<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. ___)
Frontier Adjusters of America, Inc.
-----------------------------------
(Name of Issuer)
Common Stock, $.01 par value per share
--------------------------------------
(Title of Class of Securities)
359050101
---------
(CUSIP Number)
David M. Schneider
Chief Legal Officer
6300 Wilson Mills Road
Mayfield Village, Ohio 44143
(440) 461-5000
--------------
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
November 30, 1998
-----------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box / /.
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CUSIP NO. 359050101 13D PAGE 2 OF 11
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
The Progressive Corporation
34-0963169
2 CHECK APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Ohio
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,740,998
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON WITH 10 SHARED DISPOSITIVE POWER
1,740,998
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,740,998
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
-0-
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
36.1%
14 TYPE OF REPORTING PERSON
HC, CO
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CUSIP NO. 359050101 13D PAGE 3 OF 11
1 NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
United Financial Adjusting Company
34-1750521
2 CHECK APPROPRIATE BOX IF A MEMBER OF A GROUP (a) / /
(b) /x/
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC and AF (WC of The Progressive Corporation)
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEM 2(d) or 2(e) / /
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Ohio
NUMBER OF 7 SOLE VOTING POWER
SHARES -0-
BENEFICIALLY 8 SHARED VOTING POWER
OWNED BY 1,740,998
EACH 9 SOLE DISPOSITIVE POWER
REPORTING -0-
PERSON WITH 10 SHARED DISPOSITIVE POWER
1,740,998
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
1,740,998
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
-0-
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
36.1%
14 TYPE OF REPORTING PERSON
CO
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CUSIP NO. 359050101 13D PAGE 4 OF 11
ITEM 1. SECURITY AND ISSUER.
This Schedule 13D relates to the shares of Common Stock, $.01
par value per share (the "Common Shares"), of Frontier Adjusters of America,
Inc., an Arizona corporation (the "Issuer"). The principal executive offices of
the Issuer are located at 45 East Monterey Way, Phoenix, Arizona 85012.
ITEM 2. IDENTITY AND BACKGROUND.
This statement is filed jointly by the following parties
(collectively, the "Reporting Persons"): (i) United Financial Adjusting Company,
an Ohio corporation ("UFAC"), and (ii) The Progressive Corporation, an Ohio
corporation ("Progressive"), by virtue of its ownership of all of the
outstanding capital stock of UFAC. The principal business and office address of
Progressive is 6300 Wilson Mills Road, Mayfield Village, Ohio 44143. The
principal business address and office of UFAC is 747 Alpha Drive, Highland
Heights, Ohio 44143.
Progressive is an insurance holding company whose insurance
subsidiaries and affiliates provide personal automobile insurance and other
specialty property-casualty insurance and related services throughout the United
States and in Canada. UFAC is a subsidiary of Progressive that provides claim
and administrative services to insurance carriers, managing general agents and
large self-insured companies. UFAC is also a majority shareholder of a vehicle
inspection company and a claims software company.
Set forth in Appendix A hereto are the names, residence or
business addresses, present principal occupation or employment, and the name,
principal business and address of any corporation or other organization in which
such employment is conducted, of each executive officer and director of
Progressive and UFAC. Each such person is a citizen of the United States.
During the last five years, none of Progressive, UFAC or any
of the persons named in Appendix A (i) has been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors), or (ii) was a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction and as a result of such proceeding was or is subject to a judgment,
decree or final order enjoining future violations of, or prohibiting or
mandating activities subject to, federal or state securities laws, or finding
any violations with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS.
UFAC anticipates funding the $6,836,067 purchase price of the
Convertible Shares (as defined herein) from its own working capital and from
funds provided to it by Progressive. Progressive anticipates using its own
working capital to provide any funds required by UFAC for such purpose.
ITEM 4. PURPOSE OF TRANSACTION.
Under a Stock Purchase Agreement dated as of November 20, 1998
(the "Purchase Agreement") between the Issuer and UFAC, UFAC has agreed to
purchase 5,258,513 shares (the "Convertible Shares") of the Issuer's Series A
Convertible Voting Preferred Stock, $.01 par value per share, in exchange for
$6,836,067. UFAC has not yet purchased any of the Convertible Shares and, to the
best of the Reporting Persons' knowledge, the Convertible Shares have not yet
been created by the Issuer. Once issued, the Convertible Shares can be converted
into Common Shares on a share-for-share basis at certain times, subject to
certain restrictions as described herein, prior to June 30, 1999, after which
time the Convertible Shares will be converted automatically into Common Shares.
