of business consistent with past
practice that, in the aggregate, do not result in a material increase in
benefits or compensation expense to the Seller and its Subsidiaries, taken as a
whole, or (ii) enter into any new, or amend any existing, employment, severance,
"golden parachute" or other similar agreement with any such director, officer or
Employee, except as may be approved in writing by Buyer;
(c) make any acquisition, by means of merger, consolidation, purchase of a
substantial equity interest in or a substantial portion of the assets of, or
otherwise, of any business or corporation, partnership, association or other
business organization or division thereof (except as herein contemplated);
(d) adopt any amendments to its articles of incorporation, bylaws or
similar organizational documents, or alter through merger with any entity,
liquidation, reorganization, restructuring or in any other fashion the corporate
structure or ownership of the Seller or of any Subsidiaries, or encumber,
dispose of, sell or lease any material amount of the assets of the Seller or any
of its Subsidiaries except as herein authorized;
(e) enter into any contract, arrangement or understanding requiring the
expenditure of greater than $50,000;
(f) in the event that a claim is made for damages during the period prior
to the Closing Date, which is reasonably likely to have a Material Adverse
Effect, fail to promptly notify Buyer of the pendency of such claim; or
(g) authorize, recommend, propose or announce an intention to do any of the
foregoing, or enter into any agreement, contract or commitment to do any of the
foregoing.
Section 5.4 ACQUISITION PROPOSAL. (a) Unless and until this Agreement shall
have been terminated by either party in accordance with Article 10, the Seller
shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize or permit any Employee, investment banker, attorney, accountant or
other advisor or representative of the Seller or any of its Subsidiaries to,
directly or indirectly: (i) solicit, initiate, or encourage the submission of
any proposal or offer from any other person or entity relating to any
Acquisition Proposal; (ii) cooperate with, or furnish or cause to be furnished
any non-public information concerning its business, properties or assets or the
business, properties or assets of any of its Subsidiaries to,
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any other person or entity in connection with any Acquisition Proposal; (iii)
participate in any discussions or negotiations regarding, or take any other
action to facilitate any inquiries or the making of any proposal that
constitutes, or which may reasonably be expected to lead to, any Acquisition
Proposal; or (iv) enter into any agreement or understanding with any other
Person or entity with the intent to effect any Acquisition Proposal.
Notwithstanding the foregoing, nothing contained in this Section 5.4 shall, on
or after the date of this Agreement, prohibit the Seller or its Board of
Directors, to the extent required by its fiduciary duties under applicable law
(based upon the advice of counsel selected by the Seller), from (1) providing
information to, or participating in discussions or negotiations with any Person
or entity that makes an unsolicited inquiry with respect to the Seller if the
Board of Directors reasonably believes that such Person or entity may propose an
Acquisition Proposal on terms that, for the Shareholders, are superior from a
financial point of view to the terms of the transactions contemplated hereby (a
"Superior Acquisition Proposal"), or (2) subject to Section 5.4(c), entering
into an agreement with respect to a Superior Acquisition Proposal after receipt
by Buyer of the notices required under Section 5.4(c).
(b) The Board of Directors shall not, except in compliance with the
requirements of this Section 5.4: (i) withdraw or modify, or propose to withdraw
or modify, in a manner adverse to Buyer, the Board of Directors' approval or
recommendation and support of this Agreement and the transactions contemplated
hereby, (ii) approve or recommend, or propose to approve or recommend, any
Acquisition Proposal, (iii) enter into any agreement with respect to any
Acquisition Proposal, or (iv) terminate this Agreement, unless the Seller
receives an unsolicited, written, bona fide Acquisition Proposal that is not
subject to any material contingency relating to financing, and the Board of
Directors determines in good faith (following consultation with both financial
advisors and counsel selected by the Seller with the prior written consent of
Buyer, provided that such consent shall not be unreasonably withheld), that in
order to comply with its fiduciary duties to the Shareholders under applicable
law, it is necessary for the Board of Directors to withdraw or modify its
approval or recommendation of this Agreement and the transactions contemplated
hereby, approve or recommend such Acquisition Proposal, enter into an agreement
with respect to such Acquisition Proposal, or terminate this Agreement. Nothing
contained in this Section 5.4 shall prohibit the Seller from taking and
disclosing to the Shareholders a position contemplated by Rule 14d-9 or Rule
14e-2 promulgated under the Exchange Act or from making any disclosure to the
Shareholders, which, in the good faith judgment of the Board of Directors (based
on the advice of counsel) is required under applicable law.
(c) The Seller shall notify Buyer orally (within one Business Day) and in
writing (as promptly as practicable) of all of the relevant details relating to
all inquiries beyond preliminary inquires and all proposals of substance which
it or any of its Subsidiaries or of any Employee, investment banker, financial
advisor, attorney, accountant or other representative of the Seller or any
Subsidiary, to the extent of the Seller's knowledge of any such inquiry or
proposal, may receive relating to any Acquisition Proposal and if such
Acquisition Proposal is in writing, the Seller shall deliver to Buyer a copy of
such inquiry or proposal (within one Business Day after the receipt of any such
inquiry or proposal). The Seller may terminate this Agreement at any time after
the third Business Day following notice to Buyer (a "Notice of Superior
Acquisition Proposal") advising Buyer that the Board of Directors has received a
Superior Acquisition Proposal and specifying the structure and material terms of
such Superior Acquisition Proposal, but only if a proposal continues to be a
Superior Acquisition Proposal in light of any changes that Buyer proposes in the
transactions contemplated hereby prior to the end of that three Business Day
period.
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Section 5.5 NOTIFICATION OF CERTAIN MATTERS. Each of Buyer and the Seller
shall notify the other party in writing of its discovery of any matter that
would render any of such party's or the other party's representations and
warranties contained herein untrue or incorrect in any material respect, but the
failure of either party to so notify the other party of the inaccuracy of that
other party's representations and warranties does not constitute a breach of
this Agreement.
Section 5.6 PROVISION OF CERTAIN DOCUMENTS. The Seller shall, upon
reasonable request by Buyer, deliver true and complete copies of any documents
related to the Seller or any of its Subsidiaries that are reasonably requested
by Buyer to Buyer within five Business Days after the date of such request.
Section 5.7 REGISTRATION RIGHTS AGREEMENT. The Seller and Buyer agree to
enter into the Registration Rights Agreement at the Closing. If any of the
individuals listed in Section 6.2(e) are beneficial owners of restricted Common
Shares, such shares will be included in any registration statement effected
pursuant to the Registration Rights Agreement if not then registered on a
registration statement on Form S-8.
Section 5.8 SERVICE AGREEMENT. The Seller and its Subsidiaries, as
applicable, and Buyer agree to enter into the Service Agreement at the Closing.
Section 5.9 AGREEMENT WITH WILLIAM ROCKE. At the Closing, the Seller shall
deliver to Buyer an agreement between William Rocke and the Seller in
substantially the same form as the agreement attached hereto as Exhibit D.
Section 5.10 AGREEMENT WITH JEAN RYBERG. At the Closing, the Seller shall
deliver to Buyer an agreement between Jean Ryberg and the Seller in
substantially the same form as the agreement attached hereto as Exhibit E.
ARTICLE 6
CERTAIN ADDITIONAL COVENANTS
Section 6.1 RESALE. Buyer acknowledges and agrees that the Purchased Shares
will not, as of the Closing Date, be registered under the Securities Act or the
Blue Sky Laws of any state and that they may be sold or otherwise disposed of
only in one or more transactions registered under the Securities Act and, where
applicable, such Blue Sky Laws or as to which an exemption from the registration
requirements of the Securities Act and, where applicable, such Blue Sky Laws is
available.
Section 6.2 BOARD REPRESENTATION; VISITATION RIGHTS; VOTING AGREEMENTS.
(a) Immediately upon the Closing, the Seller shall take such actions as are
necessary to cause the Board of Directors to consist of a majority of nominees
named by Buyer.
(b) At any meeting of the Shareholders thereafter held to elect Directors,
Buyer shall be entitled to nominate such number of Directors as determined in
accordance with this Section 6.2(b). For purposes of this Section 6.3(b), any
determination of the percentage of Common Shares held by Buyer shall be
determined as if the Shares held by Buyer had been converted into Common Shares,
both for purposes of determining the number of issued and outstanding Common
Shares and for determining Buyer's ownership of such Shares. So long as
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Buyer holds a number of Common Shares that is greater than a simple majority of
the Common Shares then issued and outstanding, Buyer shall be entitled to
nominate at least a simple majority of the candidates for the Board of
Directors. The Seller shall cause such nominees to be included in the slate of
nominees recommended by the Board of Directors to the Shareholders for election
as Directors, and the Seller shall use its reasonable best efforts to cause the
election of such nominees.
(c) If any nominee of Buyer shall cease to serve as a Director for any
reason, other than by reason of Buyer not being entitled to nominate a nominee
as provided in Section 6.2(b), the Seller shall use its reasonable best efforts
to cause the vacancy resulting thereby to be filled by a nominee of Buyer,
including by taking the actions specified in the last sentence of Section
6.2(b).
(d) If the Board of Directors of the Seller establishes committees from
time to time, to the extent not precluded by the AMEX or other applicable rules
and regulations, the nominees of Buyer shall have the right to serve on each
such committee in the same ratio (as closely as practicable) as such nominees
represent of the entire Board of Directors.
(e) On or before the date hereof, the Seller shall have
delivered to Buyer Insider Support Agreements, each in the substantially the
same form attached hereto as Exhibit F, duly executed by each of George M. Hill,
Francis J. LaPallo, Wendy J. Harrison, Louis T. Mastos, Eva B. Mastos, James S.
Rocke, William J. Rocke, Garnet Rocke, Jean E. Ryberg, Merlin J. Schuman, Donna
J. Schuman, William W. Strawthers, Jr., Marjorie A. Strawthers and R. Scott
Younker, or the entities, individuals or accounts represented by such entities
or individuals.
Section 6.3 LISTING. The Seller shall apply for listing of the Common
Shares issuable upon the conversion of the Shares purchased by Buyer pursuant to
this Agreement to be approved for listing on the AMEX (subject to official
notice of issuance) prior to the Closing Date.
Section 6.4 DISINTERESTED DIRECTORS. Buyer and its Affiliates will not
engage in any Material Transaction with the Seller without the prior approval of
a majority of the Directors, excluding the representatives of Buyer serving as
Directors (the Directors other than those representatives of Buyer, the
"Disinterested Directors"). Buyer and the Seller agree that the approval of such
transaction or any agreement providing therefor by a majority of the
Disinterested Directors shall, subject to applicable law, satisfy the
requirements of any provision of this Agreement requiring the approval of a
majority of the Directors if the transaction requiring such approval would
constitute a Material Transaction.
Section 6.5 TENDER OFFER; DISTRIBUTION. (a) The Seller agrees that prior to
the Closing, the Seller, at its sole cost and expense, shall take all action,
make all necessary registrations and filings and prepare all materials (the
"Tender Offer Materials") required in connection with making a tender offer (the
"Tender Offer") to the Shareholders, pursuant to which the Seller shall offer to
purchase up to 1,000,000 Common Shares at a price of $2.90 per Common Share and
shall make such Tender Offer as soon as reasonably practicable after the
Closing. The Seller shall deliver the Tender Offer Materials to Buyer for its
review and comment not less than five Business Days prior to filing the Tender
Offer Materials with the SEC and not less than two Business Days prior to
distributing the Tender Offer Materials to the Shareholders. All Common Shares
tendered as part of the Tender Offer shall be held by US Stock Transfer Corp. or
such other entity as the Seller may designate prior to making the Tender Offer,
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as depositary (the "Depositary"), until all conditions to the Tender Offer have
been satisfied or waived. If the conditions to the Tender Offer have not been
satisfied or waived as of the Initial Tender Expiration Date, as the same may be
extended under Section 6.5(d), then Common Shares tendered to the Depositary
shall be returned by the Depositary to the Shareholders that tendered such
Common Shares. If more than 1,000,000 Common Shares are tendered, the number
purchased will be prorated among those Shareholders who have tendered Common
Shares.
(b) The Tender Offer shall be conditioned upon the closing of the share
purchase contemplated by this Agreement.
(c) All initial filings required under the Securities Laws in connection
with the Tender Offer shall be made no later than 10 Business Days after the
date of Shareholder approval of the transactions contemplated by this Agreement.
The Seller shall use commercially reasonable efforts to commence the Tender
Offer no later than 10 Business Days following the Closing, and, thereafter,
shall use commercially reasonable efforts to complete the Tender Offer on the
terms and subject to the conditions set forth herein and in the Tender Offer
Materials. The Tender Offer shall initially expire no later than 45 calendar
days after the commencement of the Tender Offer (the "Initial Tender Expiration
Date"). The timeframes set forth in this Section 6.5(c) and in Section 6.5(d)
hereof may be changed by mutual agreement of Buyer and the Seller.
(d) In the sole discretion of the Seller, if less than 500,000 Common
Shares have been tendered on or prior to the Initial Tender Expiration Date, the
Seller may extend the Tender Offer for a period of up to 30 calendar days from
the Initial Tender Expiration Date (the "Extension Period"). During the
Extension Period, all Common Shares previously tendered and not accepted for
payment will remain subject to the Tender Offer. Subject to the terms and
conditions of the Tender Offer, all Common Shares previously tendered and not
accepted for payment: (i) may be accepted for payment by the Seller (or its
designee), in its sole and absolute discretion, at any time during the Extension
Period, and (ii) shall be accepted for payment by the Seller (or its designee)
at such time during the Extension Period as (A) more than 250,000 Common Shares
have been validly tendered and (B) Buyer shall have demanded, in writing, that
the Seller accept such Common Shares for payment (each, a "Share Purchase").
(e) The Seller shall declare and pay a distribution in the amount of $1.60
per Common Share on each Common Share not tendered in the Tender Offer or not
accepted by the Seller if tendered in the Tender Offer, within 60 days after the
final expiration of the Tender Offer. Buyer shall not convert any of the Shares
into Common Shares prior to the earlier of: the record date for the payment of
the distribution described in this paragraph, or the date that is 180 days from
the date of this Agreement. Buyer shall not tender any Shares or Common Shares
in the Tender Offer.
(f) Buyer at its cost shall cooperate with the Seller in connection with
the Seller's obligations under this Section, including, without limitation, by
providing information to the Seller relating to Buyer for inclusion in the
Tender Offer materials to be delivered to the Shareholders.
Section 6.6 LEGENDS; STOP-TRANSFER ORDERS. (a) The certificates for the
Purchased Shares will bear legends in substantially the following form:
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THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES ACT AND ARE
"RESTRICTED SECURITIES" WITHIN THE MEANING OF SUCH ACTS. THE SHARES MAY NOT
BE SOLD, TRANSFERRED, HYPOTHECATED OR OTHERWISE DISTRIBUTED IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION UNDER SUCH ACTS OR THE RECEIPT OF AN OPINION
OF REPUTABLE SECURITIES COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED.
