-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HsMg6b3HNfjHwcgLmiLJ6vgIwiN3LZ2dy2WavbLvqvBK47HJufbEi2XY+M4qgI/f P+AGtmPaIebrYa2JRvhZ8g== 0000950147-01-501227.txt : 20010712 0000950147-01-501227.hdr.sgml : 20010712 ACCESSION NUMBER: 0000950147-01-501227 CONFORMED SUBMISSION TYPE: SC 13E3/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20010711 GROUP MEMBERS: FRONTIER ADJUSTERS OF AMERICA INC GROUP MEMBERS: MERRYMEETING, INC. GROUP MEMBERS: MM MERGER CORPORATION SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER ADJUSTERS OF AMERICA INC CENTRAL INDEX KEY: 0000735349 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 860477573 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13E3/A SEC ACT: SEC FILE NUMBER: 005-54917 FILM NUMBER: 1678719 BUSINESS ADDRESS: STREET 1: 45 E MONTEREY WAY STREET 2: STE 202 CITY: PHOENIX STATE: AZ ZIP: 85011 BUSINESS PHONE: 6022641061 MAIL ADDRESS: STREET 1: P O BOX 7610 CITY: PHOENIX STATE: AZ ZIP: 85011 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER FINANCIAL CORP /AZ DATE OF NAME CHANGE: 19861114 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: FRONTIER ADJUSTERS OF AMERICA INC CENTRAL INDEX KEY: 0000735349 STANDARD INDUSTRIAL CLASSIFICATION: PATENT OWNERS & LESSORS [6794] IRS NUMBER: 860477573 STATE OF INCORPORATION: AZ FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13E3/A BUSINESS ADDRESS: STREET 1: 45 E MONTEREY WAY STREET 2: STE 202 CITY: PHOENIX STATE: AZ ZIP: 85011 BUSINESS PHONE: 6022641061 MAIL ADDRESS: STREET 1: P O BOX 7610 CITY: PHOENIX STATE: AZ ZIP: 85011 FORMER COMPANY: FORMER CONFORMED NAME: FRONTIER FINANCIAL CORP /AZ DATE OF NAME CHANGE: 19861114 SC 13E3/A 1 e-7119.txt AMENDMENT NO. 1 TO SCHEDULE 13E-3 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Schedule 13E-3 (Rule 13e-100) Transaction Statement Under Section 13(e) of the Securities Exchange Act of 1934 and Rule 13e-3 Thereunder (AMENDMENT NO. 1) Frontier Adjusters of America, Inc. (Name of the Issuer) Frontier Adjusters of America, Inc., Merrymeeting, Inc., and MM Merger Corporation (Name of Person(s) Filing Statement) Common Stock, par value $.01 per share (Title of Class of Securities) 359050-10-1 (CUSIP Number of Class of Securities) John M. Davies, Chairman of the Board Frontier Adjusters of America, Inc. 45 East Monterey Way Phoenix, Arizona 85012 (602) 264-1061 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications on Behalf of the Person(s) Filing Statement) Copies to: Sara R. Ziskin Gallagher & Kennedy, P.A. 2575 East Camelback Road Phoenix, Arizona 85016 (602) 530-8000 This statement is filed in connection with (check the appropriate box): (a) [X] The filing of solicitation materials or an information statement subject to Regulation 14A (ss.ss. 240.14a-1 through 240.14b-1), Regulation 14C (ss.ss. 240.14c-1 through 240.14c-101) or Rule 13e-3(c) (ss. 240.13e-3(c)) under the Securities Exchange Act of 1934, as amended (the "Act"). (b) [ ] The filing of a registration statement under the Securities Act of 1933. (c) [ ] A tender offer. (d) [ ] None of the above. Check the following box if the soliciting materials or information statement referred to in checking box (a) are preliminary copies: [X] Check the following box if the filing is a final amendment reporting the results of the transaction: [ ] CALCULATION OF FILING FEE TRANSACTION VALUATION* AMOUNT OF FILING FEE ---------------------- -------------------- $14,153,103 $2,830.62 *For purposes of calculating the filing fee only. Assumes the payment of $1.58 per share in exchange for a total of 8,957,660 shares of Common Stock. The amount of the filing fee, calculated in accordance with Regulation 240.0-11(b) of the Securities Exchange Act of 1934, as amended, equals 1/50 of one percent of the value of the proposed cash payment to be made in connection with the transaction, as described in this Statement. [X] Check the box if any part of the fee is offset as provided by Regulation 240.0-11(a)(2) of the Securities Exchange Act of 1934, as amended, and identify the filing with which the offsetting fee was previously paid. Identify the previous filing by registration statement number or the Form or Schedule and the date of its filing. Amount Previously Paid: $2830.62 Form or Registration No.: PREM14A Filing Party: Frontier Adjusters of America, Inc. Date Filed: May 22, 2001
INTRODUCTION This Rule 13e-3 Transaction Statement on Schedule 13E-3 ("Statement") is being filed by Frontier Adjusters of America, Inc., an Arizona corporation ("Frontier"), Merrymeeting, Inc., a Delaware corporation ("MMI"), and MM Merger Corporation, a Delaware corporation, ("Acquisition Company"), in connection with a Plan and Agreement of Merger dated April 27, 2001 (the "Agreement"), a copy of which is attached as APPENDIX A to the proxy statement ("Proxy Statement") filed with the Securities and Exchange Commission on May 22, 2001, pursuant to Regulation 14A under the Act. Pursuant to the Agreement, Frontier will be the surviving entity in a merger with Acquisition Company, a wholly-owned subsidiary of MMI. MMI is a newly-formed corporation that is owned by John M. Davies, Frontier's Chairman of the Board, and IVM Intersurer BV, a Netherlands holding company that specializes in investing in insurance-related businesses. Under the terms of the Agreement, Acquisition Company, a wholly owned subsidiary of MMI, would merge with and into Frontier, with Frontier being the surviving entity. Each outstanding share of Frontier's common stock (the "Common Stock"), other than the shares held by MMI, would be exchanged for the right to receive $1.58 in cash, without interest, for each share of Common Stock. As a result, Frontier would cease to be a public company. The responses and cross-references presented below provide the locations in the Proxy Statement (including the appendices thereto) of the information required to be included in response to the items of this Statement. The information in the Proxy Statement is hereby expressly incorporated herein by reference, and the responses to each item in this Statement are qualified in their entirety by the information contained in the Proxy Statement. Capitalized terms contained in this Statement and not defined in this Statement shall have the meanings ascribed to them in the Proxy Statement. A copy of the Proxy Statement is attached hereto as Exhibit (a). ITEM 1. SUMMARY TERM SHEET. The information set forth in the "Summary Term Sheet" in the Proxy Statement is incorporated herein by reference. ITEM 2. SUBJECT COMPANY INFORMATION. (a) NAME AND ADDRESS. The name of the company is Frontier Adjusters of America, Inc. Its principal executive offices are located at 45 East Monterey Way, Phoenix, Arizona 85012, and its telephone number is (602) 264-1061. (b) SECURITIES. The securities subject to the transaction contemplated by this Statement are Common Stock. As of May 15, 2001 there were approximately 8,957,660 shares of Common Stock outstanding. (c) TRADING MARKET AND PRICE. The information set forth under the caption "Market Price and Dividend Information" in the Proxy Statement is incorporated herein by reference. (d) DIVIDENDS. The information set forth under the caption "Market Price and Dividend Information" in the Proxy Statement is incorporated herein by reference. (e) PRIOR PUBLIC OFFERINGS. No underwritten public offering of Common Stock has been made by the persons filing this Statement during the past three years. (f) PRIOR STOCK PURCHASES. During the past two years, Frontier, MMI, MM Merger and their affiliates have made the following purchases of shares of Common Stock. Date Purchaser Shares ---- --------- ------ June 12, 1999 Frontier 971,464 shares in a tender offer May 2, 2001 MMI 5,258,513 shares in a private purchase ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON. (a) Name and address. The name, business address and business telephone number of each filing person on this Statement are: Frontier Adjusters of America, Inc. Merrymeeting, Inc. MM Merger Corporation 45 East Monterey Way c/o Ulmer & Berne LLP c/o Ulmer & Berne LLP Phoenix, Arizona 85012 1300 East 9th Street, Suite 900 1300 East 9th Street, Suite 900 (602) 264-1061 Cleveland, Ohio 44114-1583 Cleveland, Ohio 44114-1583 (216) 621-8400 (216) 621-8400
