<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 June 30, 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
12801 North Central Expressway, Suite 800, Dallas, 75243
Texas (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 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 No X
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of October 31, 1997, 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>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed consolidated balance sheets as of June 30,
1997 (unaudited) and December 31, 1996 and parent
company condensed balance sheet as of June 30,
1997 (unaudited)..................................................... 3
Condensed consolidated statements of operations
for the periods ended June 30, 1997
(unaudited) and June 30, 1996 (unaudited)............................ 4
Condensed consolidated statements of cash flows
for the periods ended June 30, 1997
(unaudited) and June 30, 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.................................. 15
SIGNATURES......................................................................... 16
</TABLE>
2
<PAGE> 3
AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AND PARENT COMPANY CONDENSED BALANCE SHEET
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
(Unaudited) Parent Co.
ASSETS December 31, June 30, (Unaudited)
1996 1997 June 30, 1997
--------- --------- -------------
<S> <C> <C> <C>
Cash and investments $ 89,087 $ 51,724 $ 1,476
Accounts receivable 48,714 39,487 114
Reinsurance recoverable, net 69,242 72,548
Deferred policy acquisition costs 14,509 -0-
Deferred reinsurance premiums 26,706 41,061
Other assets 13,701 2,350
--------- --------- ---------
Total assets $ 261,959 $ 207,170 $ 1,590
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Reserve for losses and loss adjustment expenses $ 138,133 $ 133,214
Unearned premiums 60,065 26,764
Other policy liabilities 7,646 35,384
Agency payables to insurance companies 1,094 2,798
Accounts payable and other liabilities 12,732 8,926 $ 1,506
--------- --------- ---------
Total liabilities 219,670 207,086 1,506
--------- --------- ---------
Commitments and contingent liabilities Series B Cumulative Preferred Stock, $.01
par value; 162,857 shares authorized and outstanding in 1996
and 142,857 shares outstanding in 1997 1,629 1,429 1,429
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 33,164 -0- -0-
Stockholders' equity:
Common Stock, $.01 par value, 21,000,000 shares
authorized 7,120,980 shares issued and outstanding 71 71 71
Additional paid-in-capital 45,563 45,563 45,563
Unrealized apprec.(deprec.) on investment securities,
net of deferred taxes 106 (241) -0-
Retained earnings (38,157) (46,651) (46,892)
Less - 73,882 shares of common stock held in the
treasury, at cost (87) (87) (87)
--------- --------- ---------
Total stockholders' equity 7,496 (1,345) (1,345)
--------- --------- ---------
Total liabilities and stockholders' equity $ 261,959 $ 207,170 $ 1,590
========= ========= =========
</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 Six Months Ended
June 30, June 30, June 30, June 30,
1996 1997 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues
Earned premiums, net of reinsurance $ 33,497 $ (6,177) $ 66,331 $ 17,629
Agency operations, net (20) 322 (53) 648
Investment income, net 1,044 1,026 2,447 2,304
Realized investment gains (losses), net (55) (106) 98 (164)
----------- ----------- ----------- -----------
Total revenues 34,466 (4,935) 68,823 20,417
----------- ----------- ----------- -----------
Expenses
Losses and loss adjustment expenses, net of
reinsurance 21,140 14,344 48,659 34,297
Policy acquisition and other underwriting
expenses 13,716 3,288 24,474 14,430
Interest expense 285 -0- 535 -0-
----------- ----------- ----------- -----------
Total expenses 35,141 17,632 73,668 48,727
----------- ----------- ----------- -----------
Extraordinary gain, net 21,878 21,878
----------- ----------- ----------- -----------
Income (loss) before income tax expense (675) (689) (4,845) (6,432)
Income tax expense (benefit) (119) 1,277 (1,537) 1,277
----------- ----------- ----------- -----------
Net income (loss) $ (556) $ (1,966) $ (3,308) $ (7,709)
=========== =========== =========== ===========
Net income (loss) available for common stockholders (1) $ (580) $ (1,970) $ (3,357) $ (8,522)
=========== =========== =========== ===========
Weighted average number of common shares
outstanding 7,049,898 7,047,098 7,050,098 7,047,098
=========== =========== =========== ===========
Net income (loss) per share of common stock (1) $ (0.08) $ (0.28) $ (0.48) $ (1.21)
=========== =========== =========== ===========
</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 SIX MONTHS ENDED
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
June 30, June 30,
1996 1997
-------- --------
<S> <C> <C>
Cash and cash equivalents derived from:
Total provided by (used in) operating activities $(22,637) $(45,073)
Investing activities-
Net proceeds (purchases) of short-term investments 26,688 (1,217)
Purchases of fixed income securities (22,677) (15,583)
Proceeds from sales of fixed income securities 16,468 33,414
Proceeds from maturities of fixed income securities 1,710 3,065
Purchases (sales) of property and equipment (849) 3,798
-------- --------
Total provided by investing activities 21,340 23,477
-------- --------
Financing activities-
Dividends paid or accrued on Series B and D Cumulative
Preferred Stock (49) (831)
Dividends paid on common stock (564) 787
Proceeds of note payable 2,000
Redemption of Series B Cumulative Preferred Stock -- (200)
-------- --------
Total provided by financing activities 1,387 (244)
-------- --------
Net change in cash and cash equivalents 90 (21,840)
Cash and cash equivalents, beginning of period 2,922 23,094
-------- --------
Cash and cash equivalents, end of period $ 3,012 $ 1,254
======== ========
</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 PERIODS ENDED
JUNE 30, 1996 AND 1997
(UNAUDITED)
BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of the
American Eagle Group, Inc. (American Eagle) and subsidiaries for the periods
ended June 30, 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 considered necessary for a fair presentation
of the results for the interim period have been included. Operating results for
the periods ended June 30, 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.
American Eagle's principal subsidiary, American Eagle Insurance Company, was
placed in conservation with The Texas Department of Insurance on July 23, 1997.
As a result of the impact of conservation on American Eagle Insurance Company
and its affiliate Aviation Office of America, Inc., American Eagle reduced its
net carrying value of such subsidiaries to zero and has deconsolidated such
subsidiaries as of June 30, 1997.
6
<PAGE> 7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
As previously reported, American Eagle Insurance Company (AEIC), American
Eagle's principal subsidiary was placed in conservatorship with The Texas
Department of Insurance in order to protect and conserve its assets and
business. The Department informed American Eagle that the Department, in its
role as conservator, will seek to maximize value and preserve assets of American
Eagle and to finalize a transaction with protection for the policyholders of
AEIC.
To this end, the Department has subsequently informed American Eagle that it has
entered into an agreement with Great American Insurance Company under which
Great American Insurance Company will continue to write new and renewal aviation
business and will continue to reinsure AEIC's aviation in force business as of
March 31, 1997 and all aviation business written subsequent to that date. Great
American Insurance Company has assumed some of the employees and space formerly
occupied by American Eagle and has also purchased the fixed assets and aviation
operating systems.
Recently, American Eagle has reached an agreement with American Financial Group,
Inc., the parent of Great American Insurance Company whereby among other
matters, American Financial Group, Inc. has returned the Series D Preferred
Stock outstanding of American Eagle to American Eagle and American Eagle assumed
the obligation to AEIC under a Renewal Retention Commission Agreement which is
estimated to be valued at approximately $1.3 million. The cost of this
agreement, however, could exceed $1.3 million depending on the volume of
business renewed. The cancellation of the Series D Preferred Stock resulted in
an extraordinary gain of $34.0 million and the Renewal Retention Commission
Agreement obligation of $1.3 million, together with the transfer of the in force
book of business as of April 1, 1997 to Great American Insurance Company have
been reflected in the consolidated financial statements for the periods ended
June 30, 1997.
