-----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, JWuJGEj2erCTF7xJaghNs2Kl8ioXNuFvOGcrA7fIsN0s4uxix/w6NGSqtYHNAiqg TD7q6sgJS/k3fr3YaB251w== 0000004457-96-000073.txt : 19961101 0000004457-96-000073.hdr.sgml : 19961101 ACCESSION NUMBER: 0000004457-96-000073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961031 SROS: NASD SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERCO /NV/ CENTRAL INDEX KEY: 0000004457 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-AUTO RENTAL & LEASING (NO DRIVERS) [7510] IRS NUMBER: 880106815 STATE OF INCORPORATION: NV FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-11255 FILM NUMBER: 96651441 BUSINESS ADDRESS: STREET 1: 1325 AIRMOTIVE WY STE 100 CITY: RENO STATE: NV ZIP: 89502 BUSINESS PHONE: 7027860488 MAIL ADDRESS: STREET 1: 1325 AIRMOTIVE WAY STREET 2: SUITE 100 CITY: RENO STATE: NV ZIP: 89502 FORMER COMPANY: FORMER CONFORMED NAME: AMERCO DATE OF NAME CHANGE: 19770926 10-Q 1 AMERCO 09/96 10-Q 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from __________________ to __________________ Commission Registrant, State of Incorporation I.R.S. Employer File Number Address and Telephone Number Identification No. _______________________________________________________________________ 0-7862 AMERCO 88-0106815 (A Nevada Corporation) 1325 Airmotive Way, Ste. 100 Reno, Nevada 89502-3239 Telephone (702) 688-6300 2-38498 U-Haul International, Inc. 86-0663060 (A Nevada Corporation) 2727 N. Central Avenue Phoenix, Arizona 85004 Telephone (602) 263-6645 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]. 20,364,087 shares of AMERCO Common Stock, $0.25 par value were outstanding at October 31, 1996. 5,385 shares of U-Haul International, Inc. Common Stock, $0.01 par value, were outstanding at October 31, 1996.August 11, 1995 U-Haul International, Inc. meets the conditions set forth in General Instruction H(1)(a) and (b) of Form 10-Q and is therefore filing this form with the reduced disclosure format. 2 TABLE OF CONTENTS PART I. FINANCIAL INFORMATION Item 1. Financial Statements. a) Consolidated Balance Sheets as of September 30, 1996, March 31, 1996 and September 30, 1995................ 4 b) Consolidated Statements of Earnings for the Six Months ended September 30, 1996 and 1995............. 6 c) Consolidated Statements of Changes in Stockholders' Equity for the Six Months ended September 30, 1996 and 1995............................................. 7 d) Consolidated Statements of Earnings for the Quarters ended September 30, 1996 and 1995........... 9 e) Consolidated Statements of Cash Flows for the Six Months ended September 30, 1996 and 1995......... 10 f) Notes to Consolidated Financial Statements - September 30, 1996, March 31, 1996 and September 30, 1995................................... 11 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 18 PART II. OTHER INFORMATION Item 1. Legal Proceedings........................................ 28 Item 6. Exhibits and Reports on Form 8-K......................... 29 3 THIS PAGE LEFT INTENTIONALLY BLANK 4 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Balance Sheets September 30, March 31, September 30, ASSETS 1996 1996 1995 ---------------------------------- (unaudited) (audited) (unaudited) (in thousands) Cash and cash equivalents $ 32,380 31,168 33,283 Receivables 311,480 340,564 338,489 Inventories 54,718 45,891 51,402 Prepaid expenses 11,060 16,415 12,693 Investments, fixed maturities 879,699 879,702 800,481 Investments, other 162,697 126,587 139,713 Deferred policy acquisition costs 56,171 49,995 51,304 Other assets 56,508 20,941 18,725 --------------------------------- Property, plant and equipment, at cost: Land 214,853 212,593 210,928 Buildings and improvements 800,760 769,380 738,535 Furniture and equipment 191,826 188,734 184,189 Rental trailers and other rental equipment 150,388 256,411 258,264 Rental trucks 950,209 968,131 933,013 General rental items 22,290 24,197 49,581 --------------------------------- 2,330,326 2,419,446 2,374,510 Less accumulated depreciation 1,077,193 1,102,731 1,131,339 --------------------------------- Total property, plant and equipment 1,253,133 1,316,715 1,243,171 --------------------------------- $ 2,817,846 2,827,978 2,689,261 ================================ The accompanying notes are an integral part of these consolidated financial statements. 5 September 30, March 31, September 30, LIABILITIES AND STOCKHOLDERS' EQUITY 1996 1996 1995 --------------------------------------- (unaudited) (audited) (unaudited) (in thousands) Liabilities: Accounts payable and accrued liabilities $ 153,732 151,754 150,198 Notes and loans 940,282 998,220 796,738 Policy benefits and losses, claims and loss expenses payable 485,932 483,561 475,220 Liabilities from premium deposits 435,789 410,787 374,407 Cash overdraft 22,740 32,159 23,450 Other policyholders' funds and liabilities 31,711 25,713 25,843 Deferred income 36,694 2,926 9,533 Deferred income taxes 57,936 73,310 92,008 ---------------------------------- Stockholders' equity: Serial preferred stock, with or without par value, 50,000,000 shares authorized; 6,100,000 shares issued without par value and outstanding as of September 30, 1996, March 31, 1996 and September 30, 1995 - - - Series B preferred stock, with no par value, 100,000 shares authorized; 100,000 shares issued and outstanding as of September 30, 1996, none issued and outstanding as of March 31, 1996 and September 30, 1995 - - - Serial common stock, with or without par value, 150,000,000 shares authorized, none issued and outstanding - - - Series A common stock of $0.25 par value, 10,000,000 shares authorized, 5,762,495 shares issued as of September 30, 1996, March 31, 1996, and September 30, 1995 1,441 1,441 1,441 Common stock of $0.25 par value, 150,000,000 shares authorized, 34,237,505 shares issued as of September 30, 1996, March 31, 1996, and September 30, 1995 8,559 8,559 8,559 Additional paid-in capital 264,378 165,756 165,675 Foreign currency translation (12,451) (11,877) (10,609) Unrealized gain(loss) on investments 315 11,097 6,771 Retained earnings 680,279 609,019 605,616 --------------------------------- 942,521 783,995 777,453 Less: Cost of common shares in treasury, (15,599,609 shares as of September 30, 1996, 7,209,077 shares as of March 31, 1996, 1,380,937 shares as of September 30, 1995) 266,315 111,118 11,457 Unearned employee stock ownership plan shares 23,176 23,329 24,132 --------------------------------- Total stockholders' equity 653,030 649,548 741,864 Contingent liabilities and commitments --------------------------------- $ 2,817,846 2,827,978 2,689,261 ================================= 6 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Six Months ended September 30, (Unaudited) 1996 1995 --------------------- (in thousands except per share data) Revenues Rental and other revenue $ 555,055 504,429 Net sales 107,192 102,675 Premiums 72,749 71,385 Net investment income 25,140 23,287 --------------------- Total revenues 760,136 701,776 Costs and expenses Operating expense 406,130 353,185 Advertising expense (see note 9) 16,014 24,061 Cost of sales 62,639 58,001 Benefits and losses 66,716 68,099 Amortization of deferred acquisition costs 8,057 7,799 Depreciation 38,719 76,275 Interest expense 35,282 35,554 --------------------- Total costs and expenses 633,557 622,974 Pretax earnings from operations 126,579 78,802 Income tax expense (46,833) (28,293) --------------------- Earnings from operations before extraordinary loss on early extinguishment of debt 79,746 50,509 Extraordinary loss on early extinguishment of debt, net (2,004) - --------------------- Net earnings $ 77,742 50,509 ===================== Earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 2.43 1.16 Extraordinary loss on early extinguishment of debt, net (.07) - --------------------- Net earnings $ 2.36 1.16 ===================== Weighted average common shares outstanding 29,845,247 37,931,825 ===================== The accompanying notes are an integral part of these consolidated financial statements. 7 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Six Months ended September 30, (Unaudited) 1996 1995 ------------------- (in thousands) Series A common stock of $0.25 par value: 10,000,000 shares authorized, 5,762,495 shares issued as of September 30, 1996, March 31, 1996 and September 30, 1995 Beginning and end of period $ 1,441 1,441 ------------------ Common stock of $0.25 par value: 150,000,000 shares authorized, 34,237,505 shares issued as of September 30, 1996, March 31, 1996 and September 30, 1995 Beginning and end of period 8,559 8,559 ------------------- Additional paid-in capital: Beginning of period 165,756 165,675 Issuance of preferred stock 98,622 - ------------------- End of period 264,378 165,675 ------------------- Foreign currency translation: Beginning of period (11,877) (12,435) Change during period (574) 1,826 ------------------- End of period (12,451) (10,609) ------------------- Unrealized gain (loss) on investments: Beginning of period 11,097 (6,483) Change during period (10,782) 13,254 ------------------- End of period 315 6,771 ------------------- Retained earnings: Beginning of period 609,019 561,589 Net earnings 77,742 50,509 Dividends paid to stockholders: Preferred stock: ($1.06 per share for 1996 and 1995, respectively) (6,482) (6,482) ------------------- End of period 680,279 605,616 ------------------- The accompanying notes are an integral part of these consolidated financial statements. 8 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Changes in Stockholders' Equity Six Months ended September 30, (Unaudited) 1996 1995 ------------------- (in thousands) Less Treasury stock: Beginning of period 111,118 10,461 Net increase (8,390,532 shares in 1996 and 45,000 shares in 1995) 155,197 996 ----------------- End of period 266,315 11,457 ----------------- Less Unearned employee stock ownership plan shares: Beginning of period 23,329 14,953 Increase in loan - 3,168 Proceeds from loan (153) (137) ----------------- End of period 23,176 24,132 ----------------- Total stockholders' equity $ 653,030 741,864 ================= The accompanying notes are an integral part of these consolidated financial statements. 9 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Earnings Quarters ended September 30, (Unaudited) 1996 1995 ----------------------- (in thousands except per share data) Revenues Rental and other revenue $ 295,483 269,118 Net sales 51,213 49,559 Premiums 41,594 40,683 Net investment income 12,138 11,907 ----------------------- Total revenues 400,428 371,267 Costs and expenses Operating expense 215,351 178,939 Advertising expense (see note 9) 7,868 7,192 Cost of sales 31,058 29,042 Benefits and losses 43,458 40,858 Amortization of deferred acquisition costs 4,035 4,871 Depreciation 19,940 38,582 Interest expense 16,426 16,722 ----------------------- Total costs and expenses 338,136 316,206 Pretax earnings from operations 62,292 55,061 Income tax expense (22,551) (19,729) ----------------------- Earnings from operations before extraordinary loss on early extinguishment of debt 39,741 35,332 Extraordinary loss on early extinguishment of debt, net (2,004) - ----------------------- Net earnings $ 37,737 35,332 ======================= Earnings per common share: Earnings from operations before extraordinary loss on early extinguishment of debt $ 1.32 .85 Extraordinary loss on early extinguishment of debt, net (.07) - ----------------------- Net earnings $ 1.22 .85 ======================= Weighted average common shares outstanding 27,675,192 37,905,225 ======================= The accompanying notes are an integral part of these consolidated financial statements. 10 AMERCO AND CONSOLIDATED SUBSIDIARIES Consolidated Statements of Cash Flows Six Months ended September 30, (Unaudited) 1996 1995 -------------------- (in thousands) Cash flows from operating activities: Net earnings $ 77,742 50,509 Depreciation and amortization 48,582 84,339 Provision for losses on accounts receivable 1,841 2,819 Net (gain) loss on sale of real and personal property (6,980) 581 Gain (loss) on sale of investments 50 (2,970) Changes in policy liabilities and accruals 6,887 1,146 Additions to deferred policy acquisition costs (10,469) (11,954) Net change in other operating assets and liabilities (16,337) 27,389 -------------------- Net cash provided by operating activities 101,316 151,859 -------------------- Cash flows from investing activities: Purchases of investments: Property, plant and equipment (134,247) (143,082) Fixed maturities (90,891) (162,081) Real estate (767) (5,629) Mortgage loans (8,944) (7,384) Proceeds from sale of investments: Property, plant and equipment 200,785 97,030 Fixed maturities 68,895 89,348 Real estate 389 570 Mortgage loans 12,943 17,573 Changes in other investments (40,510) 1,186 -------------------- Net cash provided (used) by investing activities 7,653 (112,469) -------------------- Cash flows from financing activities: Net change in short-term borrowings (177,500) (163,500) Proceeds from notes 337,500 140,184 Debt issuance costs (4,125) (636) Loan to leveraged Employee Stock Ownership Plan - (3,168) Proceeds from leveraged Employee Stock Ownership Plan 153 137 Principal payments on notes (217,938) (61,168) Issuance of preferred stock 98,622 - Net change in cash overdraft (9,419) (7,913) Dividends paid (6,482) (6,482) Treasury stock acquisitions (155,197) (996) Investment contract deposits 54,554 101,667 Investment contract withdrawals (27,925) (39,518) -------------------- Net cash used by financing activities (107,757) (41,393) -------------------- Increase (decrease)in cash and cash equivalents 1,212 (2,003) Cash and cash equivalents at beginning of period 31,168 35,286 -------------------- Cash and cash equivalents at end of period $ 32,380 33,283 -------------------- The accompanying notes are an integral part of these consolidated financial statements. 11 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements September 30, 1996, March 31, 1996 and September 30, 1995 (Unaudited) 1. PRINCIPLES OF CONSOLIDATION AMERCO, a Nevada corporation (the Company), is the holding company for U-Haul International, Inc. (U-Haul), Ponderosa Holdings, Inc. (Ponderosa), and Amerco Real Estate Company (AREC). The consolidated financial statements include the accounts of the parent corporation, AMERCO, and its subsidiaries, all of which are wholly-owned. All material intercompany accounts and transactions of AMERCO and its subsidiaries have been eliminated. The consolidated balance sheets as of September 30, 1996 and 1995, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for the six months ended September 30, 1996 and 1995 are unaudited; in the opinion of management, all adjustments necessary for a fair presentation of such financial statements have been included. Such adjustments consisted only of normal recurring items. Interim results are not necessarily indicative of results for a full year. The operating results and financial position of AMERCO's consolidated insurance operations are determined on a one quarter lag. There were no effects related to intervening events which would significantly affect consolidated financial position or results of operations for the financial statements presented herein. Based on an in-depth market analysis, the Company increased the estimated salvage value of certain rental trucks during the third and fourth quarters of fiscal year ended March 31, 1996. The financial statements and notes are presented as permitted by Form 10-Q and do not contain certain information included in the Company's annual financial statements and notes. Earnings per share are computed based on the weighted average number of shares outstanding, excluding shares of the employee stock ownership plan that have not been committed to be released. Net income is reduced for preferred dividends for purposes of the calculation. Certain reclassifications have been made to the financial statements for the quarter ended September 30, 1995 to conform with the current year's presentation. 12 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 2. INVESTMENTS A comparison of amortized cost to market for fixed maturities is as follows (in thousands, except for par value): June 30, 1996 Par Value Gross Gross Estimated - ----------------- Consolidated or number Amortized unrealized unrealized market Held-to-Maturity of shares cost gains losses value ------------------------------------------------------ U.S. treasury securities and government obligations $ 17,805 $ 17,713 1,163 - 18,876 U.S. government agency mortgage backed securities $ 57,843 57,434 520 (2,497) 55,457 Obligations of states and political subdivisions $ 33,100 32,838 1,110 (227) 33,721 Corporate securities $ 186,971 191,427 2,422 (3,614) 190,235 Mortgage-backed securities $ 98,349 96,577 1,215 (2,912) 94,880 Redeemable preferred stocks 221 6,471 251 (184) 6,538 ---------------------------------------- 402,460 6,681 (9,434) 399,707 ---------------------------------------- June 30, 1996 Par Value Gross Gross Estimated - --------------- Consolidated or number Amortized unrealized unrealized market Available-for-Sale of shares cost gains losses value ----------------------------------------------------- U.S. treasury securities and government obligations $ 11,685 11,780 905 - 12,685 U.S. government agency mortgage backed securities $ 26,252 25,736 143 (389) 25,490 States, municipalities and political subdivisions $ 7,100 7,023 485 (34) 7,474 Corporate securities $ 340,024 345,964 5,163 (6,798) 344,329 Mortgage-backed securities $ 85,947 85,338 912 (1,595) 84,655 Redeemable preferred stocks 106 2,596 22 (12) 2,606 ---------------------------------------- 478,437 7,630 (8,828) 477,239 ---------------------------------------- Total $ 880,897 14,311 (18,262) 876,946 ======================================== 13 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 3. SUMMARIZED CONSOLIDATED FINANCIAL INFORMATION OF PONDEROSA HOLDINGS, INC. AND ITS SUBSIDIARIES A summary consolidated balance sheet (unaudited) for Ponderosa Holdings, Inc. and its subsidiaries is presented below: September 30, 1996 1995 ---------------------- (in thousands) Investments - fixed maturities $ 879,699 800,481 Other investments 98,910 117,972 Receivables 150,100 151,546 Deferred policy acquisition costs 56,171 51,304 Due from affiliate 36,947 22,603 Deferred federal income taxes 7,865 4,671 Other assets 14,977 8,067 ---------------------- Total assets $ 1,244,669 1,156,644 ====================== Policy liabilities and accruals $ 411,865 409,521 Unearned premiums 74,266 65,699 Premium deposits 435,789 374,407 Other policyholders' funds and liabilities 32,706 28,263 ---------------------- Total liabilities 954,626 877,890 Stockholder's equity 290,043 278,754 ---------------------- Total liabilities and stockholder's equity $ 1,244,669 1,156,644 ====================== A summarized consolidated income statement (unaudited) for Ponderosa Holdings, Inc. and its subsidiaries is presented below: Six months ended September 30, 1996 1995 ---------------------- (in thousands) Premiums $ 79,056 76,442 Net investment income 24,542 23,395 Other income 1,178 4,592 --------------------- Total revenue 104,776 104,429 Benefits and losses 66,716 68,099 Amortization of deferred policy acquisition costs 8,057 7,799 Other expenses 14,712 12,121 --------------------- Income from operations 15,291 16,410 Federal income tax expense (4,934) (4,617) --------------------- Net income $ 10,357 11,793 ===================== The Company has engaged an investment banking firm to explore various alternatives with regard to Oxford, its life insurance subsidiary. Such alternatives may include strategic alliances with other insurance companies or Oxford's possible sale. 14 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 4. NOTES AND LOANS On July 18, 1996, the Company extinguished debt of approximately $76,250,000 by irrevocably placing cash into a trust of U.S. Treasury securities to be used to satisfy scheduled payments of principal and interest. In August 1996, the Company extinguished $86,400,000 of its long-term notes originally due in fiscal 1997 through fiscal 1999. The above transactions resulted in an extraordinary loss of $2,004,000 net of tax of $1,541,000 ($0.07 per share). 5. STOCKHOLDERS' EQUITY On July 19, 1996, pursuant to the judgment in the Shoen Litigation, the Company paid CEMAR, Inc. (Cemar) approximately $15,857,000 to repurchase 2,331,984 shares of Common Stock held by Cemar. On the same date the Company paid damages to Cecilia M. Hanlon of approximately $43,139,000 and statutory post-judgment pre- petition interest on the above amounts of approximately $129,000. On August 6, 1996, the Company funded approximately $8,283,000 of post-petition date interest by depositing the same into an escrow account pending the outcome of a dispute involving the entitlement of the plaintiffs in the Shoen Litigation to post-petition date interest. The Common Stock held by Cemar was transferred into the Company treasury. Cecilia M. Hanlon, the sole voting stockholder of Cemar, is the sister of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. On August 30, 1996, the Company issued 100,000 shares of its Series B Preferred Stock with no par value for $100,000,000. Dividends are cumulative with the rate being reset quarterly and have priority as to dividends over the Company's common stock. The Series B Preferred will be convertible, in certain events, at the holder's option, into either shares of the Company's Series B Common Stock, $0.25 par value or all of the outstanding shares of Picacho Peak Investment Co., a subsidiary of AMERCO. On September 6, 1996, pursuant to the judgment in the Shoen Litigation, the Company paid Katabasis International, Inc. (Katabasis) approximately $27,485,000 to repurchase 4,041,924 shares of Common Stock held by Katabasis. The Company also paid damages to Samuel W. Shoen of approximately $74,771,000 and statutory post-judgment pre-petition interest on the above amounts of approximately $224,000. The Company also funded approximately $15,726,000 of post-petition date interest by depositing the same into an escrow account pending the outcome of a dispute involving the entitlement of the plaintiffs in the Shoen Litigation to post- petition date interest. The Common Stock held by Katabasis was transferred into the Company treasury. Samuel W. Shoen, the sole voting stockholder of Katabasis, is the brother of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. 15 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 5. STOCKHOLDERS' EQUITY, continued On September 20, 1996, pursuant to the judgment in the Shoen Litigation, the Company paid Kattydid, Inc. (Kattydid) approximately $8,719,000 to repurchase 1,282,248 shares of Common Stock held by Kattydid. The Company paid damages to Katrina (Shoen) Carlson of approximately $37,305,000 and statutory post-judgment pre-petition interest on the above amounts of approximately $112,000. The Company also paid Katrina (Shoen) Carlson approximately $4,994,000 to repurchase 734,376 shares of Common Stock held by her and funded approximately $8,041,000 of post- petition date interest by depositing the same into an escrow account pending the outcome of a dispute involving the entitlement of the plaintiffs in the Shoen Litigation to post-petition date interest. The Common Stock held by Kattydid and Katrina (Shoen) Carlson was transferred into the Company treasury. Katrina (Shoen) Carlson, the sole voting stockholder of Kattydid, is the sister of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. On October 1, 1996, pursuant to the judgment in the Shoen Litigation, the Company paid Mickl, Inc. (Mickl) approximately $27,444,000 to repurchase 4,035,924 shares of Common Stock held by Mickl. On the same date the Company paid net damages to Michael L. Shoen of approximately $73,158,000 and statutory post-judgment pre- petition interest on the above amounts of approximately $224,000. On the same date, the Company paid Michael L. Shoen approximately $3,000 to repurchase 380 shares of Common Stock held by him and funded approximately $16,400,000 of post-petition date interest by depositing the same into an escrow account pending the outcome of a dispute involving the entitlement of the plaintiffs in the Shoen Litigation to post-petition date interest. The Common Stock held by Mickl and Michael L. Shoen was transferred into the Company treasury. Michael L. Shoen, the sole voting stockholder of Mickl, is the brother of Edward J., Mark V., and James P. Shoen, who are major stockholders and directors of the Company. See Part II. Item 1. Legal Proceedings for more information on the Shoen Litigation. 6. CONTINGENT LIABILITIES AND COMMITMENTS During the six months ended September 30, 1996, U-Haul Leasing & Sales Co., a wholly-owned subsidiary of U-Haul International, Inc., entered into ten transactions, whereby the Company sold rental trucks or trailers and subsequently leased them back. AMERCO has guaranteed $13,512,000 of residual values at September 30, 1996 on the rental trucks and trailers at the end of the lease term. U-Haul entered into one transaction, whereby the Company sold rental trailers and subsequently leased them back. Also, U- Haul entered into three transactions, whereby the Company sold and subsequently leased back computer equipment. Following are the lease commitments for the leases executed during the six months ended September 30, 1996, which have a term of more than one year (in thousands): Year ended Lease March 31, Commitments ------------------------ 1997 $ 17,331 1998 24,135 1999 24,135 2000 24,135 2001 23,153 Thereafter 112,690 ------- $ 225,579 ======= 16 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 6. CONTINGENT LIABILITIES AND COMMITMENTS, continued In the normal course of business, the Company is a defendant in a number of suits and claims. The Company is also a party to several administrative proceedings arising from state and local provisions that regulate the removal and/or clean-up of underground fuel storage tanks. It is the opinion of management that none of such suits, claims, or proceedings involving the Company, individually or in the aggregate are expected to result in a material loss. 7. SUPPLEMENTAL CASH FLOWS INFORMATION The (increase) decrease in receivables, inventories and accounts payable and accrued liabilities net of other operating and investing activities follows: Six months ended September 30, 1996 1995 -------------------- (in thousands) Receivables $ 22,396 (35,299) ===================== Inventories $ (8,827) (1,065) ===================== Accounts payable and accrued liabilities $ 1,779 22,585 ===================== Income taxes paid in cash amounted to $1,694,000 and $143,000 for the quarters ended September 30, 1996 and 1995, respectively. Interest paid in cash amounted to $36,173,000 and $36,755,000 for the quarters ended September 30, 1996 and 1995, respectively. 8. RELATED PARTIES During the six months ended September 30, 1996, a subsidiary of the Company received principal payments of $84,001,000, interest payments of $3,839,000 and management fees of $745,000 from Three SAC Self-Storage Corporation (Three SAC). Three SAC's voting common stock is owned by SAC Holding Corporation (SAC Holding) and the non- voting preferred stock is owned by SAC Non-Business Trust. The voting common stock of SAC Holding is held by Mark V. Shoen, a major stockholder, director and officer of the Company. Three SAC properties are currently managed by the Company pursuant to a management agreement, under which the Company receives a management fee equal to 6% of the gross receipts from the properties. The management fee percentage is consistent with the fee received by the Company for other properties managed by the Company. On June 27, 1996, a subsidiary of the Company sold Three SAC notes of $86,000,000 to an outside party. As of September 30, 1996, a subsidiary of the Company funded the purchase of seventeen properties, with one additional property funded subsequent to the quarter end, by Four SAC Self-Storage Corporation (Four SAC) for an amount of approximately $15,487,000. Four SAC is owned by SAC Holding. The voting common stock of SAC Holding is held by Mark V. Shoen, a major stockholder, director, and officer of the Company. Four SAC acquired three of the properties from a subsidiary of the Company at a purchase price equal to the Company's acquisition cost plus capitalized costs. Such properties are currently managed by the Company for which the Company will receive a management fee equal to 6% of the gross receipts from the properties. The management fee percentage is consistent with the fee received by the Company for other properties managed by the Company. 17 AMERCO AND CONSOLIDATED SUBSIDIARIES Notes to Consolidated Financial Statements, Continued (Unaudited) 9. NEW ACCOUNTING STANDARDS On April 1, 1996, the Company adopted Statement of Financial Accounting Standards No. 121 - Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of. Effective for fiscal years beginning after December 15, 1995 the standard establishes accounting standards for the impairment of long-lived assets, certain identifiable intangibles, and goodwill related to those assets to be held and used and for long-lived assets and certain identifiable intangibles to be disposed of. The adoption of this statement had no impact on the financial condition or results of operations of the Company. On April 1, 1995, the Company implemented Statement of Position 93-7, "Reporting on Advertising Costs", issued by the Accounting Standards Executive Committee in December 1993. This statement of position provides guidance on financial reporting on advertising costs in annual financial statements. Upon implementation, the Company recognized additional advertising expense of $8,647,000 for advertising costs not qualifying as direct-response. The adoption had the effect of reducing net income by $5,474,000 ($0.15 per share) for the six months ended September 30, 1995. Other pronouncements issued by the Financial Standards Board with future effective dates are either not applicable or not material to the consolidated financial statements of the Company. 