2 The address and phone number of each executive officer and director of Frontier, of MMI and of Acquisition Company, is the same as indicated above for Frontier, for MMI and for Acquisition Company, respectively. The directors of Frontier, MMI and Acquisition Company are as follows: Frontier: Eric J. Carlstrom Director John M. Davies Chairman of the Board, CEO and President Jeffrey R. Harcourt Director, Secretary, Chief Financial Officer and Treasurer Kenneth A. Sexton Director MMI: John M. Davies Chairman of the Board, CEO and President Patrick Enthoven Director Jeffrey R. Harcourt Secretary, Chief Financial Officer and Treasurer Acquisition Company: John M. Davies Chairman of the Board, CEO and President Jeffrey R. Harcourt Director, Secretary, Chief Financial Officer and Treasurer MMI is owned and controlled by John M. Davies and IVM Intersurer BV, a Netherlands holding company that specializes in investing in insurance-related businesses. Acquisition Company is wholly-owned and controlled by MMI. Frontier is both a filing person and the subject company of this Statement. (b) BUSINESS AND BACKGROUND OF ENTITIES. MMI: MMI is a newly formed Delaware corporation formed for the purpose of purchasing and holding a majority interest in Frontier from United Financial Adjusting Company. MMI has not been convicted in a criminal proceeding during the past five years (excluding traffic violations or similar misdemeanors). MMI has not been a party to any judicial or administrative proceeding during the past five years (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining MMI from future violations of, or prohibiting activities subject to, federal or state securities laws. Acquisition Company: Acquisition Company is a newly formed Delaware corporation formed for the sole purpose of effecting the merger of Frontier with Acquisition Company, whereby Frontier would be the surviving entity, pursuant to the terms and conditions of the Agreement. Acquisition Company has not been convicted in a criminal proceeding during the past five years (excluding traffic violations or similar misdemeanors). Acquisition Company has not been a party to any judicial or administrative proceeding during the past five years (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining Acquisition Company from future violations of, or prohibiting activities subject to, federal or state securities laws. (c) BUSINESS AND BACKGROUND OF NATURAL PERSONS. With regard to the employment and background information of John M. Davies, Jeffrey R. Harcourt and Kenneth A. Sexton, three of the directors of Frontier, the information set forth under "Item 10 - Directors and Executive Officers of the Registrant" of Frontier's Annual Report on Form 10-K for the year ended June 30, 2000 is incorporated herein by reference. With regard to the employment and background information of Eric J. Carlstrom see below. With regard to the employment and background information of the directors of MMI and Acquisition Company, the information set forth under the caption "The Proposed Merger--Interests of Certain Persons in the Merger" and "Management of MMI--Current Directors and Executive Officers" in the Proxy Statement is incorporated herein by reference. The addresses of Frontier, MMI and Acquisition Company are provided above under subsection (a) of this Item 3. None of the executive officers, directors or control persons of Frontier, MMI or Acquisition Company were (i) convicted in a criminal proceeding during the last five years (excluding traffic violations or similar misdemeanors) or (ii) a party to any judicial or administrative proceeding during the past five years (except for matters that were dismissed without sanction or settlement) that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws. All executive officers and directors of Frontier, MMI and Acquisition Company are citizens of the United States, except for Patrick Enthoven who is a citizen of South Africa. 3 ERIC J. CARLSTROM, 42, has served as Senior Vice President of AON Risk Services, Inc. since 1997. Prior thereto, Mr. Carlstrom served as Senior Vice President at Alexander & Alexander, an insurance brokerage firm, from 1994 to 1997. Mr. Carlstrom holds a B.A. degree from Hofstra University. ITEM 4. TERMS OF THE TRANSACTION. (a) MATERIAL TERMS. (1) BRIEF DESCRIPTION OF THE TRANSACTION. The information set forth under the captions "The Proposed Merger--Background of the Merger," "The Proposed Merger -- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" and "The Proposed Merger -- Exchange of Securities" in the Proxy Statement is incorporated herein by reference. (2) CONSIDERATION OFFERED TO SECURITY HOLDERS. The information set forth under the captions "Summary Term Sheet -- What will I Receive in the Merger?" and "The Proposed Merger -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (3) REASONS FOR ENGAGING IN THE TRANSACTION. The information set forth under the caption "The Proposed Merger -- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" in the Proxy Statement is incorporated herein by reference. (4) VOTE REQUIRED FOR APPROVAL OF THE TRANSACTIONS. The information set forth under the captions "Voting Securities and Voting Rights" and "Required Vote, Effect of Shareholder Approval, and Related Matters" in the Proxy Statement is incorporated herein by reference. (5) MATERIAL DIFFERENCES IN THE RIGHTS OF SECURITY HOLDERS AS A RESULT OF THE TRANSACTION. The information set forth under the captions "The Proposed Merger -- Certain Effects of the Merger" and "The Proposed Merger -- Exchange of Securities" in the Proxy Statement is incorporated herein by reference. (6) ACCOUNTING TREATMENT OF THE TRANSACTIONS. Not applicable. (7) FEDERAL INCOME TAX CONSEQUENCES. The information set forth under the captions "Summary Term Sheet -- What Are the Federal Income Tax Consequences of the Merger?" and "The Proposed Merger -- Federal Income Tax Consequences" in the Proxy Statement is incorporated herein by reference. (c) DIFFERENT TERMS. No holder of the Common Stock will be treated in the Merger differently from any other holder of Common Stock. (d) APPRAISAL RIGHTS. The information set forth under the captions "Summary Term Sheet -- Do I Have Dissenters' Rights?" and "The Proposed Merger - Rights of Dissenting Shareholders" in the Proxy Statement is incorporated herein by reference. (e) PROVISIONS FOR UNAFFILIATED SECURITIES HOLDERS. None. (f) ELIGIBILITY FOR LISTING OR TRADING. Not applicable. ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS. (a) TRANSACTIONS. See Item 2(f). (b) SIGNIFICANT CORPORATE EVENTS. See Item 2(f). The information set forth under the caption "The Proposed Merger-- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (c) NEGOTIATIONS OR CONTRACTS. The information set forth under the caption "The Proposed Merger -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (e) AGREEMENTS INVOLVING THE SUBJECT COMPANY'S SECURITIES. See Item 2(f). The information set forth under the caption "The Proposed Merger -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. In addition, from time to time in the ordinary course of its business, Frontier has issued stock options to its directors, officers and employees. 