AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
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 June 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________________ to _____________________
Commission file number 1-7981
American General Corporation
(Exact name of registrant as specified in its articles of incorporation)
Texas 74-0483432
(State of Incorporation) (I.R.S. Employer
Identification No.)
2929 Allen Parkway, Houston, Texas 77019-2155
(Address of principal executive offices) (Zip Code)
(713) 522-1111
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports 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 .
The number of shares outstanding of the registrant's common stock at July 31,
1994 was 209,255,060 (excluding shares held in treasury and by a subsidiary).
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
INDEX TO FORM 10-Q
Page
Part I. FINANCIAL INFORMATION.
Item 1. Financial Statements.
Consolidated Statement of Income for the six months
and quarter ended June 30, 1994 and 1993 ........... 2
Consolidated Balance Sheet at June 30, 1994 and
December 31, 1993 .................................. 3
Consolidated Condensed Statement of Cash Flows for
the six months ended June 30, 1994 and 1993 ........ 4
Notes to Consolidated Financial Statements ........... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations ................ 7
Part II. OTHER INFORMATION.
Item 1. Legal Proceedings .................................... 18
Item 4. Submission of Matters to a Vote of Security Holders .. 18
Item 5. Other Information .................................... 19
Item 6. Exhibits and Reports on Form 8-K ..................... 19
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
AMERICAN GENERAL CORPORATION
Consolidated Statement of Income
(Unaudited)
(In millions, except share data)
Six Months Ended Quarter Ended
June 30, June 30,
1994 1993 1994 1993
Revenues
Premiums and other considerations. $ 587 $ 619 $ 298 $ 308
Net investment income ............ 1,238 1,206 617 608
Finance charges .................. 583 534 302 271
Realized investment gains ........ 4 5 1 3
Other ............................ 34 28 14 15
Total revenues ............... 2,446 2,392 1,232 1,205
Benefits and expenses
Insurance and annuity benefits ... 1,092 1,118 553 564
Operating costs and expenses ..... 387 381 196 187
Commission expense ............... 195 205 99 105
Provision for credit losses ...... 88 69 45 36
Change in DPAC ................... (63) (81) (34) (43)
Interest expense
Corporate ....................... 54 55 26 28
Consumer Finance ................ 193 188 100 94
Total benefits and expenses .. 1,946 1,935 985 971
Earnings
Income before income tax expense
and cumulative effect ........... 500 457 247 234
Income tax expense ............... 181 162 89 83
Income before cumulative effect .. 319 295 158 151
Cumulative effect of accounting
changes ......................... - (46) - -
Net income ................... $ 319 $ 249 $ 158 $ 151
Earnings per share
Income before cumulative effect .. $ 1.50 $ 1.36 $ .75 $ .70
Cumulative effect of accounting
changes ......................... - (.21) - -
Net income per share ......... $ 1.50 $ 1.15 $ .75 $ .70
Dividends paid per common share ... $ .580 $ .550 $ .290 $ .275
Average fully diluted shares
outstanding (in thousands) ...... 211,810 216,983 210,312 216,941
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Balance Sheet
(Unaudited)
(In millions)
June 30, December 31,
1994 1993
Assets
Investments
Fixed maturity securities (amortized cost:
$26,175; $24,885) ............................ $25,628 $26,479
Mortgage loans on real estate ................. 2,823 3,032
Equity securities (cost: $264; $182) .......... 293 233
Policy loans .................................. 1,165 1,156
Investment real estate ........................ 758 772
Other long-term investments ................... 121 137
Short-term investments ........................ 326 67
Total investments ........................... 31,114 31,876
Cash ........................................... 21 6
Finance receivables, net ....................... 6,880 6,390
Deferred policy acquisition costs .............. 2,440 1,637
Acquisition-related goodwill ................... 607 618
Other assets ................................... 1,224 1,205
Net assets of life insurance companies held
for sale ...................................... 154 153
Assets held in Separate Accounts ............... 2,384 2,097
Total assets ................................ $44,824 $43,982
Liabilities
Insurance and annuity liabilities .............. $28,412 $27,239
Debt (short-term)
Corporate ($400; $312) ........................ 1,345 1,257
Real Estate ($394; $414) ...................... 424 429
Consumer Finance ($1,854; $1,824) ............. 6,309 5,843
Income tax liabilities ......................... 674 1,241
Other liabilities .............................. 988 739
Liabilities related to Separate Accounts ....... 2,384 2,097
Total liabilities ........................... 40,536 38,845
Redeemable equity
Common stock subject to put contracts .......... 22 -
Shareholders' equity
Common stock ................................... 364 365
Net unrealized gains (losses) on securities .... (194) 709
Retained earnings .............................. 4,422 4,229
Cost of treasury stock ......................... (326) (166)
Total shareholders' equity .................. 4,266 5,137
Total liabilities and equity ................ $44,824 $43,982
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Consolidated Condensed Statement of Cash Flows
(Unaudited)
(In millions)
Six Months Ended
June 30,
1994 1993
Operating activities
Net cash provided by operating activities ...... $ 664 $ 749
Investing activities
Investment purchases .............................. (3,727) (4,072)
Investment calls, maturities, and sales ........... 2,992 2,868
Finance receivable originations or acquisitions ... (2,762) (2,124)
Finance receivable principal payments received .... 2,176 1,830
Net increase in short-term investments ............ (259) (178)
Other, net ........................................ 9 (32)
Net cash used for investing activities ......... (1,571) (1,708)
Financing activities
Retirement Annuities and Life Insurance
Policyholder account deposits ................... 1,262 1,339
Policyholder account withdrawals ................ (597) (435)
Total Retirement Annuities and Life Insurance. 665 904
Consumer Finance
Net increase (decrease) in short-term debt ...... 30 (134)
Long-term debt issuances ........................ 645 614
Long-term debt redemptions ...................... (210) (312)
Total Consumer Finance ....................... 465 168
Corporate
Net increase (decrease) in short-term debt
Corporate ..................................... 88 (32)
Real Estate ................................... (20) (56)
Long-term debt issuance (redemptions) ........... (11) 100
Dividend payments ............................... (123) (119)
Common share purchases .......................... (143) (9)
Other, net ...................................... 1 9
Total Corporate .............................. (208) (107)
Net cash provided by financing activities ...... 922 965
Net increase in cash ................................ 15 6
Cash at beginning of period ......................... 6 17
Cash at end of period ............................... $ 21 $ 23
Supplemental disclosure of cash flow information:
Cash paid during the period for
Income taxes .................................... $ 258 $ 142
Interest
Corporate ..................................... 51 61
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Real Estate ................................... 4 3
Consumer Finance .............................. 190 192
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 1. Financial Statements (continued).
AMERICAN GENERAL CORPORATION
Notes to Consolidated Financial Statements
June 30, 1994
1. Accounting Policies. The accompanying unaudited consolidated financial
statements of American General Corporation ("American General" or "the
company") and its subsidiaries have been prepared in accordance with
generally accepted accounting principles for interim periods. In the
opinion of management, these statements include all adjustments,
consisting only of normal recurring accruals, that are necessary for a
fair presentation of the company's consolidated financial position at
June 30, 1994 and the consolidated results of operations and cash flows
for the six months ended June 30, 1994 and 1993.
To conform with the 1994 presentation, certain items in the prior period
have been reclassified. Additionally, certain amounts previously
reported in the 1993 second quarter Form 10-Q have been restated to
reflect the retroactive adoption of Statement of Financial Accounting
Standards (SFAS) 112, "Employers' Accounting for Postemployment
Benefits," effective January 1, 1993.
2. Status of Federal Tax Return Examinations. The company and its
subsidiaries file a consolidated federal income tax return. The Internal
Revenue Service (IRS) has completed examinations of the company's tax
returns through 1985 and has commenced examination of the company's tax
returns for 1986 through 1988.
The IRS is disputing the company's tax treatment of some items for the
years 1977 through 1985. Some of these issues will require litigation to
resolve, and any amounts ultimately settled with the IRS would also
include interest. Although the final outcome is uncertain, the company
believes that the ultimate liability, including interest, resulting from
these issues will not exceed amounts currently recorded in the
consolidated financial statements.
3. Common Stock Subject to Put Contracts. In conjunction with its share
buyback program, the company has entered into equity option contracts to
purchase American General common stock at a fixed price one year from
date of issuance. At June 30, 1994, 800,000 shares of common stock of
the company were subject to put contracts at an average strike price of
$27.25 per share; and $22 million of related shareholders' equity was
reported as redeemable equity.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 1. Financial Statements (continued).
4. Legal Contingencies. Two real estate subsidiaries of the company were
defendants in a lawsuit that alleged damages based on lost profits and
related claims arising from certain loans and joint venture contracts.
On July 16, 1993, a judgment was entered against the subsidiaries jointly
for $47.3 million in compensatory damages and against one of the
subsidiaries for $189.2 million in punitive damages. On September 17,
1993, a Texas state district court reduced the previously-awarded
punitive damages by $60.0 million, resulting in a reduced judgment in the
amount of $176.5 million plus post-judgment interest. An appeal on
numerous legal grounds has been filed. The company believes, based on
advice of legal counsel, that plaintiffs' claims are without merit, and
the company is continuing to contest the matter vigorously through the
appeals process. No provision has been made in the consolidated
financial statements related to this contingency.
In April 1992, the IRS issued Notices of Deficiency in the amount of
$12.4 million for the 1977-1981 tax years of certain insurance
subsidiaries. The basis of the dispute was the tax treatment of modified
coinsurance agreements. During 1992, the company elected to pay the
assessment plus associated interest. A claim for refund of tax and
interest was disallowed by the IRS in January 1993. On June 30, 1993, a
suit for refund was filed in the Court of Federal Claims. The company
believes that the IRS's claims are without merit, and is continuing to
vigorously pursue refund of the amounts paid. No provision has been made
in the consolidated financial statements related to this contingency.
American General and certain of its subsidiaries are defendants in
various other lawsuits and proceedings arising in the normal course of
business. American General and its subsidiaries believe that there are
meritorious defenses for all of these claims and are defending them
vigorously. The company also believes that the total amounts that would
ultimately be paid, if any, arising from these claims would have no
material effect on the consolidated financial statements.
5. Ratios of Earnings to Fixed Charges. The ratios of earnings to fixed
charges are as follows:
Six Months Ended Quarter Ended
June 30, June 30,
1994 1993 1994 1993
Consolidated operations ............ 2.9X 2.7X 2.8X 2.8X
Consolidated operations, corporate
fixed charges only ............... 9.4X 8.4X 9.4X 8.5X
American General Finance, Inc. ..... 1.9X 1.9X 2.0X 1.9X
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This item presents specific comments on material changes to the company's
results of operations, capital resources, and liquidity for the periods
reflected in the interim financial statements filed with this report. The
reader is presumed to have read or have access to the company's 1993 Annual
Report to Shareholders including the Management's Discussion and Analysis
found on pages 18 through 24, 26, 28, and 30 thereof, and the company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994.
This analysis should be read in conjunction with the consolidated financial
statements and related notes on pages 2 through 6 of this Form 10-Q.
STATEMENT OF INCOME
Comparison of Six Months Ended June 30, 1994 and June 30, 1993
Revenues. Total revenues increased $54 million, or 2%, for the six months
ended June 30, 1994 over the same period in 1993, primarily due to increases
in finance charges and net investment income, partially offset by a decrease
in premiums and other considerations. The $49 million, or 9%, increase in
finance charges resulted from an increase in average finance receivables and
higher yields on those receivables. The $32 million, or 3%, increase in net
investment income was attributable to a 7% growth in invested assets
(excluding the effect of SFAS 115) from June 30, 1993, partially offset by a
decline in investment yields. The decline in yields was primarily due to
prepayment of higher yielding bonds and mortgage-backed securities and
subsequent reinvestment of the proceeds at lower interest rates. While
premiums and other considerations decreased 5%, the decline was primarily due
to reporting the activity of life insurance companies held for sale in other
revenues, and ceding of a block of business on January 1, 1994. The revenues
ceded were largely offset by a related decrease in insurance benefit expense.
Realized Investment Gains. Realized investment gains for the six months ended
June 30, 1994 included $22 million of gains due to early redemption of fixed
maturity securities at the election of the issuer (calls) and $13 million of
net gains from sales of real estate joint ventures, investment real estate,
and equity securities, partially offset by additions to reserves of $31
million related to investment real estate.
For the same period in 1993, gains of $69 million on calls and $44 million
from sales of investments, primarily equity securities, were offset by a $108
million increase in reserves on investment real estate and mortgage loans.
Other Revenues. Other revenues increased $6 million, or 23%, for the six
months ended June 30, 1994 over the same period in 1993, primarily due to
reporting pretax earnings of $7 million for the life insurance companies held
for sale in other revenues. The 1993 activity of the life insurance companies
held for sale is included in the 1993 financial statement line items as
originally reported.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Insurance and Annuity Benefits. Insurance and annuity benefits decreased $26
million, or 2%, for the first six months of 1994 compared to the same period
in 1993, primarily due to ceding of a block of business on January 1, 1994,
and reporting the 1994 activity of life insurance companies held for sale in
other revenues, partially offset by a $15 million increase in interest
credited to policyholders due to growth in insurance in force.
Operating Costs and Expenses. Operating costs and expenses increased $6
million, or 2%, for the six months ended June 30, 1994 compared to the same
period in 1993, primarily due to higher operating expenses in the Consumer
Finance segment, partially offset by increased deferrals of loan origination
fees due to growth in finance receivables and reporting the 1994 activity of
life insurance companies held for sale in other revenues.
Commission Expense. Commission expense decreased $10 million, or 5%, for the
six months ended June 30, 1994 compared to the same period in 1993, primarily
due to reporting the 1994 activity of life insurance companies held for sale
in other revenues, partially offset by higher sales in the Life Insurance
segment.
Provision for Credit Losses. The provision for credit losses increased $19
million, or 28%, for the six months ended June 30, 1994 compared to the same
period in 1993, due to an increase in net charge offs and in the amount
provided for the allowance for finance receivable losses. Net charge offs
increased $12 million due to the change in the portfolio mix to emphasize non-
real estate secured consumer loans. The allowance for finance receivable
losses increased $7 million to bring the allowance to an appropriate level
based on finance receivables outstanding, the portfolio mix, levels of
delinquencies, net charge offs, and the economic climate.
Change in Deferred Policy Acquisition Costs (DPAC). The change reported in
the income statement represents capitalization of DPAC during the period, net
of related amortization. The change in DPAC decreased $18 million, or 23%,
for the six months ended June 30, 1994 compared to the same period in 1993,
primarily due to lower capitalizable commissions in the Life Insurance segment
and reporting the 1994 activity of life insurance companies held for sale in
other revenues.
Interest Expense. Interest expense on corporate debt decreased $1 million, or
2%, due to the redemption and replacement of 8-1/2% notes with lower rate
commercial paper. Interest expense on consumer finance debt increased $5
million, or 3%, due to higher average borrowings and short-term rates in the
six months ended June 30, 1994 compared to the 1993 period.
Income Tax Expense. Income tax expense increased $19 million, or 11%, for the
first six months of 1994 compared to the same period in 1993, due to higher
taxable income and the 1% increase in the federal corporate tax rate.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
BUSINESS SEGMENTS
To facilitate meaningful period-to-period comparisons of business segment
results, operating earnings of each segment include earnings from its business
operations and earnings on that amount of equity considered necessary to
support its business, and exclude net realized investment gains, non-recurring
items, and the effect of accounting changes. Earnings on equity not allocated
to the business segments are included in earnings on corporate assets.