18 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. RESULTS OF OPERATIONS The following table shows industry segment data from the Company's three industry segments: rental operations, life insurance and property and casualty insurance, for the six months ended September 30, 1996 and 1995. Rental operations is composed of the operations of U-Haul and Amerco Real Estate Company. Life insurance is composed of the operations of Oxford Life Insurance Company (Oxford). Property and casualty insurance is composed of the operations of Republic Western Insurance Company (RWIC). The Company's results of operations have historically fluctuated from quarter to quarter. In particular, the Company's U-Haul rental operations are seasonal and proportionately more of the Company's revenues and net earnings are generated in the first and second quarters each fiscal year (April through September). Property/ Adjustments Rental Life Casualty and Operations Insurance Insurance Eliminations Consolidated ----------------------------------------------------------- (in thousands) Six months ended September 30, 1996 Revenues: Outside $ 661,958 23,740 74,438 - 760,136 Intersegment - 782 5,843 (6,625) - ------------------------------------------------------- Total revenues 661,958 24,522 80,281 (6,625) 760,136 ======================================================== Operating profit $ 146,570 5,590 9,701 - 161,861 =========================================== Interest expense 35,282 -------- Pretax earnings from operations $ 126,579 ======== Identifiable assets $1,908,032 621,686 622,983 (334,855) 2,817,846 ======================================================= Property/ Adjustments Rental Life Casualty and Operations Insurance Insurance Eliminations Consolidated ----------------------------------------------------------- (in thousands) Six months ended September 30, 1995 Revenues: Outside $ 602,687 24,265 74,824 - 701,776 Intersegment (270) 708 4,662 (5,100) - ------------------------------------------------------- Total revenues 602,417 24,973 79,486 (5,100) 701 776 ======================================================= Operating profit $ 97,676 6,838 9,572 270 114,356 ========================================== Interest expense 35,554 -------- Pretax earnings from operations $ 78,802 ======== Identifiable assets $1,845,370 563,138 593,506 (312,753) 2,689,261 ======================================================= 19 SIX MONTHS ENDED SEPTEMBER 30, 1996 VERSUS SIX MONTHS ENDED SEPTEMBER 30, 1995 U-Haul U-Haul revenues consist of (i) total rental and other revenue and (ii) net sales. Total rental and other revenue increased by $54.0 million, approximately 10.8%, to $554.2 million in the first six months of fiscal 1997. The increase reflects higher net revenues from the rental of moving related equipment and self-storage facilities which increased $27.3 million due to growth (volume) in truck rental transactions, additional rentable square footage, and an increase in management fees from storage facilities managed for others. Other revenue increased $26.7 million. Contributing to the increase is the recognition of increased net gains on the sale of real and personal property of $7.6 million over the comparable period for fiscal 1996. Net sales revenues were $107.2 million in the first six months of fiscal 1997, which represents an increase of approximately 4.4% from the first six months of fiscal 1996 net sales of $102.7 million. Revenue growth from the sale of moving support items, hitches, and propane resulted in a $5.0 million increase during the six months, which was partially offset by a decrease in gasoline sales consistent with the Company's ongoing efforts to remove underground storage tanks and gradually discontinue gasoline sales. Cost of sales was $62.6 million in the first six months of fiscal 1997, which represents an increase of approximately 8.0% from $58.0 million for the same period in fiscal 1996. This increase in cost of sales reflects higher material costs from the sale of moving support items, hitches and propane which can be primarily attributed to higher sales levels and increased allowance for inventory shrinkage. Operating expenses increased to $398.0 million in the first six months of fiscal 1997 from $346.460.7 million in the first six months of fiscal 1996, an increase of15.6 approximately 14.97%. Rental equipment maintenance costs increased $20.7 million due to an increase in fleet size and transaction levels. Personnel expense increased $13.7 million due to higher levels of business activity. All other operating expense categories increased in the aggregate by $17.2 million compared to the prior year. Advertising expense decreased to $16.0 million in the first six months of fiscal 1997 from $24.1 million in the first six months of fiscal 1996. The decrease primarily reflects a one-time expense of $8.7 million recognized during the first six months of fiscal 1996, due to the adoption of Statement of Position 93-7 which requires immediate recognition of advertising costs not qualifying as direct-response. Depreciation expense for the first six months of fiscal 1997 was $38.7 million, as compared to $76.3 million during the same period of the prior year. During the third and fourth quarters of fiscal 1996, based on the Company's in-depth market analysis, the Company increased the estimated salvage value of certain rental trucks. Oxford - Life Insurance Premiums from Oxford's reinsurance lines before intercompany eliminations were $10.6 million for the six months ended June 30, 1996, or 74.1% of total premiums for that period. This represents an increase of $1.7 million over the same period in 1995 or an increase of 19.1%. Reinsurance premiums are primarily from term life insurance, deferred annuity contracts that have matured, and credit insurance business. Increases in premiums are primarily from the anticipated increase in annuitizations as a result of the maturing of deferred annuities and from additional production in the credit life and credit accident and health business. Premiums from Oxford's direct lines before intercompany eliminations were $3.7 million for the six months ended June 30, 1996, a decrease of $0.3 million. This decrease in direct premium is primarily attributable to the credit insurance business. Oxford's direct business related to group life and disability coverage issued to employees of the Company for the six months ended June 30, 1996 accounted for approximately 7.5% of premiums. Other direct lines, including the credit insurance business, accounted for approximately 18.4% of Oxford's premiums for the six months ended June 30, 1996. 20 Net investment income before intercompany eliminations was $$9.4 million and $8.0 million for the six month periods ended June 30, 1996 and 1995, respectively. This increase is primarily due to increases in deposit funds from additional production and increasing margins on the interest sensitive business. Other income is comprised of gains/(losses) on the disposition of investments and income on the surrender of deferred annuity products. Gains/(losses) on the disposition of investments were ($0.4) million and $2.9 million for the six months ended June 30, 1996 and 1995, respectively. Oxford had $1.2 million and $1.0 million of ssurrender charge income, for the six month period ended June 30, 1996 and 1995, respectively. Benefits and expenses incurred were $18.9 million for the six months ended June 30, 1996, an increase of 4.4% from 1995. Comparable benefits and expenses incurred for 1995 were $18.1 million. This increase is primarily due to the increase in annuitizations discussed above. Operating profit before intercompany eliminations decreased by $1.2 million, or approximately 17.6%, in 1996 to $5.6 million, primarily due to a decrease in gains on the disposition of fixed maturity investments. RWIC - Property and Casualty RWIC gross premium writings for the six months ended June 30, 1996 were $89.4 million as compared to $81.4 million in the first six months of 1995. This represents an increase of $8.0 million, or 9.8%. As in prior years, the rental industry market accounts for a significant share of total premiums, approximately 46.0% and 41.5% in the first six months of 1996 and 1995, respectively. These writings include U-Haul customers, fleetowners and U-Haul as well as other rental industry insureds with similar characteristics. RWIC continues underwriting professional reinsurance via broker markets. Premiums in this area increased during the first six months of 1996 to $28.8 million, or 32.2% of total gross premiums, from comparable 1995 figures of $27.9 million, or 34.3% of total premiums. Premium writings in selected general agency lines are expected to remain consistent with prior years. Premiums from selected general agency lines accounted for 13.5% of written premiums in the first six months of 1996 as compared to 16.9% in the first six months of 1995. RWIC continued its direct multiple peril coverage of various commercial properties and businesses in 1996. These premiums accounted for 8.2% of the total gross written premium during first six months of 1996, as compared to 6.3% for the first six months of 1995. Net earned premiums increased $1.3 million, or 2.1%, to $64.8 million for the six months ended June 30, 1996, compared with premiums of $63.5 million for the six months ended June 30, 1995. The premium increase was primarily due to improved processing. Underwriting expenses incurred were $70.6 million for the six months ended June 30, 1996, an increase of $0.7 million, or 1.0% over 1995. Comparable underwriting expenses incurred for the first six months of 1995 were $69.9 million. The increase is attributed to increased commission expense offset by decreased loss and loss adjusting expenses. The increased commission expense resulted from a smaller adjustment to realize a margin on a canceled general agency program, combined with increased acquisition expense on assumed treaty reinsurance business. The reduction in loss and loss adjusting expenses occurred in the rental industry liability and assumed treaty reinsurance lines. Net investment income was $15.2 million for the six months ended June 30, 1996, a decrease of 0.7% from the six months ended June 30, 1995 net investment income of $15.3 million. RWIC completed the first six months of 1996 with income before tax expense of $9.7 million as compared to $9.6 million for the comparable period ended June 30, 1995. This represents an increase of $0.1 million, or 1.0% over 1995. Increased premium earnings were offset by increased underwriting expenses to produce this minimal change. Interest Expense Interest expense decreased to $35.3 million for the six months ended September 30, 1996, as compared to $35.6 million for the six months ended September 30, 1995. 21 Extraordinary Loss on Extinguishment of Debt During the second quarter of fiscal 1997, the Company extinguished debt of approximately $76.3 million by irrevocably placing cash into a trust of U.S. Treasury securities to be used to satisfy scheduled payments of principal and interest. The Company also extinguished $86.4 million of its long-term notes originally due in fiscal 1997 through fiscal 1999. These transactions resulted in an extraordinary loss of $2.0 million net of tax of $1.5 million ($0.07 per share). Consolidated Group As a result of the foregoing, pretax earnings of $123.4 million were realized during the six months ended September 30, 1996, as compared to $78.8 million for the same period in 1995. After providing for income taxes and extraordinary loss on the extinguishment of debt, net earnings for the six months ended September 30, 1996 were $75.720.9 million, as compared to $50.5 million for the same period of the prior year. 22 QUARTERLY RESULTS The following table presents unaudited quarterly results for the ten quarters in the period beginning April 1, 1994 and ending September 30, 1996. The Company believes that all necessary adjustments have been included in the amounts stated below to present fairly, and in accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the consolidated financial statements incorporated herein by reference. The Company's U-Haul rental operations are seasonal and proportionally more of the Company's revenues and net earnings from its U-Haul rental operations are generated in the first and second quarters of each fiscal year (April through September). The operating results for the periods presented are not necessarily indicative of results for any future period (in thousands except for per share data). Quarter Ended -------------------------- Jun 30, Sep 30, 1996 1996 -------------------------- Total revenues $ 359,708 400,428 Net earnings (loss) 40,005 37,737 Weighted average common shares outstanding (4) 32,015,301 27,675,192 Net earnings (loss) per common share (1) 1.15 1.22 Quarter Ended ------------------------------------------------ Jun 30, Sep 30, Dec 31, Mar 31, 1995 1995 1995 1996 ------------------------------------------------ Total revenues $ 330,509 371,267 307,452 285,195 Net earnings (loss) (2) (3) 15,177 35,332 7,701 2,184 Weighted average common shares outstanding (4) 37,958,426 37,905,225 36,796,961 32,554,458 Net earnings (loss) per common share (1) 0.31 0.85 0.13 (0.04) Quarter Ended ------------------------------------------------ Jun 30, Sep 30, Dec 31, Mar 31, 1994 1994 1994 1995 ------------------------------------------------ Total revenues $ 322,333 359,520 294,858 259,521 Net earnings (loss) 29,413 40,071 1,907 (11,359) Weighted average common shares outstanding 37,107,536 37,053,707 37,025,575 38,072,543 Net earnings (loss) per common share (1) 0.71 1.00 (0.04) (0.44) ________________ (1)Net earnings (loss) per common share amounts were computed after giving effect to the dividend on the Company's Series A 8 1/2% Preferred Stock. (2)Reflects the adoption of Statement of Position 93-7, "Reporting on Advertising Costs." (3)Reflects the change in estimated salvage value during the third and fourth quarters of fiscal 1996. (4)Reflects the acquisition of treasury shares acquired pursuant to the Shoen Litigation as discussed in Part II. - Item 1. Legal Proceedings. 23 QUARTER ENDED SEPTEMBER 30, 1996 VERSUS QUARTER ENDED SEPTEMBER 30, 1995 U-Haul U-Haul revenues consist of (i) total rental and other revenue and (ii) net sales. Total rental and other revenue increased by $28.2 million, approximately 10.6%, to $294.5 million in the second quarter of fiscal 1997. The increase reflects higher net revenues from the rental of moving related equipment and self-storage facilities which increased by $12.2 million due to growth (volume) in truck rental transactions, additional rentable square footage, and an increase in management fees from storage facilities managed for others. Other revenue accounted for the remaining increase, including increased net gains on the sale of real and personal property. Net sales revenues were $51.2 million in the second quarter of fiscal 1997, which represents an increase of approximately 3.3% from the second quarter of fiscal 1996 net sales of $49.6 million. Increased sales of moving support items, hitches, and propane resulted in revenue growth of $2.1 million during the quarter. Cost of sales was $31.1 million in the second quarter of fiscal 1997, which represents an increase of approximately 6.9% from $29.0 million for the same period in fiscal 1996. This increase in cost of sales reflects higher allowances for inventory shrinkage and higher material costs from the sale of hitches and propane which can be primarily attributed to higher sales levels. Operating expenses increased to $214.7 million in the second quarter of fiscal 1997 from $177.960.7 million in the second quarter of fiscal 1996, an increase of15.6 approximately 20.77%. Rental equipment maintenance costs increased $7.0 million due to an increase in fleet size and transaction levels. New leasing activities increased lease expense by $5.5 million. Higher levels of business activity increased personnel expense by approximately $9.3 million. All other operating expense categories increased in the aggregate by $15.0 million compared to the prior year. Advertising expense increased to $7.9 million in the second quarter of fiscal 1997 from $7.2 million in the second quarter of fiscal 1996. Depreciation expense for the quarter was $19.9 million, as compared to $38.6 million during the same period of the prior year. During the third and fourth quarters of fiscal 1996, based on the Company's in-depth market analysis, the Company increased the estimated salvage value of certain rental trucks. Oxford - Life Insurance Premiums from Oxford's reinsurance lines before intercompany eliminations were $5.4 million for the quarter ended June 30, 1996, or 75.0% of total premiums for that period. This represents an increase of $0.5 million over the same period in 1995 or an increase of 10.2%. Reinsurance premiums are primarily from term life insurance, deferred annuity contracts that have matured, and credit insurance business. Increases in premiums are primarily from the anticipated increase in annuitizations as a result of the maturing of deferred annuities and from additional production in the credit life and credit accident and health business. Premiums from Oxford's direct lines before intercompany eliminations were $1.8 million for the quarter ended June 30, 1996, a decrease of $0.2 million. This decrease in direct premium is primarily attributable to the credit insurance business. Oxford's direct business related to group life and disability coverage issued to employees of the Company for the quarter ended June 30, 1996 accounted for approximately 7.2% of premiums. Other direct lines, including the credit insurance business, accounted for approximately 17.8% of Oxford's premiums for the quarter ended June 30, 1996. 24 Net investment income before intercompany eliminations was $4.5 million and $4.2 million for the quarters ended June 30, 1996 and 1995, respectively. This increase is primarily due to increases in deposit funds from additional production and increasing margins on the interest sensitive business. Other income is comprised of gains on the disposition of investments and income on the surrender of deferred annuity products. Gains on the disposition of investments were $0.2 million and $2.8 million for the quarters ended June 31, 1996 and 1995, respectively. Oxford had $0.6 million and $0.5 million of surrender charge income for the quarters ended June 30, 1996 and 1995, respectively. Benefits and expenses incurred were $9.9 million for the quarter ended June 30, 1996, a decrease of 2.0% from 1995. Comparable benefits and expenses incurred for 1995 were $10.1 million. This decrease is primarily due to a decrease in the amortization of deferred acquisition costs primarily as a result of the decrease in realized capital gains on the disposition of fixed maturities partially offset by the increase in annuitizations discussed above. Operating profit before intercompany eliminations decreased by $1.6 million, or approximately 38.1%, in 1996 to $2.6 million, primarily due to the decrease in gains on the disposition of fixed maturity investments. RWIC - Property and Casualty RWIC gross premium writings for the quarter ended June 30, 1996 were $41.4 million as compared to $45.2 million in the second quarter of 1995. The rental industry market accounts for a significant share of total premiums, approximately 66.9% and 60.1% in the second quarters of 1996 and 1995, respectively. These writings include U-Haul customers, fleetowners and U-Haul as well as other rental industry insureds with similar characteristics. RWIC continues underwriting professional reinsurance via broker markets. Premiums in this area decreased during the second quarter of 1996 to $4.7 million, or 11.4% of total gross premiums, from comparable 1995 figures of $7.7 million, or 17.1% of total premiums. Premium writings in selected general agency lines are expected to remain consistent with prior years. Premiums from selected general agency lines accounted for 12.1% share of written premiums in 1996 as compared to 16.5% share in 1995. RWIC continued its direct multiple peril coverage of various commercial properties and businesses in 1996. These premiums accounted for 9.5% of total gross written premium during second quarter 1996, as compared to 6.3% in 1995. This increase is the result of improved policy processing. Net earned premiums remained at $39.5 million for the quarter ended June 30, 1996, consistent with the same amount of premium for the quarter ended June 30, 1995. Underwriting expenses incurred were $43.6 million for the quarter ended June 30, 1996, an increase of $1.2 million, or 2.8% over 1995. Comparable underwriting expenses incurred for the second quarter of 1995 were $42.4 million. The increase resulted from a smaller adjustment to realize a margin on a canceled general agency program and an increase in acquisition expense on assumed treaty reinsurance business. Net investment income was $7.4 million for the quarter ended June 30, 1996, a decrease of 3.9% over 1995 net investment income of $7.7 million. The decrease is due to lower cash flow from operations and a 1995 timing adjustment in mortgage interest earned. RWIC completed the second quarter of 1996 with income before tax expense of $3.7 million as compared to $4.5 million for the comparable period ended June 30, 1995. This represents a decrease of $0.8 million, or 17.8% under 1995. The decrease resulted from the combination of increased underwriting expenses and decreased investment income, offset by realized gains and other income. Interest Expense Interest expense decreased to $16.4 million for the quarter ended September 30, 1996, as compared to $16.7 million for the quarter ended September 30, 1995. Extraordinary Loss on Extinguishment of Debt During the second quarter of fiscal year 1997, the Company extinguished debt of approximately $76.3 million by irrevocably placing cash into a trust of U.S. Treasury securities to be used to satisfy scheduled payments of principal and interest. The Company also extinguished $86.4 million of its long-term notes originally due in fiscal 1997 through fiscal 1999. These transactions resulted in an extraordinary loss of $2.0 million net of tax of $1.5 ($0.07 per share). 25 Consolidated Group As a result of the foregoing, pretax earnings of $59.1 million were realized during the quarter ended September 30, 1996, as compared to $55.1 million for the same period in 1995. After providing for income taxes and extraordinary loss on the extinguishment of debt, net earnings for quarter ended September 30, 1996 were $35.7 million, as compared to $35.3 million for the same period of the prior year. LIQUIDITY AND CAPITAL RESOURCES U-Haul To meet the needs of its customers, U-Haul must maintain a large inventory of fixed asset rental items. At September 30, 1996, net property, plant and equipment represented approximately 65.7% of total U-Haul assets and approximately 44.5% of consolidated assets. During the first six months of fiscal 1997, capital expenditures were $134.2 million, as compared to $143.1 million during the first six months of fiscal 1996, reflecting expansion of the rental truck fleet, and real property acquisitions. These acquisitions were funded with internally generated funds from operations, operating leases, equity placement, and debt financings. Cash flows from operations were $104.5 million during the first six months of fiscal 1997, as compared to $145.9 million during the first six months of fiscal 1996. The decrease of $41.4 million is primarily due to an increase in other assets offset by increased earnings and the sale of mortgage note receivables. Cash flows from investing activities were affected by the sale and subsequent leaseback of rental trailers for net proceeds of $97.4 million. Oxford - Life Insurance Oxford's primary sources of cash are premiums, receipts from interest-sensitive products and investment income. The primary uses of cash are operating costs and benefit payments to policyholders. Matching the investment portfolio to the cash flow demands of the types of insurance being written is an important consideration. Benefit and claim statistics are continually monitored to provide projections of future cash requirements. Cash provided by operating activities were $9.3 million and $5.1 million for the six months ended June 30, 1996 and 1995, respectively. Cash flows from financing activities were $22.7 million and $62.1 million for the six months ended June 30, 1996 and 1995, respectively. Cash flows from deferred annuity sales increase investment contract deposits which are a component of financing activities, as well as the purchase of fixed maturities which are a component of investing activities. In addition to cash flows from operating and financing activities, a substantial amount of liquid funds is available through Oxford's short-term portfolio. At June 30, 1996 and 1995, short-term investments amounted to $9.5 million and $18.0 million, respectively. Management believes that the overall sources of liquidity will continue to meet foreseeable cash needs. Stockholder's equity of Oxford decreased to $97.3 million in 1996 from $99.6 million in 1995. During the six months ended June 30, 1996, Oxford paid dividends to Ponderosa of $3.9 million. Applicable laws and regulations of the State of Arizona require the Company's insurance subsidiaries to maintain minimum capital determined in accordance with statutory accounting practices in the amount of $400,000. In addition, the amount of dividends that can be paid to stockholders by insurance companies domiciled in the State of Arizona is limited. Any dividend in excess of the limit requires prior regulatory approval. Statutory surplus that can be distributed as dividends without prior regulatory approval is $7,080,000. These restrictions are not expected to have a material adverse effect on the ability of the Company to meet its cash obligations. RWIC - Property and Casualty Cash flows from operating activities decreased $12.5 million during the six months ended June 30, 1996, as compared to an increase of $0.1 million for the comparable period of 1995. The change is due to temporary increases in accounts receivable and due from affiliates. RWIC's short-term investment portfolio was $4.5 million at June 30, 1996. This level of liquid assets is adequate to meet periodic needs as well as any near term shortfall. This balance also reflects funds in transition from maturity proceeds to long- term investments. The structure of the long-term portfolio is designed to match future cash needs. Capital and operating budgets allow RWIC to accurately schedule cash needs. 26 RWIC maintains a diversified investment portfolio. Approximately 96.6% of the portfolio consists of investment grade securities. The maturity distribution is designed to provide sufficient liquidity to meet future cash needs. Current liquidity is adequate, with current invested assets equal to 94.9% of total liabilities. Stockholder's equity increased 2.4% from $188.2 million at December 31, 1995 to $192.7 million at June 30, 1996. RWIC considers current stockholder's equity to be adequate to support future growth and absorb unforeseen risk events. RWIC does not use debt or equity issues to increase capital and therefore has no exposure to capital market conditions. RWIC paid no stockholder's dividends during the six months ended June 30, 1996, however it did declare a $6.7 million dividend to Ponderosa. Consolidated Group At September 30, 1996, total notes and loans payable outstanding was $940.3 million as compared to $998.2 million at March 31, 1996, and $866.1 million at September 30, 1995. During each of the fiscal years ending March 31, 1997, 1998, and 1999, U-Haul estimates gross capital expenditures will average approximately $290 million as a result of the expansion of the rental truck fleet and self-storage operation. This level of capital expenditures, combined with an average of approximately $100 million in annual long-term debt maturities during this same period, are expected to create annual average funding needs of approximately $390 million. Management estimates that U-Haul will fund approximately 75% of these requirements with internally generated funds, including proceeds from the disposition of older trucks and other asset sales. The remainder of the anticipated capital expenditures are expected to be financed through existing credit facilities, new debt placements, lease fundings, and equity offerings. On August 30, 1996, the Company issued 100,000 shares of its Series B Preferred Stock with no par value for $100,000,000. Dividends are cumulative with the rate being reset quarterly and have priority as to dividends over the Company's common stock. The Series B Preferred will be convertible, at the holder's option, into either shares of the Company's Series B Common Stock, $0.25 par value or all of the outstanding shares of Picacho Peak Investment Co., a subsidiary of AMERCO. On October 1, 1996, the Company paid the last portion of a total of approximately $448.1 million to the plaintiffs (non- management members of the Shoen family and their affiliates) in a long-standing legal dispute involving the Shoen family and related to control of the Company. As a result, the plaintiffs were required to transfer all of their 18,256,976 shares of Common Stock to the Company. The Company plans to deduct for income tax purposes approximately $324.0 million of the payments made to the plaintiffs, which will reduce the Company's income tax liability. While the Company believes that such income tax deductions are appropriate, there can be no assurance that such deductions ultimately will be allowed in full. Since the current management was put in place in 1987, the Company has pursued a strategic plan that emphasizes its core do-it- yourself rental, moving and storage business. Consistent with its strategic plan, the Company has engaged an investment banking firm to explore various alternatives with regard to Oxford, its life insurance subsidiary. Such alternatives may include strategic alliances with other insurance companies or Oxford's possible sale. 27 Credit Agreements The Company's operations are funded by various credit and financing arrangements, including unsecured long-term borrowings, unsecured medium-term notes, and revolving lines of credit with domestic and foreign banks. Principally to finance its fleet of trucks and trailers, the Company routinely enters into sale and leaseback transactions. As of September 30, 1996, the Company had $940.3 million in total notes and loans payable outstanding and unutilized committed lines of credit of approximately $382.0 million. In May 1996, the Company issued $175.0 million of 7.85% Senior Notes Due May 15, 2003. The Company has applied and will continue to apply the net proceeds from the sale of the notes to pay down, at maturity, a portion of the Company's long-term debt. Certain of the Company's credit agreements contain restrictive financial and other covenants, including, among others, covenants with respect to incurring additional indebtedness, maintaining certain financial ratios, and placing certain additional liens on its properties and assets. At September 30, 1996, the Company was in compliance with these covenants. The Company is restricted in the issuance of certain types of preferred stock. The Company is prohibited from issuing shares of preferred stock that provide for any mandatory redemption, sinking fund payment, or mandatory prepayment, or that allow the holders thereof to require the Company or a subsidiary of the Company to repurchase such preferred stock at the option of such holders or upon the occurrence of any event or events without the consent of its lenders. 