<PAGE> 1
================================================================================
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 March 31, 1997 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 1-12922
AMERICAN EAGLE GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-2100622
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
12801 North Central Expressway, Suite 800, 75243
Dallas, Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (972) 448-1400
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last year.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--------- ----------
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 30, 1996, the number of shares outstanding of each of the
issuer's classes of common stock was as follows:
Common Stock ........... 7,047,098 shares, par value $.01 per share
================================================================================
<PAGE> 2
AMERICAN EAGLE GROUP, INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets as of
March 31, 1997 (unaudited) and
December 31, 1996 ............................... 3
Condensed consolidated statements of operations
for the three months ended March 31, 1997
(unaudited) and March 31, 1996 (unaudited) ....... 4
Condensed consolidated statements of cash flows
for the three months ended March 31, 1997
(unaudited) and March 31, 1996 (unaudited) ....... 5
Notes to condensed consolidated financial
statements (unaudited) ........................... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations .... 7
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K ........... 11
SIGNATURES ..................................................... 12
</TABLE>
2
<PAGE> 3
AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Unaudited)
December 31, March 31,
ASSETS 1996 1997
------------ ------------
<S> <C> <C>
Cash and investments $ 89,087 $ 66,562
Accounts receivable 48,714 55,625
Reinsurance recoverable, net 69,242 69,896
Deferred policy acquisition costs 14,509 13,234
Deferred reinsurance premiums 26,706 29,208
Other assets 13,701 13,460
------------ ------------
Total assets $ 261,959 $ 247,985
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses $ 138,133 $ 135,573
Unearned premiums 60,065 50,566
Other policy liabilities 7,646 16,833
Agency payables to insurance companies 1,094 (1,463)
Accounts payable and other liabilities 12,732 10,690
------------ ------------
Total liabilities 219,670 212,199
------------ ------------
Commitments and contingent liabilities
Series B Cumulative Preferred Stock, $.01 par value; 162,857
shares authorized, 142,857 shares issued and outstanding 1,629 1,428
Series D Cumulative Convertible Redeemable Preferred Stock,
$0.01 par value; 546,200 shares authorized, 350,000 shares
issued and outstanding at December 31, 1996 and 357,875
at March 31, 1997 33,164 33,952
Stockholders' equity:
Common Stock, $.01 par value, 21,000,000 shares authorized,
7,047,098 shares issued 71 71
Additional paid-in-capital 45,563 45,600
Unrealized apprec.(deprec.) on investment securities, net
of deferred taxes 106 (467)
Retained earnings (38,157) (44,711)
Less - 73,882 shares of common stock held in the treasury,
at cost (87) (87)
------------ ------------
Total stockholders' equity 7,496 406
------------ ------------
Total liabilities and stockholders' equity $ 261,959 $ 247,985
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED
(UNAUDITED)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Three Months Ended
March 31, March 31,
1996 1997
------------ ------------
<S> <C> <C>
Revenues
Earned premiums, net of reinsurance $ 32,834 $ 23,806
Agency operations, net (33) 326
Investment income, net 1,403 1,278
Realized investment gains (losses), net 153 (58)
------------ ------------
Total revenues 34,357 25,352
------------ ------------
Expenses
Losses and loss adjustment expenses, net of
reinsurance 27,519 19,953
Policy acquisition and other underwriting
expenses 10,758 11,142
Interest expense 250
------------ ------------
Total expenses 38,527 31,095
------------ ------------
Income (loss) before income tax expense (4,170) (5,743)
Income tax expense (benefit) (1,418)
------------ ------------
Net income (loss) $ (2,752) $ (5,743)
Net income (loss) available for common
stockholders (1) $ (2,776) $ (6,552)
============ ============
Weighted average number of common shares
outstanding 7,050,548 7,048,898
============ ============
Net income (loss) per share of common stock (1) $ (0.39) $ (0.93)
</TABLE>
(1) After deduction of preferred dividends
The accompanying notes are an integral part of these financial statements.
4
<PAGE> 5
AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
March 31, March 31,
1996 1997
---------- ----------
<S> <C> <C>
Cash and cash equivalents derived from:
Total provided by (used in) operating activities $ (16,795) $ (22,358)
Investing activities-
Net proceeds (purchases) of short-term investments 24,730 (2,652)
Purchases of fixed income securities (14,587) (15,583)
Proceeds from sales of fixed income securities 6,119 15,428
Proceeds from maturities of fixed income securities 100 3,065
Purchases of property and equipment (325) 1,054
---------- ----------
Total provided by (used in) investing activities 16,037 1,312
---------- ----------
Financing activities-
Dividends paid on Series B and D Cumulative Preferred Stock (24) (806)
Dividends paid on common stock (282)
Proceeds from issuance of preferred stock 785
Redemption of Series B Cumulative Preferred Stock (201)
---------- ----------
Total provided by (used in) financing activities (306) (222)
---------- ----------
Net change in cash and cash equivalents (1,064) (21,268)
Cash and cash equivalents, beginning of period 2,922 23,093
---------- ----------
Cash and cash equivalents, end of period $ 1,858 $ 1,825
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE> 6
AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTHS ENDED
MARCH 31, 1996 AND 1997
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the
American Eagle Group, Inc. (the "Company") and subsidiaries for the three
months ended March 31, 1997 and 1996 have been prepared in accordance with the
instructions to the Form 10-Q and do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
In the opinion of management, all adjustments (consisting of only normal
recurring accruals) considered necessary for a fair presentation of the results
for the interim period have been included. Operating results for the three
months ended March 31, 1997 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1997. These statements should
be read in conjunction with the financial statements and notes thereto for the
year ended December 31, 1996 included in the Company's Form 10-K.
2. SALES OF OPERATIONS
As previously announced, the Company has entered into transactions to sell its
aviation and artisan contractor insurance operations. The closing of the
aviation transaction will require approval by the Company's stockholders,
although stockholders owning a majority of the Company's voting stock have
agreed to vote in favor of the transaction. The closing of the aviation
transaction is also subject to regulatory approvals and other customary
conditions. The closing of the artisan transaction is subject to required
regulatory approvals and licenses and other customary conditions. The Company
has also entered into a letter of intent to sell its marine operations. The
closing of the marine transaction is subject to definitive documentation,
Boards' of Directors approvals, required regulatory approvals and licenses and
other customary conditions.
Upon completion of these transactions, the Company expects that it will no
longer write new or renewal policies for the foreseeable future. It will
continue to handle claims on the Company's policies that are not assumed as
part of these transactions and maintain the related reserves and assets.
Accordingly, the Company's revenues and earnings capacity will be significantly
lower in the future. Pro-forma financial data on the effect of these
transactions will be included in a Proxy Statement to Shareholders, which is
expected to be issued in the second quarter.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
FIRST QUARTER OF 1997 COMPARED TO THE FIRST QUARTER OF 1996
Gross Premiums Produced
Gross premiums produced for the first quarter of 1997 compared to the first
quarter of 1996 were as follows (in millions):
<TABLE>
<CAPTION>
FIRST QUARTER
1996 1997
------ ------
<S> <C> <C>
Gross premiums produced $ 42.4 $ 23.8
For other companies (2.6) (3.9)
Assumed from other companies 1.6 3.3
------ ------
Gross premiums written 41.4 23.2
Ceded premiums (8.7) (8.2)
------ ------
Net premiums written $ 32.7 $ 15.0
====== ======
</TABLE>
Gross premiums produced decreased 43.8% to $23.8 million for the first quarter
of 1997 from $42.4 million in the first quarter of 1996. Of this decrease,
23.3% was produced by the Aviation Division, 21.2% was produced by the Property
and Casualty Division (the "P&C Division"), and offset by a 0.6% increase
produced by the Marine Division. The decrease in the Aviation Division
resulted primarily from marketplace uncertainties about the financial condition
of the Company's major subsidiary, American Eagle Insurance Company ("AEIC").
During most of the first quarter of 1996, AEIC was rated "A-" by A.M. Best
Company ("Best"). In March 1996, Best downgraded AEIC's rating to a "B++." In
May 1996, Best downgraded AEIC's rating to a "B," where the rating remained
through most of the first quarter of 1997. In March 1997, Best downgraded
AEIC's rating to "D." The decrease in the P&C Division is due to the
discontinued underwriting of the trucking insurance business late in 1996 and
also the decreases in the Best rating.
The gross premiums produced for other companies increased 51.3% to $3.9 million
in the first quarter of 1997 from $2.6 million in the first quarter of 1996 as
a result of writing more business for other companies due to the decrease in
the A.M. Best Company rating.
The gross premiums assumed from other companies increased 111.3% to $3.3
million in the first quarter of 1997 from $1.6 million in the first quarter of
1996.
Gross premiums written decreased 43.9% to $23.2 million in the first quarter of
1997 from $41.4 million in the first quarter of 1996 as a result of the
decrease in gross premiums produced for the Company and its subsidiaries.
7
<PAGE> 8
Ceded premiums decreased 5.3% to $8.2 million in the first quarter of 1997,
compared to $8.7 million in the first quarter of 1996. This decrease is
primarily a result of a slight decrease in ceded losses on retrospectively
rated reinsurance contracts.
Net premiums written decreased 54.1% to $15.0 million in the first three months
of 1997, compared to $32.7 million in the first three months of 1996.
Sales of Operations
As previously announced, the Company has entered into transactions to sell its
aviation and artisan contractor insurance operations. The closing of the
aviation transaction will require approval by the Company's stockholders,
although stockholders owning a majority of the Company's voting stock have
agreed to vote in favor of the transaction. The closing of the aviation
transaction is also subject to regulatory approvals and other customary
conditions. The closing of the artisan transaction is subject to required
regulatory approvals and licenses and other customary conditions. The Company
has also entered into a letter of intent to sell its marine operations. The
closing of the marine transaction is subject to definitive documentation,
Boards' of Directors approvals, required regulatory approvals and licenses and
other customary conditions.
Upon completion of these transactions, the Company expects that it will no
longer write new or renewal policies for the foreseeable future. It will
continue to handle claims on the Company's policies that are not assumed as
part of these transactions and maintain the related reserves and assets.
Accordingly, the Company's revenues and earnings capacity will be significantly
lower in the future. Pro-forma financial data on the effect of these
transactions will be included in a Proxy Statement to Shareholders, which is
expected to be issued in the second quarter.
Revenues
Earned premiums, net of reinsurance, decreased 27.4% to $23.8 million in the
first quarter of 1997 from $32.8 million in the first quarter of 1996. Of this
decrease, 22.1% was related to the Aviation Division, 8.3% to the P&C Division,
with the Marine Division having an increase of 3.0%. Earned premiums, net of
reinsurance, declined at a lower rate in comparison to written premiums, net of
reinsurance, due to less of a decline in written premiums in earlier quarters,
which are now becoming earned premiums.
Agency operations, net, increase to a profit of $0.3 million in the first
quarter of 1997 from a minimal loss in the first quarter of 1996.
Investment income, net, decreased 7.1% to $1.3 million in the first quarter of
1997 from $1.4 million in the first quarter of 1996. The net tax-effected
investment yield on average invested assets for the first quarter of 1997
increased to 7.5% from 5.9% in the comparable quarter of 1996. Average
invested assets decreased $23.1 million in the first quarter of
8
<PAGE> 9
1997, compared to the first quarter of 1996, primarily as a result of cash flow
used in operating activities, as discussed below.
Realized investment gains (losses), net, were insignificant in the first
quarter of 1997 and 1996.
Operating Expenses
Losses and loss adjustment expenses, net of reinsurance, were 83.8% of earned
premiums, net of reinsurance, in the first quarter of 1997 and 83.8% in the
first quarter of 1996. The Aviation Division loss ratio increased 5.5
percentage points to 76.8% in the first quarter 1997, from 71.3% in the first
quarter of 1996 as a result of higher levels of hull losses. The P&C Division
loss ratio decreased 8.2 percentage points to 112.1% in the first quarter of
1997 from 120.3% in the first quarter of 1996. The unacceptable P&C Division
loss ratio is a result of losses from the discontinued trucking line of
business, where premium levels have declined faster than loss levels. The
Marine Division loss ratio increased 1.4 percentage points to 50.5% in the
first quarter of 1997 from 49.1% in the first quarter of 1996.
Policy acquisition and other underwriting expenses increased 14.0 percentage
points to 46.8% of earned premiums in the first quarter of 1997 from 32.8% of
earned premiums in the first quarter of 1996. The decrease in written premium
and related unearned premiums and earned premiums resulted in a decrease in the
amount of deferrable acquisition costs, which increased the expense level of
the current quarter. In addition, current expense levels could not be reduced
further due to the pending sales of the ongoing operations.
The Company's combined ratio increased 14.0 percentage points to 130.6% in the
first quarter of 1997 from 116.6% in the first quarter of 1996 as a result of
the factors discussed above. A combined ratio below 100% generally indicates
profitable underwriting prior to the consideration of investment income.
Management believes that there has been a seasonality pattern in the loss
ratio. Losses have historically been higher in the first half of the year and
then declined in the second half. The Company believes that this pattern
results primarily from weather-related factors which contribute to a higher
loss frequency in the first two quarters of the year.
The Company had no interest expense in the first quarter of 1997 due to the
repayment on December 31, 1996 of the Company's note payable. Interest expense
was $0.25 million in the first quarter of 1996.
Income
The Company did not record an income tax benefit in the first quarter of 1997
as compared to a benefit of $1.4 million recorded in the first quarter of 1996.
9
<PAGE> 10
The first quarter of 1997 net loss was $5.7 million, compared to net loss of
$2.8 million in the first quarter of 1996.
Net income (loss) available for common stockholders in the first quarter of
1997 was a net loss of $6.6 million, or $0.93 per share, compared to net loss
of $2.8 million, or $0.39 per share, in the first quarter of 1996. In the
first quarter of 1997, the Company paid in kind Series D Preferred Stock
dividends of $0.785 million. The Series D Preferred Stock was not outstanding
in the first quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flow used by operations was $22.4 million in
the first quarter of 1997, compared to cash flow used by operations of $16.8
million in the first quarter of 1996. The major uses of cash in the first
quarter of 1997 relate primarily to the decline in the volume of business
generated by the company, resulting in declines in unearned premiums, reserves
for losses and loss adjustment expenses and other liabilities, offset by an
increase in accounts receivable.
10
<PAGE> 11
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Index to Exhibits attached hereto and incorporated herein by
reference.
(b) Reports on Form 8-K
The following report on Form 8-K has been filed during the first quarter
of 1997: Current Report on Form 8-K reporting under Item 5 that the
Company has entered into an agreement dated April 11, 1997 with Great
American Insurance Company to sell the general aviation business of the
Company.
11
<PAGE> 12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMERICAN EAGLE GROUP, INC.
Date: May 13, 1997 By: /s/ Richard M. Kurz
------------- ------------------------------------
Richard M. Kurz, Senior Vice President
and Chief Financial Officer
(Authorized Signatory and Principal
Financial and Accounting Officer)
12
<PAGE> 13
EXHIBITS
TO
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR
AMERICAN EAGLE GROUP, INC.
FOR QUARTER ENDED
MARCH 31, 1997
<PAGE> 14
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value,
of American Eagle Group, Inc. ("Registrant"), the "Company" or
"American Eagle") (Previously filed on May 11, 1994 with
Registrant's Amendment No. 2 to Registration Statement on Form
S-1, File No. 33-75490, and incorporated herein by reference).
4.2 -- Registration Rights Agreement, dated as of March 21, 1995, by
and among American Eagle, Mason Best Company, L.P. ("Mason
Best") and Nelson Hurst (Previously filed on March 29, 1994 with
Registrant's Amendment No. 1 to Registration Statement on Form
S-1, File No. 33-75490, and incorporated herein by reference).
4.3 -- Amended Registration Rights Agreement, dated December 31, 1996,
between American Eagle and Mason Best. (Previously filed on
March 31, 1997 with Registrant's Annual Report on Form 10-K,
File No. 1-12922, and incorporated herein by reference).
4.4 -- Registration Rights Agreement, dated December 31, 1996, between
American Eagle and American Financial Group, Inc. ("AFG").
(Previously filed on March 31, 1997 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.1 -- American Eagle Group, Inc. 1991 Non-Qualified Stock Option Plan,
as amended (Previously filed on March 31, 1997 with Registrant's
Annual Report on Form 10-K, File No. 1-12922, and incorporated
herein by reference).
10.2 -- Amended and Restated P&C Stock Option Plan - Wise (Previously
filed on February 18, 1994 with Registrant's Registration
Statement on Form S-1, File No. 33-75490, and incorporated
herein by reference).
10.3 -- Amended and Restated P&C Stock Option Plan - Hill (Previously
filed on February 18, 1994 with Registrant's Registration
Statement on Form S-1, File No. 33-75490, and incorporated
herein by reference).
10.4 -- Amended and Restated P&C Stock Option Plan - Perkins (Previously
filed on February 18, 1994 with Registrant's Registration
Statement on Form S-1, File No. 33-75490, and incorporated
herein by reference).
10.5 -- Amendment No. 1 to Amended and Restated P&C Stock Option Plan -
Perkins, dated as of August 16, 1994, between American Eagle and
J.B. Perkins (Previously filed on March 30, 1995 with
Registrant's Annual Report on Form 10-K, File No. 1-12922, and
incorporated herein by reference).
10.6 -- American Eagle Group, Inc. 1994 Stock Incentive Plan, as amended
(Previously filed on March 31, 1997 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.7 -- American Eagle Group, Inc. 1994 Director Stock Option Plan, as
amended (Previously filed on March 31, 1997 with Registrant's
Annual Report on Form 10-K, File No. 1-12922, and incorporated
herein by reference).
10.8 -- American Eagle Group, Inc. Employee Profit Sharing and Savings
Plan (Previously filed on February 18, 1994 with Registrant's
Registration Statement on Form S-1, File No. 33-75490, and
incorporated herein by reference).
10.9 -- Employment Agreement, dated as of December 31, 1994, between
American Eagle and M. Philip Guthrie (Previously filed on March
30, 1995 with Registrant's Annual Report on Form 10-K, File No.