The creation of the Convertible Shares will involve the adoption of a resolution
by the Board of Directors of the Issuer (the "Board") setting forth the terms of
the Convertible Shares and the amendment of the Issuer's articles of
incorporation.
UFAC's obligation to purchase the Convertible Shares is
conditioned on, among other things, approval of the transactions contemplated by
the Purchase Agreement (the "Transactions"), including the sale of the
Convertible Shares to UFAC, by the shareholders of the Issuer (the
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CUSIP NO. 359050101 13D PAGE 5 OF 11
"Shareholders"). To the best of the Reporting Persons' knowledge, the Issuer
intends to file a proxy statement under the Securities Exchange Act of 1934, as
amended, with the Securities and Exchange Commission (the "Commission") related
to the approval of the Transactions by the Shareholders in early December 1998.
In the Purchase Agreement, the Issuer has agreed that it will
make a tender offer for certain outstanding Common Shares of the Issuer (the
"Tender Offer") as soon as reasonably practicable after the closing (the
"Closing") of UFAC's purchase of the Convertible Shares if the Transactions are
approved by the Shareholders. In the Tender Offer, the Issuer will offer to
purchase up to 1,000,000 Common Shares at a price of $2.90 per Common Share. The
Tender Offer will be conditioned on the purchase of the Convertible Shares by
UFAC. Within 60 days after completion of the Tender Offer, the Issuer will
declare and pay a distribution of $1.60 per Common Share on all remaining
outstanding Common Shares. UFAC has agreed not tender any Convertible Shares or
Common Shares in the Tender Offer and not to convert any of the Convertible
Shares into Common Shares until the earlier of the following: (i) the record
date for the payment of the distribution described in this paragraph, and (ii)
180 days after the date of the Purchase Agreement.
The Issuer has agreed to take such actions as are necessary to
cause the Board to consist of a majority of nominees named by UFAC at the
Closing. For so long as UFAC holds a number of Common Shares that is greater
than a simple majority of the outstanding Common Shares, UFAC will be entitled
to nominate at least a simple majority of the candidates to the Board. The
Reporting Persons anticipate that candidates designated by UFAC will be
nominated to fill vacancies in the Board. The Reporting Persons are not aware of
whether the Issuer will create these vacancies by director resignations or
expansion of the Board. The Issuer has agreed to cause UFAC's nominees to be
included in the slate of nominees recommended by the Board for election to the
Board after the Closing, and the Issuer agreed to use its reasonable efforts to
cause the election of such nominees.
Following the Closing, an experienced claims manager and
attorney from UFAC will begin working with William J. Rocke, the Issuer's Chief
Executive Officer, and Jean E. Ryberg, the Issuer's President, to assume
day-to-day responsibility for managing the Issuer's franchise network and the
field offices owned by the Issuer in Phoenix and Tuscon, Arizona, and Las Vegas,
Nevada. Mr. Rocke and Ms. Ryberg have each agreed to resign from their positions
as officers of the Issuer on June 30, 1999. If the Transactions are approved by
the Shareholders, a majority of the Board will be directors nominated by UFAC.
This means that UFAC's nominees to the Board will have the ability to designate
the replacements for Mr. Rocke and Ms. Ryberg and to control the management of
the Issuer following the Closing.
Except as described herein, none of the Reporting Persons has
any current plans or proposals which relate to or would result in any of the
following: (a) the acquisition by any person of additional securities of the
Issuer, or the disposition of securities of the Issuer, (b) any extraordinary
corporate transaction, such as a merger, reorganization or liquidation,
involving the Issuer or any of its subsidiaries, (c) a sale or transfer of a
material amount of assets of the Issuer or any of its subsidiaries, (d) any
change in the Board or management of the Issuer, including any plans or
proposals to change the number or term of directors or to fill any existing
vacancies on the Board of the Issuer, (e) any material change in the present
capitalization or dividend policy of the Issuer, (f) any other material change
in the Issuer's business or corporate structure, (g) any changes in the Issuer's
articles of incorporation or code of regulations (h) causing a class of
securities of the Issuer to be delisted from a national securities exchange or
to cease to be authorized to be quoted in the inter-dealer quotation system of a
registered national securities association, (i) a class of equity securities of
the Issuer becoming eligible for termination of registration pursuant to
Section12(g)(4) of the Securities Exchange Act of 1934, as amended, or (j) any
action similar to those enumerated above.