American Eagle also sold its Marine Division business in force as of April 30,
1997 and the furniture and fixtures and office lease occupied by the operation.
The Artisan Contractor operation, the last of the Property & Casualty Division
ongoing operations was also sold. This sale included all in force business as of
March 1, 1997 together with furniture and fixtures, the Property & Casualty
operating systems and the office lease for the space occupied by the operation.
Most of the Artisan Contractor employees became employees of the acquiring
company.
The sales of the three operations and the resultant write-off of deferred
acquisition costs and goodwill resulted in a second quarter 1997 charge of $8.6
million.
As a result of the American Eagle's principal subsidiary having been placed in
conservation and the impact that conservation has on the operations of its other
remaining active subsidiary, Aviation Office of America, Inc. (AOA), American
Eagle has
7
<PAGE> 8
deconsolidated and reduced its net carrying value of AEIC and AOA to zero. The
reduction in net carrying value was $0.3 million. Accordingly, as of June 30,
1997, and in subsequent quarters, American Eagle's parent company only financial
statements will be presented. American Eagle has also recorded its estimated
future net operating costs in its second quarter financial statements as it does
not currently anticipate generating future revenues. Such future net operating
costs are estimated to be $1.9 million. If and when it is determined that either
of its two active subsidiaries have any remaining value and the control of such
subsidiaries are returned to American Eagle, the entities will again be
consolidated with American Eagle and any such value will be reflected in
American Eagle's financial statements.
The net financial impact of the above noted unusual second quarter 1997 events
was included in extraordinary gain, net of $21.9 million.
The second quarter of 1997 financial statements include the financial impact of
the sales of the Aviation Division, the Marine Division and the Artisan
Contractor Operations, the development on losses incurred for accident dates
preceding the date on which such operations were sold and on losses of the auto
dealer and trucking business which were discontinued, the elimination of the
Series D Preferred Stock, the cost of the Renewal Retention Commission
Agreement, the write-down of the net investment in AEIC and AOA and the accrual
of the estimated future net operating costs of American Eagle. The basis of
presentation is generally on a comparable basis with prior periods financial
statements.
8
<PAGE> 9
SECOND QUARTER OF 1997 COMPARED TO THE SECOND QUARTER OF 1996
Gross Premiums Produced
Gross premiums produced for the second quarter of 1997 compared to the second
quarter of 1996 were as follows (in millions):
<TABLE>
<CAPTION>
SECOND QUARTER
1996 1997
---- ----
<S> <C> <C>
Gross premiums produced $ 41.3 $ 25.1
For other companies (3.4) (7.3)
Assumed from other companies 2.7 0.3
------- -------
Gross premiums written 40.6 18.1
Ceded premiums (12.8) (46.2)
------- -------
Net premiums written $ 27.8 $ (28.1)
======= =======
</TABLE>
Gross premiums produced decreased 39.2% to $25.1 million for the second quarter
of 1997 from $41.3 million in the second quarter of 1996. Of this decrease,
42.4% was in the Aviation Division and 4.0% was in the Marine Division, while
the Property & Casualty Division (the "P&C Division") increased 7.2%. The
decreases resulted primarily from the unacceptable, low credit rating of "D"
which had been given to AEIC by A.M. Best in March of 1997. The P&C Division
production was less sensitive to the reduced credit ratings and coupled with the
pending sale of the operation to a higher rated company, gross premiums produced
grew slightly. Each of the ongoing businesses were sold. The Aviation Division
was sold effective April 1, 1997; the Artisan Contractor Operation was sold
effective March 1, 1997; and the Marine Division was sold effective April 30,
1997.
The gross premiums produced for other companies increased 113.4% to $7.3 million
in the second quarter of 1997 from $3.4 million in the second quarter of 1996.
During the second quarter of 1997, the Company began producing aviation business
for the acquirer of the Aviation Division.
The gross premiums assumed from other companies decreased 90.2% to $0.3 million
in the second quarter of 1997 from $2.7 million in the second quarter of 1996
primarily as a result of the loss of fronting capacity in the second quarter of
1997 due to the decline in the A.M. Best rating in March of 1997.
Gross premiums written decreased 55.5% to $18.0 million in the second quarter of
1997 from $40.6 million in the second quarter of 1996 as a result of the
decrease in gross premiums produced and the increase in premiums produced for
other companies.
Ceded premiums increased 261.1% to $46.2 million in the second quarter of 1997,
compared to $12.8 million in the second quarter of 1996. This increase is
primarily a result of the sale of the Aviation Division, Artisan Contractor
Operation and Marine Division
9
<PAGE> 10
where the unearned premiums as of the effective dates of the respective sales
were ceded to the acquiring companies and also an increase in ceded premiums on
the Company's retrospectively rated reinsurance contracts as a result of the
substantial losses recorded in the second quarter of 1997.
Net premiums written were negative at $28.1 million in the second quarter of
1997, compared to a positive $27.8 million in the second quarter of 1996. This
decline was a result of the matters described above.
Revenues
Earned premiums, net of reinsurance, decreased $39.7 million to a negative $6.2
million in the second quarter of 1997 from $33.5 million in the second quarter
of 1996. Of this decrease, $27.7 million was related to the Aviation Division,
$11.2 million to the P&C Division, and $0.8 million to the Marine Division. The
decrease in earned premiums, net of reinsurance, resulted from the same factors
that caused the decline in net premiums written.
Agency operations, net, increased to a profit of $0.6 million in the second
quarter of 1997 from a minimal loss in the second quarter of 1996 as a result of
producing more business for other companies due to the reduced A.M. Best credit
rating.
Investment income, net, decreased 1.7% to $1.03 million in the second quarter of
1997 from $1.04 million in the second quarter of 1996. The decrease was
primarily a result of a decline in the level of invested assets in the second
quarter of 1997, compared to the second quarter of 1996.
Realized investment gains (losses), net, were insignificant in the second
quarter of 1997 and 1996.
Operating Expenses
Losses and loss adjustment expenses, net of reinsurance, were $14.3 million in
the second quarter of 1997 as compared to $21.1 million, in the second quarter
of 1997 on significantly reduced premium levels in 1997. The second quarter of
1997 loss and loss adjustment expense levels were largely driven by increased
loss reserve levels of the Aviation Division and related to loss events incurred
prior to March 31, 1997.
Policy acquisition and other underwriting expenses were $3.3 million in the
second quarter of 1997 and $13.7 million in the second quarter of 1996. The
significant decrease in expenses in the second quarter of 1997 results from the
generation of commission income. Commission income was generated by producing
more business for other companies and ceding all business written in the second
quarter of 1997 for the Aviation Division and Artisan Contractor Operations to
the acquirers of those businesses. Commission income reduces the level of
expenses incurred.
10
<PAGE> 11
Interest expense in the second quarter of 1997 was zero as a result of the
repayment of the bank loan on December 31, 1996 as compared to interest expense
of $0.29 million in the second quarter of 1996.