1-12922, and incorporated herein by reference).
10.10 -- Employment Agreement, dated as of August 15, 1996, between
American Eagle and Robert W. Conrey (Previously filed with
Registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1996, and incorporated herein by reference).
</TABLE>
2
<PAGE> 15
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
10.11 -- Employment Agreement, dated as of December 31, 1994, between
AEIC and George C. Hill (Previously filed on March 30, 1995 with
Registrant's Annual Report on Form 10-K, File No. 1-12922, and
incorporated herein by reference).
10.12 -- Employment Agreement, dated as of December 31, 1994, between
AEIC and David O. Daniels (Previously filed on March 30, 1995
with Registrant's Annual Report on Form 10-K, File No. 1-12922,
and incorporated herein by reference).
10.13 -- Employment Agreement, dated as of December 31, 1994, between
American Eagle and Frederick G. Anderson (Previously filed on
March 30, 1995 with Registrant's Annual Report on Form 10-K,
File No. 1-12922, and incorporated herein by reference).
10.14 -- Employment Agreement, dated as of December 31, 1994, between
American Eagle and Richard M. Kurz (Previously filed on March
30, 1995 with Registrant's Annual Report on Form 10-K, File No.
1-12922, and incorporated herein by reference).
10.15 -- Employment Agreement, dated as of December 31, 1994, between
American Eagle and Allen N. Walton III (Previously filed on
March 30, 1995 with Registrant's Annual Report on Form 10-K,
File No. 1-12922, and incorporated herein by reference).
10.16 -- Consulting Agreement, dated as of December 24, 1992, between
American Eagle and Don D. Hutson (Previously filed on February
18, 1994 with Registrant's Registration Statement on Form S-1,
File No. 33-75490, and incorporated hereby by reference).
10.17 -- Agreement dated as of February 15, 1991, between Luther King
Capital Management Corporation and AEIC (Previously filed on
February 18, 1994 with Registrant's Registration Statement on
Form S-1, File No. 33-75490, and incorporated herein by
reference).
10.18 -- Investment Management Agreement, dated as of June 17, 1994,
between American Eagle Insurance Company and Aon Advisors, Inc.
(Previously filed on March 30, 1995 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.19 -- Agreement for the Purchase of all of the Outstanding Capital
Stock of Aviation Office of America, Inc. and American Eagle
Insurance Company dated as of May 7, 1986, among Folmar
Corporation, Crum and Forster, Inc. and United States Fire
Insurance Company (the "Purchase Agreement") (Previously filed
on March 29, 1994 with Registrant's Amendment No. 1 to
Registration Statement on Form S-1, File No. 33-75490, and
incorporated herein by reference).
10.20 -- Amendment to Purchase Agreement dated as of June 6, 1987
(Previously filed on March 29, 1994 with Registrant's Amendment
No. 1 to Registration Statement on Form S-1, File No. 33-75490,
and incorporated herein by reference).
10.21 -- Amendment to Purchase Agreement dated as of December 11, 1987
(Previously filed on March 29, 1994 with Registrant's Amendment
No. 1 to Registration Statement on Form S-1, File No. 33-75490,
and incorporated herein by reference).
10.22 -- First through Fifth General Aviation Liability Excess of Loss
Reinsurance Agreement AR #4222 1994 Final Placement Slip
(Previously filed on March 30, 1995 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
</TABLE>
3
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
10.23 -- Casualty First and Second Excess of Loss Reinsurance Agreement
AR #4038-94 1994 Final Placement Slip (Previously filed on March
30, 1995 with Registrant's Annual Report on Form 10-K, File No.
1-12922, and incorporated herein by reference).
10.24 -- Special Underlying General Aviation Liability Excess of Loss
Reinsurance Agreement AR #4221 1994 Final Placement Slip
(Previously filed on March 30, 1995 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.25 -- General Aviation Hull Special Underlying Excess of Loss
Reinsurance Agreement AR #4227 1994 Final Placement Slip
(Previously filed on March 30, 1995 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference.
10.26 -- First through Fifth General Aviation Liability Excess of Loss
Reinsurance Agreement AR#4222 1994 Final Placement Slip
(Previously filed on March 30, 1995 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.27 -- Casualty First and Second Excess of Loss Reinsurance Agreement
AR#4038-94 1994 Final Placement Slip (Previously filed on March
30, 1995 with Registrant's Annual Report on Form 10-K, File No.
1-12922, and incorporated herein by reference).
10.28 -- Special Underlying General Aviation Liability Excess of Loss
Reinsurance Agreement AR#4221 Final Placement Slip (Previously
filed on March 30, 1995 with Registrant's Annual Report on Form
10-K, File No. 1-12922, and incorporated hereby by reference).
10.29 -- General Aviation Hull Special Underlying Excess of Loss
Reinsurance Agreement AR#4227 1994 Final Placement Slip
(Previously filed on March 30, 1995 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated hereby
by reference).
10.30 -- Special Underlying General Aviation Liability Excess of Loss
Reinsurance Agreement AR#4221 1995 Final Placement Slip
(Previously filed on March 28, 1996 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.31 -- General Aviation Hull Special Underlying Excess of Loss
Reinsurance Agreement AR #4227 1995 Final Placement Slip
(Previously filed on March 28, 1996 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.32 -- First and Second Property Excess of Loss Reinsurance Agreement--
ARA #4039-91 (subject to a request for confidential treatment).
(Previously filed on March 28, 1996 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.33 -- First and Second Casualty Excess of Loss Reinsurance Agreement--
ARA #4038-91 (subject to a request for confidential treatment).
(Previously filed on March 28, 1996 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
</TABLE>
4
<PAGE> 17
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
10.34 -- Casualty First and Second Excess of Loss Reinsurance Agreement--
AR #4038-95 (subject to a request for confidential treatment).
(Previously filed on March 28, 1996 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.35 -- First and Second Casualty Excess of Loss Reinsurance Agreement--
AR #4038-95 (subject to a request for confidential treatment.
(Previously filed on March 28, 1996 with Registrant's Annual
Report on Form 10-K, File No. 1-12922, and incorporated herein
by reference).
10.36 -- General Aviation Hull Special Underlying Excess of Loss
Reinsurance Agreement--AR #4227-94 (subject to a request for
confidential treatment). (previously filed on March 28, 1996
with Registrant's Annual Report on Form 10-K, File No. 1-12922,
and incorporated herein by reference).
10.37 -- Special Underlying General Aviation Liability Excess of Loss
Reinsurance Agreement--AR #4221-94 (subject to a request for
confidential treatment). (Previously filed on March 28, 1996
with Registrant's Annual Report on Form 10-K, File No. 1-12922,
and incorporated herein by reference).
10.38 -- First Through Fifth General Aviation Excess of Loss Reinsurance
Agreement--AR #4222-94 (subject to a request for confidential
treatment). (Previously filed on March 28, 1996 with
Registrant's Annual Report on Form 10-K, File No. 1-12922, and
incorporated herein by reference).
10.39 -- Securities Purchase Agreement, dated as of November 5, 1996, by
and between American Eagle and American Financial Group, Inc.
(Previously filed with Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated herein by
reference).
10.40 -- Special Underlying General Aviation Liability Excess of Loss
Reinsurance Agreement--AR #4221--1996 Final Placement Slip
(Previously filed with Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated herein by
reference).
10.41 -- First Through Fifth General Aviation Liability Excess of Loss
Reinsurance Agreement--AR #4222--1996 Final Placement Slip
(Previously filed with Registrant's Report on Form 10-Q for the
quarter ended September 30, 1996, and incorporated herein by
reference (Previously filed with Registrant's Report on Form 10-
Q for the quarter ended September 30, 1996, and incorporated
herein by reference).
10.42 -- Purchase Agreement dated April 11, 1997 between American Eagle,
AEIC and Great American Insurance Company.
10.43 -- Asset Purchase Agreement dated April 23, 1997 between AEIC and
HDR Insurance Managers, Inc.
27 -- Financial Data Schedule.
</TABLE>
5
<PAGE> 1
EXHIBIT 10.42
PURCHASE AGREEMENT
AMONG
GREAT AMERICAN INSURANCE COMPANY
AND
AMERICAN EAGLE INSURANCE COMPANY
AND
AMERICAN EAGLE GROUP, INC.
DATED APRIL 11, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. Purchase and Sale of Aviation Business . . . . . . . . . . . . 1
SECTION 2. Purchase of Other Assets . . . . . . . . . . . . . . . . . . . 1
SECTION 3. Reinsurance of Later Business . . . . . . . . . . . . . . . . 2
SECTION 4. Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
SECTION 5. Purchase Price and Other Payments . . . . . . . . . . . . . . 3
Section 5.1 Purchase Price . . . . . . . . . . . . . . . . . . . . 3
Section 5.2 Additional Payments . . . . . . . . . . . . . . . . . . 5
SECTION 6. Assumption of Liabilities . . . . . . . . . . . . . . . . . . 6
SECTION 7. Change in Name . . . . . . . . . . . . . . . . . . . . . . . . 6
SECTION 8. Further Assurances . . . . . . . . . . . . . . . . . . . . . . 7
SECTION 9. Representations, Warranties and Covenants of Seller and AEGI . 7
SECTION 10. Representations, Warranties and Covenants of Purchaser . . . . 13
SECTION 11. Covenants of Seller . . . . . . . . . . . . . . . . . . . . . 14
SECTION 12. Conditions to Closing - Purchaser . . . . . . . . . . . . . . 16
SECTION 13. Conditions to Closing - Seller . . . . . . . . . . . . . . . . 17
SECTION 14. Shareholder Approval . . . . . . . . . . . . . . . . . . . . . 18
SECTION 15. Regulatory Approvals . . . . . . . . . . . . . . . . . . . . . 18
SECTION 16. Certain Terminations . . . . . . . . . . . . . . . . . . . . . 18
SECTION 17. Noncompete/No Solicitation and Other Actions . . . . . . . . . 19
SECTION 18. Termination . . . . . . . . . . . . . . . . . . . . . . . . . 20
SECTION 19. Effect of Termination . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 3
- ii -
<TABLE>
<S> <C>
SECTION 20. Indemnification . . . . . . . . . . . . . . . . . . . . . . 21
Section 20.1 General Indemnification Obligation of Seller and AEGI . 21
Section 20.2 General Indemnification Obligation of Purchaser . . . . 22
Section 20.3 Method of Asserting Claims, Etc. . . . . . . . . . . . 22
Section 20.4 Payment . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 20.5 Other Rights and Remedies Not Affected . . . . . . . . 24
Section 20.6 Limitations on Amount -- Seller and AEGI . . . . . . . 24
Section 20.7 Limitations on Amount - Purchaser . . . . . . . . . . . 24
SECTION 21. Compliance with Bulk Sales Laws . . . . . . . . . . . . . . 24
SECTION 22. Default under the Agreement . . . . . . . . . . . . . . . . 25
SECTION 23. Transition . . . . . . . . . . . . . . . . . . . . . . . . . 25
SECTION 24. Survival of Representations and Warranties . . . . . . . . . 25
SECTION 25. Fees and Expenses . . . . . . . . . . . . . . . . . . . . . 26
SECTION 26. Press Releases . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 27. Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
SECTION 28. Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . 27
SCHEDULES
Schedule 1 Schedule of Aviation Business Assets
Schedule 2 Balance Sheet
Schedule 9(d) Uncollectible Accounts Receivable
Schedule 9(g) Existing Condition of Business
Schedule 9(i) Condition of Tangible Assets
Schedule 9(l) Ownership of Software
Schedule 9(p) Agents and Brokers
Schedule 9(r) Legal Actions
Schedule 9(t) Schedule of Reinsurance Contracts
Schedule 9(u) Consents and Authorizations
Schedule 9(w) Schedule of Material Contracts
Schedule 10(c) Consents Required of Purchaser
Schedule 17(b) Schedule of Excluded Employees
</TABLE>
<PAGE> 4
- iii -
<TABLE>
<S> <C>
EXHIBITS
Exhibit A Quota Share Reinsurance Agreement
Exhibit B Reinsurance Agreement
Exhibit C Claims Servicing Agreement
Exhibit D Computer System Use Agreement
Exhibit E Mutual Release
Exhibit F Commitment of Mason Best
</TABLE>
<PAGE> 5
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT, dated as of April 11, 1997, is entered into
among GREAT AMERICAN INSURANCE COMPANY, an Ohio corporation (hereinafter called
the "Purchaser"), AMERICAN EAGLE INSURANCE COMPANY, a Texas corporation
(hereinafter called the "Seller") and AMERICAN EAGLE GROUP, INC., a Delaware
corporation (hereinafter called "AEGI").
RECITALS
WHEREAS, Purchaser desires to purchase from Seller and AEGI and Seller
and AEGI desire to sell to Purchaser certain aviation insurance business and
other rights and assets in connection therewith, all as more fully set forth
herein; and
NOW, THEREFORE, in consideration of the foregoing, the Purchase Price
(as hereinafter defined), the release of certain claims, the mutual agreements
and other consideration hereinafter set forth, Purchaser and Seller hereby
agree as follows:
SECTION 1. PURCHASE AND SALE OF AVIATION BUSINESS.
On the basis of the representations and warranties herein contained, for
the consideration and subject to the terms and conditions herein set forth,
Seller hereby agrees to convey, sell, assign, transfer and deliver to Purchaser
on the Closing Date (as defined in Section 4 below), and Purchaser agrees to
acquire, receive, assume and accept assignment, transfer and delivery from
Seller on the Closing Date, Seller's right, title, interest and obligations in,
to and under all aviation insurance business, as more fully described on
Schedule 1 attached hereto and incorporated herein by this reference, which was
written or assumed by Seller, during the period commencing January 1, 1993 and
ending March 31, 1997 (the "Aviation Business") which Aviation Business, when
and if renewed through the respective agents and brokers therefor, shall be
effected by the issuance of policies by Purchaser.
SECTION 2. PURCHASE OF OTHER ASSETS.
In addition to the Aviation Business, the following assets will be sold
and conveyed by Seller to Purchaser on the Closing Date (the Aviation Business
and the following assets, collectively referred to as the "Assets"):
(a) All assets and properties reflected on the March 31, 1997 ("Balance
Sheet Date") Balance Sheet, attached hereto as Schedule 2 (the "Balance
Sheet").
<PAGE> 6
- 2 -
(b) All right, title and interest of Seller and AEGI in and to the computer
equipment and software used in connection with the Aviation Business,
and the Reinsured Business (as hereinafter defined) including, without
limitation, any license agreement relating thereto;
(c) All right, title and interest of Seller and AEGI in and to the lease for
the eighth and ninth floors located in the building in which Seller's
offices at 12801 North Central Expressway, Dallas, Texas are located
(the "Office Lease");
(d) All right, title and interest of Seller and AEGI in and to the names
"American Eagle Insurance Company" and "American Eagle Group, Inc."
including, without limitation, any and all trademarks or trademark
applications pertaining thereto and all patents, trademarks, tradenames,
service marks, copyright, the Software (as hereinafter defined), trade
secrets or know-how used in the Aviation Business (the "Intellectual
Property");
(e) All right, title and interest of Seller in and to the Reinsurance
Contracts (as hereinafter defined);
(f) All right, title and interest of Seller and AEGI in and to all
furniture, fixtures and tangible personal property used in connection
with the Aviation Business or the Reinsured Business; and
(g) All right, title and interest of Seller and AEGI in and to all other
tangible and intangible property relating to or used in connection with
the Aviation Business or the Reinsured Business; provided, however, the
assets listed on the attached Schedule 2 shall not be included in the
definition of Assets hereunder.
SECTION 3. REINSURANCE OF LATER BUSINESS.
Seller and Purchaser will enter into a Quota Share Reinsurance Agreement
in the form attached hereto marked Exhibit A and incorporated herein by this
reference effective as of the date hereof pursuant to which Purchaser will
reinsure all aviation business of Seller in force as of April 1, 1997 and all
aviation business, written or renewed by Seller after March 31, 1997 and before
such time as Purchaser is qualified to issue directly its own policies as
contemplated by Section 23(a) (the "Reinsured Business").
SECTION 4. CLOSING.
The closing for the transactions contemplated by this Agreement shall take
place at the offices of Seller, or such other place as may be agreed to in
writing by Purchaser and Seller, within three (3) business days of the
satisfaction of the conditions of closing set forth in Sections 12 and 13 of
this Agreement, but not later than July 31, 1997 (the "Termination Date"),
unless extended by mutual
<PAGE> 7
- 3 -
consent in writing by the parties hereto. The date and time of the closing are
referred to herein as the "Closing Date" and the consummation of the
transactions to be consummated on the Closing Date is referred to herein as the
"Closing".
SECTION 5. PURCHASE PRICE AND OTHER PAYMENTS.
Section 5.1 Purchase Price. Subject to the terms and conditions
herein stated, the parties hereto agree that, effective as of the Closing Date:
(a) Seller shall deliver and convey to Purchaser assets having a market
value equal to all liabilities of the Aviation Business and the
Reinsured Business, including, without limitation, all loss and loss
adjustment expense reserves and reserves for incurred but not reported
losses, all as reflected on the Balance Sheet.
(b) In addition to the payment required by subsection 5.1(d) below,
Purchaser shall pay to Seller, as a commission, an amount equal to
thirty percent (30%) of unearned premiums to be transferred to
Purchaser.
(c) In addition to payments required by subsection 5.1(b) above and 5.1(d)
below, Purchaser shall pay to Seller an amount equal to the book value,
adjusted for depreciation (as determined by generally accepted
accounting principles) of all furniture, fixtures and equipment,
including electronic data processing equipment included within the
Assets.
(d) In consideration for conveyance of the Assets to Purchaser, Purchaser
shall convey and deliver to Seller all shares of the Series D Preferred
Stock of AEGI owned by Purchaser, together with undated stock powers
duly endorsed in blank. The shares of Series D Preferred Stock shall be
conveyed free and clear of any liens, mortgages, security interests or
other claims whatsoever.