4 ITEM 6. PURPOSES OF THE TRANSACTION AND PLANS OR PROPOSALS. (b) USE OF SECURITIES ACQUIRED. The information set forth under the captions "Summary Term Sheet -- What is the Proposed Merger?" and "The Proposed Merger -- Certain Effects of the Merger" in the Proxy Statement is incorporated herein by reference. (c) PLANS. (1) EXTRAORDINARY TRANSACTIONS. The information set forth under the captions "Summary Term Sheet-- What is the Proposed Merger?" and "The Proposed Merger-- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (2) PURCHASE, SALE OR TRANSFER OF A MATERIAL AMOUNT OF ASSETS OF THE SUBJECT COMPANY OR ANY OR ITS SUBSIDIARIES. Not applicable. (3) MATERIAL CHANGES IN THE PRESENT DIVIDEND RATE OR POLICY, OR INDEBTEDNESS OR CAPITALIZATION OF THE SUBJECT COMPANY. Not applicable. (4) MATERIAL CHANGES IN THE PRESENT BOARD OF DIRECTORS OR MANAGEMENT OF THE SUBJECT COMPANY. The information set for the under the captions "The Proposed Merger - Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" and "Management of MMI - Current Directors and Executive Officers" in the Proxy Statement is incorporated herein by reference. (5) OTHER MATERIAL CHANGES IN THE SUBJECT COMPANY'S CORPORATE STRUCTURE OR BUSINESS. Not applicable. (6) ANY CLASS OF EQUITY SECURITIES OF THE SUBJECT COMPANY TO BE DELISTED FROM A NATIONAL SECURITIES EXCHANGE. The information set forth under the caption "The Proposed Merger -- Certain Effects of the Merger" in the Proxy Statement is incorporated herein by reference. (7) ANY CLASS OF EQUITY SECURITIES OF THE SUBJECT COMPANY BECOMING ELIGIBLE FOR TERMINATION OF REGISTRATION UNDER SECTION 12(g)(4) OF THE ACT. The information set forth under the caption "The Proposed Merger -- Certain Effects of the Merger" in the Proxy Statement is incorporated herein by reference. (8) SUSPENSION OF THE SUBJECT COMPANY'S OBLIGATION TO FILE REPORTS UNDER SECTION 15(d) OF THE ACT. The information set forth under the caption "The Proposed Merger -- Certain Effects of the Merger" in the Proxy Statement is incorporated herein by reference. ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS. (a) PURPOSES. The information set forth under the caption "The Proposed Merger -- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" in the Proxy Statement is incorporated herein by reference. (b) ALTERNATIVES. The information set forth under the caption "The Proposed Merger -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (c) REASONS. The information set forth under the captions "The Proposed Merger -- Background of the Merger" and "The Proposed Merger-- Recommendations of the Special Committee and Board of Directors; Reasons for the Merger" in the Proxy Statement is incorporated herein by reference. (d) EFFECTS. The information set forth under the captions "Summary Term Sheet -- What Will I Receive in the Merger?," "Summary Term Sheet -- What Effects May Result from the Merger?," "The Proposed Merger -- Background of the Merger," "The Proposed Merger -- Certain Effects of the Merger," "The Proposed Merger -- Conflicts of Interest," "The Proposed Merger -- Federal Income Tax Consequences," "The Proposed Merger -- Conduct of the Business of Frontier if the Merger is Not Consummated," and "The Proposed Merger -- Conduct of Frontier's Business After the Merger" in the Proxy Statement is incorporated herein by reference. 5 ITEM 8. FAIRNESS OF THE TRANSACTION. (a) FAIRNESS. The information set forth under the captions "The Proposed Merger -- Background of the Merger," "The Proposed Merger -- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" and "The Proposed Merger -- Opinion of ComStock" in the Proxy Statement is incorporated herein by reference. (b) FACTORS CONSIDERED IN DETERMINING FAIRNESS. The information set forth under the captions, "Summary Term Sheet -- What Are the Reasons for the Merger?," "Summary Term Sheet -- Has the Board of Directors Recommended that I Vote for the Merger Agreement?," "The Proposed Merger -- Background of the Merger," "The Proposed Merger -- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" and "The Proposed Merger -- Opinion of ComStock" in the Proxy Statement is incorporated herein by reference. (c) APPROVAL OF SECURITY HOLDERS. The information set forth under the captions "Summary Term Sheet -- What Shareholder Vote is Required to Approve the Merger Agreement?," "The Proposed Merger -- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" and "Required Vote, Effect of Shareholder Approval, and Related Matters" in the Proxy Statement is incorporated herein by reference. (d) UNAFFILIATED REPRESENTATIVE. A Special Committee consisting of the three directors who do not own stock in Frontier, MMI or Acquisition Company and will not own stock in MMI after the Merger, selected ComStock Valuation Advisors, Inc. ("ComStock") to prepare a report concerning the fairness of the Merger. The information set forth under the captions "The Proposed Merger -- Background of the Merger" and "The Proposed Merger -- Opinion of ComStock" in the Proxy Statement is incorporated herein by reference. (e) APPROVAL OF DIRECTORS. The Merger was approved by the unanimous vote of the Board of Directors of Frontier, including the three directors who are not employees of Frontier. (f) OTHER OFFERS. Not applicable. ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS. (a) REPORT, OPINION OR APPRAISAL. The information set forth under the captions "Summary Term Sheet -- Did the Board and the Special Committee Retain a Financial Advisor?," "The Proposed Merger -- Background of the Merger," "The Proposed Merger -- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" and "The Proposed Merger -- Opinion of ComStock" in the Proxy Statement is incorporated herein by reference. (b) PREPARER AND SUMMARY OF THE REPORT, OPINION OR APPRAISAL. (1) IDENTITY OF THE OUTSIDE PARTY AND/OR UNAFFILIATED REPRESENTATIVE. The information set forth under the captions "Summary Term Sheet -- Did the Board and the Special Committee Retain a Financial Advisor?" and "The Proposed Merger -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (2) QUALIFICATIONS OF THE OUTSIDE PARTY AND/OR UNAFFILIATED REPRESENTATIVE. The information set forth under the captions "Summary Term Sheet -- Did the Board and the Special Committee Retain a Financial Advisor?" and "The Proposed Merger -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (3) METHOD OF SELECTION OF THE OUTSIDE PARTY AND/OR UNAFFILIATED REPRESENTATIVE. The information set forth under the captions "Summary Term Sheet -- Did the Board and the Special Committee Retain a Financial Advisor?" and "The Proposed Merger -- Background of the Merger" in the Proxy Statement is incorporated herein by reference. (4) MATERIAL RELATIONSHIP. The information set forth under the captions "The Proposed Merger -- Background of the Merger," "The Proposed Merger-- Opinion of ComStock," "The Proposed Merger -- Expenses of the Merger" and "The Proposed Merger - Interests of Certain Persons in the Merger" in the Proxy Statement is incorporated herein by reference. (5) DETERMINATION OF THE AMOUNT OF CONSIDERATION TO BE PAID. The information set forth under the caption "The Proposed Merger - Background of the Merger" in the Proxy Statement is incorporated herein by reference. 6 (6) SUMMARY OF THE NEGOTIATION, REPORT, OPINION OR APPRAISAL. The information set forth under the caption "The Proposed Merger -- Background of the Merger" and "The Proposed Merger -- Opinion of ComStock" in the Proxy Statement is incorporated herein by reference. (c) AVAILABILITY OF DOCUMENTS. The fairness opinion of ComStock will be made available for inspection and copying at the principal executive offices of Frontier during its regular business hours by any interested equity security holder of Frontier or a representative who has been so designated in writing. ITEM 10. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION. (a) SOURCE OF FUNDS. The information set forth under the captions "Summary Term Sheet-- How Will Acquisition Company Finance the Merger?" and "The Proposed Merger-- Source of Funds" in the Proxy Statement is incorporated herein by reference. (b) CONDITIONS. The information set forth under the captions "Summary Term Sheet -- How Will Acquisition Company Finance the Merger?" and "The Proposed Merger -- Source of Funds" in the Proxy Statement is incorporated herein by reference. There are no alternative financing arrangements or plans in the event the primary financing plan falls through. (c) EXPENSES. The information set forth under the caption "The Proposed Merger -- Expenses of the Merger" in the Proxy Statement is incorporated herein by reference. (d) BORROWED FUNDS. The information set forth under the captions "Summary Term Sheet-- How Will Acquisition Company Finance the Merger?" and "The Proposed Merger-- Source of Funds" in the Proxy Statement is incorporated herein by reference. ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY. (a) SECURITIES OWNERSHIP. The information set forth under the caption "Beneficial Ownership of Common Stock Prior to and After the Merger" in the Proxy Statement is incorporated herein by reference. (b) SECURITIES TRANSACTIONS. During the 60-day period prior to the date of the filing of this Statement, there have been no transactions effected by Frontier, MMI, Acquisition Company or any of their respective directors, executive officers or control persons regarding the Common Stock, other than as disclosed in Item 2(f) above. ITEM 12. THE SOLICITATION OR RECOMMENDATION. (d) INTENT TO TENDER OR VOTE IN A GOING-PRIVATE TRANSACTION. The information set forth under the caption "The Proposed Merger-- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" in the Proxy Statement is incorporated herein by reference. (e) RECOMMENDATIONS OF OTHERS. The information set forth under the captions "The Proposed Merger -- Background of the Merger" and "The Proposed Merger -- Recommendation of the Special Committee and Board of Directors; Reasons for the Merger" in the Proxy Statement is incorporated herein by reference. ITEM 13. FINANCIAL STATEMENTS. (a) FINANCIAL INFORMATION. The information and financial statements incorporated by reference under the caption "Additional Information" in the Proxy Statement are incorporated herein by reference. (b) PRO FORMA INFORMATION. Because no shares of Frontier's Common Stock will remain outstanding after the Merger, pro forma financial information is not material to the holders of the Common Stock. The information set forth under the caption "The Proposed Merger -- Pro Forma Financial Information" in the Proxy Statement is incorporated herein by reference. ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED. (a) SOLICITATIONS OR RECOMMENDATIONS. The information set forth under the caption "Solicitation" in the Proxy Statement is incorporated herein by reference. (b) EMPLOYEES AND CORPORATE ASSETS. The information set forth under the caption "Solicitation" in the Proxy Statement is incorporated herein by reference. 7 ITEM 15. ADDITIONAL INFORMATION. (b) OTHER MATERIAL INFORMATION. Not applicable. ITEM 16. EXHIBITS. (a) Amendment No. 1 to the Proxy Statement. Attached hereto. (b) Credit Agreement, dated as of April 30, 2001, by and between MMI and Fifth Third Bank (Northeastern Ohio) and Fifth Third Bank. * (c) (1) Draft Fairness Opinion of ComStock, dated April 23, 2001. (2) Fairness Opinion of ComStock, dated April 24, 2001. * (3) Revised Opinion of ComStock, dated April 24, 2001. (d) Plan and Agreement of Merger, dated as of April 27, 2001, by and among Company, MMI and Acquisition Company (attached as APPENDIX A to the Proxy Statement filed as Exhibit (a) hereto). * (f) Not applicable. (g) Not applicable. - ---------- * Filed Previously. SIGNATURES After due inquiry and to the best of the undersigned's knowledge and belief, the undersigned certify that the information set forth in this statement is true, complete and correct. Dated: July 10, 2001 FRONTIER ADJUSTERS OF AMERICA, INC. By: /s/ John M. Davies ------------------------------------- President and Chief Executive Officer Dated: July 10, 2001 MERRYMEETING, INC. By: /s/ John M. Davies ------------------------------------- President and Chief Executive Officer Dated: July 10, 2001 MM MERGER CORPORATION By: /s/ John M. Davies ------------------------------------- President and Chief Executive Officer 8 EX-16.C.3 2 ex16c1.txt DRAFT FAIRNESS OPINION OF COMSTOCK, DATED 4/23/01 Exhibit 16(c)(1) ================================================================================ FAIRNESS OPINION LETTER FOR A TENDER OFFER OF $1.58 PER SHARE FOR THE COMMON STOCK OF FRONTIER ADJUSTERS OF AMERICA, INC. ~ ANALYSIS PERFORMED AS OF APRIL 23, 2001 ~ ================================================================================ ISSUED BY COMSTOCK VALUATION ADVISORS, INC. Brad Van Horn, Managing Director 129 W. Wesley Street Wheaton, Illinois 60187 630.462.9100 CONFIDENTIAL FAIRNESS OPINION LETTER April 23, 2001 Board of Directors of Frontier Adjusters of America, Inc. 45 E. Monterey Way Phoenix, AZ 85012 At your request, ComStock Valuation Advisors, Inc. ("ComStock") has analyzed the financial fairness of a tender offer of $1.58 per share (the "Tender Offer") made to existing shareholders of record of Frontier Adjusters of America, Inc. ("Frontier" or the "Company"). DEFINITION OF VALUE ComStock's financial analysis of the Tender Offer included independently analyzing the fair value of the publicly-traded common shares of the Company. For the purpose of this independent analysis, fair value is defined as the underlying price at which the publicly-traded common stock of the Company would change hands between two independent parties, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. OWNERSHIP MIX The majority of the Company's common stock is owned by insiders. Approximately 2.0 million of the 3.9 million publicly-traded shares are held in street name, and the remaining 1.9 million shares are held in individual names. GOVERNING STANDARDS This opinion was prepared in accordance with relevant standards and guidelines issued by The Appraisal Foundation(1), The American Society of Appraisers(2), and The Internal Revenue Service(3). We also considered other generally accepted standards deemed appropriate for this engagement. In our analysis, we specifically considered pertinent factors cited in Revenue Ruling 59-60, which included, but was not limited to, a review of the following: * The nature of the business and the history of the Company; * The general economic outlook for the Company; - ---------- (1) Competency Provision, Standards 7, 9, 10, and related explanatory comments of the Uniform Standards of Professional Appraisal Practice. (2) Principles of Appraisal Practice and Code of Ethics. (3) Revenue Ruling 59-60. Frontier Adjusters of America, Inc. Board of Directors Fairness Opinion For the Tender Offer of $1.58 Per Share April 23, 2001 * The book value of the Company, and their financial condition; * The earnings capacity of the Company; * The dividend-paying capacity of the Company; * The possible existence of goodwill or other intangible values; * Past sales of the stock of the Company, and the size of the blocks of stock under consideration; * The market price of actively traded stocks of public corporations engaged in the same or similar lines of business as the Company; and * Issues of fairness typically considered in tender offers. GENERAL VALUATION APPROACH We interviewed management regarding the historical financial performance, current business status, and forecasted financial performance of the Company. We reviewed documents and other data needed to comply with the Uniform Standards of Professional Appraisal Practice as promulgated by The Appraisal Foundation; the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. In arriving at our opinion, we: * Reviewed the historical operating performance and financial condition of the Company as reflected in publicly-available financial statements for the five fiscal years ended June 30, 2000 and for the six-month period ended December 31, 2000; * Reviewed the financial forecasts for the Company for fiscal year 2001, as provided by management; * Conducted discussions with management of the Company; * Reviewed publicly available information regarding Frontier; * Reviewed the outlook for the economy and the prospects for the industry in which the Company competes; * Performed an analysis of market multiples for the companies that we considered comparable to the Company; and * Performed various other financial analyses regarding the Company and the Tender Offer as deemed appropriate. ComStock used publicly available sources to obtain information pertinent to the analysis. Specifically, we subscribe to Compustat(R), Disclosure(R), Securities Data Corporation and EDGAR for financial and other information. We deem this information to be reliable; however, we make no representation as to the accuracy or completeness of such information and have accepted such information without further verification. DISCUSSION OF INDEPENDENT VALUATION METHODS UTILIZED We applied generally accepted valuation methods to analyze the range of fair values for the common stock of the Company. To establish this range of values, the Capitalized Cash Flow Method, Discounted Cash Flow Method, Guideline Company Method, and Merger & Acquisition Method were utilized. In addition, the current trading price plus a relevant premium for control was utilized as a measure of the current fair value per share for the Company's stock. 