Extraordinary gain, net
Extraordinary gain, net includes the gain of $34.0 million resulting from the
cancellation of the Series D Preferred Stock, a loss of $8.6 million on the
sales of the Aviation Division, Artisan Contractor Operations and Marine
Division, a loss of $1.3 million resulting from the assumption of the Renewal
Retention Commission Agreement which was part of the agreement to cancel the
Series D Preferred Stock, the write-down to zero of the net carrying value of
the net investment in AEIC and AOA which aggregate $0.3 million and the
recording of the estimated future net operating costs of American Eagle of $1.9
million.
Income
The income tax expense of $1.3 million reflected in the second quarter of 1997
resulted from a decision to provide a valuation allowance of 100% of the
deferred federal income taxes recoverable. The income tax expense was 17.6% of
the loss before tax expense in the second quarter of 1996. The decrease in the
effective tax rate in the second quarter of 1996 as compared to the statutory
rate is due, in part, to adjusting the year-end estimated tax provision to equal
the actual filed 1995 federal income tax return.
The second quarter of 1997 net loss was $2.0 million, as compared to a net loss
of $0.6 million in the second quarter of 1996.
Net income (loss) available for common stockholders in the second quarter of
1997 was $(2.0) million, or $(0.28) per share, as compared to a net loss of
$(0.6) million, or $(0.08) per share, in the second quarter of 1996.
11
<PAGE> 12
FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX MONTHS OF 1995
Gross Premiums Produced
Gross premiums produced for the first six months of 1997 as compared to the
first six months of 1995 were as follows (in millions):
<TABLE>
<CAPTION>
FIRST SIX MONTHS
1996 1997
---- ----
<S> <C> <C>
Gross premiums produced $ 83.7 $ 48.9
For other companies (6.0) (11.2)
Assumed from other companies 4.2 3.6
-------- --------
Gross premiums written 81.9 41.3
Ceded premiums (21.5) (54.4)
-------- --------
Net premiums written $ 60.4 $ (13.1)
======== ========
</TABLE>
Gross premiums produced decreased 41.5% to $48.9 million for the first six
months of 1997 from $83.7 million in the first six months of 1996. Of this
decrease, 33.3% was in the Aviation Division, and 7.1% was in the P&C Division
and 1.1% was in the Marine Division. The decreases in all Division's gross
premiums produced resulted primarily from the unacceptable low credit rating of
"D" which had been given to AEIC by A.M. Best in March of 1997. The decline in
the P&C Division was also a result of the decision made in the third quarter of
1996 to discontinue the short and intermediate haul trucking operation. Each of
the ongoing businesses have been sold. The Aviation Division was sold effective
April 1, 1997; the Artisan operation was sold effective March 1, 1997; and the
Marine Division was sold effective April 30, 1997.
The gross premiums produced for other companies increased 87.0% to $11.2 million
in the first six months of 1997 from $6.0 million in the first six months of
1996. During the second quarter of 1997, the company began producing aviation
business for the acquirer of the Aviation Division.
The gross premiums assumed from other companies decreased 15.7% to $3.6 million
in the first six months of 1997 from $4.2 million in the first six months of
1996 primarily as a result of loss of the fronting capacity due to the decline
in the A.M. Best rating in March of 1997.
Gross premiums written decreased 49.6% to $41.3 million in the first six months
of 1997 from $81.9 million in the first six months of 1996 primarily as a result
of the decrease in gross premiums produced.
Ceded premiums increased 153.3% to $54.4 million in the first six months of
1997, compared to $21.5 million in the first six months of 1996. This increase
is primarily a result of the sale of the Aviation Division, the Artisan
Contractor Operation and Marine Division where the unearned premiums as of the
effective dates of the sales were ceded to
12
<PAGE> 13
the acquiring companies and also an increase in the second quarter in ceded
premiums on the Company's retrospectively rated reinsurance contracts as a
result of the substantial losses recorded in the second quarter of 1997.
Net premiums written were a negative $13.1 million in the first six months of
1997, compared to $60.4 million in the first six months of 1996. This decline
was as a result of the matters described above.
Revenues
Earned premiums, net of reinsurance, decreased 73.4% to $17.6 million in the
first six months of 1997 from $66.3 million in the first six months of 1996. Of
this decrease, 52.7% was related to the Aviation Division, and 21.0% to the P&C
Division with the Marine Division increasing 0.3%. The decrease in earned
premiums, net of reinsurance, resulted from the same factors that caused the
decline in net premiums written.
Agency operations, net, increased to a profit of $0.6 million in the first six
months of 1997 as compared to a minimal loss in the first six months of 1996 as
a result of producing more business for other companies due to the reduced A.M.
Best credit rating in March 1997.
Investment income, net, decreased 5.8% to $2.3 million in the first six months
of 1997 from $2.4 million in the first six months of 1996. The decrease was
primarily a result of a decline in average invested assets in the first six
months of 1997 compared to the first six months of 1996.
Realized investment gains (losses), net, were insignificant in the first six
months of 1997 and 1996.
Operating Expenses
Losses and loss adjustment expenses, net of reinsurance, were 194.5% of earned
premiums, net of reinsurance, in the first six months of 1997, compared to 73.4%
in the first six months of 1996. As noted above, the earned premium levels in
the first six months of 1997 were significantly below the comparable period of
1996. The first six months of 1997 loss and loss adjustment expense levels were
largely a result of increased loss reserve levels of the Aviation Division and
related to loss events incurred prior to March 31, 1997.
Policy acquisition and other underwriting expenses were 81.8% of earned premiums
in the first six months of 1997 and 36.9% of earned premiums in the first six
months of 1996. The increase in the expense ratio in the first six months of
1997 results from the decreased level of net premiums earned in the first six
months of 1997 as compared to the comparable period of 1996.
Interest expense decreased to zero in the first six months of 1997 from $0.54
million in the first six months of 1996 due to the repayment of the bank loan on
December 31, 1996.
13
<PAGE> 14
Extraordinary gain, net
Extraordinary gain, net includes the gain of $34.0 million resulting from the
cancellation of the Series D Preferred Stock, a loss of $8.6 million on the
sales of the Aviation Division, Artisan Contractor Operations and Marine
Division, a loss of $1.3 million resulting from the assumption of the Renewal
Retention Commission Agreement which was part of the Agreement to cancel the
Series D Preferred Stock, the write-down to zero of the net carrying value of
the net investment in AEIC and AOA which aggregated $0.3 million and the
recording of the estimated future net operating costs of American Eagle of $1.9
million.
Income
The income tax expense of $1.3 million reflected in the first six months of 1997
resulted from a decision to provide a valuation allowance of 100% of the federal
deferred income taxes recoverable. The income tax benefit was 31.7% of loss
before tax benefit in the first six months of 1996.
The net loss for the first six months of 1997 was $7.7 million, compared to net
loss of $3.3 million in the first six months of 1996. The increase resulted from
the factors discussed above.
Net income (loss) available for common stockholders was ($8.5) million, or
($1.21) per share in the first six months of 1997, compared to ($3.4) million,
or ($0.48) per share, in the first six months of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Company's consolidated cash flow used in operations was $45.1 million in the
first six months of 1997, compared to cash flow used by operations of $22.6
million in the first six months of 1996. The funds used in the first six months
of 1997 relate to the transfer of business to the acquiring companies, the
continued settlement of claims and the payment of retrospectively rated
reinsurance premiums while premiums collected were immaterial. The Company's
source of cash flow is its insurance operation conducted through its principal
subsidiary, AEIC. As previously noted, AEIC is in conservation. Although the
Company does not have any ongoing sources of cash, it currently has cash at the
parent company adequate to cover all known creditor obligations and to continue
to fund its reduced level of operating expenses through 1998.