Six Months Ended Quarter Ended
June 30, June 30,
1994 1993 1994 1993
(In millions)
Revenues
Retirement Annuities ............. $ 759 $ 723 $ 380 $ 365
Consumer Finance ................. 696 632 361 321
Life Insurance ................... 954 1,024 477 513
Total business segments ......... 2,409 2,379 1,218 1,199
Corporate Operations
Realized investment gains ....... 4 5 1 3
Other ........................... 33 8 13 3
Total consolidated revenues .. $2,446 $2,392 $1,232 $1,205
Policyholder Account Deposits
Retirement Annuities .............. $1,149 $1,063 $ 562 $ 525
Life Insurance .................... 544 465 277 230
Total deposits ............... $1,693 $1,528 $ 839 $ 755
Earnings
Retirement Annuities .............. $ 103 $ 87 $ 50 $ 43
Consumer Finance .................. 114 103 61 55
Life Insurance .................... 127 142 63 72
Total business segments ......... 344 332 174 170
Corporate Operations
Net interest on corporate debt .. (37) (43) (18) (22)
Expenses not allocated to
segments ...................... (15) (11) (9) (6)
Earnings on corporate assets .... 25 13 10 6
Realized investment gains ....... 2 4 1 3
Income before cumulative effect ... 319 295 158 151
Cumulative effect of accounting
changes ......................... - (46) - -
Total consolidated net income. $ 319 $ 249 $ 158 $ 151
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Retirement Annuities. Revenues for the first six months of 1994 compared to
1993 increased $36 million, or 5%, primarily due to a 4% increase in net
investment income, reflecting growth in invested assets, partially offset by a
decrease in the average investment yield. Invested assets increased $1.9
billion (excluding the effect of SFAS 115), or 12%, from June 30, 1993 to June
30, 1994, primarily due to an increase in fixed premium deposits and
reinvestment of investment income over the last twelve months. Operating
earnings increased $16 million, or 17%, reflecting continued growth in the
business and an increasing spread between the average yield earned on
investments and the average rate of interest credited to policyholders. The
improvement in spread was due to a smaller decline in the average investment
yield than in the average rate of interest credited to policyholders for the
comparable six month period. The ratio of operating expenses to average
assets improved from .60% for the six months ended June 30, 1993 to .52% for
the same period in 1994. The ratio of policyholder surrenders to average
deferred policy reserves was 4.97% for the six months ended June 30, 1994
compared to 3.78% for the same period in 1993, primarily due to participants
seeking higher returns in equity-based investments. This shift to equity-
based investments also resulted in a $101 million increase in variable account
deposits and a $15 million decrease in fixed deposits in the first six months
of 1994 compared to the same period of 1993.
Consumer Finance. Revenues for the first six months of 1994 compared to 1993
increased $64 million, or 10%, primarily from increased finance charges due to
growth in finance receivables through business development efforts and higher
yields resulting from a change in the portfolio mix to emphasize non-real
estate secured consumer loans. Operating earnings increased $11 million, or
10%, due to increased spread on a higher receivables balance, partially offset
by a higher provision for credit losses and increased operating expenses.
Annualized charge offs increased to 2.2% for the first six months of 1994 from
2.0% for the same period of 1993, and delinquencies increased to 2.5% at June
30, 1994 from 2.3% at June 30, 1993 (2.5% at year-end 1993). The increase in
charge offs, delinquencies, and the provision for credit losses was primarily
due to a continued marketing emphasis on smaller non-real estate secured,
direct consumer loans with higher yields.
Life Insurance. Total revenues decreased $70 million, or 7%, for the six
months ended June 30, 1994 compared to 1993, primarily due to reclassification
to corporate operations of the activity related to the life insurance
companies held for sale in 1994, the ceding of a block of business on
January 1, 1994, and lower investment income. The decrease in investment
income primarily resulted from lower yields, due to prepayment of higher
yielding securities and reinvestment at lower rates throughout 1993, partially
offset by growth in invested assets. Deposits increased 17% to $544 million
due to growth in variable annuity and interest-sensitive life products.
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Operating earnings decreased $15 million in the first six months of 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
compared to the first six months of 1993 primarily due to the decrease in
investment income, higher death claims, and $5 million of earnings of the life
insurance companies held for sale, reported in corporate operations in 1994.
Corporate Operations. Corporate operations include interest on corporate
debt, expenses not allocated to the business segments, earnings on corporate
assets, and net realized investment gains. For reporting purposes, corporate
assets include assets representing equity of the subsidiaries not considered
necessary to support their businesses. Corporate debt is that debt incurred
primarily to fund acquisitions, share repurchases, and capital needs of
subsidiaries. Earnings on corporate assets increased $12 million for the six
months ended June 30, 1994 compared to 1993, primarily due to higher income
from investment real estate and net operations of life insurance companies
held for sale reported in corporate operations beginning in 1994. Interest on
corporate debt decreased $6 million, or 13%, due to various debt redemptions
since June 30, 1993, partially offset by increases in commercial paper issued
and higher short-term interest rates.
Comparison of Quarters Ended June 30, 1994 and June 30, 1993
The nature of and reasons for any significant variations between the quarters
ended June 30, 1994 and June 30, 1993 are the same as those discussed above
for the respective six month periods, except where otherwise noted herein.
BALANCE SHEET
Effect of SFAS 115. The company adopted SFAS 115, "Accounting for Certain
Investments in Debt and Equity Securities," at December 31, 1993.
Accordingly, all fixed maturity and equity securities were classified as
available-for-sale and recorded at fair value. SFAS 115 does not permit a
company to value the related insurance and annuity liabilities at fair value.
The adjustments to record the effect of unrealized gains on fixed maturity
securities and related balance sheet accounts under SFAS 115 were as follows:
June 30, December 31,
1994 1993
(In millions)
Fair value adjustment to fixed maturity securities $(547) $1,594
Adjusted by:
Increase (decrease) in DPAC 222 (550)
Increase in insurance and annuity liabilities (1) (4)
Decrease (increase) in deferred federal
income taxes 113 (364)
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AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Net unrealized gains (losses) on securities $(213) $ 676
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Increases in market interest rates and resulting decreases in bond values
during the first six months of 1994 caused the SFAS 115 adjustment to
shareholders' equity to decrease from a net unrealized gain of $676 million at
December 31, 1993 to a net unrealized loss of $213 million at June 30, 1994.
Care should be exercised in drawing conclusions based on balance sheet amounts
that include the SFAS 115 effect, since related insurance and annuity
liabilities are not reported at fair value.
Assets. At June 30, 1994, the $45 billion of consolidated assets were
distributed as follows: 69% in investments, principally supporting insurance
and annuity liabilities, 15% in net finance receivables, 7% in intangible
assets, and 9% in other assets.
Investments. As shown above, investments decreased $2.1 billion from
December 31, 1993 to June 30, 1994 due to the effect of SFAS 115. For
more information on the investment portfolio at June 30, 1994, see the
section titled "INVESTMENTS" beginning on page 13.
Finance Receivables. Net finance receivables increased $490 million, or
8%, from December 31, 1993 to June 30, 1994, primarily due to business
development efforts in the Consumer Finance segment.
DPAC. The $803 million increase in DPAC was primarily due to the
reversal of the $550 million reserve recorded at December 31, 1993 under
SFAS 115 and the reinstatement of $222 million of DPAC at June 30, 1994
due to the decline in bond values (see discussion titled "Effect of SFAS
115" on page 11).
Separate Account Assets and Liabilities. The $287 million increase in
assets and liabilities related to Separate Accounts from December 31,
1993 to June 30, 1994 primarily reflects increased sales of variable
annuity products in the Retirement Annuities and Life Insurance segments.
Liabilities and Equity. At June 30, 1994, consolidated liabilities and equity
were distributed as follows: 63% in insurance and annuity liabilities, 14% in
consumer finance debt, 10% in equity (including redeemable equity), 4% in
corporate and real estate debt, and 9% in other liabilities.
Insurance and Annuity Liabilities. The $1.2 billion increase in
insurance and annuity liabilities from December 31, 1993 to June 30, 1994
primarily reflects growth in the Retirement Annuities segment due to
fixed annuity deposits and the crediting of policyholder interest.
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Corporate Debt. Corporate debt was $88 million higher at June 30, 1994
than at December 31, 1993, principally due to the purchase of corporate
investments, purchase of the company's common shares, and payment of
dividends to shareholders, the sum of which exceeded cash dividends
received from subsidiaries. Excluding the effect of SFAS 115, the ratio
of corporate debt to corporate capital (the sum of corporate debt plus
equity) was 23% at June 30, 1994 and 22% at December 31, 1993.
Consumer Finance Debt. Consumer finance debt increased $466 million from
December 31, 1993 to June 30, 1994, to support the growth in finance
receivables.
Income Taxes. The liability for income taxes decreased $567 million from
December 31, 1993 to June 30, 1994, primarily due to a $477 million
change in the effect of SFAS 115 on deferred taxes from December 31, 1993
to June 30, 1994 (see discussion titled "Effect of SFAS 115" on page 11).
Other Liabilities. Other liabilities increased $249 million from
December 31, 1993 to June 30, 1994, primarily due to an increase in
amounts owed to securities brokers because of the timing of investment
transactions.
Redeemable Equity. At June 30, 1994, 800,000 shares of common stock of
the company were subject to option contracts and $22 million of related
shareholders' equity was reported as redeemable equity.
Shareholders' Equity. Shareholders' equity decreased from $5.1 billion
at December 31, 1993 to $4.3 billion at June 30, 1994, primarily due to
an $889 million reduction in the effect of SFAS 115 on net unrealized
gains from December 31, 1993 to June 30, 1994 (see discussion titled
"Effect of SFAS 115" on page 11). Due to the requirements of SFAS 115,
shareholders' equity will be subject to future volatility from the
effects of interest rate fluctuations on the fair value of fixed maturity
securities.
INVESTMENTS
Invested assets consist primarily of fixed maturity securities, mortgage loans
on real estate, and investment real estate, which are discussed below. The
company reviews invested assets on a regular basis and records write-downs
where declines in fair value below cost are not considered temporary.
-14-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Fixed Maturity Securities. Fixed maturity securities represented 82% of
invested assets at June 30, 1994. Fixed maturity securities are carried at
fair value in accordance with SFAS 115 (see discussion titled "Effect of SFAS
115" on page 11). Information regarding the fixed maturity securities
portfolio at June 30, 1994, which included bonds and redeemable preferred
stocks, was as follows:
% of
Average Credit Total Fixed
($ in millions) Rating Fair Value Maturities
Mortgage-backed AAA $10,385 41%
Other investment grade A 14,466 56
Below investment grade BB- 777 3
Total fixed maturities AA- $25,628 100%
Below investment grade bonds, those rated below BBB-, totaled $749 million at
June 30, 1994, or 2.9% of total fixed maturity securities, compared to 2.8% at
December 31, 1993. Net income from below investment grade bonds, including
realized investment gains and losses, was $24 million and $19 million for the
first six months of 1994 and 1993, respectively. Included in 1993 are changes
in the allowance for losses.
Non-performing bonds, defined as bonds for which payment of interest is
sufficiently uncertain as to preclude accrual of interest, were $43 million
and $46 million, or 0.2% of total fixed maturity securities, at June 30, 1994
and December 31, 1993, respectively.
Mortgage Loan Portfolio. Mortgage loans on real estate totaled 9% of invested
assets at June 30, 1994. Information regarding the mortgage loan portfolio at
June 30, 1994 was as follows:
Book Non-Performing Loans
($ in millions) Value Amount %
Commercial $2,816 $156 5.6%
Residential 97 3 2.8%
Allowance for losses (90) (33)
Total mortgage loans $2,823 $126
Non-performing (impaired) mortgage loans consist of delinquent loans (60+
days) and restructured loans for which the company determines all amounts due
under the contractual terms probably will not be collected. These loans
represented 5.6% of total commercial loans at June 30, 1994, compared to 4.4%
at December 31, 1993. The increase was primarily due to the decline in the
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
portfolio from $3.0 billion at December 31, 1993 to $2.8 billion at June 30,
1994 and additional non-performing loans in California, Nevada, and New
Jersey.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
At June 30, 1994, $340 million of performing commercial mortgage loans were on
the company's watch list due to non-monetary defaults or concerns that future
payments may not be made on a timely basis. This amount compares to $467
million at year-end 1993. The decrease in the watch list amount primarily is
due to improved collections during second quarter 1994. The company does not
anticipate a significant effect on operations, liquidity, or capital from
these loans.
Investment Real Estate. Investment real estate totaled 2.4% of invested
assets at June 30, 1994 and December 31, 1993. The breakdown of investment
real estate was as follows:
(In millions) June 30, 1994 December 31, 1993
Land development projects $ 619 $ 642
Income-producing real estate 205 189
American General Center, Houston 122 125
Foreclosed real estate 71 69
Allowance for losses (259) (253)
Total investment real estate $ 758 $ 772
The increase in income-producing real estate was primarily due to the
assumption of control and consolidation of two income-producing joint ventures
in the first quarter of 1994.
CASH FLOWS
Management believes that the overall sources of cash and liquidity available
to the company and its subsidiaries will continue to be sufficient to satisfy
its foreseeable financial obligations.
Cash Flows of the Company. Net operating cash flows generated by the company
were $189 million and $207 million for the six months ended June 30, 1994 and
1993, respectively. Dividends from subsidiaries are the primary source of
cash for operating requirements of the company and are used to fund interest
obligations, dividends to shareholders, and purchase of the company's common
stock. The company's insurance subsidiaries are restricted by state insurance
laws as to the amounts they may pay as dividends without prior notice to, or
in some cases prior approval from, their respective state insurance
departments. Certain non-insurance subsidiaries are similarly restricted by
long-term debt agreements. These restrictions have not affected, and are not
expected to affect, the ability of the company to meet its cash obligations.
-16-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
During the first six months of 1994, the companies in the Life Insurance and
Retirement Annuities segments paid cash dividends to American General of $152
million, compared to $184 million during the first six months of 1993. Cash
dividends paid to the company by the Consumer Finance segment totaled $104
million and $68 million in the first six months of 1994 and 1993,
respectively.
On April 15, 1994, the company redeemed $140 million of 8-1/2% notes due April
1998. These notes were classified as short-term debt at December 31, 1993.
Segment Cash Flows. Net cash flows generated by the Life Insurance and
Retirement Annuities segments in the first six months of 1994 included $541
million provided by operations and $665 million provided by the increase in
fixed policyholder account deposits, net of withdrawals. This compared to
$534 million and $904 million, respectively, during the first six months of
1993. The decrease in fixed policyholder account deposits, net of
withdrawals, was primarily due to an increase in withdrawals and a decrease in
deposits in the Life Insurance and the Retirement Annuities segments due to
policyholders' increased demand for variable accounts. The Consumer Finance
segment's operating cash flows totaled $281 million during the first six
months of 1994, compared to $246 million during the first six months of 1993.
Consolidated Operating Activities. Net cash flows from operating activities
on a consolidated basis decreased $85 million in the first six months of 1994
compared to the comparable period in 1993, primarily due to an increase in
income taxes paid.
Investing Activities. The source of cash flow from investment calls,
maturities, and sales was as follows:
Six Months Ended
(In millions) June 30,
1994 1993
Fixed maturity securities
Repayments of mortgage-backed securities $ 1,349 $ 1,064
Calls 596 1,218
Sales 558 96
Maturities 167 98
Mortgage loans 207 255
Equity securities 15 75
Other 100 62
Total $2,992 $ 2,868
Common Share Purchases. During 1994, the company purchased 5,255,600 shares
of its common stock for an aggregate cost of $143 million.
-17-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations (continued).
Credit Facilities. Committed credit facilities are maintained by American
General and certain of its subsidiaries to support the issuance of commercial
paper and provide an additional source of cash for operating requirements. At
June 30, 1994, committed credit facilities totaled $3.0 billion; outstanding
borrowings under these facilities were $45 million.
OTHER FACTORS
Environmental. American General's principal exposure to environmental
regulations arises from its ownership of investment real estate. Probable
costs related to environmental clean-up are estimated to be $3 million, and
appropriate liabilities have been recorded to reflect these costs. The
company is continuing to review these costs, as well as the cost of compliance
with federal, state, and local environmental laws and regulations.
Guaranty Associations. The amount assessed the company's life insurance and
annuity subsidiaries by State Guaranty Associations for the first six months
of 1994 was $4.3 million, of which $2.7 million had been accrued at December
31, 1993. Assessments in the first six months of 1993 were $6.5 million, of
which $3.4 million was accrued at December 31, 1992. The assessments for
1994 and 1993 were offset by $1.2 million and $2.7 million, respectively,
considered recoverable against future premium taxes. At June 30, 1994, the
accrued liability for anticipated unrecoverable assessments was $17 million,
compared to $19 million at December 31, 1993.