(e) Within twenty (20) days after the Closing, Purchaser shall prepare a
balance sheet as of the Closing Date ("Closing Date Balance Sheet") for
the Aviation Business using the same format and methodology employed in
preparing the Balance Sheet. Using the amounts reflected on such
Closing Date Balance Sheet, the following adjustments shall be made to
the Investment Account (as hereinafter defined):
(i) If the total of the Assets reflected on the Closing Date
Balance Sheet other than Investments (collectively the "Other Assets")
is greater than the total amount of the Other Assets shown on the
Balance Sheet, the amount reflected on the Balance Sheet as Investments,
(hereafter, the "Investment Account") shall be reduced by such amount;
<PAGE> 8
- 4 -
(ii) If the total of the Other Assets reflected on the Closing
Date Balance Sheet is less than the total amount of the Other Assets
shown on the Balance Sheet, the Investment Account shall be increased by
such amount;
(iii) If the total of the Liabilities reflected on the Closing
Date Balance Sheet other than Loss and Loss Adjustment Expense Reserves
(which shall be the same as shown on the Balance Sheet) (collectively
the "Other Liabilities") is greater than the total amount of the Other
Liabilities shown on the Balance Sheet, the Investment Account shall be
increased by such amount;
(iv) If the total of the Other Liabilities reflected on the
Closing Date Balance Sheet is less than the total amount of the Other
Liabilities shown on the Balance Sheet, the Investment Account shall be
reduced by such amount;
(v) The Investment Account shall be reduced by all cash claims
paid after March 31, 1997 by the Seller with respect to the Aviation
Business and the Reinsured Business after deducting any amounts paid by
Purchaser under the Quota Share Reinsurance Agreement;
(vi) The Investment Account shall be increased by all
reinsurance premiums payable to the Purchaser (net of ceding commissions
due Seller) under the Quota Share Reinsurance Agreement; and
(vii) If the amount of the Investment Account as adjusted in
accordance with (i) through (vi) above increases, the amount of such
increase shall be paid to Purchaser by delivery of cash or readily
marketable securities. If the amount of the Investment Account
decreases, the amount of such decrease shall be paid to Seller by
delivery of cash or readily marketable securities. Any amounts payable
hereunder shall be due and payable within ten (10) days of the delivery
of the Closing Date Balance Sheet, if there shall not be any dispute
with respect thereto, or within five (5) days after the resolution of
any dispute relating thereto.
(f) Any dispute which may arise between Seller and Purchaser as to the
Closing Date Balance Sheet or the proper amount of the adjustment to
the Investment Account shall be resolved in the following manner:
(i) Seller, if it disputes the Closing Date Balance Sheet or
the amount of the adjustment to the Investment Account, shall notify
Purchaser in writing within ten (10) days after the issuance of the
Closing Date Balance Sheet pursuant hereto that Seller disputes the
Closing Date Balance Sheet or the amount of the adjustment to the
Investment Account; such notice shall specify in reasonable detail the
nature of the dispute;
<PAGE> 9
- 5 -
(ii) during the ten (10) day period following the date of such
notice, Seller and Purchaser shall attempt to resolve such dispute and
to determine the appropriateness of the Closing Date Balance Sheet or
the adjustment to Investment Account; and
(iii) if at the end of the ten (10) day period specified in
subsection (ii) above, Seller and Purchaser shall have failed to reach a
written agreement with respect to such dispute, the matter shall be
referred to Deloitte & Touche, independent certified public accountants
(the "Arbitrator"), which shall act as an arbitrator and shall issue its
report as to the Closing Date Balance Sheet or the adjustment to
Investment Account within sixty (60) days after such dispute is referred
to the Arbitrator. Each of the parties hereto shall bear all costs and
expenses incurred by it in connection with such arbitration, except that
the fees and expenses of the Arbitrator hereunder shall be borne equally
by Seller and Purchaser. This provision for arbitration shall be
specifically enforceable by the parties and the decision of the
Arbitrator in accordance with the provisions hereof shall be final and
binding and there shall be no right of appeal therefrom.
(g) Seller shall provide to Purchaser the files and records comprising the
underwriting, policy, producer and claims files and related daily report
files maintained by Seller in the operation of the Aviation Business
(the "Files").
(h) Purchaser and Seller shall each execute and deliver such instruments,
and take or cause to be taken such further action as may be reasonably
necessary or desirable in order to consummate the Closing hereunder.
Section 5.2 Additional Payments.
(a) Within 30 days after receipt by Purchaser, Purchaser shall remit to
Seller an amount equal to all funds collected by Purchaser with respect
to all Agent's Balances of the Aviation Business which are in excess of
90 days old as of the Closing Date.
(b) Purchaser shall pay to Seller a commission equal to Four Percent (4%) of
the Renewal Premiums (as hereinafter defined ) received by Purchaser
during the first year following the Closing Date on all Aviation
Business and Reinsured Business transferred to Purchaser.
(c) Purchaser shall pay to Seller a commission equal to Two Percent (2%) of
the Renewal Premiums (as hereinafter defined) received by Purchaser
during the second year following the Closing Date on all Aviation
Business and Reinsured Business transferred to Purchaser.
(d) Purchaser shall pay to Seller a commission equal to One Percent (1%) of
the Renewal Premiums (as hereinafter defined) received by Purchaser
during the third year following the Closing Date on all Aviation
Business and Reinsured Business transferred to Purchaser.
<PAGE> 10
- 6 -
For purposes of this Agreement, Renewal Premiums shall mean all direct
written premiums on policies renewed after the Closing Date less the sum of any
return premiums or cancellations . Amounts payable to Seller under Sections
5.2(b), (c) and (d) above shall be paid quarterly in arrears within thirty (30)
days after the end of each quarter.
SECTION 6. ASSUMPTION OF LIABILITIES.
At the Closing and except as otherwise specifically provided in this
Section 6, Purchaser shall assume and agree to pay, discharge or perform, as
appropriate, the following liabilities and obligations of Seller:
(a) All liabilities and obligations of Seller in respect of the Aviation
Business existing as of the Balance Sheet Date, but only if and to the
extent that the same are accrued or reserved for on the Balance Sheet
and remain unpaid and undischarged on the Closing Date except Loss and
Loss Adjustment Expense Reserves.
(b) All unpaid losses and unpaid loss adjustment expenses of Seller with
respect to the Aviation Business arising in the regular and ordinary
course on or after January 1, 1993.
(c) The obligations of Seller under the Reinsurance Contracts and the
Contracts identified on Schedule 9(w).
(d) Bad faith liability claims arising under policies identified on Schedule
9(w) and other litigation listed on Schedule 9(r) hereof.
The foregoing described liabilities and the obligations of the Purchaser
under the Quota Share Reinsurance Agreement (Exhibit "A") and the Reinsurance
Agreement (Exhibit "B") are hereinafter referred to as the "Assumed
Liabilities."
NOTWITHSTANDING ANY PROVISION HEREIN TO THE CONTRARY, PURCHASER SHALL
NOT ASSUME OR BECOME LIABLE IN ANY MANNER FOR ANY LIABILITY OR OBLIGATION OF
SELLER OR AEGI, AND SELLER AND AEGI SHALL REMAIN SOLELY RESPONSIBLE FOR ANY AND
ALL LIABILITIES AND OBLIGATIONS OF SELLER AND AEGI, OTHER THAN THE ASSUMED
LIABILITIES.
SECTION 7. CHANGE IN NAME.
On the Closing Date, Seller and AEGI shall deliver to Purchaser all such
executed documents as may be required to change Seller's and AEGI's names on
that date to names bearing no similarity to American Eagle, including but not
limited to a name change amendments with the Secretaries of State of Texas and
Delaware. Within one hundred eighty days (180) after the Closing Date, AEGI
and Seller shall file appropriate name change notices for each state where
Seller and AEGI are
<PAGE> 11
- 7 -
qualified to do business. Seller and AEGI hereby appoint Purchaser as their
attorney-in-fact to file all such documents on or after the Closing Date.
SECTION 8. FURTHER ASSURANCES.
Seller and AEGI from time to time after the Closing, at Purchaser's
request, will, execute, acknowledge and deliver to Purchaser such other
instruments of conveyance and transfer and will take such other actions and
execute and deliver such other documents, certifications and further assurances
as Purchaser may reasonably require in order to vest more effectively in
Purchaser, or to put Purchaser more fully in possession of, any of the Assets,
or to better enable Purchaser to complete, perform or discharge any of the
Assumed Liabilities. Each of the parties hereto will cooperate with the other
and execute and deliver to the other parties hereto such other instruments and
documents and take such other actions as may be reasonably requested from time
to time by any other party hereto as necessary to carry out, evidence and
confirm the intended purposes of this Agreement.
SECTION 9. REPRESENTATIONS, WARRANTIES AND COVENANTS OF SELLER AND AEGI.
Seller and AEGI represent, warrant and covenant to Purchaser as follows:
(a) Corporate Existence, Corporate Power. Each of the Seller and AEGI is a
corporation, duly organized, validly existing and in good standing under
the laws of the state of its incorporation, and, subject to receipt of
requisite shareholder approval, each has the requisite corporate power
and authority to consummate the transactions contemplated and to perform
its respective obligations under this Agreement. The Board of Directors
of Seller and AEGI have approved the execution of this Agreement and
Seller and AEGI will have, prior to the Closing Date, taken all other
corporate action required by law, its respective certificate of
incorporation, by-laws or otherwise, to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.
(b) Enforceability. This Agreement and the other transaction documents have
been, or on or prior to the Closing Date will be, duly executed and
delivered on behalf of the Seller and AEGI, and constitute, or will
constitute, the legal, valid and binding obligation of the Seller and
AEGI, enforceable against them in accordance with their terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, or similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity
(regardless of whether enforcement is sought in a proceeding in equity
or at law).
(c) Balance Sheets. The Balance Sheet, including the related notes, fairly
present the financial position, assets and liabilities (whether accrued,
absolute, contingent or otherwise) of the Aviation Business as of the
Balance Sheet Date. The Balance Sheet specifically identifies
<PAGE> 12
- 8 -
the assets and liabilities which, if the Closing had been held on the
Balance Sheet Date, would have been transferred to or assumed by
Purchaser in accordance herewith.
(d) Accounts Receivable. The accounts receivable of Seller arising from the
Aviation Business and Reinsured Business as set forth on the Balance
Sheet are valid and genuine; have arisen solely out of bona fide sales
and deliveries of goods, performance of services and other business
transactions in the ordinary course of business consistent with past
practice; are not subject to valid defenses, set-offs or counterclaims;
and except as set forth on Schedule 9(d), to Seller's knowledge, are
collectible within ninety (90) days after billing at the full recorded
amount thereof less, in the case of accounts receivable appearing on the
Balance Sheet, the recorded allowance for collection losses on the
Balance Sheet.
(e) Tax and Other Returns and Reports. The Seller and AEGI have filed or
caused to be filed all tax returns which are required to be filed in
connection with the Aviation Business and the Reinsured Business and all
taxes shown to be due and payable on said returns or on any assessments
made against Seller or AEGI, any of their property, and all other taxes,
fees or other charges imposed on Seller or AEGI, or any of their
property by any governmental authority that are due and payable, have
been paid (other than any taxes, fees or other charges the amount or
validity of which are currently being contested in good faith by
appropriate proceedings and with respect to which adequate reserves in
conformity with GAAP have been provided on the books of the Seller or
AEGI); to the knowledge of Seller and AEGI, no tax lien has been filed
and no claim is being asserted, with respect to any such tax, fee or
other charge.
(f) Books of Account. The books, records and accounts of Seller have been
maintained accurately and fairly reflect, in reasonable detail, the
transactions and the assets and liabilities of Seller with respect to
the Aviation Business and Reinsured Business. Seller has not engaged in
any transaction with respect to the Aviation Business and Reinsured
Business, maintained any bank account for the Aviation Business and
Reinsured Business or used any of the funds of Seller in the conduct of
the Aviation Business and Reinsured Business except for transactions,
bank accounts and funds which have been and are reflected in the
normally maintained books and records of the business.
(g) Existing Condition. Except as set forth on Schedule 9(g), since the
Balance Sheet Date, Seller with respect to the Aviation Business and
Reinsured Business has not:
(i) incurred any liabilities, other than liabilities incurred in the
ordinary course of business consistent with past practice, or
discharged or satisfied any lien or encumbrance, or paid any
liabilities, other than in the ordinary course of business
consistent with past practice, or failed to pay or discharge when
due any liabilities of which the failure to pay or discharge has
caused or will cause any material damage or risk of material loss
to it or any of its assets or properties;
<PAGE> 13
- 9 -
(ii) sold, encumbered, assigned or transferred any assets or
properties, except for the sale of inventory in the ordinary
course of business consistent with past practice;
(iii) made or suffered any amendment or termination of any material
agreement, contract, commitment, lease or plan to which it is
party or by which it is bound, or cancelled, modified or waived
any substantial debts or claims held by it or waived any rights
of substantial value, whether or not in the ordinary course of
business; or
(iv) entered into any transaction other than in the ordinary course of
business consistent with past practice.
(h) Title to Properties. Seller has good and valid title to all of its
properties and assets, real, personal and mixed, which are included in
the Assets (except for inventory sold since the date thereof in the
ordinary course of business consistent with past practice), which Assets
shall be on the Closing Date free and clear of all mortgages, liens,
pledges, security interests, charges, claims, restrictions, other third
party interests, and other encumbrances and defects of title of any
nature whatsoever, except for liens for current real or personal
property taxes not yet due and payable.
(i) Condition of Tangible Assets. All buildings, structures, facilities,
equipment and other material items of tangible property and assets which
are included in the Assets are in good operating condition and repair,
subject only to normal wear and maintenance, are usable in the regular
and ordinary course of business and conform to all applicable laws,
ordinances, codes, rules and regulations, and authorizations relating to
their construction, use and operation. No person other than Seller owns
any equipment or other tangible assets or properties situated on the
premises of Seller or necessary to the operation of the Aviation
Business, except for leased items disclosed on Schedule 9(i).
(j) Employee Benefit Plans and Arrangements.
(i) For the purposes hereof, the term "employee benefit plan"
includes all plans, funds, programs, policies, arrangements,
practices, customs and understandings providing benefits of
economic value to any employee, former employee, or present or
former beneficiary, dependent or assignee of any such employee or
former employee other than regular salary, wages or commissions
paid substantially concurrently with the performance of the
services for which paid. Without limitation, the term "employee
benefit plan" includes all employee welfare benefit plans within
the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), all employee pension
benefit plans within the meaning of section 3(2) of ERISA.
<PAGE> 14
- 10 -
(ii) Seller has not directly or indirectly acted in any manner or
incurred any obligation or liability, and will not directly or
indirectly act in any manner in the future or incur any
obligation or liability in the future with respect to any
employee benefit plan which has or could give rise to any liens
on any of the Assets, or which could result in any liability or
obligation to Purchaser, whether arising out of the
establishment, operation, administration or termination of such
benefit plan or the transactions contemplated by this Agreement.
(iii) Seller has timely provided or will timely provide all notices and
any continuation of health benefit coverage (including, without
limitation, medical and dental coverage) required to be provided
to employees, former employees or the beneficiaries or dependents
of such employees or former employees, under Part 6 of Subtitle B
of Title I of ERISA or, as applicable, COBRA to the extent such
notices and continuation of health benefit coverage are required
to be provided by reason of the events occurring prior to or on
the Closing Date or by reason of the transactions contemplated by
this Agreement. To the extent required by COBRA, Seller will
treat its employees (and their dependents and beneficiaries) as
of the Closing Date as having incurred a "qualifying event"
(within the meaning of ERISA Section 603 and, as applicable, Code
Section 4980B(f)(3)) on the Closing Date. Seller will continue
the health benefit coverage required by COBRA.
(k) Intellectual Property Matters. The Seller in the conduct of the
Aviation Business does not infringe upon or unlawfully or wrongfully use
any Intellectual Property owned or claimed by another.
(l) The Software.
(i) Performance. The computer software of Seller included in the
Intellectual Property (the "Software") contains all computer
programs, materials, tapes, know-how, object and source codes,
other written materials, know-how and processes used in
connection with the Aviation Business and the Reinsurance
Business. Seller has delivered to the Purchaser complete and
correct copies of all user and technical documentation related to
the Software.
(ii) Title. Except as set forth on Schedule 9(l), all right, title
and interest in and to the Airpack System and Eagle Express
System is owned by Seller, free and clear of all liens, claims,
charges or encumbrances, are fully transferable to the Purchaser,
and no party other than Seller has any interest in the Software,
including without limitation, any security interest, license,
contingent interest or otherwise. Seller's development, use,
sale or exploitation of the Software does not violate, any rights
of any other person or entity and Seller has not received any
communication alleging such a violation. Seller does not have
any obligation to compensate any person for the development, use,
sale or exploitation of the Software nor has Seller granted to
<PAGE> 15
- 11 -
any other person or entity any license, option or other rights to
develop, use, sell or exploit in any manner the Software, whether
requiring the payment of royalties or not.
(iii) Delivery of All Copies. All copies of the Software embodied in
physical form are being delivered to the Purchaser at or prior to
the Closing.
(m) Environmental Matters. Except for any violation which, individually or
in the aggregate, would not have a material adverse effect on the
Assets, the Aviation Business or Reinsurance Business, Seller is not in
violation of any laws, rules or regulations relating to pollution or
protection of the environment, including regulations relating to
emissions, discharges, releases or threatened releases of pollutants,
contaminants, chemicals, or industrial, toxic or hazardous substances or
wastes into the environment (including, without limitation, ambient air,
surface water, groundwater, or land), or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage,
disposal, transport, or handling of pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes.
(n) Assets. Except for licenses, permits and governmental authorizations
required to operate the Aviation Business and the Reinsurance Business
which are not transferable, the Assets include all rights and property
essential to the conduct of the Aviation Business by Purchaser in the
manner it is presently conducted by Seller and no property excluded from
the Assets constitutes property or rights material to the Aviation
Business.