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CUSIP NO. 359050101 13D PAGE 7 OF 11
The foregoing response to this Item 4 is qualified in its
entirety by reference to the Purchase Agreement and the Terms of the Convertible
Shares, the full texts of which are respectively filed as Exhibits B and E
hereto and are incorporated herein by reference.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER.
(a) UFAC may be deemed to beneficially own 1,740,998 Common
Shares, representing approximately 36.1% of the outstanding Common Shares,
because of the Support Agreements (as defined herein). Progressive, as the
parent of UFAC, may be deemed to beneficially own all such Common Shares. John
M. Davies, the President of UFAC, owns 500 Common Shares. The Reporting Persons
disclaim beneficial ownership of the Common Shares owned by Mr. Davies.
Under the Purchase Agreement, UFAC has the right to acquire
5,258,513 Convertible Shares that are convertible into an equal number of Common
Shares, as described in Item 4. The Common Shares issuable upon the conversion
of the Convertible Shares have not been included in determining the beneficial
ownership of the Reporting Persons. The Reporting Persons believe that it will
be in excess of 60 days before the Convertible Shares are issued to UFAC because
the Issuer must convene a special meeting of the Shareholders, prepare a proxy
statement for that special meeting, file that proxy statement with the
Commission, respond to comments made by the staff of the Commission, solicit
proxies for that meeting in accordance with the rules of the Commission and the
American Stock Exchange, and obtain a favorable vote at that meeting before the
Convertible Shares may be issued.
(b) The Reporting Persons may be deemed to have shared voting
power over the shares described in Item 5(a), because under the Support
Agreements each of the Voting Parties (as defined herein) has agreed to vote in
favor of the Transactions and support the candidates nominated by UFAC to the
Board. If a Voting Party fails to vote in accordance with such party's Support
Agreement, UFAC may bring legal action to obtain specific performance of the
Voting Agreement.
The Reporting Persons may be deemed to have shared dispositive
power over the shares described in Item 5(a), because under the Support
Agreements each Voting Party agreed not to contract to sell, sell or otherwise
dispose of any Common Shares owned by that Voting Party until the termination of
the Support Agreement, as described in Item 6(b).
John M. Davies, the President of UFAC, owns 500 Common Shares.
The Reporting Persons disclaim beneficial ownership of the Common Shares owned
by Mr. Davies.
(c) Except as described herein, none of the Reporting Persons
or any of the persons identified in Appendix A has effected any transaction in
the Common Shares in the past 60 days.
(d) The Reporting Persons do not have the right to receive or
the power to direct the receipt of dividends from, or the proceeds from the sale
of, the Common Shares that are subject to the Voting Agreements and the
Reporting Persons have no knowledge of any arrangements pertaining to the
foregoing related such shares.
No person other than the Reporting Persons have the right to
receive or the power to direct the receipt of dividends from, or the proceeds
from the sale of, the Convertible Shares or the Common Shares issuable upon the
conversion thereof. Progressive, as the owner of all of the outstanding capital
stock of UFAC, has the ability to direct UFAC's receipt of dividends from, or
the proceeds from the sale of, the Convertible Shares or the Common Shares
issuable upon the conversion thereof.
(e) Not applicable.
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CUSIP NO. 359050101 13D PAGE 7 OF 11
ITEM 6. CONTRACTS, ARRANGEMENT, UNDERSTANDINGS OR RELATIONSHIPS WITH
RESPECT TO SECURITIES OF THE ISSUER.
(a) PURCHASE AGREEMENT. The Issuer and UFAC are parties to the
Purchase Agreement. The material terms of the Purchase Agreement are summarized
in Item 4.
(b) INSIDER SUPPORT AGREEMENTS. George M. Hill, Francis J.