2 Frontier Adjusters of America, Inc. Board of Directors Fairness Opinion For the Tender Offer of $1.58 Per Share April 23, 2001 The Company's equity value was calculated on a controlling interest basis, including the application of a market-based control premium that reflects the rights of a majority shareholder to control the operations of the Company and the disposition of its cash flows. A control basis of valuation is relevant when considering the financial fairness of a tender offer that is part of a transaction in which a majority of the Company's outstanding shares are being purchased. RANGE OF INDEPENDENTLY CALCULATED VALUES
Aggregate Value Valuation Method Exhibit Value Per Share Deviation - ---------------- ------- ----------- --------- --------- Current Trading Price Plus Control Premium $13,310,000 $1.49 (7.9%) Capitalized Cash Flow Method B $15,100,000 $1.69 4.5% Discounted Cash Flow Method C $15,590,000 $1.74 7.9% Guideline Company Method D $14,620,000 $1.63 1.2% Mergers & Acquisitions Method E $13,610,000 $1.52 (5.8%) ----------- ----- ---- RANGE OF VALUES Minimum Value $13,310,000 $1.49 (7.9%) Lowest Quartile Value $13,610,000 $1.52 (5.8%) Average Value $14,450,000 $1.61 0.0% Median Value $14,620,000 $1.63 1.2% Upper Quartile Value $15,100,000 $1.69 4.5% Maximum Value $15,590,000 $1.74 7.9% Mid-point of Range of Values $14,450,000 $1.61 0.0% TRANSACTION VALUE $14,160,000 $1.58 (2.0%) =========== ===== ==== TRANSACTION VALUE PERCENTILE RANKING 39% ===== BASIS OF APPRAISAL CONTROL ===========
A brief description of each valuation method is provided below and on the following pages. CURRENT TRADING PRICE PLUS CONTROL PREMIUM As of April 17, 2001 the Company's common stock traded at a value of $1.10 per share. Adding a premium for control of 35% results in a fair value per share of $1.49. CAPITALIZED CASH FLOW METHOD The Capitalized Cash Flow Method utilizes five years of historical earnings and cash flows to estimate the current value of the Company's equity. Estimated working capital and capital expenditure requirements (net of depreciation) are deducted from average historical earnings to derive the adjusted cash flow for the company. A market-based cash flow multiple is applied to the normalized adjusted historical cash flow to calculate the value of the Company's invested capital. Debt is deducted from the invested capital value to derive the value of the Company's equity on a minority interest basis. 3 Frontier Adjusters of America, Inc. Board of Directors Fairness Opinion For the Tender Offer of $1.58 Per Share April 23, 2001 Because a majority ownership interest provides its owners with the right to control the Company's operations, we then applied a control premium to calculate the Company's equity value on a controlling interest basis. A 10% discount is then deducted to reflect the pricing and liquidity risks associated with the thinly-traded market that exists for Company's shares, arriving at an equity value of $1.69 per share using the Capitalized Cash Flow Method. DISCOUNTED CASH FLOW METHOD The price of a security can also be viewed as a function of an investor's perception of expected future cash flows from the Company relative to expected cash flows from alternative investments of perceived comparable risk. Because the Discounted Cash Flow Method ("DCF") uses projected financial performance and risk-adjusted discount rates to estimate value, it can be an effective valuation tool when properly applied. We analyzed the fair value of the Company by examining a cash flow forecast over a five-year period. This forecast was based on a one-year forecast for 2001 that was provided by Company management. The expected annual free cash flows were discounted to their present value using a market-based discount rate. A residual value was also computed and discounted to its present value using an assumption of constant cash flow growth at the end of the forecast period. The present value of the forecasted cash flow stream for the next five years was combined with the present value of the residual value to derive an estimate of the Company's equity value. A 35% control premium and 10% discount for risks associated with the thinly-traded market were applied in deriving the Company's equity value of $1.74 per share using the Discounted Cash Flow Method. GUIDELINE COMPANY METHOD The Guideline Company Method uses pricing multiples developed from publicly traded stocks of relatively similar businesses to estimate the value of the Company's equity. These pricing multiples are applied to appropriate financial data for the Company, creating an array of values on a freely-traded minority interest basis. Current market pricing multiples were developed that incorporated the following financial data for the Company: 1) book value; 2) sales; 3) net earnings; and 4) after-tax cash flows. A freely-traded minority interest equity value for the Company is estimated by selecting a representative value derived from the various pricing multiples. A 35% control premium and 10% discount for risks associated with the thinly-traded market were applied in deriving the Company's equity value of $1.63 per share using the Guideline Company Method. 4 Frontier Adjusters of America, Inc. Board of Directors Fairness Opinion For the Tender Offer of $1.58 Per Share April 23, 2001 MERGER & ACQUISITION METHOD The Merger & Acquisition Method utilizes valuation multiples derived from published news reports of actual transactions involving the sale of a controlling equity interest in relatively similar privately-held companies. After examining the industry type, transaction components, and computed valuation multiple for reported transactions, representative multiples of revenue, leveraged income and cash flow are selected and applied to the relevant financial data of the Company. The result is a market-based estimate of the Company' equity value. The valuation multiples derived from the market data were reduced by 20% to reflect certain risks associated with an investment in the Company, including the presence of a thinly-traded market in which to sell the Company's common stock. The results from the three ratios utilized were averaged in deriving the Company's equity value of $1.52 per share using the Merger & Acquisition Method. IMPACT OF ADDITIONAL COMPENSATION EXPENSES Additional compensation expenses of approximately $750,000 plus benefits will likely result from new equity ownership and management of the Company. The impact of such expenses on the per share value of the stock has not been reflected in the figures provided above. Had such additional expenses been reflected, a lower per share value for Frontier's common stock would have resulted. DISCUSSION OF TRADING ACTIVITY FOR FRONTIER'S COMMON STOCK The common stock of Frontier is traded on the American Stock Exchange under the ticker symbol FAJ. Although Frontier's common stock trades on almost a daily basis, its daily trading volume is relatively low. During the last 20 trading days, the daily closing price of Frontier's stock has ranged from a low of $1.10 per share to a high of $1.45 per share. The Company's average weekly trading volume as a percentage of the total shares outstanding was compared with the