<PAGE>
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<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Various violations of operating permits held by Pebble Creek Service
Corporation ("Pebble Creek"), an indirect wholly-owned subsidiary of American
General, in connection with its wastewater treatment plant are currently being
addressed by Pebble Creek with the United States Environmental Protection
Agency ("EPA"), the Florida Department of Environmental Protection, and the
Environmental Protection Commission of Hillsborough County, Florida ("EPC").
On May 31, 1994, Pebble Creek attended a meeting to show cause why the EPA
should not initiate enforcement proceedings against Pebble Creek. Pebble
Creek has not yet been made aware of the EPA's decision. On July 18, 1994,
EPC issued a Warning Notice to Pebble Creek in connection with the inaccurate
reporting of test results by a former plant operator and violations of
effluent parameters. Pebble Creek and EPC met on August 2, 1994 to discuss
enforcement proceedings; however, Pebble Creek has not yet been made aware of
EPC's decision. The company believes that penalties in excess of $100,000
could be assessed against Pebble Creek.
Other than those lawsuits or proceedings disclosed herein or previously,
American General and certain of its subsidiaries are defendants in various
other lawsuits and proceedings arising in the normal course of business.
Although no assurances can be given and no determination can be made at this
time as to the outcome of any particular lawsuit or proceeding, American
General and its subsidiaries believe that there are meritorious defenses for
all of these claims and are defending them vigorously. The company also
believes that the total amounts that would ultimately be paid, if any, arising
from these claims would have no material effect on the company's consolidated
financial statements.
Item 4. Submission of Matters to a Vote of Security Holders.
Election of Directors. American General's Annual Meeting of Shareholders was
held on April 28, 1994. The following directors, constituting American
General's entire board, were elected to terms ending in 1995:
Number of Number of
Name Votes For Votes Withheld
J. Evans Attwell 181,978,640 2,358,586
Brady F. Carruth 181,565,767 2,771,459
W. Lipscomb Davis Jr. 182,071,289 2,265,937
Robert M. Devlin 181,767,471 2,569,755
Harold S. Hook 181,988,973 2,348,253
Larry D. Horner 181,978,667 2,358,559
Richard J. V. Johnson 182,047,835 2,289,391
Robert E. Smittcamp 181,862,742 2,474,484
James R. Tuerff 182,049,591 2,287,635
-19-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
PART II. OTHER INFORMATION (continued).
Plan Approval. The Performance-Based Plan for Executive Officers was approved
with 165,618,172 votes for, 11,537,957 votes against, and 7,181,097
abstentions. The purpose of the plan is to align the compensation of senior
officers with company performance and to maximize the tax-deductibility of
senior officer compensation.
Independent Auditors. The appointment of Ernst & Young as Independent
Auditors was ratified with 183,520,793 votes for, 464,671 votes against, and
351,762 abstentions.
Item 5. Other Information.
Common Stock Buyback Program. From December 31, 1993 through July 31, 1994,
the company purchased 5,255,600 shares of its common stock pursuant to its
stock buyback program at a cost of approximately $143 million and issued
equity option contracts on 800,000 shares of the company's common stock at an
average strike price of $27.25.
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
Exhibit 10.1 Form of Severance Agreement entered into as of
April 12, 1994 between the company and Thomas L.
West, Jr. incorporated by reference to Exhibit
10.10 to the company's Annual Report on Form 10-
K for the year ended December 31, 1993.
Exhibit 10.2 Employment Memorandum of Understanding dated
April 12, 1994 between The Variable Annuity Life
Insurance Company and Thomas L. West, Jr.
Exhibit 10.3 Employment Agreement dated April 28, 1994
between the company and Harold S. Hook.
Exhibit 10.4 Consulting Agreement dated April 28, 1994
between the company and Harold S. Hook.
Exhibit 10.5 License Agreement dated April 28, 1994 between
the company, Harold S. Hook, and Main Event
Management Corporation.
Exhibit 11 Computation of Earnings per Share.
-20-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
PART II. OTHER INFORMATION (continued).
Exhibit 12.1 Computation of Ratio of Earnings to Fixed
Charges for Consolidated Operations.
Exhibit 12.2 Computation of Ratio of Earnings to Fixed
Charges for Consolidated Operations, Corporate
Fixed Charges Only.
Exhibit 12.3 Computation of Ratio of Earnings to Fixed
Charges for American General Finance, Inc.
b. Reports on Form 8-K.
Current Report on Form 8-K dated April 28, 1994, with respect to the
issuance of a news release announcing that Harold S. Hook had accepted
the board of directors' recommendation to continue as chairman and chief
executive officer through the company's 1997 Annual Meeting of
Shareholders.
Current Report on Form 8-K dated August 2, 1994, with respect to
issuance of a news release announcing that the company has made a merger
offer to acquire Unitrin, Inc. ("Unitrin") in an all cash merger
transaction based upon a proposed price of $50-3/8 for each of Unitrin's
51.8 million outstanding shares.
<PAGE>
-21-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AMERICAN GENERAL CORPORATION
(Registrant)
By: Pamela J. Penny
Pamela J. Penny
Vice President and Controller
(Duly Authorized Officer and
Chief Accounting Officer)
Date: August 9, 1994
<PAGE>
-22-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
EXHIBIT INDEX
Sequentially
Numbered
Exhibit Page
10.1 Form of Severance Agreement entered into as of
April 12, 1994 between the company and Thomas
L. West, Jr. incorporated by reference to
Exhibit 10.10 to the company's Annual Report on
Form 10-K for the year ended December 31, 1993.
10.2 Employment Memorandum of Understanding dated
April 12, 1994 between The Variable Annuity
Life Insurance Company and Thomas L. West, Jr.
10.3 Employment Agreement dated April 28, 1994
between the company and Harold S. Hook.
10.4 Consulting Agreement dated April 28, 1994
between the company and Harold S. Hook.
10.5 License Agreement dated April 28, 1994 between
the company, Harold S. Hook, and Main Event
Management Corporation.
11 Computation of Earnings per Share.
12.1 Computation of Ratio of Earnings to Fixed
Charges for Consolidated Operations.
12.2 Computation of Ratio of Earnings to Fixed
Charges for Consolidated Operations, Corporate
Fixed Charges Only.
12.3 Computation of Ratio of Earnings to Fixed
Charges for American General Finance, Inc.
<PAGE>
-23-
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
(Unaudited)
($ in millions, except share data)
Six Months Ended
June 30,
1994 1993
Income before cumulative effect ................ $ 319 $ 295
Cumulative effect of accounting changes* ....... - (46)
Net income available to common stock ......... $ 319 $ 249
Average shares outstanding
Common shares ................................ 211,497,388 216,436,570
Assumed exercise of stock options ............ 312,913 546,714
Total ...................................... 211,810,301 216,983,284
Earnings per share
Income before cumulative effect .............. $1.50 $1.36
Cumulative effect of accounting changes* ..... - (.21)
Net income ................................. $1.50 $1.15
* 1993 restated to reflect adoption of SFAS 112.
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Exhibit 12.1
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
CONSOLIDATED OPERATIONS
(Unaudited)
($ in millions)
Six Months Ended Quarter Ended
June 30, June 30,
1994 1993 1994 1993
Income before income tax expense and
cumulative effect ..................... $500 $457 $247 $234
Fixed charges deducted from income
Interest expense ...................... 246 246 126 123
Implicit interest in rents ............ 8 8 4 4
Total fixed charges deducted from
income ............................ 254 254 130 127
Earnings available for fixed charges .... $754 $711 $377 $361
Fixed charges per above ................. $254 $254 $130 $127
Capitalized interest .................... 8 8 4 4
Total fixed charges ................. $262 $262 $134 $131
Ratio of earnings to fixed charges ...... 2.9X 2.7X 2.8X 2.8X
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Exhibit 12.2
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
CONSOLIDATED OPERATIONS, CORPORATE FIXED CHARGES ONLY
(Unaudited)
($ in millions)
Six Months Ended Quarter Ended
June 30, June 30,
1994 1993 1994 1993
Income before income tax expense and
cumulative effect ..................... $500 $457 $247 $234
Corporate fixed charges deducted from
income - corporate interest expense ... 60 61 29 31
Earnings available for fixed charges .... $560 $518 $276 $265
Ratio of earnings to fixed charges ...... 9.4X 8.4X 9.4X 8.5X
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Exhibit 12.3
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AMERICAN GENERAL FINANCE, INC.
(Unaudited)
($ in millions)
Six Months Ended Quarter Ended
June 30, June 30,
1994 1993 1994 1993
Income before income tax expense and
cumulative effect ..................... $184 $167 $ 98 $ 90
Fixed charges deducted from income
Interest expense ...................... 193 191 100 95
Implicit interest in rents ............ 5 5 2 3
Total fixed charges deducted from
income ............................ 198 196 102 98
Earnings available for fixed charges .... $382 $363 $200 $188
Ratio of earnings to fixed charges ...... 1.9X 1.9X 2.0X 1.9X
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Exhibit 10.2
Date: April 12, 1994
To: Thomas L. West, Jr.
Subject: Employment Memorandum of Understanding
1. Subject. The purpose of this memorandum is to document our agreement
regarding your proposed employment with The Variable Annuity
Life Insurance Company (VALIC). This memorandum is not intended to
include all of the details of your employment, but to highlight certain
key points.
2. Employment Date. On or about April 15, 1994.
3. Position Summary/Major Responsibilities.
a. You will be elected to the No. 2 position in VALIC -- that of
President. As such, you will be a member of the Office of the
Chairman of VALIC and you will report to the Chairman and Chief
Executive Officer, Stephen D. Bickel. Included is a brief
description of this position. Enclosure (a).
b. Since this is a senior officer level position with VALIC, it will
require approval by the Board of Directors of VALIC. This will be
recommended by management and a special meeting of the VALIC Board
will be called to expedite this process prior to April 15, 1994.
c. As a senior officer of VALIC, you will be called upon to
participate in industry, civic and other outside activities. Your
objective in this respect will be to display a position of
leadership and to maintain good relationships with the company's
many publics. Participation in these outside company activities
requires approval pursuant to SPM 2712.G. Enclosure (b).
e. SPM 108.E and MEM Memo 700.1 outline responsibilities which are
general in nature to all management personnel. These are
particularly applicable to senior officers of all American General
companies. Enclosure (c).
f. You should provide Ernst & Young (E&Y), the company's independent
auditor, with a copy of your personal financial statement,
including a detailed list of all personal investments, on or
shortly after your employment date. All such information given to
E&Y will be treated as confidential by them.
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
4. Management Strategy. It is imperative that you become thoroughly
familiar with American General's management
strategy - the framework of decisions that determines how American
General is managed. In this regard, we use Main Event Management , a
system specifically designed for managing the organization as a
whole. A thorough review of the material included as Enclosure (d)
will assist you in this regard.
5. Proposed Salary and Benefits.
a. Salary. Your initial salary will be $275,000 per annum.
b. Relocation Allowance. In lieu of any relocation benefits under
the standard AG Relocation Program, reimbursement for moving
expenses will be made as follows:
The company will pay the cost of moving your household goods and
two automobiles.
The company will reimburse you for reasonable and customary closing
costs associated with both the sale of your current residence and
the purchase of a home in the Houston area.
The company will provide assistance in the sale of your current
residence, including an option for home purchase by American
General's relocation services firm, if you so desire.
In lieu of reimbursement for any other move-related expenses, the
company will pay you a special relocation allowance of $50,000 to
be paid in three equal monthly installments beginning 30 days
following the commencement of your employment.
c. Cash Bonus. A cash bonus of $100,000 will be paid when other
executive cash bonuses are scheduled to be paid in March 1995,
subject to your being employed at that time and your continued
acceptable performance.
d. Restricted Stock. You will be awarded 5,000 shares of American
General Corporation common stock effective on or shortly after your
employment date. These shares will vest after five years of the
award date provided you are still employed by an American General
company. During that five year period and assuming continued
employment, you will be entitled to receive the dividends and vote
these shares. Complete details are contained in Enclosure (e).
e. Stock Options. You will be awarded stock options for 10,000 shares
of American General common stock effective on or shortly after your
employment date. These stock options will be in the form of ISO's
for up to a total value of $100,000 and for any shares remaining,
the stock options will be in the form of NQO's. All options will
vest after six months of employment. Complete details are
contained in enclosures (f) and (g).
f. Performance Reviews. Salaries of executive personnel are reviewed
annually on or about May 1st of each year in accordance with the
Page 2 of 4
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
company's Executive Review Program. Taken into account will be the
company's performance, as well as your own personal performance.
Changes in salary may occur every two to three years or as
otherwise required to maintain an equitable relationship between
your contribution and your compensation (C=C).
g. Supplemental Retirement Benefits. West will be provided an
additional retirement benefit equal to one year of additional
service for each year of continuous service, up to a maximum of
seven additional years, to commence accumulating after three full
years of continuous service. This additional benefit will be
provided outside of the AG Retirement Plan and will vest after five
full years of continuous service.
h. Incentive Compensation and Stock Option Plan. Annually in March,
the Personnel Committee of the AGC Board of Directors determines
what, if any, awards will be made under the company's stock and
incentive plan. As a senior officer of VALIC, you will be eligible
for consideration for award(s) by that committee in March 1995,
subject to your acceptable performance and continued employment
with American General.
i. Benefits. You will be eligible for full benefits under the
company's short term disability plan as if you have over 20 years
of service. You will be eligible to participate in all other
benefits offered to employees of American General in accordance
with the terms of those plans as in effect from time to time. See
"You and American General," the company's compendium of summary
plan descriptions.
6. Perquisites.
a. Company Car. You are eligible to participate in this program under
the designation of "executive car." See Enclosure (h) for details.
b. Club. The company will reimburse you for membership and business
related expenses for a luncheon or country club; however, prior
approval of a particular club will be required.
7. Severance of Employment Relationship.
a. VALIC's policy is not to guarantee employment. If however, your
employment is involuntarily terminated by VALIC for any reason
other than for "cause" during the first 12 months of your
employment, then in lieu of any severance benefits under any
American General company's severance plan, you will continue to
receive your full monthly salary for a period of 12 months
following your employment termination. If your employment is
terminated during your second 12 months of employment, then you
will receive your full monthly salary for a period of 6 months
following your employment termination and, provided you remain
unemployed, you will receive one-half of your monthly salary each
Page 3 of 4
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
month on a month to month basis while you remain unemployed for up
to six additional months. After termination of employment, only
those benefits that are fully vested as of the date of termination
will be provided; there will be no acceleration of non-vested
benefits, including but not limited to bonuses, options, and
restricted stock.
b. Severance Agreement. A "change of control" executive Severance
Agreement for you will be provided. Enclosure (i).
Submitted on Behalf of
The Variable Annuity Life Insurance Company
By:/s/ Stephen D. Bickel
STEPHEN D. BICKEL
READ AND ACCEPTED
By:/s/ Thomas L. West
THOMAS L. WEST
Page 4 of 4
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Enclosures:
(a) Position Description dated 3-14-94;
(b) SPM 2712.G - Industry, Business and Professional Organizations;
(c) SPM 108.E and MEM MEMO 700.1A - Responsibilities Common to all
Management Personnel ("The Silent Six");
(d) American General Management Strategy; Information Regarding;
(e) Restricted Stock Agreement - sample copy;
(f) Incentive Stock Option Agreement - sample copy;
(g) Standard Non-qualified Stock Option Agreement - sample copy;
(h) SPM 8500.K - Company Car Program; Description of the
(i) Severance Agreement - sample copy;
<PAGE>
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Exhibit 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into between American General Corpora-
tion ("American General") and Harold S. Hook ("Hook"), to be effective as of
the 27th day of April, 1994 (the "Effective Date").
WHEREAS, Hook is presently employed by American General in the capacity of
Chairman and Chief Executive Officer.