14
<PAGE> 15
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
None.
15
<PAGE> 16
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: November 21, 1997 By: /s/ M. Philip Guthrie
----------------- -------------------------------------
M. Philip Guthrie, Chairman of the Board
and Chief Executive Officer
Date: November 21, 1997 By: /s/ Richard M. Kurz
----------------- -------------------------------------
Richard M. Kurz, Senior Vice President
and Chief Financial Officer (Principal
Financial and Accounting Officer)
16
<PAGE> 17
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
JUNE 30, 1997
<PAGE> 18
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 with Registrant's Report on Form 10-Q for the quarter ended March 31, 1997 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).
10.7 -- 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).
10.16 -- 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).
</TABLE>
-2-
<PAGE> 19
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
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).
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.
</TABLE>
-3-
<PAGE> 20
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
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).
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).
</TABLE>
-4-
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
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).
10.43 -- Asset Purchase Agreement dated April 23, 1997 between AEIC and HDR Insurance Managers, Inc. (Previously
filed with Registrant's Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein
by reference.)
10.44 -- Employment Agreement dated as of August 21, 1997 between American Eagle Group, Inc. and M. Philip
Guthrie.
10.45 -- Employment Agreement dated as of August 21, 1997 between American Eagle Group, Inc. and Richard M.
Kurz.
10.46 -- Renewal/Retention Commission Agreement dated as of November 4, 1997 between American Eagle Group, Inc.,
American Eagle Insurance Company and Great American Insurance Company.
</TABLE>
-5-
<PAGE> 22
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
10.47 -- Settlement Agreement and Mutual Release dated as of November 4, 1997 between American Eagle Group,
Inc., American Financial Group, Inc.and Great American Insurance Company.
27 -- Financial Data Schedule.
</TABLE>
-6-
<PAGE> 1
EXHIBIT 10.44
EMPLOYMENT AGREEMENT
This Agreement, entered into effective as of August 21, 1997, is by and
among AMERICAN EAGLE GROUP, INC., a Delaware corporation (the "Employer"), the
Committee of the American Eagle Group, Inc. 1994 Stock Incentive Plan (the
"Committee") and M. Philip Guthrie, (the "Employee").
The Employer desires to employ the Employee and the Employee is willing
to serve the Employer on the terms and conditions provided in this Agreement.
Therefore, the parties hereby agree as follows:
1. EMPLOYMENT. The Employer agrees to employ the Employee as Chairman
of the Board and Chief Executive Officer or in any other position with
substantially similar title, duties and responsibilities to which Employee may
be elected or appointed by the Board of Directors of the Employer. Employee
agrees to serve in any such capacity and perform the duties prescribed from
time to time by the Bylaws or the Board of Directors of the Employer upon the
terms and conditions set forth in this Agreement.
2. TERM. Unless Employee's employment is sooner terminated in
accordance with the provisions hereof, the term of employment shall extend from
the date hereof until February 28, 1998.
3. COMPENSATION. The Employee shall receive the following compensation
for his services:
(a) A lump sum payment of $262,500 payable upon the execution of this
Agreement;
<PAGE> 2
(b) Cash salary compensation for the term of employment hereunder of
not less than the appropriate pro rata portion of an annualized salary of
$350,000; and
(c) Participation in the employee benefit plans maintained by the
Employer for its employees generally, as such plans are in effect from time to
time in accordance with their terms and the particular term of this Agreement.
4. REIMBURSEMENT OF BUSINESS EXPENSES. The Employer shall reimburse the
Employee for all reasonable business expenses incurred by the Employee in
accordance with the policies of the Employer in effect from time to time, upon
presentation of proper supporting documentation therefor.
5. EXTENT OF SERVICE. The Employee shall devote substantially all of
his time, attention and energy to the business of the Employer and its
subsidiaries and shall not, during the term of this Agreement, be actively
engaged in any other business activity for gain, profit, or other pecuniary
advantage. This Section shall not prohibit the Employee from engaging in
business activities for Mason Best Company, L.P., or its other affiliates,
engaging in other activities or services that do not conflict with the
Employee's performance of his duties hereunder, or making personal passive
investments in other business activities.
6. TERMINATION.
(a) The employment of Employee shall terminate upon the occurrence
of any of the following:
(i) The death of the Employee;
(ii) The delivery by the Employer to the Employee of written
notice of termination of employment due to the disability of
the Employee, where "disability" shall mean the Employee's
-2-
<PAGE> 3
inability, because of injury or illness, whether physical
or mental, to perform the material services to the
Employer contemplated by this Agreement.
(iii) The delivery by the Employer to the Employee of written
notice of termination of employment due to conduct by the
Employee constituting (A) a willful and knowing violation
of any law, rule or regulation, or causing the Employer to
willfully knowingly violate any law, rule or regulation,
which in either case is materially and demonstrably
injurious to the Employer; (B) fraud; (C) misappropriation
of the Employer's property; or (D) an act of moral
turpitude; or
(iv) The resignation or other termination of employment by the
Employee for any reason other than pursuant to Section
6(a)(i), or (ii) above.
(b) Upon termination of employment of the Employee for a reason set forth
in Section 6(a)(iii) or (iv) hereof, the Employer shall pay the Employee or his
legal representative the compensation accrued and unpaid at the date of
termination. The Employer shall have no further obligation to the Employee or
his legal representative.
(c) Upon the termination of employment of the Employee for any reason
other than those set forth in Section 6(a)(iii) or (iv) hereof, the Employer
shall have no further obligation to the Employee or his legal representative,
except that the Employee or his legal representative shall be entitled to
receive the amounts that would have been paid to the Employee at his then
current rate of compensation pursuant to Section 3(a) hereof for the term
-3-
<PAGE> 4
of this Agreement remaining pursuant to Section 2 hereof immediately prior to
the date of termination of employment. Such amounts shall be paid as and when
they would have been paid pursuant to Section 3(a) hereof had the Employee's
employment not been terminated.
7. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT. That prior existing
Employment Agreement dated December 31, 1994, between the parties hereto (the
"Prior Agreement"), is hereby terminated and made null and void upon the
effectiveness of this Agreement which shall supersede the Prior Agreement in
all respects.
8. TERMINATION AND WAIVER OF STOCK OPTIONS. Employee hereby agrees with
the Employer and the Committee that, in consideration of this Agreement, all
outstanding and unexercised options and stock appreciation rights that are held
by Employee and that relate to any shares of stock of Employer or any affiliate
of Employer (the "Option Agreements") are hereby terminated and Employee
shall not receive any further grants of stock options or stock appreciation
rights that relate to such stock. Employee hereby waives all rights under the
Option Agreements and releases Employer and the Committee from any duty of
performance thereunder. The Option Agreements shall include, without
limitation, those set forth on Attachment 1 hereto.
9. TERMINATION AND WAIVER OF NON-COMPETITION AND NON-SOLICITATION
COVENANTS. Employee and Employer hereby agree that all existing
non-competition and non-solicitation promises and covenants of Employee
relating to the business of the Employer, including, without limitation, those
set forth in Section 7 of the Prior Agreement are terminated and made null and
void. Employer hereby releases Employee from any duty of performance under
such promises and covenants and waives compliance with them.