companies having trading volume that is representative of the national stock exchanges. This comparison indicates that the Company's average weekly trading volume is approximately 6% of more normal trading volume experienced by other companies. This analysis suggests that the Company's trading volume may not be sufficient to guarantee that the trading prices are representative of the underlying fair market value of the Company's common stock. DISCUSSION OF PRIOR TRADING ACTIVITY FOR FRONTIER'S COMMON STOCK The Company's common stock traded at a high of $4.00 per share at various points during June through August 2000. This price was not sustainable, and is not considered to be indicative of the current fair value of the Company's common stock. TENDER OFFER COMPARED WITH 1999 TRANSACTIONS On April 29, 1999 the Company made a tender offer to purchase shares at a price of $2.90 per share, or receive a cash dividend of $1.60 as an alternative to tendering shares. This transaction resulted in an underlying value of $1.30 per common share at that time. On April 30, 1999 Progressive Corp. purchased a 58.7% equity interest in the Company for $1.30 per share. The $1.58 current tender offer is slightly higher than the $1.30 underlying common share value plus all undistributed earnings of the Company that have been generated subsequent to April 30, 1999. 5 Frontier Adjusters of America, Inc. Board of Directors Fairness Opinion For the Tender Offer of $1.58 Per Share April 23, 2001 CONCLUSION ON FAIRNESS Based on our analysis of the Tender Offer and various factors we considered to be relevant to our analysis, it is our opinion that from the perspective of the Board of Directors and solely from a financial point of view, the Tender Offer is fair to the Company's shareholders. VALUATION TERMS AND CONDITIONS INTEGRITY OF DATA SUPPLIED TO COMSTOCK In our investigation, we have assumed, without independent verification, that the materials supplied by Frontier its management or its representatives are accurate and complete and that financial data correctly reflects the results of the operations and financial condition of Frontier for the periods indicated therein in accordance with generally accepted accounting principles applied on a consistent basis. To the extent that we have also used public information and industry and statistical data from various sources, we deem this information to be reliable; however, we make no representation as to the accuracy or completeness of such information and have accepted such information without further verification. In addition, we relied upon the assurances of the employees, officers, and agents of Frontier, that they were unaware of any information or facts that would make the information provided to us incomplete or misleading. ISSUANCE DATE FOR OPINION Our opinion is also based on economic, market, financial and other conditions, as they exist as of the date of this opinion. We are under no obligation to update, revise, or reaffirm our opinion based upon changes in such conditions after the issuance of our opinion. INDEPENDENCE OF APPRAISER Our fees for this service are not contingent upon the opinion expressed. Also, neither ComStock Valuation Advisors, Inc. nor any of its employees has a present or intended financial interest in Frontier and the Company, and is independent of Frontier and the Company. This opinion is delivered to the Board of Directors of Frontier, and may not be relied upon by anyone other than Frontier's Board of Directors for any purpose. Our analyses and conclusions are designed to constitute a valuation of the common stock of the Company by ComStock Valuation Advisors, Inc. as an independent appraiser to meet the requirements of Section 401(a)(28)(C) of the U.S. Internal Revenue Code. Sincerely, By: /s/ Brad Van Horn ------------------------------------ Brad Van Horn, Managing Director COMSTOCK VALUATION ADVISORS, INC. 6 EX-16.C.3 3 ex16c3.txt REVISED OPINION OF COMSTOCK, DATED 4/23/01 Exhibit 16(c)(3) ================================================================================ FAIRNESS OPINION LETTER FOR A CASH-OUT MERGER INVOLVING THE COMMON STOCK OF FRONTIER ADJUSTERS OF AMERICA, INC. ~ ANALYSIS PERFORMED AS OF APRIL 23, 2001 ~ ================================================================================ ISSUED BY COMSTOCK VALUATION ADVISORS, INC. Brad Van Horn, Managing Director 129 W. Wesley Street Wheaton, Illinois 60187 630.462.9100 CONFIDENTIAL FAIRNESS OPINION LETTER FOR A CASH-OUT MERGER INVOLVING THE COMMON STOCK OF FRONTIER ADJUSTERS OF AMERICA, INC. ================================================================================ TABLE OF EXHIBITS Exhibit A Historical Financial Performance Exhibit B Capitalized Cash Flow Method Exhibit C Discounted Cash Flow Method Exhibit D Guideline Company Method Exhibit E Merger & Acquisition Method Exhibit F Comparative Ratio Analysis Exhibit G Stock Price History Exhibit H Qualifications of the Appraiser FAIRNESS OPINION LETTER April 24, 2001 Board of Directors of Frontier Adjusters of America, Inc. 45 E. Monterey Way Phoenix, AZ 85012 At your request, ComStock Valuation Advisors, Inc. ("ComStock") has analyzed the financial fairness of a cash-out merger, as described below (the "Merger") involving the common stock of Frontier Adjusters of America, Inc. ("Frontier" or the "Company"). SUMMARY OF THE MERGER Merrymeeting, Inc. ("MMI") will form a wholly owned subsidiary company ("Acquisition Sub"). Frontier will merge with Acquisition Sub, with Frontier being the surviving party of the Merger. The Merger will be in the form of a cash-out merger with all shareholders of Frontier receiving $1.58 per share from MMI. MMI's pre-existing approximately 58% interest in Frontier will be cancelled. DEFINITION OF VALUE ComStock's financial analysis of the Merger included independently analyzing the fair value of the publicly-traded common shares of the Company. For the purpose of this independent analysis, fair value is defined as the underlying price at which the publicly-traded common stock of the Company would change hands between two independent parties, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts. Fair value, as used in this context, does not reflect any discount for lack of control. OWNERSHIP MIX Insiders own the majority of the Company's common stock. Approximately 2.0 million of the 3.9 million publicly-traded shares are held in street name, and the remaining 1.9 million shares are held in individual names. Netrex Holdings LLC ("Netrex") and three individual shareholders own a significant majority of the outstanding shares of Frontier. GOVERNING STANDARDS This opinion was prepared in accordance with relevant standards and guidelines issued by The Appraisal Foundation(1), The American Society of Appraisers(2), and The Internal Revenue Service(3). We also considered other generally accepted - ---------- (1) Competency Provision, Standards 7, 9, 10, and related explanatory comments of the Uniform Standards of Professional Appraisal Practice. (2) Principles of Appraisal Practice and Code of Ethics. (3) Revenue Ruling 59-60. Board of Directors of Frontier Adjusters of America, Inc. Fairness Opinion Regarding the Proposed Cash-out Merger April 24, 2001 standards deemed appropriate for this engagement. In our analysis, we specifically considered pertinent factors cited in Revenue Ruling 59-60, which included, but was not limited to, a review of the following: * The nature of the business and the history of the Company; * The general economic outlook for the Company; * The book value of the Company, and their financial condition; * The earnings capacity of the Company; * The dividend-paying capacity of the Company; * The possible existence of goodwill or other intangible values; * Past sales of the stock of the Company, and the size of the blocks of stock under consideration; * The market price of actively traded stocks of public corporations engaged in the same or similar lines of business as the Company; and * Issues of fairness typically considered in