LaPallo, Wendy J. Harrison, Louis T. Mastos, Eva B. Mastos, James S. Rocke,
Kelly 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 (each, a "Voting Party" and collectively, the "Voting
Parties"), are parties to separate Insider Support Agreements, dated as of
November 30, 1998 (except for Mr. LaPallo's and Ms. Harrison's agreements, which
are dated as of November 29, 1998) and effective as of December 4, 1998, with
UFAC (each such agreement, a "Support Agreement" and collectively, the "Support
Agreements"). Pursuant to the Support Agreements, each Voting Party agreed that
the Voting Party and any affiliates under the control of such Voting Party would
(i) not sell, transfer or dispose of any Common Shares until the termination of
such Voting Party's Support Agreement, (ii) not take any action that the Issuer
would be prohibited from taking under Section 5.4 of the Purchase Agreement
which relates to the obligations of the Issuer and the Board with respect to
proposals for a competing transaction, (iii) vote all Common Shares beneficially
owned by such persons in favor of the approval of the Transactions, and (iv)
vote all Common Shares beneficially owned by such persons in favor of the
election to the Board of a sufficient number of nominees selected by UFAC to
constitute a majority of the membership of the Board. If the Voting Party is a
member of the Board and that Voting Party determines in his or her good faith
judgment, after consultation with legal counsel, that in the exercise of his or
her fiduciary obligations it is prudent to vote against any individual nominated
by UFAC, the Voting Party shall provide written notice to UFAC at least 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 Voting Party will vote in favor of a substitute nominee designated by
UFAC, subject to the Voting Party's rights described in this sentence. UFAC
agreed to provide the Issuer with a list of nominees, including summary
biographical data, at least 20 days prior to the Closing Date.
The Voting Agreements remain in effect until, and terminate
automatically without the need for any notice or other action by either party
upon, the later of (i) the completion of the purchase of the Convertible Shares
by UFAC, 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.
(c) REGISTRATION RIGHTS AGREEMENT. Under the Purchase
Agreement, the Issuer and UFAC are required to enter into a registration rights
agreement at the Closing (the "Registration Rights Agreement") relating to the
Convertible Shares and the Common Shares issuable upon conversion thereof. The
Registration Rights Agreement will provide that UFAC may make one demand to have
the Convertible Shares or the Common Shares issuable upon conversion of the
Convertible Shares registered pursuant to the Securities Act of 1933, as amended
(the "Securities Act"). These demand registration rights are subject to certain
customary blackout rights and limitations.
UFAC also will have certain "piggy-back" registration rights.
UFAC must be notified prior to the filing of any registration statement under
the Securities Act by the Issuer. UFAC may include Shares or Common Shares
issuable upon conversion of the Convertible Shares in any such registration
statement. The Issuer must use its best efforts to include any such shares in
the registration statement.
(d) TERMS OF THE CONVERTIBLE SHARES. The Convertible Shares
are to be created prior to closing by a resolution by the Board. The Convertible
Shares vote with the Common Shares together as a single class and are
substantially equivalent to the Common Shares with respect to dividend and
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CUSIP NO. 359050101 13D PAGE 8 OF 11
liquidation rights. The conversion rights of the Convertible Shares and the
restrictions on UFAC's conversion of the Convertible Shares are summarized in
Item 4.
Except as stated in this Item 6, none of the Reporting Persons
has any contracts, arrangements, understandings or relationships (legal or
otherwise) with any other person with respect to the Common Shares, including
without limitation, any agreements concerning (i) transfer or voting of any
Common Shares, (ii) finder's fees, (iii) joint ventures, (iv) loan or option
arrangement, (v) puts or calls, (vi) guarantees of profits, (vii) division of
profits or losses, or (viii) the giving or withholding of proxies.
The foregoing response to this Item 6 is qualified in its
entirety by reference to the Purchase Agreement, the Form of Support Agreements,
the Form of the Registration Rights Agreement and the Terms of the Convertible
Shares, the full texts of which are respectively filed as Exhibits B through E
hereto and are incorporated herein by reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
A. Agreement among the Reporting Persons to file a joint
statement on Schedule 13D*
B. Stock Purchase Agreement*
C. Form of Support Agreement with a List of the Voting Persons
and the Number of Common Shares Beneficially Owned by each
Voting Person attached*
D. Form of Registration Rights Agreement*
E. Terms of the Convertible Shares*
* Filed herewith.
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CUSIP NO. 359050101 13D PAGE 9 OF 11
SIGNATURE
After reasonable inquiry and to the best of my knowledge and
belief, I certify that the information set forth in this statement is true,
complete and correct.