28 PART II. OTHER INFORMATION Item 1. Legal Proceedings. As disclosed in the Company's Form 10-K for the year ended March 31, 1996, Edward J. Shoen, James P. Shoen, Aubrey K. Johnson, John M. Dodds, and William E. Carty, who are current members of the Board of Directors of the Company (the Director-Defendants), filed for protection under Chapter 11 of the federal bankruptcy laws on February 21, 1995, as a result of the judgment entered on that date in the action entitled Samuel W. Shoen, M.D., et al. v. Edward J. ------------------------------------------- Shoen, et al., No. CV88-20139 (the Shoen Litigation). The Director- - ------------- Defendants, in cooperation with the Company, filed separate plans of reorganization, all of which proposed the same funding and treatment of the plaintiffs' claims resulting from the judgment in the Shoen Litigation. The plans of reorganization are collectively referred to as the "Plan." The Plan was confirmed by the bankruptcy court on March 15, 1996. Pursuant to the Plan, the Company, prior to July 1, 1996, paid a total of approximately $133.2 million to six of the plaintiffs to repurchase a total of 5,828,140 shares of Common Stock and satisfy the damages judgment in the Shoen Litigation with respect to those plaintiffs. In addition, on July 19, 1996, the Company paid Cemar, Inc. (Cemar) approximately $15.9 million to repurchase 2,331,984 shares of Common Stock held by Cemar. On the same date, the Company paid damages of approximately $43.1 million and statutory post-judgment, pre-petition date interest of $129,000 to Cecilia M. Hanlon. On August 6, 1996, the Company funded approximately $8.3 million of post-petition date interest by depositing such amount into an escrow account (the Escrow Account) pending the outcome of a dispute involving the entitlement of the plaintiffs in the Shoen Litigation to post-petition date interest (discussed below). The Common Stock held by Cemar was transferred into the Company treasury. In addition, on September 6, 1996, the Company paid Katabasis International, Inc. (Katabasis) approximately $27.5 million to repurchase 4,041,924 shares of Common Stock held by Katabasis. On the same date, the Company paid damages of approximately $74.8 million and statutory post-judgment, pre- petition date interest of $224,000 to Samuel W. Shoen. The Company also funded approximately $15.7 million of post-petition date interest into the Escrow Account. On September 20, 1996, the Company paid Kattydid, Inc. (Kattydid) approximately $8.7 million to repurchase 1,282,248 shares of Common Stock held by Kattydid and paid Katrina (Shoen) Carlson approximately $5.0 million to repurchase 734,376 shares of Common Stock held by her. On the same date, the Company paid damages of approximately $37.3 million and statutory post-judgment, pre-petition date interest of $112,000 to Katrina Shoen Carlson. The Company also funded approximately $8.0 million of post-petition date interest into the Escrow Account. Finally, on October 1, 1996, the Company paid MICKL, Inc. (MICKL) approximately $27.4 million to repurchase 4,035,924 shares of Common Stock held by MICKL and paid Michael L. Shoen $2,600 to repurchase 380 shares of Common Stock held by him. On the same date, the Company paid damages of approximately $73.2 million and statutory post-judgment, pre-petition date interest of $224,000 to Michael L. Shoen. The Company also funded approximately $16.2 million of post-petition date interest into the Escrow Account. As a result of the foregoing transactions, the balance of the judgment in the Shoen Litigation has been satisfied in full. On October 1, 1996, the Director-Defendants emerged from bankruptcy upon the filing of a Notice with the bankruptcy court that the effective date of the reorganized debtors' confirmed Plans has occurred and that the confirmed Plans have been performed and are substantially consummated. As of the date hereof, an issue remains regarding whether or not the plaintiffs are entitled to statutory post-judgment interest at the rate of ten percent (10%) per year from February 21, 1995 (the date the Director-Defendants filed for protection under Chapter 11) until the judgment was satisfied. On July 19, 1996, the bankruptcy court ruled that the plaintiffs are entitled to such interest. The Director-Defendants and the Company have appealed the court's decision. As discussed above, the Company has deposited approximately $48.2 million into the Escrow Account to secure payment of the disputed interest, pending the final resolution of this issue (including all appeals by either side). If the interest issue is decided adversely to the Company and the Director-Defendants, the amount deposited into escrow will be transferred to the plaintiffs. The ultimate outcome of this issue will not have the effect of increasing or decreasing the Company's net income, but could reduce shareholders' equity. 29 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. a. Exhibits 2.1 Order Confirming Plan (1) 2.2 Second Amended and Restated Debtor's Plan of Reorganization Proposed by Edward J. Shoen (1) 3.1 Restated Articles of Incorporation (2) 3.2 Restated By-Laws of AMERCO as of August 27, 1996 4.1 Certificate of Designations, Preferences and Rights of Series B Preferred Stock 4.2 Certificate of Designations, Preferences and Rights of Series B Common Stock 10.1 Series B Preferred Stock Purchase Agreement, dated as of August 30, 1996 10.2 Side Agreement, dated as of October 29, 1996 27 Financial Data Schedule b. Reports on Form 8-K. A report on Form 8-K was filed on September 6, 1996 in connection with the Company's issuance of up to an aggregate of $600,000,000 of Medium-Term Notes. _____________________________________ (1) Incorporated by reference to the Company's Registration Statement on Form S-3, Registration No. 333-1195. (2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended December 31, 1992, file no. 0-7862. 30 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. AMERCO ___________________________________ (Registrant) Dated: October 31, 1996 By: /S/ GARY B. HORTON ___________________________________ Gary B. Horton, Treasurer (Principal Financial Officer) EX-3.(II) 2 RESTATED BY-LAWS OF AMERCO A NEVADA CORPORATION Date: As of August 27, 1996 ARTICLE I SECTION 1. Offices: ------- The principal office and registered office of the corporation shall be located in the State of Nevada at such locations as the Board of Directors may from time to time authorize by resolutions. The corporation may have such other offices either within or without the State of Nevada as the Board of Directors may designate or as the business of the corporation may require from time to time. SECTION 2. References: ---------- Any reference herein made to law will be deemed to refer to the law of the State of Nevada, including any applicable provisions of Chapter 78 of Title 7, Nevada Revised Statutes (or its successor), as at any given time in effect. Any reference herein made to the Articles will be deemed to refer to the applicable provision or provisions of the Articles of Incorporation of the corporation, and all amendments thereto, as at any given time on file with the office of the clerk of Washoe County, Nevada. SECTION 3. Shareholders of Record: ---------------------- The word "shareholder" as used herein shall mean one who is a holder of record of shares in the corporation. ARTICLE II SHAREHOLDERS SECTION 1. Annual Meeting: -------------- An annual meeting of the shareholders for the election of directors to succeed those whose terms expire and for the transaction of such other business as may properly come before the meeting shall be held, within a reasonable interval after the close of the fiscal year so that the information in the annual report is relatively timely, on a date and at a time of day and place as determined by the Board of Directors. SECTION 2. Special Meetings: ---------------- a. Special meetings of the shareholders may be held whenever and wherever called by the Chairman of the Board, a majority of the Board of Directors, or upon the delivery of proper written request of the holders of not less than fifty percent (50%) of all the shares outstanding and entitled to vote at such meeting. The business which may be conducted at any such special meeting will be confined to the purpose stated in the notice thereof, and to such additional matters as the Chairman of such meeting may rule to be germane to such purposes. b. For purposes of this Section, proper written request for the call of a special meeting shall be made by a written request specifying the purposes for any special meeting requested and providing the information required by Section 5 hereof. Such written request must be delivered either in person or by registered or certified mail, return receipt requested, to the Chairman of the Board, or such other person as may be specifically authorized by law to receive such request. Within thirty (30) days after receipt of proper written request, a special meeting shall be called and notice given in the manner required by these By-Laws and the meeting shall be held at a time and place selected by the Board of Directors, but not later than ninety (90) days after receipt of such proper written request. The shareholder(s) who request a special meeting of shareholders must pay the corporation the corporation's reasonably estimated cost of preparing and mailing a notice of a meeting of shareholders before such notice is prepared and mailed. SECTION 3. Notice: ------ Notice of any meeting of the shareholders will be given by the corporation as provided by law to each shareholder entitled to vote at such meeting. Any such notice may be waived as provided by law. SECTION 4. Right to Vote: ------------- For each meeting of the shareholders, the Board of Directors will fix in advance a record date as contemplated by law, and the shares of stock and the shareholders "entitled to vote" (as that or any similar term is herein used) at any meeting of the shareholders will be determined as of the applicable record date. The Secretary (or in his or her absence an Assistant Secretary) will see to the making and production of any record of shareholders entitled to vote that is required by law. Any such entitlement may be exercised through proxy, or in such other manner as is specifically provided by law. No proxy shall be valid after eleven (11) months from the date of its execution unless otherwise provided by the proxy. In the event of contest, the burden of proving the validity of any undated, irrevocable, or otherwise contested proxy will rest with the person seeking to exercise the same. A telegram, cablegram, or facsimile appearing to have been transmitted by a shareholder (or by his duly authorized attorney-in-fact) may, in the discretion of the tellers, if any, be accepted as a sufficiently written and executed proxy. SECTION 5. Manner of Bringing Business Before the Meeting: ---------------------------------------------- At any annual or special meeting of shareholders only such business (including nomination as a director) shall be conducted as shall have been properly brought before the meeting. In order to be properly brought before the meeting, such business must be a proper subject for stockholder action under Nevada law and must have either been (A) specified in the written notice of the meeting (or any supplement thereto) given to shareholders on the record date for such meeting by or at the direction of the Board of Directors, (B) brought before the meeting at the direction of the Board of Directors or the Chairman of the meeting, selected as provided in Section 9 of this Article II, or (C) specified in a written notice given by or on behalf of a shareholder on the record date for such meeting entitled to vote thereat or a duly authorized proxy for such shareholder, in accordance with the following requirements. A notice referred to in clause (C) hereof must be delivered personally to, or mailed to and received at, the principal executive office of the corporation, addressed to the attention of the Secretary, not more than ten (10) days after the date of the initial notice referred to in clause (A) hereof, in the case of business to be brought before a special meeting of shareholders, and not less than one hundred and twenty (120) days prior to the anniversary date of the initial notice referred to in clause (A) hereof with respect to the previous year's annual meeting, in the case of business to be brought before an annual meeting of shareholders. Such notice referred to in clause (C) hereof shall set forth (i) a full description of each such item of business proposed to be brought before the meeting and the reasons for conducting such business at such meeting, (ii) the name and address of the person proposing to bring such business before the meeting, (iii) the class and number of shares held of record, held beneficially, and represented by proxy by such person as of the record date for the meeting, if such date has been made publicly available, or as of a date not later than thirty (30) days prior to the delivery of the initial notice referred to in clause (A) hereof, if the record date has not been made publicly available, (iv) if any item of such business involves a nomination for director, all information regarding each such nominee that would be required to be set forth in a definitive proxy statement filed with the Securities and Exchange Commission pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor thereto, and the written consent of each such nominee to serve if elected, (v) any material interest of such shareholder in the specified business, (vi) whether or not such shareholder is a member of any partnership, limited partnership, syndicate, or other group pursuant to any agreement, arrangement, relationship, understanding, or otherwise, whether or not in writing, organized in whole or in part for the purpose of acquiring, owning, or voting shares of the corporation, and (vii) all other information that would be required to be filed with the Securities and Exchange Commission if, with respect to the business proposed to be brought before the meeting, the person proposing such business was a participant in a solicitation subject to Section 14 of the Securities Exchange Act of 1934, as amended, or any successor thereto. No business shall be brought before any meeting of the shareholders of the corporation otherwise than as provided in this Section. Notwithstanding compliance with the foregoing provisions, the Board of Directors shall not be obligated to include information as to any shareholder nominee for director or any other shareholder proposal in any proxy statements or other communication sent to shareholders. The Chairman of the meeting may, if the facts warrant, determine that any proposed item of business or nomination as director was not brought before the meeting in accordance with the foregoing procedure, and if he should so determine, he shall so declare to the meeting and the improper item of business or nomination shall be disregarded. SECTION 6. Right to Attend: --------------- Except only to the extent of persons designated by the Board of Directors or the Chairman of the meeting to assist in the conduct of the meeting, and except as otherwise permitted by the Board or such Chairman, the persons entitled to attend any meeting of shareholders may be confined to (i) shareholders entitled to vote thereat and (ii) the persons upon whom proxies valid for purposes of the meeting have been conferred or their duly appointed substitutes (if the related proxies confer a power of substitution); provided, however, that the Board of Directors or the Chairman of the meeting may establish rules limiting the number of persons referred to in clause (ii) as being entitled to attend on behalf of any shareholder so as to preclude such an excessively large representation of such shareholder at the meeting as, in the judgment of the Board or such Chairman, would be unfair to other shareholders represented at the meeting or be unduly disruptive to the orderly conduct of business at such meeting (whether such representation would result from fragmentation of the aggregate number of shares held by such shareholder for the purpose of conferring proxies, from the naming of an excessively large proxy delegation by such shareholder, or from employment of any other device). A person otherwise entitled to attend any such meeting will cease to be so entitled if, in the judgment of the Chairman of the meeting, such person engages thereat in disorderly conduct impeding the proper conduct of the meeting in the interests of all shareholders as a group. SECTION 7. Quorum Requirements: ------------------- One-third of the outstanding shares of the corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of the shareholders. If less than one-third of the outstanding shares are represented at a meeting, the majority of the shares so represented may adjourn the meeting without further notice. At such adjourned meeting at which a quorum shall be present or represented, any business may be transacted which might have been transacted at the meeting originally called. SECTION 8. Tellers: ------- The Board of Directors, in advance of any shareholders meeting may appoint one or more tellers to act at such meeting (and any adjournment thereof), and may appoint one or more alternate tellers to serve (in the order designated) in the absence of any teller or tellers so appointed. If any person appointed as a teller or alternate teller fails to appear or to act, a substitute may be appointed by the Chairman of the meeting. The tellers (acting through a majority of them on any disputed matter) will determine the number of shares outstanding, the authenticity, validity and effect of proxies, the credentials of persons purporting to be shareholders or persons named or referred to in proxies, and the number of shares represented at the meeting in person and by proxy; they will receive and count votes, ballots, and consents and announce the results thereof; they will hear and determine all challenges and questions pertaining to proxies and voting; and, in general, they will perform such acts as may be proper to conduct elections and voting with complete fairness to all shareholders. No such teller need be a shareholder of the corporation. Unless otherwise provided in the Articles of Incorporation or other governing instrument, each shareholder shall be entitled to one vote for each share of stock held by him or her, and, in the event a shareholder holds a fraction of a share or a full share plus a fraction, any such fractional share shall be entitled to a proportionate fraction of one vote or such other votes, if any, as is provided in the Articles of Incorporation or other governing instrument. SECTION 9. Organization and Conduct of Business: ------------------------------------ Each shareholders meeting will be called to order and thereafter chaired by the Chairman of the Board if there then is one; or, if not, or if the Chairman of the Board is absent or so requests, then by the President; or if both the Chairman of the Board and the President are unavailable, then by such other officer of the corporation or such shareholder as may be appointed by the Board of Directors. The Secretary (or in his or her absence an Assistant Secretary) of the corporation will act as secretary of each shareholders meeting; if neither the Secretary nor an Assistant Secretary is in attendance, the Chairman of the meeting may appoint any person (whether a shareholder or not) to act as secretary thereat. After calling a meeting to order, the Chairman thereof may require the registration of all shareholders intending to vote in person, and the filing of all proxies, with the teller or tellers, if one or more have been appointed (or, if not, with the secretary of the meeting). After the announced time for such filing of proxies has ended, no further proxies or changes, substitutions, or revocations of proxies will be accepted. The Chairman of a meeting will, among other things, have absolute authority to determine the order of business to be conducted at such meeting and to establish rules for, and appoint personnel to assist in, preserving the orderly conduct of the business of the meeting (including any informal, or question and answer, portions thereof). Any informational or other informal session of shareholders conducted under the auspices of the corporation after the conclusion of or otherwise in conjunction with any formal business meeting of the shareholders will be chaired by the same person who chairs the formal meeting, and the foregoing authority on his or her part will extend to the conduct of such informal session. SECTION 10. Voting: ------ The number of shares voted on any matter submitted to the shareholders which is required to constitute their action thereon or approval thereof will be determined in accordance with applicable law, the Articles, and these By-Laws, if applicable. Voting will be by ballot on any matter as to which a ballot vote is demanded, prior to the time the voting begins, by any person entitled to vote on such matter; otherwise, a voice vote will suffice. No ballot or change of vote will be accepted after the polls have been declared closed following the ending of the announced time for voting. SECTION 11. Shareholder Approval or Ratification: ------------------------------------ The Board of Directors may submit any contract or act for approval or ratification at any duly constituted meeting of the shareholders, the notice of which either includes mention of the proposed submittal or is waived as provided by law. If any contract or act so submitted is approved or ratified by a majority of the votes cast thereon at such meeting, the same will be valid and as binding upon the corporation and all of its shareholders as it would be if approved and ratified by each and every shareholder of the corporation. SECTION 12. Informalities and Irregularities: -------------------------------- All informalities or irregularities in any call or notice of a meeting, or in the areas of credentials, proxies, quorums, voting, and similar matters, will be deemed waived if no objection is made at the meeting. SECTION 13. Action Without a Meeting: ------------------------ Shareholder action by written consent is prohibited. SECTION 14. Application of Nevada Revised Statutes Sections -------------------------------------------------- 78.378 to 78.3793, inclusive: - ---------------------------- The provisions of Sections 78.378 to 78.3793, inclusive, of the Nevada Revised Statutes shall not apply to the exchange of shares of the corporation's Series A Common Stock, 0.25 par value, for shares of the corporation's common stock, $0.25 par value, held by Mark V. Shoen, James P. Shoen and Edward J. Shoen or to any exchange of shares of the corporation's Common Stock, $0.25 par value for shares of the corporation's Series A Common Stock, $0.25 par value held by Mark V. Shoen, James P. Shoen and Edward J. Shoen. ARTICLE III BOARD OF DIRECTORS SECTION 1. Number and Term of Directors: ---------------------------- The Board of Directors shall consist of not less than 4 nor more than 8 directors, the exact number of directors to be determined from time to time solely by a resolution adopted by an affirmative vote of a majority of the entire Board of Directors. The directors shall be divided into four classes, designated Class I, Class II, Class III and Class IV. Subject to applicable law, each class shall consist, as nearly as may be possible, of one-fourth of the total number of directors constituting the entire Board of Directors. At the 1990 Annual Meeting of Shareholders, Class I directors shall be elected for a one-year term, Class II directors for a two-year term, Class III directors for a three-year term, and Class IV directors for a four-year term. At each succeeding annual meeting of shareholders, commencing in 1991, successors to the class of directors whose term expires at the annual meeting shall be elected or reelected for a four-year term. If the number of directors is changed, any increase or decrease shall be apportioned among the classes of directors so as to maintain the number of directors in each class as nearly equal as possible, but in no case will a decrease in the number of directors shorten the term of any incumbent director. When the number of directors is increased by the Board of Directors and any newly created directorships are filled by the Board, there shall be no classification of the additional directors until the next annual meeting of shareholders. A director shall hold office until the meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. SECTION 2. Vacancies: --------- Newly created directorships resulting from an increase in the number of the directors and any vacancy on the Board of Directors shall be filled by an affirmative vote of a majority of the Board of Directors then in office. A director elected by the Board of Directors to fill a vacancy shall hold office until the next meeting of shareholders called for the election of directors and until his or her successor shall be elected and shall qualify; provided, however, that if a vacancy on the Board of Directors occurs or is filled after the date by which a shareholder, acting in accordance with Article II, Section 5(C) of these By-Laws, may present a director nomination before the next meeting of shareholders called for the election of directors, the director elected by the Board of Directors to fill such vacancy shall hold office until the next meeting of shareholders called for the election of directors at which a shareholder, acting in accordance with Article II, Section 5(C) of these By-Laws, may present a director nomination. This Section shall not apply to any vacancies in the office of any "Preferred Stock Director," as defined in section (e)(ii) of the Certificate of Designation, Preference, and Rights of Series A Preferred Stock of AMERCO dated October 14, 1993, such vacancies shall be filled pursuant to the terms of said section (e)(ii). SECTION 3. Regular Meetings: ---------------- After the adjournment of the annual meeting of the shareholders of the corporation, the newly elected Directors shall meet for the purpose of organization, the election of officers, and the transaction of such other business as may come before said meeting. No notice shall be required for such meeting. The meeting may be held within or without the State of Nevada. Regular meetings, other than the annual ones, may be held at regular intervals at such times and places as the Board of Directors may provide. SECTION 4. Special Meetings: ---------------- Special meetings of the Board of Directors may be called at any time by the Chairman of the Board or by any three (3) members of the Board giving written notice thereof to the Chairman of the Board, or said special meeting may be called without notice by unanimous consent of all the members by the presence of all the members of said board at any such meeting. The special meetings of the Board of Directors may be held within or without the State of Nevada. SECTION 5. Notice: ------ No notice need be given of regular meetings of the Board of Directors. Notice of the time and place (but not necessarily the purpose or all of the purposes) of any special meeting will be given to each director in person or by telephone, or via mail or telegram addressed in the manner then appearing on the corporation's records. Notice to any director of any such special meeting will be deemed given sufficiently in advance when (i), if given by mail, the same is deposited in the United States mail at least four days before the meeting date, with postage thereon prepaid, (ii) if given by telegram, the same is delivered to the telegraph office for fast transmittal at least 48 hours prior to the convening of the meeting, (iii) if given by facsimile transmission, the same is received by the director or an adult member of his or her office staff or household, at least 24 hours prior to the convening of the meeting, or (iv) if personally delivered or given by telephone, the same is handed, or the substance thereof is communicated over the telephone, to the director or to an adult member of his or her office staff or household, at least 24 hours prior to the convening of the meeting. Any such notice may be waived as provided by law. No call or notice of a meeting of directors will be necessary if each of them waives the same in writing or by attendance. Any meeting, once properly called and noticed (or as to which call and notice have been waived as aforesaid) and at which a quorum is formed, may be adjourned to another time and place by a majority of those in attendance. SECTION 6. Quorum: ------ A majority of the Board of Directors shall constitute a quorum for the transaction of business, except where otherwise provided by law or by these By-Laws, but if at any meeting of the Board less than a quorum is present, a majority of those present may adjourn the meeting from time to time until a quorum is obtained. SECTION 7. Action by Telephone or Consent: ------------------------------ Any meeting of the Board or any committee thereof may be held by conference telephone or similar communications equipment as permitted by law in which case any required notice of such meeting may generally describe the arrangements (rather than the place) for the holding thereof, and all other provisions herein contained or referred to will apply to such meeting as though it were physically held at a single place. Action may also be taken by the Board or any committee thereof without a meeting if the members thereof consent in writing thereto as contemplated by law. SECTION 8. Order of Business: ----------------- The Board of Directors may, from time to time, determine the order of business at their meeting. The usual order of business at such meetings shall be as follows: 1st Roll Call; a quorum being present. 2nd. Reading of minutes of the preceding meeting and action thereon. 3rd. Consideration of communications of the Board of Directors. 4th. Reports of officials and committees. 5th. Unfinished business. 6th. Miscellaneous business. 7th. New business. 8th. Adjournment. SECTION 9. Voting: ------ Any matter submitted to a vote of the directors will be resolved by a majority of the votes cast thereon. If during the course of any annual, regular or special meeting of the Board of Directors, at which all the members of said board are present and vote, there is a vote taken and the vote is evenly divided between equal numbers of directors, then, and only then, the Chairman of the Board of Directors shall break the deadlock by casting a second and deciding vote. This power may be exercised by the Chairman of the Board as to any and every issue that properly comes to the board for a vote, including, but not limited to the election of officers. ARTICLE IV POWER OF DIRECTORS SECTION 1. Generally: --------- The Government in control of the corporation shall be vested in the Board of Directors. SECTION 2. Special Powers: -------------- The Board of Directors shall have, in addition to its other powers, the express right to exercise the following powers: 1. To purchase, lease, and acquire, in any lawful manner any and all real or personal property including franchises, stocks, bonds and debentures of other companies, business and goodwill, patents, trademarks in contracts, and interests thereunder, and other rights and properties which in their judgment may beneficial for the purpose of this corporation, and to issue shares of stock of this corporation in payment of such property, and in payment for services rendered to this corporation when they deem it advisable. 2. To fix and determine and to vary, from time to time, the amount or amounts to be set aside or retained as reserve funds or as working capital of this corporation. 3. To issue notes and other obligations or evidence of the debt of this corporation, and to secure the same, if deemed advisable, and endorse and guarantee the notes, bonds, stocks, and other obligations of other corporations with or without compensation for so doing, and from time to time to sell, assign, transfer or otherwise dispose of any of the property of this corporation, subject, however, to the laws of the State of Nevada, governing the disposition of the entire assets and business of the corporation as a going concern. 4. To declare and pay dividends, both in the form of money and stock, but only from the surplus or from the net profit arising from the business of this corporation, after deducting therefrom the amounts, at the time when any dividend is declared which shall have been set aside by the Directors as a reserve fund or as a working fund. 5. To adopt, modify and amend the By-Laws of this corporation. 