WHEREAS, American General and Hook desire to continue the employment
relationship pursuant to the terms and conditions and for the consideration
set forth in this Employment Agreement.
WHEREAS, American General and Hook have contemporaneously herewith entered
into a Consulting Agreement applicable to a specified period of time following
Hook's retirement under this Employment Agreement.
WHEREAS, contemporaneously herewith American General, Hook and Main Event
Management Corporation ("MEMC") have entered into a License Agreement pertain-
ing to MEMC's Main Event Management System created by Hook which consists of
four major categories of work product, with the sub-components shown on this
listing:
1. Model-Netics
2. Ten Management Systems:
Approval Control Program
Audit Control Program
Budget Program
Desk Manual Program
Directive & Information System
Manager Operating System
Performance Planning System
Reports Control Program
Salary Administration Program
Systems Control Program
3. Fifteen Educational and Training Programs:
(1) Basic Course in Model-Netics
(2) Model-Netics Instructor Training Program
(3) Applied Model-Netics/Training Course in Problem Management
(4) Applied Model-Netics/Training Course in Problem Management
Instructor Training Program
(5) Model-Netics for Supervisors
(6) Model-Netics for Supervisors Instructor Training Program
(7) MEM Systems Installation Program
(8) MEM Systems Coordinator Training Program
(9) Manager Operating System Training Course
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
(10) Manager Operating System Training Course Instructor Training
Program
(11) Structured Writing Program (Consulting Associates)
(12) Structured Writing Program (Short Course)
(13) System Manager Training Program
(14) Executive Course in Main Event Management
(15) Consulting Associate Training Program
4. An accumulation of Hook's prior work product called the Theoretical
Framework for the Main Event Management System, including numerous pages
of transcribed speeches, audiotapes of Hook's speeches, videotapes of
Hook's speeches, written presentations that have been made by Hook, work
in progress and other materials relating to the Main Event Management
System, and a system of storing, indexing, and accessing such materials.
NOW, THEREFORE, for and in consideration of the mutual promises, covenants,
and obligations contained herein, American General and Hook agree as follows:
Article 1. Employment and duties:
1.1. American General agrees to continue to employ Hook, and Hook agrees
to continue to be employed by American General, beginning as of the Effective
Date of this Employment Agreement and extending throughout the Term of this
Employment Agreement, subject to the terms and conditions of this Employment
Agreement.
1.2. During the Term of this Employment Agreement, Hook shall be employed
by American General in the position of Chairman and Chief Executive Officer.
Hook agrees that during the Term of this Employment Agreement he shall serve
as Chairman and Chief Executive Officer of American General and shall perform
diligently and to the best of his abilities the duties and services pertaining
to the position of Chairman and Chief Executive Officer.
1.3. Except as otherwise provided herein, Hook shall, during the period of
Hook's employment by American General, devote his full business time, energy,
and best efforts to the business and affairs of American General. In that
connection, Hook may expend a reasonable portion of his business time creat-
ing, developing, modifying, improving and implementing within American
General's organization MEMC's Main Event Management System even though such
efforts may indirectly benefit MEMC and/or Hook. Hook may also expend a
portion of his time, not to exceed five percent of his total business time,
promoting and commercializing MEMC's Main Event Management System for the
benefit of MEMC and the benefit of Hook.
1.4. Hook is authorized to take such actions during his employment by
American General under this Employment Agreement as are reasonably necessary
to institutionalize the Main Event Management System within the American
General Group (American General and the various entities in which American
General owns or controls, directly or indirectly, fifty percent or more of the
common stock or other equity interest existing as of the Effective Date or
hereafter formed or acquired are referred to herein as the "American General
Group") and is authorized to incur reasonable costs on behalf of American
General as necessary to accomplish such institutionalization. It is antici-
pated that institutionalization of the Main Event Management System may
- Page 2 -
EMPLOYMENT AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
include preparation and installation of the following deliverables: (i) a
second edition of Model-Netics, (ii) a completed version of the Systems
Control Program, (iii) a teaching manual and book for the Executive Course in
Main Event Management, and (iv) a computer-assisted training course for the
Basic Course in Model-Netics.
Article 2. Compensation and benefits:
2.1. Hook's base salary during this Employment Agreement shall be $980,000
per annum and shall be paid in bi-weekly installments in accordance with
American General's standard practices. Hook's salary shall be reviewed
annually by the appropriate Committee of the Board of Directors but shall not
be reduced below the amount specified in the previous sentence. American
General may withhold from any compensation, benefits, or amounts payable under
this Employment Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
2.2. While employed by American General, Hook shall participate, on the
same basis generally as other employees of American General, in all employee
benefit plans and programs, including improvements or modifications of the
same, which on the Effective Date or thereafter are made available by American
General to all or substantially all of American General's employees or which
are available to senior executives of American General. Such benefits, plans,
and programs may include, without limitation, medical, health, vision, and
dental care, life insurance, disability protection, and pension plans.
American General shall not by reason of this Paragraph 2.2 be obligated to
institute, maintain, or refrain from changing, amending, or discontinuing, any
such employee benefit plan or program, so long as such actions are similarly
applicable to covered employees generally. Notwithstanding the foregoing,
nothing in this Employment Agreement shall limit or reduce any benefit that
Hook is entitled to under existing employee benefit plans, programs, or
arrangements, including, without limitation, the payment of any annual bonus
determined by the appropriate Committee of the Board of Directors.
2.3. Hook acknowledges that contemporaneously herewith Hook has been
granted options to purchase 400,000 shares of American General common stock
under the American General Corporation 1984 Stock and Incentive Plan, which
was amended and restated as of February 1994. Hook further acknowledges that
it is the expectation of Hook and American General that Hook will not be
granted any further stock options during his employment with American General.
2.4. American General shall provide Hook for the remainder of his life or
until incapacitated a private office suitable for a senior executive (includ-
ing furniture, telephone, telefax, and work station equipment) either within
the American General campus or in comparable facilities outside the American
General campus that are acceptable to both parties and the full and exclusive
services of a secretary suitable for a senior executive who is an American
General employee with all of the benefits enjoyed by other American General
- Page 3 -
EMPLOYMENT AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
secretarial employees. This obligation shall survive termination of this
Employment Agreement and any termination of Hook's employment relationship.
Article 3. Term and termination:
3.1. The Term of this employment relationship between American General and
Hook under this Employment Agreement shall extend from the Effective Date
until American General's Annual Shareholders' Meeting held in 1997. The
employment relationship, and the mutual obligations of American General and
Hook that result from such relationship, may be terminated prior to the end of
the Term only as provided herein.
3.2 Hook may terminate this Agreement at any time prior to the expiration
of the Term for Cause. The term Cause shall mean American General's material
breach of any material provision of this Employment Agreement which remains
uncorrected for thirty (30) days following written notice by Hook to American
General of such breach. Upon termination of the employment relationship by
Hook for Cause, Hook shall be entitled, in consideration of Hook's continuing
obligations hereunder after such termination, to receive his then current
salary under Paragraph 2.1 for the remainder of the Term of this Employment
Agreement (the "Severance Payments"). Hook shall not be entitled to any
individual bonuses or individual incentive compensation not yet awarded at the
date of such termination. Hook shall be entitled to receive all salary,
bonuses or incentive payments previously awarded or granted to Hook (to the
extent earned or vested) and the payment of which has been deferred or
otherwise not received by Hook. Hook shall also be entitled to any and all
payments due and owing Hook under the Supplemental Thrift Plan or any other
applicable employee benefit plan, program or practice, in accordance with the
terms and conditions of such plan, program or practice; provided, however,
that Hook's Severance Payments are subject to the provisions of Paragraph 3.6.
Hook shall not be under any duty or obligation to seek or accept other employ-
ment following such termination and the amounts due Hook hereunder shall not
be reduced or suspended if Hook accepts subsequent employment. Hook's rights
under this Paragraph 3.2 are Hook's sole and exclusive rights against American
General, and American General's sole and exclusive liability to Hook, for
termination of this Employment Agreement, in contract, tort, or otherwise.
3.3. American General may terminate this Agreement at any time prior to
the expiration of the Term for Cause. The term Cause shall mean Hook's
material breach of any material provision of this Employment Agreement which
remains uncorrected for thirty (30) days following written notice by American
General to Hook of such breach. All future compensation under this Employment
Agreement shall cease and terminate as of the date of termination for Cause.
Hook shall be entitled to his pro rata salary through the date of such
termination, but Hook shall not be entitled to any individual bonuses or
individual incentive compensation not yet awarded at the date of such termina-
tion. Hook shall be entitled to receive all salary, bonuses or incentive
payments previously awarded or granted to Hook (to the extent earned or
vested) and the payment of which has been deferred or otherwise not received
by Hook. Hook shall also be entitled to any and all payments due and owing
Hook under the Supplemental Thrift Plan or any other applicable employee
benefit plan, program or practice in accordance with the terms and conditions
of such plan, program, or practice.
- Page 4 -
EMPLOYMENT AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
3.4. The employment relationship under this Employment Agreement shall
automatically terminate upon Hook's death or Hook becoming incapacitated by
accident, sickness or other circumstance which renders him mentally or
physically incapable of performing the duties and services required of him in
his capacity as Chairman and Chief Executive Officer. The term "incapaci-
tated" means an illness or injury that prevents Hook from performing his
services as Chairman and Chief Executive Officer, there is a written medical
opinion by a physician reasonably selected by the Board of Directors to the
foregoing effect, and the Board of Directors concludes that Hook is perman-
ently and totally unable to perform his duties for American General. The date
of termination of the employment relationship as a result of Hook becoming
incapacitated shall be established by the Board of Directors and shall not be
earlier than the date the Board of Directors takes such action. Upon termina-
tion of the employment relationship as a result of Hook's death, Hook's then
current salary specified in Paragraph 2.1 for the lesser of nine (9) months or
the remainder of the Term shall be paid to Hook's estate (unless American
General has received written instructions from Hook directing that such
payments shall be otherwise made), but Hook's estate shall not be entitled to
any individual bonuses or individual incentive compensation not yet paid to
Hook at the date of such termination unless such payments are specifically
authorized by the applicable employee benefit plan or are expressly approved
by the Board of Directors. Upon termination of the employment relationship as
a result of Hook's incapacity, Hook's salary specified in Paragraph 2.1 for
the remainder of the Term shall cease and Hook shall instead receive payments
pursuant to American General's disability plan; Hook shall not be entitled to
any individual bonuses or individual incentive compensation not yet awarded to
Hook at the date of such termination unless such payments are specifically
authorized by the applicable employee benefit plan or are expressly approved
by the Board of Directors. Hook shall be entitled to receive all salary,
bonuses or incentive payments previously awarded or granted to Hook and the
payment of which has been deferred or otherwise not received by Hook. Hook
shall also be entitled to any and all payments due and owing Hook under the
Supplemental Thrift Plan or any other applicable employee benefit plan,
program or practice, in accordance with the terms and conditions of such plan,
program or practice.
3.5. American General shall have the right to terminate Hook's employment
prior to expiration of the Term at any time for any reason whatsoever without
Cause but Hook shall be entitled, in consideration of Hook's continuing
obligations hereunder, after such termination to receive the Severance
Payments. Hook shall not be under any duty or obligation to seek or accept
other employment following such termination and the amounts due Hook hereunder
shall not be reduced or suspended if Hook accepts subsequent employment. Hook
shall not be entitled to any individual bonuses or individual incentive
compensation not yet awarded at the date of such termination. Hook shall be
entitled to receive all salary, bonuses or incentive payments previously
awarded or granted to Hook (to the extent earned or vested) and the payment of
which has been deferred or otherwise not received by Hook. Hook shall also be
entitled to any and all payments due and owing Hook under the Supplemental
Thrift Plan or any other applicable employee benefit plan, program or practice
in accordance with the terms and conditions of such plan, program or practice;
provided, however, that Hook's Severance Payments are subject to the provi-
- Page 5 -
EMPLOYMENT AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
sions of Paragraph 3.6. Hook's rights under this Paragraph 3.5 are Hook's
sole and exclusive rights against American General, and American General's
sole and exclusive liability to Hook, for termination of this Employment
Agreement, in contract, tort, or otherwise.
3.6. In all cases, the Severance Payments shall be offset against any
amounts to which Hook may otherwise be entitled under any and all severance
plans, severance policies, or severance agreements of American General, but
only to the extent such amounts are specifically denominated under the
applicable plan, policy or agreement as a severance payment. In the event
that the same circumstances generate a financial obligation in favor of Hook
under both this Employment Agreement and any severance plans, severance
policies, or severance agreements existing between Hook and American General
(e.g., a Change of Control or Change in Duties both obligates American General
to pay a Severance Amount under the Severance Agreement and constitutes Cause
for Hook to terminate this Employment Agreement and thereby obligates American
General to pay the Severance Payments), then Hook may elect to receive the
greater of such payments, but not both.
3.7. American General may not offset against any sums owed to Hook under
this Employment Agreement any sums owed by MEMC or Hook to any member of the
American General Group under the License Agreement executed contemporaneously
herewith or otherwise.
Article 4: Relationship of the parties upon the expiration of the
Term of this Employment Agreement:
4.1. Upon the expiration of the Term the relationship of the parties shall
automatically become governed by the Consulting Agreement executed contempora-
neously herewith. The fact that Hook continues to office within the American
General campus and provide services to American General shall not extend this
Employment Agreement unless such extension is expressly agreed to in writing
by the parties.
Article 5: Ownership of information and copyrights:
5.1. The ownership of the work product (as defined in the License Agree-
ment) created by the employees and independent contractors of MEMC and
American General pertaining to the Main Event Management System are covered by
the provisions of the License Agreement executed contemporaneously herewith.
5.2. Hook acknowledges and agrees that, except for work product that is
the subject of Paragraph 5.1, the ownership of information and work product
created or developed by Hook in the course and scope of his employment by
American General shall belong to American General in accordance with the law.
Article 6. Protection of confidential information:
6.1. Hook acknowledges that the business of the American General Group is
highly competitive and that their strategies, methods, books, records, and
documents, their technical information concerning their products, equipment,
services, and processes, procurement procedures and pricing techniques, the
names of and other information (such as credit and financial data) concerning
their customers and business affiliates, all comprise confidential business
information and trade secrets which are valuable, special, and unique assets
- Page 6 -
EMPLOYMENT AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
which the American General Group use in their business to obtain a competitive
advantage over their competitors. Hook acknowledges and agrees that he will
maintain the confidentiality of such information in accordance with the law.
Hook may disclose such confidential information to third parties as required
by law or responsive to a civil investigative demand, provided that Hook first
notifies American General and gives American General an opportunity to take
action to protect the confidentiality of its information.
Article 7. Miscellaneous:
7.1 MEMC is intended to be a third party beneficiary of the provisions of
this Employment Agreement pertaining to the ownership of the Main Event
Management System and intellectual property rights therein.
7.2. For purposes of this Employment Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when received by the recipient or upon the expiration of
seven days after being mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to American General, to:
American General Corporation
ATTN: General Counsel
2929 Allen Parkway
Houston, Texas 77019
If to Hook, to:
Harold S. Hook
43 West Terrace Drive
Houston, Texas 77007-7040
Either American General or Hook may furnish a change of address to the other
in writing in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
7.3. This Employment Agreement shall be governed in all respects by the
laws of the State of Texas, or, to the extent required, applicable federal
law, excluding any conflict-of-law rule or principle that might refer the
construction of the Employment Agreement to the laws of another State or
country.
7.4. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Employment Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Employment Agreement may not be waived, modified or amended in any
respect by any verbal statement, representation or agreement made by any
employee, officer or representative of American General, or by any written
document unless the written document is signed by both a duly authorized
officer of American General and Hook and the written document specifically
refers to the provision of this Employment Agreement that is waived, modified
or amended.
- Page 7 -
EMPLOYMENT AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
7.5. This Employment Agreement shall be binding upon and inure to the
benefit of American General and any other person, association, or entity which
may hereafter acquire or succeed to all or substantially all of the business
or assets of American General by any means whether direct or indirect, by
purchase, merger, consolidation, or otherwise. Hook's rights and obligations
under this Employment Agreement are personal and, except as provided herein,
such rights, benefits, and obligations of Hook shall not be voluntarily or
involuntarily assigned, alienated, or transferred, whether by operation of law
or otherwise, without the prior written consent of American General.