THE CORPORATION WILL FURNISH TO ANY SHAREHOLDER, UPON REQUEST AND WITHOUT
CHARGE, A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND
RELATIVE RIGHTS OF THE SHARES OF EACH CLASS AUTHORIZED TO BE ISSUED.
(b) The certificates for the Purchased Shares may also bear any legend
required by any applicable Blue Sky Laws.
(c) The Seller may impose appropriate stop-transfer instructions relating
to the restrictions set forth herein.
Section 6.7 ACCESS TO INFORMATION. From the date of this Agreement, until
the Closing, the Seller shall provide Buyer and its representatives, with such
financial and other information regarding the Seller's or any of its
Subsidiaries' business, operations, properties and financial statements as Buyer
or its representatives shall reasonably request and shall provide Buyer or its
representatives access to all of the properties, assets, books, records, tax
returns, contracts and personnel during the normal business hours of the Seller
and its Subsidiaries.
ARTICLE 7
CLOSING DELIVERIES
Section 7.1 SELLER CLOSING DELIVERIES. At the Closing, the Seller shall
deliver, or cause to be delivered, to Buyer each of the following:
(a) certificates representing the Shares, bearing the legends described in
Section 6.6, free and clear of all Liens (other than Liens created as a result
of actions of Buyer), duly issued in the name of Buyer or its designee, with all
necessary stock powers, share transfer and other documentary stamps attached;
(b) the certificates, dated the Closing Date and validly executed on behalf
of the Seller, required by each of Sections 8.1(a), (d), (f) and (h);
(c) resolutions of the Board of Directors, certified by the Secretary of
the Seller, authorizing the execution and delivery of this Agreement, the
Registration Rights Agreement, the Service Agreement and the transactions
contemplated hereby and thereby, including the creation of the Shares, the
issuance and sale to Buyer of the Shares and the issuance of the Common Shares
issuable upon the conversion of the Shares;
(d) the legal opinion of the Seller's counsel required by Section 8.1(g);
(e) evidence or copies of any consents, approvals, orders, qualifications
or waivers required by Section 8.1;
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(f) the Registration Rights Agreement and the Service Agreement, each duly
executed on behalf of the Seller and its Subsidiaries, as applicable;
(g) (i) the agreement contemplated by Section 5.9 between William Rocke and
the Seller duly executed on behalf of the Seller and Mr. Rocke, and (ii) the
agreement contemplated by Section 5.10 between Jean Ryberg and the Seller duly
executed on behalf of the Seller and Ms. Ryberg ;
(h) supplemental listing application executed by the Seller and the AMEX
authorizing the listing of the Common Shares issuable upon conversion of the
Shares (subject to official notice of issuance);
(i) the Insider Support Agreements duly executed on behalf of each party
thereto;
(j) the articles of incorporation or similar organizational documents of
the Seller and each of its Subsidiaries, each certified as of a recent date by a
duly authorized official of the Arizona Corporation Commission or a duly
authorized official of the jurisdiction of its incorporation or organization,
and the by-laws or similar organizational documents of the Seller and each of
its Subsidiaries, each certified as of a recent date by the Secretary or similar
officer of the Seller or the Subsidiary;
(k) certificates of a duly authorized official of the Arizona Corporation
Commission or a duly authorized official of the jurisdiction of its
organization, dated as of a recent date, as to the good standing of the Seller
and each of its Subsidiaries in Arizona or the jurisdiction of its organization
or incorporation;
(l) if not previously delivered to Buyer, all other certificates and
instruments and documents required pursuant this Agreement to be delivered by
the Seller to Buyer at or prior to the Closing; and
(m) such other instruments reasonably requested by Buyer as may be
necessary or appropriate to confirm or carry out the provisions of this
Agreement.
Section 7.2 BUYER CLOSING DELIVERIES. At the Closing, Buyer shall deliver,
or cause to be delivered, to the Seller the following:
(a) the Purchase Price in immediately available funds;
(b) the certificate, dated the Closing Date and validly executed on behalf
of Buyer, required by Section 8.2(a);
(c) the legal opinion of Buyer's counsel required by Section 8.2(e);
(d) the Registration Rights Agreement and the Service Agreement, each duly
executed on behalf of Buyer;
(e) the articles of incorporation and code of regulations of Buyer, each
certified as of a recent date by the Secretary of State of the State of Ohio and
the Secretary of Buyer, respectively;
(f) a certificate of the Secretary of State of the State of Ohio dated as
of a recent date as to the good standing of Buyer in Ohio;
(g) if not previously delivered to the Seller, all other certificates,
documents, instruments and writings required pursuant to this Agreement to be
delivered by or on behalf of Buyer at or before the Closing; and
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(h) such other instruments reasonably requested by the Seller as may be
necessary or appropriate to confirm or carry out the provisions of this
Agreement.
ARTICLE 8
CONDITIONS TO CLOSING
Section 8.1 CONDITIONS TO PURCHASE AT CLOSING. The obligations of Buyer to
purchase and pay for the Shares at the Closing are subject to the satisfaction
or waiver of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties of the Seller contained herein that are not qualified as to
materiality shall have been true and correct in all material respects on and as
of the date hereof, and shall be true and correct in all material respects on
and as of the Closing Date with the same effect as though such representations
and warranties had been made on and as of the Closing Date, and the
representations and warranties already qualified with respect to materiality
shall have been true and correct in all respects at each such date without
regard to the materiality qualification contained in this Section 8.1(a). The
covenants and agreements of the Seller to be performed on or before the Closing
Date in accordance with this Agreement shall have been duly performed in all
material respects. The Seller shall have delivered to Buyer at the Closing a
certificate of an appropriate officer in form and substance satisfactory to
Buyer dated the Closing Date to such effect.
(b) NO MATERIAL ADVERSE CHANGE. Since June 30, 1998, there shall not have
been any change, circumstance or event which has had or could reasonably be
expected to have a Material Adverse Effect.
(c) NO LIMITATION. There is (i) no Action, suit, investigation or
proceeding instituted (x) by any Government Authority or any Person which seeks
to prevent the consummation of the transactions contemplated hereby or (y) which
is reasonably likely to result in material damages to Buyer or the Seller in
connection with the transactions contemplated hereby, which, in either case,
continues to be outstanding and (ii) no injunction or restraining order
(temporary or permanent) in effect to stay, prevent or delay the consummation of
the transactions provided for herein, which continues to be outstanding.
(d) SHAREHOLDER APPROVAL. The Shareholders shall have approved this
Agreement and the transactions contemplated hereby by the requisite vote,
including the issuance and sale to Buyer of the Shares and the issuance of the
Common Shares issuable upon the conversion of such Shares. The Seller shall have
delivered to Buyer at the Closing a certificate of the Secretary of the Seller
in form and substance satisfactory to Buyer dated the Closing Date to such
effect.
(e) PROCEEDINGS. All corporate and other proceedings to be taken by the
Seller in connection with the transactions contemplated by this Agreement and
all documents incident thereto shall be reasonably satisfactory to Buyer and
Buyer shall have received all such counterpart originals or other copies of such
documents as it has reasonably requested.
(f) DIRECTORS. At the Closing, Buyer shall have nominated a majority of the
Directors and such nominees shall have been appointed to the Board of Directors.
The Seller shall have delivered to Buyer at the Closing a certificate of the
Secretary of the Seller in form and substance satisfactory to Buyer dated the
Closing Date to such effect.
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(g) OPINION OF COUNSEL. Buyer shall have received a legal opinion from
O'Connor, Cavanagh, Anderson, Killingsworth and Beshears, counsel to the Seller,
dated the Closing Date concerning, the Seller's organization, authority,
capitalization, SEC filings (excluding financial and statistical data contained
therein), contractual relationships, compliance with law, and confirming that
the Shares issued pursuant to this Agreement are, and the Common Shares issuable
upon conversion of the Shares when issued will be, validly issued, fully paid
and nonassessable, and such other legal matters within the scope of the Report
of the State Bar of Arizona, Corporate, Banking and Business Law Section
Subcommittee on Rendering Legal Opinions in Business Transactions, dated
February 1, 1989 (the "Arizona Bar Opinion Report"), as Buyer may request, in
form and substance reasonably satisfactory to Buyer.
(h) RESERVATION OF COMMON SHARES. The Seller shall have reserved 5,258,513
Common Shares for issuance upon the conversion of the Shares. The Seller shall
have delivered to Buyer at the Closing a certificate of the Secretary of the
Seller in form and substance satisfactory to Buyer dated the Closing Date to
such effect.
Section 8.2 CONDITIONS OF SALE AT CLOSING. The obligation of the Seller to
sell the Purchased Shares at the Closing is subject to the satisfaction or
waiver of each of the following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES; COVENANTS. The representations and
warranties of Buyer contained herein that are not qualified as to materiality
shall have been true and correct in all material respects on and as of the date
hereof, and shall be true and correct in all material respects on and as of the
Closing Date with the same effect as though such representations and warranties
had been made on and as of the Closing Date, and the representations and
warranties already qualified with respect to materiality shall have been true
and correct in all respects at each such date without regard to the materiality
qualification contained in this Section 8.2(a). The covenants and agreements of
Buyer to be performed on or before the Closing Date in accordance with this
Agreement shall have been duly performed in all material respects. Buyer shall
have delivered to the Seller at the Closing a certificate of an appropriate
officer in form and substance reasonably satisfactory to the Seller dated the
Closing Date to such effect.
(b) NO LIMITATION. There is (i) no Action, suit, investigation or
proceeding instituted (x) by any Government Authority or any Person which seeks
to prevent the consummation of the transactions contemplated hereby or (y) which
is reasonably likely to result in material damages to Buyer or the Seller in
connection with the transactions contemplated hereby, which, in either case,
continues to be outstanding and (ii) no injunction or restraining order
(temporary or permanent) in effect to stay, prevent or delay the consummation of
the transactions provided for herein, which continues to be outstanding.
(c) SHAREHOLDER APPROVAL. The Shareholders shall have approved this
Agreement and the transactions contemplated hereby by the requisite vote,
including the issuance and sale to Buyer of the Shares and the issuance of the
Common Shares issuable upon the conversion of such Shares.
(d) PROCEEDINGS. All corporate and other proceedings to be taken by Buyer
in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to the Seller and the Seller shall have received all such counterpart
originals or certified or other copies of such documents as they may reasonably
request.
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(e) OPINION OF COUNSEL. The Seller shall have received a legal opinion from
Baker & Hostetler LLP, counsel to Buyer, dated the Closing Date, concerning,
Buyer's organization, capitalization and authority, and such other legal matters
within the scope of the the Arizona Bar Opinion Report, as the Seller may
request, in form and substance reasonably satisfactory to the Seller.
ARTICLE 9
SURVIVAL; INDEMNIFICATION
Section 9.1 SURVIVAL. Subject to the limitations set forth in this Article
9 and notwithstanding any investigation conducted at any time by or on behalf of
Buyer or the Seller, all representations, warranties, covenants and agreements
of Buyer or the Seller (as applicable) in this Agreement and in any Schedule or
Exhibit hereto, or any certificate, document or other instrument delivered in
connection herewith ("Additional Documents"), shall survive the execution,
delivery and performance of this Agreement and shall be deemed to have been made
again by Buyer or the Seller (as applicable) at and as of the Closing. All
statements contained in any Exhibit, Schedule or Additional Document shall be
deemed representations and warranties of Buyer or the Seller (as applicable) set
forth in this Agreement within the meaning of this Article 9. Without
duplication of Loss and Expense (as hereinafter defined), Buyer or the Seller,
as the case may be, shall be deemed to have suffered Loss and Expense arising
out of or resulting from the matters referred to herein if the same shall be
suffered by any parent, subsidiary or affiliate of Buyer or the Seller.
Section 9.2 INDEMNIFICATION BY BUYER OR THE SELLER. (a) Subject to Section
9.4, from and after the Closing Date, Buyer shall indemnify, defend and hold
harmless the Seller, its successors and assigns, from and against any and all
damages, claims, losses, expenses, costs, obligations and Liabilities, including
Liabilities for all reasonable attorneys' fees and expenses (including attorney
and expert fees and expenses incurred to enforce the terms of this Agreement)
(collectively, "Loss and Expense"), suffered, directly or indirectly, by the
Seller by reason of, or arising out of, (i) any breach of any representation or
warranty made by Buyer in or pursuant to this Agreement, or (ii) any failure by
Buyer to perform or fulfill any of its covenants or agreements set forth herein.
(b) Subject to Section 9.4, from and after the Closing Date, the Seller
shall indemnify, defend and hold harmless Buyer, its successors and assigns,
from and against any and all Loss and Expense, suffered, directly or indirectly,
by Buyer by reason of, or arising out of, (i) any breach of any representation
or warranty made by the Seller in or pursuant to this Agreement, (ii) any
failure by the Seller to perform or fulfill any of its covenants or agreements
set forth herein, (iii) any Liabilities of the Seller or any of its Subsidiaries
arising out of any matter or event prior to the Closing Date that are not fully
reflected in the June 30, 1998 financial statements in the Seller Reports,
except for Liabilities incurred in the ordinary course of business after that
date which are fully reflected in the books and records of the Seller or its
Subsidiaries.
Section 9.3 THIRD-PARTY CLAIMS. If a claim by a third party is made against
a party and if such party intends to seek indemnity with respect thereto under
this Article, such party (the "Indemnified Party") shall promptly notify the
party required to provide such indemnity (the "Indemnifying Party") in writing
of such claim setting forth such claim in reasonable detail. The Indemnifying
Party shall have 10 days after receipt of such notice to undertake, through
counsel of its own choosing and at its own expense, the settlement or defense
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thereof, and the Indemnified Party shall cooperate with it in connection
therewith, but the Indemnified Party may participate in such settlement or
defense through counsel chosen by such Indemnified Party, so long as the fees
and expenses of such counsel are borne by that Indemnified Party. The
Indemnified Party shall not pay or settle any claim which the Indemnifying Party
is diligently contesting, as herein required, without the prior written consent
of the Indemnifying Party. Notwithstanding the foregoing, the Indemnified Party
shall have the right to pay or settle any such claim without such consent, but
in such event it shall waive any right to indemnity therefor by the Indemnifying
Party. However, if the Indemnifying Party does not notify the Indemnified Party
within 10 days after the receipt of the Indemnified Party's notice of a claim
for indemnity hereunder that it elects to undertake the defense thereof or if
the Indemnifying Party fails to undertake or diligently pursue the defense, the
Indemnified Party shall have the right to contest or compromise and may settle
or pay the claim and no such contesting, compromise, settlement or payment will
constitute a waiver of any right to indemnity therefor pursuant to this
Agreement.