(o) Solvency. After giving effect to the transactions contemplated by this
Agreement, each of the Seller and AEGI, individually and on a
consolidated basis, will be solvent, able to pay its debts as they
mature, have capital sufficient to carry on its business and all
businesses in which it is about to engage, and
(i) the assets of each of Seller and AEGI, individually and on a
consolidated basis, at a fair valuation, exceed the total
liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities) of Seller and AEGI;
(ii) current projections which are based on underlying assumptions
which provide a reasonable basis for the projections and which
reflect Seller's judgment based on present circumstances, the
most likely set of conditions and Seller's most likely course of
action for the period projected, demonstrate that Seller and
AEGI, individually and on a consolidated basis, will have
sufficient cash flow to enable them to pay their debts as the
mature or the Seller is reasonably satisfied that it will be able
to refinance such debt at or prior to maturity on commercially
reasonable terms; and
(iii) Seller and AEGI do not have an unreasonably small capital base
with which to engage in its anticipated business.
<PAGE> 16
- 12 -
(p) Agents and Brokers. Schedule 9(p) is a true, complete and accurate list
of the agents and brokers which have generated Aviation Business and
Reinsured Business that is currently in-force with Seller.
(q) Information. The Files include the underwriting, policy, producer and
claims information and records normally generated and maintained by
Seller in the ordinary course of its operation of the Aviation Business
and the Reinsured Business.
(r) Legal Actions. As of the date hereof, except as set forth on Schedule
9(r), to the knowledge of Seller and AEGI, there are no legal actions,
arbitrations, suits or proceedings (other than claims pending for
benefits under insurance policies) in any court or before any
governmental agency or instrumentality pending against the Seller or
AEGI which could materially adversely effect the Aviation Business or
the Reinsured Business. As of the date hereof, to the knowledge of
Seller and AEGI, there are no legal actions, arbitrations, suits, or
proceedings pending in any court or before any governmental agency or
instrumentality against the Seller or AEGI which would prevent the
carrying out of this Agreement or any of the transactions contemplated
hereby or declare the same unlawful or cause the rescission thereof.
Except as disclosed on Schedule 9(r), the Seller has not been charged
with or, to its knowledge, been threatened with or is under any
investigation with respect to, any charge concerning any material
violation of any provision of any federal, state, local or foreign law,
regulation, ordinance, order or administrative ruling affecting the
Insurance Business or the Reinsured Business, and, except as disclosed
on Schedule 9(r), neither Seller nor AEGI is, to its knowledge, in
default with respect to any order, writ, injunction or decree of any
court, arbitration panel, agency or instrumentality affecting the
Aviation Business or the Reinsured Business.
(s) Absence of Conflicts. Assuming the receipt of all consents referred to
in Section 9(u), the execution, delivery, and performance of this
Agreement and the consummation of the transactions contemplated hereby
will not (i) violate, or be in conflict with the charter or by-laws of
the Seller or AEGI, (ii) result in the creation of any security
interest, claim, lien, charge or encumbrance upon the Aviation Business
or the Reinsured Business, (iii) violate any provision of, or result in
the breach of any, applicable law, rule or regulation of any
governmental body or (iv) violate any order, judgment or decree
applicable to the Seller or AEGI, which would materially adversely
affect the Aviation Business or the Reinsured Business or the ability of
the Seller or AEGI to consummate the transactions contemplated by this
Agreement and to perform their obligations hereunder.
(t) Reinsurance Contract. Schedule 9(t) contains a list of all reinsurance
treaties and agreements currently in effect with respect to the Aviation
Business and the Reinsured Business (the "Reinsurance Contracts").
(u) No Legal Bar. Except as set forth on Schedule 9(u), no consent,
authorization, order or approval of, or notice, filing or registration
with, any governmental commission, board or
<PAGE> 17
- 13 -
other regulatory body or any private party is required for or in
connection with the execution and delivery of this Agreement by Seller
and AEGI and the consummation by Seller and AEGI of the transactions
contemplated hereby, except for those as to which the failure to obtain
or give would not materially adversely affect the consummation of the
transactions contemplated by this Agreement.
(v) Participation by Third Parties. Seller and AEGI shall indemnify and
hold the Purchaser harmless with respect to any claim for any broker's
or finder's fees or commissions with respect to the transactions
contemplated hereby by anyone found to have been acting on behalf of the
Seller or AEGI.
(w) Contracts. Schedule 9(w) sets forth all leases, subleases, license
agreements, assumption of liability agreements and fronting arrangements
(collectively the "Contracts") to be conveyed by Seller to Purchaser on
the Closing Date. Except as set forth on Schedule 9(w) all of the
Contracts are in full force, do not require consent, are enforceable in
accordance with their terms and there exists no default or event of
default, occurrence, condition or act, including, without limitation,
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby, which constitutes or would constitute
(with notice or lapse of time or both) a default under any such
Contract.
(x) Disclosure. No representation or warranty made by Seller or AEGI in
this Agreement or in any other document furnished in connection herewith
contains any misrepresentation of a material fact or omits to state any
material fact necessary to make the statements herein or therein not
misleading.
SECTION 10. REPRESENTATIONS, WARRANTIES AND COVENANTS OF PURCHASER.
Purchaser represents, warrants and covenants to Seller and AEGI as
follows:
(a) Corporate Existence/Corporate Power. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the
State of Ohio, and has the requisite corporate power and authority to
consummate the transactions contemplated and perform its obligations
under this Agreement and has or will have, prior to the Closing Date,
taken all corporate action required by law, its certificate of
incorporation, by-laws or otherwise, to authorize the execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby.
(b) Enforceability. The execution, delivery and performance of this
Agreement by Purchaser and the consummation of the transactions
contemplated hereby will not (i) violate or be in conflict with the
charter or by-laws of Purchaser, (ii) violate any provision of, or
result in the breach of any, applicable law, rule or regulation of any
governmental body or (iii) violate any order, judgment or decree
applicable to Purchaser, which would materially adversely affect
<PAGE> 18
- 14 -
the ability of Purchaser to consummate the transactions contemplated
hereby and to perform its obligations hereunder.
(c) Consents. No consent, license, authorization, appointment, order or
approval of, or filing or registration with, any governmental
commission, board or other regulatory body or any private party is
required for or in connection with the execution and delivery of this
Agreement by Purchaser and the consummation by Purchaser of the
transactions contemplated on its part hereby except as set forth on
Schedule 10(c) hereto.
(d) Participation. No outside parties have participated with respect to the
negotiation of this Agreement and the transactions contemplated hereby
on behalf of the Purchaser and the Purchaser shall indemnify and hold
the Seller harmless with respect to any claim for any broker's or
finder's fees or commissions with respect to the transactions
contemplated hereby by anyone found to have been acting on behalf of the
Purchaser.
(e) Voting by Purchaser. Purchaser shall vote all of its shares of common
and preferred stock of AEGI in favor of the transactions contemplated
hereby.
SECTION 11. COVENANTS OF SELLER.
Seller covenants and agrees with Purchaser as follows:
(a) Seller shall give Purchaser and its counsel, accountants and other
representatives access during normal business hours throughout the
period prior to the Closing Date to all of the properties, books,
contracts, commitments and records personnel and the other aspects of
the business of the Seller relating to the Aviation Business and the
Reinsured Business, and Seller will furnish and provide reasonable
assistance to Purchaser during such period with all such documents,
copies of documents and information concerning the Aviation Business and
the Reinsured Business as Purchaser may reasonably request. During the
period from the date of this Agreement through the Closing Date, Seller
and AEGI shall consult in good faith with members of Purchaser's
management: (i) with respect to significant developments, transactions
and decisions involving the operations of the Seller not prohibited
under this Agreement; and (ii) with respect to the development and
implementation of business strategies.
(b) Between the date of this Agreement and the Closing Date, except as
otherwise contemplated by this Agreement or permitted by the prior
consent of Purchaser, and to the extent it is commercially reasonable to
do so Seller (i) will conduct the Aviation Business and the Reinsured
Business in the ordinary course of business and perform its obligations
under all material agreements binding on the Seller relating to the
Aviation Business and the Reinsured Business; (ii) will enter into
agreements relating to the Aviation Business and the
<PAGE> 19
- 15 -
Reinsured Business only in the ordinary course of business; (iii) will
not make any material change in the operation of the Aviation Business
and the Reinsured Business; and (iv) will not make any loss payment
with respect to the Aviation Business and Reinsured Business in excess
of One Hundred Thousand and 00/100 Dollars ($100,000.00) without prior
notice to Purchaser.
(c) Seller shall pay directly to each employee of the Aviation Business that
portion of all benefits (including the arrangements, plans and programs
set forth in Schedule 9(j)) which has been accrued on behalf of that
employee (or is attributable to expenses properly incurred by that
employee) as of the Closing Date, except accrued vacation and sick days
which shall be assumed by Purchaser ("Accrued Vacation"). No portion of
the assets of any plan, fund, program or arrangement, written or
unwritten, heretofore sponsored or maintained by Seller or AEGI (and no
amount attributable to any such plan, fund, program or arrangement)
shall be transferred to Purchaser, and Purchaser shall not be required
to continue any such plan, fund, program or arrangement after the
Closing Date. The amounts payable on account of all benefit
arrangements (other than as specified in the following subsections)
shall be determined with reference to the date of the event by reason of
which such amounts become payable, without regard to conditions
subsequent, and Purchaser shall not be liable for any claim for
insurance, reimbursement or other benefits payable by reason of any
event which occurs prior to the Closing Date. All employees of Seller
who are employed by Purchaser on or after the Closing Date shall be new
employees of Purchaser; provided, however, that for purposes of vacation
eligibility which Purchaser may make available to its employees, such
employees shall be credited with their respective years of service with
Seller.
(d) Purchaser acknowledges that for business reasons, Seller has not been
able to compile Schedules referred to in Section 9 hereof (together with
copies of the documents referred to therein) and Exhibits contemplated
by this Agreement prior to the date of this Agreement. Seller covenants
that it shall deliver to Purchaser final Schedules (together with copies
of the documents referred to therein) and drafts of the Exhibits within
twenty (20) business days after the execution and delivery of this
Agreement. Purchaser shall have ten (10) business days to review these
Schedules and to determine in the good faith exercise of its business
judgment whether the items referenced therein are acceptable to
Purchaser and review and comment on the Exhibits. If Purchaser, after
reasonable consultation with Seller, determines in the good faith
exercise of its reasonable business judgment that the items referred to
in the Schedules are not acceptable or the parties are unable to
negotiate the terms of the Exhibits, Purchaser may terminate this
Agreement on five (5) business days written notice to Seller and neither
party shall have any further obligations to the other hereunder.
(e) Seller shall give detailed written notice to Purchaser promptly upon the
occurrence of any event that would cause or constitute a material breach
or would have caused a material breach had such event occurred or been
known to Seller prior to the date hereof, of any representations or
warranties of Seller contained in this Agreement or in any Schedule
referred to herein. Notwithstanding the foregoing, Seller shall have
the right from time to
<PAGE> 20
- 16 -
time after the date hereof to update the final versions of the Schedules
to reflect changes in the Assets or business condition as of the date
hereof until ten (10) days before the scheduled time of Closing.
Updated Schedules shall be promptly furnished to Purchaser, which shall
have five (5) business days to review these Schedules and to determine
in the good faith exercise of its reasonable business judgment that any
items referred to therein are acceptable to Purchaser. If any such
items are not acceptable to Purchaser, Purchaser may terminate this
Agreement on written notice thereof to Seller and, neither party shall
have any further obligations to the other hereunder.
SECTION 12. CONDITIONS TO CLOSING - PURCHASER.
The obligations of Purchaser under this Agreement are, at the option of
Purchaser, subject to the satisfaction, at or prior to the Closing Date, of the
following conditions:
(a) All the terms, covenants and conditions of this Agreement to be complied
with and performed by Seller on or before the Closing Date shall have
been complied with and performed.
(b) Except for changes between the date hereof and the Closing Date
permitted by the terms of this Agreement, the representations and
warranties of Seller in this Agreement or in any document or certificate
delivered to Purchaser pursuant hereto shall be true and correct in all
material respects as of the Closing Date with the same force and effect
as though such representations and warranties had been made at and as of
the Closing Date.
(c) On the Closing Date, no action or proceeding before any court or
governmental body shall be pending or threatened wherein an unfavorable
judgment, decree or order would prevent the carrying out of this
Agreement or any of the transactions or events contemplated hereby,
declare unlawful the transactions or events contemplated by this
Agreement or cause such transactions to be rescinded.
(d) Seller shall have received the necessary regulatory and any other
approval or approvals of the transactions contemplated herein as may be
required by pertinent laws, regulations or agreements.
(e) Seller shall have entered into (i) a Quota Share Reinsurance Agreement
in the form attached hereto marked Exhibit A ceding the Reinsured
Business to Purchaser and (ii) a Reinsurance Agreement in the form of
Exhibit B hereto transferring the Aviation Business to Purchaser.
(f) Seller shall have obtained the consent of reinsurers with respect to at
least eighty percent (80%) of the Aviation Business and the Reinsured
Business to the transfer to and reinsurance thereof by Purchaser and to
the assignment to Purchaser of Seller's rights under the Reinsurance
Contracts with such reinsurers.
<PAGE> 21
- 17 -
(g) Seller shall have obtained all consents required in order to convey to
Purchaser the Office Lease.
(h) Seller shall have entered into a Claims Servicing Agreement in the form
of Exhibit C and a Computer System Use Agreement in the form set forth
on Exhibit D.
(i) Purchaser shall have received an opinion of Seller's and AEGI's counsel,
in form and substance, reasonably satisfactory to Purchaser.
(j) Seller shall not have entered into any contract or agreement after
December 31, 1996 which would adversely affect Purchaser's ability to
acquire and conduct the Aviation Business and Reinsured Business as
contemplated hereby.
(k) Seller shall have executed the Mutual Release substantially in the form
of the attached Exhibit E.
(l) Purchaser shall have received such other certificates, documents and
instruments as counsel for Purchaser shall reasonably request.
SECTION 13. CONDITIONS TO CLOSING - SELLER.
The obligations of Seller and AEGI under this Agreement are, at the
option of Seller and AEGI, subject to the satisfaction, at or prior to the
Closing Date, of the following conditions:
(a) All the terms, covenants and conditions of this Agreement to be complied
with and performed by Purchaser on or before Closing Date shall have
been complied with and performed.
(b) Except for changes between the date hereof and the Closing Date
permitted by the terms of this Agreement, the representations and
warranties of Purchaser contained in this Agreement or in any document
or certificate delivered to Seller pursuant hereto shall be true and
correct in all material respects at and as of the Closing Date with the
same force and effect as though such representations and warranties had
been made as of the Closing Date.
(c) On the Closing Date, no action or proceeding before any court or
governmental body shall be pending or threatened wherein an unfavorable
judgment, decree or order would prevent the carrying out of this
Agreement or any of the transactions or events contemplated hereby,
declare unlawful the transactions or events contemplated by this
Agreement or cause such transactions to be rescinded.
(d) Purchaser shall have received the necessary regulatory and any other
approval or approvals of the transactions contemplated herein as may be
required by pertinent laws, regulations or agreements.
<PAGE> 22
- 18 -
(e) Purchaser shall have entered into (i) a Quota Share Reinsurance
Agreement in the form of Exhibit A hereto, and (ii) a Reinsurance
Agreement in the Form of Exhibit B hereto.
(f) Purchaser shall have entered into a Claims Servicing Agreement in the
form of Exhibit C hereto and a Computer System Use Agreement in the form
set forth on Exhibit D hereto.
(g) The shareholders of Seller and AEGI shall have approved the terms of
this Agreement and the transactions contemplated herein.
(h) Seller shall have received an opinion of Purchaser's counsel, in form
and substance, reasonably satisfactory to Seller.
(i) Purchaser and American Financial Group, Inc. shall have executed the
Mutual Release substantially in the form of the attached Exhibit E
hereto.
(j) Seller shall have received such other certificates, documents and
instruments as counsel for Seller shall reasonably request.
SECTION 14. SHAREHOLDER APPROVAL.
The Seller and AEGI shall take such action necessary to obtain
shareholder approval of the transactions contemplated herein as promptly as
practicable after the execution of this Agreement. As soon as practicable
following the date hereof, the Purchaser and AEGI shall cooperate to prepare
promptly and file with the SEC a Proxy or Information Statement with respect to
the transactions contemplated by this Agreement (the "Information Statement").
Promptly after the approval by the staff of the Commission of the Information
Statement, AEGI shall mail the Information Statement to all holders of AEGI's
voting securities. The Purchaser and AEGI shall cooperate with each other in
the preparation of the Information Statement and shall advise the other in
writing if, prior to the vote of the shareholders of AEGI, any such party shall
obtain knowledge of any facts that might make it necessary or appropriate to
amend or supplement the Information Statement in order to make the statements
contained or incorporated by reference therein not misleading or to comply with
applicable law. Notwithstanding the foregoing, each party shall be responsible
for the information and disclosures which it makes or incorporates by reference
in all regulatory filings and the Information Statement.
SECTION 15. REGULATORY APPROVALS.
Seller, AEGI and Purchaser shall promptly apply for and use their
commercially reasonable best efforts to obtain all applicable federal and state
regulatory approvals and other approvals required to effectuate the provisions
of this Agreement, including all filings under Hart-Scott-Rodino and with the
appropriate state insurance commissions.
<PAGE> 23
- 19 -
SECTION 16. CERTAIN TERMINATIONS.
Upon execution of this Agreement and notwithstanding any subsequent
termination of this Agreement, Purchaser and AEGI's respective obligations
pursuant to Section 5.4 of the Securities Purchase Agreement among the parties
dated November 5, 1996 shall be terminated.
SECTION 17. NONCOMPETE/NO SOLICITATION AND OTHER ACTIONS.