Mergers. GENERAL VALUATION APPROACH We interviewed management regarding the historical financial performance, current business status, and forecasted financial performance of the Company. We reviewed documents and other data needed to comply with the Uniform Standards of Professional Appraisal Practice as promulgated by The Appraisal Foundation; the Principles of Appraisal Practice and Code of Ethics of the American Society of Appraisers. In arriving at our opinion, we: * Reviewed the historical operating performance and financial condition of the Company as reflected in publicly-available financial statements for the five fiscal years ended June 30, 2000 and for the six-month period ended December 31, 2000; * Reviewed the financial forecasts for the Company for fiscal year 2001, as provided by management; * Conducted discussions with management of the Company; * Reviewed publicly available information regarding Frontier; * Reviewed the Proxy Statement contained in the Schedule 14A and the Schedule 13E-3 (the "Schedules"); * Reviewed the outlook for the economy and the prospects for the industry in which the Company competes; * Performed an analysis of market multiples for the companies that we considered comparable to the Company; and * Performed various other financial analyses regarding the Company and the Merger as deemed appropriate. ComStock used publicly available sources to obtain information pertinent to the analysis. Specifically, we subscribe to Compustat(R), Disclosure(R), Securities Data Corporation and EDGAR for financial and other information. We deem this information to be reliable; however, we make no representation as to the accuracy or completeness of such information and have accepted such information without further verification. 2 Board of Directors of Frontier Adjusters of America, Inc. Fairness Opinion Regarding the Proposed Cash-out Merger April 24, 2001 DISCUSSION OF INDEPENDENT VALUATION METHODS UTILIZED We applied generally accepted valuation methods to analyze the range of fair values for the common stock of the Company. To establish this range of values, the Capitalized Cash Flow Method, Discounted Cash Flow Method, Guideline Company Method, and Merger & Acquisition Method were utilized. In addition, the current trading price plus a relevant premium for control was utilized as a measure of the current fair value per share for the Company's stock. The Company's equity value was calculated on a controlling interest basis, including the application of a market-based control premium of 35%, which reflects the rights of a majority shareholder to control the operations of the Company and the disposition of its cash flows. A control basis of valuation is relevant when considering the financial fairness of a cash-out merger wherein a company's minority shareholders are being forced to accept a given price per share in order to gain liquidity for their shares. RANGE OF INDEPENDENTLY CALCULATED VALUES
Aggregate Value Valuation Method Exhibit Value Per Share Deviation - ---------------- ------- ----------- --------- --------- Current Trading Price Plus Control Premium $14,520,000 $1.62 (0.5%) Capitalized Cash Flow Method B $14,190,000 $1.58 (2.8%) Discounted Cash Flow Method C $15,590,000 $1.74 6.8% Guideline Company Method D $14,620,000 $1.63 0.1% Mergers & Acquisitions Method E $13,610,000 $1.52 (6.8%) ----------- ----- ---- RANGE OF VALUES Minimum Value $13,610,000 $1.52 (6.8%) Lowest Quartile Value $14,190,000 $1.58 (2.8%) Average Value $14,510,000 $1.62 (0.6%) Median Value $14,520,000 $1.62 (0.5%) Upper Quartile Value $14,620,000 $1.63 0.1% Maximum Value $15,590,000 $1.74 6.8% Mid-point of Range of Values $14,600,000 $1.63 0.0% TRANSACTION VALUE $14,160,000 $1.58 (3.0%) =========== ===== ==== TRANSACTION VALUE PERCENTILE RANKING 24% ===== BASIS OF APPRAISAL CONTROL ===========
3 Board of Directors of Frontier Adjusters of America, Inc. Fairness Opinion Regarding the Proposed Cash-out Merger April 24, 2001 DISCUSSION OF RANGE OF FAIR VALUES The various valuation methods result in a range of appraised values per share, ranging from a low of $1.52 to a high of $1.74 per share. The appraised value from each valuation method deviates from the mid-point of the range of values by no more than 6.8%, which reflects a narrow range of values. In order to represent a fair transaction to the Company's minority shareholders, the Merger price of $1.58 per share should be significantly above the minimum value per share calculated in this appraisal. The Merger price falls in the 24th percentile of the range of values, which in our opinion is significantly above the minimum appraised value of $1.52 per share. In addition, two of the valuation methods result in an appraised value that is below the Merger price of $1.58 per share, and the Merger price is within 3% of two other valuation methods. DISCUSSION OF EACH VALUATION METHOD A brief description of each valuation method is provided below and on the following pages. CURRENT TRADING PRICE PLUS CONTROL PREMIUM As of April 23, 2001 the Company's common stock traded at a value of $1.20 per share. Adding a premium for control of 35% results in a fair value per share of $1.62. CAPITALIZED CASH FLOW METHOD The Capitalized Cash Flow Method utilizes five years of historical earnings and cash flows to estimate the current value of the Company's equity. Estimated working capital and capital expenditure requirements (net of depreciation) are deducted from average historical earnings to derive the adjusted cash flow for the company. A market-based cash flow multiple is applied to the normalized adjusted historical cash flow to calculate the value of the Company's invested capital. Debt is deducted from the invested capital value to derive the value of the Company's equity on a minority interest basis. Because a controlling interest basis is being used as the standard of value for this opinion, and a majority ownership interest provides its owners with the right to control the Company's operations, we applied a control premium to calculate the Company's equity value on a controlling interest basis. A 10% discount is then deducted to reflect the pricing and liquidity risks associated with the thinly-traded market that exists for Company's shares, arriving at an equity value of $1.58 per share using the Capitalized Cash Flow Method. DISCOUNTED CASH FLOW METHOD The price of a security can also be viewed as a function of an investor's perception of expected future cash flows from the Company relative to expected cash flows from alternative investments of perceived comparable risk. Because the Discounted Cash Flow Method ("DCF") uses projected financial performance and risk-adjusted discount rates to estimate value, it can be an effective valuation tool when properly applied. 4 Board of Directors of Frontier Adjusters of America, Inc. Fairness Opinion Regarding the Proposed Cash-out Merger April 24, 2001 We analyzed the fair value of the Company by examining a cash flow forecast over a five-year period. This forecast was based on a one-year forecast for 2001 that was provided by Company management. The expected annual free cash flows were discounted to their present value using a market-based discount rate. A residual value was also computed and discounted to its present value using an assumption of constant cash flow growth at the end of the forecast period. The present value of the forecasted cash flow stream for the next five years was combined with the present value of the residual value to derive an estimate of the Company's equity value. A 35% control premium and 10% discount for risks associated with the thinly-traded market were applied in deriving the Company's equity value of $1.74 per share using the Discounted Cash Flow Method. GUIDELINE COMPANY METHOD The Guideline Company Method uses pricing multiples developed from publicly traded stocks of relatively similar businesses to estimate the value of the Company's equity. These pricing multiples are applied to appropriate financial data for the Company, creating