Section 9.4 LIMITATIONS ON INDEMNIFICATION; SURVIVAL. Rights
to indemnification under this Agreement are subject to the following
limitations:
(a) Neither party shall be entitled to indemnification hereunder with
respect to any Loss and Expense (or if more than one claim for indemnification
is asserted, with respect to all such Loss and Expense), until the cumulative
aggregate amount of all Loss and Expense incurred by such party with respect to
such claim or claims exceeds $200,000 (the "Indemnity Threshold"), in which case
the Indemnifying Party shall then be liable for the full amount of all such Loss
and Expense, without regard to the Indemnity Threshold.
(b) The obligation of indemnity provided for in this Agreement with respect
to the representations and warranties set forth in Sections 3.2, 3.3 and 3.11
has no expiration or termination date.
(c) The obligation of indemnity provided for with respect to the
representations and warranties contained in Sections 3.8, 3.12 and 3.13 shall
terminate 31 days after the expiration of the statute of limitation applicable
to each such representation and warranty, but the obligation of indemnity
described in this Section 9.4(c) shall continue after that termination date
until such claim is resolved if the Indemnified Party provided notice of such
claim to the Indemnifying Party prior to that termination date.
(d) Except as otherwise provided in Sections 9.4(b) and (c), the obligation
of indemnity provided for in this Agreement resulting with respect to the
representations and warranties contained in this Agreement shall terminate 24
months after the Closing Date, but the obligation of indemnity described in this
Section 9.4(d) shall continue after that termination date until such claim is
resolved if the Indemnified Party provided notice of such claim to the
Indemnifying Party prior to that termination date.
(e) Except with respect to third-party claims being defended in good faith
or claims for indemnification with respect to which there exists a good faith
dispute, the Indemnifying Party shall satisfy its obligations hereunder within
30 days of receipt of a notice of claim under this Article 9.
(f) All Loss and Expense shall be computed net of any tax benefit actually
received by the Indemnified Party with respect thereto; provided, however, that
in all cases, the timing of the realization of such tax benefit by the
Indemnified Party shall be taken into account
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in determining the amount of such reduction of Loss and Expense. The aggregate
liability of either Buyer or the Seller, as applicable, under this Article 9,
shall not exceed $1,400,000.
(g) The indemnification provisions of this Article 9 shall be the sole
monetary remedy available to each of the Buyer and the Seller. Equitable
remedies shall remain available to each of Buyer and the Seller, provided that
no unjust enrichment results from the enforcement of such remedies.
ARTICLE 10
TERMINATION
Section 10.1 TERMINATION. This Agreement and the transactions contemplated
hereby may be terminated at any time prior to the Closing either by the
operation of the last sentence of Section 2.2 or by:
(a) the written consent of each of the Seller and Buyer;
(b) Buyer (if it is not in breach of any of its obligations hereunder) in
the event of a breach by the Seller of any representation, warranty, covenant or
agreement by the Seller contained in this Agreement, which has not been, or
cannot be, cured within 30 days after written notice of such breach is given to
the Seller;
(c) the Seller (if it is not in breach of any of its obligations hereunder)
in the event of a breach by Buyer of any representation, warranty, covenant or
agreement by Buyer contained in this Agreement which has not been, or cannot be,
cured within 30 days after written notice of such breach is given to Buyer;
(d) the Seller, if terminated in accordance with Section 5.4, so long as
the Seller shall have paid any amounts required under this Agreement;
(e) Buyer, if on or prior to the date 240 days after the date of this
Agreement, the Closing shall not have occurred, unless the failure of such
occurrence has been caused by the failure of Buyer to perform or observe any
covenant or agreement set forth herein required to be performed or observed by
Buyer;
(f) Buyer, if the Board of Directors shall have withdrawn, modified or
failed to make or refrained from making its recommendation that the Shareholders
approve the issuance of the Purchased Shares pursuant to this Agreement as
provided for in Section 3.2(b) and Section 5.1(b), or if the Board of Directors
at any time refuses to reaffirm, at Buyer's request, such recommendation and its
determination to make such recommendation to the Shareholders; or
(g) Buyer or the Seller if the Shareholders fail to approve the transaction
contemplated hereby by the requisite vote.
Section 10.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of
termination of this Agreement by the Seller or Buyer pursuant to Section 10.1,
written notice thereof shall forthwith be given by the terminating party to the
other party hereto, and this Agreement shall thereupon be and become void and
have no effect, and the transactions contemplated hereby shall be abandoned
without further action by the parties hereto, except that the provisions of
Sections 5.2 (Public Announcements), 10.3 (Expenses), 11.2 (Governing Law), and
11.4 (Notices) shall survive the termination of this Agreement, and no
termination of this Agreement shall relieve any party hereto of any liability
for any breach of this Agreement. In addition, the
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Confidentiality Agreements executed by each of the parties hereto prior to the
date hereof shall survive any termination of this Agreement in accordance with
their terms.
Section 10.3 EXPENSES. Except as otherwise set forth in this Agreement,
whether or not the purchase of any Purchased Shares is consummated, all legal
and other costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
and expenses.
ARTICLE 11
MISCELLANEOUS
Section 11.1 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party. Copies of executed counterparts
transmitted by telecopy, telefax or other electronic transmission service shall
be considered original executed counterparts for purposes of this Section,
provided receipt of copies of such counterparts is confirmed.
Section 11.2 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE THE LAWS OF THE STATE OF ARIZONA WITHOUT REFERENCE TO
THE CHOICE OF LAW PRINCIPLES THEREOF.
Section 11.3 JURISDICTION. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be brought
only in a United States District Court sitting in Phoenix, Arizona, or in the
United States District that encompasses Phoenix, Arizona, and hereby expressly
submits to the personal jurisdiction and venue of any such court of proper
jurisdiction for the purposes thereof and expressly waives any claim of improper
venue and any claim that such court is an inconvenient forum. TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW WHICH CANNOT BE WAIVED, EACH PARTY HEREBY WAIVES,
AND COVENANTS THAT IT WILL NOT ASSERT (WHETHER AS PLAINTIFF, DEFENDANT OR
OTHERWISE), ANY RIGHT TO TRIAL BY JURY IN ANY FORUM IN RESPECT OF ANY ISSUE,
CLAIM, DEMAND, ACTION, OR CAUSE OF ACTION ARISING OUT OF OR BASED UPON THIS
AGREEMENT OR THE SUBJECT MATTER HEREOF, IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING OR WHETHER IN CONTRACT OR TORT OR OTHERWISE.
Section 11.4 ENTIRE AGREEMENT. This Agreement (including the agreements
incorporated or referred to herein and prior confidentiality agreements between
the parties hereto) and the Schedules and Exhibits hereto contain the entire
agreement between the parties with respect to the subject matter hereof and
there are no agreements, understandings, representations or warranties between
the parties other than those set forth or referred to herein. This Agreement is
not intended to confer upon any Person not a party hereto (and their successors
and assigns) any rights or remedies hereunder.
Section 11.5 NOTICES. All notices and other communications hereunder shall
be sufficiently given for all purposes hereunder if in writing and delivered
personally, sent by documented overnight delivery service or, to the extent
receipt is confirmed, telecopy, telefax or other electronic transmission service
to the appropriate address or number as set forth below,
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unless and until either of such parties notifies the other in accordance with
this section of a change of address or change of telecopy number:
If to Buyer: United Financial Adjusting Company
747 Alpha Drive
Highland Heights, Ohio 44143
Attention: John M. Davies, President
Telecopy Number: (440) 442-4251
with a copy to: Baker & Hostetler LLP
3200 National City Center
1900 East 9th Street
Cleveland, Ohio 44114-3485
Attention: R. Steven Kestner
Telecopy Number: (216) 696-0740
If to the Seller: Frontier Adjusters of America, Inc.
45 East Monterey Way, Suite 202
Phoenix, Arizona 85012
Attention: William J. Rocke,
Chief Executive Officer
Telecopy Number: (602) 279-5813
with a copy to: O'Connor, Cavanagh, Anderson,
Killingsworth and Beshears
One East Cambelback Road. Suite 1100
Phoenix, Arizona 85012
Attention: Karen L. Liepmann
Telecopy Number: (602) 263-2900
Section 11.6 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns, but neither this Agreement nor any of the rights,
interests or obligations hereunder may be assigned by either of the parties
hereto without the prior written consent of the other party.
Section 11.7 AMENDMENTS AND WAIVERS. This Agreement may not be modified or
amended except by an instrument in writing signed by the party against whom
enforcement of any such modification or amendment is sought. Either party hereto
may, only by an instrument in writing, waive compliance by the other party
hereto with any term or provision hereof on the part of such other party hereto
to be performed or complied with. The waiver by any party hereto of a breach of
any term or provision hereof shall not be construed as a waiver of any
subsequent breach thereof.
Section 11.8 INTERPRETATION; ABSENCE OF PRESUMPTION. (a) For the purposes
hereof, (i) words in the singular shall be held to include the plural and VICE
VERSA and words of one gender shall be held to include the other gender as the
context requires, (ii) the terms "hereof," "herein," and "herewith" and words of
similar import shall, unless otherwise stated, be construed to refer to this
Agreement as a whole (including all of the Schedules and Exhibits hereto) and
not to any particular provision of this Agreement, and Article, Section,
paragraph,
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Exhibit and Schedule references are to the Articles, Sections, paragraphs,
Exhibits and Schedules to this Agreement unless otherwise specified, (iii) the
word "including" and words of similar import when used in this Agreement shall
mean "including, without limitation," unless otherwise specified, and (iv) the
word "or" shall not be exclusive, but shall be interpreted as "and/or."
(b) As used herein, the phrase "the transactions contemplated hereby" (or
words of similar import) shall include, but not be limited to, the conversion,
whether before or after the Tender Offer, of any or all of the Shares issued
pursuant to this Agreement into Common Shares.
(c) This Agreement will be construed without regard to any presumption or
rule requiring construction or interpretation against the party drafting or
causing any instrument to be drafted.
Section 11.9 SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted by a court of competent
jurisdiction rather than voided, if possible, in order to achieve the intent of
the parties to this Agreement to the fullest extent possible. In any event, all
other provisions of this Agreement shall be deemed valid and enforceable to the
fullest extent permitted.
Section 11.10 FURTHER ASSURANCES. The Seller and Buyer agree that, from
time to time, whether before, at or after the Closing Date, each of them will
execute and deliver such further instruments and take such other actions as may
be necessary to carry out the purposes and intents hereof.
Section 11.11 SPECIFIC PERFORMANCE. Buyer and the Seller each acknowledge
that, in view of the uniqueness of the Purchased Shares, the parties hereto
would not have an adequate remedy at law for money damages if this Agreement
were not performed in accordance with its terms, and therefore agree that the
parties hereto shall be entitled to specific enforcement of the terms hereof in
addition to any other remedy to which the parties hereto be entitled at law or
in equity.
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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each
of the parties hereto as of the date first above written.
BUYER:
UNITED FINANCIAL ADJUSTING COMPANY,
an Ohio corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
SELLER:
FRONTIER ADJUSTERS OF AMERICA, INC.,
an Arizona corporation
By:
--------------------------------------
Name:
------------------------------------
Title:
-----------------------------------
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APPENDIX B
EXHIBIT A TO STOCK PURCHASE AGREEMENT
RESOLUTION TO BE CONSIDERED BY THE BOARD OF DIRECTORS
OF FRONTIER ADJUSTERS OF AMERICA, INC.
AUTHORIZATION OF SERIES A CONVERTIBLE VOTING PREFERRED STOCK
WHEREAS, the Board of Directors of Frontier Adjusters of America, Inc.
(the "Company") has deemed it to be in the best interest of the Company and its
shareholders for the Company to establish a series of preferred stock to be
issued and sold to United Financial Adjusting Company ("UFAC") pursuant to the
authority granted to the Board of Directors in Article 4, paragraph a of the
Articles of Incorporation of the Company, as amended (the "Articles of
Incorporation") and Section 10-602 of the Arizona Business Corporation Act;
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the authority vested
in the Board of Directors by the Articles of Incorporation, a series of
preferred stock is hereby established, and the terms of the same shall be as
follows:
Section 1. NUMBER OF SHARES AND DESIGNATION. This series of preferred
stock shall be designated as Series A Convertible Voting Preferred Stock, par
value $0.01per share (the "Series A Preferred Shares") and up to 6,000,000 shall
be the number of such shares constituting such series.
Section 2. DEFINITIONS. For purposes of the Series A Preferred Shares,
the following terms shall have the meanings indicated:
"ACT" shall mean the Securities Act of 1933, as amended.
"BOARD OF DIRECTORS" shall mean the Board of Directors of the Company or
any committee authorized by the Board of Directors to perform any of its
responsibilities with respect to the Series A Preferred Shares.
"COMMON SHARES" shall mean the shares of common stock, par value $0.01
per share, of the Company.
"SERIES A PREFERRED SHARES" shall have the meaning set forth in Section
1 hereof.
"TRANSACTION" shall have the meaning set forth in paragraph (e) of
Section 5 hereof.
"TRANSFER AGENT" means US Stock Transfer Corp. or such other entity as
the Company shall designate.
Section 3. DIVIDENDS. The holders of each Series A Preferred Share shall
receive dividends and distributions in an amount equal to the amount of
dividends and distributions paid on each Common Share, when, as and if declared
by the Board of Directors; provided, however, that the holders of Series A
Preferred Shares will not be entitled to the distribution in the amount
<PAGE>
of $1.60 per Common Share to be declared and paid during the first half of 1999
to the holders of record of the Common Shares as of the applicable record date
set by the Board of Directors.
Section 4. SHARES TO BE RETIRED. All Series A Preferred Shares which
shall have been issued and reacquired in any manner by the Company shall be
restored to the status of authorized, but unissued preferred stock, without
designation as to series. The Company may also retire any unissued Series A
Preferred Shares, and such shares shall then be restored to the status of
authorized but unissued preferred stock, without designation as to series.
Section 5. CONVERSION.
Holders of Series A Preferred Shares shall have the right to convert all
or a portion of such shares into Common Shares, as follows:
(a) Subject to and upon compliance with the provisions of this Section
5, a holder of Series A Preferred Shares shall have the right, at any time after
the record date established for the distribution referenced in Section 3 and on
or before June 30, 1999, at such holder's option, to convert such shares, in
whole or in part, into fully paid and nonassessable shares of authorized but
previously unissued Common Shares on the basis of one Common Share for each
Series A Preferred Share. Any Series A Preferred Shares that have not been
converted to Common Shares on or before June 30, 1999 will automatically,
without any action on the part of the holder thereof, be converted to Common
Shares effective June 30, 1999.