-4-
<PAGE> 5
10. FURTHER SERVICES. Unless Employee's employment terminates prior to
February 28, 1998, upon the termination of the term of this Agreement,
Employee and Employer shall enter into a written employment agreement for the
provision of services by Employee to Employer as needed on an hourly basis.
Such services shall be compensated at an hourly rate of $170.00 and shall
consist of the giving of advice and assistance to Employer in matters with
respect to which the Employee has unique knowledge because of his position and
experience as an officer of the Employer; provided, however, that no more than
515 hours of service shall be required of Employee pursuant to this Section
10. Employee shall, during the performance of such 515 hours of service,
continue to be provided the same group health, disability and life insurance
coverages as were being provided to Employee on February 27, 1998. At such
time as the Employer adopts a plan of liquidating, Employer shall pay Employee a
cash lump sum amount equal to the difference, if any, between $87,500 and the
aggregate amount of cash compensation Employee has them received pursuant to
this Section 10. In addition, for a period of nine months after (i) such time
as Employee completes such 515 hours of service, or if earlier, (ii) the date
on which Employer adopts a plan of liquidation, the Employer shall provide the
same group health, disability and life insurance coverages as were being
provided to the employee immediately prior to such termination.
11. CONFLICTS AND CODE OF ETHICS. On or before the effective date of
this Agreement, the Employee agrees to execute and deliver to the Employer the
Code of Ethics in the form attached hereto as Attachment 2, and to thereafter
abide by the provisions thereof.
12. INDEPENDENT COVENANTS. The provisions in this Agreement are
independent and separate. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the terms hereof:
-5-
<PAGE> 6
(a) in lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically as a part of this Agreement a provision as
similar in economic and business terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
unenforceable; and
(b) the legality, validity and unenforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
13. INJUNCTIVE RELIEF. In the event of a breach or threatened breach of
the Employee of the provisions of this Agreement, the Employer shall be entitled
to an injunction to prevent irreparable injury to the Employer. The Employer
may also pursue any other remedies available to the Employer for such breach
or threatened breach, including the recovery of damages from the Employee.
14. INTEGRATION. This Agreement represents the entire agreement between
the parties with respect to the Employee's employment by Employer, and all
prior agreements between the parties relating to that subject matter are
superseded.
15. AMENDMENT: WAIVER. No modification or amendment of this Agreement
shall be valid and binding, unless it is in writing and signed by the parties.
The waiver of any provision hereof shall be effective only if in writing and
signed by the parties, and then only in the specific instance and for the
particular purpose for which it was given. No failure to exercise, and no
delay in exercising, any right or power hereunder shall operate as a waiver
thereof.
16. BENEFIT. This Agreement shall be binding upon the Employee, his
heirs and personal representatives, and the Employer, its successors and
assigns. Neither this
-6-
<PAGE> 7
Agreement, nor the rights and obligations created under it, may be assigned by
the Employee without the prior consent of the Employer.
17. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of Texas.
EXECUTED as of the date first written above.
----------------------------------
M. Philip Guthrie
AMERICAN EAGLE GROUP, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
COMMITTEE OF THE
AMERICAN EAGLE GROUP, INC.
1994 STOCK INCENTIVE PLAN
By:
-------------------------------
Title:
----------------------------
-7-
<PAGE> 1
EXHIBIT 10.45
EMPLOYMENT AGREEMENT
This Agreement, entered into effective as of August 21, 1997, is by and
among AMERICAN EAGLE GROUP, INC., a Delaware corporation (the "Employer"), the
Committee of the American Eagle Group, Inc. 1994 Stock Incentive Plan (the
"Committee") and Richard M. Kurz, (the "Employee").
The Employer desires to employ the Employee and the Employee is willing to
serve the Employer on the terms and conditions provided in this Agreement.
Therefore, the parties hereby agree as follows:
1. EMPLOYMENT. The Employer agrees to employ the Employee as Senior
Vice President and Chief Financial Officer or in any other position with
substantially similar title, duties and responsibilities to which Employee may
be elected or appointed by the Board of Directors of the Employer. Employee
agrees to serve in any such capacity and perform the duties prescribed from time
to time by the Bylaws or the Board of Directors of the Employer upon the terms
and conditions set forth in this Agreement.
2. TERM. Unless Employee's employment is sooner terminated in
accordance with the provisions hereof, the term of employment shall extend from
the date hereof until February 28, 1998.
3. COMPENSATION. The Employee shall receive the following compensation
for his services:
(a) A lump sum payment of $121,875 payable upon the execution of this
Agreement;
<PAGE> 2
(b) Cash salary compensation for the term of employment hereunder of
not less than the appropriate pro rata portion of an annualized salary of
$162,500; and
(c) Participation in the employee benefit plans maintained by the
Employer for its employees generally, as such plans are in effect from time to
time in accordance with their terms and the particular term of this Agreement.
4. REIMBURSEMENT OF BUSINESS EXPENSES. The Employer shall reimburse
the Employee for all reasonable business expenses incurred by the Employee in
accordance with the policies of the Employer in effect from time to time, upon
presentation of proper supporting documentation therefor.
5. EXTENT OF SERVICE. The Employee shall devote substantially all of
his time, attention and energy to the business of the Employer and its
subsidiaries and shall not, during the term of this Agreement, be actively
engaged in any other business activity for gain, profit, or other pecuniary
advantage. This Section shall not prohibit the Employee from engaging in
business activities or other activities or services that do not conflict with
the Employee's performance of his duties hereunder, or making personal passive
investments in other business activities.
6. TERMINATION.
(a) The employment of Employee shall terminate upon the occurrence
of any of the following:
(i) The death of the Employee;
(ii) The delivery by the Employer to the Employee of written
notice of termination of employment due to the disability
of the Employee, where "disability" shall mean the
Employee's
-2-
<PAGE> 3
inability, because of injury or illness, whether
physical or mental, to perform the material services to
the Employer contemplated by this Agreement.
(iii) The delivery by the Employer to the Employee of written
notice of termination of employment due to conduct by
the Employee constituting (A) a willful and knowing
violation of any law, rule or regulation, or causing
the Employer to willfully knowingly violate any law,
rule or regulation, which in either case is materially
and demonstrably injurious to the Employer; (B) fraud;
(C) misappropriation of the Employer's property; or (D)
an act of moral turpitude; or
(iv) The resignation or other termination of employment by
the Employee for any reason other than pursuant to
Section 6(a)(i), or (ii) above.
(b) Upon termination of employment of the Employee for a reason set
forth in Section 6(a)(iii) or (iv) hereof, the Employer shall pay the Employee
or his legal representative the compensation accrued and unpaid at the date of
termination. The Employer shall have no further obligation to the Employee or
his legal representative.
(c) Upon the termination of employment of the Employee for any
reason other than those set forth in Section 6(a)(iii) or (iv) hereof, the
Employer shall have no further obligation to the Employee or his legal
representative, except that the Employee or his legal representative shall be
entitled to receive the amounts that would have been paid to the Employee at
his then current rate of compensation pursuant to Section 3(a) hereof for the
term
-3-
<PAGE> 4
of this Agreement remaining pursuant to Section 2 hereof immediately prior to
the date of termination of employment. Such amounts shall be paid as and when
they would have been paid pursuant to Section 3(a) hereof had the Employee's
employment not been terminated.
7. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT. That prior existing
Employment Agreement dated December 31, 1994, between the parties hereto (the
"Prior Agreement"), is hereby terminated and made null and void upon the
effectiveness of this Agreement which shall supersede the Prior Agreement in
all respects.
8. TERMINATION AND WAIVER OF STOCK OPTIONS. Employee hereby agrees
with the Employer and the Committee that, in consideration of this Agreement,
all outstanding and unexercised options and stock appreciation rights that are
held by Employee and that relate to any shares of stock of Employer or any
affiliate of Employer (the "Option Agreements") are hereby terminated and
Employee shall not receive any further grants of stock options or stock
appreciation rights that relate to such stock. Employee hereby waives all
rights under the Option Agreements and releases Employer and the Committee from
any duty of performance thereunder. The Option Agreements shall include,
without limitation, those set forth on Attachment 1 hereto.
9. TERMINATION AND WAIVER OF NON-COMPETITION AND NON-SOLICITATION
COVENANTS. Employee and Employer hereby agree that all existing
non-competition and non-solicitation promises and covenants of Employee
relating to the business of the Employer, including, without limitation, those
set forth in Section 7 of the Prior Agreement are terminated and made null and
void. Employer hereby releases Employee from any duty of performance under such
promises and covenants and waives compliance with them.
-4-
<PAGE> 5
10. FURTHER SERVICES. Unless Employee's employment terminates prior to
February 28, 1998, upon the termination of the term of this Agreement, Employee
and Employer shall enter into a written employment agreement for the provision
of services by Employee to Employer as needed on an hourly basis. Such services
shall be compensated at an hourly rate of $80.00 and shall consist of the
giving of advice and assistance to Employer in matters with respect to which
the Employee has unique knowledge because of his position and experience as an
officer of the Employer; provided, however, that no more than 515 hours of
service shall be required of Employee pursuant to this Section 10. Employee
shall, during the performance of such 515 hours of services, continue to be
provided the same group health, disability and life insurance coverages as
were being provided to Employee on February 27, 1998. At such time as the
Employer adopts a plan of liquidation, Employer shall pay Employee a cash lump
sum amount equal to the difference, if any, between $40,625 and the aggregate
amount of cash compensation Employee has then received pursuant to this Section
10. In addition, for a period of nine months after (i) such time as Employee
completes such 515 hours of service, or, if earlier, (ii) the date on which
Employer adopts a plan of liquidation, the Employer shall provide the same group
health, disability and life insurance coverages as were being provided to the
employee immediately prior to such termination.
11. CONFLICTS AND CODE OF ETHICS. On or before the effective date of this
Agreement, the Employee agrees to execute and deliver to the Employer the Code
of Ethics in the form attached hereto as Attachment 2, and to thereafter abide
by the provisions thereof.
12. INDEPENDENT COVENANTS. The provisions in this Agreement are
independent and separate. If any provision of this Agreement is held to be
illegal, invalid or unenforceable under present or future laws effective during
the terms hereof:
-5-
<PAGE> 6
(a) in lieu of such illegal, invalid or unenforceable provision,
there shall be added automatically as a part of this Agreement a provision as
similar in economic and business terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and
unenforceable; and
(b) the legality, validity and unenforceability of the remaining
provisions hereof shall not in any way be affected or impaired thereby.
13. INJUNCTIVE RELIEF. In the event of a breach or threatened breach of
the Employee of the provisions of this Agreement, the Employer shall be
entitled to an injunction to prevent irreparable injury to the Employer. The
Employer may also pursue any other remedies available to the Employer for such
breach or threatened breach, including the recovery of damages from the
Employee.
14. INTEGRATION. This Agreement represents the entire agreement between
the parties with respect to the Employee's employment by Employer, and all
prior agreements between the parties relating to that subject matter are
superseded.
15. AMENDMENT; WAIVER. No modification or amendment of this Agreement
shall be valid and binding, unless it is in writing and signed by the parties.
The waiver of any provision hereof shall be effective only if in writing and
signed by the parties, and then only in the specific instance and for the
particular purpose for which it was given. No failure to exercise, and no delay
in exercising, any right or power hereunder shall operate as a waiver thereof.
16. BENEFIT. This Agreement shall be binding upon the Employee, his
heirs and personal representatives, and the Employer, its successors and
assigns. Neither this
-6-
<PAGE> 7
Agreement, nor the rights and obligations created under it, may be assigned by
the Employer.
17. GOVERNING LAW. This Agreement shall be construed in accordance with,
and governed by, the laws of the State of Texas.
EXECUTED as of the date first written above.
-------------------------------
Richard M. Kurz
AMERICAN EAGLE GROUP, INC.
By:
----------------------------
Name:
--------------------------
Title:
-------------------------
COMMITTEE OF THE
AMERICAN EAGLE GROUP, INC.
1994 STOCK INCENTIVE PLAN
By:
----------------------------
Title:
-------------------------
-7-
<PAGE> 1
EXHIBIT 10.46
RENEWAL/RETENTION COMMISSION AGREEMENT
THIS RENEWAL/RETENTION COMMISSION AGREEMENT dated as of November 4,
1997, is by and among American Eagle Group, Inc. ("AEG"), a Delaware
corporation, American Eagle Insurance Company ("AMERICAN EAGLE"), a Texas
corporation, and Great American Insurance Company (together with its
affiliates, successors, and assigns "GREAT AMERICAN"), an Ohio corporation.
PRELIMINARY STATEMENT
American Eagle and Great American are parties to that certain Purchase
Agreement between Great American Insurance Company and American Eagle Insurance
Company dated July 31, 1997 (the "PURCHASE AGREEMENT"). Pursuant to Section 4.2
of the Purchase Agreement, Great American agreed to pay to American Eagle
commissions based on renewals or reissuances of certain insurance policies. AEG
has agreed to assume Great American's obligation to pay such commissions to
American Eagle.
Accordingly, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
STATEMENT OF AGREEMENT
ARTICLE 1
ASSUMPTION OF OBLIGATION TO PAY COMMISSION
Section 1.1 Assumption of Obligations; Release of Great American.
Subject to the terms and conditions of this Agreement, AEG hereby assumes Great
American's obligations under Section 4.2 of the Purchase Agreement to pay
certain renewal/retention commissions (as more fully described in Section 1.2
below) to American Eagle. The parties hereto acknowledge that Great American is
hereby released and discharged from its obligations under Section 4.2 of the
Purchase Agreement to pay such renewal/retention commissions to American Eagle.
Section 1.2 Commission. Subject to the terms and conditions of
this Agreement, AEG hereby agrees to pay to American Eagle the following
commissions:
(a) A commission equal to four percent of the Renewal Premiums (as
hereinafter defined) received by Great American during the first year which
commenced on April 1, 1997, on all Reinsured Business (as hereinafter defined)
transferred to Great American;
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(b) A commission equal to two percent of the Renewal Premiums
received by Great American during the second year which commences on April 1,
1998, on all Reinsured Business transferred to Great American; and
(c) A commission equal to one percent of the Renewal Premiums
received by Great American during the third year which commences on April 1,
1999, on all Reinsured Business transferred to Great American.