THE PROGRESSIVE CORPORATION
By:/s/ Charles B. Chokel
Charles B. Chokel, Treasurer
UNITED FINANCIAL ADJUSTING COMPANY
By:/s/ Janet A. Dolohanty
Janet A. Dolohanty, Vice President
Dated as of December 8, 1998
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CUSIP NO. 359050101 13D PAGE 10 OF 11
APPENDIX A
DIRECTORS AND EXECUTIVE OFFICERS
OF THE REPORTING PERSONS
The following table sets forth the name, business address,
present principal occupation or employment, the name, principal business and
address of the principal office of any corporation or other organization in
which such employment is conducted of each director and executive officer of The
Progressive Corporation ("Progressive") and United Financial Adjusting Company
("UFAC").
<TABLE>
<CAPTION>
Principal Occupation or Employment and Name, Principal
Business and Address of Organization
Name and Business Address in which Employment is Conducted(1)
- ------------------------- ---------------------------------
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A. DIRECTORS OF PROGRESSIVE
Peter B. Lewis(2)...................................... Chairman of the Board, President, Chief Executive
Officer and a director of Progressive;
Chairman of the Board, President, Chief Executive
Officer and a director of Progressive Casualty
Insurance Company, the principal subsidiary of
Progressive
Milton N. Allen........................................ Director of various companies
12 Lieutenant River Lane
Old Lyme, Connecticut 06371-2315
B. Charles Ames........................................ Principal, Clayton, Dubilier & Rice, Inc., New York,
25700 Science Park New York (investment banking)
Landmark Center, Suite 180
Beachwood, Ohio 44122-7312
James E. Bennett III................................... Senior Executive Vice President, KeyCorp (national
127 Public Square banking association)
Cleveland, Ohio 44114
Charles A. Davis....................................... Limited Partner, Goldman, Sachs Group L.P., New York,
85 Broad Street New York (investment banking)
New York, NY 10004
Stephen R. Hardis...................................... Chairman of the Board and Chief Executive Officer of
Eaton Center Eaton Corporation, Cleveland, Ohio (manufacturing)
1111 Superior Avenue
Cleveland, Ohio 44114-2507
Janet Hill............................................. President, Staubach Alexander Hill, LLC, Washington,
400 C Street, NW D.C. (commercial real estate consulting) and Vice
Washington, D.C. 20002 President, Alexander & Associates, Inc., Washington,
D.C. (management consulting)
Norman S. Matthews..................................... Consultant, New York, New York
650 Madison Avenue
23rd Floor
New York, New York 10022-1004
</TABLE>
1 The business address of the organization in which each person's
employment is conducted is the same as such person's business address.
2 The business address of each such person is 6300 Wilson Mills Road,
Mayfield Village, Ohio 44143
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CUSIP NO. 359050101 13D PAGE 11 OF 11
<TABLE>
<CAPTION>
Principal Occupation or Employment and Name, Principal
Business and Address of Organization
Name and Business Address in which Employment is Conducted(1)
- ------------------------- ---------------------------------
<S> <C>
Donald B. Shackelford.................................. Chairman of the Board, State Savings Company,
20 East Broad Street Columbus, Ohio (state chartered savings bank)
Columbus, Ohio 43215-3403
Paul B. Sigler......................................... Professor, Yale University and Investigator in the
260 Whitney Avenue/JWG 423 Howard Hughes Medical Institute, New Haven, Connecticut
P.O. Box 208114
New Haven, Connecticut 06520-8114
B. EXECUTIVE OFFICERS OF PROGRESSIVE
Peter B. Lewis(2)...................................... See Section A. above
Alan R. Bauer(2)....................................... Process Leader - International and Internet
Charles B. Chokel(2)................................... Treasurer and Chief Financial Officer
Allan W. Ditchfield(2)................................. Member of Policy Team
W. Thomas Forrester, II(2)............................. Process Leader - Ownership
William H. Graves(2)................................... Process Leader - Claims
Moira G. Lardakis(2)................................... Process Leader - Community Manager Support
Daniel R. Lewis(2)..................................... Process Leader - Agent Marketing
Robert J. McMillan(2).................................. Process Leader - Consumer Marketing
Glenn M. Renwick(2).................................... Process Leader - Technology
David M. Schneider(2).................................. Chief Legal Officer and Secretary
Tiona M. Thompson(2)................................... Chief Human Resources Officer
Robert T. Williams(2).................................. Process Leader - Product
E. DIRECTORS AND EXECUTIVE OFFICERS OF UFAC
Peter B. Lewis(2)..................................... Director and Chairman
John M. Davies......................................... Director and President
747 Alpha Drive
Highland Heights, Ohio 44143
Janet A. Dolohanty(2).................................. Director and Vice President
David M. Schneider(2).................................. Secretary
Breck T. Platner(2).................................... Treasurer
</TABLE>
1 The business address of the organization in which each person's
employment is conducted is the same as such person's business address.