(b) In order to exercise the conversion right, the holder of Series A
Preferred Shares to be converted shall surrender the certificate(s) representing
such shares, duly endorsed to the Company or in blank, at the office of the
Transfer Agent, accompanied by written notice to the Company that the holder
thereof elects to convert such Series A Preferred Shares. Unless Common Shares
issuable upon conversion are to be issued in the same name as the name in which
such Series A Preferred Shares are registered, each certificate representing
shares surrendered for conversion shall be accompanied by instruments of
transfer, in form reasonably satisfactory to the Company, duly executed by the
holder or such holder's duly authorized attorney.
(c) As promptly as practicable after the surrender of certificates for
Series A Preferred Shares as aforesaid, the Company shall issue and shall
deliver at such office to such holder, or send on such holder's written order, a
certificate or certificates for the number of Common Shares issuable upon the
conversion of such Series A Preferred Shares in accordance with the provisions
of this Section 5.
(d) Each conversion shall be deemed to have been effected immediately
prior to the close of business on the date on which the certificates for Series
A Preferred Shares shall have been surrendered and such notice delivered to the
Company at the office of the transfer agent as aforesaid, and the person or
persons in whose name or names any certificate or certificates for Common Shares
shall be issuable upon such conversion shall be deemed to have become the holder
or holders of record of the shares represented thereby at such time on such date
unless the share transfer books of the Company shall be closed on that date, in
which event such person or
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persons shall be deemed to have become such holder or holders of record at the
close of business on the next succeeding day on which such transfer books are
open.
(e) If the Company shall be a party to any transaction, including
without limitation a merger, consolidation, statutory share exchange, issuer or
self tender offer for all or a substantial portion of the Common Shares
outstanding, sale of all or substantially all of the Company's assets or
recapitalization of the Common Shares, (each of the foregoing being referred to
herein as a "Transaction"), in each case as a result of which Common Shares
shall be converted into the right to receive shares, securities or other
property (including cash or any combination thereof), each Series A Preferred
Share which is not converted into the right to receive shares, securities or
other property in connection with such Transaction shall thereupon be
convertible into the kind and amount of shares, securities and other property
(including cash or any combination thereof) receivable upon such consummation by
a holder of a Common Share. The Company shall not be a party to any Transaction
unless the terms of such Transaction are consistent with the provisions of this
paragraph (e), and it shall not consent or agree to the occurrence of any
Transaction until the Company has entered into an agreement with the successor
or purchasing entity, as the case may be, for the benefit of the holders of the
Series A Preferred Shares that will contain provisions enabling the holders of
the Series A Preferred Shares that remain outstanding after such Transaction to
convert at that time or at any time thereafter into the consideration received
by holders of Common Shares. The provisions of this paragraph (e) shall
similarly apply to successive Transactions.
(f) The Company shall at all times reserve and keep available, free from
preemptive rights, out of the aggregate of its authorized but unissued Common
Shares solely for the purpose of effecting conversion of the Series A Preferred
Shares, the full number of Common Shares deliverable upon the conversion of all
outstanding Series A Preferred Shares not theretofore converted into Common
Shares.
(g) The Company covenants that any Common Shares issued upon conversion
of the Series A Preferred Shares shall be validly issued, fully paid and
non-assessable.
(h) The Company shall use its best efforts to list the Common Shares
required to be delivered upon conversion of the Series A Preferred Shares, prior
to such delivery, upon each national securities exchange, if any, upon which the
outstanding Common Shares are listed at the time of such delivery.
(i) The Company will pay any and all documentary stamp or similar issue
or transfer taxes payable in respect of the issue or delivery of Common Shares
or other securities or property on conversion of Series A Preferred Shares
pursuant hereto; PROVIDED, HOWEVER, that the Company shall not be required to
pay any tax that may be payable in respect of any transfer involved in the issue
or delivery of Common Shares or other securities or property in a name other
than that of the holder of the Series A Preferred Shares to be converted, and no
such issue or delivery shall be made unless and until the person requesting such
issue or delivery has paid to the Company the amount of any such tax or
established, to the reasonable satisfaction of the Company, that such tax has
been paid.
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(j) If the Company issues additional Common Shares by way of a stock
split, stock dividend or other distribution to the holders of the Common Shares,
then the holders of the Series A Preferred Shares, at the time of conversion, in
addition to the Common Shares issued upon conversion, will be entitled to
receive in connection with such stock split, stock dividend or other
distribution the number of Common Shares that would be issued to them had such
holders converted the Series A Preferred Shares to Common Shares immediately
prior to the record date established for such stock split, stock dividend or
other distribution of Common Shares.
Section 6. RANKING. The Series A Preferred Shares shall be deemed to
rank on parity with the Common Shares as to the payment of dividends and as to
distribution of assets upon liquidation, dissolution or winding up of the
Company.
Section 7. VOTING.
Except as otherwise required by law, each outstanding Series A Preferred
Share shall entitle the holder thereof to one vote on each matter properly
submitted to the Company's stockholders for their vote, consent, waiver, release
or other action, including, without limitation, the election of members of the
Board of Directors and all other matters submitted to the holders of Common
Shares, and shall vote with the holders of Common Shares, acting as a single
class.
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APPENDIX C
EXHIBIT B TO STOCK PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This Agreement is made pursuant to Section 5.7 of the Stock Purchase
Agreement dated as of November ___, 1998 (the "Stock Purchase Agreement"),
between Frontier Adjusters of America, Inc. ("Frontier") and United Financial
Adjusting Company ("UFAC"). Pursuant to the Stock Purchase Agreement, UFAC will
purchase an aggregate of 5,258,513 shares of Frontier's Series A Convertible
Voting Preferred Stock, $.01 par value per share (the "Preferred Shares"). The
Preferred Shares will be convertible into shares of common stock, par value $.01
per share, of Frontier (the "Common Stock"). In order to induce Purchaser to
consummate the transactions contemplated by the Stock Purchase Agreement, and in
further consideration therefor, Frontier has agreed to execute and deliver this
Agreement and provide the registration rights set forth in this Agreement.
Accordingly, it is hereby agreed as follows:
1. DEFINITIONS. Capitalized terms used but not otherwise defined herein shall
have the meanings assigned to such terms in the Stock Purchase Agreement. For
purposes of this Agreement, the following terms shall have the following
meanings:
"EFFECTIVE PERIOD" shall mean, for purposes of this Agreement, a period
commencing on the date of this Agreement and ending on the date as of which all
Registrable Securities cease to be Registrable Securities.
"REGISTRABLE SECURITIES" means collectively, (i) the Preferred Shares, (ii)
the shares of Common Stock issued upon conversion of the Preferred Shares
purchased by UFAC pursuant to the Stock Purchase Agreement (the "Shares") and
(iii) any securities issued or distributed in respect of any Preferred Shares or
Shares by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, reorganization, merger, consolidation
or otherwise.
"REGISTRATION EXPENSES" shall mean any and all expenses incident to
performance of or compliance with this Agreement, including, without limitation,
(i) all SEC and securities exchange registration and filing fees, (ii) all fees
and expenses of complying with state securities or blue sky laws (including fees
and disbursements of counsel for the underwriters in connection with blue sky
qualifications of the Registrable Securities), (iii) all printing, messenger and
delivery expenses, (iv) all fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange pursuant to
paragraph 5(h), (v) the fees and disbursements of counsel for Frontier and of
its independent public accountants, including the expenses of any incident to
such performance and compliance, and (vi) any fees and disbursements of
underwriters customarily paid by the issuers or sellers of securities, and the
reasonable fees and expenses of any special experts retained in connection with
the requested registration, but excluding underwriting discounts and commissions
and transfer taxes, if any.
<PAGE>
"RELATED SECURITIES" means any securities of Frontier similar or identical
to any of the Registrable Securities, including, without limitation, Common
Stock and all options, warrants and other securities convertible into, or
exchangeable or exercisable for, Common Stock.
2. SECURITIES SUBJECT TO THIS AGREEMENT. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act (as defined below) and they have been
disposed of pursuant to such effective registration statement, (ii) they are
distributed to the public pursuant to Rule 144 (or any similar provision then in
force) under the Securities Act of 1933, as amended (the "Securities Act"),
(iii) they shall have been otherwise transferred, new certificates for them not
bearing a legend restricting further transfer shall have been delivered by
Frontier and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any state securities or blue
sky law then in force, or (iv) they shall have ceased to be outstanding.
3. DEMAND REGISTRATION RIGHTS.
(a) RIGHT TO DEMAND. At any time during the Effective Period, UFAC may
make a written request to Frontier for registration with the Securities and
Exchange Commission (the "SEC") under and in accordance with the provisions of
the Securities Act, and under the securities laws of the states designated by
UFAC, of all or part of its Registrable Securities. Upon receipt of each such
request, Frontier shall use its best efforts to effect such registration as
required pursuant to Section 5 hereof (a "Demand Registration"); PROVIDED,
HOWEVER, that (i) the aggregate number of Registrable Securities requested to be
so registered shall have a market value (calculated at then current market
prices) of at least $250,000 and (ii) no Demand Registration may be requested
after the end of the Effective Period and PROVIDED, FURTHER, that Frontier shall
not be obligated to file a registration statement relating to any registration
request under this Section 3, within a period of six months after the effective
date of any other registration statement relating to (A) any registration
request under this Section 3 or (B) any registration effected under Section 4.
All requests made pursuant to this paragraph 3(a) will specify the aggregate
number of Registrable Securities to be registered and will also specify the
intended methods of disposition thereof.
(b) Frontier shall be entitled to postpone the filing of any registration
statement otherwise required to be prepared and filed by Frontier pursuant to
this Section 3, for a reasonable period of time, but not in excess of 30 days,
if the board of directors of Frontier determines in its reasonable judgment and
in good faith that the registration and distribution of the Registrable
Securities would materially interfere with any pending financing, acquisition or
corporate reorganization involving Frontier or any of its subsidiaries or would
require premature disclosure thereof and promptly gives UFAC written notice of
such determination, containing a general statement of the reasons for such
postponement and an approximation of the anticipated delay. If Frontier shall so
postpone the filing of a registration statement, UFAC shall have the right to
withdraw the request for registration by giving written notice to Frontier
within 20 days after receipt of the notice of postponement (and, in the event of
such withdrawal, such request shall not be counted for purposes of determining
the number of requests for registration to which UFAC is entitled pursuant to
paragraph (c) of this Section 3).
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(c) NUMBER OF DEMAND REGISTRATIONS. UFAC shall be entitled to a maximum of
one Demand Registrations during the Effective Period. Frontier shall not be
deemed to have effected a Demand Registration unless and until such Demand
Registration is declared effective under the Securities Act. If a Demand
Registration is effected following a request from UFAC, then the individuals
named in Section 6.2(e) of the Stock Purchase Agreement shall be entitled to
register any shares of Common Stock not then covered by an effective
Registration Statement on Form S-8 in such Demand Registration.
(d) PRIORITY ON DEMAND REGISTRATIONS. If the managing underwriter or
underwriters of a Demand Registration advise Frontier in writing that in its or
their opinion the number of securities proposed to be sold in such Demand
Registration exceeds the number which can be sold in such offering, Frontier
will include in such registration only the number of securities that in the
opinion of such underwriter or underwriters can be sold.
(e) SELECTION OF UNDERWRITERS. If any offering pursuant to a Demand
Registration is an underwritten offering, Frontier will select a managing
underwriter or underwriters to administer the offering, provided such managing
underwriter or underwriters shall be reasonably satisfactory to UFAC.
4. PIGGY-BACK REGISTRATION. If at any time after the date of issuance of any
Registrable Securities and prior to the end of the Effective Period, Frontier
proposes to file a registration statement under the Securities Act with respect
to an offering by Frontier for its own account or for the account of others of
any class of equity security of Frontier (or any options, warrants or other
securities convertible into, or exchangeable or exercisable for, such equity
securities) to be offered for cash (other than in connection with the
registration of securities issuable pursuant to an employee stock option, stock
purchase or similar plan or pursuant to a merger, exchange offer or a
transaction of the type specified in Rule 145(a) under the Securities Act), then
Frontier shall in each case give written notice of such proposed filing to UFAC
at least 20 days before the filing date, and such notice shall offer UFAC the
opportunity to register such number of Registrable Securities as UFAC may
request (a " Piggy-Back Registration"). If such offer is accepted by written
notice to Frontier within 15 days of UFAC's receipt of the written notice
provided for in the preceding sentence, Frontier shall use its best efforts to
cause such Registrable Securities to be included in such offering on the same
terms and conditions as the corresponding securities of Frontier included
therein, PROVIDED that (i) if, at any time after giving written notice of its
intention to register any securities and prior to the effective date of the
registration statement filed in connection with such registration, Frontier
shall determine for any reason not to proceed with the proposed registration,
Frontier may, at its election, give written notice of such determination to UFAC
and thereupon shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), and (ii) if such
registration involves an underwritten offering by Frontier (underwritten, at
least in part, by Persons who are not Affiliates of Frontier or UFAC), subject
to the following sentence, UFAC must sell its Registrable Securities to such
underwriters who shall have been selected by Frontier on the same terms and
conditions as apply to Frontier, with such differences, including any with
respect to indemnification and contribution, as may be customary or appropriate
in combined primary and secondary offerings. If a proposed registration pursuant
to this Section 4 involves such an underwritten public offering, UFAC may elect
in writing, prior to the effective date of the
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registration statement filed in connection with such registration, to withdraw
such request and not to have its securities registered in connection with such
registration. Notwithstanding the foregoing, if the managing underwriter or
underwriters of a proposed underwritten offering advise Frontier in writing that
in their opinion the total amount or kind of securities that UFAC has requested
to be included in such offering, when added to those securities then proposed to
be offered by Frontier and any other participants in such offering, would
adversely affect the success of such offering, then the amount of securities to
be offered for the accounts of UFAC, Frontier and such other participants in the
offering shall be reduced proportionately to the extent necessary to reduce the
total amount of securities to be included in such offering to the amount
recommended by such managing underwriter or underwriters.