an array of values on a freely-traded minority interest basis. Current market pricing multiples were developed that incorporated the following financial data for the Company: 1) book value; 2) sales; 3) net earnings; and 4) after-tax cash flows. A freely-traded minority interest equity value for the Company is estimated by selecting a representative value derived from the various pricing multiples. A 35% control premium and 10% discount for risks associated with the thinly-traded market were applied in deriving the Company's equity value of $1.63 per share using the Guideline Company Method. MERGER & ACQUISITION METHOD The Merger & Acquisition Method utilizes valuation multiples derived from published news reports of actual transactions involving the sale of a controlling equity interest in relatively similar privately-held companies. After examining the industry type, transaction components, and computed valuation multiple for reported transactions, representative multiples of revenue, leveraged income and cash flow are selected and applied to the relevant financial data of the Company. The result is a market-based estimate of the Company' equity value. The valuation multiples derived from the market data were reduced by 20% to reflect certain risks associated with an investment in the Company, including the presence of a thinly-traded market in which to sell the Company's common stock. The results from the three ratios utilized were averaged in deriving the Company's equity value of $1.52 per share using the Merger & Acquisition Method. 5 Board of Directors of Frontier Adjusters of America, Inc. Fairness Opinion Regarding the Proposed Cash-out Merger April 24, 2001 DISCUSSION OF THE OFFER TO PURCHASE SHARES OWNED BY NETREX An investor group has made an offer to purchase Netrex' 58.7% ownership interest in Frontier at $1.58 per share, which is equal to the Merger price. The offer price to Netrex is at a significant premium to the current trading price of Frontier's common stock, and compensates Netrex for its controlling interest in the Company. The minority shareholders of Frontier also benefit from the premium that the Merger price reflects above the minority trading price of Frontier's stock. IMPACT OF ADDITIONAL COMPENSATION EXPENSES Additional compensation expenses of approximately $825,000 (including related employee benefits) will likely result from new equity ownership and management of the Company. These expenses will replace management fees of $300,000 currently being paid by the Company. The impact of the net expenses of $525,000 on the per share value of the stock has not been reflected in the figures provided above. Had such additional expenses been reflected, values per share ranging between $1.16 and $1.35 per share for Frontier's common stock would have resulted from the appraisal. DISCUSSION OF TRADING ACTIVITY FOR FRONTIER'S COMMON STOCK The common stock of Frontier is traded on the American Stock Exchange under the ticker symbol FAJ. Although Frontier's common stock trades on almost a daily basis, its daily trading volume is relatively low. During the last 20 trading days (March 21st - April 23rd, 2001) the daily closing price of Frontier's stock has ranged from a low of $1.10 per share to a high of $1.45 per share, averaging $1.22 per share. The Company's average weekly trading volume as a percentage of the total shares outstanding was compared with companies having trading volume that is representative of stocks traded on national stock exchanges. This comparison indicates that the Company's average weekly trading volume is approximately 6% of the trading volume experienced by companies having normal trading activity. This analysis suggests that the Board of Directors might not rely exclusively on Frontier's current trading price when considering the fairness of the Merger. Therefore, ComStock performed independent appraisal techniques in rendering our opinion to the Board of Directors regarding the fairness of the Merger. DISCUSSION OF PRIOR TRADING ACTIVITY FOR FRONTIER'S COMMON STOCK The Company's common stock traded at a high of $4.00 per share at various points during June through August 2000. Prior to April 30, 1999 Frontier's stock generally traded at a price of $1.20 or lower, and the same was true for the month of December 1999. An attempted merger of the Company into a related company is the principal reason that Frontier's stock price rose to the $4.00 per share level. Once this merger attempt failed, the trading price of Frontier's stock declined to its normal price level. The historical prices referenced above have been adjusted to reflect the impact of dividends subsequently paid. 6 Board of Directors of Frontier Adjusters of America, Inc. Fairness Opinion Regarding the Proposed Cash-out Merger April 24, 2001 MERGER COMPARED WITH 1999 TRANSACTIONS On April 29, 1999 the Company made a Merger to purchase shares at a price of $2.90 per share, or receive a cash dividend of $1.60 as an alternative to tendering shares. This transaction resulted in an underlying value of $1.30 per common share at that time. On April 30, 1999 Progressive Corp. purchased a 58.7% equity interest in the Company for $1.30 per share. The $1.58 current Merger is slightly higher than the $1.30 underlying common share value plus all undistributed earnings of the Company that have been generated subsequent to April 30, 1999. CONCLUSION ON FAIRNESS Based on our analysis of the Merger and various factors we considered to be relevant to our analysis, it is our opinion that from the perspective of the Board of Directors and solely from a financial point of view, the Merger is fair to the Company's shareholders. VALUATION TERMS AND CONDITIONS INTEGRITY OF DATA SUPPLIED TO COMSTOCK In our investigation, we have assumed, without independent verification, that the materials supplied by Frontier its management or its representatives are accurate and complete and that financial data correctly reflects the results of the operations and financial condition of Frontier for the periods indicated therein in accordance with generally accepted accounting principles applied on a consistent basis. To the extent that we have also used public information and industry and statistical data from various sources, we deem this information to be reliable; however, we make no representation as to the accuracy or completeness of such information and have accepted such information without further verification. In addition, we relied upon the assurances of the employees, officers, and agents of Frontier, that they were unaware of any information or facts that would make the information provided to us incomplete or misleading. ISSUANCE DATE FOR OPINION Our opinion is also based on economic, market, financial and other conditions, as they exist as of the date of this opinion. We are under no obligation to update, revise, or reaffirm our opinion based upon changes in such conditions after the issuance of our opinion. INDEPENDENCE OF APPRAISER Our fees for this service are not contingent upon the opinion expressed. Also, neither ComStock Valuation Advisors, Inc. nor any of its employees has a present or intended financial interest in Frontier and the Company, and is independent of Frontier and the Company. Our analyses and conclusions are designed to constitute a valuation of the common stock of the Company by ComStock Valuation Advisors, Inc. as an independent appraiser to meet the requirements of Section 401(a)(28)(C) of the U.S. Internal Revenue Code. 7 Board of Directors of Frontier Adjusters of America, Inc. Fairness Opinion Regarding the Proposed Cash-out Merger April 24, 2001 CONSENT BY COMSTOCK We hereby expressly consent to any reference to our firm in the Schedules, inclusion of this opinion as an exhibit to the Schedules, and to the filing of this opinion with any other appropriate governmental agency. Sincerely, By: /s/ Brad Van Horn ------------------------------------ Brad Van Horn, Managing Director COMSTOCK VALUATION ADVISORS, INC. 8 -----END PRIVACY-ENHANCED MESSAGE-----