6. To periodically determine by Resolution of the Board the amount of compensation to be paid to members of the Board of Directors in accordance with Article 6, Section B, Sub-section viii of the Articles of Incorporation. ARTICLE V SECTION 1. Committees: ---------- From time to time the Board of Directors, by affirmative vote of a majority of the whole Board may appoint any committee or committees for any purpose or purposes, and such committee or committees shall have and may exercise such powers as shall be conferred or authorized by the resolution of appointment. Provided, however, that such committee or committees shall at no time have more power than that authorized by law. ARTICLE VI OFFICERS SECTION 1. Officers: -------- The officers of the corporation shall consist of the Chairman of the Board, a President, one or more Vice-Presidents, Secretary, Assistant Secretaries, Treasurer, Assistant Treasurer, a resident agent and such other officers as shall from time to time be provided for by the Board of Directors. Such officers shall be elected by ballot or unanimous acclamation at the meeting of the Board of Directors after the annual election of Directors. In order to hold any election there must be quorum present, and any officer receiving a majority vote shall be declared elected and shall hold office for one year and until his or her respective successor shall have been duly elected and qualified; provided, however, that all officers, agents and employees of the corporation shall be subject to removal from office pre-emptorily by vote of the Board of Directors at any meeting. SECTION 2. Powers and Duties of Chairman of the Board: ------------------------------------------ The Chairman of the Board of Directors will serve as a general executive officer, but not necessarily as a full-time employee, of the corporation. He or she shall preside at all meetings of the shareholders and of the Board of Directors, shall have the powers and duties set forth in these By-Laws, and shall do and perform such other duties as from time to time may be assigned by the Board of Directors. SECTION 3. Powers and Duties of President: ------------------------------ The President shall at all times be subject to the control of the Board of Directors. He shall have general charge of the affairs of the corporation. He shall supervise over and direct all officers and employees of the corporation and see that their duties are properly performed. The President, in conjunction with the Secretary, shall sign and execute all contracts, notes, mortgages, and all other obligations in the name of the corporation, and with the Secretary or Assistant Secretary shall sign all certificates of the shares of the capital stock of the corporation. The President shall each year present an annual report of the preceding year's business to the Board of Directors at a meeting to be held immediately preceding the annual meeting of the shareholders, which report shall be read at the annual meeting of the shareholders. The President shall do and perform such other duties as from time to time may be assigned by the Board of Directors to him. Notwithstanding any provision to the contrary contained in the By-Laws of the corporation, the Board may at any time and from time to time direct the manner in which any person or persons by whom any particular contract, document, note or instrument in writing of the corporation may or shall be signed by and may authorize any officer or officers of the corporation to sign such contracts, documents, notes or instruments. SECTION 4. Powers and Duties of Vice-President: ------------------------------------ The Vice-President shall have such powers and perform such duties as may be assigned to him by the Board of Directors of the corporation and in the absence or inability of the President, the Vice-President shall perform the duties of the President. SECTION 5. Powers and Duties of the Secretary and Assistant --------------------------------------------------- Secretary: - --------- The Secretary of said corporation shall keep the minutes of all meetings of the Board of Directors and the minutes of all meetings of the shareholders, and also when requested by a committee, the minutes of such committee, in books provided for the purpose. He shall attend to the giving and serving of notice of the corporation. It shall be the duty of the Secretary to sign with the President, in the name of the corporation, all contracts, notes, mortgages, and other instruments and other obligations authorized by the Board of Directors, and when so ordered by the Board of Directors, he shall affix the Seal of corporation thereto. The Secretary shall have charge of all books, documents, and papers properly belonging to his office, and of such other books and papers as the Board of Directors may direct. In the absence or inability of the Secretary, the Assistant Secretary shall perform the duties of the Secretary. Execution of Instruments: - ------------------------ In addition to the provisions of any previous By-Laws respecting the execution of instruments of the corporation, the Board of Directors may from time to time direct the manner in which any officer or officers or by whom any particular deed, transfer, assignment, contract, obligation, certificate, promissory note, guarantee and other instrument or instruments may be signed on behalf of the corporation and any acts of the Board of Directors subsequent to the 1st day of December, 1978 in accordance with the provision of this By-Law are hereby adopted, ratified and confirmed as actions binding upon and enforceable against the corporation. SECTION 6. Powers and Duties of Treasurer and Assistant -------------------------------------------------- Treasurer: - --------- The Treasurer shall have the care and custody of all funds and securities of the corporation, and deposit the same in the name of the corporation in such bank or banks or other depository as the Directors may select. He shall sign checks, drafts, notices, and orders for the payment of money, and he shall pay out and dispose of the same under the direction of the Board of Directors, but checks may be signed as directed by the Board by resolution. The Treasurer shall generally perform the duties of and act as the financial agent for the corporation for the receipts and disbursements of its funds. He shall give such bond for the faithful performance of his duties as the Board of Directors may determine. The office of the Treasurer of said corporation may be held by the same person holding the President, Vice-President or Secretary's office, provided the Board of Directors indicates the combination of these offices. In the absence or inability of the Treasurer, the Assistant Treasurer shall perform the duties of the Treasurer. SECTION 7. Indemnification: --------------- The corporation shall indemnify, to the fullest extent authorized or permitted by law, as the same exists or may hereafter be amended (but, in the case of any such amendment, only to the extent that such amendment permits the corporation to provide broader indemnification rights than such law permitted the corporation to provide prior to such amendment), any person made, or threatened to be made, a defendant or witness to any threatened, pending or completed action, suit, or proceeding (whether civil, criminal, administrative, investigative or otherwise) by reason of the fact that he or she, or his or her testator or intestate, is or was a director or officer of the corporation or by reason of the fact that such director or officer, at the request of the corporation, is or was serving any other corporation, partnership, joint venture, trust, employee benefit plan, or other enterprise. Nothing contained herein shall diminish any rights to indemnification to which employees or agents other than directors or officers may be entitled by law, and the corporation may indemnify such employees and agents to the fullest extent and in the manner permitted by law. The rights to indemnification set forth in this Article VI, Section 7 shall not be exclusive of any other rights to which any person may be entitled under any statute, provision of the Articles of Incorporation, bylaw, agreement, contract, vote of shareholders or disinterested directors, or otherwise. In furtherance and not in limitation of the powers conferred by statute: 1. The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the corporation, or is serving in any capacity, at the request of the corporation, any other corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against any liability or expense incurred by him or her in any such capacity, or arising out of his or her status as such, whether or not the corporation would have the power to indemnify him or her against such liability or expense under the provisions of law; and 2. The corporation may create a trust fund, grant a security interest or lien on any assets of the corporation and/or use other means (including, without limitation, letters of credit, guaranties, surety bonds and/or other similar arrangements), and enter into contracts providing indemnification to the full extent authorized or permitted by law and including as part thereof provisions with respect to any or all of the foregoing to ensure the payment of such amounts as may become necessary to effect indemnification as provided therein, or elsewhere. ARTICLE VII STOCK AND CERTIFICATES AND TRANSFERS SECTION 1. Stock and Certificates and Transfers: ------------------------------------ All certificates for the shares of the capital stock of the corporation shall be signed by the President or Vice-President, and Secretary or Assistant Secretary. Each certificate shall show upon its face that the corporation is organized under the laws of Nevada, the number and par value, if any, of each share represented by it, and the name of the person owning the shares represented thereby, with the number of each share and the date of issue. The transfer of any share or shares of stock in the corporation may be made by surrender of the certificate issued therefor, and the written assignment thereof by the owner or his duly authorized Attorney in Fact. Upon such surrender and assignment, a new certificate shall be issued to the Assignee as he may be entitled, but without such surrender and assignment no transfer of stock shall be recognized by the corporation. The Board of Directors shall have the power concerning the issue, transfer and registration of certificates for agents and registrars of transfer, and may require all stock certificates to bear signatures of either or both. The stock transfer books shall be closed ten days before each meeting of the shareholders and during such period no stock shall be transferred. SECTION 2. Right of First Refusal on Its Common Stock, $0.25 --------------------------------------------------- par value: - --------- a. In case any holder of shares of the corporation's common stock, $0.25 par value, and Series A Common Stock, $0.25 par value (collectively, the "Common Stock") shall wish to make any sale, transfer or other disposition of all or any part of the Common Stock held by him, he shall first notify the Secretary of the corporation in writing designating the number of shares of Common Stock which he desires to dispose of, the name(s) of the person(s) to whom such shares are to be disposed of, and the bona fide cash price at which such shares are to be disposed of. The right of first refusal set forth in this paragraph shall not apply to shares of the Corporation's Series B Common Stock. b. The corporation shall have a period of 30 calendar days following the date of its receipt of such notice to determine whether it wishes to purchase such shares at the price stated therein. Such determination shall be made by the corporation by its delivery to such holder of a written acceptance of such offer within such 30-day period. Such written acceptance shall specify the date (to be not later than the tenth calendar day following the date on which such 30-day period expired), time and place at which such holder shall deliver to the corporation the certificate(s) for the shares of Common Stock to be so sold against the delivery by the corporation of a certified or bank cashier's check in the amount of the purchase price therefor. c. If the corporation shall not so accept such offer within such 30-day period, then such holder shall be entitled, for a period of 90 days commencing on the first day after the date on which such 30-day period expires, to dispose of all or any part of the shares of Common Stock designated in such notice to the corporation at the price set forth therein to the prospective named transferee(s) and such transferee(s) shall be entitled to have such shares transferred upon the books of the corporation upon its acquisition thereof at such price. If such holder shall not dispose of all or any part of such shares within such 90-day period (or, in the event of a sale of part thereof, the shares remaining untransferred), such shares shall continue to be subject in all respects to the provision of this Article VII, Sec. 2. d. All certificates for shares of Common Stock shall, so long as the provisions of this Article VII, Sec. 2 shall be in effect, bear the following legend: "The transfer of the shares represented by this certificate is subject to a right of first refusal by the corporation as provided in its By-Laws, and no transfer of this certificate or the shares represented hereby shall be valid or effective unless and until such provision of the By-Laws shall have been met. A copy of the By-Laws of the corporation is available for inspection at the principal office of the corporation." e. The provisions of this Article VII, Sec. 2 may be terminated or modified at any time by the affirmative vote of not less than a majority of the then number of directors of the corporation. Each holder of shares of Common Stock shall be notified of any such termination and shall have the right to exchange his outstanding certificate for such shares for a certificate without the aforesaid legend. f. The provisions of this Article VII, Sec. 2 may be extended to other classes or series of the corporation's stock prior to the issuance thereof upon the affirmative vote of not less than a majority of the then number of directors of the corporation. g. The provisions of Section 2 of Article VII shall not apply to shares of the corporation's Common Stock (i) sold, transferred, or otherwise disposed of by the Trust under the AMERCO Employee Savings, Profit Sharing and Employee Stock Ownership Plan, (ii) sold in a bona fide underwritten public offering or in a bona fide public distribution pursuant to Rule 144 under the Securities Act of 1933 (provided however that if such public distribution is pursuant to Rule 144(k) then, notwithstanding the provisions of Rule 144(k), such distribution shall comply with the "manner of sale" requirements of Rule 144(f) and (g)), or (iii) sold, transferred, or otherwise disposed of by a member of the public who acquired such Common Stock in a transaction permitted by this Paragraph g. SECTION 3. Lost Certificates: ----------------- In the event of the loss, theft or destruction of any certificate representing shares of stock of this corporation, the corporation may issue (or, in the case of any such stock as to which a transfer agent and/or registrar have been appointed, may direct such transfer agent and/or register to countersign, register and issue) a replacement certificate in lieu of that alleged to be lost, stolen or destroyed, and cause the same to be delivered to the owner of the stock represented thereby, provided that the owner shall have submitted such evidence showing the circumstances of the alleged loss, theft or destruction, and his or her ownership of the certificate as the corporation considers satisfactory, together with any other facts which the corporation considers pertinent, and further provided that an indemnity agreement and/or indemnity bond shall have been provided in form and amount satisfactory to the corporation and to its transfer agents and/or registrars, if applicable. ARTICLE VIII FISCAL YEAR SECTION 1. Fiscal Year: ----------- The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE IX AMENDMENT OF BY-LAWS SECTION 1. Amendment of By-Laws by the Board of Directors: ----------------------------------------------- The By-Laws may be amended by a majority vote of the Board of Directors of this corporation at any meeting of the Board of Directors. SECTION 2. Shareholder Amendment of By-Laws: -------------------------------- The By-Laws may be amended by an affirmative vote of shares possessing two-thirds or more of the votes that are generally (not just as the result of the occurrence of a contingency) entitled to vote for the election of the members of the Board of Directors of this corporation. Such vote must be by ballot at a duly constituted meeting of the shareholders, the notice of which meeting must include the proposed amendment. CERTIFICATE I, Gary V. Klinefelter, Secretary of AMERCO, a Nevada corporation, do hereby certify that the foregoing is a true and correct copy of the corporation's Restated By-Laws, and that such Restated By-Laws are in full force and effect as of the date hereof. IN WITNESS WHEREOF, I have hereunto set my hand and affixed the seal of the corporation this 27th day of August, 1996. /S/ GARY V. KLINEFELTER ___________________________________ Gary V. Klinefelter, Secretary EX-4.1 3 CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF SERIES B PREFERRED STOCK OF AMERCO ----------------------------- Pursuant to Section 78.1955(1) of the General Corporation Law of the State of Nevada ---------------------------- We, Edward J. Shoen and Gary V. Klinefelter, being the President and the Secretary, respectively, of AMERCO, a Nevada corporation (the "Corporation"), do hereby certify that, pursuant to authority conferred upon the Board of Directors by Article 5 of the Corporation's Restated Articles of Incorporation, and in accordance with the provisions of Section 78.1955(1) of the General Corporation Law of the State of Nevada, the Board of Directors has adopted the following resolutions creating and providing for the issuance of a series of its preferred stock, designated Series B Preferred Stock: RESOLVED, that pursuant to the authority vested in the Board of Directors of the Corporation by Article 5 of the Restated Articles of Incorporation, a series of preferred stock is hereby established, the distinctive designation of which shall be "Series B Preferred Stock" (the "Series B Preferred") and the qualifications, limitations, or restrictions thereof to the extent not heretofore set forth in the Restated Articles of Incorporation of the Corporation are as set forth in EXHIBIT A to this resolution. RESOLVED, that the officers of the Corporation shall be, and each of them hereby is, authorized, empowered and directed, for and on behalf of the Corporation, to take all such actions as any such officer deems necessary or appropriate in order to effectuate fully the foregoing resolutions, including the filing of an appropriate certificate relating to the Series B Preferred with the Nevada Secretary of State. IN WITNESS WHEREOF, we have hereunto set our hands and seals as President and Secretary, respectively, of the Corporation this 28th day of August, 1996, and we hereby affirm that the foregoing Certificate is our act and deed and the act and deed of the Corporation and that the facts stated therein are true. AMERCO, a Nevada corporation /S/ EDWARD J. SHOEN ---------------------------------------- Edward J. Shoen, President /S/ GARY V. KLINEFELTER ---------------------------------------- Gary V. Klinefelter, Secretary STATE OF ARIZONA ) ) COUNTY OF MARICOPA ) The foregoing instrument was acknowledged before me this 28th day of August, 1996, by Edward J. Shoen, the President of AMERCO, a Nevada corporation, on behalf of the corporation. /S/ BLANCHE I. PASSOLT ----------------------------------- NOTARY PUBLIC My Commission Expires: 11/20/97 - ---------------------- STATE OF ARIZONA ) ) COUNTY OF MARICOPA ) The foregoing instrument was acknowledged before me this 28th day of August, 1996, by Gary V. Klinefelter, the Secretary of AMERCO, a Nevada corporation, on behalf of the corporation. /S/ BLANCHE I. PASSOLT ----------------------------------- NOTARY PUBLIC My Commission Expires: 11/20/97 - ---------------------- EXHIBIT A AMERCO SERIES B PREFERRED STOCK The Series Designated as Series B Preferred Stock (the "Series B Preferred"), will consist of 100,000 shares and will have the designations, preferences, voting powers, relative, participating, optional or other special rights and privileges, and the qualifications, limitations and restrictions described below. Shares of the Series B Preferred shall have liquidation rights as provided in SECTION 2 and shall have no par value. Certain capitalized terms used below have the meanings given in SECTION 11. 1. DIVIDENDS AND DISTRIBUTIONS. A. REGULAR DIVIDENDS. Subject to the prior rights of the holders of Senior Shares, if any, the Holder, in preference to the holders of Junior Shares, shall be entitled, in conjunction with any provision then being made for the holders of Parity Shares, to receive, when, as and if declared by the Board of Directors, out of any funds of the Corporation lawfully available for the payment of dividends, payable on the last day of each Payment Period, cumulative cash dividends at, but not exceeding, (i) the product of the Conversion Value times the Floating Rate, plus (ii) any Additional Amounts, payable on the last day of each Payment Period following the date of this Certificate. If the stated dividends are not paid in full, the Series B Preferred and all Parity Shares shall share ratably in the payment of dividends, including accumulations thereof, if any, on such shares in accordance with the sums that would be payable on such shares if all dividends were paid in full. B. NOTICE. The Holder will notify the Corporation of any event occurring after the date of this Certificate which will entitle the Holder to receive any Additional Amounts as promptly as practicable after it obtains knowledge thereof but in any event within thirty (30) days after it obtains knowledge thereof and determines to request such compensation. Determinations and allocations by the Holder for purposes hereof of the effect of any Regulatory Change on its costs of purchasing or holding the Series B Preferred or on amounts receivable by it in respect of the Series B Preferred and of the additional amounts required to compensate the Holder in respect of any Additional Amounts, shall be prima facie valid provided that such determinations and allocations are made on a reasonable basis. C. PRIORITY. Any and all dividends payable on the Series B Preferred shall be paid in preference and in priority to the payment of dividends or distributions on any Junior Shares. So long as any Series B Preferred shares are outstanding, no dividends whatever shall be paid or declared, nor shall any distribution be made, on any Junior Shares, other than a dividend or distribution payable in Junior Shares, nor shall the Corporation or any subsidiary of the Corporation purchase, redeem or otherwise acquire for a consideration any Junior Shares, unless full cumulative dividends have been or contemporaneously are declared and paid, or declared and a sum sufficient for the payment thereof set apart for such payment, on the Series B Preferred for all Payment Periods terminating on or prior to the date of payment of such purchase, redemption or acquisition. 2. LIQUIDATION RIGHTS. A. GENERALLY. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, before any amount shall be paid to the holders of any Junior Shares, the Holder of the Series B Preferred shall be paid first out of the assets of the Corporation available for distribution to holders of its capital stock an amount per share equal to, but not exceeding, (i) the Conversion Value, as appropriately adjusted to reflect any stock split, stock dividend, combination, recapitalization and the like of the Series B Preferred, plus (ii) all accrued but unpaid dividends (including any interest accrued thereon calculated through the date of liquidation (the "Liquidation Date")). If, upon the occurrence of a liquidation, dissolution or winding up, the assets and funds thus distributed to the Holder shall be insufficient to permit the payment to the Holder of its full liquidation preferences, then the entire assets and funds of the Corporation legally available for distribution to the holders of capital stock (other than Senior Shares) shall be distributed ratably to the Holder and the holders of any Parity Shares. B. EVENTS DEEMED A LIQUIDATION. For purposes of this SECTION 2, the Holder may elect to have treated as a liquidation, dissolution or winding up of the Corporation the consolidation or merger of the Corporation with or into any other corporation or the sale or other transfer in a single transaction or a series of related transactions of all or substantially all of the assets of the Corporation, or any other reorganization of the Corporation, unless the stockholders of the Corporation immediately prior to any such transaction are holders of a majority of the voting securities of the surviving or acquiring corporation immediately thereafter (and for purposes of this calculation equity securities which any stockholder or the Corporation owned immediately prior to such merger or consolidation as a stockholder of another party to the transaction shall be disregarded). C. PRIORITY. Any amounts payable on the Series B Preferred in the event of any liquidation, dissolution or winding up of the Corporation shall be paid in preference and in priority to the payment of any amounts payable on Junior Shares. 3. CONVERSION. The Holder has conversion rights as follows (the "Conversion Rights"): A. RIGHT TO CONVERT. Upon each of the following to occur from time to time: (i) August 31, 1997, and for 10 Business Days thereafter; (ii) the first day of each fiscal quarter of the Corporation occurring after August 31, 1997, and for 10 Business Days after the first day of each such fiscal quarter; (iii) the expiration of ten days after the occurrence of an Event of Noncompliance under the Stock Purchase Agreement that is not then cured, and at any time thereafter; (iv) any dividends on the Series B Preferred becoming in arrears, and at any time thereafter; (v) the Corporation no longer holding more than 50% of the outstanding stock and assets of any of Ponderosa Holdings, Inc., Oxford Life Insurance Company or Republic Western Insurance Company, and at any time thereafter; or (vi) the Corporation or any of its subsidiaries completing any Excess Equity Offering, and at any time thereafter, then each share of Series B Preferred shall be convertible, at the option of the Holder, into either: i. the number of fully paid and nonassessable shares of Series B Common Stock that results from dividing the Conversion Price per share in effect at the time of conversion into the per share Conversion Value but no more than the maximum amount authorized and available for issuance; or ii. all of the shares of capital stock of Picacho then outstanding. Upon conversion, all accrued but unpaid dividends (including interest accrued thereon calculated as of the Conversion Date) on the Series B Preferred shall be paid in cash, to the extent permitted by applicable law. B. CONVERSION PRICE AND CONVERSION VALUE. The initial Conversion Price of the Series B Preferred shall be $25.00 per share, and the initial Conversion Value of the Series B Preferred shall be $1,000.00 per share. The initial Conversion Price of the Series B Preferred shall be subject to adjustment from time to time as provided in SECTION 3(D). C. MECHANICS OF CONVERSION. To convert any shares of Series B Preferred, the Holder shall surrender the certificate or certificates therefor, duly endorsed, at the principal office of the Corporation, or notify the Corporation in writing that such certificates have been lost, stolen or destroyed and agree to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice (the "Conversion Notice") to the Corporation at such office that the Holder elects to convert the same, specifying whether the Series B Preferred shares are to be converted into Series B Common Stock or shares of Picacho. As soon as practicable (but not more than one Business Day) after such delivery, or after such notification, the Corporation shall issue and deliver at such office to the Holder, unless the Corporation shall elect instead to redeem the Series B Preferred as provided in SECTION 5: i. A certificate or certificates for the number of shares of Series B Common Stock to which the Holder shall be enti tled if the Holder has elected to convert the Series B Preferred into Series B Common Stock; or ii. A certificate or certificates for all of the outstanding shares of Picacho, if the Holder has elected to convert the Series B Preferred into Picacho stock; and, in either case, a check payable to the Holder in the amount of any accrued or declared but unpaid dividends payable pursuant to SECTION 1, if any. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Preferred to be converted or of the notification of lost certificates and the persons entitled to shares of Series B Common Stock or Picacho stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares on such date (the "Conversion Date"). In the event of a notice of redemption of any shares of Series B Preferred pursuant to SECTION 5, the Conversion Rights shall terminate at the close of business on the Redemption Date, unless default is made in payment of the redemption price, in which case the Conversion Rights for such shares shall continue until such payment. D. ADJUSTMENTS TO CONVERSION PRICE. i. ADJUSTMENT OF CONVERSION PRICE. The Conversion Price of the Series B Preferred shall be adjusted if the Corporation issues or is deemed to issue Additional Shares of Common Stock for a consideration per share that is less than the Conversion Price for the Series B Preferred in effect on the date of, and immediately prior to, such issue or deemed issue. ii. DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON STOCK. If the Corporation at any time or from time to time after the date of this Certificate issues any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities and Options therefor, the exercise of such Options and conversion or exchange of such Convertible Securities, shall be deemed to be Additional Shares of Common Stock issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that Additional Shares of Common Stock shall not be deemed to have been issued unless the consideration per share (determined pursuant to SECTION 3(D)(IV)) of such Additional Shares of Common Stock would be less than the Conversion Price in effect on the date of and immediately prior to such issue, or such record date, as the case may be, and provided further that in any such case in which Additional Shares of Common Stock are deemed to be issued: (1) except as provided in SECTION 3(D)(II)(2), no further adjustment in the Conversion Price shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock upon the exercise of such Options or conversion or exchange of such Convertible Securities; (2) if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Corporation, or change in the number of shares of Common Stock issuable, upon the exercise, conversion or exchange thereof (other than under or by reason of provisions designed to protect against dilution), the Conversion Price computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon, shall, upon any such increase or decrease becoming effective, be recomputed to reflect such increase or decrease insofar as it affects such Options or the rights of conversion or exchange under such Convertible Securities; and (3) no readjustment pursuant to clause (2) above shall have the effect of increasing the Conversion Price. iii. ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF ADDITIONAL SHARES OF COMMON STOCK. Except as provided by SECTION 3(D)(II)(2), in the event the Corporation shall issue Additional Shares of Common Stock (including Additional Shares of Common Stock deemed to be issued pursuant to SECTION 3(D)(II)) without consideration or for a consideration per share less than the Conversion Price of the Series B Preferred in effect on the date of and immediately prior to such issue, then and in each such event the Conversion Price of the Series B Preferred shall be reduced to the price (calculated to the nearest cent) at which the Additional Shares of Common Stock are issued. iv. DETERMINATION OF CONSIDERATION. For purposes of this SECTION 3(D), the consideration received by the Corporation for the issue of any Additional Shares of Common Stock shall be determined after payment of all commissions paid or discounts given in connection with the issuance or deemed issuance of the shares and shall be computed as follows: (1) CASH AND PROPERTY: Such consideration shall: ----------------- (a) insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation; (b) insofar as it consists of property other than cash, be computed at the fair value thereof at the time of such issue, as determined by the Board of Directors in the good faith exercise of its reasonable business judgment; and (c) in the event Additional Shares of Common Stock are issued together with other shares or securities or other assets of the Corporation for consideration that covers both, be the proportion of such consideration so received for the Additional Shares of Common Stock, computed as provided in clauses (a) and (b) above, as determined by the Board of Directors in the good faith exercise of its reasonable business judgment. (2) OPTIONS AND CONVERTIBLE SECURITIES. The consideration per share received by the Corporation for Additional Shares of Common Stock deemed to have been issued pursuant to SECTION 3(D)(II), relating to Options and Convertible Securities, shall be determined by dividing: (a) the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities, by (b) the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities. v. OTHER ADJUSTMENTS. (a) SUBDIVISIONS, COMBINATIONS, OR CONSOLIDATIONS OF SERIES B COMMON STOCK. In the event the outstanding shares of Series B Common Stock shall be subdivided, combined or consolidated, by stock split, stock dividend, combination or like event, into a greater or lesser number of shares of Series B Common Stock, the Conversion Price of the Series B Preferred in effect immediately prior to such subdivision, combination, consolidation or stock dividend shall, concurrently with the effectiveness of such subdivision, combi nation or consolidation, be proportionately adjusted to achieve the result that, upon conversion of the Series B Preferred into Series B Common Stock, the Holder shall receive, as nearly as possible, the same percentage of the outstanding shares of Series B Common Stock that it would have had the Series B Preferred been converted immediately prior to such subdivision, combination or consolidation. (b) RECLASSIFICATIONS. In the case, at any time after the date of this Certificate, of any capital reorganization or any reclassification of the stock of the Corporation (other than as a result of a subdivision, combination or consolidation of shares), or the consolidation or merger of the Corporation with or into another person (other than a consolidation or merger (A) in which the Corporation is the continuing entity and that does not result in any change in the Common Stock or (B) that is treated as a liquidation pursuant to SECTION 2(B)), the Conversion Price shall be adjusted so that the shares of the Series B Preferred shall, after such reorganization, reclassification, consolidation or merger, be convertible into the kind and number of shares of stock or other securities or property of the Corporation or otherwise to which the Holder would have been entitled if immediately prior to such reorganization, reclassification, consolidation or merger if the Holder had converted the shares of the Series B Preferred into Series B Common Stock. The provisions of this CLAUSE 3(D)(V)(B) shall similarly apply to successive reorganizations, reclassifications, consolidations or mergers. E. NO ADJUSTMENTS TO CONVERSION VALUE. The Corporation shall not effect any stock split, stock dividend, combination or recapitalization of the Series B Preferred and, therefore, the Conversion Value of the Series B Preferred will not be adjusted. F. CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each adjustment or readjustment of the Conversion Price of the Series B Preferred pursuant to this SECTION 3, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms of this Certificate and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of the Holder, furnish or cause to be furnished to the Holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price of the Series B Preferred at the time in effect, and (iii) the number of shares of Series B Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series B Preferred. G. STATUS OF CONVERTED STOCK. In case any shares of Series B Preferred shall be converted pursuant to SECTION 3, the shares so converted shall be canceled, shall not be reissuable and shall cease to be a part of the outstanding capital stock of the Corporation. H. FRACTIONAL SHARES. In lieu of any fractional shares of Series B Common Stock to which the Holder would otherwise be entitled upon conversion, the Corporation shall pay cash equal to such fraction multiplied by the fair market value of one share of Series B Common Stock as determined by the Board of Directors in the good faith exercise of its reasonable business judgment. I. MISCELLANEOUS. i. All calculations under this SECTION 3 shall be made to the nearest cent or to the nearest one hundredth (1/100) of a share, as the case may be. ii. The Holder shall have the right to challenge any determination by the Board of Directors of fair market value pursuant to this SECTION 3, in which case such determination of fair market value shall be made by an independent appraiser selected jointly by the Board of Directors and the Holder, the cost of such appraisal to be borne equally by the Corporation and the Holder. iii. No adjustment in the Conversion Price of the Series B Preferred need be made if such adjustment would result in a change in such Conversion Price of less than $0.01. Any adjustment of less than $0.01 that is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment that, on a cumulative basis, amounts to an adjustment of $0.01 or more in such Conversion Price. J. RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Series B Common Stock, solely for the purpose of effecting the conversion of the shares of Series B Preferred, such number of its shares of Series B Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Series B Preferred. If at any time the number of authorized but unissued shares of Series B Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Series B Preferred, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Series B Common Stock to such number of shares as shall be sufficient for such purpose. 4. VOTING RIGHTS. A. Except as otherwise required by law and SUBSECTION 4(B), the Holder shall have no voting rights with respect to the Series B Preferred. B. So long as any of the shares of Series B Preferred are outstanding, the written consent of the Holder shall be necessary for authorizing, affecting or validating the amendment, alteration, or repeal of any of the provisions of the Articles of Incorporation of the Corporation or of any certificate amendatory thereof or supplemental thereto (including any certificate of amendment or any similar document relating to any series of preferred stock) that would adversely affect the powers, preferences, or special rights of the Series B Preferred, including the creation or authorization of any class of Senior Shares or Parity Shares. Any amendment or any resolution or action of the Board of Directors that would create or issue any series of Junior Shares out of the authorized shares of preferred stock, or that would authorize, create, or issue any other Junior Shares (whether or not already authorized), shall not be considered to affect adversely the powers, preferences, or special rights of the outstanding shares of the Series B Preferred. 5. REDEMPTION. A. OPTIONAL REDEMPTION. If the Holder exercises its Conversion Rights pursuant to SECTION 3, then instead of effecting the conversion, the Corporation may, by giving written notice to the Holder (a "Notice of Redemption") not later than one Business Day after receiving the Conversion Notice, elect to redeem all (but not less than all) of the Series B Preferred outstanding on the Redemption Date. B. REDEMPTION VALUE. Upon any redemption of the Series B Preferred, the Corporation shall pay out of funds legally available therefor in cash a sum per share equal to the Conversion Value, together with (i) all accrued but unpaid dividends (including any interest accrued thereon) calculated as of the Redemption Date, (ii) if the Redemption Date is a date other than the last day of a Payment Period, the Interim Payment; and (iii) all other costs, fees, expenses, or amounts the Corporation is required to pay Holder pursuant to the Stock Purchase Agreement, regardless of the reason for such redemption or such costs, fees, expenses, or amounts (collectively the "Redemption Value"). C. NOTICE OF REDEMPTION. Any Notice of Redemption given by the Corporation shall be delivered to the Holder, notifying the Holder of the redemption to be effected. The Notice of Redemption shall: i. State that the Series B Preferred is to be redeemed; ii. Specify the date (the "Redemption Date") on which the Series B Preferred is to be redeemed, which shall be not more than ten Business Days following the date the Corporation receives the Conversion Notice from the Holder; iii. Request wire transfer or other instructions for the payment of the Redemption Value. D. TRANSFER INSTRUCTIONS. Not less than one Business Day after delivery of the Notice of Redemption, the Holder shall provide the Corporation with instructions for wire or other transfer of the Redemption Value to the Holder. E. COMPLETING THE REDEMPTION. On the Redemption Date: i. The Holder shall surrender to the Corporation at the principal offices of the Corporation the Holder's certificate or certificates representing the shares to be redeemed or provide a notice to the Corporation in writing that such certificates have been lost, stolen or destroyed and that the Holder agrees to indemnify the Corporation from any loss incurred by it in connection with such certificates; and ii. The Corporation shall pay the Redemption Value to the Holder by wire or other transfer acceptable to the Holder, and thereupon each surrendered or lost certificate shall be canceled. F. LACK OF LEGALLY AVAILABLE FUNDS. If the funds of the Corporation legally available for redemption of the Series B Preferred are insufficient to redeem the total number of shares of Series B Preferred required to be redeemed on the Redemption Date, then, at the Holder's election in its sole discretion, the Corporation either shall redeem that number of shares of Series B Preferred for which the Corporation has funds legally available or shall not redeem any of the Series B Preferred. G. EFFECT OF REDEMPTION. From and after the payment of the Redemption Value, all rights of the Holder shall cease with respect to such shares, and such shares shall not thereafter be transferred on the books of the Corporation or be deemed to be outstanding for any purpose whatsoever. 6. NOTICES OF RECORD DATE. In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall notify the Holder, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. 7. NOTICES. All notices and other communications provided for in this Certificate shall be given or made in writing and telecopied, mailed by certified mail return receipt requested or delivered to the intended recipient at such address as shall be designated by such person in a notice to each other relevant person given in accordance with this Section, in addition to any other notices that may be required by law. All such communications shall be deemed to have been duly given when transmitted by telecopy, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as provided herein. 8. WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, THE CORPORATION HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO THE SERIES B PREFERRED SHARES, THE STOCK PURCHASE AGREEMENT OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE HOLDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. 9. INTEREST. Any amounts required to be paid under this Certificate that are not paid on the first day such payment may be made and any dividends in arrears shall bear interest from that date at the lesser of (a) the Maximum Rate or (b) the sum of four percent plus the rate per annum publicly announced from time to time by NationsBank, N.A. as its prime rate in effect at its principal office in Charlotte, North Carolina. 10. MAXIMUM RATE. Notwithstanding anything to the contrary contained herein, in the event the Series B Preferred shall be deemed to be debt instead of equity, no provisions of this Certificate shall require the payment or permit the collection of interest in excess of the Maximum Rate. If any excess of interest in such respect shall be adjudicated to be so provided in this Certificate or otherwise in connection with the Series B Preferred, the provisions of this paragraph shall govern and prevail, and neither the Corporation nor the successors or assigns of the Corporation shall be obligated to pay the excess amount of such interest, or any other excess sum paid with respect to the Series B Preferred. If, for any reason, interest in excess of the Maximum Rate shall be deemed charged, required or permitted by any court of competent jurisdiction, any such excess shall be applied as a payment and reduction of the principal of indebtedness deemed to be evidenced by the Series B Preferred; and, if such principal has been paid in full, any remaining excess shall forthwith be paid to the Corporation. In determining whether or not the interest paid or payable exceed the Maximum Rate, the Corporation and the Holder shall, to the extent permitted by applicable law, (i) characterize any nonprincipal payment as an expense, fee, or premium rather than as interest, (ii) exclude voluntary prepayments and the effects thereof and (iii) amortize, prorate, allocate, and spread in equal or unequal parts the total amount of interest throughout the entire term of the indebtedness deemed to be evidenced by the Series B Preferred so that the interest for the entire period does not exceed the Maximum Rate. 11. DEFINITIONS. a. Capitalized terms used in this Certificate and not otherwise defined have the meanings given to those terms in the Series B Stock Purchase Agreement between the Corporation and Blue Ridge Investments, LLC, dated August 30, 1996. b. "Additional Amounts" means such amounts, if any, as are necessary to compensate the Holder for any costs incurred by Holder which the Holder determines are attributable, directly or indirectly, to its purchase or holding of the Series B Preferred or any reduction in any amount receivable by the Holder as a holder of the Series B Preferred to the extent such costs and reductions in amount are not reflected in any dividends, fees, reimbursements or other amounts received by the Holder hereunder or under the Stock Purchase Agreement, resulting from (i) an increase (over the dividend rate paid hereunder) in the cost of funding the purchase of the Series B Preferred, or (ii) any Regulatory Change which: (A) changes the basis of taxation of any amounts payable generally to NationsBank under Eurodollar loans (other than taxes imposed on the overall net income of NationsBank or its applicable lending office for any of such loans by the jurisdiction in which NationsBank has its principal office or such applicable lending office); (B) imposes or modifies any reserve, special deposit, minimum capital, capital ratio, or similar requirement relating to any extensions of credit or other assets of, or any deposits with or other liabilities or commitments of, NationsBank (including any of such loans or any deposits referred to in the definition of "Floating Rate" herein); or (C) imposes any other condition generally affecting loans by NationsBank or any of such extensions of credit or liabilities or commitments. c. "Additional Shares of Common Stock" means all shares of Common Stock issued (or, pursuant to SECTION 3(D)(II), deemed to be issued) by the Corporation after the date of this Certificate, other than shares of Common Stock issued or issuable: i. upon conversion of shares of Series B Preferred; ii. as a dividend or distribution on Series B Preferred; iii. in a transaction described in SECTION 3(D)(V); iv. by way of dividend or other distribution on shares of Common Stock excluded from the definition of Additional Shares of Common Stock. d. "Affiliate" has the meaning given that term in Rule 405 promulgated by the Securities and Exchange Commission under the Securities Act. e. "Business Day" means (a) any day on which commercial banks are not authorized or required to close in Charlotte, North Carolina and (b) with respect to all payments, Conversions, Payment Periods, and notices, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in dollar deposits are carried out in the London interbank market. f. "Common Stock" means shares of the Corporation's common stock, par value $0.25 per share, serial common stock, or other securities entitled generally to vote in the election of directors of the Corporation. g. "Conversion Date" has the meaning given in SECTION 3(C). h. "Conversion Notice" has the meaning given in SECTION 3(C). i. "Conversion Price" has the meaning given in SECTION 3(B). j. "Conversion Value" has the meaning given in SECTION 3(B). k. "Convertible Securities" means any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock, except the Series B Preferred. l. "Corporation" means AMERCO, a Nevada corporation. m. "Excess Equity Offering" means any offer or sale of equity securities of the Corporation or any of its subsidiaries, whether public or private, after the date of this Certificate, other than (i) the offer and sale of Series B Preferred issued to Holder, (ii) the offer and sale by the Corporation of up to $125,000,000 of equity securities in a single transaction occurring on or before March 1, 1997, and (iii) issuances of equity securities to employees of the Corporation or its subsidiaries pursuant to written employee benefit plans existing on the date of this Certificate in the maximum amount permitted under such plans or arrangements on the date of this Certificate. n. "Floating Rate" means, for any Payment Period, the rate per annum that is the lesser of (x) the sum of (i) two and one- quarter percent (2.25%), and (ii) the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate Page 3750 (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Payment Period for a term comparable to such Payment Period, or if for any reason such rate is not available, the rate per annum (rounded upwards, if necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO Page (or any successor page) as the London interbank offered rate for deposits in Dollars at approximately 11:00 a.m. (London time) two Business Days prior to the first day of such Payment Period for a term comparable to such Payment Period; provided, however, if more than one rate is specified on Reuters Screen LIBO Page, the applicable rate shall be the arithmetic mean of all such rates, or (y) the Maximum Rate. Dividends shall be computed on the basis of a year of 360 days and the actual number of days elapsed (including the first day but excluding the last day) during the Payment Period unless such calculation would result in the dividends exceeding the Maximum Rate, in which case dividends shall be calculated on the basis of a year of 365 or 366 days, as the case may be. Notwithstanding the first sentence of this paragraph, if at any time the dividend is limited by the terms of this Certificate to the Maximum Rate, then any subsequent reduction in the Floating Rate shall not reduce the dividend below the Maximum Rate until the aggregate amount of dividends accrued equals the aggregate amount of dividends which would have accrued on the Series B Preferred if the dividend specified in the first sentence of this paragraph had at all times been in effect. o. "Holder" means the holder or holders of record of the Series B Preferred. p. "Interim Payment" means such amount or amounts as shall be sufficient to compensate the Holder for any loss, cost, or expense incurred by the Holder as a result of any payment or prepayment for any reason on a date other than the last day of a Payment Period. Without limiting the effect of the preceding sentence, such compensation shall include an amount equal to the excess, if any, of (i) the amount of dividends which otherwise would have accrued on the Conversion Value of the Series B Preferred redeemed from the period from the date of such redemption to the last day of the Payment Period at the applicable rate of dividends for such Series B Preferred provided for herein, over (ii) the interest component of the amount the Holder would have bid in the London interbank market for dollar deposits of leading banks in amounts comparable to the Conversion Value of the Series B Preferred redeemed and with the maturities comparable to the applicable Payment Period. q. "Junior Shares" means all classes and series of shares that, by the terms of the Corporation's Articles of Incorporation, or by law, shall be subordinate to the Series B Preferred with respect to the right of the holders thereof to receive dividends and to participate in the assets of the Corporation distributable to shareholders upon any liquidation, dissolution or winding-up of the Corporation. r. "Liquidation Date" has the meaning given in SECTION 2(A). s. "Maximum Rate" means the maximum rate of nonusurious interest permitted from day to day by applicable law, and calculated after taking into account any and all relevant fees, payments, and other charges contracted for, charged or received which are deemed to be interest under applicable law. t. "NationsBank" means NationsBank Corporation, a Delaware corporation. u. "Options" means rights, options or warrants to subscribe for, purchase or otherwise acquire either Common Stock or Convertible Securities, other than the Series B Preferred. v. "Parity Shares" means all classes and series of shares that, by the terms of the Corporation's Articles of Incorporation, or by law, shall be on parity with the Series B Preferred with respect to the right of the holders thereof to receive dividends and to participate in the assets of the Corporation distributable to shareholders upon any liquidation, dissolution or winding-up of the Corporation. w. "Payment Period" means each period commencing on the date any shares of Series B Preferred are first issued or, in the case of each subsequent, successive Payment Period, the last day of the next preceding Payment Period, and ending on the numerically corresponding day in the first, second or third calendar month thereafter, as the Holder may select by written notice to the Corporation at least three days before the the commencement of the applicable Payment Period, except that each such Payment Period which commences on the last Business Day of a calendar month (or on any day for which there is no numerically corresponding day in the appropriate subsequent calendar month) shall end on the last Business Day of the appropriate subsequent calendar month. Notwithstanding the foregoing: (a) each Payment Period which would otherwise end on a day which is not a Business Day shall end on the next succeeding Business Day (or, if such succeeding Business Day falls in the next succeeding calendar month, on the next preceding Business Day); (b) any Payment Period which would otherwise extend beyond a Conversion Date, Redemption Date or Liquidation Date shall end on the Conversion Date, Redemption Date or Liquidation Date, as appropriate; and (c) no Payment Period shall have a duration of less than one (1) month. If Holder shall fail to give the Corporation a notice of the length of a Payment Period prior to the end of the then current Payment Period, such Payment Period shall automatically be continued on the last day thereof as Payment Period having a term of one month. x. "Picacho" means Picacho Peak Investment Co., a Nevada corporation. y. "Redemption Date" has the meaning given in SECTION 5(C). z. "Regulatory Change" means any change after the date of this Certificate in United States federal, state or foreign laws or regulations (including Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time) or the adoption or making after such date of any interpretations, directives or requests applying to a class of institutions including NationsBank of or under any United States federal, state or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. aa. "Senior Shares" means all classes and series of shares, including the Corporation's Series A 8 1/2% Preferred Stock, that, by the terms of the Corporation's Articles of Incorporation, or by law, shall be senior to the Series B Preferred with respect to the right of the holders thereof to receive dividends and to participate in the assets of the Corporation distributable to shareholders upon any liquidation, dissolution or winding-up of the Corporation. bb. "Series B Common Stock" means the Series B common stock, $0.25 par value per share, of the Corporation. cc. "Stock Purchase Agreement" means the Series B Stock Purchase Agreement between the Corporation and Blue Ridge Investments, LLC, dated August 30, 1996. EX-4.2 4 CERTIFICATE OF DESIGNATION, PREFERENCE, AND RIGHTS OF SERIES B COMMON STOCK OF AMERCO - ----------------------------------------------------------------- Under Section 78.1955(1) of the Nevada General Corporation Law - ----------------------------------------------------------------- We, Edward J. Shoen and Gary V. Klinefelter, being the President and the Secretary, respectively, of AMERCO, a corporation organized and existing under the laws of Nevada (the "Corporation"), do hereby certify that, pursuant to authority conferred upon the Board of Directors by the Corporation's Restated Articles of Incorporation (the "Articles of Incorporation") and the Nevada General Corporation Law, the Board of Directors adopted, by unanimous written consent, the following resolutions providing for the creation of a series of Serial Common Stock pursuant to Article 5 of the Articles of Incorporation: RESOLVED, that pursuant to authority vested in the Board of Directors of the Corporation by Article 5 of the Articles of Incorporation, a series of common stock is hereby established, the preferences and relative participating, optional, or other special rights of such series of Serial Common Stock and the qualifications, limitations, or restrictions thereof to the extent not heretofore set forth in the Articles of Incorporation as from time to time amended, are as follows: (a) Designation. A series of Serial Common Stock (as ----------- defined in the Articles of Incorporation) is hereby designated "Series B Common Stock." The number of shares constituting the Series B Common Stock is 10,000,000. Shares of the Series B Common Stock shall have a par value of $0.25. (b) Dividends and Distributions. Shares of the Series --------------------------- B Common Stock shall be entitled to receive such dividends and distributions as may be declared by the Board of Directors from time to time on a pari passu basis with the Corporation's Common Stock and Series A Common Stock and shall be payable, when and as declared by the Board of Directors. (c) Conversion. The holders of shares of the Series B ---------- Common Stock shall not have any rights to convert such shares into or exchange such shares for shares of any other class or classes or of any other series of any class or classes of stock of the Corporation. (d) Voting. The shares of the Series B Common Stock ------ shall be entitled to one-tenth (1/10) of one vote per share. (e) Liquidation Rights. Upon the dissolution, ------------------- liquidation, or winding up of the affairs of the Corporation, whether voluntary or involuntary, the Series B Common Stock shall be entitled to distribution of the assets of the Corporation on a pari passu basis with the Corporation's Common Stock and Series A Common Stock. IN WITNESS WHEREOF, we have hereunto set our hands and seals as President and Secretary, respectively, of the Corporation this 28th day of August, 1996 and we hereby affirm that the foregoing Certificate is our act and deed and the act and deed of the Corporation and that the facts stated therein are true. AMERCO, a Nevada corporation /S/ EDWARD J. SHOEN ----------------------------------- Edward J. Shoen President /S/ GARY V. KLINEFELTER ----------------------------------- Gary V. Klinefelter Secretary STATE OF ARIZONA ) ) ss. COUNTY OF MARICOPA ) The foregoing instrument was acknowledged before me this 28th day of August, 1996, by Edward J. Shoen, the President of AMERCO, a Nevada corporation, on behalf of the corporation. /S/ NANCY JO BEILEY ----------------------------------- NOTARY PUBLIC My Commission Expires: 5/22/99 - ------------------------- STATE OF ARIZONA ) ) ss. COUNTY OF MARICOPA ) The foregoing instrument was acknowledged before me this 28th day of August, 1996, by Gary V. Klinefelter, the Secretary of AMERCO, a Nevada corporation, on behalf of the corporation. /S/ NANCY JO BEILEY ----------------------------------- NOTARY PUBLIC My Commission Expires: 5/22/99 - ------------------------ EX-10.1 5 AMERCO _________________________________________ SERIES B PREFERRED STOCK PURCHASE AGREEMENT August 30, 1996 ___________________________________________ TABLE OF CONTENTS Page No. ARTICLE I. DESCRIPTION OF TRANSACTION.................................1 -------------------------- 1.1 Description of Securities........................1 ------------------------- 1.2 Purchase of Series B Preferred...................1 ------------------------------ 1.3 Closing..........................................1 ------- ARTICLE II. Representations and Warranties of the Corporation..........1 ------------------------------------------------- 2.1 Corporate Existence..............................1 ------------------- 2.2 Corporate Authority..............................2 ------------------- 2.3 Financial Statements.............................2 -------------------- 2.4 Corporate Action; No Breach......................2 --------------------------- 2.5 Operation of