5. REGISTRATION PROCEDURES. If and whenever Frontier is required to use its best
efforts to effect or cause the registration of any Registrable Securities under
the Securities Act as provided in this Agreement, Frontier will, as
expeditiously as possible:
(a) prepare and file with the SEC a registration statement with respect to
such Registrable Securities on any form for which Frontier then qualifies
and which counsel for Frontier shall deem appropriate, and which form shall
be available for the sale of the Registrable Securities in accordance with
the intended methods of distribution thereof, and use its best efforts to
cause such registration statement to become and remain effective; PROVIDED,
HOWEVER, that Frontier may discontinue any registration of its securities
which is being effected pursuant to Section 3 at any time prior to the
effective date of the registration statement relating thereto;
(b) prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period
of 180 days or such lesser period of time as Frontier or UFAC may be
required under the Securities Act to deliver a prospectus in connection
with any sale of Registrable Securities, and to comply with the provisions
of the Securities Act with respect to the disposition of all securities
covered by such registration statement during such period in accordance
with the intended methods of disposition by UFAC set forth in such
registration statement; PROVIDED, that before filing a registration
statement or prospectus, or any amendments or supplements thereto, Frontier
will furnish to the UFAC and its counsel not less than two business days
prior to filing, copies of all documents proposed to be filed;
(c) furnish to UFAC such number of copies of such registration statement
and of each amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus and any prospectus
supplement (as applicable), in conformity with the requirements of the
Securities Act, and such other documents as UFAC may reasonably request in
order to facilitate the disposition of the Registrable Securities by UFAC;
(d) use its best efforts to register or qualify such Registrable Securities
covered by such registration statement under such other securities or blue
sky laws of such jurisdictions as UFAC shall reasonably request, and do any
and all
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other acts and things which may be reasonably necessary or advisable to
enable UFAC to consummate the disposition in such jurisdictions of the
Registrable Securities owned by UFAC, except that Company shall not for any
such purpose be required to qualify generally to do business as a foreign
corporation in any jurisdiction where, but for the requirements of this
paragraph 5(d), it would not be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(e) use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable UFAC to
consummate the disposition of such Registrable Securities;
(f) notify UFAC at any time when a prospectus relating thereto is required
to be delivered under the Securities Act within the appropriate period
mentioned in paragraph 5(b), of Frontier's becoming aware that the
prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing, and at the request of UFAC, prepare, file with the SEC and all
applicable state securities authorities and furnish to UFAC a reasonable
number of copies of an amended or supplemental prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
(g) otherwise use its best efforts to comply with all applicable rules and
regulations of the SEC, and make available to UFAC, as soon as reasonably
practicable (but not more than eighteen months) after the effective date of
the registration statement, an earnings statement which shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and
regulations promulgated thereunder;
(h) use its best efforts to cause all such Registrable Securities to be
listed on any securities exchange on which the Common Stock is then listed,
if such Registrable Securities are not already so listed and if such
listing is then permitted under the rules of such exchange, and to provide
a transfer agent and registrar for such Registrable Securities covered by
such registration statement no later than the effective date of such
registration statement;
(i) use its best efforts to obtain a "cold comfort" letter or letters from
Frontier's independent public accountants in customary form in a timely
manner in order to facilitate the sale of the Registrable Securities;
(j) cooperate with UFAC, the managing underwriter or underwriters, if any,
and any transfer agent to facilitate the timely preparation and delivery of
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certificates (not bearing any restrictive legends, unless required by law)
representing the securities to be sold under such registration statement,
and enable such securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if any, or UFAC may
request; and
(k) make available for inspection by UFAC, any underwriter participating in
any disposition pursuant to such registration statement, and any attorney,
accountant or other agent retained by UFAC or such underwriter
(collectively, the "Inspectors"), all financial and other records and other
information, pertinent corporate documents and properties of any of
Frontier and its subsidiaries and affiliates (collectively, the "Records"),
as shall be reasonably necessary to enable them to exercise their due
diligence responsibility; PROVIDED, HOWEVER, that the Records that Frontier
determines, in good faith, to be confidential and which it notifies the
Inspectors in writing are confidential shall not be disclosed to any
Inspector unless such Inspector signs a confidentiality agreement
reasonably satisfactory to Frontier. UFAC agrees that it will, promptly
after learning that disclosure of such Records is sought in a court having
jurisdiction, give notice to Frontier and allow Frontier, at Frontiers
expense, to undertake appropriate action to prevent disclosure of such
Records.
Frontier may require UFAC to furnish Frontier with such information
regarding UFAC and pertinent to the disclosure requirements relating to the
registration and the distribution of such securities as Frontier may from time
to time reasonably request in writing.
UFAC agrees that, upon receipt of any notice from Frontier of the happening
of any event of the kind described in paragraph 5(f), UFAC will forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until UFAC's receipt of the
copies of the supplemented or amended prospectus contemplated by paragraph 5(f),
and, if so directed by Frontier, UFAC will deliver to Frontier (at Frontier's
expense) all copies, other than permanent file copies then in UFAC's possession,
of the prospectus covering such Registrable Securities current at the time of
receipt of such notice. In the event Frontier shall give any such notice, the
period mentioned in paragraph 5(b) shall be extended by the number of days
during the period from the date of the giving of such notice pursuant to
paragraph 5(f) and through the date when each seller of Registrable Securities
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by paragraph 5(f).
6. REGISTRATION EXPENSES. Frontier will pay all Registration Expenses in
connection with the first registration of Registrable Securities pursuant to
Section 3 or 4 upon the written request of UFAC, and UFAC shall pay all
underwriting discounts and commissions and transfer taxes, if any, relating to
the sale or disposition of UFAC's Registrable Securities pursuant to a
registration statement effected pursuant to such Sections. All expenses for any
subsequent registrations of Registrable Securities pursuant to either Section 3
or 4 shall be paid PRO RATA by all Persons (including UFAC and Frontier)
participating in such registration on the basis of the relative number of shares
of Common Stock of each such Person included in such registration.
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7. INDEMNIFICATION; CONTRIBUTION.
(a) INDEMNIFICATION BY FRONTIER. Frontier agrees to indemnify UFAC, its
officers and directors and each Person who controls UFAC (within the meaning of
the Securities Act), and any agent or investment adviser thereof against all
losses, claims, damages, liabilities and expenses (including reasonable
attorneys' fees and expenses of investigation) incurred by such party pursuant
to any actual or threatened action, suit, proceeding or investigation arising
out of or based upon (i) any untrue or alleged untrue statement of material fact
contained in any registration statement, any prospectus or preliminary
prospectus, or any amendment or supplement to any of the foregoing or (ii) any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein (in the case of a
prospectus or a preliminary prospectus, in light of the circumstances then
existing) not misleading, except in each case insofar as the same arise out of
or are based upon, any such untrue statement or omission made in reliance on and
in conformity with information with respect to such indemnified party furnished
in writing to Frontier by such indemnified party or its counsel expressly for
use therein. In connection with an underwritten offering, Frontier will
indemnify the underwriters thereof, their officers and directors and each Person
who controls such underwriters (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of UFAC.
Notwithstanding the foregoing provisions of this paragraph 7(a), Frontier will
not be liable to UFAC, any Person who participates as an underwriter in the
offering or sale of Registrable Securities or any other Person, if any, who
controls UFAC or underwriter (within the meaning of the Securities Act), under
the indemnity agreement in this paragraph 7(a) with respect to any preliminary
prospectus or the final prospectus or the final prospectus as amended or
supplemented, as the case may be, to the extent that any such loss, claim,
damage or liability of UFAC, underwriter or controlling Person results from the
fact that UFAC or underwriter sold Registrable Securities to a Person to whom
there was not sent or given (or deemed to be sent or given) a copy of the final
prospectus (including any documents incorporated by reference therein) or of the
final prospectus as then amended or supplemented (including any documents
incorporated by reference therein), whichever is most recent, required to be
sent or given in accordance with any applicable law or regulation, if Frontier
has previously furnished copies thereof to UFAC or underwriter.
(b) INDEMNIFICATION BY UFAC. In connection with any registration statement
in which UFAC is participating, UFAC will furnish to Frontier in writing such
information, including with respect to the name, address and the amount of
Registrable Securities held by UFAC, as Frontier reasonably requests for use in
such registration statement or the related prospectus and agrees to indemnify
and hold harmless (in the same manner and to the same extent as set forth in
paragraph 7(a)) Frontier, any underwriter, as the case may be, and any of their
respective affiliates, directors, officers and controlling Persons, (within the
meaning of the Securities Act) against any losses, claims, damages, liabilities
and expenses resulting from any untrue or alleged untrue statement of a material
fact or any omission or alleged omission of a material fact required to be
stated in such registration statement or prospectus or any amendment or
supplement to either of them or necessary to make the statements therein (in the
case of a prospectus, in the light of the circumstances then existing) not
misleading, but only to the extent that any such untrue statement or omission is
made in reliance on and in conformity with information with respect to UFAC
furnished in writing to Frontier by UFAC or its counsel expressly for use
therein.
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(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such indemnified party of any written
notice of the commencement of any action, suit, proceeding or investigation or
threat thereof made in writing for which such indemnified party may claim
indemnification or contribution pursuant to this Agreement. In case any such
action shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate therein and, to the extent that it shall wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel satisfactory to such indemnified party (who shall not,
except with the consent of the indemnified party, be counsel to the indemnifying
party), and after notice from the indemnifying party to such indemnified party
of its decision as to whether or not to assume the defense thereof (which notice
must be given to such indemnified party within five days of the indemnifying
party's receipt of notice of commencement of any action], the indemnifying party
shall not be liable to such indemnified party under these indemnification
provisions for any legal expenses of other counsel or any other expenses, in
each case subsequently incurred by such indemnified party, in connection with
the defense thereof other than reasonable costs of investigation, unless in the
reasonable judgment of any indemnified party a conflict of interest is likely to
exist between such indemnified party and the indemnifying party or any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party shall be obligated to pay the fees and expenses of such
additional counsel or counsels. The indemnifying party will not be subject to
any liability for any settlement made without its consent (which will not be
unreasonably withheld or delayed).
(d) CONTRIBUTION. If the indemnification from the indemnifying party
provided for in this Section 7 is unavailable to an indemnified party hereunder
in respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages, liabilities and expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified party in connection with the actions which resulted in
such losses, claims, damages, liabilities and expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified party shall be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact, has
been made by, or relates to information supplied by, such indemnifying party or
indemnified party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such action. The amount paid
or payable by a party as a result of the losses, claims, damages, liabilities
and expenses referred to above shall be deemed to include, subject to the
limitations set forth in paragraph 7(c), any legal and other fees and expenses
reasonably incurred by such indemnified party in connection with any
investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this paragraph 7(d) were determined by PRO RATA
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this paragraph 7(d), no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were
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offered to the public exceeds the amount of any damages which such underwriter
has otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission, and UFAC shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities of UFAC were offered to the public (net of all
underwriting discounts and commissions) exceeds the amount of any damages which
UFAC has otherwise been required to pay by reason of such untrue statement or
omission. No Person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any Person who was not guilty of such fraudulent misrepresentation.
If indemnification is available under this Section 7, the indemnifying
parties shall indemnify each indemnified party to the full extent provided in
paragraph 7(a) or (b), as the case may be, without regard to the relative fault
of said indemnifying parties or indemnified party or any other equitable
consideration provided for in this paragraph 7(d).
(e) The provisions of this Section 7 shall be applicable in respect of each
registration pursuant to this Agreement, shall be in addition to any liability
which any party may have to any other party and shall survive any termination of
this Agreement.
8. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. UFAC may not participate in any
underwritten registration hereunder unless UFAC (a) agrees to sell UFAC's
securities on the basis provided in underwriting arrangements approved by
Frontier and UFAC and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
9. RULE 144. Frontier covenants that it will file all reports required to be
filed by it under the Securities Act and the Securities Exchange Act of 1934, as
amended, and the rules and regulations adopted by the Commission thereunder (or,
if Frontier is not required to file such reports, it will, upon the request of
UFAC, make publicly available other information so long as necessary to permit
sales under Rule 144 under the Securities Act), and it will take such further
action as UFAC may reasonably request, all to the extent required from time to
time to enable UFAC to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (a) Rule
144 under the Securities Act, as such Rule may be amended from time to time, or
(b) any similar rule or regulation hereafter adopted by the Commission. Upon the
request UFAC, Frontier will deliver to UFAC a written statement as to whether it
has complied with such requirements.
10, MISCELLANEOUS. (a) REMEDIES. UFAC, in addition to being entitled to exercise
all rights granted by law, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement.
(b) AMENDMENTS AND WAIVERS. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
without the prior written consent of both parties.
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(c) NOTICES. All Notices and other communications provided for or permitted
hereunder shall be in writing and shall be deemed to have been duly given if
delivered personally or sent by telecopier, registered or certified mail (return
receipt requested), postage prepaid, or courier guaranteeing next day delivery
to the parties at the following addresses (or at such other address for any
party as shall be specified by like notice, provided that notices of a change of
address shall be effective only upon receipt thereof). Notices delivered
personally shall be effective upon receipt, notices sent by mail shall be
effective three days after mailing, notices sent by telecopier shall be
effective when receipt is acknowledged, and notices sent by courier guaranteeing
next day delivery shall be effective on the next business day after timely
delivery to the courier:
(i) if to UFAC at: United Financial Adjusting Company
747 Alpha Drive
Highland Heights, Ohio 44143
Attention: John M. Davies, President
Telecopy Number: (440) 442-4251; and
(ii) if to Frontier at: Frontier Adjusters of America, Inc.
45 East Monterey Way, Suite 202
Phoenix, Arizona 85012
Attention: William J. Rocke,
Chief Executive Officer
Telecopy Number: (602) 279-5813
(d) ASSIGNMENT. Neither this Agreement nor any rights, interests or
obligations hereunder may be assigned by either of the parties hereto without
the prior written consent of the other party; PROVIDED, HOWEVER, that UFAC may
assign its rights, interests or obligations hereunder to any of its Affiliates.
(e) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the successors and permitted assigns of each of the parties.
(f) COUNTERPARTS. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(g) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona applicable to contracts made
and to be performed wholly within that State.
(i) SEVERABILITY. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstances, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every
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other respect and of the remaining provisions contained herein shall not be in
any way impaired thereby, it being intended that all remaining provisions
contained herein shall not be in any way impaired thereby, it being intended
that all of the rights and privileges of the Shareholders shall be enforceable
to the fullest extent permitted by law.
(j) ENTIRE AGREEMENT. This Agreement and the Stock Purchase Agreement are
intended by the parties as a final expression and a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter hereof. There are no restrictions, promises, warranties or
undertakings with respect to the subject matter hereof, other than those set
forth or referred to herein and therein. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
FRONTIER ADJUSTERS OF AMERICA, INC.
By:
---------------------------------
Name:
Title:
UNITED FINANCIAL ADJUSTING COMPANY
By:
---------------------------------
Name:
Title:
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<PAGE>
APPENDIX D
EXHIBIT C TO STOCK PURCHASE AGREEMENT
SERVICE AGREEMENT
This Service Agreement is entered into as of the ______ day of
___________, 19____ between United Financial Adjusting Company, an Ohio
corporation ("UFAC") and Frontier Adjusters of America, Inc., an Arizona
corporation, on behalf of itself and each of its subsidiaries (collectively, the
"Company").