For purposes of this Agreement, "REINSURED BUSINESS" shall mean (i) all
aviation business of American Eagle in force as of March 31, 1997, and (ii) all
aviation business written or renewed by American Eagle from March 31, 1997,
until the date on which Great American became qualified to issue directly its
own policies. For purposes of this Agreement, "RENEWAL PREMIUMS" shall mean all
direct written premiums on policies renewing, or being reissued with respect
to, Reinsured Business on or after April 1, 1997, less the sum of any returned
premiums or cancellations.
ARTICLE 2
PAYMENT OF COMMISSION
Section 2.1 Commission Calculation. Amounts payable by AEG
hereunder shall be computed by AEG each March 31, June 30, September 30, and
December 31, during the period beginning April 1, 1997 and ending March 31,
2000. As soon as practicable after the end of each such quarter, Great American
will provide AEG with all information necessary for AEG to prepare a written
calculation (each a "QUARTERLY COMMISSION CALCULATION") of the amount owed by
AEG for the immediately preceding quarter (each a "QUARTERLY COMMISSION
PAYMENT"). AEG shall have until the later of (i) 10 days after the date Great
American has provided all information necessary for AEG to make the Quarterly
Commission Calculation and (ii) 30 days after the end of each such quarter, to
complete the Quarterly Commission Calculation and make the Quarterly Commission
Payment to American Eagle (each such date of payment a "QUARTERLY COMMISSION
PAYMENT DATE"). Each Quarterly Commission Calculation shall show, by policy
number (i) the policies renewed or reissued with respect to Reinsured Business
in the applicable quarter, (ii) the amount of all premiums received by Great
American with respect to Reinsured Business during the applicable quarter, and
(iii) the amount of any returned premiums or cancellations with respect to
Reinsured Business during the applicable quarter.
Section 2.2 Access to Information; Arbitration. AEG, American
Eagle, and their respective accountants, auditors, agents, employees and other
representatives shall have the right, from time to time, at their own expense,
to conduct such financial or other due diligence with respect to the
information provided by Great American under Section 2.1 hereof as AEG or
American Eagle may deem appropriate. Should any dispute arise among the parties
hereto with respect to this Agreement which cannot be resolved by the parties
to such dispute, the dispute shall be submitted to arbitration pursuant to the
Commercial Arbitration Rules of the
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American Arbitration Association. The decision resulting from any such
arbitration shall be binding upon the parties hereto.
Section 2.3 Method of Payment by AEG; Escrow Deposit. Pursuant to
that certain Escrow Agreement dated as of March 25, 1997, among AEG, The
Insurance Corporation of New York, and Fleet Bank, AEG deposited $1,300,000 in
assets into an escrow account with Fleet Bank (the "FLEET ESCROW ACCOUNT"). AEG
hereby assigns to American Eagle all of its right, title and interest in the
Fleet Escrow Account. On the date hereof, AEG has deposited the amount of
$200,000 (the "ESCROW DEPOSIT") pursuant to that certain Escrow Agreement dated
the date hereof among AEG, American Eagle and U.S. Trust Company of Texas, N.A.
For purposes of determining amounts owed by AEG hereunder, the present value of
each Quarterly Commission Payment (each a "DISCOUNTED QUARTERLY COMMISSION
PAYMENT") shall be calculated as of July 31, 1997 at a rate equal to the rate
of interest earned during the quarter on the Fleet Escrow Account; provided
that upon disbursement to American Eagle of the $1,300,000 from the Fleet
Escrow Account, the rate used thereafter for calculations of the Discounted
Quarterly Commission Payment shall be equal to the market rate for U.S.
Treasury Bonds.
Section 2.4 Disbursement of Escrow Deposit. If at any time upon
calculation of a Discounted Quarterly Commission Payment the sum of all
Discounted Quarterly Commission Payments exceeds the $1,300,000 transferred to
American Eagle, American Eagle shall have the right to withdraw from the Escrow
Deposit an amount equal to the difference between the sum of all Discounted
Quarterly Commission Payments and $1,300,000. Thereafter, on each subsequent
Quarterly Commission Payment Date, American Eagle shall have the right to
withdraw from the Escrow Deposit an amount equal to the Quarterly Commission
Payment for such quarter. Any amounts remaining in the Escrow Deposit after
satisfaction of AEG's obligations hereunder shall be promptly returned to AEG.
In the event that amounts owed by AEG hereunder exceed in the aggregate
$1,500,000, AEG shall be obligated to pay any such amounts when due pursuant to
the terms of this Agreement.
Section 2.5 Return of Escrow Deposit. On or about April 1, 1998,
the parties hereto shall discuss in good faith whether AEG's interest in the
Fleet Escrow Account, transferred to American Eagle hereunder, is sufficient to
meet AEG's obligations under this Agreement. If the parties agree that such
transfer is sufficient to meet AEG's obligations, the parties shall instruct
the Escrow Agent to disburse the Escrow Deposit to AEG. The parties hereto
agree that, notwithstanding any provision in this Agreement to the contrary, in
no event shall American Eagle be required to return to AEG any portion of AEG's
interest in the Fleet Escrow Account transferred to American Eagle on the date
hereof.
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ARTICLE 3
MISCELLANEOUS
Section 3.1 Notices. Any and all notices permitted or required to
be given under the terms of this Agreement shall be in writing and may be
served by mail, postage prepaid, and addressed to the party to be notified at
the appropriate addressed specified below, or by delivering the same in person
to such party, or by telecopy, prepaid telegram or cablegram, addressed to the
party to be notified at said address. The mailing addresses of the parties are
as follows:
Party Address
If to AEG: American Eagle Group, Inc
12801 N. Central Expressway
Suite 800
Dallas, Texas 75243
Attn: M. Philip Guthrie
Telecopy: 972-448-1401
If to American Eagle: American Eagle Insurance Company
12801 N. Central Expressway
Suite 800
Dallas, Texas 75243
Attention: Neal Rockhold, Conservator
Telecopy: 972-448-1401
If to Great American: Great American Insurance Company
580 Walnut Street
Cincinnati, Ohio 45202
Attention: Gary J. Gruber
Telecopy: 513-579-0108
The above addresses may be changed by any party by notice given in the manner
provided in this Section 3.1.
Section 3.2 Entire Agreement. This Agreement and the Escrow
Agreement constitute the entire understanding among the parties as to the
subject matter hereof and no waiver or modification of the terms hereof shall
be valid unless in writing signed by the parties hereto and only to the extent
therein set forth.
Section 3.3 Effect of Agreement. This Agreement shall be binding
on, inure to the benefit of, and be enforceable by the parties hereto and their
respective heirs, successors and assigns.
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Section 3.4 Section and Paragraph Headings. The section and
paragraph headings contained in this Agreement are for reference purposes only
and shall not affect in any way the meaning or interpretation of this
Agreement.
Section 3.5 Governing Law. This Agreement shall be construed and
enforced in accordance with the laws of the State of Texas, without giving
effect to the conflict of law rules or choice of law rules thereof.
Section 3.6 Counterparts. This Agreement may be executed in
multiple counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
[SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the undersigned parties have caused this Agreement
to be executed as of the date first written above.
AMERICAN EAGLE GROUP, INC.