7.6. Any and all claims, demands, causes of action, disputes, controver-
sies and other matters in question arising out of or relating to this Emplo-
yment Agreement, the alleged breach thereof, or in any way relating to the
subject matter of this Employment Agreement involving American General or Hook
("Claims"), even though some or all of such Claims allegedly are extra-
contractual in nature, whether such Claims sound in contract, tort or other-
wise, at law or in equity, under State or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be resolved
and decided by binding arbitration pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration Rules then in effect with the
American Arbitration Association. The arbitration proceeding shall be con-
ducted in Houston, Texas. This agreement to arbitrate shall be enforceable in
either federal or State court. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any federal or State court having
jurisdiction. The enforcement of this agreement to arbitrate and all proce-
dural aspects of this agreement to arbitrate, including but not limited to,
the construction and interpretation of this agreement to arbitrate, the scope
of the arbitrable issues, allegations of waiver, delay or defenses to arbitra-
bility, and the rules governing the conduct of the arbitration, shall be
governed by and construed pursuant to the Federal Arbitration Act. In
deciding the substance of any such Claim, the Arbitrators shall apply the
substantive laws of the State of Texas; provided, however, that the Arbitra-
tors shall have no authority to award punitive damages under any circumstances
(whether it be exemplary damages, treble damages, or any other penalty or
punitive type of damages) regardless of whether such damages may be available
under Texas law, the parties hereby waiving their right, if any, to recover
punitive damages in connection with any such Claims. Prior to either party
instituting a Claim under this Employment Agreement, the complaining party
shall provide to the other party a written notice specifying the alleged
breach. The other party shall be given thirty (30) days to cure such breach
before any Claim is filed. It is further agreed that prior to such Claims
being submitted to the Final Hearing before the Arbitrators on such Claims,
American General and Hook shall attempt to resolve such Claims through non-
binding mediation of such Claims.
7.7. In the event of a dispute between the parties, the prevailing party
shall be entitled to recover his or its reasonable and necessary attorneys
fees, excluding contingent fee arrangements, and costs.
IN WITNESS WHEREOF, American General Corporation and Harold S. Hook have
duly executed this Employment Agreement in multiple originals to be effective
as of the Effective Date.
- Page 8 -
EMPLOYMENT AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
AMERICAN GENERAL CORPORATION
By:_________________________________________
Name:______________________________________
This 27th day of April, 1994
____________________________________________
HAROLD S. HOOK
This 27th day of April, 1994
<PAGE>
- Page 9 -
EMPLOYMENT AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Exhibit 10.4
CONSULTING AGREEMENT
This Consulting Agreement is made and entered into by and between American
General Corporation ("American General") and Harold S. Hook ("Hook").
WHEREAS, on March 25, 1976, American General Insurance Company entered into
a Limited License Agreement with Main Event Management Corporation ("MEMC"), a
California corporation controlled by Hook, pertaining to the Main Event
Management System known by the names and marks Main Event Management and MEM
that Hook had largely previously developed and transferred to MEMC.
WHEREAS, although Hook was not a party to the Limited License Agreement,
the Limited License Agreement in part defines the activities that Hook
individually was authorized to engage in for the benefit of MEMC while he was
employed by American General, which included the continued development of the
Main Event Management System.
WHEREAS, by virtue of a 1980 reorganization, American General Insurance
Company merged into a subsidiary of American General and, in connection there-
with, American General Insurance Company and American General executed a
general conveyance and assumption of liabilities by which American General
succeeded to the terms and conditions of the Limited License Agreement.
WHEREAS, under the terms of the Limited License Agreement, the Main Event
Management System was to be installed at the American General Group (American
General and the various entities in which American General owns or controls,
directly or indirectly, fifty percent or more of the common stock or other
equity interest existing as of the Effective Date or hereafter formed or
acquired are referred to herein as the "American General Group") and over the
years the Main Event Management System has been installed throughout the
American General Group.
WHEREAS, at this time the Main Event Management System consists of four
major categories of work product, with the sub-components shown on this
listing:
1. Model-Netics
2. Ten Management Systems:
Approval Control Program
Audit Control Program
Budget Program
Desk Manual Program
Directive & Information System
Manager Operating System
Performance Planning System
Reports Control Program
- Page 1 -
CONSULTING AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Salary Administration Program
Systems Control Program
3. Fifteen Educational and Training Programs:
(1) Basic Course in Model-Netics
(2) Model-Netics Instructor Training Program
(3) Applied Model-Netics/Training Course in Problem Management
(4) Applied Model-Netics/Training Course in Problem Management
Instructor Training Program
(5) Model-Netics for Supervisors
(6) Model-Netics for Supervisors Instructor Training Program
(7) MEM Systems Installation Program
(8) MEM Systems Coordinator Training Program
(9) Manager Operating System Training Course
(10) Manager Operating System Training Course Instructor Training
Program
(11) Structured Writing Program (Consulting Associate)
(12) Structured Writing Program (Short Course)
(13) System Manager Training Program
(14) Executive Course in Main Event Management
(15) Consulting Associate Training Program
4. An accumulation of Hook's prior work product called the Theoretical
Framework for the Main Event Management System, including numerous pages
of transcribed speeches, audiotapes of Hook's speeches, videotapes of
Hook's speeches, written presentations that have been made by Hook, work
in progress and other materials relating to the Main Event Management
System, and a system of storing, indexing, and accessing such materials.
WHEREAS, American General, Main Event Management Corporation, and Hook have
contemporaneously herewith entered into a License Agreement pertaining to
MEMC's Main Event Management System that supersedes and supplants the March
25, 1976 Limited License Agreement.
WHEREAS, Hook has served as Chairman and Chief Executive Officer of
American General for a number of years, American General has contemporaneously
herewith entered into an Employment Agreement extending Hook's employment by
American General until the annual shareholders' meeting held in 1997, and
American General and Hook desire that upon his retirement from the employ of
American General he shall provide personal consultation services to American
General with respect to Hook's area of interest, i.e., the providing of advice
with respect to issues that may from time to time affect American General.
For and in consideration of the mutual covenants and promises and represen-
tations contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, American General and
Hook agree as follows:
- Page 2 -
CONSULTING AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
1. Effective Date:
1.1. Except as provided in Paragraph 4.1 below, it is a condition prece-
dent to the obligations of American General and Hook under this Consulting
Agreement that the Employment Agreement executed contemporaneously herewith
extend to its full Term. If the Employment Agreement extends to its full
Term, the Effective Date of this Consulting Agreement shall be the day
following the expiration of the Term of the Employment Agreement. If the
Employment Agreement does not extend to its full Term, Hook shall be entitled
only to the payments specified in Paragraph 4.1; the remaining obligations of
the parties under this Consulting Agreement shall be null and void.
2. Hook's consulting obligations:
2.1. During the Term of this Consulting Agreement, Hook shall be available
for general personal consultation to American General with respect to issues
that may from time to time affect American General. Hook's consulting
services shall include, but not be limited to, the installation of MEMC's Main
Event Management System at the American General Group. In order that Hook
shall be free to pursue other interests, it is agreed that American General in
each calendar year may not call upon Hook to expend more than twenty (20%)
percent of his business time annually providing consultation services to
American General. Hook shall provide such services at reasonable times upon
reasonable prior notice.
3. Term and termination of consulting relationship:
3.1. The Term of this consulting relationship between American General and
Hook shall extend from the Effective Date until the earlier of Hook's death or
incapacity (as that term is defined in the Employment Agreement executed
contemporaneously herewith) or for five (5) years. So long as Hook shall live
and not be incapacitated, the Term shall automatically extend for repetitive
one (1) year periods unless either party shall provide a written notice of
termination at least ninety (90) days prior to the end of the initial five
year period or the end of any subsequent one year extension.
3.2. Either Hook or American General may terminate this Consulting
Agreement at any time prior to the expiration of the Term for Cause. The term
Cause shall mean the defaulting party's material breach of any material
provision of this Consulting Agreement which remains uncorrected for thirty
(30) days following written notice by the other party to the defaulting party.
Upon termination of this Consulting Agreement for Cause by American General,
Hook shall be entitled to his consultancy fees specified in Paragraph 4.2
through the date of termination but, except as specifically otherwise provided
in this Consulting Agreement, all future compensation or benefits otherwise
owed by American General to Hook pursuant to this Consulting Agreement shall
cease. Upon termination of this Consulting Agreement for Cause by Hook, Hook
- Page 3 -
CONSULTING AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
shall be entitled to his consultancy fees specified in Paragraph 4.2 through
the end of the initial five year period specified in Paragraph 3.1 (without
regard to the condition precedent in Paragraph 4.4 and not withstanding any
death or incapacity of Hook after termination). Hook's rights under this
Paragraph 3.2 are Hook's sole and exclusive rights against American General,
and American General's sole and exclusive liability to Hook, for such termina-
tion of this Consulting Agreement, in contract, tort, or otherwise.
4. Hook's compensation under this Consulting Agreement:
4.1. In the event that the Employment Agreement fails to extend for its
full Term because (i) Hook dies, (ii) Hook becomes incapacitated (as defined
in the Employment Agreement), (iii) American General terminates Hook's
employment under the Employment Agreement without Cause, or (iv) Hook termi-
nates his employment under the Employment Agreement for Cause, then Hook shall
be entitled under this Consulting Agreement only to a payment in the sum of
$250,000 multiplied by the factor the numerator of which is the number of
whole months that he was employed by American General under the Employment
Agreement and the denominator of which is twelve (12). Hook shall be paid
this sum in twelve (12) equal installments, without interest, commencing as of
the first day of the full month following the date of the termination of
Hook's employment under the Employment Agreement. American General may
withhold from any compensation, benefits, or amounts payable under this
Consulting Agreement all federal, state, city, or other taxes as may be
required pursuant to any law or governmental regulation or ruling.
4.2. After the Effective Date, in full compensation to Hook for the
performance of his obligations under this Consulting Agreement, American
General shall pay to Hook the sum of Two Hundred and Fifty Thousand ($250,000)
Dollars per year for his services so long as Hook is willing and able (except
as provided in Paragraph 4.3) to provide the required consulting services.
The consultancy fees shall paid in bi-weekly equal installments in accordance
with American General's standard practices and American General may withhold
from any compensation, benefits, or amounts payable under this Consulting
Agreement all federal, state, city, or other taxes as may be required pursuant
to any law or governmental regulation or ruling.
4.3. As of the Effective Date, Hook (or, after Hook's death, his Estate
unless American General has received written instructions from Hook directing
that such payments shall be otherwise made) shall be entitled to a minimum of
three years' payments of the Two Hundred and Fifty Thousand ($250,000) Dollar
annual payments specified in Paragraph 4.2 irrespective of Hook's subsequent
death or incapacity, or Hook's subsequent failure to comply with the condition
precedent specified in Paragraph 4.4 (provided that Hook, even though failing
to fulfill the condition precedent specified in Paragraph 4.4, still fulfills
his consulting obligations hereunder if he is alive and not incapacitated).
If this Consulting Agreement is terminated by American General for Cause for
failure of Hook to consult with American General as required under this
Consulting Agreement, American General shall have no further obligation to
make any future payments to Hook under this Consulting Agreement, even under
this Paragraph 4.3.
4.4. The following condition precedent is applicable to American General's
obligation to make payments to Hook under Paragraph 4.2: If, during the Term
of this Consulting Agreement, Hook shall, directly or indirectly, for himself
- Page 4 -
CONSULTING AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
or for others, in any geographic area or market where American General is
conducting any business at the time or has during the previous twelve months
conducted any business, engage in any business competitive with any business
conducted by any company within the American General Group or render advice or
services to, or otherwise assist, any other person, association, or entity who
is engaged, directly or indirectly, in any business competitive with any
business conducted by any company within the American General Group, then
American General shall have the right to terminate Hook's future obligations
to provide consulting services to American General under this Consulting
Agreement and American General's future obligations to Hook under this Article
4; provided, however, that so long as Hook is fulfilling his consulting
obligations under this Consulting Agreement (if he is alive and not incapaci-
tated) or if American General has terminated pursuant to this Paragraph 4.4
Hook's future obligations to provide consulting services, Hook shall remain
entitled to receive the minimum three years' payments of Two Hundred and Fifty
Thousand ($250,000) Dollars each pursuant to Paragraph 4.3. The development,
marketing, teaching, consultation and/or installation of the Main Event
Management System or any of its components for any entity, and serving as a
director of any public company that Hook is serving as a director at the
Effective Date, shall not constitute an activity competitive with any company
within the American General Group even if such activity involves competitors
of the American General Group. If American General concludes that Hook is
competing with the American General, American General shall provide written
notice to Hook and Hook shall have thirty days in which to cease the competi-
tive activity before the condition precedent in this Paragraph 4.4 is deemed
not to be fulfilled.
4.5. American General shall reimburse Hook for his reasonable and neces-
sary travel, entertainment, and similar incidental expenses incurred in
connection with the providing of services hereunder. Hook agrees to promptly
provide to American General an itemized expense account with respect to such
expenses.
4.6. During the Term of this Consulting Agreement, Hook shall participate,
to the extent allowed by the plans, in American General's dental plan, Retiree
Medical Plan, life insurance plans, and disability plans. American General
shall not, however, by reason of this Paragraph be obligated to institute,
maintain, or refrain from changing, amending, or discontinuing, any such plan.
However, except as specifically provided in this Consulting Agreement, Hook
shall not be entitled to any of the other benefits provided by American
General to its employees pursuant to any other employee benefit plans and
programs, e.g., employee compensation plans, and Hook shall not actively
participate in American General's pension plans.
4.7. American General may not offset against any sums owed to Hook under
this Consulting Agreement any sums owed by MEMC or Hook to any member of the
American General Group under the License Agreement executed contemporaneously
herewith or otherwise.
- Page 5 -
CONSULTING AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
5. Hook shall render services as an independent contractor:
5.1. Hook shall provide his personal consultation services to American
General as an independent contractor with the full power and authority to
select the means, method and manner of performing his services hereunder.
Hook will in no way be considered to be an agent, employee or servant of
American General and shall have no authority to bind American General in any
capacity for any purpose. It is not the purpose or intention of this Consult-
ing Agreement or the parties to create, and the same shall not be construed as
creating, any partnership, partnership relation, joint venture, agency or
employment relationship.
6. Ownership and protection of information; copyrights:
6.1. The ownership of the work product (as defined by the License Agree-
ment) created by the employees and independent contractors of MEMC and
American General pertaining to the Main Event Management System are covered by
the provisions of the License Agreement executed contemporaneously herewith.
6.2. Except with respect to subject matters that are the subject of
Paragraph 6.1, all information, ideas, concepts, and/or copyrightable works
which are conceived, made, developed or acquired by Hook, in the course and
scope of Hook's consulting relationship with American General are and shall be
the sole and exclusive property of American General. Hook hereby agrees to
assign, and by these presents does assign, to American General all of Hook's
worldwide right, title, and interest in and to such information, ideas,
concepts, and works, and all rights of copyright therein.
Article 7. Protection of confidential information:
7.1. Hook acknowledges that the business of the American General Group is
highly competitive and that their strategies, methods, books, records, and
documents, their technical information concerning their products, equipment,
services, and processes, procurement procedures and pricing techniques, the
names of and other information (such as credit and financial data) concerning
their customers and business affiliates, all comprise confidential business
information and trade secrets which are valuable, special, and unique assets
which the American General Group use in their business to obtain a competitive
advantage over their competitors. Hook acknowledges and agrees that he will
maintain the confidentiality of such information in accordance with the law.
Hook may disclose such confidential information to third parties as required
by law or responsive to a civil investigative demand, provided that Hook first
notifies American General and gives American General an opportunity to take
action to protect the confidentiality of its information.