(a) After the execution of this Agreement, neither Seller nor AEGI, nor
anyone acting on behalf of either of them, shall initiate discussions
with any person, concerning a Competing Proposal (as hereinafter
defined). The Seller and AEGI may (i) furnish information to, an
offeror that seeks to engage in discussions or negotiations, requests
information or makes a proposal to acquire the Aviation Business and the
Reinsured Business pursuant to a Competing Proposal, if the Seller's and
AEGI's directors determine in good faith that such action is required
for the discharge of their fiduciary obligations, after consultation
with independent legal and financial advisors, who may be the Seller's
and AEGI's regularly engaged legal counsel and financial advisors (a
"Director Duty"); (ii) comply with Rule 14d-9 or Rule 14e-2 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act") with
regard to a tender or exchange offer; (iii) make any disclosure to the
Seller's and AEGI's shareholders in accordance with a Director Duty;
(iv) fail to make, modify or amend its recommendations, consents or
approvals referred to herein in accordance with a Director Duty; (v)
terminate this Agreement and enter into an agreement providing for a
Competing Proposal in accordance with a Director Duty; or (vi) take any
other action as may be appropriate in order for the Seller's and AEGI's
Board of Directors to act in a manner that is consistent with their
fiduciary obligations under applicable law. In the event that the
Seller or AEGI or any of their officers, directors, employees, agents,
advisors or other representatives participate in discussions or
negotiations with, or furnish information to an offeror that seeks to
engage in such discussions or negotiations, requests information or
makes a Competing Proposal, then, subject to any confidentiality
requirements of an offeror (i) the Seller and AEGI shall immediately
disclose to the Purchaser the decision of the Seller's and AEGI's
directors; (ii) the identity of the offeror; and (iii) copies of all
information or material not previously furnished to Purchaser which the
Seller or AEGI, or their agents, provides or causes to be provided to
such offeror or any of its officers, directors, employees, agents,
advisors or representatives. For purposes of this Agreement, Competing
Proposal means a bona fide offer to the Seller, AEGI, or the
stockholders of AEGI from a Qualified Third Party (as hereinafter
defined). "Qualified Third Party" means an entity directly or
indirectly having (i) the underwriting capacity of an insurance carrier
rated "A" by A.M. Best Company, (ii) policyholders surplus of Two
Hundred Fifty Million and 00/100 Dollars ($250,000,000.00); and (iii)
agreed to assume all of Purchaser's reinsurance obligations arising
under Section 3 hereof.
<PAGE> 24
- 20 -
(b) As of the Closing Date, Purchaser shall offer employment to, and Seller
shall use its best efforts to assist Purchaser in employing as new
employees of Purchaser, all persons presently engaged in the Aviation
Business except those persons identified on Schedule 17(b) (the
"Employees"). Seller shall terminate effective as of the Closing Date
all employment agreements it has with any of the Employees, except for
employment agreements of Nick Walton and Bob Conrey, which agreements
shall be assumed by Purchaser. Until the third (3rd) anniversary of the
Closing Date, (1) Seller, AEGI and any of their Affiliates will not
directly or indirectly solicit or offer employment to any Employee (i)
who did not become an employee of Purchaser, (ii) who is then an
employee of Purchaser, or (iii) who has terminated such employment
without the consent of Purchaser within one hundred eighty (180) days of
such solicitation or offer, and (2) Purchaser will not directly or
indirectly solicit or offer employment to any person who, after the
Closing Date is then an employee of Seller or who has terminated such
employment without the consent of Seller within one hundred eighty (180)
days of such solicitation or offer. For purposes hereof, "Affiliate"
means any Person which directly or indirectly controls, or is controlled
by, or is under common control with, any Person. The term "control"
means the possession, directly or indirectly, of the power to direct or
cause the direction of the management or policies of a Person, whether
through the ownership of voting securities, by contract or otherwise.
The term "Affiliate" does not include the Purchaser nor any of its
subsidiaries or affiliates. "Person" means an individual, partnership,
corporation, business trust, joint stock company, trust, unincorporated
association, joint venture, limited liability company, governmental
authority or other entity of whatever nature.
(c) Seller, AEGI and each of their affiliates agrees that for a period of
three (3) years after the Closing Date, neither Seller, AEGI or any of
their subsidiaries will, directly or indirectly, own, manage, operate,
join, control or participate in the ownership, management, operation or
control of, any business whether in corporate proprietorship or
partnership form or otherwise as more than a five percent (5%) owner in
such business where such business is competitive with the Aviation
Business. The parties hereto specifically acknowledge and agree that
the remedy at law for any breach of the foregoing will be inadequate and
that the Purchaser, in addition to any other relief available to it,
shall be entitled to temporary and permanent injunctive relief without
the necessity of proving actual damage. In the event that the
provisions of this Section 17 should ever be deemed to exceed the non-
competition and non-disclosure restrictions provided by applicable law,
then the parties hereto agree that such provisions shall be reformed to
set forth the maximum limitations permitted.
(d) Upon the execution of this Agreement, the Purchaser shall have received
a written commitment from Mason Best Company L.P. substantially in the
form of the attached Exhibit F that, among other matters, it will vote
its shares of the common stock of AEGI in favor of the transactions
contemplated herein.
SECTION 18. TERMINATION.
<PAGE> 25
- 21 -
Notwithstanding any other provision contained herein, this Agreement may
be terminated at any time prior to the Closing Date:
(a) by mutual written consent of the Seller, AEGI and the Purchaser;
(b) by the Seller, AEGI or the Purchaser, upon written notice to the other
party, if the Closing shall not have occurred on or prior to the
Termination Date, unless such failure of consummation shall be due to
the failure of the party seeking such termination to perform or observe
in all material respects the covenants and agreements hereof to be
performed or observed by such party;
(c) by the Seller, AEGI or the Purchaser, upon written notice to the other
parties, if a governmental authority of competent jurisdiction shall
have issued an injunction, order or decree enjoining or otherwise
prohibiting the consummation of the transactions contemplated by this
Agreement, and such injunction, order or decree shall have become final
and non-appealable or if a governmental authority has otherwise made a
final determination that any required regulatory consent would not be
forthcoming; provided, however, that the party seeking to terminate this
Agreement pursuant to this clause has used all commercially reasonable
efforts to remove such injunction, order or decree;
(d) by the Seller or AEGI if the Board of Directors of the Seller or AEGI
determines in accordance with a Director Duty that such termination is
required by reason of a Competing Proposal; or
(e) by the Seller, AEGI or the Purchaser if the Board of Directors of the
Seller and AEGI shall have withdrawn or modified in a manner materially
adverse to the Purchaser its approval of the adoption of this Agreement,
because the Boards of Directors have determined to recommend to the
Seller's and AEGI's shareholders or approve a Competing Proposal, in
accordance with a Director Duty; provided, however, that any
communication that advises that Seller or AEGI has received a Competing
Proposal shall in no event be deemed a withdrawal or modification
adverse to the Purchaser of its approval of this Agreement.
SECTION 19. EFFECT OF TERMINATION.
In the event that this Agreement is terminated pursuant to clause 18(d)
or 18(e) hereof, then the Purchaser shall be entitled to a cash payment within
five (5) days of the termination date from Seller of One Million Seven Hundred
Fifty Thousand and 00/100 Dollars ($1,750,000.00).
<PAGE> 26
- 22 -
SECTION 20. INDEMNIFICATION.
Section 20.1 General Indemnification Obligation of Seller and AEGI.
From and after the Closing, each of Seller and AEGI, jointly and severally,
will reimburse, indemnify and hold harmless Purchaser and its successors and
assigns (an "Indemnified Purchaser Party") against and in respect of:
(a) Any and all damages, losses, deficiencies, liabilities, costs and
expenses incurred or suffered by any Indemnified Purchaser Party that
result from, relate to or arise out of:
(i) any and all liabilities and obligations of Seller of any nature
whatsoever, except for the Assumed Liabilities; or
(ii) any misrepresentation, breach or warranty or nonfulfillment of
any agreement or covenant on the part of Seller or AEGI under
this Agreement, or from any misrepresentation in or omission from
any certificate, schedule, statement, document or instrument
furnished to Purchaser pursuant hereto or in connection with the
negotiation, execution or performance of this Agreement; and
(b) Any and all actions, suits, claims, proceedings, investigations,
demands, assessments, audits, fines, judgments, costs and other expenses
(including, without limitation, reasonable legal fees and expenses)
incident to any of the foregoing or to the enforcement of this Section
20.1.
Section 20.2 General Indemnification Obligation of Purchaser. From and
after the Closing, Purchaser will reimburse, indemnify and hold harmless
Seller, AEGI and their successors or assigns (an "Indemnified Seller Party")
against and in respect of:
(a) Any and all damages, losses, deficiencies, liabilities, costs and
expenses incurred or suffered by any Indemnified Seller Party that
result from, relate to or arise out of:
(i) the Assumed Liabilities; or
(ii) any misrepresentation, breach of warranty or non-fulfillment of
any agreement or covenant on the part of Purchaser under this
Agreement, or from any misrepresentation in or omission from any
certificate, schedule, statement, document or instrument
furnished to Seller pursuant hereto or in connection with the
negotiation, execution or performance of this Agreement; and
(b) any and all actions, suits, claims, proceedings, investigations,
demands, assessments, audits, fines, judgments, costs and other expenses
(including, without limitation, reasonable legal fees and expenses)
incident to any of the foregoing or to the enforcement of this Section
20.2.
<PAGE> 27
- 23 -
Section 20.3 Method of Asserting Claims, Etc. In the event that any
claim or demand for which Seller or AEGI would be liable to an Indemnified
Purchaser Party hereunder is asserted against or sought to be collected from
an Indemnified Purchaser Party by a third party, the Indemnified Purchaser
Party shall promptly notify Seller and AEGI of such claim or demand, specifying
the nature of such claim or demand and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive of
the final amount of such claim and demand) (the "Claim Notice"). Seller and
AEGI shall have ten (10) days from the personal delivery or mailing of the
Claim Notice (the "Notice Period") to notify the Indemnified Purchaser Party,
(A) whether or not they dispute their liability to the Indemnified Purchaser
Party hereunder with respect to such claim or demand and (B) notwithstanding
any such dispute, whether or not they desire, at their sole cost and expense,
to defend the Indemnified Purchaser Party against such claims or demand.
(a) In the event that Seller or AEGI notifies the Indemnified Purchaser
Party within the Notice Period that they desire to defend the
Indemnified Purchaser Party against such claim or demand then, except as
hereinafter provided, Seller or AEGI, respectively, shall have the right
to defend the Indemnified Purchaser Party by appropriate proceedings,
which proceedings shall be promptly settled or prosecuted by them to a
final conclusion in such a manner as to avoid any risk of Indemnified
Purchaser Party becoming subject to liability for any other matter;
provided, however, Seller and AEGI shall not, without the prior written
consent of the Indemnified Purchaser Party, consent to the entry of any
judgment against the Indemnified Purchaser Party or enter into any
settlement or compromise which does not include, as an unconditional
term thereof, the giving of the claimant or plaintiff to the Indemnified
Purchaser Party of a release, in form and substance satisfactory to the
Indemnified Purchaser Party, as the case may be, from all liability in
respect of such claim or litigation. If any Indemnified Purchaser Party
desires to participate in, but not control, any such defense or
settlement, it may do so at its sole cost and expense.
(b) (i) If Seller or AEGI elects not to defend the Indemnified Purchaser
Party against such claim or demand, whether by not giving the
Indemnified Purchaser Party timely notice as provided above or
otherwise, then the amount of any such claim of demand, or if the
same be defended by Seller or AEGI or by the Indemnified
Purchaser Party (but no Indemnified Purchaser Party shall have
any obligation to defend any such claim or demand), then that
portion thereof as to which such defense is unsuccessful, in each
case shall be conclusively deemed to be a liability of Seller and
AEGI hereunder.
(ii) In the event an Indemnified Purchaser Party should have a claim
against Seller or AEGI hereunder that does not involve a claim or
demand being asserted against or sought to be collected from it
by a third party, the Indemnified Purchaser Party shall promptly
send a Claim Notice with respect to such claim to Seller and
AEGI. If Seller or AEGI does not notify the Indemnified
Purchaser Party within the Notice
<PAGE> 28
- 24 -
Period that it disputes such claim, the amount of such claim
shall be conclusively deemed a liability of Seller or AEGI,
respectively, hereunder.
(c) All claims for indemnification by an Indemnified Seller Party under this
Agreement shall be asserted and resolved under the procedures set forth
above substituting in the appropriate place "Indemnified Seller Party"
for "Indemnified Purchaser Party" and variations thereof and "Purchaser"
for "Seller and AEGI."
Section 20.4 Payment. Upon the determination of the liability under
Section 20.3 hereof, the appropriate party shall pay to the other, as the case
may be, within ten days after such determination, the amount of any claim for
indemnification made hereunder. In the event that the indemnified party is not
paid in full for any such claim pursuant to the foregoing provisions promptly
after the other party's obligation to indemnify has been determined in
accordance herewith, it shall have the right, notwithstanding any other rights
that it may have against any other person, firm or corporation, to setoff the
unpaid amount of any such claim against any amounts owed by it under any
agreements entered into pursuant to this Agreement or any of the documents
executed in connection herewith. Upon the payment in full of any claim, either
by setoff or otherwise, the entity making payment shall be subrogated to the
rights of the indemnified party against any person, firm or corporation with
respect to the subject matter of such claim.
Section 20.5 Other Rights and Remedies Not Affected. The
indemnification rights of the parties under this Section 20 are independent of
and in addition to such rights and remedies as the parties may have at law or
in equity or otherwise for any misrepresentation, breach of warranty or failure
to fulfill any agreement or covenant hereunder on the part of any party hereto,
including without limitation the right to seek specific performance, rescission
or restitution, none of which rights or remedies shall be affected or
diminished hereby.
Section 20.6 Limitations on Amount -- Seller and AEGI. Seller and AEGI
will have no liability (for indemnification or otherwise) with respect to the
matters described in Section 20.1 until the total of all damages actually paid
or incurred by an Indemnified Purchaser Party with respect to such matters
exceeds One Million and 00/100 Dollars ($1,000,000.00), and then only for the
amount by which such damages actually paid or incurred by an Indemnified
Purchaser Party exceed One Million and 00/100 Dollars ($1,000,000.00). The
maximum aggregate obligation of Seller and AEGI with respect to all matters for
which an Indemnified Purchaser Party may seek indemnification under Section
20.1(ii) of this Agreement for misrepresentation or breach of warranty shall
not exceed Twenty Million and 00/100 Dollars ($20,000,000.00).
Section 20.7 Limitations on Amount - Purchaser. The maximum aggregate
obligation of Purchaser to the Seller and AEGI with respect to all matters for
which AEGI or Seller may seek indemnification under Section 20.2(ii) of this
Agreement for misrepresentation or breach of warranty shall not exceed Twenty
Million and 00/100 Dollars ($20,000,000.00).
<PAGE> 29
- 25 -
Section 20.8 Applicable Definitions. For purposes of this Agreement, a
Person shall be deemed to have "Knowledge" or "knowledge" of a particular fact
or other matter if such individual is actually aware of such fact or other
matter, or an individual who is not negligent could be expected to discover or
otherwise become aware of such fact or other matter in the course of conducting
a reasonably comprehensive investigation of the books and records concerning
the existence of such fact or other matter. A Person (other than an
individual) will be deemed to have "Knowledge" of a particular fact or other
matter if any individual who is serving, as a director, officer, partner,
executor or trustee of such Person (or in any similar capacity) has, or at any
time had, Knowledge of such fact or other matter.
SECTION 21. COMPLIANCE WITH BULK SALES LAWS.
Purchaser and Seller hereby waive compliance by Purchaser and Seller
with the bulk sales law and any other similar laws in any applicable
jurisdiction in respect of the transactions contemplated by this Agreement.
Seller and AEGI shall indemnify Purchaser from, and hold it harmless against,
any liabilities, damages, costs and expenses resulting from or arising out of
(i) the parties' failure to comply with any of such laws in respect of the
transactions contemplated by this Agreement, or (ii) any action brought or levy
made as a result thereof, other than those liabilities which have been
expressly assumed, on such terms as expressly assumed, by Purchaser pursuant to
this Agreement.
SECTION 22. DEFAULT UNDER THE AGREEMENT.
If any party shall default in the performance of its obligations
hereunder, the non-defaulting parties shall retain all rights and remedies,
whether arising in equity or at law, including actions for specific performance
and damages, as a result of the default by the other party under this
Agreement, unless, the non-defaulting party, after receipt of written notice of
such default elects to consummate the transactions hereunder.
SECTION 23. TRANSITION.
(a) Purchaser shall use its best efforts to accomplish as soon as possible
all necessary operational, systems, contractual and legal requirements
on its part to issue where commercially desirable, policies of insurance
as the Aviation Business and the Reinsured Business renews. This
undertaking by Purchaser shall terminate, at Purchaser's option, upon
Purchaser's good faith belief that the Closing shall not occur by the
Termination Date.
(b) From and after the Closing Date, upon either party's request, the
parties shall cooperate with each other in all reasonable respects, and
execute and deliver such documents and take such other actions as are
necessary to effectuate the transfer of the Aviation Business and the
<PAGE> 30
- 26 -
Reinsured Business to Purchaser and Purchaser's continuation thereof as
contemplated by this Agreement. In this regard, Seller shall, if
requested by Purchaser, continue to renew policies of insurance included
in the Aviation Business and the Reinsured Business in a manner
consistent with Seller's prior practices and underwriting standards, to
the extent that, despite Purchaser's best efforts, Purchaser is not
operationally capable of issuing its own policy of insurance upon
renewal of such policies; provided, however, that no such policy shall
be issued by Seller with an effective date after July 31, 1997.
SECTION 24. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations, warranties, covenants and agreements of Seller,
AEGI and Purchaser contained in this Agreement or in any document delivered
pursuant to the terms of this Agreement, shall survive the Closing hereunder
for a period of one (1) year.
SECTION 25. FEES AND EXPENSES.
Each of the parties hereto shall be responsible for their own expenses
(including, but not limited to, legal and accounting expenses) incident to the
execution of this Agreement and the consummation of the transactions
contemplated hereby whether or not such transactions shall be consummated.
SECTION 26. PRESS RELEASES.
Neither party shall make any press release or public announcement
concerning this Agreement or the transactions contemplated hereby without the
consent of the other party.
SECTION 27. NOTICES.