WHEREAS, Company licenses or franchises independent claims adjusters
throughout the United States and Canada, and owns and operates independent
insurance adjusting and risk management businesses;
WHEREAS, UFAC has acquired a majority ownership interest in Company;
WHEREAS, Company has requested UFAC to provide Company with certain
advisory and support services relating to Company's business, and UFAC is
willing to provide such services;
WHEREAS, Company and UFAC have reached agreement on, and wish to set
forth, the terms and conditions upon which UFAC will provide such services to
Company and certain related matters;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth hereinbelow, the parties hereto agree as
follows:
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1. UFAC SERVICES. Upon and subject to the terms and conditions set forth
in this Agreement, UFAC shall provide Company with the following advisory and
support services:
(a) FRANCHISE OPERATIONS:. UFAC will provide an experienced claims manager
(the "Claims Manager") to assume the day to day responsibility for
managing the Company's franchisee network and the Company field
offices in Phoenix, Las Vegas and Tucson. The Claims Manager will work
out of Frontier's offices on a full time basis.
(b) STRATEGIC PLANNING: UFAC will help Company develop clear written
strategic business plans, which may be communicated to the Company's
shareholders, employees, franchisees and licensees.
(c) SALES AND MARKETING: The strategic business plans will include
detailed marketing plans, including a systematic process of expanding
Company's customer base for adjusting services, as well as expanding
the types of services provided by Company. UFAC personnel will begin
marketing Company services to targeted sales prospects promptly after
the date hereof. UFAC will use its reasonable best efforts to provide
Frontier and its licensees/franchisees with adjusting business, and
will encourage its affiliates to do the same.
(d) TECHNOLOGY: (i) UFAC's Information Technology Director and his staff
will support and coordinate the work of the Company's IT staff. UFAC's
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programming staff will provide up to 200 hours of programming support
per year, will coordinate the development of a disaster recovery plan
for Company, and will plan the implementation of applicable UFAC
claims assignment and management software in Company's operations.
(ii) Company will receive a license to use UFAC claims assignment and
management software, as agreed by the parties, during the term of this
Agreement. This software may be accessed by Company's licensees,
franchisees and clients for Company-related business at no additional
charge. The license will be non-transferable and non-exclusive. The
license fees for such software are included in the Service Fees
provided for in Section 2(a) hereof. During the term of this
Agreement, UFAC will provide or arrange for the necessary maintenance
and support services for this software. The charges for these
maintenance and support services are included in the Service Fees
provided for in Section 2(a).
(iii) Upon the effective date of any termination of this Agreement
(the "Effective Date"), Company will have the option to acquire a
license to use any proprietary software (object code only) owned by
UFAC (or any other wholly-owned subsidiary of The Progressive
Corporation) which is then being used to support the Company's
operations for a term of one (1) year, commencing on the Effective
Date, renewable annually thereafter at Company's option by delivery of
written notice of renewal to UFAC at least thirty (30) days prior to
expiration of the then current annual term.
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The Company's cost of licensing this software for the initial or any
renewal term of the license will be the prevailing rate for the
software at the time of the initial or renewal term (as applicable),
not to exceed $120,000 annually. Any such license shall be
non-transferable and non-exclusive. UFAC will provide, upon request,
up to one hundred (100) hours of telephone support for such licensed
software during UFAC's regular business hours, at the rate of $115.00
per hour during the initial one-year term of such license, and up to
one hundred (100) hours of telephone support at the rate of $125.00
per hour during the second one-year term of such license. After the
second year of the license, such telephone support will be provided at
UFAC's then prevailing rate for such services.
(iv) Company acknowledges that the licensed software will not be
error-free and agrees to accept such software and all maintenance and
support services on an "AS IS" basis. Company will hold all licensed
software in strict confidence and will not sell, copy, duplicate,
transfer, assign, license or disclose the software (or any portion
thereof) to any other person, or attempt to reverse engineer the
software or discover its structure, operation or content, without
UFAC's prior written consent.
(e) HUMAN RESOURCES SUPPORT: UFAC's Human Resource Manager will assist
Company's HR management in developing strategy and/or policies in the
following areas: compensation, employee communications,
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employee relations, equal employment opportunity, people development
and education, recruiting and relocation. Through this process, UFAC
will begin to introduce Company to some of the HR concepts used in the
Progressive organization.
(f) ACCOUNTING AND REPORTING: UFAC's Controller will provide support and
supervision to the Company's accounting group, subject to the
oversight of Company's Board of Directors, to ensure that the
Company's books and records are properly maintained. This will include
a quarterly review of the Company's financial statements and related
accounting records, and a review of the financial data contained in
periodic reports to be filed by the Company under the Securities
Exchange Act of 1934.
2. COMPENSATION AND EXPENSE REIMBURSEMENT.
(a) In consideration for the services provided by UFAC pursuant to
Paragraphs 1(a)-(f) hereof, Company shall pay to UFAC the sum of
Twenty-Five Thousand Dollars ($25,000) per month ("Service Fees"),
plus reimbursement for all reasonable out-of-pocket expenses
(including, travel, lodging etc.) actually incurred by UFAC in
providing such services. Only expenses incurred in providing services
for the benefit of the Company that are deductible for federal income
tax purposes will be reimbursed. Expenses over $5,000 must be approved
in advance by the Company's CEO, President or CFO.
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<PAGE>
(b) Company shall have the right to request UFAC to provide such
additional administrative and support services (such as tax return
preparation, legal representation, cash management, etc.) as the
parties shall mutually agree from time to time ("Additional
Services"). If UFAC provides such Additional Services at the request
of Company, Company will pay for such services at mutually agreed upon
rates, which will be approximately the same as UFAC's cost of
providing the services, and will not include any allocation of
overhead costs.
(c) Service Fees plus reimbursement for out-of-pocket travel and
entertainment expenses and any other sums due hereunder will be billed
to Company monthly. Reimbursement will only be made for reasonable
expenses actually incurred in providing services for the benefit of
the Company; only expenses that are deductible for federal income tax
purposes will be reimbursed. Company shall pay to UFAC all of such
Service Fees, expenses and other sums within thirty (30) days after
receipt of UFAC's invoice therefor, together with supporting expense
receipts reasonably satisfactory to the Company. All services provided
by UFAC which are not included in the Service Fees will be billed at
rates which are approximately equal to UFAC's cost of providing such
service and shall not include any allocation of overhead costs.
3. PRACTICES AND PROCEDURES. In performing services hereunder, UFAC
shall provide substantially the same high level of services as it provides with
respect to its own
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business and the businesses of its other affiliates. Without the prior consent
of Company, UFAC shall not depart, in any material respect, from these
practices, procedures or services in a way that adversely affects the nature or
quality of the services provided under this Agreement. UFAC personnel will be
available by telephone from 8:30 a.m. to 5:30 p.m., E.S.T., Monday through
Friday (holidays excepted), to receive specific requests from Company for
information and/or services within the scope of the services to be provided by
UFAC under this Agreement and will respond to such requests with reasonable
promptness. In addition, strategic planning discussions among UFAC and Company's
management will be held at least once per calendar quarter during the term of
this Agreement.
4. COMPANY SERVICES. Except for those services to be provided by UFAC,
as herein specified, Company shall provide and perform, at its own cost and
expense, all services necessary or appropriate for the conduct of its business
and operations.
5. QUALITY STANDARDS. All services performed pursuant to this Agreement
or described herein shall be performed by UFAC or Company, as applicable, in a
prompt and professional manner by personnel who are competent, conscientious and
properly trained to perform their assigned responsibilities. If any personnel
assigned by UFAC to provide services hereunder are unsatisfactory to Company, in
its reasonable discretion, then UFAC will replace those people with individuals
who are reasonably satisfactory to Company.
6. TERM; TERMINATION. Subject to Sections 10 and 11 hereof, this
Agreement shall be effective as of the date first above written, shall remain in
effect until the first anniversary thereof and shall automatically renew from
year to year thereafter, unless and until either party
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<PAGE>
shall provide the other with not less than ninety (90) days' prior written
notice of its intention not to renew this Agreement after expiration of the then
current annual period. At the time of the first anniversary of this Agreement,
UFAC will review this Agreement with a committee of the Company's Board of
Directors, which will consist exclusively of independent directors, to determine
what services, if any, the Company should continue to purchase from UFAC. Such
approval will be consistent with Arizona law. Thereafter, this Agreement, and
the schedule of fees set forth herein, will be adjusted as agreed by the
parties.
7. RELATIONSHIP OF THE PARTIES. The relationship between Company and
UFAC hereunder is and shall always be that of independent contractors. None of
the agents, servants, employees, representatives or contractors of either
Company or UFAC shall ever be deemed to be the agents, servants, employees,
representatives or contractors of the other party, and neither Company nor UFAC
shall be responsible for the acts or omissions of the other party, or any of its
officers, agents, employees, representatives or contractors. Neither Company nor
UFAC shall for any purposes, at any time, be or be construed to be the agent of
the other.
8. COMPLIANCE WITH LAWS AND COMPANY PROCEDURES. In performing services
hereunder, the parties shall comply with all applicable federal, state, county
and municipal statutes, ordinances and regulations. When UFAC's employees or
agents are working on Company's premises, they will comply with all applicable
written personnel policies and procedures of the Company. In performing its
duties hereunder, UFAC, as the majority shareholder of the Company, will
exercise appropriate care so as to comply with its fiduciary duties to the
Company's other shareholders.
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9. INDEMNIFICATION. Subject to the following sentence, UFAC will
indemnify, defend and hold harmless Company from and against any and all claims,
damages, liabilities, demands, costs and expenses (including reasonable
attorney's fees) that Company may suffer or incur as a result of the gross
negligence or willful misconduct of UFAC or its employees in providing Company
with services under this Agreement. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT
TO THE CONTRARY, IN NO EVENT SHALL UFAC, ITS AFFILIATES OR ANY OF THEIR
RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS BE LIABLE FOR ANY LOST
PROFITS, LOST REVENUES, LOST BUSINESS OPPORTUNITIES, EXEMPLARY, PUNITIVE,
SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY
EXPRESSLY WAIVED, REGARDLESS OF WHETHER SUCH DAMAGES WERE FORESEEABLE OR WHETHER
ANY PARTY OR ANY PERSON HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
10. CHANGE OF CONTROL. If either (a) The Progressive Corporation shall
cease to own, directly or indirectly, at least fifty percent (50%) of the issued
and outstanding capital stock of UFAC or (b) UFAC shall cease to own, directly
or indirectly, at least forty percent (40%) of the issued and outstanding
capital stock of the Company (each such occurrence being deemed to be a "Change
in Control"), then UFAC shall provide Company with written notice thereof
("Change of Control Notice") not later than ten (10) business days after the
date on which such Change of Control occurs. In such event, Company shall have
the right and option to terminate this Agreement, without liability on the part
of either party, by giving UFAC written notice thereof ("Termination Notice")
within forty-five (45) days of Company's receipt of the Change in Control
Notice, such termination to be effective on the date specified by Company in the
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Termination Notice, which shall not be later than ninety (90) days after the
date of delivery of the Termination Notice. The determination by Company of
whether to exercise its termination right under this Section 10 shall be made by
a vote of the independent directors of the Company (i.e. those directors who are
not officers or employees of UFAC or The Progressive Corporation or any of its
subsidiaries other than the Company).
11. DEFAULT. If either of the parties hereto shall fail to pay any sum
due hereunder, when and as herein provided, and such failure shall continue for
ten (10) or more days after such party has received written notice thereof, or
if either of the parties hereto shall fail to observe or perform, in any
material respect, any of its other covenants or obligations hereunder, and such
failure shall continue for thirty (30) or more days after such party has
received written notice thereof, a condition of default shall exist hereunder
and the non-defaulting party may immediately terminate this Agreement, and its
performance hereunder, and (subject to Section 10 hereof) pursue damages or any
other remedy available at law or in equity. Without limiting the foregoing, in
the event of any such default, the non-defaulting party may set-off any sums
then due to it hereunder against, and thereby reduce, any sums that such
non-defaulting party may owe to the party in default.
12. DISPUTES. If any claim, dispute or controversy ("Dispute") arises in
connection with this Agreement and is not resolved in the normal course of
business, the parties will resolve the Dispute not by litigation or other
judicial means, but through a Dispute Resolution Process consisting of a
progression of the following: direct negotiations at the senior executive level,
mediation, and, if the Dispute has not been resolved within four (4) months
following delivery of the written notice referred to in the following sentence,
binding arbitration. In the event of any
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Dispute, either party may initiate the Dispute Resolution Process by delivering
written notice thereof to the other party. Thereafter, the parties, in good
faith, shall mutually develop and agree upon the specific procedures and
guidelines which shall govern the Dispute Resolution Process; subject to the
proviso that, unless otherwise mutually agreed, if the direct negotiations
and/or mediation have not resolved the Dispute within six (6) months after the
receipt of the written notice initiating the Dispute Resolution Process
hereunder, then either party may by written notice to the other party invoke the
right to proceed at that time with binding arbitration as contemplated herein.
Any mediation or arbitration proceedings shall be conducted in accordance with
the applicable rules of the Center for Public Resources, as then in effect,
except as otherwise agreed by the parties. Nothing herein shall prohibit either
party from seeking a temporary restraining order, preliminary injunction or
other provisional relief if, in its judgment, such action is necessary to avoid
irreparable damage or to preserve the status quo or from seeking specific
performance to enforce this Section 12. In any such arbitration proceeding, the
tribunal may award only compensatory damages and is not empowered to award
punitive or exemplary damages, or any relief not available in a court of law or
equity. The arbitrator(s) shall also have authority to award reasonable
attorneys' fees and costs and any other arbitration expenses incurred to the
prevailing party in any such Dispute, as determined by the arbitrator(s) in
his/their award. Any mediation or arbitration proceeding shall be held in
Phoenix, Arizona unless the mediator or arbitrator, as the case may be,
determines at the outset that another locale would be more convenient to both
parties and to any other individuals (other than counsel) participating therein.
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13. NOTICES. All notices required or permitted to be given hereunder
shall be sent to the following addresses, or such other addresses as either of
said parties may in writing request:
If to UFAC: John M. Davies, President
United Financial Adjusting Company
747 Alpha Drive
Highland Heights, Ohio 44143-2124
Fax: 440/442-4251
If to Company: William J. Rocke, Chief Executive Officer, or
Jean Ryberg, President
Frontier Adjusters of America, Inc.
45 East Monterey Way
Phoenix, Arizona 85012
Fax: 602-279-5813
All notices shall be hand delivered or sent postpaid by certified mail, return
receipt requested, or by courier, overnight delivery service or facsimile, and
shall be effective when received.
14. AMENDMENTS. This Agreement contains the entire understanding and
agreement of the parties hereto with respect to the subject matter hereof and
may not be modified, changed or amended orally; any such modifications, changes
or amendments may be made only in writing duly executed on behalf of both
parties.
15. SEVERABILITY OF PROVISIONS. If any term or provision of this
Agreement or any application thereof shall be invalid or unenforceable, the
remainder of this Agreement and any other application of such term or provision
shall not be affected thereby.