8. Miscellaneous.
8.1. This Consulting Agreement shall be binding upon and inure to the
benefit of American General and any other person, association, or entity which
may hereafter acquire or succeed to all or substantially all of the business
or assets of American General by any means whether direct or indirect, by
purchase, merger, consolidation, or otherwise. Hook's rights and obligations
under this Consulting Agreement are personal and, except as provided herein,
- Page 6 -
CONSULTING AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
such rights, benefits, and obligations of Hook shall not be voluntarily or
involuntarily assigned, alienated, or transferred, whether by operation of law
or otherwise, without the prior written consent of American General.
8.2. This Consulting Agreement shall be governed in all respects by the
laws of the State of Texas, or, to the extent required, applicable federal
law, excluding any conflict-of-law rule or principle that might refer the
construction of the Consulting Agreement to the laws of another State or
country.
8.3. No failure by either party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this Consulting Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time. This Consulting Agreement may not be waived, modified or amended in any
respect by any verbal statement, representation or agreement made by any
employee, officer or representative of American General, or by any written
document unless the written document is signed by both a duly authorized
officer of American General and Hook and the written document specifically
refers to the provision of this Consulting Agreement that is waived, modified
or amended.
8.4. Notices or payments given by one party to the other hereunder shall
be deemed to have been properly given or paid when received or upon the
expiration of seven days after being mailed by United States registered or
certified mail, return receipt requested, postage prepaid, addressed as
follows:
If to American General, to:
American General Corporation
ATTN: General Counsel
2929 Allen Parkway
Houston, Texas 77019
If to Hook, to:
Harold S. Hook
43 West Terrace Drive
Houston, Texas 77007-7040
Either American General or Hook may furnish a change of address to the other
in writing in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
8.5. Any and all claims, demands, causes of action, disputes, controver-
sies and other matters in question arising out of or relating to this Consu-
lting Agreement, the alleged breach thereof, or in any way relating to the
subject matter of this Consulting Agreement involving American General or Hook
("Claims"), even though some or all of such Claims allegedly are extra-
contractual in nature, whether such Claims sound in contract, tort or other-
wise, at law or in equity, under State or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be resolved
and decided by binding arbitration pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration Rules then in effect with the
American Arbitration Association. The arbitration proceeding shall be con-
- Page 7 -
CONSULTING AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
ducted in Houston, Texas. This agreement to arbitrate shall be enforceable in
either federal or State court. Judgment upon any award rendered in any such
arbitration proceeding may be entered by any federal or State court having
jurisdiction. The enforcement of this agreement to arbitrate and all proce-
dural aspects of this agreement to arbitrate, including but not limited to,
the construction and interpretation of this agreement to arbitrate, the scope
of the arbitrable issues, allegations of waiver, delay or defenses to arbitra-
bility, and the rules governing the conduct of the arbitration, shall be
governed by and construed pursuant to the Federal Arbitration Act. In
deciding the substance of any such Claim, the Arbitrators shall apply the
substantive laws of the State of Texas; provided, however, that the Arbitra-
tors shall have no authority to award punitive damages under any circumstances
(whether it be exemplary damages, treble damages, or any other penalty or
punitive type of damages) regardless of whether such damages may be available
under Texas law, the parties hereby waiving their right, if any, to recover
punitive damages in connection with any such Claims. Prior to either party
instituting a Claim under this Employment Agreement, the complaining party
shall provide to the other party a written notice specifying the alleged
breach. The other party shall be given thirty (30) days to cure such breach
before any Claim is filed. It is further agreed that prior to such Claims
being submitted to the Final Hearing before the Arbitrators on such Claims,
American General and Hook shall attempt to resolve such Claims through non-
binding mediation of such Claims.
8.6. In the event of a dispute between the parties, the prevailing party
shall be entitled to recover his or its reasonable and necessary attorneys
fees, excluding contingent fee arrangements, and costs.
IN WITNESS WHEREOF, American General Corporation and Harold S. Hook have
duly executed this Consulting Agreement in multiple originals.
AMERICAN GENERAL CORPORATION
By:_________________________________________
Name:______________________________________
This 27th day of April, 1994
____________________________________________
HAROLD S. HOOK
This 27th day of April, 1994
<PAGE>
- Page 8 -
CONSULTING AGREEMENT BETWEEN AMERICAN GENERAL AND HAROLD S. HOOK
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Exhibit 10.5
LICENSE AGREEMENT
This License Agreement is entered into between American General Corporation
("American General"), a Texas corporation, and Main Event Management Corpora-
tion ("MEMC"), a California corporation, and Harold S. Hook ("Hook"), to be
effective the 27th day of April, 1994 (the "Effective Date").
WHEREAS, on March 25, 1976, American General Insurance Company entered into
a Limited License Agreement with MEMC pertaining to the Main Event Management
System known by the names and marks Main Event Management and MEM that Hook
had largely previously developed and transferred to MEMC, a corporation that
he controlled.
WHEREAS, although Hook was not a party to the Limited License Agreement,
the Limited License Agreement in part defines the activities that Hook
individually was authorized to engage in for the benefit of MEMC while he was
employed by American General, which included the continued development of the
Main Event Management System.
WHEREAS, by virtue of a 1980 reorganization, American General Insurance
Company merged into a subsidiary of American General and, in connection there-
with, American General Insurance Company and American General executed a
general conveyance and assumption of liabilities by which American General
succeeded to the terms and conditions of the Limited License Agreement.
WHEREAS, under the terms of the Limited License Agreement, the Main Event
Management System was to be installed at American General Group, as defined
below in Paragraph 16.1, and over the years the Main Event Management System
has been installed throughout many aspects of the American General Group.
WHEREAS, the Main Event Management System today consists of four major
categories of work product, with the sub-components shown on this listing.
1. Model-Netics
2. Ten Management Systems:
Approval Control Program
Audit Control Program
Budget Program
Desk Manual Program
Directive & Information System
Manager Operating System
Performance Planning System
Reports Control Program
Salary Administration Program
Systems Control Program
- Page 1 -
LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
3. Fifteen Educational and Training Programs:
(1) Basic Course in Model-Netics
(2) Model-Netics Instructor Training Program
(3) Applied Model-Netics/Training Course in Problem Management
(4) Applied Model-Netics/Training Course in Problem Management
Instructor Training Program
(5) Model-Netics for Supervisors
(6) Model-Netics for Supervisors Instructor Training Program
(7) MEM Systems Installation Program
(8) MEM Systems Coordinator Training Program
(9) Manager Operating System Training Course
(10) Manager Operating System Training Course Instructor Training
Program
(11) Structured Writing Program (Consulting Associates)
(12) Structured Writing Program (Short Course)
(13) System Manager Training Program
(14) Executive Course in Main Event Management
(15) Consulting Associate Training Program
4. An accumulation of Hook's prior work product called the Theoretical
Framework for the Main Event Management System, including numerous pages
of transcribed speeches, audiotapes of Hook's speeches, videotapes of
Hook's speeches, written presentations that have been made by Hook, work
in progress and other materials relating to the Main Event Management
System, and a system of storing, indexing, and accessing such materials.
WHEREAS, Hook had, before he joined American General, developed the ideas
for Model-Netics and had created the expressions of his ideas presently
embodied in Model-Netics and no employees of the American General Group have
contributed any ideas or expressions to the work product known as Model-
Netics.
WHEREAS, Hook developed the ideas for each of the ten Management Systems,
both before and after he joined American General, and Hook also personally
created substantially all of the expressions of his ideas presently embodied
in these Management Systems (including all of the high level and significant
documentation, e.g., the base memoranda), although certain employees of the
American General Group made limited contributions to the documentation
comprising certain of these systems (certain low level memoranda included in
the documentation for the system, such as action plans).
WHEREAS, Hook developed both the ideas and all of the expressions for the
Basic Course in Model-Netics, the Model-Netics Instructor Training Program,
and the Executive Course in Main Event Management, and developed the ideas and
created substantially all of the expressions of his ideas presently embodied
in the other twelve Educational and Training Programs (including all of the
high level documentation in each of these twelve programs), although certain
employees of the American General Group made limited contributions to the
documentation comprising certain of these other twelve Educational and
Training Programs (certain low level documentation, such as, lesson plans and
instructors outlines).
- Page 2 -
LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
WHEREAS, although all of the underlying work product contained in the
accumulation of Hook's prior work product called the Theoretical Framework for
the Main Event Management System is Hook's creation (that is, the speeches and
presentations reflect Hook's ideas and his expressions of his ideas), the
typing, audio-taping, and video-taping of Hook's speeches was largely per-
formed by employees of the American General Group.
WHEREAS, all employees of the American General Group contributing to the
Main Event Management System did so in the course and scope of the employment
with the American General Group and thus, as between American General and the
such employees, their expressions contributed to the Main Event Management
System constitute a work made for hire of which American General is the
author.
WHEREAS, Vinson & Elkins L.L.P., counsel for American General, investigated
the facts surrounding the negotiation and execution of the Limited License
Agreement and the contributions by employees of the American General Group to
the Main Event Management System, submitted the results of their inquiry to
American General's Board of Directors in a February 1, 1994 letter, and
attended the Board of Directors meeting on February 2, 1994 to discuss the
issues.
WHEREAS, although the Limited License Agreement does not expressly specify
that MEMC owns the exclusive intellectual property rights in work product
contributed after the date of the Limited License Agreement to the Main Event
Management System by employees of the American General Group, it was the
conclusion of American General's counsel that the parties intended that MEMC
would be the owner of work product contributed by American General's employees
to MEMC's Main Event Management System during the time that Hook was employed
by American General, subject to a non-exclusive right and license for American
General to use such contributions internally in accordance with the terms and
conditions of the Limited License Agreement, which is superseded and supplant-
ed by this License Agreement.
WHEREAS, at the conclusion of the February 2, 1994 meeting of the Board of
Directors, the Board resolved that MEMC owns exclusive rights in the work
product previously or hereafter contributed by employees of American General
to MEMC prior to Hook's retirement as Chairman and Chief Executive Officer,
subject to American General's non-exclusive right and license to use the Main
Event Management System pursuant to the terms and conditions of the Limited
License Agreement.
WHEREAS, at the conclusion of the February 2, 1994 meeting of the Board of
Directors, the following issues remained unresolved:
a. The terms and conditions of American General's continued use of
Model-Netics internally after the first anniversary of Hook's
retirement.
b. The terms and conditions of American General's right to obtain
future developments and improvements to the Management Systems
after Hook's retirement.
c. The terms and conditions of American General's continued internal
use of the Educational and Training Programs after Hook's retire-
ment.
- Page 3 -
LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
d. The terms and conditions of American General's continued internal
use of the Theoretical Framework after Hook's retirement.
e. The terms and conditions of American General's right to modify the
various components of the Main Event Management System for its
internal use.
WHEREAS, it is expected that Hook shall remain an employee of American
General and serve as its Chairman and Chief Executive Officer until the Annual
Shareholders' Meeting for the calendar year 1997.
WHEREAS, after Hook retires from American General, he is expected to
provide consulting services to the American General Group as an independent
contractor.
WHEREAS, American General and Hook have contemporaneously herewith entered
into the Employment Agreement attached hereto as Exhibit A and the Consulting
Agreement attached hereto as Exhibit B.
WHEREAS, Hook is executing this License Agreement solely for the purposes
of Paragraphs 1.1, 2.1, 3.1, 4.1, 4.2, 4.3, and each of the Paragraphs in
Article 17.
NOW, THEREFORE, for and in consideration of the mutual promises and
covenants contained herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, American General,
Hook, and MEMC agree as follows:
1. Superseding effect of this Agreement:
1.1. This Agreement supersedes and supplants in all respects the March 25,
1976 Limited License Agreement and any other agreement, understanding, or
arrangement between American General Insurance Company, American General or
any member of the American General Group, on the one hand, and MEMC or Hook,
on the other hand, pertaining to the subject matter of this License Agreement.
2. Representation by Hook and MEMC:
2.1. Each of Hook and MEMC represents that Hook has assigned to MEMC all
of Hook's worldwide right, title and interest in and to the Main Event
Management System heretofore created, developed or acquired by Hook, or that
may be acquired by Hook in the future during the period that MEMC is obligated
to provide improvements to American General pursuant to Paragraph 3.1, and
that MEMC has the full power and authority to grant the rights and licenses
specified herein.
3. Grant of License by MEMC to the American General Group:
3.1. MEMC hereby grants unto American General a worldwide, non-exclusive,
perpetual, non-transferrable (except as provided herein in Paragraph 9.1 with
respect to divested businesses), right and license to use any and all aspects
of MEMC's Main Event Management System, including Model-Netics, the Management
Systems, the Educational and Training Programs, and the Theoretical Framework,
as they exist on the Effective Date hereof. This right and license shall also
- Page 4 -
LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
include, and MEMC agrees to promptly provide to American General, any and all
new systems or programs, new versions of systems or programs, and/or addi-
tions, enhancements or modifications to such systems or programs, including
new editions or modifications to Model-Netics and additions to the Theoretical
Framework, created or developed by MEMC or Hook until June 1, 2002 or until
Hook is no longer providing consulting services under the Consulting Agree-
ment, whichever occurs later. This license shall also include all work
product contributed by American General to MEMC pursuant to Paragraph 12.2
below. This right and license extends to all members of the American General
Group but is limited to internal use by the American General Group. This
right and license of the American General Group to use the Main Event Manage-
ment System is royalty-free and without the payment of any fees to MEMC or
Hook other than as set forth in Paragraph 8.1.
3.2. References in this License Agreement to the term "right to use" the
various components of the Main Event Management System include the following
rights:
3.2.1. The term "right to use Model-Netics" includes the right to teach
Model-Netics within the American General Group (subject to the provisions
of Paragraph 5.1, including the execution of instructor contracts), to
freely reproduce Model-Netics materials for internal use, the right to
utilize the principles and terminology in the operation of the American
General Group, and the right to announce to the public that American
General is an authorized user of Model-Netics.
3.2.2. The term "right to use the Management Systems" includes the
right to install and use such Management Systems within the American
General Group, to freely reproduce the Management Systems materials for
internal use, the right to utilize the principles and terminology of such
Management Systems in the operation of the American General Group, and the
right to announce to the public that American General is an authorized user
of Management Systems.
3.2.3. The term "right to use the Educational and Training Programs"
includes the right to utilize such programs to train American General's
employees (subject to the provisions of Paragraph 5.1), the right to
reproduce such of the Educational and Training Programs materials as it
believes are reasonably necessary to use such materials internally to train
American General Group employees, and the right to announce to the public
that American General is an authorized user of the Educational and Training
Programs.
3.2.4. The term "right to use Theoretical Framework" includes the
right at all times to access and/or copy materials comprising the Theoreti-
cal Framework and the right at all times to use the materials in connection
with speeches and presentations for the purpose of promoting the interests
of American General; provided that in copying materials in the Theoretical
Framework, American General shall include MEMC's copyright notice and the
notice, if any, on the materials identifying MEMC as the owner of the
materials. Unless MEMC terminates this License Agreement for Cause for
failure of American General to fulfill its financial obligations under
Paragraph 8.1 or American General decides to cease using the Theoretical
Framework as specified in Paragraph 6.1, if for any reason the Theoretical
Framework materials are relocated outside of the American General campus,
then prior to the materials being so relocated American General shall have
- Page 5 -
LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
the right to copy the Theoretical Framework materials and retain such
copies within the American General campus for future access by the American
GeneralGroup. American General shall have the right to create transcribed
speeches, audiotapes of speeches, videotapes of speeches, and written
presentations that have been made by Hook and others for use in assisting
American General in the internal use of the Main Event Management System
and in connection with speeches and presentations based on or concerning
Main Event Management System for the purpose of promoting the interests of
American General; any such speeches, videotapes and writings made prior to
June 1, 2002 or the first date that Hook is no longer providing consulting
services under the Consulting Agreement, whichever occurs later, shall be
part of the Theoretical Framework and belong to MEMC, but shall be included
within the license granted by MEMC to American General under this License
Agreement.