All notices, requests, demands and other communications hereunder must
be in writing and shall be deemed to have been duly given (a) upon receipt if
delivered by hand, and (b) three days after mailing if mailed by first-class,
registered or certified mail, return receipt request, postage and registry fees
prepaid and addressed as follows:
If to Purchaser:
Great American Insurance Company
580 Walnut Street
Cincinnati, Ohio 45202
Attention: Gary J. Gruber
<PAGE> 31
- 27 -
If to Seller:
American Eagle Insurance Company
12801 N. Central Expressway, Suite 800
Dallas, Texas 75243
Attention: President
If to AEGI:
American Eagle Group, Inc.
12801 N. Central Expressway, Suite 800
Dallas, Texas 75243
Attention: President
Addresses may be changed by notice in writing signed by the addressee.
SECTION 28. MISCELLANEOUS.
This Agreement shall be construed and enforced in accordance with and
governed by the laws of the State of Ohio. Neither this Agreement nor any
terms hereof may be changed, waived, discharged or terminated orally, but only
by an instrument in writing signed by the party against whom or which
enforcement of such change, waiver, discharge or termination is sought. In the
event a court of competent jurisdiction modifies any provision of this
Agreement, the remaining provisions of this Agreement shall remain in full
force and effect and the modified provision shall be abided by the parties as
so modified by the court. The invalidity or unenforceability of any term or
provision, or any clause, or portion thereof, of this Agreement shall in no way
impair or affect the validity or enforceability of any other term or provision
of this Agreement, which shall remain in full force and effect. This Agreement
and the Schedules attached hereto embody the entire agreement and understanding
between the parties hereto and supersede all prior agreements and
understandings relating to the subject matter hereof. No party hereto has made
any representation, warranty or covenant in connection with the matters set
forth herein except as expressly stated herein. All the terms of this
Agreement shall be binding upon the successors and assigns of the parties
hereto and shall inure to the benefit of and be enforceable by the parties
hereto, their successors and assigns; provided however, that this Agreement may
not be assigned by either party hereto without the prior written consent of the
other, which consent shall not be unreasonably withheld. Failure to insist
upon strict compliance with any terms, covenants or conditions hereof shall not
be deemed a waiver of such terms, covenants or conditions, nor shall any waiver
or relinquishment of such right at any other time or times be deemed a waiver
or relinquishment of such right at any other time or times. The headings of
this Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning thereof. This Agreement may be executed
simultaneously in several counterparts, each of which shall constitute one and
the same instrument. Schedules and Exhibits are made a part of this Agreement
as though set forth in full herein.
<PAGE> 32
- 28 -
[Remainder of page intentionally left blank. Signature Page follows.]
<PAGE> 33
- 29 -
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement on the
date first above written.
GREAT AMERICAN INSURANCE COMPANY
BY:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
AMERICAN EAGLE INSURANCE COMPANY
BY:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
AMERICAN EAGLE GROUP, INC.
BY:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE> 1
EXHIBIT 10.43
ASSET PURCHASE AGREEMENT
BETWEEN
AMERICAN EAGLE INSURANCE COMPANY
AS SELLER
AND
HDR INSURANCE MANAGERS, LLC
AS BUYER
DATED AS OF APRIL 23, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
INTRODUCTORY STATEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
STATEMENT OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE 1 TRANSFER OF ASSETS AND LIABILITIES . . . . . . . . . . . . . . . . 1
Section 1.1 Assets to be Sold . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Consideration . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.3 Excess Cash Flow Audit . . . . . . . . . . . . . . . . . 2
Section 1.4 Proration of Taxes . . . . . . . . . . . . . . . . . . . 3
Section 1.5 Proration of Lease Payments, Utility Charges and Other
Payments . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.6 Closing . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 1.7 Deliveries by Seller . . . . . . . . . . . . . . . . . . 4
Section 1.8 Deliveries by Buyer . . . . . . . . . . . . . . . . . . . 4
Section 1.9 Allocation of Purchase Price . . . . . . . . . . . . . . 5
ARTICLE 2 ASSIGNMENT OF TRADE AND BUSINESS NAMES . . . . . . . . . . . . . . 5
Section 2.1 Use of Names . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.2 Assignment of Names . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3 EMPLOYEES AND EMPLOYEE PLANS . . . . . . . . . . . . . . . . . . . 5
Section 3.1 Employee Offers . . . . . . . . . . . . . . . . . . . . . 5
Section 3.2 Benefit Reserves . . . . . . . . . . . . . . . . . . . . 5
Section 3.3 Wages . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 3.4 Termination of Employment Agreements . . . . . . . . . . 5
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF SELLER . . . . . . . . . . . . . 6
Section 4.1 Incorporation, Etc. . . . . . . . . . . . . . . . . . . . 6
Section 4.2 Authorization. . . . . . . . . . . . . . . . . . . . . . 7
Section 4.3 No Violation . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.4 Title to Property, Encumbrances . . . . . . . . . . . . . 7
Section 4.5 Consents and Approvals . . . . . . . . . . . . . . . . . 7
Section 4.6 Good Title Conveyed, Etc. . . . . . . . . . . . . . . . . 7
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF BUYER . . . . . . . . . . . . . 7
Section 5.1 Organization, Etc. . . . . . . . . . . . . . . . . . . . 7
Section 5.2 Authorization . . . . . . . . . . . . . . . . . . . . . . 7
Section 5.3 No Violation . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.4 Consents and Approvals . . . . . . . . . . . . . . . . . 8
Section 5.5 Full Disclosure . . . . . . . . . . . . . . . . . . . . . 8
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
ARTICLE 6 SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION . . . . . . . . . . . 9
Section 6.1 Survival of Representations . . . . . . . . . . . . . . . 9
Section 6.2 Seller's Agreement to Indemnify . . . . . . . . . . . . . 9
Section 6.3 Seller's Limitation of Liability . . . . . . . . . . . . 9
Section 6.4 Buyer's Agreement to Indemnify . . . . . . . . . . . . . 9
Section 6.5 Buyer's Limitation of Liability . . . . . . . . . . . . . 10
Section 6.6 Conditions of Indemnification . . . . . . . . . . . . . . 10
ARTICLE 7 OTHER OBLIGATIONS OF SELLER AND BUYER . . . . . . . . . . . . . . 11
Section 7.1 Buyer's Licenses . . . . . . . . . . . . . . . . . . . . 11
Section 7.2 Consents . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 7.3 Governmental Filings . . . . . . . . . . . . . . . . . . 11
Section 7.4 Conduct of Business . . . . . . . . . . . . . . . . . . . 11
Section 7.5 Covenant to Satisfy Conditions . . . . . . . . . . . . . 11
Section 7.6 Resale Exemption Certificates . . . . . . . . . . . . . . 12
Section 7.7 Damage or Destruction . . . . . . . . . . . . . . . . . . 12
Section 7.8 Financial and Strategic Reporting . . . . . . . . . . . . 12
Section 7.9 Noncompetition . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 8 CONDITIONS TO OBLIGATIONS OF BUYER . . . . . . . . . . . . . . . . 12
Section 8.1 Representations and Warranties . . . . . . . . . . . . . 12
Section 8.2 Performance . . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.3 No Injunction . . . . . . . . . . . . . . . . . . . . . . 13
Section 8.4 Officer's Certificate . . . . . . . . . . . . . . . . . . 13
Section 8.5 Consents and Approvals . . . . . . . . . . . . . . . . . 13
Section 8.6 Deliveries by Seller . . . . . . . . . . . . . . . . . . 13
Section 8.7 Services Agreement . . . . . . . . . . . . . . . . . . . 13
Section 8.8 Underwriting Services Agreement . . . . . . . . . . . . . 13
Section 8.9 Buyer Financing . . . . . . . . . . . . . . . . . . . . . 13
Section 8.10 Insurance License . . . . . . . . . . . . . . . . . . . 13
Section 8.11 Noncompetition Agreement . . . . . . . . . . . . . . . . 13
ARTICLE 9 CONDITIONS TO OBLIGATIONS OF SELLER . . . . . . . . . . . . . . . 14
Section 9.1 Representations and Warranties . . . . . . . . . . . . . 14
Section 9.2 Performance . . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.3 Officer's Certificate . . . . . . . . . . . . . . . . . . 14
Section 9.4 No Injunction . . . . . . . . . . . . . . . . . . . . . . 14
Section 9.5 INSCORP Reinsurance Agreement . . . . . . . . . . . . . . 14
Section 9.6 Services Agreement . . . . . . . . . . . . . . . . . . . 14
Section 9.7 Underwriting Services Agreement . . . . . . . . . . . . . 14
Section 9.8 Consents and Approvals . . . . . . . . . . . . . . . . . 14
Section 9.9 Buyer's Deliveries . . . . . . . . . . . . . . . . . . . 15
Section 9.10 Management Employment Agreements . . . . . . . . . . . . 15
Section 9.11 Buyer Financing . . . . . . . . . . . . . . . . . . . . 15
Section 9.12 Insurance License . . . . . . . . . . . . . . . . . . . 15
Section 9.13 Noncompetition Agreement . . . . . . . . . . . . . . . . 15
Section 9.14 Profit Sharing Agreement. . . . . . . . . . . . . . . . 15
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 10 TERMINATION OF AGREEMENT . . . . . . . . . . . . . . . . . . . . 15
Section 10.1 Termination of Agreement . . . . . . . . . . . . . . . . 15
Section 10.2 Procedure Upon Termination . . . . . . . . . . . . . . . 15
ARTICLE 11 MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 11.1 Mail Received After Closing . . . . . . . . . . . . . . 16
Section 11.2 Access to Books and Records . . . . . . . . . . . . . . 16
Section 11.3 Commissions . . . . . . . . . . . . . . . . . . . . . . 16
Section 11.4 Expenses, Taxes, Etc. . . . . . . . . . . . . . . . . . 17
Section 11.5 Further Assurances . . . . . . . . . . . . . . . . . . . 17
Section 11.6 Parties in Interest . . . . . . . . . . . . . . . . . . 17
Section 11.7 Entire Agreement, Amendments and Waiver . . . . . . . . 17
Section 11.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 11.9 Notices . . . . . . . . . . . . . . . . . . . . . . . . 18
Section 11.10 GOVERNING LAW . . . . . . . . . . . . . . . . . . . . . 18
Section 11.11 Third Parties . . . . . . . . . . . . . . . . . . . . . 18
Section 11.12 Counterparts . . . . . . . . . . . . . . . . . . . . . 18
Section 11.13 Specific Performance . . . . . . . . . . . . . . . . . 18
Section 11.14 Waiver of Bulk Sales Act Compliance . . . . . . . . . . 18
Appendices, Schedules, and Exhibits
-----------------------------------
Appendix I Certain Definitions
Appendix II Schedule of Division Assets
Appendix III Schedule of Assumed Liabilities
Schedule 2.1 Assigned Names
Schedule 3.1 Employee Matters
Schedule 4.4 Permitted Encumbrances
Schedule 4.5 Required Consents
Exhibit A Form of Bill of Sale
Exhibit B Form of Subordinated Promissory Note
Exhibit C Form of Assumption Agreement
Exhibit D Form of Assignment of Names
Exhibit E Form of Excess Cash Flow Worksheet
Exhibit F Form of Managing General Agency Agreement
Exhibit G Form of Noncompetition Agreement
</TABLE>
iii
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS ASSET PURCHASE AGREEMENT is dated as of April 23, 1997 by and
between American Eagle Insurance Company, a Texas corporation ("SELLER"), and
HDR Insurance Managers, LLC, a California limited liability company ("BUYER").
INTRODUCTORY STATEMENT
This Agreement sets forth the terms and conditions upon which Buyer
agrees to purchase from Seller, and Seller agrees to sell to Buyer,
substantially all of the property and assets of Seller's Property and Casualty
Division business (the "DIVISION BUSINESS"), currently conducted by the
Property and Casualty Division of Seller (the "DIVISION"). Except as otherwise
expressly provided or unless the context otherwise requires (in addition to the
definitions contained elsewhere herein) the terms defined in Appendix I hereto
shall have the meanings therein specified for all purposes of this Agreement,
applicable to both the single and plural forms of such terms.
Accordingly, for and in consideration of the premises and the mutual
agreements, representations, warranties, covenants and conditions herein set
forth and for other good, valuable and binding consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
STATEMENT OF AGREEMENT
ARTICLE 1
TRANSFER OF ASSETS AND LIABILITIES
Section 1.1 Assets to be Sold.
(a) Subject to the terms and conditions of this Agreement, at
the Closing provided for in Section 1.7 hereof (the "CLOSING"), Seller shall
sell, convey, assign, transfer and deliver to Buyer the property and assets of
the Division Business listed and described in Appendix II hereto (collectively,
the "DIVISION ASSETS"). Other property and assets of the Division Business,
such as policy and claim files, are not Division Assets to be sold, conveyed,
assigned, transferred and delivered to Buyer even though physical possession of
such property and assets may be transferred to Buyer.
(b) Such sale, conveyance, assignment, transfer and delivery
shall be effected by delivery by Seller to Buyer of (i) a duly executed bill of
sale in substantially the form of Exhibit A hereto (the "BILL OF SALE"), (ii)
instruments of assignment with respect to all trade or service names and marks
and all applications therefor included in the Division Assets in which Seller
has any interest, all in recordable form (collectively, the "INSTRUMENTS OF
ASSIGNMENT"),
<PAGE> 6
(iii) the Assignment of Names (as hereinafter defined) and (iv) such other good
and sufficient instruments of conveyance and transfer as shall be necessary to
vest in Buyer good and valid title to the Division Assets.
Section 1.2 Consideration. In consideration of the aforesaid sale,
conveyance, assignment, transfer and delivery of the Division Assets, Buyer
shall deliver at the Closing the following:
(a) the purchase price for the Division Assets in the
aggregate amount of $3,275,000 (the "PURCHASE PRICE") payable as
follows: (i) a wire transfer of immediately available funds in the
amount of $1,025,000; (ii) a Subordinated Promissory Note (the "NOTE")
made payable to Seller in the principal amount of $2,250,000 in the form
attached hereto as Exhibit B;
(b) an Assumption Agreement (the "ASSUMPTION AGREEMENT")
substantially in the form of Exhibit C hereto, whereby Buyer shall
assume and agree to perform, pay and discharge the liabilities and
obligations of Seller relating to the Division Business specified in
Appendix III hereto (the "ASSUMED LIABILITIES") and such other
instruments, documents or agreements as Seller may reasonably request to
evidence Buyer's assumption of and agreement to perform, pay and
discharge the Assumed Liabilities (collectively, the "INSTRUMENTS OF
ASSUMPTION").
Section 1.3 Excess Cash Flow Audit.
(a) Audits. Within 30 days after the end of each ECFR Period
(as defined in the Note), Buyer shall deliver to Seller an Excess Cash Flow
worksheet in the form of Exhibit E attached hereto (the "WORKSHEET"). Upon
receipt of any Worksheet, Seller shall have 30 days to perform an audit of the
data presented in the Worksheet and all necessary supporting data (each, an
"AUDIT").
(b) Arbitration of Audit Disputes. If Buyer disputes the
results in any Audit, determined by Seller's accountants ("SELLER'S
ACCOUNTANTS") pursuant to paragraph (a) of this Section, it shall so notify
Seller in writing within ten (10) business days after the date upon which it
shall have received the Audit (a "NOTICE OF DISPUTE"), specifying in reasonably
complete detail the points of disagreement and demanding that a review (a
"REVIEW") of such points of disagreement be conducted. Upon receipt of a
Notice of Dispute, Seller shall promptly cause Seller's Accountants to consult
with Buyer's accountants ("BUYER'S ACCOUNTANTS") with respect to such points of
disagreement in an effort to resolve such dispute. If any such dispute cannot
be resolved by Seller's Accountants and Buyer's Accountants within ten (10)
business days after Seller receives a Notice of Dispute from Buyer, Seller's
Accountants and Buyer's Accountants shall jointly select a nationally
recognized firm of independent public accountants which has not performed any
material services within the last eighteen (18) months for either Buyer or
Seller or any of their respective Affiliates, to act as an arbitrator (the
"ACCOUNTING ARBITRATOR") to determine all points of remaining disagreement with
respect to the Audit. Buyer and Seller understand and agree that, in resolving
any dispute with respect to the Audit, the Accounting Arbitrator shall apply
generally accepted accounting principles in a manner consistent with prior
2
<PAGE> 7
periods. ALL DETERMINATIONS MADE BY THE ACCOUNTING ARBITRATOR SHALL BE FINAL,
CONCLUSIVE AND BINDING WITH RESPECT TO THE AUDIT.
(c) Access to Books and Records. After the Closing, Buyer
shall afford Seller and Seller's Accountants such access to Buyer's assets,
books and records as Seller deems necessary or desirable in connection with the
Audits. Buyer and Seller agree to use their best efforts to cause Buyer's
Accountants and Seller's Accountants to cooperate fully with each other in
effecting the final determination of the amount of any Audits.
(d) Accounting Arbitrator Expenses. The fees and expenses of
Buyer's accountants and Seller's accountants incurred in connection with the
final determination of the amount of any Audit shall be paid by Buyer and
Seller, respectively. The fees and expenses of the Accounting Arbitrator
incurred in connection with the final determination of any Audit shall be
allocated between Buyer and Seller as follows: (i) Seller shall pay all or a
portion of the Accounting Arbitrator's fees and expenses, as determined in
accordance with the following formula:
SE = AE x AA
--
BA
where: SE equals Seller's share of the Accounting Arbitrator's fees and
expenses; AE equals the Accounting Arbitrator's total fees and expenses; AA
equals the aggregate adjustment to the Audit made by the Accounting Arbitrator;
and BA equals the aggregate adjustment to the Audit that would have resulted
from resolution in Buyer's favor of all points of disagreement raised by Buyer
to the Accounting Arbitrator; and (ii) Buyer shall pay the balance of the
Accounting Arbitrator's fees and expenses, if any.
(e) Interest. Any payment required to be made by Buyer
pursuant to paragraph (d) of this Section shall bear interest from the payment
date through the date of payment at an interest rate of 8% per annum.