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16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon, and
shall inure to the benefit of, the parties hereto and their respective
successors and assigns, except that neither party may assign this Agreement, or
any of its rights or obligations hereunder, without the prior written consent of
the other party; provided that, without such consent, UFAC may assign this
Agreement or delegate any of its obligations hereunder to any other direct or
indirect subsidiary of The Progressive Corporation.
17. LAW GOVERNING. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Arizona.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
UNITED FINANCIAL ADJUSTING COMPANY
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
FRONTIER ADJUSTERS OF AMERICA, INC.,
ON BEHALF OF ITSELF AND EACH OF ITS
SUBSIDIARIES.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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APPENDIX E
EXHIBIT D TO STOCK PURCHASE AGREEMENT
AGREEMENT
THIS AGREEMENT is made as of this day of , 19____ between William J.
Rocke (hereinafter referred to as "Rocke") and Frontier Adjusters of America,
Inc., an Arizona corporation, and Frontier Adjusters Inc., a Colorado
corporation, (collectively referred to herein as "Frontier").
RECITALS
WHEREAS, Frontier is engaged in the insurance adjusting and franchising
business and maintains its principal office and place of business at 45 East
Monterey Way, Phoenix, Arizona; and
WHEREAS, Rocke is Chairman of the Board and Chief Executive Officer of
Frontier; and
WHEREAS, Rocke and Frontier have entered into a Employment Agreement
dated August 10, 1995 (the "Employment Agreement"), pursuant to which Rocke has
been engaged as the Chief Executive Officer of Frontier for a period ending on
June 30, 2000; and
WHEREAS, Rocke has advised Frontier of his desire to voluntarily retire
on June 30, 1999 (the "Retirement Date"); and
WHEREAS, the parties hereto desire to set forth their mutual agreement
relating to such retirement and the termination of the Employment Agreement as
of the Retirement Date.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. ENGAGEMENT Frontier will continue to employ and engage Rocke as its
Chief Executive Officer pursuant to the Employment Agreement, and Rocke hereby
agrees to serve in such capacity, until the Retirement Date.
2. RESIGNATION. On the Retirement Date, Rocke will resign as an officer
and employee of Frontier and each of its (their) direct and indirect
subsidiaries. Following such resignation, Rocke will continue to serve as a
member of the Board of Directors of Frontier Adjusters of America, Inc. until
the next annual meeting of shareholders of said corporation and until his
successor shall be elected and qualified. The parties agree that Rocke may
thereafter be nominated for re-election to the Board of said corporation in the
sole discretion of its Board of Directors and subject to the vote of its
shareholders.
3. TERMINATION OF EMPLOYMENT AGREEMENT. Effective upon the Retirement
Date, the Employment Agreement shall terminate and be of no further force and
effect. Rocke shall not be entitled to any severance or other payment or
benefits with respect to his retirement or in consideration of his employment
with or other service to Frontier, except for such compensation as he may be
entitled to receive as a director of Frontier Adjusters of America, Inc. during
his tenure as such and any benefits that he may be entitled to receive under
this Agreement or the Frontier Adjusters Inc. Profit Sharing Plan.
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4. (a) SALARY AND EXPENSES. Rocke shall continue to receive
semi-monthly installments of his salary, determined in
accordance with Section Four of the Employment Agreement,
until the Retirement Date (or any earlier termination of his
employment with Frontier), plus reimbursement for all
necessary expenses incurred by Rocke while traveling or
otherwise performing services pursuant to Frontier's
direction. On June 30, 1999, Frontier will pay to Rocke, in a
lump sum, an amount equal to the salary that he would be
entitled to receive under the Employment Agreement for the
fiscal year beginning July 1, 1999 and ending on June 30,
2000.
(b) BONUS COMPENSATION. Pursuant to and during the term of the
Employment Agreement, Rocke is entitled to receive an annual
bonus based upon Frontier's net income before taxes,
determined in accordance with the formula set forth therein.
Rocke will be entitled to receive such bonus for Frontier's
fiscal year ending on June 30, 1999. Such bonus will be
calculated at the end of such fiscal year and will be paid to
Rocke no later than seventy-five (75) days after the
termination thereof. On June 30, 1999, Rocke will also receive
a lump sum payment of $20,000 in lieu of participating in
Frontier's bonus and profit sharing plans for the fiscal year
beginning July 1, 1999. By reason of his retirement, Rocke
will not be entitled to receive any additional profit sharing
distribution or bonus for any fiscal year or other period
beginning on or after July 1, 1999.
5. AUTOMOBILE. At the time of his retirement, Rocke will receive title
to his company car.
6. LIFE INSURANCE POLICY. At the time of Rocke's retirement, Frontier
will transfer to Rocke ownership of the policy insuring Rocke's life currently
held by Frontier.
7. STORAGE FACILITIES. Rocke currently stores his collection of baseball
and other sports cards and sports memorabilia ("Card Collection") in a storage
room at the offices of Frontier at 45 Monterey Way, Phoenix, Arizona (the
"Storage Facility"). Rocke may continue to store the Card Collection in the
Storage Facility until June 30, 2000. Rocke agrees to bear sole responsibility
for insuring the Card Collection against any and all damage, destruction or loss
from fire, theft, vandalism or other cause and hereby releases Frontier, its
affiliates, and each of their respective officers, directors, employees or
agents, from any and all responsibility and liability for any loss, theft,
damage or destruction of the Card Collection, or any item(s) therein, from any
cause whatsoever, provided that the foregoing shall not release any
individual(s) from any liability that may result from his/her/their acts of
theft or arson or other action that can be classified as criminal.
8. CONSULTING SERVICES . From and after the Retirement Date and until
June 30, 2000 ("Service Period"), Rocke will be available to provide Frontier
with consultation and advisory services on matters relating to Frontier's
business. During the Service Period, Rocke will be available to consult with
Frontier not more than 40 hours per month. Rocke will not be entitled to any
compensation for such consulting services in addition to the amounts payable to
Rocke pursuant to Section 4 hereof, but will be reimbursed for any out-of-pocket
expenses that he reasonably incurs in the performance of such services. To
facilitate the provision of such services, Rocke will be assigned an office
(which he will share with Jean Ryberg) at Frontier's headquarters at 45 Monterey
2
<PAGE>
Way, Phoenix, Arizona. The office assigned to Rocke will be either one that is
currently occupied by Rocke or Ms. Ryberg or another office of equivalent size
and utility. During the Service Period, Frontier will make available to Rocke
such administrative support services (including secretarial support and office
equipment) as shall be necessary for the proper discharge of his consulting
responsibilities.
9 ATHLETIC EVENTS. It is anticipated that from and after the date
hereof, Frontier will purchase tickets for various professional or college
sporting events. Rocke will have the right to purchase from Frontier season
tickets for certain events, covering specific seats, as set forth in Exhibit A
hereto, and will reimburse Frontier, at Frontier's cost, for all such tickets
that he purchases. This right will survive the termination of this Agreement,
but terminate on the death of Rocke.
10. COBRA BENEFITS. Following the Retirement Date, Rocke will be
entitled to continuation of his medical coverages, at the level of benefits to
which he is entitled as of Retirement Date, pursuant to the provisions of COBRA,
provided he then has a statutory right to COBRA benefits. Frontier agrees to pay
the premiums for the COBRA benefits provided to Rocke pursuant to this Section
through June 30, 2000, up to an amount not to exceed $600 per month, with any
excess to be paid by Rocke. If Rocke is not eligible for COBRA benefits,
Frontier will pay for any private insurance secured by Rocke in lieu thereof
until June 30, 2000, up to an amount not exceeding $600 per month.
11. RELEASE. In consideration of the covenants and agreements of
Frontier hereunder, and payments to be made by Frontier pursuant hereto, Rocke
hereby releases Frontier, its (their) affiliates and shareholders, and each of
their respective representatives, officers, directors, employees and agents,
from any and all actions, suits, claims, liabilities, obligations and demands,
in law or equity, that Rocke ever had, now has or may hereafter have, by reason
of or relating to any matter, cause or thing occurring or arising at any time
prior to the Retirement Date, and particularly any claims relating in any way to
Rocke's employment relationship or the termination of Rocke's employment
relationship with Frontier, including (without limitation) any claim under the
Age Discrimination in Employment Act, any claim arising under any federal,
state, or local law, any common law claim and any claim under the Employment
Agreement, but excepting the obligations undertaken by Frontier under this
Agreement. Rocke understands that he may be replaced by Frontier with an
individual who is younger than him, and Rocke expressly agrees that among the
claims being released herein are any and all claims that might arise out of any
such action by Frontier.
12. WITHHOLDING. All payments made hereunder shall be subject to
withholding of all applicable federal, state and local taxes or other items
required by law to be withheld.
13. UNDERSTANDING; NO OTHER REPRESENTATIONS. Rocke has read and
understands all of the terms of this Agreement. Rocke signs this Agreement in
exchange for the consideration to be given to him. Neither Frontier, nor any of
its agents, representatives, or employees, have made any representations to
Rocke concerning the terms or effects of this Agreement other than those
contained in the Agreement.
14. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party.
3
<PAGE>
15. NOTICES. All notices and other communications hereunder shall be
sufficiently given for all purposes hereunder if in writing and delivered
personally, or sent by documented overnight delivery service or, to the extent
receipt is confirmed, by telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below, unless and
until either of such parties notifies the other in accordance with this section
of a change of address or change of telecopy number:
If to Rocke:
------------------------------------
------------------------------------
Telecopy Number:
--------------------
If to Frontier: Frontier Adjusters of America, Inc.
45 East Monterey Way, Suite 202
Phoenix, Arizona 85012
Attention:
-------------------------
Telecopy Number: 602-279-5813
16. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder may be assigned by either of
the parties hereto without the prior written consent of the other party.
17. AMENDMENTS AND WAIVERS. This Agreement may not be modified or
amended except by an instrument in writing signed by the party against whom
enforcement of any such modification or amendment is sought. Either party hereto
may, only by an instrument in writing, waive compliance by the other party
hereto with any term or provision hereof. The waiver by any party hereto of a
breach of any term or provision hereof shall not be construed as a waiver of any
subsequent breach thereof.
18. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted by a court of competent
jurisdiction rather than voided, if possible, in order to achieve the intent of
the parties to this Agreement to the fullest extent possible. In any event, all
other provisions of this Agreement shall be deemed valid and enforceable to the
fullest extent permitted.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and there are no
agreements, understandings, representations or warranties between the parties
other than those set forth or referred to herein.
20. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona without reference to the choice
of law principles thereof.
ROCKE HAS READ AND UNDERSTANDS ALL OF THE TERMS OF THIS AGREEMENT AND ROCKE HAS
BEEN ENCOURAGED TO CONSULT WITH AN ATTORNEY. ROCKE ACKNOWLEDGES THAT HE HAS BEEN
GIVEN A PERIOD OF TWENTY-ONE (21) DAYS TO REVIEW THIS AGREEMENT WITH AN ATTORNEY
AND CONSIDER ITS EFFECT, INCLUDING ROCKE'S RELEASE OF RIGHTS AND SEPARATION.
4
<PAGE>
ROCKE ALSO ACKNOWLEDGES THAT HE HAS SEVEN (7) DAYS FOLLOWING EXECUTION OF THIS
AGREEMENT TO REVOKE THIS AGREEMENT FOR ANY REASON AND IS HEREBY ADVISED THAT
THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE UNTIL THE EXPIRATION OF
THE SEVEN (7) DAY REVOCATION PERIOD.
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties hereto as of the date first above written.
ROCKE:
-------------------------------------
William J. Rocke
FRONTIER:
Frontier Adjusters of America, Inc., an
Arizona corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Frontier Adjusters Inc., a Colorado
corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
5
<PAGE>
APPENDIX F
EXHIBIT E TO STOCK PURCHASE AGREEMENT
AGREEMENT
THIS AGREEMENT is made as of this day of , 19____ between Jean E. Ryberg
(hereinafter referred to as "Ryberg") and Frontier Adjusters of America, Inc.,
an Arizona corporation, and Frontier Adjusters Inc., a Colorado corporation,
(collectively referred to herein as "Frontier").
RECITALS
WHEREAS, Frontier is engaged in the insurance adjusting and franchising
business and maintains its principal office and place of business at 45 East
Monterey Way, Phoenix, Arizona; and
WHEREAS, Ryberg is President of Frontier; and
WHEREAS, Ryberg and Frontier have entered into a Employment Agreement
dated August 10, 1995 (the "Employment Agreement"), pursuant to which Ryberg has
been engaged as the President of Frontier for a period ending on June 30, 2000;
and
WHEREAS, Ryberg has advised Frontier of her desire to voluntarily retire
on June 30, 1999 (the "Retirement Date"); and
WHEREAS, the parties hereto desire to set forth their mutual agreement
relating to such retirement and the termination of the Employment Agreement as
of the Retirement Date.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree as
follows:
1. ENGAGEMENT Frontier will continue to employ and engage Ryberg as its
President pursuant to the Employment Agreement, and Ryberg hereby agrees to
serve in such capacity, until the Retirement Date.
2. RESIGNATION. On the Retirement Date, Ryberg will resign as an officer
and employee of Frontier and each of its (their) direct and indirect
subsidiaries. Following such resignation, Ryberg will continue to serve as a
member of the Board of Directors of Frontier Adjusters of America, Inc. until
the next annual meeting of shareholders of said corporation and until her
successor shall be elected and qualified. The parties agree that Ryberg may
thereafter be nominated for re-election to the Board of said corporation in the
sole discretion of its Board of Directors and subject to the vote of its
shareholders.
3. TERMINATION OF EMPLOYMENT AGREEMENT. Effective upon the Retirement
Date, the Employment Agreement shall terminate and be of no further force and
effect. Ryberg shall not be entitled to any severance or other payment or
benefits with respect to her retirement or in consideration of her employment
with or other service to Frontier, except for such compensation as she may be
entitled to receive as a director of Frontier Adjusters of America, Inc. during
her tenure as such and any benefits that she may be entitled to receive under
this Agreement or the Frontier Adjusters Inc. Profit Sharing Plan.
1
<PAGE>
4. (a) SALARY AND EXPENSES. Ryberg shall continue to receive
semi-monthly installments of her salary, determined in
accordance with Section Four of the Employment Agreement,
until the Retirement Date (or any earlier termination of her
employment with Frontier), plus reimbursement for all
necessary expenses incurred by Ryberg while traveling or
otherwise performing services pursuant to Frontier's
direction. On June 30, 1999, Frontier will pay to Ryberg, in a
lump sum, an amount equal to the salary that she would be
entitled to receive under the Employment Agreement for the
fiscal year beginning July 1, 1999 and ending on June 30,
2000.