Article 4: American General's right to modify Model-Netics, the
Management Systems, and the Educational and Training
Programs:
4.1. It is acknowledged that Model-Netics is an intellectual product that
integrates a number of management concepts. It is recognized that part of the
value of Model-Netics to MEMC is the unique composition of the Model-Netics
system and the selection and interrelationship of the models comprising Model-
Netics. American General agrees, therefore, that if it elects to teach Model-
Netics to its employees, as defined below in Paragraph 16.3, pursuant to the
license granted by this License Agreement, American General shall in good
faith direct its instructors to teach Model-Netics to American General's
employees in the form that Model-Netics is licensed by MEMC to American
General and comply with the provisions of Paragraph 5.1, including the
execution of instructor contracts. It is recognized, however, that Model-
Netics is a flexible system intended to be utilized in various ways to resolve
diverse management challenges. Because of its flexibility and diversity,
individuals teaching Model-Netics have discretion in the manner in which the
Model-Netics system is taught to students, including the manner of utilizing
each of the models comprising Model-Netics. While Model-Netics instructors
are expected to teach each of the Model-Netics models to the students, not
every model will be equally emphasized. Moreover, it is recognized that
instructors may include in their presentation references to other management
concepts, provided they do not denominate such other concepts as comprising a
portion of Model-Netics. It is additionally acknowledged that because Model-
Netics is taught to students in the Socratic style, the delivery and presenta-
tion of each course is personalized and differs depending on the style of the
individual instructor and the makeup of the student audience; the instructor's
invaluable contribution to the presentation pertains to the structuring of the
examples given to the students to illustrate the principles of Model-Netics.
It is recognized that neither MEMC nor American General can or wishes to
control the manner in which a student applies the principles of Model-Netics.
During the time that Hook is alive, not incapacitated, and in control of MEMC,
American General shall not effect modifications or changes in the teaching and
implementation of Model-Netics beyond the latitudes expressed in this Para-
graph without the consent of Hook. Upon Hook's death or incapacity, or if
- Page 6 -
LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Hook no longer controls MEMC, the MEM Modification Committee, defined below in
Paragraph 16.4, may effect changes in Model-Netics for its internal use.
4.2. American General shall have the right to modify the Management
Systems for its internal use as follows: Until June 1, 2002, or until Hook's
death or incapacity, or until Hook no longer controls MEMC, whichever occurs
earlier, all such modifications must be approved by the MEM Modification
Committee. The MEM Modification Committee shall seek Hook's consent to the
proposed modification, which consent shall not be unreasonably withheld. If
Hook does not promptly consent to the modification, the MEM Modification
Committee may submit the issue to the Board of Directors of American General.
The Board of Directors shall have the right to approve the modification, and
shall provide notice of such approval to Hook. After June 1, 2002, or upon
Hook's death or incapacity, or upon Hook no longer controlling MEMC, whichever
occurs earlier, American General shall have the right to modify the Management
Systems as it deems appropriate for its internal use, but as long as Hook
controls MEMC and is not incapacitated, American General shall provide notice
of such modifications to MEMC. In this connection, it is acknowledged that
the Management Systems are self-adjusting and that changes in the documenta-
tion created in the implementation of the Management Systems do not constitute
modification. For example, the non-basic forms comprising the Management
Systems are flexible and are designed to adapt to the user's business; as
such, changes in the non-basic forms created in the use of the Management
Systems do not constitute modification of the Management Systems.
4.3. American General shall have the right to modify the Educational and
Training Programs, except the Consulting Associate Training Program, for its
internal use as follows: Until June 1, 2002, or until Hook's death or incapac-
ity, or until Hook no longer controls MEMC, whichever occurs earlier, all such
modifications must be approved by the MEM Modification Committee. The MEM
Modification Committee shall seek Hook's consent to the proposed modification,
which consent shall not be unreasonably withheld. If Hook does not promptly
consent to the modification, the MEM Modification Committee may submit the
issue to the Board of Directors of American General. The Board of Directors
shall have the right to approve the modification, and shall provide notice of
such approval to Hook. After June 1, 2002, or upon Hook's death or incapaci-
ty, or upon Hook no longer controlling MEMC, whichever occurs earlier,
American General shall have the right to modify the Educational and Training
Programs for its internal use, but so long as Hook controls MEMC and is not
incapacitated, American General shall provide notice of such modifications to
MEMC. American General shall not effect modifications or changes in the
Consulting Associate Training Program beyond the latitudes generally applica-
ble to Model-Netics provided for in Paragraph 4.1; upon Hook's death or
incapacity, or if Hook no longer controls MEMC, the MEM Modification Committee
may effect changes in the Consulting Associate Training Program for its
internal use. American General shall have the right to create or develop its
own educational and training programs useful to its own internal use of the
Main Event Management System; the ownership of such educational and training
programs is specified in Paragraph 12.2.
- Page 7 -
LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Article 5. Right of American General to teach Model-Netics using
non-certified instructors or to certify its own in-
structors:
5.1. Until June 1, 2002, or until Hook's death or incapacity, or until
Hook no longer controls MEMC, whichever occurs earlier, American General may
only teach Model-Netics to its employees utilizing the services of (i)
trainers who have been trained either by Hook, by MEMC, or by individuals
certified by Hook or MEMC, or (ii) instructors who have attended a Model-
Netics Instructor Training Program approved by Hook or MEMC. After June 1,
2002, or upon Hook's death or incapacity, or upon Hook no longer controlling
MEMC, whichever occurs earlier, American General may at its discretion assume
complete responsibility for supervising and approving the training of the
instructors that teach Model-Netics to American General's employees, including
conducting the Model-Netics Instructor Training Program. American General
shall teach Model-Netics in accordance with such reasonable written quality
standards as MEMC may promulgate from time to time and deliver to American
General prior to Hook's death, incapacity, or no longer controlling MEMC; if,
after Hook's death or incapacity or Hook no longer controls MEMC, MEMC
promulgates quality control standards that American General in its discretion
elects not to follow, American General shall, if requested by MEMC, cease
announcing to the public that it is an authorized user of Model-Netics. In
all cases, each instructor shall, prior to being allowed to attend the Model-
Netics Instructor Training Program, be required to execute a contract in
substantially the form of the contract attached hereto as Exhibit C with
respect to the authority, responsibility, and limitations of an instructor in
the teaching of Model-Netics; such instructor contracts shall either be
entered into directly between MEMC and the instructor or between American
General and the instructor for the benefit of MEMC.
Article 6: American General right to cease using some or all as-
pects of the licensed Main Event Management System:
6.1. American General shall at all times have the right, for any reason
whatsoever, with or without cause, to cease using, temporarily or permanently,
any or all aspects or components of the licensed Main Event Management System.
American General's decision to cease using some or all of the Main Event
Management System shall not, however, affect its financial obligations to MEMC
under Paragraph 8.1. If American General ceases utilizing a particular one of
the Management Systems of Main Event Management System and has the intention
of not resuming use of such system again in the future, American General shall
use all reasonable efforts to deliver to MEMC or to destroy the materials
utilized by American General in its implementation of such system.
Article 7. Constraints on American General's activities with re-
spect to MEMC's Main Event Management System:
7.1. Except as otherwise provided herein, American General shall not,
without the written approval of MEMC:
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
7.1.1. conduct or permit to be conducted sessions in or similar to
Model-Netics for anyone other than employees, as defined in Paragraph 16.3,
of the American General Group.
7.1.2. use or republish any of the Main Event Management System
materials, including Model-Netics, except for the internal use of the
American General Group.
7.1.3. disseminate to the public speeches or articles based on the
Main Event Management System, including Model-Netics.
7.1.4. market to third parties work product that American General is
licensed under this License Agreement to use internally within the American
General Group.
7.2. Notwithstanding anything to the contrary provided herein, American
General can freely distribute speeches and articles for its own internal use
and give speeches and presentations based on or concerning Main Event Manage-
ment System for the purpose of promoting the interests of American General,
provided, however, that (i) American General will not publish aspects of the
Theoretical Framework that it is apparent have not yet been published without
obtaining the consent of MEMC, and (ii) to the extent significant portions of
the materials and ideas of Main Event Management System are utilized in such
speech or presentation, attribution is accorded MEMC.
Article 8. License fees:
8.1. In full payment and consideration of the rights and licenses granted
by MEMC to American General hereunder, American General shall pay to MEMC (i)
the sum of ($1,250,000.00) Dollars upon the earlier of June 1, 1997 or the day
after the termination of Hook's employment with American General under the
Employment Agreement and (ii) an annual payment of One Hundred and Twenty Five
Thousand ($125,000.00) Dollars per year for ten consecutive years commencing
on the earlier of June 1, 1997 or the day after termination of Hook's employ-
ment by American General under the Employment Agreement. Each annual payment
shall be paid in full by American General to MEMC within ten days after June
1st of each succeeding year.
Article 9. Divested businesses:
9.1. If an entity that is a member of the American General Group is
divested so that it is no longer a member of the American General Group or
sells assets and such assets include one or more of the licensed Management
Systems, the terms and conditions of this License Agreement applicable to such
Management Systems shall, except as provided in this Paragraph 9.1 and in
Paragraph 9.2, remain applicable to the divested entity or the entity acquir-
ing the assets, and the divested entity or the entity acquiring the assets
shall retain the world-wide, non-exclusive, perpetual, non-transferable right
and license at no fee to continued use of the particular one or more of the
Management Systems that it is using as of the date of divestiture or sale of
assets, but only in connection with the businesses associated with the
divested entity or assets being sold. The divested entity or the entity
acquiring the assets shall have the right to modify one or more of such
licensed Management Systems as it deems appropriate for its own internal use.
The divested entity or the entity acquiring the assets may continue to use
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
Model-Netics in connection with the businesses associated with the divested
entity or assets sold for a period of year following the date of divestiture
or sale of assets to enable the divested business to evaluate the Model-Netics
program and to determine whether it wishes to continue the use of the program.
The divested entity or the entity acquiring the assets may teach Model-Netics
to its employees associated with the divested business during such one year
period of time utilizing trained instructors that accompanied the divested
business (without paying any fee to MEMC), or contract with MEMC for the
training of such employees (at MEMC's customary fees), or contract with
American General as provided in Paragraph 9.2 below (without the divested
business being required to pay any fees to MEMC). If the divested business
wishes to have additional employees trained as Model-Netics instructors during
the one year period of time, it may contract with MEMC (at MEMC's customary
fees) or contract with American General as provided in Paragraph 9.2 below
(without the divested business being required to pay any fees to MEMC). The
divested entity or the entity acquiring the assets is not granted the contin-
ued right and license to use (i) any of the Educational and Training Programs,
(ii) any of the Theoretical Framework, (iii) any of the Management Systems
that it was not using as of the date of divestiture or sale of assets, or (iv)
any improvements to the licensed Management Systems later developed. If the
divested entity or the entity acquiring the assets desires to obtain the right
to use (i) Model-Netics beyond the expiration of the one year period of time
specified above, (ii) any of MEMC's Educational and Training Programs,
(iii) any of the Theoretical Framework, (iv) any of the Management Systems
that it was not using as of the date of divestiture or the sale of assets, or
(v) any improvements to the licensed Management Systems later developed, the
divested entity or purchaser of the assets shall negotiate with MEMC for such
rights, except as provided in Paragraph 9.2.
9.2. It is expected that each installed Management Systems may be used and
maintained through the utilization of the Program Administration Manual and
the guidance of Consulting Associates trained in such Management System. To
the extent that the employees associated with the divested business include
Consulting Associates trained in the licensed Management Systems, such
Consulting Associates may educate and train employees of the divested entity
or the entity acquiring the assets who are associated with the business in the
use of the licensed Management Systems. Nevertheless, American General may
contract with the divested entity or the entity acquiring the assets to
educate or train the employees of the divested entity or the entity acquiring
the assets who are associated with the business in any aspects of use or
maintenance of the Management Systems licensed under Paragraph 9.1 that the
divested business is using as of the date of divestiture or teach Model-Netics
to such employees for one year following the date of divestiture on the
following terms and conditions: American General shall pay to MEMC with
respect to each such divested entity or entity acquiring the assets with whom
American General so contracts a one-time fee in the amount of the greater of
$10,000 (which fee of $10,000 shall be adjusted cumulatively every three years
for any increase in the Consumer Price Index) or 15% of the amount charged by
American General for such education, training and teaching services. Upon
payment of such fee, American General shall have the right to educate, train
or teach whatever number of the employees associated with the business of the
divested entity or entity acquiring the assets that American General in its
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
discretion chooses in those of the Educational and Training Programs that are
pertinent to the divested business's use and maintenance of the licensed
Management Systems and Model-Netics, including the Model-Netics Instructor
Training Program, and that American General is capable of providing.
Article 10. Obligation of American General to support the Model-
Netics Instructor Training Program:
10.1. During Hook's employment by American General and until the Final
Date, or until the first anniversary of Hook's death or incapacity, or until
such time as Hook no longer controls MEMC (unless such loss of control results
from Hook's death or incapacity), whichever occurs earlier, American General
shall conduct at least four (4) sessions of the Model-Netics Instructor
Training Program per year. American General shall furnish employees to serve
as trainers for such sessions. MEMC shall have the right to enroll not more
than 15 employees from its clients' organizations (other than American
General) in each such session without fee, not to exceed four sessions per
year. MEMC or its clients shall, however, pay all expenses incurred by
employees of MEMC's clients in attending such courses, including but not
limited to travel expenses to and from training sites, living expenses at the
training site, and out of pocket expenses. In connection with any such
session in which employees of MEMC's clients are in attendance, it is the
expectation of the parties that MEMC shall provide instructors to share the
teaching responsibilities; moreover, the direct costs, if any, of the facili-
ties in which the session is conducted, the banquet for the participants of
the session, and other similar costs shall be shared by American General and
MEMC in the proportion of the employees of American General and the employees
of MEMC's clients in attendance. Notwithstanding the foregoing, if American
General provides written notice that it intends to cease conducting the Model-
Netics Instructor Training Program for its own personnel on or about one year
from the date of such notice, American General shall have no further obliga-
tion to offer the Model-Netics Instructor Training Program for employees of
MEMC's clients one year after providing such written notice to MEMC, but only
if American General ceases conducting the Model-Netics Instructor Training
Program on or about one year from the date of such notice.
Article 11. Obligation of American General to print materials:
11.1. Until the Final Date or until the first anniversary of Hook's death
or incapacity, or until such time as Hook no longer controls MEMC (unless such
loss of control results from Hook's death or incapacity), whichever occurs
earlier, American General shall print, ship and deliver such materials as may
be reasonably required for MEMC's use with or for its clients in connection
with the implementation and/or maintenance of the Main Event Management
System; provided, however, that (i) other than standard MEMC forms that exist
on the date that Hook retires as Chairman and Chief Executive Officer,
American General shall not be required to print materials for MEMC that are
substantially different from the materials utilized internally by American
General, and (ii) American General shall not be required to undertake any
printing obligation hereunder that would require the acquisition of substan-
tial additional printing plant or equipment. American General may outsource
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
its printing and delivery functions. MEMC shall pay American General the
additional marginal cost of such printing and services, plus a ten (10%)
percent override to cover the unallocable expenses of such printing and
services.
Article 12. Ownership of MEMC's Main Event Management System:
12.1. Ownership of work product developed by MEMC: American General
acknowledges that MEMC's information comprising the components of the Main
Event Management System, including teaching techniques, client prospects,
billing and processing procedures, management techniques, copyrighted materi-
als, and other materials and information developed by MEMC in connection with
its systems and programs are and shall remain the property of MEMC, subject to
the rights granted by MEMC to American General and the American General Group
herein.