Section 1.4 Proration of Taxes. All property taxes and special
assessments payable but not yet due with respect to any of the Division Assets
shall be prorated between Seller and Buyer on the basis of actual days elapsed
between the commencement of the current fiscal tax year and the Closing Date,
based on a 365-day year. In the event that actual tax figures for the year of
Closing are not available at the Closing Date, an estimated, provisional
proration of taxes shall be made using tax figures from the preceding year.
Section 1.5 Proration of Lease Payments, Utility Charges and Other
Payments. In any case where the Closing Date shall fall on a date other than
the date on which payments are due with respect to (i) any leases or (ii)
utility or similar regular periodic charges respecting the Division Assets for
which a final billing has not been received by Seller, any installment of
rental payments and any such utility or similar charge payable with respect to
the current period in which the Closing Date occurs shall be prorated between
Seller and Buyer on the basis of the actual number of days elapsed from the
first day of such period to the Closing Date.
3
<PAGE> 8
Section 1.6 Closing. Subject to Section 10.1 of this Agreement, the
Closing of the transactions contemplated by this Agreement shall occur at a
place and in a manner mutually agreed to by the parties hereto on the later of
(i) April 30, 1997, or (ii) the third business day following the date on which
all of the conditions contained in Articles 8 and 9 hereof, to the extent not
waived, are satisfied. The Closing may be postponed to such other date as
Buyer and Seller may agree. The date on which the Closing actually occurs is
hereinafter referred to as the "CLOSING DATE".
Section 1.7 Deliveries by Seller. At the Closing, Seller shall
deliver to Buyer (unless delivered previously) the following:
(a) the Bill of Sale;
(b) the Instruments of Assignment;
(c) the Assignment of Names;
(d) the certificate of Seller's President referred to in
Section 8.4 hereof;
(e) copies of any consents required to be obtained by Seller
which are referred to in Section 8.5 hereof.
Section 1.8 Deliveries by Buyer. At the Closing, Buyer shall deliver
to Seller (unless delivered previously) the following:
(a) the wire transfer of immediately available funds referred
to in Section 1.2(a)(i) hereof;
(b) the Note;
(c) the Assumption Agreement and the Instruments of
Assumption;
(d) the officer's certificate of Buyer's President or Vice
President referred to in Section 9.3 hereof;
(e) the Managing General Agency Agreement referred to in
Section 9.7;
(f) evidence of capitalization of Buyer satisfactory to
Seller, including a copy of Buyer's balance sheet as of the Closing Date
and copies of any promissory notes contributed to Buyer as capital;
(g) an executed Services Agreement (as described in Section
9.6 hereof);
(h) letters from each of George C. Hill III and David O.
Daniels, in a form satisfactory to Seller, submitting their respective
resignations as officers and/or employees of Seller.
4
<PAGE> 9
Section 1.9 Allocation of Purchase Price. The Purchase Price and the
Assumed Liabilities (collectively, the "BASIS") shall be allocated among the
Division Assets in accordance with the allocation established by Buyer. Such
allocation of the Basis shall be conclusive and binding on both Buyer and
Seller for purposes of their federal and, where applicable, state and local tax
returns and filings. Buyer and Seller shall prepare and timely file all such
reports and returns as may be required by Section 1060 of the Internal Revenue
Code of 1986 to report such allocation of the Basis.
ARTICLE 2
ASSIGNMENT OF TRADE AND BUSINESS NAMES
Section 2.1 Use of Names. After the Closing, Seller will not use or
permit any of its Subsidiaries or Affiliates to use the names listed in
Schedule 2.1 hereto.
Section 2.2 Assignment of Names. At the Closing, Seller will deliver
to Buyer a written assignment, in the form of Exhibit D hereto (the "ASSIGNMENT
OF NAMES"), evidencing the assignment to Buyer of its rights to the names
listed in Schedule 2.1 hereto.
ARTICLE 3
EMPLOYEES AND EMPLOYEE PLANS
Section 3.1 Employee Offers. Buyer shall offer to employ, on terms
and conditions to be established by Buyer prior to making such offer to employ,
all of the Division's current employees other than those identified on Schedule
3.1 hereto. Buyer shall not offer employment after Closing to persons
identified on Schedule 3.1 hereto.
Section 3.2 Benefit Reserves. Seller shall pay or cause to be paid
when due to employees of Seller engaged in the Division Business all amounts
due under any employee benefit plan or program of Seller in respect of all
periods ending on the Closing Date.
Section 3.3 Wages. Seller shall pay or cause to be paid when due to
employees of Seller engaged in the Division Business the amount of all wages,
bonuses, commissions and other compensation (including, without limitation, all
vacation and sick pay) due in respect of all periods ending on the Closing
Date.
Section 3.4 Termination of Employment Agreements. At Closing, the
employment agreements between the Seller and each of David O. Daniels and
George C. Hill III shall be terminated and Seller shall have no liability or
obligation whatsoever arising from such employment agreements or such
terminations.
5
<PAGE> 10
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyer as follows:
Section 4.1 Incorporation, Etc. Seller is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Texas and has the corporate power and authority to carry on the Division
Business as it is now being conducted and to own and lease the property and
assets that it now owns and leases in connection with the Division Business.
Section 4.2 Authorization.
(a) Seller has all requisite corporate power and authority to
enter into, execute, deliver and consummate the transactions contemplated by
this Agreement and any instruments and agreements contemplated herein required
to be executed and delivered by it pursuant to this Agreement (collectively,
the "RELATED INSTRUMENTS"). At or prior to Closing, the Board of Directors of
Seller will have taken all action required by law, the Articles of
Incorporation and Bylaws of Seller or otherwise to authorize the execution and
delivery of this Agreement and the consummation of the transactions
contemplated hereby, including the execution, delivery and consummation of the
Related Instruments. No other corporate act or proceeding on the part of
Seller is necessary to authorize this Agreement or any of the Related
Instruments or the transactions contemplated hereby or thereby. This Agreement
is, and each of the Related Instruments, when executed and delivered to Buyer
by Seller at the Closing, will be, a valid and binding obligation of Seller
enforceable against it in accordance with their terms, subject to bankruptcy,
insolvency, reorganization and other laws and judicial decisions of general
applicability relating to or affecting creditors' rights and to general
principles of equity.
(b) At or prior to Closing, Seller will have delivered to
Buyer true and complete copies, certified by the Secretary or an Assistant
Secretary of Seller, of the resolutions duly and validly adopted by the Board
of Directors of Seller evidencing its authorization of the execution and
delivery of this Agreement and the Related Instruments and the consummation of
the transactions contemplated hereby and thereby (which resolutions have not
been modified, revoked or rescinded in any respect).
Section 4.3 No Violation. Subject to obtaining the consents and
approvals set forth in Section 4.5 hereof, neither the execution and delivery
by Seller of this Agreement or any of the Related Instruments, nor the
consummation by Seller, of the transactions contemplated hereby or thereby will
violate any material provision of the Articles of Incorporation or Bylaws of
Seller, or, violate, or be in conflict with, or constitute a default (or an
event or condition which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or cause the acceleration of the maturity of any
liability or obligation pursuant to, or result in the creation or imposition of
any encumbrance upon any of the Division Assets (other than Permitted
Encumbrances) under any material agreement or, violate any statute or law or
any judgment, decree, order, writ, injunction, regulation or rule of any court
or governmental authority.
6
<PAGE> 11
Section 4.4 Title to Property, Encumbrances. Seller has, or on the
Closing Date will have, good and valid title to all the Division Assets which
it purports to own. The Division Assets are free and clear of all security
interests, liens, encumbrances and restrictions (collectively, "ENCUMBRANCES")
except (i) the Encumbrances set forth in Schedule 4.4 hereto, (ii) statutory
and contractual landlord's liens, and (iii) all other Encumbrances, if any,
which individually or in the aggregate, do not materially impair the use of the
property subject thereto for its current use, or materially impair the
operations of the Division taken as a whole (collectively, "PERMITTED
ENCUMBRANCES").
Section 4.5 Consents and Approvals. Except as set forth in Schedule
4.5 hereto, Seller is not required to obtain, transfer or cause to be
transferred any material consent, approval, license, permit or authorization
of, or make any declaration, filing or registration with, any third party in
connection with (a) the execution and delivery by Seller of this Agreement or
the Related Instruments or (b) the consummation by Seller of the transactions
contemplated hereby or thereby.
Section 4.6 Good Title Conveyed, Etc. Except as otherwise provided
herein, Seller has the unqualified right to sell, assign, transfer and deliver
to Buyer and, upon consummation of the transactions contemplated by this
Agreement, Buyer will acquire good and valid title to the Division Assets, free
and clear of all Encumbrances except Permitted Encumbrances and Assumed
Liabilities. The Bill of Sale and the Related Instruments, when duly executed
and delivered by Seller to Buyer at the Closing, and the delivery of the
Division Assets, will effectively vest in Buyer good and valid title to all of
the Division Assets subject only to Permitted Encumbrances and Assumed
Liabilities.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer hereby represents and warrants to Seller as follows:
Section 5.1 Organization, Etc. Buyer is a limited liability company
duly organized, validly existing and in good standing under the laws of the
State of California. The copies of the Articles of Organization and Operating
Agreement of Buyer (certified, in the case of the Articles of Organization by
the Secretary of State of the State of California, and, in the case of the
Operating Agreement, by the Secretary of Buyer), as heretofore delivered by
Buyer to Seller are complete and correct copies of such instruments as
currently in effect.
Section 5.2 Authorization.
(a) Buyer has all requisite corporate power and authority to
enter into, execute, deliver and consummate the transactions contemplated by
this Agreement and the Related Agreements. At or prior to Closing, the members
of Buyer have taken all action required by law, the Articles of Organization
and Operating Agreement of Buyer or otherwise to
7
<PAGE> 12
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby, including the execution, delivery and
consummation of the Related Instruments. No other corporate act or proceeding
on the part of Buyer is necessary to authorize this Agreement or any of the
Related Instruments or the transactions contemplated hereby or thereby. This
Agreement is, and each of the Related Instruments when executed and delivered
to Seller by Buyer at the Closing, will be, valid and binding obligations of
Buyer enforceable against it in accordance with their terms, subject to
bankruptcy, insolvency, reorganization and other laws and judicial decision of
general applicability relating to or affecting creditors' rights and to general
principles of equity.
(b) At or prior to Closing, Buyer will have delivered to
Seller true and complete copies, certified by the Secretary or Assistant
Secretary of Buyer, of the resolutions duly and validly adopted by the members
of Buyer evidencing its authorization of the execution and delivery of this
Agreement and the Related Instruments and the consummation of the transactions
contemplated hereby and thereby (which resolutions have not been modified,
revoked or rescinded in any respect).
Section 5.3 No Violation. Subject to obtaining the consent and
approvals set forth in Section 5.4, neither the execution and delivery by Buyer
of this Agreement or any of the Related Instruments nor the consummation by
Buyer of the transactions contemplated hereby or thereby will violate any
provision of the Articles of Organization or Operating Agreement of Buyer or
violate, or be in conflict with, or constitute a default (or an event or
condition which, with notice or lapse of time or both, would constitute a
default) under, or result in the termination of, or accelerate the performance
required by, or cause the acceleration of the maturity of any liability or
obligation pursuant to any material note, bond, mortgage, indenture, deed of
trust, license, lease, contract, commitment, understanding, arrangement,
agreement or restriction of any kind or character to which Buyer is a party or
by which Buyer may be bound or affected, or violate any statute or law or any
judgment, decree, order, writ, injunction, regulation or rule of any court or
governmental authority.
Section 5.4 Consents and Approvals. Except for the licenses described
in Section 7.1, Buyer is not required to obtain any consent, approval, license,
permit or authorization of, or make any declaration, filing or registration
with, any third party or any public body or authority in connection with the
execution and delivery by Buyer of this Agreement, the Note or the Instruments
of Assumption, if any, or the consummation by Buyer of the transactions
contemplated hereby or thereby.
Section 5.5 Full Disclosure. No representation or warranty of Buyer
made in this Agreement, nor any written statement furnished to Seller pursuant
hereto or in connection with the transactions contemplated hereby, contains or
will contain any untrue statement of a material fact which affects the business
or financial condition of Buyer, or omits or will omit to state a material fact
necessary to make the statements or facts contained herein or therein not
misleading.
8
<PAGE> 13
ARTICLE 6
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 6.1 Survival of Representations. All representations,
warranties, covenants and agreements made by any party to this Agreement or
pursuant hereto shall be true, complete and correct as of the date hereof and
at and as of the Closing Date as though such representations, warranties,
covenants and agreements were made at and as of the Closing Date. Each
representation and warranty shall survive the Closing hereunder for the period
of time during which indemnification may be sought for a breach of such
representation or warranty pursuant to Sections 6.2 or 6.4 hereof.
Section 6.2 Seller's Agreement to Indemnify. Subject to the terms and
conditions of this Article 6, Seller agrees to indemnify, defend and hold
harmless Buyer at any time after consummation of the Closing, from and against
any damage, claim, liability, assessment, judgment, fine, obligation, loss,
cost, expense or deficiency (including, but not limited to, reasonable
attorneys' fees, and other costs and expenses incident to proceedings or
investigations or the defense or settlement of any claim) (collectively
"DAMAGES") arising out of or resulting from:
(a) any inaccuracy in or breach of any representation or
warranty of Seller pursuant to this Agreement, including schedules
delivered pursuant hereto;
(b) any failure of Seller to duly perform or observe any term,
provision or covenant to be performed or observed by Seller pursuant to
this Agreement or documents contemplated by this Agreement; and
(c) operation of the Division Business or Division Assets
prior to Closing except for the Assumed Liabilities; and
(d) any liability or obligation of Seller or any claim, suit,
charge or proceeding against Seller, whether arising or accruing before
or after the Closing Date, except an Assumed Liability.
Section 6.3 Seller's Limitation of Liability. Anything in this
Agreement to the contrary notwithstanding, the liability of Seller to indemnify
Buyer pursuant to Section 6.2(a) and (b) hereof against any Damages sustained
by reason of any claim shall be limited to claims as to which Buyer has given
to Seller written notice thereof on or prior to one year after the Closing
Date. The provisions for indemnity contained in Section 6.2 hereof shall be
effective only after the aggregate amount of all Damages for which Seller is
liable under the indemnity exceeds $25,000, and then only to the extent that
such amounts exceed $25,000, but in no event in excess of the Purchase Price.
Seller may offset any amounts due under this section against amounts due to
Seller under the Note.
Section 6.4 Buyer's Agreement to Indemnify. Subject to the terms and
conditions of this Article 6, Buyer agrees to indemnify, defend and hold
harmless Seller at any time after
9
<PAGE> 14
consummation of the Closing, from and against all Damages incurred by Seller by
reason of or resulting from:
(a) any inaccuracy in or breach of any representation or
warranty of Buyer pursuant to this Agreement, including schedules
delivered pursuant hereto;
(b) any failure of Buyer to duly perform or observe any term,
provision or covenant to be performed or observed by Buyer pursuant to
this Agreement or documents contemplated by this Agreement;
(c) operation of the Division Business or Division Assets
after Closing; and
(d) any Assumed Liability.
Section 6.5 Buyer's Limitation of Liability. Anything in this
Agreement to the contrary notwithstanding, the liability of Buyer to indemnify
the Seller pursuant to Section 6.4(a) and (b) hereof against any Damages
sustained by reason of any claim shall be limited to claims as to which Seller
has given to Buyer written notice thereof on or prior to one year after the
Closing Date. The provisions for indemnity contained in Section 6.4 hereof
shall be effective only after the aggregate amount of all Damages for which
Buyer is liable under the indemnity exceeds $25,000, and then only to the
extent that such amounts exceed $25,000, but in no event in excess of the
Purchase Price.
Section 6.6 Conditions of Indemnification. The obligations and
liabilities of Seller and Buyer with respect to Claims made by third parties
shall be subject to the following terms and conditions:
(a) The indemnified party will give the indemnifying party
prompt notice of any such claim, and the indemnifying party shall have
the right to undertake the defense thereof by representatives chosen by
it;
(b) if the indemnifying party, within a reasonable time after
notice of any such claim, fails to defend the indemnified party against
which such claim has been asserted, the indemnified party shall (upon
further notice to the indemnifying party) have the right to undertake
the defense, compromise or settlement of such claim on behalf of and for
the account and risk of the indemnifying party subject to the right of
the indemnifying party to assume the defense of such claim at any time
prior to settlement, compromise or final determination thereof; and
(c) Anything in this Article 6 to the contrary
notwithstanding; (i) if there is a reasonable probability that a claim
may materially and adversely affect the indemnified party other than as
a result of money damages or other money payments, the indemnified party
shall have the right, at its own cost and expense, to defend, compromise
or settle such claim; provided, however, that if such claim is settled
without the indemnifying party's consent (which consent shall not be
unreasonably withheld), the indemnified party shall be deemed to have
waived all rights hereunder against the indemnifying party for
10
<PAGE> 15
money damages arising out of such claim, and (ii) the indemnifying party
shall not, without the written consent of the indemnified party, settle
or compromise any claim or consent to the entry of any judgment which
does not include as an unconditional term thereof the giving by the
claimant or the plaintiff to the indemnified party a release from all
liability in respect to such claim.
ARTICLE 7
OTHER OBLIGATIONS OF SELLER AND BUYER
Section 7.1 Buyer's Licenses. Buyer or its officers or employees
shall obtain prior to Closing all licenses necessary for it to conduct its
business in the State of California.
Section 7.2 Consents.
(a) Seller shall use its best efforts to obtain prior to the
Closing all consents necessary in connection with the consummation of the
transactions contemplated hereby, including, without limitation, (i) the
consent of each lessor of real or personal property leased by Seller included
in the Division Assets or the consent of any other third party to the
assignment of Seller's interest under the lease of such property to Buyer at
the Closing in consideration of the assumption of Seller's liability thereunder
by Buyer; and (ii) each of the other consents, approvals, licenses, permits and
authorizations listed or referred to in Schedule 4.5 hereto. Seller's
obligation to use its best efforts to obtain such consents shall not include
any obligation with respect to the renegotiation of the terms of any agreement
including, but not limited to, any obligation to alter the provisions of such
agreement or to pay any fee to any party for the purpose of obtaining such
consent. Buyer agrees to assist and cooperate with Seller in obtaining such
consents, including, without limitation, by way of furnishing financial and
other information as may reasonably be requested by Seller or any lessor or
other third party.