Business............................2 --------------------- 2.6 Litigation and Judgments.........................3 ------------------------ 2.7 Enforceability...................................3 -------------- 2.8 Approvals........................................3 --------- 2.9 Debt.............................................3 ---- 2.10 Rating...........................................3 ------ 2.11 Taxes............................................3 ----- 2.12 Margin Securities................................4 ----------------- 2.13 ERISA............................................4 ----- 2.14 Disclosure.......................................4 ---------- 2.15 Capitalization...................................4 -------------- 2.16 Agreements.......................................5 ---------- 2.17 Compliance with Laws.............................5 -------------------- 2.18 Investment Company Act...........................5 ---------------------- 2.19 Public Utility Holding Company Act..............5 ---------------------------------- 2.20 Environmental Matters............................5 --------------------- 2.21 Labor Disputes and Acts of God...................6 ------------------------------ ARTICLE III. Representations and Warranties of the Holder...............7 -------------------------------------------- 3.1 Organization and Good Standing...................7 ------------------------------ 3.2 Authorization....................................7 ------------- 3.3 Enforceability...................................7 -------------- 3.4 Accredited Investor..............................7 ------------------- 3.5 Investment.......................................7 --------- 3.6 Access to Data...................................7 -------------- ARTICLE IV. Positive Covenants.........................................7 ------------------ 4.1 Existence; Business and Properties...............8 ---------------------------------- 4.2 Insurance........................................8 --------- 4.3 Obligations and Taxes............................8 --------------------- 4.4 Financial Statements, Reports, etc...............8 ----------------------------------- 4.5 ERISA...........................................11 ----- 4.6 Maintaining Records: Access to Properties and ------------------------------------------------- Inspections.....................................12 ----------- 4.7 Use of Proceeds.................................12 --------------- 4.8 Ownership and Operation of Picacho..............12 ---------------------------------- 4.9 Further Assurances..............................12 ------------------ 4.10 Compliance with Other Instruments...............12 --------------------------------- 4.11 Further Assurances Regarding Conversion.........13 --------------------------------------- ARTICLE V. Conditions to Closing of Holder...........................13 ------------------------------ 5.1 Representations and Warranties Correct..........13 -------------------------------------- 5.2 Covenants.......................................13 --------- 5.3 Certificates of Designation.....................13 --------------------------- 5.4 Delivery of Documents...........................13 --------------------- 5.5 Closing of Loan Agreement.......................14 ------------------------- 5.6 Legal Matters...................................14 ------------- ARTICLE VI. Conditions to Closing of Corporation......................14 ------------------------------------ 6.1 Representations and Warranties Correct..........14 -------------------------------------- 6.2 Covenants.......................................14 --------- 6.3 Officers' Certificate...........................14 --------------------- 6.4 Legal Matters...................................14 ------------- ARTICLE VII. Registration Rights.......................................14 ------------------- 7.1 Required Registrations..........................14 ---------------------- 7.2 Form S-3........................................15 -------- 7.3 Procedure for Registration......................15 -------------------------- 7.4 Indemnification.................................16 --------------- 7.5 Rule 144 Requirements...........................17 --------------------- 7.6 Obligations in a Registration...................17 ----------------------------- 7.7 Limitations on Subsequent Registration Rights...17 --------------------------------------------- ARTICLE VIII. Definitions...............................................18 ----------- 8.1 Definitions.....................................18 ----------- 8.2 Other Definitional Provisions...................23 ----------------------------- 8.3 Accounting Terms and Determinations.............24 ----------------------------------- ARTICLE IX. Miscellaneous.............................................24 ------------- 9.1 Expenses........................................24 -------- 9.2 Indemnification.................................25 --------------- 9.3 Limitation of Liability.........................25 ----------------------- 9.4 No Duty.........................................26 ------- 9.5 Equitable Relief................................26 ---------------- 9.6 No Waiver; Cumulative Remedies..................26 ------------------------------ 9.7 Successors and Assigns..........................26 ---------------------- 9.8 Survival........................................26 -------- 9.9 ENTIRE AGREEMENT................................26 ---------------- 9.10 Notices.........................................27 ------- 9.11 Governing Law; Submission to Jurisdiction; Service -------------------------------------------------- of Process......................................27 ---------- 9.12 Counterparts....................................27 ------------ 9.13 Severability....................................27 ------------ 9.14 Headings........................................28 -------- 9.15 Construction....................................28 ------------ 9.16 Independence of Covenants.......................28 ------------------------- 9.17 WAIVER OF JURY TRIAL............................28 -------------------- List of Attachments: - ------------------- Exhibit A - Certificate of Designation for Series B Preferred Stock Exhibit B - Certificate of Designation for Series C Common Stock Exhibit C - Form of Note AMERCO SERIES B PREFERRED STOCK PURCHASE AGREEMENT AMERCO, a Nevada corporation (the "Corporation"), and Blue Ridge Investments, LLC, a Delaware limited liability company, enter into this Agreement dated as of August 30, 1996, relating to the issuance by the Corporation of certain of its securities. Certain capitalized terms used in this Agreement are defined in Article 8. ARTICLE I. DESCRIPTION OF TRANSACTION -------------------------- 1.1 Description of Securities. The securities to be issued ------------------------- pursuant to this Agreement are the Series B Preferred Stock, no par value (the "Series B Preferred"), of the Corporation. The Series B Preferred will be convertible, at the Holder's option, into either shares of the Corporation's Series B Common Stock, $.25 par value per share (the "Series B Common Stock") or all of the outstanding shares of Picacho, as provided in the Certificate of Designation. Any securities of the Corporation issued or issuable upon conversion of the Series B Preferred are referred to as "Conversion Shares." 1.2 Purchase of Series B Preferred. The Corporation agrees ------------------------------ to issue to the Holder and the Holder agrees to purchase from the Corporation, a total of 100,000 shares of its authorized but unissued Series B Preferred for a total purchase price of $100,000,000. 1.3 Closing. The closing (the "Closing") of the purchase ------- and sale of the Series B Preferred will take place at 9:00 a.m., local time, on the date (the "Closing Date") of execution of this Agreement, at the offices of Snell & Wilmer, One Arizona Center, Phoenix, Arizona, or at such other date and place as agreed to by the parties. At the Closing, the Corporation will deliver to the Holder a certificate registered in the name of the Holder or its nominee representing the Series B Preferred, upon delivery by the Holder of (i) payment of $40,000,000 by wire or other transfer; and (ii) a promissory note in the principal amount of $60,000,000 in the form attached as Exhibit C. ARTICLE II. Representations and Warranties of the Corporation ------------------------------------------------- The Corporation represents and warrants to the Holder that: 2.1 Corporate Existence. The Corporation and each of its ------------------- Subsidiaries (a) is a corporation duly organized, validly existing, and in good standing under the laws of the jurisdiction of its incorporation; (b) has all requisite corporate power and authority to own its assets and carry on its business as now being or as proposed to be conducted; and (c) is qualified to do business and in good standing in all jurisdictions in which the nature of its business makes such qualification necessary. 2.2 Corporate Authority. The Corporation has the corporate ------------------- power and authority and legal right to execute, deliver, and perform its obligations under this Agreement and the other Transaction Documents to which it is or may become a party. 2.3 Financial Statements. The Corporation has delivered to -------------------- the Holder the Corporation's Form 10-K, which contains audited consolidated financial statements of the Corporation and its Subsidiaries as at and for the fiscal year ended March 31, 1996, and has delivered to the Holder unaudited consolidated and consolidating financial statements of the Corporation and its Subsidiaries for the three-month period ended June 30, 1996. Such financial statements are complete and correct, have been prepared in accordance with GAAP, and fairly and accurately present, on a consolidated and consolidating basis, the financial condition of the Corporation and its Subsidiaries as of the respective dates indicated therein and the results of operations for the respective periods indicated therein subject, in the case of the unaudited interim financial statements, to changes resulting from normal year-end adjustments (none of which would, either alone or in the aggregate, be materially adverse to the financial condition or operating results of the Corporation). Neither the Corporation nor any of its Subsidiaries has any material contingent liabilities, liabilities for taxes, unusual forward or long-term commitments, or unrealized or anticipated losses from any unfavorable commitments except as referred to or reflected in such financial statements. There has been no material adverse change in the business, condition (financial or otherwise), operations, prospects, or Properties of the Corporation or any of its Subsidiaries since the date of the most recent financial statements referred to in this Section. 2.4 Corporate Action; No Breach. The execution, delivery, --------------------------- and performance by the Corporation of this Agreement and the other Transaction Documents to which either the Corporation or Picacho is or may become a party and compliance with the terms and provisions hereof and thereof have been duly authorized by all requisite corporate action on the part of the Corporation and Picacho and do not and will not (a) violate or conflict with, or result in a breach of, or require any consent under (i) the articles of incorporation or bylaws of the Corporation or any of the Subsidiaries, (ii) any applicable law, rule, or regulation or any order, writ, injunction, or decree of any Governmental Authority or arbitrator, or (iii) any agreement or instrument to which the Corporation or any of the Subsidiaries is a party or by which any of them or any of their Property is bound or subject, or (b) constitute a default under any such agreement or instrument, or result in the creation or imposition of any Lien upon any of the revenues or Property of the Corporation or any Subsidiary. 2.5 Operation of Business. The Corporation and each of its --------------------- Subsidiaries possess all licenses, permits, franchises, patents, copyrights, trademarks, and tradenames, or rights thereto, necessary to conduct their respective businesses substantially as now conducted and as presently proposed to be conducted, and the Corporation and each of its Subsidiaries are not in violation of any valid rights of others with respect to any of the foregoing. 2.6 Litigation and Judgments. Except as disclosed in the ------------------------ Form 10-K, there is no action, suit, investigation, or proceeding before or by any Governmental Authority or arbitrator pending, or to the knowledge of the Corporation, threatened against or affecting the Corporation or any Subsidiary, that would, if adversely determined, have a Material Adverse Effect. There are no outstanding judgments against the Corporation or any Subsidiary. 2.7 Enforceability. This Agreement constitutes, and the -------------- other Transaction Documents to which the Corporation is party, when delivered, shall constitute the legal, valid, and binding obligations of the Corporation, enforceable against the Corporation in accordance with their respective terms, except as limited by bankruptcy, insolvency, or other laws of general application. The Series B Preferred, when issued in compliance with the provisions of this Agreement, will be validly issued, will be fully paid and nonassessable, and will have the rights, preferences, and privileges described in Exhibit A. Series B ---------- Common Stock issuable upon conversion of the Series B Preferred has been duly and validly reserved for issuance and, when issued in compliance with the provisions of this Agreement and Exhibit ------- A, will be validly issued, will be fully paid and nonassessable - - and will have the rights, preferences and privileges described in EXHIBIT B; and the Series B Preferred and such shares of Series B Common Stock will be free of any Liens, other than as set forth in this Agreement, and any Liens created by or imposed upon the holders as the result of the general application of federal or state securities laws. The shares of Series B Common Stock issuable upon conversion of the Series B Preferred are not subject to any preemptive or similar rights or rights of first refusal, except as set forth in this Agreement. 2.8 Approvals. No authorization, approval, or consent of, --------- and no filing or registration with, any Governmental Authority or third party is or will be necessary for the execution, delivery, or performance by the Corporation and Picacho of this Agreement and the other Transaction Documents to which either the Corporation or Picacho is or may become a party or for the validity or enforceability thereof. 2.9 Debt. The Corporation and its Subsidiaries have no ---- Debt, except as reflected in the financial statements described in Section 2.3 or incurred in the ordinary course of business after the date of those financial statements. 2.10 Rating. The Company's senior unsecured debt is ------ rated BBB- or higher by Standard & Poor's Corporation. 2.11 Taxes. The Corporation and each Subsidiary have ----- filed all tax returns (federal, state, and local) required to be filed, including all income, franchise, employment, property, and sales tax returns, and have paid all of their respective liabilities for taxes, assessments, governmental charges, and other levies that are due and payable. The Corporation knows of no pending investigation of the Corporation or any Subsidiary by any taxing authority or of any pending but unassessed tax liability of the Corporation or any Subsidiary. The federal income tax liability of the Corporation and its Subsidiaries has been audited by the Internal Revenue Service and has been finally determined and satisfied for all taxable years up to and including the taxable year ended March 31, 1993. 2.12 Margin Securities. Neither the Corporation nor ------------------ any Subsidiary is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations G, T, U, or X of the Board of Governors of the Federal Reserve System), and no part of the purchase price for the Series B Preferred will be used to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying margin stock. 2.13 ERISA. The Corporation and each Subsidiary are in ----- compliance in all material respects with all applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited Transaction has occurred and is continuing with respect to any Plan. No notice of intent to terminate a Plan has been filed, nor has any Plan been terminated. No circumstances exist which constitute grounds entitling the PBGC to institute proceedings to terminate, or appoint a trustee to administer, a Plan, nor has the PBGC instituted any such proceedings. Neither the Corporation nor any ERISA Affiliate has completely or partially withdrawn from a Multiemployer Plan. The Corporation and each ERISA Affiliate have met their minimum funding requirements under ERISA with respect to all of their Plans, and the present value of all vested benefits under each Plan do not exceed the fair market value of all Plan assets allocable to such benefits, as determined on the most recent valuation date of the Plan and in accordance with ERISA. Neither the Corporation nor any ERISA Affiliate has incurred any liability to the PBGC under ERISA. 2.14 Disclosure. No statement, information, report, ---------- representation, or warranty made by the Corporation in this Agreement in any other Transaction Document or any of the Corporation's filings with the Securities and Exchange Commission since March 31, 1996, or furnished to the Holder in connection with this Agreement or any transaction contemplated hereby contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements herein or therein not misleading. There is no fact known to the Corporation which has had a Material Adverse Effect, or which might in the future have a Material Adverse Effect that has not been disclosed to the Holder. 2.15 Capitalization. -------------- (a) The authorized, issued and outstanding Capital Stock of the Corporation is as described in the financial statements of the Corporation delivered to the Holder pursuant to Section 2.3. (b) The Corporation has no material Subsidiaries other than Picacho and those listed in Exhibit 21 to the Form 10-K, which sets forth the jurisdiction of incorporation of each Subsidiary and the ownership of the outstanding Capital Stock of each Subsidiary. The Corporation or its Subsidiaries own all of the outstanding shares of Capital Stock of each of the Subsidiaries of record and beneficially, free and clear of all Liens. (c) All of the outstanding equity securities of the Corporation and its Subsidiaries have been validly issued, are fully paid, and are nonassessable (except for the shares of capital stock of Oxford Life Insurance Company and Republic Western Insurance Company that are further assessable to the extent of their respective par values, in accordance with Article 14, Section 11 of the Constitution of the State of Arizona) and have not been issued in violation of any preemptive rights. There are no outstanding subscriptions, options, warrants, calls, or rights (including preemptive rights) to acquire, and no outstanding securities or instruments convertible into, Capital Stock of the Corporation or any of its Subsidiaries, except that Paul F. Shoen and Sophia M. Shoen have certain limited rights to exchange their shares of Common Stock for other classes of the Corporation's stock pursuant to certain Share Repurchase and Registration Rights Agreements dated as of March 1, 1992 and May 1, 1992, and except that the Holder has certain rights under the Registration Rights Agreement dated the same date as this Agreement. 2.16 Agreements. Neither the Corporation nor any ---------- Subsidiary is a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction that could have a Material Adverse Effect. Neither the Corporation nor any Subsidiary is in default in any respect in the performance, observance, or fulfillment of any of the obligations, covenants, or conditions contained in any agreement or instrument material to its business to which it is a party. 2.17 Compliance with Laws. Neither the Corporation nor -------------------- any Subsidiary is in violation in any material respect of any law, rule, regulation, order, or decree of any Governmental Authority or arbitrator. 2.18 Investment Company Act. Neither the Corporation ---------------------- nor any Subsidiary is an "investment company" within the meaning of the Investment Company Act of 1940, as amended. 2.19 Public Utility Holding Company Act. Neither the ---------------------------------- Corporation nor any Subsidiary is a "holding company" or a "subsidiary company" of a "holding company" or an "affiliate" of a "holding company" or a "public utility" within the meaning of the Public Utility Holding Company Act of 1935, as amended. 2.20 Environmental Matters. --------------------- (a) Except as specifically disclosed in the Form 10-K and except for instances of noncompliance with or exceptions to the following that could not have, individually or in the aggregate, a Material Adverse Effect: (i) The Corporation, each Subsidiary, and all of their respective Properties and operations are in full compliance with all Environmental Laws. The Corporation is not aware of, nor has the Corporation received notice of, any past, present, or future conditions, events, activities, practices, or incidents which may interfere with or prevent the compliance or continued compliance of the Corporation and the Subsidiaries with all Environmental Laws; (ii) The Corporation and each Subsidiary have obtained all permits, licenses, and authorizations that are required under applicable Environmental Laws, and all such permits, licenses, and authorizations are in good standing and the Corporation and its Subsidiaries are in compliance with all of the terms and conditions thereof; (iii) No Hazardous Materials exist on, about, or within or have been used, generated, stored, transported, disposed of on, or Released from any of the Properties of the Corporation or any Subsidiary except in compliance with applicable Environmental Laws. The use which the Corporation and the Subsidiaries make and intend to make of their respective Properties will not result in the use, generation, storage, transportation, accumulation, disposal, or Release of any Hazardous Material on, in, or from any of their Properties except in compliance with applicable Environmental Laws; (iv) Neither the Corporation nor any of its Subsidiaries nor any of their respective currently or previously owned or leased Properties or operations is subject to any outstanding or, to the best of the Corporation's knowledge, threatened order from or agreement with any Governmental Authority or other Person or subject to any judicial or administrative proceeding with respect to (i) failure to comply with Environmental Laws, (ii) Remedial Action, or (iii) any Environmental Liabilities; (v) There are no conditions or circumstances associated with the currently or previously owned or leased Properties or operations of the Corporation or any of its Subsidiaries that could reasonably be expected to give rise to any Environmental Liabilities. Neither the Corporation nor any of its Subsidiaries is subject to any Environmental Liabilities; (vi) Neither the Corporation nor any of its Subsidiaries is a treatment, storage, or disposal facility requiring a permit under the Resource Conservation and Recovery Act, 42 U.S.C. section 6901 et seq., regulations thereunder or any ------ comparable provision of state law. The Corporation and its Subsidiaries are compliance with all applicable financial responsibility requirements of all Environmental Laws; and (vii) Neither the Corporation nor any of its Subsidiaries has filed or failed to file any notice required under applicable Environmental Law reporting a Release. (b) No Lien arising under any Environmental Law has attached to any Property or revenues of the Corporation or its Subsidiaries. 2.21 Labor Disputes and Acts of God. Since March 31, ------------------------------ 1996, neither the business nor the Properties of the Corporation or any Subsidiary have been affected by any fire, explosion, accident, strike, lockout, or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other casualty (whether or not covered by insurance) that is having or could have a Material Adverse Effect. ARTICLE III. Representations and Warranties of the Holder -------------------------------------------- The Holder hereby jointly represents and warrants to the Corporation that the following are true and correct as of the date hereof: 3.1 Organization and Good Standing. The Holder has all ------------------------------ requisite power and authority to execute and deliver this Agreement and to carry out and perform its obligations hereunder. 3.2 Authorization. The execution, delivery and ------------- performance of this Agreement have been duly authorized by all necessary action on the part of the Holder. 3.3 Enforceability. This Agreement constitutes the -------------- legal, valid and binding obligation of the Holder, enforceable against the Holder in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application. 3.4 Accredited Investor. (a) It is an accredited -------------------- investor as defined under Regulation D under the Securities Act and (b) by reason of its own business and financial experience and that of those Persons, if any, retained by it to advise it with respect to its investment, it together with such advisors has such knowledge, sophistication and experience in business and financial matters so that it is capable of evaluating the merits and risks of its investment in the Corporation and has the capacity to protect its own interests. 3.5 Investment. It is acquiring the Series B ---------- Preferred and the stock into which the Series B Preferred is convertible for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any "distribution." It understands that the Series B Preferred to be purchased, and the stock into which the Series B Preferred is convertible, have not been registered under the Securities Act or any state securities laws by reason of specific exemptions from the registration provisions of the Securities Act and any applicable state securities laws, the availability of which depend upon, among other things, the bona fide nature of the investment intent and the accuracy of the Holder's representations as expressed herein. 3.6 Access to Data. It has had an opportunity to ---------------- discuss the Corporation's business, management and financial affairs with its management and the opportunity to review the Corporation's facilities and business plan. ARTICLE IV. Positive Covenants ------------------ The Corporation covenants and agrees that, as long as the Series B Preferred, or any of the shares obtained upon conversion of the Series B Preferred, are held by the Holder, any Affiliate of the Holder or any Person to whom the Holder has assigned its rights under this Agreement, the Corporation will, and will cause each of its Subsidiaries to: 4.1 Existence; Business and Properties. ---------------------------------- (a) Do or cause to be done all things necessary to preserve, renew and keep in full force and effect its legal existence and to prevent a Change of Control. (b) Do or cause to be done all things necessary to obtain, preserve, renew, extend and keep in full force and effect the rights, licenses, permits, franchises, authorizations, patents, copyrights, trademarks and trade names material to the conduct of its business; maintain and operate such business in substantially the manner in which it is presently conducted and operated; comply in all material respects with all applicable laws, rules, regulations and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all Property material to the conduct of such business and keep such Property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times. 4.2 Insurance. Keep its insurable properties adequately --------- insured at all times by financially sound and reputable insurers; maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies in the same or similar businesses, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any Properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. 4.3 Obligations and Taxes. Pay its debts and other ----------------------- obligations promptly and in accordance with their terms and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its Property, before the same shall become delinquent or in default, as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might give rise to a Lien upon such Properties or any part thereof; provided, however, that such payment and discharge shall -------- ------- not be required with respect to any such tax, assessment, charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and the Corporation or such Subsidiary of the Corporation shall have set aside on its respective books adequate reserves with respect thereto. 