(b) BONUS COMPENSATION. Pursuant to and during the term of the
Employment Agreement, Ryberg is entitled to receive an annual
bonus based upon Frontier's net income before taxes,
determined in accordance with the formula set forth therein.
Ryberg will be entitled to receive such bonus for Frontier's
fiscal year ending on June 30, 1999. Such bonus will be
calculated at the end of such fiscal year and will be paid to
Ryberg no later than seventy- five (75) days after the
termination thereof. On June 30, 1999, Ryberg will also
receive a lump sum payment of $20,000 in lieu of participating
in Frontier's bonus and profit sharing plans for the fiscal
year beginning July 1, 1999. By reason of her retirement,
Ryberg will not be entitled to receive any additional profit
sharing distribution or bonus for any fiscal year or other
period beginning on or after July 1, 1999.
5. AUTOMOBILE. At the time of her retirement, Ryberg will receive title
to her company car.
6. LIFE INSURANCE POLICY. At the time of Ryberg's retirement, Frontier
will transfer to Ryberg ownership of the policy insuring Ryberg's life currently
held by Frontier.
7. CONSULTING SERVICES . From and after the Retirement Date and until
June 30, 2000 ("Service Period"), Ryberg will be available to provide Frontier
with consultation and advisory services on matters relating to Frontier's
business. During the Service Period, Ryberg will be available to consult with
Frontier not more than 40 hours per month. Ryberg will not be entitled to any
compensation for such consulting services in addition to the amounts payable to
Ryberg pursuant to Section 4 hereof, but will be reimbursed for any
out-of-pocket expenses that she reasonably incurs in the performance of such
services. To facilitate the provision of such services, Ryberg will be assigned
an office (which she will share with Bill Rocke) at Frontier's headquarters at
45 Monterey Way, Phoenix, Arizona. The office assigned to Ryberg will be either
one that is currently occupied by Ryberg or Mr. Rocke or another office of
equivalent size and utility. During the Service Period, Frontier will make
available to Ryberg such administrative support services (including secretarial
support and office equipment) as shall be necessary for the proper discharge of
her consulting responsibilities.
8. COBRA BENEFITS. Following the Retirement Date, Ryberg will be
entitled to continuation of her medical coverages, at the level of benefits to
which she is entitled as of Retirement Date, pursuant to the provisions of
COBRA, provided she then has a statutory right to COBRA benefits. Frontier
agrees to pay the premiums for the COBRA benefits provided to Ryberg pursuant to
this Section through June 30, 2000, up to an amount not to exceed $600 per
month, with
2
<PAGE>
any excess to be paid by Ryberg. If Ryberg is not eligible for COBRA benefits,
Frontier will pay for any private insurance purchased by Ryberg in lieu thereof
until June 30, 2000, up to an amount not exceeding $600 per month.
9. RELEASE. In consideration of the covenants and agreements of Frontier
hereunder, and the payments to be made by Frontier pursuant hereto, Ryberg
hereby releases Frontier, its (their) affiliates and shareholders, and each of
their respective representatives, officers, directors, employees and agents,
from any and all actions, suits, claims, liabilities, obligations and demands,
in law or equity, that Ryberg ever had, now has or may hereafter have, by reason
of or relating to any matter, cause or thing occurring or arising at any time
prior to the Retirement Date, and particularly any claims relating in any way to
Ryberg's employment relationship or the termination of Ryberg's employment
relationship with Frontier, including (without limitation) any claim under the
Age Discrimination in Employment Act, any claim arising under any federal,
state, or local law, any common law claim and any claim under the Employment
Agreement, but excepting the obligations undertaken by Frontier under this
Agreement. Ryberg understands that she may be replaced by Frontier with an
individual who is younger than her, and Ryberg expressly agrees that among the
claims being released herein are any and all claims that might arise out of any
such action by Frontier.
10. WITHHOLDING. All payments made hereunder shall be subject to
withholding of all applicable federal, state and local taxes or other items
required by law to be withheld.
11. UNDERSTANDING; NO OTHER REPRESENTATIONS. Ryberg has read and
understands all of the terms of this Agreement. Ryberg signs this Agreement in
exchange for the consideration to be given to her. Neither Frontier, nor any of
its agents, representatives, or employees, have made any representations to
Ryberg concerning the terms or effects of this Agreement other than those
contained in the Agreement.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement, and
shall become effective when one or more counterparts have been signed by each
party hereto and delivered to the other party.
13. NOTICES. All notices and other communications hereunder shall be
sufficiently given for all purposes hereunder if in writing and delivered
personally, or sent by documented overnight delivery service or, to the extent
receipt is confirmed, by telecopy, telefax or other electronic transmission
service to the appropriate address or number as set forth below, unless and
until either of such parties notifies the other in accordance with this section
of a change of address or change of telecopy number:
If to Ryberg:
----------------------------------------
Telecopy Number:
------------------------
If to Frontier: Frontier Adjusters of America, Inc.
45 East Monterey Way, Suite 202
Phoenix, Arizona 85012
Attention:
------------------------------
Telecopy Number: 602-279-5813
3
<PAGE>
14. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective heirs,
executors, successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder may be assigned by either of
the parties hereto without the prior written consent of the other party.
15. AMENDMENTS AND WAIVERS. This Agreement may not be modified or
amended except by an instrument in writing signed by the party against whom
enforcement of any such modification or amendment is sought. Either party hereto
may, only by an instrument in writing, waive compliance by the other party
hereto with any term or provision hereof. The waiver by any party hereto of a
breach of any term or provision hereof shall not be construed as a waiver of any
subsequent breach thereof.
16. SEVERABILITY. If any provision of this Agreement is held to be
unenforceable for any reason, it shall be adjusted by a court of competent
jurisdiction rather than voided, if possible, in order to achieve the intent of
the parties to this Agreement to the fullest extent possible. In any event, all
other provisions of this Agreement shall be deemed valid and enforceable to the
fullest extent permitted.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties with respect to the subject matter hereof and there are no
agreements, understandings, representations or warranties between the parties
other than those set forth or referred to herein.
18. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona without reference to the choice
of law principles thereof.
RYBERG HAS READ AND UNDERSTANDS ALL OF THE TERMS OF THIS AGREEMENT AND RYBERG
HAS BEEN ENCOURAGED TO CONSULT WITH AN ATTORNEY. RYBERG ACKNOWLEDGES THAT SHE
HAS BEEN GIVEN A PERIOD OF TWENTY-ONE (21) DAYS TO REVIEW THIS AGREEMENT WITH AN
ATTORNEY AND CONSIDER ITS EFFECT, INCLUDING RYBERG'S RELEASE OF RIGHTS AND
SEPARATION. RYBERG ALSO ACKNOWLEDGES THAT SHE HAS SEVEN (7) DAYS FOLLOWING
EXECUTION OF THIS AGREEMENT TO REVOKE THIS AGREEMENT FOR ANY REASON AND IS
HEREBY ADVISED THAT THIS AGREEMENT SHALL NOT BECOME EFFECTIVE OR ENFORCEABLE
UNTIL THE EXPIRATION OF THE SEVEN (7) DAY REVOCATION PERIOD.
4
<PAGE>
IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of
each of the parties hereto as of the date first above written.
ROCKE:
-------------------------------------
William J. Rocke
FRONTIER:
Frontier Adjusters of America, Inc., an
Arizona corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
Frontier Adjusters Inc., a Colorado
corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
5
<PAGE>
APPENDIX G
EXHIBIT F TO STOCK PURCHASE AGREEMENT
(FORM OF INSIDER SUPPORT AGREEMENT)
November ___, 1998
United Financial Adjusting Company
747 Alpha Drive
Highland Heights, Ohio 44143
Re: Insider Support Agreement
Ladies and Gentlemen:
The undersigned understands that United Financial Adjusting Company, an
Ohio corporation ("UFAC" or "you"), and Frontier Adjusters of America, Inc.
("Frontier"), are entering into a Stock Purchase Agreement to be dated on or
about the date hereof (the "Purchase Agreement"), providing for, among other
things, UFAC's purchase of shares of preferred stock, $.01 par value per share
(the "Preferred Shares"), of Frontier, that are convertible into shares of
common stock, $.01 par value per share (the "Common Shares"), of Frontier (the
"Share Purchase"). Under the rules of the American Stock Exchange, consummation
of the Share Purchase will require the approval of the shareholders of Frontier.
The undersigned is a shareholder of Frontier (the "Shareholder") and
acknowledges that UFAC would not enter into the Purchase Agreement without the
execution and delivery of this letter agreement. The Shareholder is entering
into this letter agreement to induce you to enter into the Purchase Agreement
and the transactions and agreements contemplated thereby, including the Share
Purchase and the issuance of Common Shares upon conversion of the Preferred
Shares (the Purchase Agreement, the Share Purchase and such transactions and
agreements collectively, the "Transactions").
The Shareholder confirms its agreement with you as follows:
1. The Shareholder represents and warrants that Schedule I annexed hereto
sets forth the Common Shares of which the Shareholder or any affiliate (as
defined under the Securities Exchange Act of 1934, as amended) of the
Shareholder controlled by the Shareholder (a "Controlled Affiliate") is the
beneficial owner (the "Shares") and that the Shareholder and the Controlled
Affiliates are on the date hereof the lawful owners of the number of Shares set
forth in Schedule I, free and clear of all liens, charges, encumbrances, voting
agreements and commitments of any kind, except as disclosed in Schedule I.
Except for the Shares set forth in Schedule I, neither the Shareholder nor any
Controlled Affiliate owns or holds any rights to acquire any additional Common
Shares (other than pursuant to options or conversion rights with regard to any
of the Shares, in each case as disclosed in Schedule I) or any interest therein
or any voting rights with respect to any such additional shares.
2. Until the termination of this letter agreement in accordance with
paragraph 12, the Shareholder agrees that he/she will not, and will not permit
any Controlled Affiliate to, contract to sell, sell or otherwise transfer or
dispose of any of the Shares or any interest therein or securities convertible
into Common Shares, or any voting rights with respect thereto, without your
prior written consent.
3. The Shareholder agrees that, during the term of this letter agreement,
neither he/she nor any Controlled Affiliate will take any action that Frontier
would be prohibited from taking under Section 5.4 of the Purchase Agreement.
4. The Shareholder agrees that during the term of this letter agreement all
of the Common Shares beneficially owned by the Shareholder or any Controlled
Affiliate, or over which the
<PAGE>
United Financial Adjusting Company
November ___, 1998
Page 2
Shareholder or any Controlled Affiliate has voting power or control, directly or
indirectly, including any such shares acquired after the date hereof but prior
to the record date for any meeting of shareholders of Frontier called to
consider and vote on Transactions or any Acquisition Proposal (as defined in the
Purchase Agreement), will be voted by the Shareholder or such Controlled
Affiliates, or any representative or proxy thereof, as applicable, in favor of
the approval of the Transactions and for the election to the Board of Directors
of Frontier (the "Board") of a sufficient number of nominees selected by UFAC to
constitute a majority of the membership of the Board.
5. The Shareholder agrees that, if the Shareholder is a member of the Board
and he/she determines in his/her good faith judgment, after consultation with
legal counsel, that in the exercise of his/her fiduciary obligations it is
prudent to vote against any such individual nominated by UFAC, the Shareholder
shall provide written notice to UFAC at least ten (10) days prior to the Closing
Date (as defined in the Purchase Agreement), listing the name of such individual
and the reasons for such determination, and in such event the Shareholder will
vote in favor of a substitute nominee designated by UFAC, subject to the
Shareholder's rights under this paragraph 5. UFAC will provide Frontier with a
list of nominees, including summary biographical data, at least twenty (20) days
prior to the Closing Date.
6. The Shareholder agrees to execute, and to cause each Controlled
Affiliate to execute, such proxies and other instruments, and to take and to
cause each Controlled Affiliate to take such actions, as may be necessary to
cause all of the shares referred to in paragraph 4 to be so voted.
7. The Shareholder has all necessary power and authority to enter into this
letter agreement. This letter agreement is the legal, valid and binding
agreement of the Shareholder, and is enforceable against the Shareholder in
accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of equity.
This letter agreement shall inure to the benefit of the parties hereto and the
successors and assigns of UFAC.
8. The Shareholder agrees that damages are an inadequate remedy for the
breach by the Shareholder of any term or condition of this letter agreement and
that you shall be entitled to a temporary restraining order and preliminary and
permanent injunctive relief in order to enforce our agreements herein.
9. Except to the extent that the laws of the jurisdiction of organization
of any party hereto, or any other jurisdiction, are mandatorily applicable to
matters arising under or in connection with this letter agreement, this letter
agreement shall be governed by the laws of the State of Arizona. All actions and
proceedings arising out of or relating to this letter agreement shall be heard
and determined in any United States District Court located in the Arizona
District.
10. Each of the parties hereto irrevocably submits to the exclusive
jurisdiction of any United States District Court located in the Arizona
District, for the purpose of any action or proceeding arising out of or relating
to this letter agreement and each of the parties hereto irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
exclusively in such court. Each of the parties hereto agrees that a final
judgment in any action or proceeding shall be conclusive and may be enforced in
other jurisdictions by suit on the judgment or in any other manner provided by
law.
The Shareholder hereby irrevocably appoints Frontier, at the address set
forth in the Purchase Agreement, as its lawful agent in and for the State of
Arizona, for and in its behalf, to accept and acknowledge service of, and upon
whom may be served, all necessary processes in any action, suit, or
<PAGE>
United Financial Adjusting Company
November ___, 1998
Page 3
proceeding arising under this Agreement that may be had or brought against it in
any United States District Court located in the Arizona District, such service
of process or notice, or the acceptance thereof by said agent endorsed thereon,
to have the same force and effect as if served upon such corporation or
individual. Nothing in this paragraph 10 shall affect the right of any party
hereto to serve legal process in any other manner permitted by law. The
Shareholder hereby waives all defenses of improper venue and forum non
conveniens with respect to any action, suit, or proceeding brought in the any
such court and arising under this letter agreement.
11. This letter agreement constitutes the entire agreement between the
parties hereto with respect to the matters covered hereby and supersedes all
prior agreements, understandings or representations between the parties, written
or oral, with respect to the subject matter hereof.
12. This letter agreement shall become effective as of December 4, 1998.
This letter agreement shall remain in effect until, and shall terminate
automatically without the need for any notice or other action by either party
upon, the later of (i) the completion of the Share Purchase, and (ii) the date
on which the Board consists of a majority of members designated by UFAC in
accordance with Section 6.2(a) of the Purchase Agreement.
<PAGE>
United Financial Adjusting Company
November ___, 1998
Page 4
Please confirm that the foregoing correctly states the understanding
between us by signing and returning to me a counterpart hereof.
----------------------------------------
(Shareholder Name)
Confirmed on the date
first above written
United Financial Adjusting Company,
an Ohio corporation
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