12.2. Ownership of work product contributed by American General: MEMC is
and shall also be the owner of all worldwide right, title and interest in and
to the work product (including all materials, ideas, expressions of ideas, and
the intangible rights of copyright and other intellectual property rights
provided by the law with respect to such materials, ideas, and expressions of
ideas) contributed by employees of the American General Group to MEMC's Main
Event Management System during the time that Hook has been employed by the
American General Group and until June 1, 2002 or Hook is no longer providing
consulting services to American General under the Consulting Agreement,
whichever occurs later, including all work product contributed by the American
General Group to the Main Event Management System in connection with the
institutionalization of the Main Event Management System within the American
General Group (including the deliverables referenced in Paragraph 1.4 of the
Employment Agreement); provided, however, any education and training programs
that are generalized in nature and primarily pertain to the Main Event
Management Systems shall be owned by MEMC but shall be included within the
license granted by MEMC to American General under this License Agreement, and
any such education or training program that is personalized for American
General's use and only incidentally pertains to the Main Event Management
Systems shall belong to American General. Any such education or training
program developed by the American General Group after June 1, 2002 or after
Hook is no longer providing consulting services to American General under the
Consulting Agreement, whichever occurs later, shall belong to American
General. It is further agreed that MEMC shall be the owner of all such work
product acquired by the American General Group prior to June 1, 2002 or Hook
is no longer providing consulting services to American General under the
Consulting Agreement, whichever occurs later, from independent contractors or
from any other person who is not an employee or independent contractor. To
that end, American General does hereby assign unto MEMC all of the American
General Group's worldwide right, title and interest in and to the work product
(including all materials, ideas, expressions of ideas, and the intangible
rights of copyright and other intellectual property rights in such materials,
ideas, and expressions of ideas) created by employees of the American General
Group to MEMC's Main Event Management System or acquired by the American
General Group for contribution to the Main Event Management System, prior to
June 1, 2002 or Hook is no longer providing consulting services to American
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
General under the Consulting Agreement, whichever occurs later. To the extent
that this assignment involves the work product of employees of the American
General Group, this assignment is made by American General on behalf of itself
and the other members of the American General Group as the author and propri-
etor of a work made for hire by employees of the American General Group acting
in the scope and course of their employment for members of the American
General Group.
12.3. American General makes no representations or warranties of any type
or character whatsoever, express or implied, with respect to the work product
contributed by its employees to the Main Event Management System and which is
hereby assigned by American General to MEMC; any and all implied covenants,
representations or warranties that might be imposed by the law as a result of
the relationship between the parties are hereby negated and disclaimed.
Because of the difficulty of ascertaining exactly which employees of American
General have in the past contributed to Main Event Management System, or will
in the future contribute to the Main Event Management System, and precisely
what their contributions have or will be, American General makes no represen-
tations or warranties, express or implied, with respect to the title to the
work product and intellectual property rights assigned to MEMC hereunder;
rather, the assignment is a quitclaim of whatever right, title and interest
American General owns in the work product and the intellectual property rights
therein. Except as provided herein, American General shall have no responsi-
bilities or obligations with respect to the protection, maintenance, marketing
or other exploitation of the Main Event Management System and the intellectual
property rights therein, including any aspects thereof contributed by employ-
ees of the American General Group. Subject to MEMC's obligations, if any,
under Paragraph 14.1, the protection, maintenance, marketing or other exploi-
tation of the Main Event Management System and the intellectual property
rights therein, including any aspects thereof contributed by employees of the
American General Group, shall be solely the responsibility of MEMC, and MEMC
shall in its discretion decide whether and how to protect, maintain, market
and/or exploit the Main Event Management System.
Article 13. Confidentiality:
13.1. American General shall maintain the confidentiality of MEMC's
information, including teaching techniques, client prospects, billing and
processing procedures, management techniques, copyrighted materials, and other
materials and information which have been developed in connection with its
systems and programs and will not publish or disclose to anyone, directly or
indirectly, any of such confidential matters. This obligation of confidence
shall not prohibit American General giving speeches and presentations based on
materials within the Theoretical Framework for the purpose of promoting the
interests of American General. This obligation of confidence shall not
prohibit American General from discussing with or disclosing to others any
information which at the time of disclosure or thereafter is generally
available to and known by the public (other than as a result of a disclosure
directly or indirectly by American General in violation of this Agreement); or
at the time of disclosure or thereafter is disclosed by MEMC or Hook to third
parties without obligation of confidence; or was known by American General
prior to being obtained by American General from MEMC or Hook; or was or
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
becomes available to American General on a nonconfidential basis from a source
other than MEMC or Hook, provided that American General has no reason to
believe such source was bound by a confidentiality agreement with MEMC; or is
hereafter independently acquired or developed by American General without
violating any of its obligations under this License Agreement. American
General may disclose such confidential information to third parties as
required by law or responsive to a civil investigative demand, provided that
American General first notifies Hook and gives Hook an opportunity to take
action to protect the confidentiality of its information.
13.2. MEMC shall maintain the confidentiality of American General's
information (including American General's strategies, methods, books, records,
and documents, its technical information concerning its products, equipment,
services, and processes, procurement procedures and pricing techniques, the
names of and other information, such as credit and financial data, concerning
its customers and business affiliates) and will not publish or disclose to
anyone, directly or indirectly, any of such confidential matters. This
obligation of confidence shall not prohibit MEMC from discussing with or
disclosing to others any information which at the time of disclosure or
thereafter is generally available to and known by the public (other than as a
result of a disclosure directly or indirectly by MEMC in violation of this
Agreement); or at the time of disclosure or thereafter is disclosed by
American General to third parties without obligation of confidence; or was
known by MEMC prior to being obtained by MEMC from American General; or was or
becomes available to MEMC on a nonconfidential basis from a source other than
American General, provided that MEMC has no reason to believe such source was
bound by a confidentiality agreement with American General; or is hereafter
independently acquired or developed by MEMC without violating any of their
obligations under this License Agreement. MEMC may disclose such confidential
information to third parties as required by law or responsive to a civil
investigative demand, provided that MEMC first notifies American General and
gives American General an opportunity to take action to protect the confiden-
tiality of its information.
Article 14. Indemnification from third party claims:
14.1. MEMC shall defend and indemnify American General, other members of
the American General Group, and their employees (the Indemnified Parties) from
and against any and all third party claims, demands or causes of action, and
all costs, expenses (including attorneys fees), liabilities or judgments
incurred in connection therewith, brought against any of the Indemnified
Parties based upon or pertaining to allegations that the Indemnified Parties'
use of any of the components of the Main Event Management System licensed by
MEMC to American General hereunder infringes the intellectual property rights
of such third parties, including claims of misappropriation of information and
copyright infringement. This contractual obligation of indemnification shall
not extend to any portion of Main Event Management System created or contrib-
uted by employees or independent contractors of the American General Group.
Under no circumstances shall MEMC be obligated to indemnify any of the
Indemnified Parties from and against the consequences of his or its own
negligence or other fault. If both MEMC and the Indemnified Parties are
adjudicated at fault, this contractual obligation of indemnification shall
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
continue but shall be limited to the percentage of responsibility assigned to
MEMC (e.g., in the case of an third party intellectual property lawsuit filed
against both MEMC and the Indemnified Parties based on an aspect of the
licensed Main Event Management System modified by American General, MEMC shall
not be obligated to indemnify the Indemnified Parties from and against the
consequences of their modification of the Main Event Management System.).
Article 15. Termination:
15.1. Neither American General nor MEMC may terminate this Agreement except
for Cause. The term Cause shall mean a material breach of a material provi-
sion of this License Agreement which remains uncorrected for thirty (30) days
following written notice by the complaining party to the defaulting party of
such breach; provided, however, that while MEMC shall have a cause of action
for damages and/or specific performance if American General breaches a
provision of this License Agreement, for purposes of determining MEMC's right
to terminate this License Agreement the term Cause shall be limited to a
breach by American General of its obligations under Paragraph 8.1.
15.2. Termination of this Agreement shall not terminate the continuing
obligations of the parties under this Agreement, e.g., the obligations of
confidence imposed on American General and MEMC by Paragraph 13, the con-
straints imposed on American General by Paragraph 7, and the payment obliga-
tions of Paragraph 8.1. Moreover, even upon termination of this Agreement for
Cause by either American General or MEMC, American General shall retain a
perpetual, worldwide non-exclusive, non-transferrable (except as provided
herein in Paragraph 9.1 with respect to divested businesses) right to use
internally in the American General Group the Management Systems and all
enhancements and modifications to the Management Systems provided by MEMC to
American General prior to the date of termination.
Article 16. Definitions:
16.1. References to the "American General Group" mean American General and
the various entities in which American General owns or controls, directly or
indirectly, fifty percent or more of the common stock or other equity interest
existing as of the Effective Date or hereafter formed or acquired, but only so
long as such entity is so owned.
16.2. References herein to "Hook no longer controls MEMC" (and correlative
phrases shall have consistent meanings) mean the earliest date that (i) Hook
no longer owns or has the sole power to direct the voting of a majority of the
outstanding voting stock of MEMC, or (ii) MEMC no longer owns all or substan-
tially all the rights to the Main Event Management System. Hook agrees to
provide written notice to American General that he no longer controls MEMC
within ten days after he no longer controls MEMC unless such loss of control
is a result of his death or incapacity. Notwithstanding the foregoing, if
MEMC is merged, consolidated, or reorganized with or into another entity or
transfers all or substantially all of the rights to the Main Event Management
System to a successor entity, MEMC shall provide notice to American General of
such merger, consolidation or reorganization and the resulting successor
entity shall be deemed to be MEMC for purposes of this Agreement.
16.3. References herein to employees of the American General Group for
purposes of determining who may be taught Model-Netics include all employees
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
of the American General Group, directors of the various Boards of Directors of
entities comprising the American General Group, and independent contractors
under contract with American General to market substantially exclusively
American General products and employees of such independent contractors.
16.4. References herein to the "MEM Modification Committee" mean a special
American General committee comprised of its Chief Executive Officer, Chief
Financial Officer, and General Counsel.
16.5. References herein to the Final Date mean June 1, 2007 or the tenth
anniversary of the day after the termination of Hook's employment by American
General under the Employment Agreement, whichever occurs earlier.
16.6. References herein to incapacity means (i) during the period Hook is
employed by American General or providing consulting services pursuant to the
Consulting Agreement, an illness or injury that prevents Hook from performing
his services for American General, there is a written medical opinion by a
physician reasonably selected by the Board of Directors to the foregoing
effect, and the Board of Directors concludes that Hook is permanently and
totally unable to perform his duties for American General and (ii) thereafter,
an illness or injury that prevents Hook from exercising reasoned judgment as
to a decision relevant under this License Agreement, there is a written
medical opinion by a physician reasonably selected by the Board of Directors
to the foregoing effect, and the Board of Directors concludes that Hook is
permanently and totally unable to exercise such reasoned judgment.
Article 17. Miscellaneous:
17.1. It is recognized that from time to time MEMC may request to engage
certain American General employees who are familiar with certain aspects of
the Main Event Management System to assist MEMC during their periods of
vacation from American General. American General agrees to consider to
accommodating such requests for assistance but shall have no obligation to
agree to the request.
17.2. For purposes of this License Agreement, notices and all other
communications provided for herein shall be in writing and shall be deemed to
have been duly given when received by the recipient or upon the expiration of
seven days after being mailed by United States registered or certified mail,
return receipt requested, postage prepaid, addressed as follows:
If to American General, to:
American General Corporation
ATTN: General Counsel
2929 Allen Parkway
Houston, Texas 77019
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
If to Hook and/or MEMC, to:
Harold S. Hook
43 West Terrace Drive
Houston, Texas 77007-7040
American General, Hook or MEMC may furnish a change of address to the others
in writing in accordance herewith, except that notices of changes of address
shall be effective only upon receipt.
17.3. This License Agreement shall be governed in all respects by the laws
of the State of Texas, or, to the extent required, applicable federal law,
excluding any conflict-of-law rule or principle that might refer the construc-
tion of the License Agreement to the laws of another State or country. This
License Agreement may not be waived, modified or amended in any respect by any
verbal statement, representation or agreement made by any employee, officer or
representative of American General or MEMC, or by any written document unless
the written document is signed by a duly authorized officer of American
General, Hook (unless he no longer controls MEMC or is incapacitated), and
MEMC, and the written document specifically refers to the provision of this
License Agreement that is waived, modified or amended.
17.4. No failure by any party hereto at any time to give notice of any
breach by the other party of, or to require compliance with, any condition or
provision of this License Agreement shall be deemed a waiver of similar or
dissimilar provisions or conditions at the same or at any prior or subsequent
time.
17.5. This License Agreement shall be binding upon and inure to the benefit
of American General and any other person, association, or entity which may
hereafter acquire or succeed to all or substantially all of the business or
assets of American General by any means whether direct or indirect, by
purchase, merger, consolidation, or otherwise. Hook's rights and obligations
under this License Agreement are personal and the rights, benefits, and
obligations of Hook shall not be voluntarily or involuntarily assigned,
alienated, or transferred, whether by operation of law or otherwise, without
the prior written consent of American General. This License Agreement shall
be binding upon and inure to the benefit of MEMC and any other person,
association, or entity which may hereafter acquire or succeed to all or
substantially all of the business or assets of MEMC by any means whether
direct or indirect, by purchase, merger, consolidation, or otherwise.
17.6. Any and all claims, demands, cause of action, disputes, controversies
and other matters in question arising out of or relating to this License
Agreement, the alleged breach thereof, or in any way relating to the subject
matter of this License Agreement involving American General or Hook or MEMC
("Claims"), even though some or all of such Claims allegedly are extra-
contractual in nature, whether such Claims sound in contract, tort or other-
wise, at law or in equity, under State or federal law, whether provided by
statute or the common law, for damages or any other relief, shall be resolved
and decided by binding arbitration pursuant to the Federal Arbitration Act in
accordance with the Commercial Arbitration Rules then in effect with the
American Arbitration Association. The arbitration proceeding shall be con-
ducted in Houston, Texas. This agreement to arbitrate shall be enforceable in
either federal or State court. Judgment upon any award rendered in any such
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
arbitration proceeding may be entered by any federal or state court having
jurisdiction. The enforcement of this agreement to arbitrate and all proce-
dural aspects of this agreement to arbitrate, including but not limited to,
the construction and interpretation of this agreement to arbitrate, the scope
of the arbitrable issues, allegations of waiver, delay or defenses to arbitra-
bility, and the rules governing the conduct of the arbitration, shall be
governed by and construed pursuant to the Federal Arbitration Act. In
deciding the substance of any such Claim, the Arbitrators shall apply the
substantive laws of the State of Texas; provided, however, that the Arbitra-
tors shall have no authority to award punitive damages under any circumstances
(whether it be exemplary damages, treble damages, or any other penalty or
punitive type of damages) regardless of whether such damages may be available
under Texas law, the parties hereby waiving their right, if any, to recover
punitive damages in connection with any such Claims. Prior to either party
instituting a Claim under this License Agreement, the complaining party shall
provide to the other party a written notice specifying the alleged breach.
The other party shall be given thirty (30) days to cure such breach before any
Claim is filed. It is further agreed that prior to such Claims being submit-
ted to the Final Hearing before the Arbitrators on such Claims, American
General and Hook shall attempt to resolve such Claims through non-binding
mediation of such Claims.
17.7. In the event of a dispute between the parties, the prevailing party
shall be entitled to recover his or its reasonable and necessary attorneys
fees, but excluding contingent fee arrangements, and costs.
17.8. Each of the parties agrees to execute, or cause to be executed by the
appropriate person(s) subject to its control, such additional documents as are
reasonably requested by another party to record or perfect any of the assign-
ments, licenses or other rights that are the subject of this License Agree-
ment, the Employment Agreement or the Consulting Agreement, or that may be
necessary or desirable to effectuate the intention of the parties as expressed
in this License Agreement, the Employment Agreement or the Consulting Agree-
ment.
IN WITNESS WHEREOF this Agreement has been executed by American General
Corporation and Main Event Management Corporation through their authorized
representatives and individually by Harold S. Hook for the limited purposes
stated above.
AMERICAN GENERAL CORPORATION
By:________________________________________
Name:_____________________________________
Title:______________________________________
This 27th day of April, 1994.
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
AMERICAN GENERAL CORPORATION
FORM 10-Q
For the Quarter Ended June 30, 1994
MAIN EVENT MANAGEMENT CORPORATION
By:________________________________________
Name:_____________________________________
Title:______________________________________
This 27th day of April, 1994.
____________________________________________
HAROLD S. HOOK
This 27th day of April, 1994.
<PAGE>
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LICENSE AGREEMENT BETWEEN AMERICAN GENERAL AND MEMC
<PAGE>