4.4 Financial Statements, Reports, etc. In the case of the ---------------------------------- Corporation, furnish to the Holder: (a) (i) as soon as practicable and in any event within 60 days after the end of each fiscal quarter, consolidated balance sheets of the Corporation and its Subsidiaries, as at the end of such period, and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal quarter, setting forth in each case in comparative form the consolidated figures for the corresponding periods of the previous fiscal year, all in reasonable detail and certified by a Financial Officer of the Corporation that they fairly present the financial condition of the Corporation and its Subsidiaries as at the date indicated and the results of their operations and changes in their financial position for the periods indicated, subject to changes resulting from audit and normal year-end adjustment; (ii) as soon as practicable and in any event within 60 days after the end of each fiscal quarter, balance sheets of the Corporation and the Non-Insurance Subsidiaries and balance sheets of the Insurance Subsidiaries, each as at the end of such period, and the related statements of income, stockholders' equity and cash flows for such fiscal quarter, setting forth in each case in comparative form the figures for the corresponding periods of the previous fiscal year, together with the consolidating intercompany eliminations and adjustments, all in reasonable detail, and certified by a Financial Officer of the Corporation that they fairly present the financial condition of the Corporation and the Non-Insurance Subsidiaries and the Insurance Subsidiaries, respectively, as at the date indicated and the results of their operations and changes in their financial position for the periods indicated, subject to changes resulting from audit and normal year-end adjustment; (b) (i) as soon as practicable and in any event within 120 days after the end of each fiscal year of the Corporation, consolidated balance sheets of the Corporation and its Subsidiaries, as at the end of such year, and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal year, setting forth in each case, in comparative form the consolidated figures for the previous year, all in reasonable detail and accompanied by a report thereon of Price Waterhouse LLP or other independent certified public accountants of recognized national standing selected by the Corporation and reasonably satisfactory to the Holder, which report shall be unqualified as to going concern and scope of audit and shall state that such consolidated financial statements present fairly, in all material respects, the financial position of the Corporation and its Subsidiaries; as at the dates indicated, and the results of their operations and cash flows for the periods indicated in conformity with GAAP (applied on a basis consistent with prior years unless as otherwise stated therein) and that the examination by such accountants in connection with such consolidated financial statements has been made in accordance with generally accepted auditing standards; (ii) as soon as practicable and in any event within 120 days after the end of each fiscal year of the Corporation, balance sheets of the Corporation and the Non- Insurance Subsidiaries and balance sheets of the Insurance Subsidiaries, each as at the end of such year, and the related statements of income, stockholders' equity and cash flows for such fiscal year, setting forth in each case in comparative form the figures for the previous year, together with the consolidating intercompany eliminations and adjustments, all in reasonable detail and accompanied by a report thereon of Price Waterhouse LLP or other independent certified public accountants of recognized national standing selected by the Corporation and reasonably satisfactory to the Holder, which report shall state that the balance sheets of the Corporation and the Non-Insurance Subsidiaries and balance sheets of the Insurance Subsidiaries and the related statements of income, stockholders' equity and cash flows, together with consolidating intercompany eliminations and adjustments, were subjected to the auditing procedures applied in the examination of the consolidated financial statements referred to in Section 4.4(b)(i) and are fairly stated in all material respects in relation to the consolidated financial statements taken as a whole; (c) together with each delivery of financial statements of the Corporation and its Subsidiaries pursuant to Sections 4.4(a) and (b) above, (i) a certificate of a Financial Officer stating that the signer thereof has reviewed the terms of this Agreement and the other Transaction Documents and has made, or caused to be made under his supervision, a review in reasonable detail of the transactions and condition of the Corporation and its Subsidiaries during the accounting period covered by such financial statements and that such review has not disclosed the existence during or at the end of such accounting period, and that the signer does not have knowledge of the existence as at the date of such certificate, of any condition or event which constitutes an Event of Noncompliance, or, if any such condition or event existed or exists, specifying the nature and period of existence thereof and what action the Corporation has taken, is taking and proposes to take with respect thereto; (d) promptly upon receipt thereof, copies of all reports submitted to the Corporation by independent public accountants in connection with each annual, interim or special audit of the financial statements of the Corporation made by such accountants, including any comment letter submitted by such accountants to management in connection with their annual audit; (e) promptly upon their becoming available, copies of all (i) financial statements, reports, notices and proxy statements sent or made available generally by the Corporation to its security holders or by any of its Subsidiaries to its security holders other than the Corporation or another of its Subsidiaries, and (ii) regular and periodic reports and all registration statements and prospectuses, if any, filed by the Corporation or any of its Subsidiaries with any securities exchange or with the Commission or any Governmental Authority succeeding to any of its functions; (f) promptly upon any officer of the Corporation obtaining knowledge (i) of any condition or event which constitutes an Event of Noncompliance, (ii) that any Person has given any notice to the Corporation or any of its Subsidiaries or taken any other action with respect to a claimed default or event of default under or breach of any instrument reflecting a Debt of the Corporation or any of its Subsidiaries in a principal amount in excess of $10,000,000, or (iii) of any condition or event that might have a Material Adverse Effect, a certificate of a Financial Officer specifying the nature and period of existence of any such condition or event, or specifying the notice given or action taken by such holder or Person and the nature of such claimed default, Event of Noncompliance, event or condition, and what action the Corporation has taken, is taking and proposes to take with respect thereto; (g) promptly upon any officer of the Corporation obtaining knowledge of (i) the institution of, or threat of any action, suit, proceeding, governmental investigation or arbitration against or affecting the Corporation or any of its Subsidiaries or any property of the Corporation or any of its Subsidiaries not previously disclosed by the Corporation to the Holder, or (ii) any material development in any action, suit, proceeding, governmental investigation or arbitration, which, in either case, if adversely determined, might have a Material Adverse Effect, the Corporation shall promptly give notice thereof to the Holder and provide such other information as may be reasonably available to it to enable the Holder and its counsel to evaluate such matters; (h) promptly upon their becoming available, copies of the annual, quarterly and other regular periodic reports which each Insurance Subsidiary is required to submit to the insurance commissioner of the State of Arizona or other Governmental Authorities; (i) with reasonable promptness after the execution thereof, copies of all agreements (and in the case of commercial paper, notes or medium-term notes issued by the Corporation, the forms of such notes) evidencing any Debt of the Corporation or any of its Subsidiaries in an amount of $10,000,000 or more and of any amendments to or waivers under any such agreement; (j) promptly upon the occurrence thereof, a written notice, in reasonable detail, of any purchase by the Corporation of (i) capital stock of the Corporation in an amount of $5,000,000 or more in any one transaction or in an aggregate amount of $7,500,000 or more in any one fiscal year or (ii) any purchase or redemption of any preferred stock of the Corporation in an aggregate amount of $7,500,000 or more in any one fiscal year; (k) with reasonable promptness, such other information and data with respect to the Corporation or any of its Subsidiaries as from time to time may be reasonably requested by the Holder; and (l) promptly upon the occurrence thereof, and in any event within five days, notice of a Change of Control, and, as promptly thereafter as possible, such information as may be reasonably available to the Corporation to enable the Holder and its counsel to evaluate such matter. 4.5 ERISA. (a) With regard to each Plan and Multiemployer ----- Plan, comply in all material respects with the applicable provisions of ERISA and the Code and (b) furnish to the Holder (i) as soon as possible, and in any event within 30 days after any officer of the Corporation or any ERISA Affiliate either knows or has reason to know that any Reportable Event has occurred that alone or together with any other Reportable Event could reasonably be expected to result in liability of the Corporation to the PBGC in an aggregate amount exceeding $1,000,000, a statement of a Financial Officer setting forth details as to such Reportable Event and the action proposed to be taken with respect thereto, together with a copy of the notice, if any, of such Reportable Event given to the PBGC, (ii) promptly after receipt thereof, a copy of any notice the Corporation or any ERISA Affiliate may receive from the PBGC relating to the intention of the PBGC to terminate any Plan or Plans (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) or to appoint a trustee to administer any Plan or Plans, (iii) within 10 days after the due date for filing with the PBGC pursuant to Section 412(n) of the Code of a notice of failure to make a required installment or other payment with respect to a Plan, a statement of a Financial Officer setting forth details as to such failure and the action proposed to be taken with respect thereto, together with a copy of such notice given to the PBGC and (iv) promptly and in any event within 30 days after receipt thereof by the Corporation or any ERISA Affiliate from the sponsor of a Multiemployer Plan, a copy of each notice received by the Corporation or any ERISA Affiliate concerning (A) the imposition of Withdrawal Liability or (B) a determination that a Multiemployer Plan is, or is expected to be, terminated or in reorganization, in each case within the meaning of Title IV of ERISA. 4.6 Maintaining Records: Access to Properties and ----------------------------------------------------- Inspections. Maintain all financial records in accordance with - ----------- GAAP and permit any representatives designated by the Holder to visit and inspect the financial records and the properties of the Corporation or any of its Subsidiaries at reasonable times and as often as requested and to make extracts from and copies of such financial records, and permit any representatives designated by the Holder to discuss the affairs, finances and condition of the Corporation or any of its Subsidiaries with the officers thereof and independent accountants therefor. 4.7 Use of Proceeds. The Corporation will use the proceeds --------------- from the sale of the Series B Preferred exclusively to capitalize Picacho. 4.8 Ownership and Operation of Picacho. The Corporation ----------------------------------- will: (a) at all times own all of the outstanding shares, and all interest in the revenues, income, assets and business, of Picacho (except in the event of a conversion of the Series B Preferred into the shares of Picacho); (b) cause Picacho to engage in no business or operations and incur no liabilities or obligations except as permitted by Picacho's Articles of Incorporation; (c) cause the Corporation at all times to have sufficient funds legally available for redemption of all of the Series B Preferred; (d) cause Picacho at all times to invest its assets with an investment manager satisfactory to the Holder; (e) cause Picacho at all times to maintain a stockholders' equity of at least $100,000,000; and (f) cause Picacho to maintain its Articles of Incorporation and Bylaws in effect as at the date of this Agreement. 4.9 Further Assurances. Execute and deliver such further ------------------ agreements and instruments and take such further action as may be requested by the Holder to carry out the provisions and purposes of this Agreement and the other Transaction Documents and to create, preserve, and perfect the rights of the Holder under the Transaction Documents. 4.10 Compliance with Other Instruments. At all times --------------------------------- comply with all terms, covenants, conditions, agreements and other obligations contained in any instrument evidencing or governing a Debt of the Corporation or any of its Subsidiaries in a principal amount in excess of $10,000,000. 4.11 Further Assurances Regarding Conversion. Take any --------------------------------------- further action that may be required from time to time to assure that number of shares of Series B Common Stock authorized and reserved for issuance upon conversion of the Series B Preferred is at all times sufficient to permit the conversion of all the outstanding shares of the Series B Preferred after giving full effect to all adjustments to the Conversion Price as provided in Certificate of Designation. Execute and deliver such further agreements and instruments and take such further action as may be requested by the Holder to permit or facilitate the conversion of the Series B Preferred, including filing and using its best efforts to obtain approval of any listing or similar application relating to the Series B Common Stock, and the filing and completion of any notice required by the Hart-Scott-Rodino Antitrust Improvements Act of 1976. ARTICLE V. Conditions to Closing of Holder ------------------------------- The Holder's obligations to purchase the Series B Preferred at the Closing is, at the option of the Holder, subject to the fulfillment as of the Closing Date of the following conditions: 5.1 Representations and Warranties Correct. The representa -------------------------------------- tions and warranties made by the Corporation in Section 2 of this Agreement shall be true and correct in all material respects at and as of the Closing. 5.2 Covenants. All covenants, agreements and conditions --------- contained in this Agreement to be performed by the Corporation on or prior to the Closing Date shall have been performed or complied with in all material respects. 5.3 Certificates of Designation. The Corporation shall ---------------------------- have filed the Certificates of Designation with the Secretary of State of Nevada in the forms of Exhibit A and Exhibit B. --------- --------- 5.4 Delivery of Documents. The Corporation shall have ----------------------- delivered to the Holder all of the following, in form and substance satisfactory to the Holder: (a) Officers' Certificate. A certificate of the ---------------------- Corporation's President and Secretary to the effect that the conditions referred to in Sections 5.1 through 5.3 have been satisfied. (b) Fees and Expenses. Evidence that the fees to ------------------ NationsBanc Capital Markets, Inc. and all other costs and expenses (including attorneys' fees) referred to in Section 9.1, to the extent incurred, shall have been paid in full by the Corporation. 5.5 Closing of Loan Agreement. The Letter Loan Agreement ------------------------- dated the date of this Agreement between NationsBank Corporation and the Holder shall have been executed and delivered. 5.6 Legal Matters. All material matters of a legal nature ------------- which pertain to this Agreement and the transactions contemplated hereby shall have been reasonably approved by counsel to the Holder. ARTICLE VI. Conditions to Closing of Corporation ------------------------------------ The Corporation's obligation to sell and issue the Series B Preferred to be issued at the Closing is, at the option of the Corporation, subject to the fulfillment as of the Closing Date of the following conditions: 6.1 Representations and Warranties Correct. The -------------------------------------------- representations and warranties made by the Holder in Section 3 of this Agreement shall be true and correct in all material respects at and as of the Closing. 6.2 Covenants. All covenants, agreements and conditions --------- contained in this Agreement to be performed by the Holder on or prior to the Closing Date shall have been performed or complied with in all material respects. 6.3 Officers' Certificate. The Holder shall have ---------------------- delivered to the Corporation a certificate of the Holder's Vice President and Assistant Secretary to the effect that the conditions referred to in Sections 6.1 through 6.3 have been satisfied. 6.4 Legal Matters. All material matters of a legal nature ------------- which pertain to this Agreement and the transactions contemplated hereby shall have been reasonably approved by counsel to the Corporation. ARTICLE VII. Registration Rights ------------------- 7.1 Required Registrations. At any time after (i) an ---------------------- Event of Noncompliance has occurred and is continuing or (ii) the Series B Preferred has been converted, the Holder may notify the Corporation in writing that the Holder intends to offer for public sale any of the Registrable Securities. Upon delivery to the Corporation of such notification, the Corporation shall use its best efforts to cause the Registrable Securities as may be requested by the Holder to be included in a registration statement under the Securities Act. All expenses of any registration pursuant to this Section and the reasonable fees and expenses of one (1) independent counsel for the Holder will be borne by the Corporation (excluding underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holder). This Section will not apply to requests for registration on Form S-3 (or successor form) which will be governed by Section 7.2. The Corporation shall not be obligated to file a registration statement under this Section unless the Holder requests the registration of Registrable Securities either (a) having a market value of at least $5,000,000 or (b) constituting all of the Registrable Securities then held by the Holder. The Corporation's obligations under this Section shall continue for multiple registrations so long as the Holder holds any Registrable Securities. 7.2 Form S-3. The Corporation shall use its best --------- efforts to continue to be eligible for use of Form S-3 or any successor form. If at any time after (i) an Event of Noncompliance has occurred and is continuing or (ii) the Series B Preferred has been converted, the Corporation is eligible to effect a registration of its securities under Form S-3 (or a successor form), the Holder will have the right to request, and the Corporation shall use its best efforts to effect, registrations of shares of its Registrable Securities on Form S-3 (but no more than two such registrations during any one fiscal year). The Corporation shall not be obligated to file a registration statement under this Section unless the Holder requests the registration of Registrable Securities either (a) having a market value of at least $5,000,000 or (b) constituting all of the Registrable Securities then held by the Holder. All expenses incurred in connection with the registrations requested pursuant to this Section 7.2, including the reasonable fees and expenses of one (1) independent counsel for the Holder, will be borne by the Corporation (excluding underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holder). 7.3 Procedure for Registration. Whenever the ----------------------------- Corporation is required under this Agreement to register Registrable Securities, it agrees to do the following: (a) Use its best efforts promptly to prepare and file with the Commission a registration statement and such amendments and supplements to said registration statement and the prospectus as may be necessary to declare or keep the registration statement effective and to comply with the provisions of the Securities Act for the period necessary to complete the proposed public offering, but not more than 180 days; provided, however, that in the case of any registration of Registrable Securities on Form S- 3 that are intended to be offered on a continuous or delayed basis, such 180-day period shall be extended, if necessary, to keep the registration statement effective until all such Registrable Securities are sold; (b) Furnish to the Holder such copies of each preliminary and final prospectus and such other documents as the Holder may reasonably request to facilitate the public offering of its Registrable Securities; (c) Enter into any underwriting agreement with customary provisions; (d) Use its best efforts to register or qualify the Registrable Securities covered by the registration statement under the securities or "blue-sky" laws of such jurisdictions as the Holder may reasonably request, although the Corporation will not have to register in any states that require it to qualify to do business or subject itself to general service of process; and (e) The Corporation is not required to file a registration statement within forty-five (45) days following the effective date of any other registration statement initiated by the Corporation. The Corporation may postpone the filing of any registration statement required under Sections 7.1 or 7.2 for a reasonable period of time, not to exceed forty-five (45) days, if the Corporation has been advised by legal counsel that such filing would require the disclosure of a material fact, and the Corporation determines reasonably and in good faith that such disclosure would have a Material Adverse Effect. 7.4 Indemnification. --------------- (a) Subject to applicable law, the Corporation will indemnify the Holder in connection with the inclusion of Registrable Securities in the registration statement, and each Person controlling the Holder, against all claims, losses, damages and liabilities, including legal and other expenses reasonably incurred, arising out of any untrue or allegedly untrue statement of a material fact contained in the registration statement, or any omission or alleged omission to state a material fact required to be stated in the registration statement or necessary to make the statements not misleading, or arising out of any violation by the Corporation of the Securities Act, any state securities or "blue-sky" laws or any applicable rule or regulation and will promptly reimburse the Holder and any such other Person for any costs or expenses incurred in suits, claims, investigations or proceedings arising out of any such registration statement. This indemnification will not apply to any claims, losses, damages or liabilities to the extent they arise out of or are based upon an untrue statement or omission based upon information furnished in writing to the Corporation by such Holder, or controlling Person, respectively, expressly for use in the registration statement. With respect to such untrue statement or omission in the information furnished in writing to the Corporation by the Holder, the Holder will indemnify the underwriters, the Corporation, its directors and officers, the other Persons selling securities under the registration statement and each Person controlling any of them against any losses, claims, damages, expenses or liabilities to which any of them may become subject as a result of such untrue statement or omission (including those incurred in connection with investigating or defending against such claims), up to the proceeds received by the Holder in such offering. (b) If the indemnification provided for in this Section is unavailable or insufficient to hold harmless the Holder, and each Person controlling the Holder, in respect of any losses, claims, damages or liabilities (or actions in respect thereof) referred to therein, then the Corporation shall contribute to the amount paid or payable by the Holder or such other Person as a result of such losses, claims, damages or liabilities (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Corporation and the Holder in connection with the statements or omissions that resulted in such losses, claims, damages or liabilities (or actions in respect thereof). If, however, the allocation provided by the immediately preceding sentence is not permitted by applicable law, then the Corporation shall contribute to such amount paid or payable by the Holder in such proportion as is appropriate to reflect not only such relative fault but also the relative benefits received by the Corporation and the Holder from the offering as well as any other relevant equitable considerations. The relative fault shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the Corporation or the Holder and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Corporation and the Holder agree that it would not be just and equitable if contribution pursuant to this Section were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to above in this Section. The amount paid or payable by the Holder as a result of the losses, claims, damages or liabilities (or actions in respect thereof) referred to above shall be deemed to include any legal or other expenses reasonably incurred by the Holder in connection with investigating or defending any such action or claim. 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. Notwithstanding any provision in this Section to the contrary, the Holder shall not be liable for any amount, in the aggregate, in excess of the net proceeds to the Holder from the sale of the Holder's shares giving rise to such losses, claims, damages or liabilities. (c) The obligations of the Corporation under this Section shall be in addition to any liability that the Corporation may otherwise have and shall extend, upon the same terms and conditions, to each Person, if any, who controls the Holder within the meaning of the Securities Act. 7.5 Rule 144 Requirements. The Corporation will use --------------------- all reasonable efforts to file with the Commission such information as the Commission may require and will use all reasonable efforts to make available Rule 144 under the Securities Act (or any successor exemptive rule). 7.6 Obligations in a Registration. The Holder agrees ----------------------------- to furnish such information regarding the Holder and the securities sought to be registered as the Corporation may reasonably request in connection with the registration, qualification or compliance. 7.7 Limitations on Subsequent Registration Rights. --------------------------------------------- After the date hereof, the Corporation will not, without the prior written consent of the Holder, enter into any agreement with any holder or prospective holder of any securities of the Corporation that would allow such holder or prospective holder (a) to make a demand registration which could result in such registration statement being declared effective within ninety (90) days of the effective date of any registration effective pursuant to Sections 7.1 or 7.2, or (b) that would allow any such holder or prospective holder to have greater rights than the Holder under Section 7.1 or 7.2. ARTICLE VIII. Definitions ----------- 8.1 Definitions. As used in this Agreement, the ----------- following terms have the following meanings: "Affiliate" means, when used with respect to a specified Person, another Person that directly or indirectly through one or more intermediaries, Controls or is Controlled by or is under common Control with the Person specified. "Business Day" means (a) any day on which commercial banks are not authorized or required to close in Charlotte, North Carolina and (b) with respect to all payments, conversions, payment periods, and notices, any day which is a Business Day described in clause (a) above and which is also a day on which dealings in dollar deposits are carried out in the London interbank market. "Capital Lease Obligations" of any Person means the obligations of such Person to pay rent or other amounts under a lease of (or other arrangement conveying the right to use) real or personal property, or a combination thereof (including all amounts which such Person is obligated to pay to another on termination of the applicable lease or surrender of the applicable property, but excluding any amounts required to be paid by such Person (regardless of whether designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges), which obligations are required to be classified and accounted for as capital leases on a balance sheet of such Person under GAAP and, for the purposes of this Agreement, the amount of such obligations at any time shall be the capitalized amount thereof at such time determined in accordance with GAAP. "Capital Stock" means any and all shares, interests, participations, rights or other equivalents (however designated) of corporate stock. "Certificate of Designation" means the Certificate of Designation of Preferences and Rights of Series B Preferred Stock filed as an amendment to the Corporation's Restated Articles of Incorporation concurrently with the execution of this Agreement and attached as Exhibit A. "Change of Control" means (a) any transfer of any shares of any class of capital stock that results in the Corporation's ESOP and the Shoen Group owning, in the aggregate, less than the amount of capital stock as may be necessary to enable them to cast in excess of 50% of the votes for the election of directors of the Corporation or (b) during any period of two consecutive years, persons who at the beginning of such period constituted the board of directors of the Corporation (including any director approved by a vote of not less than 66-2/3% of such board) cease for any reason to constitute greater than 50% of the then acting board. "Closing" has the meaning given in Section 1.3. "Closing Date" has the meaning given in Section 1.3. "Code" means the Internal Revenue Code of 1986, as amended, and the regulations promulgated and rulings issued thereunder. "Commission" means the Securities and Exchange Commission. "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and "Controlling" and "Controlled" shall have meanings correlative thereto. "Debt" means as to any Person at any time (without duplication): (a) all obligations of such Person for borrowed money, (b) all obligations of such Person evidenced by bonds, notes, debentures, or other similar instruments, (c) all obligations of such Person to pay the deferred purchase price of Property or services, except trade accounts payable of such Person arising in the ordinary course of business that are not past due by more than ninety (90) days, (d) all Capital Lease Obligations of such Person, (e) all Debt or other obligations of others Guaranteed by such Person, (f) all obligations secured by a Lien existing on Property owned by such Person, whether or not the obligations secured thereby have been assumed by such Person or are non-recourse to the credit of such Person, (g) all reimbursement obligations of such Person (whether contingent or otherwise) in respect of letters of credit, bankers' acceptances, surety or other bonds and similar instruments, (h) all obligations of such Person to redeem or retire shares of capital stock of such Person; (i) all obligations and liabilities of such Person under Interest Rate Protection Agreements, and (j) all liabilities of such Person in respect of unfunded vested benefits under any Plan. "Environmental Laws" means any and all federal, state, and local laws, regulations, and requirements pertaining to health, safety, or the environment, including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. section 9601 et seq., the Resource Conservation ------ and Recovery Act of 1976, 42 U. S. C. section 6901 et seq., the ------- Occupational Safety and Health Act, 29 U S.C. section 651 et seq., the ------- Clean Air Act, 42 U.S.C. section 7401 et seq., the Clean Water Act, 33 ------ U.S.C. section 1251 et seq., and the Toxic Substances Control Act, 15 ------ U.S.C. section 2601 et seq., as such laws, regulations, and -------- requirements may be amended or supplemented from time to time. "Environmental Liabilities" means, as to any Person, all liabilities, obligations, responsibilities, Remedial Actions, losses, damages, punitive damages, consequential damages, treble damages, costs, and expenses, (including, without limitation, all reasonable fees, disbursements and expenses of counsel, expert and consulting fees and costs of investigation and feasibility studies), fines, penalties, sanctions, and interest incurred as a result of any claim or demand, by any Person, whether based in contract, tort, implied or express warranty, strict liability, criminal or civil statute, including any Environmental Law, permit, order or agreement with any Governmental Authority or other Person, arising from environmental, health or safety conditions or the Release or threatened Release of a Hazardous Material into the environment. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the regulations and published interpretations thereunder. "ERISA Affiliate" means any corporation or trade or business which is a member of the same controlled group of corporations (within the meaning of Section 414(b) of the Code) as the Corporation or is under common control (within the meaning of Section 414(c) of the Code) with the Corporation. "Event of Noncompliance" means (i) any representation, warranty or statement made or deemed to be made by the Corporation to the Holder shall be false, misleading or erroneous in any material respect when made or deemed to have been made; or (ii) the Corporation shall at any time fail to comply or remain in compliance with any obligation, covenant or agreement made or owed by the Corporation to the Holder under any Transaction Document. "Financial Officer" of any corporation means the chief financial officer, principal accounting officer, Treasurer or Controller of such corporation. "Form 10-K" means the Corporation's Annual Report on Form 10- K for the year ended March 31, 1996, as filed with the Commission. "GAAP" means generally accepted accounting principles, applied on a consistent basis, as set forth in Opinions of the Accounting Principles Board of the American Institute of Certified Public Accountants and/or in statements of the Financial Accounting Standards Board and/or their respective successors and which are applicable in the circumstances as of the date in question. Accounting principles are applied on a "consistent basis" when the accounting principles applied in a current period are comparable in all material respects to those accounting principles applied in a preceding period. "Governmental Authority" means any nation or government, any state or political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory, or administrative functions of or pertaining to government. "Guarantee" by any Person means any obligation, contingent or otherwise, of such Person directly or indirectly guaranteeing any Debt or other obligation of any other Person and, without limiting the generality of the foregoing, any obligation, direct or indirect, contingent or otherwise, of such Person (a) to purchase or pay (or advance or supply funds for the purchase or payment of) such Debt or other obligation (whether arising by virtue of partnership arrangements, by agreement to keep-well, to purchase assets, goods, securities or services, to take-or-pay, or to maintain financial statement conditions or otherwise) or (b) entered into for the purpose of assuring in any other manner the obligee of such Debt or other obligation of the payment thereof or to protect the obligee against loss in respect thereof (in whole or in part), provided that the term Guarantee shall not include endorsements for collection or deposit in the ordinary course of business. The term "Guarantee" used as a verb has a corresponding meaning. "Hazardous Material" means any substance, product, waste, pollutant, material, chemical, contaminant, constituent, or other material which is or becomes listed, regulated, or addressed under any Environmental Law, including, without limitation, asbestos, petroleum, and polychlorinated biphenyls. "Holder" means Blue Ridge Investments, LLC, a Delaware limited liability company, an Affiliate of that entity or any Person to whom that entity or a subsequent Holder has assigned its rights under this Agreement. "Insurance Subsidiaries" shall mean Oxford Life Insurance Company, an Arizona corporation, Ponderosa Holdings, Inc., a Nevada corporation, Republic Western Insurance Company, an Arizona corporation, Republic Claims Service Co., an Arizona corporation, RWIC Investments, Inc., a Nevada corporation, and Republic Western Syndicate, Inc., a New York corporation. "Interest Rate Protection Agreements" means, with respect to any Person, an interest rate swap, cap or collar agreement or similar arrangement between such Person and one or more financial institutions providing for the transfer or mitigation of interest risks either generally or under specified contingencies. "Lien" means any lien, mortgage, security interest, tax lien, financing statement, pledge, charge, hypothecation, assignment, preference, priority, limitation on voting, use or ownership or other encumbrance of any kind or nature whatsoever (including, without limitation, any conditional sale or title retention agreement), whether arising by contract, operation of law, or otherwise. "Material Adverse Effect" means the occurrence of any event or the existence of any condition that could have a material adverse effect on (a) the Properties, prospects, business, operations, condition (financial or otherwise), liabilities, or capitalization of the Corporation and its Subsidiaries taken as a whole, (b) the ability of the Corporation to pay and perform the Obligations when due, or (c) the validity or enforceability of any of the Transaction Documents or the rights and remedies of the Holder thereunder. "Multiemployer Plan" means a multiemployer plan defined as such in Section 4001(a)(3) of ERISA to which the Corporation or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. "Non-Insurance Subsidiaries" means the Corporation's Subsidiaries other than the Insurance Subsidiaries. "Obligations" means all obligations and liabilities of the Corporation to the Holder, arising pursuant to any of the Transaction Documents, now existing or hereafter arising, whether direct, indirect, related, unrelated, fixed, contingent, liquidated, unliquidated, joint, several, or joint and several, including, without limitation, the obligation of the Corporation to pay dividends on the Series B Preferred, interest on the dividends and all fees, costs, and expenses (including attorneys' fees) provided for in the Transaction Documents. "PBGC" means the Pension Benefit Guaranty Corporation or any entity succeeding to all or any of its functions under ERISA. "Person" means any individual, corporation, business trust, association, Corporation, partnership, joint venture, Governmental Authority, or other entity. "Picacho" means Picacho Peak Investment Co., a newly formed Nevada corporation. "Plan" means any employee benefit or other plan established or maintained by the Corporation or any ERISA Affiliate and which is covered by Title IV of ERISA. "Prohibited Transaction" means any transaction set forth in Section 406 of ERISA or Section 4975 of the Code. "Property" means property of all kinds, real, personal or mixed, tangible or intangible (including, without limitation, all rights relating thereto), whether owned or acquired on or after the date of this Agreement. "Registrable Securities" means any shares of Series B Preferred, Series B Common Stock or other securities issuable upon conversion of Series B Preferred, and any other securities distributable on, with respect to, or in substitution for such Registrable Securities, except for those that have been sold or transferred pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act. "Regulatory Change" means any change after the date of this Agreement in United States federal, state or foreign laws or regulations (including Regulation D of the Board of Governors of the Federal Reserve System as the same may be amended or supplemented from time to time) or the adoption or making after such date of any interpretations, directives or requests applying to a class of institutions including NationsBank Corporation of or under any United States federal, state or foreign laws or regulations (whether or not having the force of law) by any court or governmental or monetary authority charged with the interpretation or administration thereof. "Release" means, as to any Person, any release, spill, emission, leaking, pumping, injection, deposit, disposal, disbursement, leaching, or migration of Hazardous Materials into the indoor or outdoor environment or into or out of Property owned by such Person, including, without limitation, the movement of Hazardous Materials through or in the air, soil, surface water, ground water, or Property. "Remedial Action" means all actions required to (a) cleanup, remove, treat, or otherwise address Hazardous Materials in the indoor or outdoor environment, (b) prevent the Release or threat of Release or minimize the further Release of Hazardous Materials so that they do not migrate or endanger or threaten to endanger public health or welfare or the indoor or outdoor environment, or (c) perform pre-remedial studies and investigations and post-remedial monitoring and care. "Reportable Event" means any reportable event as defined in Section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan (other than a Plan maintained by an ERISA Affiliate which is considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Code). "Securities Act" means the Securities Act of 1933, as amended, or any successor statute. "Series B Common Stock" has the meaning given in Section 1.1. "Series B Preferred" has the meaning given in Section 1.1. "Shoen Group" means (a) L.S. Shoen and the spouse and lineal descendants of said individual, the spouses of said lineal descendants and the lineal descendants of said spouses, (b) any trusts for the benefit of or the executor or administrator of the estate of or other legal representative of any of the individuals referred to in the immediately preceding clause (a) and (c) any corporation with respect to which all the voting stock thereof is, directly or indirectly, owned by any of the individuals referred to in the preceding clause (a). "Subsidiary" means, with respect to any Person, any corporation, partnership, association or other business entity (a) of which securities or other ownership interests representing more than 50% of the equity or more than 50% of the ordinary voting power or more than 50% of the general partnership interests are, at the time any determination is being made, owned, controlled or held, or (b) which is, at the time any determination is made, otherwise Controlled by such Person or one or more Subsidiaries of such Person or by such Person and one or more Subsidiaries of such Person and, with respect to the Corporation, Picacho. "Transaction Documents" means this Agreement, the Certificate of Designation, and all other instruments, documents, and agreements executed and delivered pursuant to or in connection with this Agreement or the Holder's purchase or holding of the Series B Preferred, the Series B Common Stock or Registrable Securities, as such instruments, documents, and agreements may be amended, modified, renewed, extended, or supplemented from time to time. "Withdrawal Liability" shall mean liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. 8.2 Other Definitional Provisions. All definitions ------------------------------ contained in this Agreement are equally applicable to the singular and plural forms of the terms defined. The words "hereof", "herein", and "hereunder" and words of similar import referring to this Agreement refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise specified, all Article and Section references pertain to this Agreement. 8.3 Accounting Terms and Determinations. Except as ----------------------------------- otherwise expressly provided herein, all accounting terms used herein shall be interpreted, and all financial statements and certificates and reports as to financial matters required to be delivered to the Holder hereunder shall be prepared, in accordance with GAAP, on a basis consistent with those used in the preparation of the financial statements referred to in Section 2.3 hereof. All calculations made for the purposes of determining compliance with the provisions of this Agreement shall be made by application of GAAP, on a basis consistent with those used in the preparation of the financial statements referred to in Section 2.3 hereof. To enable the ready and consistent determination of compliance by the Corporation with its obligations under this Agreement, the Corporation will not change the last day of its fiscal year from March 31, or the last days of the first three fiscal quarters of the Corporation in each of its fiscal years from June 30, September 30 and December 31, respectively. ARTICLE IX. Miscellaneous ------------- 9.1 Expenses. -------- (a) The Corporation hereby agrees to pay on demand: (i) all costs and expenses of the Holder in connection with the preparation, negotiation, execution, and delivery of this Agreement and the other Transaction Documents and any and all amendments, modifications, renewals, extensions, and supplements thereof and thereto, including, without limitation, the fees and expenses of legal counsel for the Holder, (ii) all costs and expenses of the Holder in connection with any Event of Noncompliance and the enforcement of this Agreement or any other Transaction Document, including, without limitation, the fees and expenses of legal counsel for the Holder, (iii) all transfer, stamp, documentary, or other similar taxes, assessments, or charges levied by any Governmental Authority in respect of this Agreement or any of the other Transaction Documents, (iv) all costs, expenses, assessments, and other charges incurred in connection with any conversion, redemption or registration of the Series B Preferred or any other action contemplated by this Agreement or any other Transaction Document, (v) the fees of NationsBanc Capital Markets, Inc. under the terms of that certain letter dated August 30, 1996 from NationsBanc Capital Markets, Inc. to the Corporation; and (vi) all other costs and expenses incurred by the Holder in connection with this Agreement or any other Transaction Document. (b) Without limiting paragraph (a) of this Section, if after the date hereof, the Holder shall have determined that the adoption of any applicable law, rule or regulation regarding capital adequacy, or any other Regulatory Change relating thereto or compliance by the Holder (or its parent) with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Holder's (or its parent's) capital as a consequence of its obligations hereunder or the transactions contemplated hereby to a level below that which the Holder (or its parent) could have achieved but for such adoption, change or compliance (taking into consideration the Holder's parent's policies with respect to capital adequacy and all other fees, commissions, increases in dividends or other charges received by the Holder under the Transaction Documents) by an amount deemed by the Holder to be material, then from time to time, within ten (10) Business Days after demand by the Holder, the Corporation shall pay to the Holder such additional amount or amounts as will compensate the Holder (or its parent) for such reduction. A certificate of the Holder claiming compensation under this paragraph and setting forth the additional amount or amounts to be paid to it hereunder shall be (a) prima facie valid, provided that the determination thereof is made on a reasonable basis and (b) delivered to the Corporation by the Holder within thirty (30) days after (i) the Holder obtains knowledge of the occurrence of the Regulatory Change giving rise to the amount claimed hereunder and (ii) determines to demand compensation under this paragraph for such amount. In determining the amount or amounts claimed under this paragraph, the Holder may use any reasonable averaging and attribution methods. 9.2 Indemnification. The Corporation shall indemnify the --------------- Holder and each Affiliate thereof and their respective officers, directors, employees, attorneys, and agents from, hold each of them harmless against, and promptly reimburse any of them for any and all losses, liabilities, claims, damages, penalties, judgments, disbursements, costs, and expenses (including fees and expenses of counsel selected by the Holder) to which any of them may become subject that directly or indirectly arise from or relate to (a) the negotiation, execution, delivery, performance, administration, or enforcement of any of the Transaction Documents, (b) any of the transactions contemplated by the Transaction Documents, (c) any breach by the Corporation of any representation, warranty, covenant, or other agreement contained in any of the Transaction Documents, (d) the presence, Release, threatened Release, disposal, removal, or cleanup of any Hazardous Material located on, about, within, or affecting any of the Properties of the Corporation or any Subsidiary, or (e) any investigation, litigation, or other proceeding, including, without limitation, any threatened investigation, litigation, or other proceeding relating to any of the foregoing. WITHOUT LIMITING ANY PROVISION OF THIS AGREEMENT OR OF ANY OTHER TRANSACTION DOCUMENT, IT IS THE EXPRESS INTENTION OF THE PARTIES HERETO THAT EACH PERSON TO BE INDEMNIFIED UNDER THIS SECTION SHALL BE INDEMNIFIED FROM AND HELD HARMLESS AGAINST ANY AND ALL LOSSES, LIABILITIES, CLAIMS, DAMAGES, PENALTIES, JUDGMENTS, DISBURSEMENTS, COSTS, AND EXPENSES (INCLUDING ATTORNEYS' FEES) ARISING OUT OF OR RESULTING FROM THE SOLE OR CONTRIBUTORY NEGLIGENCE OF SUCH PERSON. 9.3 Limitation of Liability. None of the Holder, or any ----------------------- Affiliate, officer, director, employee, attorney, or agent thereof shall have any liability with respect to, and the Corporation hereby waives, releases, and agrees not to sue any of them upon, any claim for any special, indirect, incidental, or consequential damages suffered or incurred by the Corporation in connection with, arising out of, or in any way related to, this Agreement or any of the other Transaction Documents, or any of the transactions contemplated by this Agreement or any of the other Transaction Documents. The Corporation hereby waives, releases, and agrees not to sue the Holder or any of its respective Affiliates, officers, directors, employees, attorneys, or agents for exemplary or punitive damages in respect of any claim in connection with, arising out of, or in any way related to, this Agreement or any of the other Transaction Documents, or any of the transactions contemplated by this Agreement or any of the other Transaction Documents. 9.4 No Duty. All attorneys, accountants, appraisers, and ------- other professional Persons and consultants retained by the Holder shall have the right to act exclusively in the interest of the Holder and shall have no duty of disclosure, duty of loyalty, duty of care, or other duty or obligation of any type or nature whatsoever to the Corporation or any of the Corporation's shareholders or any other Person. 9.5 Equitable Relief. The Corporation recognizes that in ---------------- the event the Corporation fails to perform, observe, or discharge any or all of its obligations under the Transaction Documents, any remedy at law may prove to be inadequate relief to the Holder. The Corporation therefore agrees that the Holder, if the Holder so requests, shall be entitled to temporary and permanent injunctive relief in any such case without the necessity of proving actual damages. 9.6 No Waiver; Cumulative Remedies. No failure on the part ------------------------------ of the Holder to exercise and no delay in exercising, and no course of dealing with respect to, any right, power, or privilege under this Agreement or any other Transaction Document shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege under this Agreement or any other Transaction Document preclude any other or further exercise thereof or the exercise of any other right, power, or privilege. The rights and remedies provided for in this Agreement and the other Transaction Documents are cumulative and not exclusive of any rights and remedies provided by law. 9.7 Successors and Assigns. This Agreement shall be binding ---------------------- upon and inure to the benefit of the parties hereto and their respective successors and assigns. Neither the Corporation nor the Holder may assign or transfer any of its rights or obligations hereunder, without the prior written consent of the other party; provided, however, the Corporation (a) acknowledges that the Holder has pledged its rights in the Series B Preferred and its rights under this Agreement to NationsBank Corporation and (b) agrees that NationsBank Corporation may exercise the rights of the Holder hereunder and is entitled to the benefits hereof. 9.8 Survival. All representations and warranties made or -------- deemed made in this Agreement or any other Transaction Document or in any document, statement, or certificate furnished in connection with this Agreement shall survive the execution and delivery of this Agreement and the other Transaction Documents, and no investigation by the Holder or any closing shall affect the representations and warranties or the right of the Holder to rely upon them. Without prejudice to the survival of any other obligation of the Corporation hereunder, the obligations of the Corporation under Article 7 and Article 10 shall survive termination of this Agreement. 9.9 ENTIRE AGREEMENT. THIS AGREEMENT AND THE OTHER ----------------- TRANSACTION DOCUMENTS REFERRED TO HEREIN EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE PARTIES HERETO. THERE ARE NO UNWRITTEN ORAL AGREEMENTS AMONG THE PARTIES HERETO. THE PROVISIONS OF THIS AGREEMENT AND THE OTHER TRANSACTION DOCUMENTS MAY BE AMENDED OR WAIVED ONLY BY AN AGREEMENT IN WRITING SIGNED BY THE PARTIES HERETO. 9.10 Notices. All notices and other communications ------- provided for in this Agreement and the other Transaction Documents shall be given or made in writing and telecopied, mailed by certified mail return receipt requested, or delivered to the intended recipient at the "Address for Notices" specified below its name on the signature pages hereof; or at such other address as shall be designated by such party in a notice to each other party given in accordance with this Section. All such communications shall be deemed to have been duly given when transmitted by telecopy, subject to telephone confirmation of receipt, or when personally delivered or, in the case of a mailed notice, upon receipt, in each case given or addressed as provided herein. 9.11 Governing Law; Submission to Jurisdiction; Service -------------------------------------------------- of Process. THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED - ----------- IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NORTH CAROLINA AND APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. THE CORPORATION HEREBY SUBMITS TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE WESTERN DISTRICT OF NORTH CAROLINA AND OF ANY NORTH CAROLINA STATE COURT SETTING IN CHARLOTTE, NORTH CAROLINA, FOR THE PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO THIS AGREEMENT, ANY OTHER TRANSACTION DOCUMENT, OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. THE CORPORATION IRREVOCABLY CONSENTS TO THE SERVICE OF ANY AND ALL PROCESS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES OF SUCH PROCESS TO THE CORPORATION AT ITS ADDRESS SET FORTH UNDERNEATH ITS SIGNATURE HERETO. THE CORPORATION IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORM. 9.12 Counterparts. This Agreement may be executed in ------------ one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 9.13 Severability. Any provision of this Agreement ------------ held by a court of competent jurisdiction to be invalid or unenforceable shall not impair or invalidate the remainder of this Agreement and the effect thereof shall be confined to the provision held to be invalid or illegal. 9.14 Headings. The headings, captions, and -------- arrangements used in this Agreement are for convenience only and shall not affect the interpretation of this Agreement. 9.15 Construction. The Corporation and the Holder ------------ acknowledge that each of them has had the benefit of legal counsel of its own choice and has been afforded an opportunity to review this Agreement and the other Transaction Documents with its legal counsel and that this Agreement and the other Transaction Documents shall be construed as if jointly drafted by the parties hereto. 9.16 Independence of Covenants. All covenants ---------------------------- hereunder shall be given independent effect so that if a particular action or condition is not permitted by any of such covenants, the fact that it would be permitted by an exception to, or be otherwise within the limitations of, another covenant shall not avoid the occurrence of an Event of Noncompliance if such action is taken or such condition exists. 9.17 WAIVER OF JURY TRIAL. TO THE FULLEST EXTENT ---------------------- PERMITTED BY APPLICABLE LAW, EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND EXPRESSLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING, OR COUNTERCLAIM (WHETHER BASED UPON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO ANY OF THE TRANSACTION DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED THEREBY OR THE ACTIONS OF THE HOLDER IN THE NEGOTIATION, ADMINISTRATION, OR ENFORCEMENT THEREOF. The foregoing agreement is hereby executed as of the date first above written. CORPORATION: AMERCO By: /S/ GARY B. HORTON ----------------------- Name: GARY B. HORTON ----------------------- Title: TREASURER ----------------------- Address for Notices: AMERCO ----------------------------- 1325 AIRMOTIVE WAY, STE 100 ----------------------------- RENO, NEVADA 89502 ----------------------------- Fax No.: (702) 688-6338 Telephone No.: (702) 688-6300 Attention: GARY B. HORTON HOLDER: BLUE RIDGE INVESTMENTS, LLC By: /S/ GEORGE C. CARP ----------------------- Name: George C. Carp Title: Vice President-Finance Address for Notices: NationsBank Corporate Center 100 Tryon Street, 20th Floor Charlotte, North Carolina 28255 Fax No.: (704) 386-6453 Telephone No.: (704) 386-4225 Attention: Vic Warnement EXHIBIT A TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF SERIES B PREFERRED STOCK EXHIBIT B TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT CERTIFICATE OF DESIGNATION OF PREFERENCES AND RIGHTS OF SERIES B COMMON STOCK EXHIBIT C TO SERIES B PREFERRED STOCK PURCHASE AGREEMENT FORM OF NOTE EX-10.2 6 SIDE AGREEMENT -------------- This Side Agreement (the "Agreement") is entered into as of the 29th day of October, 1996, by and among AMERCO, a Nevada corporation ("AMERCO"), Blue Ridge Investments, L.L.C., a Delaware limited liability company ("Blue Ridge"), and NationsBank Corporation, a Delaware corporation ("NationsBank"). WHEREAS, AMERCO, Blue Ridge, and NationsBank have entered into certain agreements and transactions on August 30, 1996 and October 1, 1996 (the "Transaction"); WHEREAS, pursuant to the Transaction, Blue Ridge purchased 100,000 shares of AMERCO's Series B Preferred Stock (herein so called); WHEREAS, Blue Ridge (or any subsequent holder of the Series B Preferred Stock) has the right to convert, upon the occurrence of certain events described in the Certificate of Designation of Preferences and Rights of Series B Preferred Stock of AMERCO (the "Certificate of Designation"), all of the Series B Preferred Stock into 4,000,000 shares (subject to adjustment) of AMERCO's Series B Common Stock or all of the shares of capital stock of Picacho Peak Investment Co., a Nevada corporation ("Picacho"); WHEREAS, Blue Ridge (or any subsequent holder of the Series B Preferred Stock) also has the right to convert the Series B Preferred Stock as described above on August 31, 1997 and during the first ten business days of each fiscal quarter beginning after August 31, 1997; WHEREAS, AMERCO is planning a public offering of its Common Stock; WHEREAS, AMERCO has advised Blue Ridge and NationsBank that the provisions of the Certificate of Designation permitting conversion of the Series B Preferred Stock into capital stock of Picacho on August 31, 1997 and during the first ten business days of each fiscal quarter beginning after August 31, 1997 would result in an adverse accounting treatment of the Transaction and hinder AMERCO's ability to successfully complete the public offering; WHEREAS, Blue Ridge and NationsBank desire to facilitate the public offering by entering into this Agreement: NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: 1. Blue Ridge and NationsBank agree, that notwithstanding the provisions of Section 3(a) of the Certificate of Designation, neither party shall convert, pursuant to Section 3(a)(i) or Section 3(a)(ii) of the Certificate of Designation, the Series B Preferred Stock into any or all of the capital stock of Picacho. Nothing in this Agreement shall limit Blue Ridge's or NationsBank's ability to convert the Series B Preferred Stock into shares of AMERCO's Series B Common Stock or their ability to convert the Series B Preferred Stock into any or all of the capital stock of Picacho under any provision other than Section 3(a)(i) or Section 3(a)(ii) of the Certificate of Designation. 2. AMERCO, Blue Ridge and NationsBank agree, that in addition to the provisions of Section 3(a) of the Certificate of Designation, Blue Ridge and NationsBank shall have the right to convert the Series B Preferred Stock into shares of AMERCO's Series B Common Stock on (i) May 1, 1997, and for 10 Business Days thereafter; and on (ii) the first day of each fiscal quarter of the Corporation occurring after May 1, 1997, and for 10 Business Days after the first day of each such fiscal quarter. 3. AMERCO, Blue Ridge and NationsBank agree that the provisions of the Summary of Indicative Terms and Conditions, attached to that certain letter from NationsBank of Texas, N.A. to AMERCO, creating any obligation of the Arranger (as defined therein) to rebate any portion of its fees are hereby deleted, voided and rendered unenforceable. 4. Blue Ridge and NationsBank agree that, as a condition of any transfer of the Series B Preferred Stock to a third party, such third party shall agree to be bound by the terms of this Agreement. Blue Ridge and NationsBank agree to the placement of the following legend on the stock certificate representing the Series B Preferred Stock: "The securities evidenced hereby are subject to the terms of that certain Side Agreement, dated October 29, 1996, which limits the ability of the holder of the securities to convert the securities into the capital stock of Picacho Peak Investment Co., a Nevada corporation." 5. Blue Ridge and NationsBank agree to execute and deliver such further agreements and instruments, and take such further action as may be requested by AMERCO to carry out the provisions and purposes of this Agreement and to cause all subsequent holders of the Series B Preferred Stock to be bound by the terms of this Agreement. The foregoing Agreement is hereby executed as of the date first above written. AMERCO By: \s\ Edward J. Shoen ---------------------- Name: Edward J. Shoen ---------------------- Title:President ---------------------- BLUE RIDGE INVESTMENTS, L.L.C. By: \s\ George C. Carp ---------------------- Name: George C. Carp ---------------------- Title:Vice President-Finance ---------------------- NATIONSBANK CORPORATION By: \s\ Frank M. Johnson ---------------------- Name: Frank M. Johnson ---------------------- Title:Senior Vice President ---------------------- EX-27 7
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS MAR-31-1997 SEP-30-1996 32,380 0 311,480 0 54,713 0 2,330,326 1,077,193 2,817,846 0 940,282 0 0 10,000 653,030 2,817,846 107,192 760,136 62,639 533,795 0 1,841 35,282 126,579 46,833 79,746 0 ( 2,004 ) 0 77,742 2.36 2.36 THE VALUE FOR RECEIVABLES REPRESENTS THEIR AMOUNTS NET OF THEIR ALLOWANCES. AN UNCLASSIFIED BALANCE SHEET EXISTS IN THE REGISTRANT'S FINANCIAL STATEMENTS.
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