2 The business address of each such person is 6300 Wilson Mills Road,
Mayfield Village, Ohio 44143
<PAGE> 1
EXHIBIT A
This Exhibit A to Schedule 13D is filed pursuant to the
requirements of Rule 13d(1)(f)(1)(iii). The undersigned, The Progressive
Corporation and United Financial Adjusting Company, hereby agree that the
Schedule 13D to which this Exhibit is attached is filed on behalf of each of the
undersigned.
THE PROGRESSIVE CORPORATION
By:/s/ Charles B. Chokel
Charles B. Chokel, Treasurer
UNITED FINANCIAL ADJUSTING COMPANY
By:/s/ Janet A. Dolohanty
Janet A. Dolohanty, Vice President
Dated as of December 8, 1998
<PAGE> 1
EXHIBIT B
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
between
FRONTIER ADJUSTERS OF AMERICA, INC.
and
UNITED FINANCIAL ADJUSTING COMPANY
dated as of
November 20, 1998
- --------------------------------------------------------------------------------
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TABLE OF CONTENTS
<TABLE>
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Page
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<S> <C>
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......................................................9
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...................................................................14
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......................................................16
Section 4.1 Organization........................................................................16
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..................................................................18
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...................................................................19
Section 5.1 Taking of Necessary Action..........................................................19
Section 5.2 Public Announcement; Confidentiality................................................20
</TABLE>
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<TABLE>
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Section 5.3 Conduct of Business.................................................................21
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...................................................................23
Section 5.9 Agreement with William Rocke........................................................23
Section 5.10 Agreement with Jean Ryberg..........................................................23
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.............................................................................24
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...............................................................26
ARTICLE 7 CLOSING DELIVERIES..................................................................................27
Section 7.1 Seller Closing Deliveries...........................................................27
Section 7.2 Buyer Closing Deliveries............................................................28
ARTICLE 8 CONDITIONS TO CLOSING...............................................................................28
Section 8.1 Conditions to Purchase at Closing...................................................28
Section 8.2 Conditions of Sale at Closing.......................................................29
ARTICLE 9 SURVIVAL; INDEMNIFICATION...........................................................................30
Section 9.1 Survival............................................................................30
Section 9.2 Indemnification by Buyer or the Seller..............................................31
Section 9.3 Third-Party Claims..................................................................31
Section 9.4 Limitations on Indemnification; Survival............................................31
ARTICLE 10 TERMINATION.........................................................................................32
Section 10.1 Termination.........................................................................32
Section 10.2 Procedure and Effect of Termination.................................................33
Section 10.3 Expenses............................................................................33
ARTICLE 11 MISCELLANEOUS.......................................................................................33
Section 11.1 Counterparts........................................................................33
Section 11.2 Governing Law.......................................................................34
Section 11.3 Jurisdiction........................................................................34
Section 11.4 Entire Agreement....................................................................34
Section 11.5 Notices.............................................................................34
Section 11.6 Successors and Assigns..............................................................35
Section 11.7 Amendments and Waivers..............................................................35
Section 11.8 Interpretation; Absence of Presumption..............................................35
Section 11.9 Severability........................................................................36
Section 11.10 Further Assurances..................................................................36
Section 11.11 Specific Performance................................................................36
</TABLE>
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SCHEDULES
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
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. sec. 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
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Environment Concern or the threatened release of Materials of Environmental
Concern at any 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. sec. 6901
ET SEQ., as amended; the Hazardous Materials Transportation Act, 49 U.S.C. sec.