(b) In the event Seller shall fail to obtain prior to the
Closing all consents necessary in connection with the consummation of the
transactions contemplated hereby, Buyer shall negotiate in good faith with
Seller to attempt to achieve a mutually acceptable resolution.
Section 7.3 Governmental Filings. As soon as practicable, Seller and
Buyer shall make any and all filings and submissions to any governmental agency
which are required to be made in connection with the transactions contemplated
hereby. Seller shall furnish to Buyer and Buyer shall furnish to Seller such
information and assistance as the other party or parties may reasonably request
in connection with the preparation of any such filings or submissions.
Section 7.4 Conduct of Business. From the date hereof to the Closing,
Seller shall, and shall cause its Subsidiaries to, conduct the business,
operations, activities and practices of the Division Business only in the
ordinary course of business, in accordance with past practice.
Section 7.5 Covenant to Satisfy Conditions. Seller, on the one hand,
and Buyer, on the other hand, shall each use their respective best efforts to
insure that the conditions set forth in
11
<PAGE> 16
Articles 8 and 9 hereof, respectively, are satisfied, insofar as such matters
are within their respective control.
Section 7.6 Resale Exemption Certificates. At the Closing, Seller and
Buyer shall remit to each other such properly completed resale exemption
certificates and other similar certificates or instruments as are necessary to
claim available exemptions from the payment of sales or use taxes under
applicable laws.
Section 7.7 Damage or Destruction. If a material amount of the
Division Assets shall be damaged or destroyed prior to the time of Closing,
Seller may elect (i) to restore or replace the Division Assets to their
condition on the date of this Agreement, or (ii) to cancel, without liability
to Buyer or Seller, the transactions contemplated hereby.
Section 7.8 Financial and Strategic Reporting. During the term of
this Agreement and any Related Instrument, unless the Seller shall otherwise
consent in writing:
(i) Buyer shall maintain, for itself and each subsidiary, a
system of accounting established and administered in accordance with
GAAP, and furnish to the Seller within 45 days after the close of each
of its first three fiscal quarters and 90 days after the close of its
fiscal year, a report (certified by independent certified public
accountants, acceptable to the Seller for each fiscal year end),
prepared in accordance with GAAP on a consolidated and consolidating
basis (consolidating statements need not be certified by such
accountants) for itself and its subsidiaries, if any, including balance
sheets as of the end of such period, related profit and loss and
reconciliation of surplus statements, and a statement of cash flows,
accompanied by any management letter prepared by said accountants; and
(ii) Buyer shall also prepare and deliver to Seller a strategic
and financial plan within 30 days after the end of each fiscal year.
Section 7.9 Noncompetition. During the term of the Note, and except
as otherwise contemplated by this Agreement or the Note, neither Seller nor any
of its Subsidiaries shall directly or indirectly own, manage, operate, control,
participate in or be connected in any manner with any business or enterprise
that is competitive with the artisan contractor insurance business of the types
and in the states conducted by Seller on the Closing Date.
ARTICLE 8
CONDITIONS TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
satisfaction or, unless prohibited by law, the waiver by Buyer, at or before
the Closing, of each of the following conditions:
Section 8.1 Representations and Warranties. The representations and
warranties of Seller contained herein shall be true, complete and accurate in
all material respects as of the date
12
<PAGE> 17
when made and at and as of the Closing Date as though such representations,
warranties and statements were made at and as of such date, except for any
changes expressly permitted by the terms of this Agreement.
Section 8.2 Performance. Seller shall have performed and complied in
all material respects with all agreements, obligations and conditions required
by this Agreement to be so performed or complied with by it at or prior to the
Closing.
Section 8.3 No Injunction. On the Closing Date, there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction restraining or prohibiting
the consummation of the transactions contemplated hereby.
Section 8.4 Officer's Certificate. Seller shall have delivered to
Buyer a certificate, dated the Closing Date, executed by the President of Buyer
certifying the fulfillment of the conditions specified in Sections 8.1 and 8.2
hereof.
Section 8.5 Consents and Approvals. All material licenses, permits,
consents, approvals and authorizations of all third parties and governmental
bodies and agencies shall have been obtained which are necessary in connection
with the execution and delivery by Buyer and Seller of this Agreement or the
Related Instruments, and the consummation by Buyer and Seller of the
transactions contemplated hereby or thereby.
Section 8.6 Deliveries by Seller. Seller shall have made the
deliveries required by Section 1.8 hereof.
Section 8.7 Services Agreement. Buyer and Seller shall have executed
an agreement in the form attached hereto as Exhibit F (the "SERVICES
AGREEMENT") whereby Buyer agrees to manage the "run-off" of certain of Seller's
operations.
Section 8.8 Underwriting Services Agreement. Buyer and INSCORP shall
have executed an agreement, on terms satisfactory to Buyer, whereby Buyer will
act as managing general agent for artisan contractor policies written by
INSCORP.
Section 8.9 Buyer Financing. Buyer shall have entered into agreements
with Citibank on terms satisfactory to Buyer whereby Citibank shall provide a
$500,000 term loan and a $250,000 revolving line of credit to Buyer.
Section 8.10 Insurance License. Buyer shall have the obtained licenses
described in Section 7.1 of this Agreement.
Section 8.11 Noncompetition Agreement. The Noncompetition Agreement
shall have been executed by the parties thereto.
13
<PAGE> 18
ARTICLE 9
CONDITIONS TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction or, unless prohibited by law, the waiver by Seller at or before
the Closing, of each of the following conditions:
Section 9.1 Representations and Warranties. The representations and
warranties of Buyer contained herein shall be true, complete and accurate in
all material respects as of the date when made and at and as of the Closing
Date as though such representations and warranties made at and as of such date,
except for any changes expressly permitted by the terms of this Agreement.
Section 9.2 Performance. Buyer shall have performed and complied in
all material respects with all agreements, obligations and conditions required
by this Agreement to be so performed or complied with by it at or prior to the
Closing.
Section 9.3 Officer's Certificate. Buyer shall have delivered to
Seller a certificate, dated the Closing Date and executed by the President or a
Vice President of Buyer, certifying the fulfillment of the conditions specified
in Sections 9.1 and 9.2 hereof.
Section 9.4 No Injunction. On the Closing Date, there shall be no
effective injunction, writ, preliminary restraining order or any order of any
nature issued by a court of competent jurisdiction restraining or prohibiting
consummation of the transactions contemplated hereby.
Section 9.5 INSCORP Reinsurance Agreement. Seller and Insurance
Corporation of New York ("INSCORP") shall have executed an agreement pursuant
to which INSCORP agrees to provide reinsurance to Seller and pursuant to which
INSCORP assumes 100% of the net underwriting risk on Seller's artisan
contractor book of business for occurrences on or after March 1, 1997.
Section 9.6 Services Agreement. Buyer and Seller shall have executed
the Services Agreement.
Section 9.7 Underwriting Services Agreement. Buyer and INSCORP shall
have executed an agreement, on terms satisfactory to Seller, whereby Buyer will
act as managing general agent for artisan contractor policies written by
INSCORP.
Section 9.8 Consents and Approvals. All material licenses, permits,
consents, approvals and authorizations of all third parties and governmental
bodies and agencies shall have been obtained which are necessary in connection
with the execution and delivery by Buyer and Seller of this Agreement or the
Related Agreements and the consummation by Buyer and Seller of the transaction
contemplated hereby or thereby.
14
<PAGE> 19
Section 9.9 Buyer's Deliveries. Buyer shall have made the deliveries
required by Section 1.9 hereof.
Section 9.10 Management Employment Agreements. Each of George C. Hill
III, David O. Daniels and Lenard F. Robinson shall have executed an employment
agreement with Buyer on terms satisfactory to Seller.
Section 9.11 Buyer Financing. Buyer shall have entered into agreements
with Citibank on terms satisfactory to Seller whereby Citibank shall provide a
$500,000 term loan and a $250,000 revolving line of credit to Buyer.
Section 9.12 Insurance License. Buyer shall have the obtained licenses
described in Section 7.1 of this Agreement.
Section 9.13 Noncompetition Agreement. Buyer shall have made the
payments required by the Noncompetition Agreement.
Section 9.14 Profit Sharing Agreement. Seller and INSCORP shall have
entered into a profit sharing agreement on terms mutually acceptable to Seller
and INSCORP.
ARTICLE 10
TERMINATION OF AGREEMENT
Section 10.1 Termination of Agreement. This Agreement may be
terminated at any time prior to the Closing:
(a) by mutual agreement of Seller and Buyer;
(b) by Buyer, on or after June 30, 1997, if any of the
conditions provided in Article 8 of this Agreement have not been met and
have not been waived in writing by Buyer prior to such date; or
(c) by Seller on or after June 30, 1997, if any of the
conditions provided in Article 9 of this Agreement have not been met and
have not been waived in writing by Seller prior to such date.
Section 10.2 Procedure Upon Termination. In the event of termination
by Seller or Buyer pursuant to Section 10.1 hereof, written notice thereof
shall forthwith be given to the other party and the transactions contemplated
by this Agreement shall be terminated, without further action by either party.
If the transactions contemplated by this Agreement are terminated as provided
herein:
15
<PAGE> 20
(a) Each of Seller and Buyer shall return all documents, work
papers and other material of any other party relating to the
transactions contemplated hereby, whether so obtained before or after
the execution hereof, to the party furnishing the same;
(b) all confidential information received by Seller or Buyer
with respect to the business of any other party or its Subsidiaries or
Affiliates shall be treated as confidential;
(c) such termination shall not in any way limit or restrict
the rights and remedies of any party hereto against any other party
which has willfully breached any of the agreements or other provisions
of this Agreement prior to termination hereof; and
(d) if Seller has begun to issue artisan contractor policies
on behalf of INSCORP, Seller shall immediately cease binding such
policies.
ARTICLE 11
MISCELLANEOUS
Section 11.1 Mail Received After Closing. On and after the Closing,
Buyer may receive and open all mail addressed to Seller or the Division and
deal with the contents thereof in its discretion to the extent that such mail
and the contents thereof relate to the Division Business or any of the Assumed
Liabilities. Buyer agrees to deliver or to cause to be delivered to Seller all
other mail received which is addressed to Seller, any Subsidiary of Seller or
the Division and does not relate to the Division Business or the Assumed
Liabilities.
Section 11.2 Access to Books and Records. Seller and Buyer agree that
on and after the Closing Date each will permit the other and their respective
representatives (including their counsel, accountants and auditors), during
reasonable hours, to have reasonable access to and examine and make copies of
all books and records in their respective possession or the possession of any
of their respective Subsidiaries pertaining to the Division Business. Prior to
Buyer's destruction or disposition of any such books or records pertaining to
the Division Business, Buyer shall provide no less than thirty (30) days prior
written notice to Seller of any such proposed destruction or disposal. If
Seller desires to obtain any of such documents, it may do so by notifying Buyer
in writing at any time prior to the scheduled date for such destruction or
disposal. The parties shall then promptly arrange for the delivery of such
documents. All out-of-pocket costs associated with the preparation,
duplication and delivery of the requested documents shall be paid Seller.
Section 11.3 Commissions. Each of the parties hereto represents and
warrants that no broker or finder is entitled to any brokerage or finder's fee
or other commission in connection with the transactions contemplated hereby.
Each of the parties hereto shall pay or discharge, and shall indemnify and hold
the other harmless from and against, any and all claims or liabilities for
brokerage commissions or finder's fees incurred by reason of any action taken
by it.
16
<PAGE> 21
Section 11.4 Expenses, Taxes, Etc.
(a) Except as otherwise provided herein, each of the parties
hereto shall pay all fees and expenses incurred by it or any of its Affiliates
or Subsidiaries in connection with the transactions contemplated by this
Agreement; provided, however, that Seller shall pay all sales taxes in
connection with the transactions contemplated hereby, and all transfer, gains,
stamp, documentary and similar taxes and recording fees in connection with the
transfer and delivery of all real and personal property included in the
Division Assets.
(b) Notwithstanding the foregoing, Buyer shall be fully
responsible for and shall indemnify Seller (to the extent Seller is liable to
any taxing authority) for all sales taxes applicable as a result of the
transactions contemplated by this Agreement that could have been avoided by
Buyer's proper and timely completion, delivery, and filing of resale exemption
certificates and any other exemption certificates or instruments as are
necessary to claim available exemptions from the payment of sales taxes under
applicable laws.
Section 11.5 Further Assurances.
(a) From time to time (including after the Closing Date), at
Buyer's request and without further consideration, Seller shall execute and
deliver to Buyer such documents and take such other action as Buyer may
reasonably request in order to consummate more effectively the transactions
contemplated hereby.
(b) From time to time (including after the Closing Date), at
Seller's request and without further consideration, Buyer shall execute and
deliver such documents and take such other action as Seller may reasonably
request in order to consummate more effectively the transactions contemplated
hereby.
Section 11.6 Parties in Interest. This Agreement shall be binding
upon, inure to the benefit of, and be enforceable by the respective successors
and permitted assigns of the parties hereto. The rights and obligations of
Buyer and Seller hereunder may not be assigned without the consent of the
other.
Section 11.7 Entire Agreement, Amendments and Waiver. This Agreement,
the exhibits, the schedules and other writings referred to herein or delivered
pursuant hereto which form a part hereof contain the entire understanding of
the parties with respect to its subject matter. This Agreement supersedes all
prior agreements and understandings between the parties with respect to its
subject matter. This Agreement may be amended only by a written instrument
duly executed by the parties. Any condition to a party's obligations hereunder
may be waived in writing by such party to the extent permitted by law.
Section 11.8 Headings. The Article and Section headings contained in
this Agreement are for reference purposes only and shall not affect in any way
the meaning or interpretation of this Agreement.
17
<PAGE> 22
Section 11.9 Notices. Any notices or other communications required or
permitted to be given hereunder or otherwise in connection herewith shall be in
writing and shall be sent to the parties at the following addresses or at such
other addresses as shall be specified by the parties by like notice:
If to Buyer: HDR Insurance Managers, LLC
655 University, Ste. 100
Sacramento, CA 95825
ATTENTION: President
If to Seller: AMERICAN EAGLE INSURANCE COMPANY
12801 N. Central Expressway, Ste. 800
Dallas, TX 75243
ATTENTION: M. Philip Guthrie
Such notices or other communications shall be deemed to have been duly given
and received (i) on the day of sending if sent by personal delivery, cable,
telegram, facsimile transmission or telex, (ii) for overnight delivery, on the
next business day after the day of sending if sent by Federal Express or other
similar express delivery service or (iii) on the fifth calendar day after the
day of sending if sent by registered or certified mail (return receipt
requested).
SECTION 11.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF TEXAS,
WITHOUT REGARD TO THE CONFLICTS OF LAW RULES THEREOF.
Section 11.11 Third Parties. Nothing herein expressed or implied is
intended or shall be construed to confer upon or give to any person other than
the parties hereto and their successor or permitted assigns, any rights or
remedies under or by reason of this Agreement.
Section 11.12 Counterparts. This Agreement may be executed
simultaneously in several counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
SECTION 11.13 SPECIFIC PERFORMANCE. SELLER AND BUYER EACH ACKNOWLEDGE
THAT, IN VIEW OF THE UNIQUENESS OF THE DIVISION BUSINESS, NEITHER BUYER NOR
SELLER WOULD HAVE AN ADEQUATE REMEDY AT LAW FOR MONEY DAMAGES IN THE EVENT OF A
BREACH ANY OF THE TERMS OF THIS AGREEMENT AND, THEREFORE, AGREE THAT EITHER
PARTY SHALL BE ENTITLED TO SPECIFIC ENFORCEMENT OF THE TERMS HEREOF IN ADDITION
TO ANY OTHER REMEDY TO WHICH IT MAY BE ENTITLED, AT LAW OR IN EQUITY.
Section 11.14 Waiver of Bulk Sales Act Compliance. Buyer hereby waives
compliance by Seller with the provisions of Article 6 of the Uniform Commercial
Code of the State of Texas and with any similar article or section under the
Uniform Commercial Code enacted in any other jurisdiction in which any of the
Division Assets are located.
18
<PAGE> 23
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto on the date
first above written.
AMERICAN EAGLE INSURANCE COMPANY
By:
------------------------------------
Print Name:
-------------------------
Print Title:
------------------------
HDR INSURANCE MANAGERS, LLC
By:
------------------------------------
Print Name:
-------------------------
Print Title:
------------------------
19
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<DEBT-HELD-FOR-SALE> 28,370
<DEBT-CARRYING-VALUE> 20,367
<DEBT-MARKET-VALUE> 20,014
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 48,737
<CASH> 17,825
<RECOVER-REINSURE> 69,896
<DEFERRED-ACQUISITION> 13,234
<TOTAL-ASSETS> 247,986
<POLICY-LOSSES> 135,573
<UNEARNED-PREMIUMS> 50,566
<POLICY-OTHER> 16,833
<POLICY-HOLDER-FUNDS> (1,463)
<NOTES-PAYABLE> 0
35,380
0
<COMMON> 71
<OTHER-SE> 336
<TOTAL-LIABILITY-AND-EQUITY> 247,986
23,806
<INVESTMENT-INCOME> 1,278
<INVESTMENT-GAINS> (58)
<OTHER-INCOME> 326
<BENEFITS> 19,953
<UNDERWRITING-AMORTIZATION> 11,142
<UNDERWRITING-OTHER> 9,867
<INCOME-PRETAX> (5,743)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,743)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,743)
<EPS-PRIMARY> (0.93)
<EPS-DILUTED> (0.93)
<RESERVE-OPEN> 74,151
<PROVISION-CURRENT> 7,753
<PROVISION-PRIOR> 12,200
<PAYMENTS-CURRENT> 3,142
<PAYMENTS-PRIOR> 18,950
<RESERVE-CLOSE> 72,012
<CUMULATIVE-DEFICIENCY> (9,073)
</TABLE>