1801 ET SEQ., as amended; the Toxic Substances Control Act, 15 U.S.C. sec. 2601
ET SEQ., as amended; the Clean Air Act, 42 U.S.C sec. 7401 ET SEQ., as amended;
the Clean Water Act, 33 U.S.C. sec. 1251 ET SEQ., as amended; the Safe Drinking
Water Act, 42 U.S.C. sec. 300f ET SEQ., as amended; the Emergency Planning and
Community Right to Know Act, 42 U.S.C. sec. 11001 ET SEQ., as amended; the
Federal Insecticide, Fungicide and Rodenticide Act, 7 U.S.C. sec. 136 ET SEQ.,
as amended; the National Environmental Policy Act, 42 U.S.C. sec. 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 Section6.5(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. sec. 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
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Subsidiary and the names of and percentage interest held by the other interest
holders, if any, in the Subsidiary.
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
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<PAGE> 12
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 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").
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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 ("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.
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(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 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
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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.
(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.
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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, 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.
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(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 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
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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 "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
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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 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.
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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, 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
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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 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.
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(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.
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
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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.
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
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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 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.
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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:
(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;
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(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, 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
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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.
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.
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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
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
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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, 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
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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:
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.
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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;
(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;
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(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
(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.
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(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.
(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
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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.
(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,
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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 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:
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(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 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;
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(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
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
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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, 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
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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, 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
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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: /s/ John M. Davies
Name: John M. Davies
Title: President
SELLER:
FRONTIER ADJUSTERS OF AMERICA, INC.,
an Arizona corporation
By: /s/ William J. Rocke
Name: William J. Rocke
Title: Chief Executive Officer
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<PAGE> 1
EXHIBIT C
(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 Shareholder or any Controlled
Affiliate has voting power or control, directly or indirectly, including any
<PAGE> 2
United Financial Adjusting Company
November ___, 1998
Page 2
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
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
- --------------------------------------------------------------------------------
<PAGE> 3
United Financial Adjusting Company
November ___, 1998
Page 3
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.
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<PAGE> 4
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:________________________________
- --------------------------------------------------------------------------------
<PAGE> 5
Schedule I
Ownership of Common Shares
OWNED BENEFICIALLY (INCLUDING OPTIONS TO PURCHASE COMMON SHARES)
- ----------------------------------------------------------------
<PAGE> 6
LIST OF VOTING PERSONS AND NUMBER OF SHARES
BENEFICIALLY OWNED BY EACH VOTING PERSON
<TABLE>
<CAPTION>
<S> <C>
George M. Hill
Direct: 155,000
Francis J. LaPallo and Wendy J. Harrison, his wife
Direct 20,000
Brokerage Account 2,000
Stock Options 69,564
Louis T. Mastos and Eva B. Mastos, his wife
Family Trust 183,180
Mr. Mastos' IRA 23,523
James S. Rocke and Kelly Rocke, his wife
Mr. Rocke Direct 128,000
Stock Options 48,653
Mr. Rocke's Profit Sharing Plan 3,150
Mr. Rocke's Brokerage Account 2,000
Willam J. Rocke and Garnet Rocke, his wife
Mrs. Rocke's Profit Sharing Plan 10,364
Mr. Rocke's Profit Sharing Plan 83,150
Mr. Rocke's IRA 30,000
Stock Options 48,654
Mr. Rocke's Brokerage Account 100
Jean E. Ryberg
Direct 48,694
Profit Sharing Plan 40,548
Stock Options 51,347
Merlin J. Schumann and Donna L. Schumann, his wife
Mr. Schumann Direct 884
Mr. Schumann's IRA 12,530
Mrs. Schumann's IRA 6,700
William J. Strawther, Jr. and Marjorie A. Strawther, his wife
Mr. Strawther Direct 222,069
Mrs. Strawther Direct 222,069
R. Scott Younker
Brokerage Account 58,819
Total 1,740,998
=========
</TABLE>
- --------------------------------------------------------------------------------
<PAGE> 1
EXHIBIT D
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> 2
"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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Page 2
<PAGE> 3
(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
- --------------------------------------------------------------------------------
Page 3
<PAGE> 4
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
- --------------------------------------------------------------------------------
Page 4
<PAGE> 5
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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Page 5
<PAGE> 6
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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Page 6
<PAGE> 7
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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Page 7
<PAGE> 8
(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> 1
EXHIBIT E
RESOLUTION TO BE CONSIDERED BY THE BOARD OF DIRECTORS
OF FRONTIER ADJUSTERS OF AMERICA, INC.
AUTHORIZATION OF SERIES A CONVERTIBLE VOTING PREFERRED STOCK
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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> 2
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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