By:
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Name:
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Title:
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AMERICAN EAGLE INSURANCE COMPANY
By:
-------------------------------
Name:
-----------------------------
Title:
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GREAT AMERICAN INSURANCE COMPANY
By:
-------------------------------
Name:
-----------------------------
Title:
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<PAGE> 1
EXHIBIT 10.47
SETTLEMENT AGREEMENT AND MUTUAL RELEASE
American Eagle Group, Inc. ("AEG"), American Financial Group, Inc.
("AFG"), and Great American Insurance Company ("GAIC"), enter into this
Settlement Agreement and Mutual Release (the "Agreement") effective as of
November 4, 1997 (the "Effective Date").
1. Concurrently with the execution of this Agreement, one or more of the
parties to this Agreement are entering into a Renewal/Retention Commission
Agreement and Escrow Agreement (collectively the "Related Agreements"). As
between or among the parties to this Agreement, the terms and conditions of the
Related Agreements are adopted and incorporated by reference as if fully set
forth in this Agreement. True and correct copies of the Related Agreements are
attached as Exhibits A and B, respectively, to this Agreement.
2. On the Effective Date, GAIC shall transfer, assign, and deliver to
AEG, or cause to be transferred, assigned, and delivered to AEG, the 350,000
shares of Series D Preferred Stock of AEG (the "Purchased Securities") that AEG
had issued to GAIC pursuant to the November 5, 1996 Securities Purchase
Agreement by and between AEG and AFG, along with any dividends or other
benefits accruing thereunder from the date that AEG issued the Purchased
Securities to GAIC to the date of their return to AEG pursuant to this
paragraph. GAIC warrants and represents to AEG that it has not assigned or
transferred all or any portion of its interest in the Purchased Securities and
dividends and other benefits accruing thereunder to any other person or entity
and that it is returning the Purchased Securities and any dividends or other
benefits accruing thereunder free and clear of any liens, security interests,
or other claims of any other person or entity. AFG agrees to take such action
as shall be necessary or appropriate to fulfill its obligations under this
paragraph 2.
<PAGE> 2
3. AFG, GAIC, and their respective directors, principals, officers,
managers, supervisors, employees, agents, representatives, attorneys,
accountants, actuaries, parents, subsidiaries, affiliates, predecessors,
successors, and assigns, past, present, and future, directly or indirectly and
in any capacity (collectively referred to hereafter as the "AFG Parties" and
the "GAIC Parties" respectively), and except as limited below, hereby acquit,
discharge, and release AEG and its respective directors, former directors and
their affiliates, principals, officers, managers, supervisors, employees,
agents, representatives, attorneys, accountants, actuaries, parents,
subsidiaries, affiliates, predecessors, successors, and assigns, past or
present (collectively referred to hereafter as the "AEG Parties") from any and
all debts, damages, claims, liabilities, obligations, and causes of actions,
whether known, unknown, or unforeseen, whether liquidated or unliquidated, from
the beginning of time to the Effective Date of this Agreement. For purposes
of this Agreement, including without limitation Section 4 hereof, the term "AEG
Parties" includes, but is not limited to, the persons on the attached Exhibit C
to this Agreement (1) in their individual capacities, (2) as present or former
officers, directors, or employees of AEG, (3) as former officers, directors, or
employees of American Eagle Insurance Company ("AEIC"), or (4) in any other
capacity. Notwithstanding the first sentence of this paragraph, excepted from
the scope of this release are any debts, damages, claims, liabilities,
obligations, or causes of action arising under or in connection with this
Agreement or with any of the Related Agreements.
4. The AEG Parties (other than AEIC), past, present, or future, directly
or indirectly and in any capacity, and except as limited below, hereby acquit,
discharge, and release the AFG Parties and the GAIC Parties from any and all
debts, damages, claims, liabilities, obligations, and causes of actions,
whether known, unknown, or unforeseen, whether liquidated or unliquidated,
from the
<PAGE> 3
beginning of time to the Effective Date of this Agreement. For purposes of
this Agreement, including without limitation Section 3 hereof, the terms "AFG
Parties" and "GAIC Parties" includes, but is not limited to, the persons on the
attached Exhibit D to this Agreement (1) in their individual capacities, (2) as
present or former officers, directors, or employees of AFG or GAIC, (3) as
former officers, directors or employees of AFG or GAIC, or (4) in any other
capacity. Notwithstanding the first sentence of this paragraph, excepted from
the scope of this release are any debts, damages, claims, liabilities,
obligations, or causes of action arising under or in connection with this
Agreement or with any of the Related Agreements.
5. Each of the parties to this Agreement warrants and represents to each
of the other parties to this Agreement, singly and collectively, that as of the
Effective Date, and as of the date of his or its execution of this Agreement,
that he or it has not assigned or transferred all or any portion of the debts,
damages, claims, liabilities, obligations, and causes of actions being
acquitted, discharged, or released under paragraphs 3 and 4 of this Agreement
(the "Released Claims") to any other person or entity.
6. Each of the parties to this Agreement warrants and represents to each
of the other parties to this Agreement, singly and collectively, that he or it
has read and understood this Agreement and has entered into this Agreement of
his or its own free will and accord after full opportunity to investigate the
facts and law applicable to this Agreement and the transactions and disputes
leading up to the execution of this Agreement and in accordance with his or its
own judgment and upon advice of their own legal counsel, and states that he or
it has not been induced to enter into this Agreement by any statement, act, or
representation of any kind or character on the part of anyone except as
expressly set forth in this Agreement.
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7. Each of the parties to this Agreement warrants and represents to each
of the other parties to this Agreement, singly and collectively, that each of
the signatories to this Agreement is fully authorized to bind the respective
parties to this Agreement.
8. Except to the extent required by law, each of the parties agrees that
he or it will not make or publicize any statements to any third party regarding
this Agreement, any of the Related Agreements, or any of the events,
circumstances, transactions, or disputes leading up to the execution of this
Agreement or any of the Related Agreements that would tend to damage the
reputation or impeach the honesty, integrity, virtue, or reputation of any of
the parties to this agreement or any of their respective directors, former
directors, and their affiliates, principals, officers, managers, supervisors,
employees, agents, representatives, attorneys, accountants, actuaries, parents,
subsidiaries, affiliates, partners, joint venturers, predecessors, successors,
and assigns, past and present.
9. The Agreement and the Related Agreements contain the entire agreement
between or among the parties and supersedes any and all prior oral or written
representations, statements, understandings, arrangements, or agreements
between or among the parties. Neither this Agreement nor any term or condition
of this Agreement may be altered, modified, amended, or waived except by a
written agreement signed by the parties.
10. This Agreement was the product of arms-length negotiation between
sophisticated parties represented by counsel. Accordingly, the parties agree
that the rule that a contract shall be construed against the party who drafted
it or selected its language shall have no application to the construction,
interpretation, or enforcement of this Agreement.
<PAGE> 5
11. This Agreement shall be binding on and inure to the benefit of the
parties hereto and their respective heirs, representatives, successors, and
assigns.
12. This Agreement may be executed in multiple counterparts.
13. In the event that any of the terms or conditions of this Agreement are
held or ruled to be illegal, unenforceable, or invalid in whole or in part,
such holding or ruling shall not affect the validity or enforceability of the
other terms or conditions of this Agreement, and this Agreement shall be
construed, interpreted, and enforced as if the illegal, unenforceable, or
invalid provision or part thereof was never part of this Agreement. This
Agreement shall be construed or interpreted wherever possible so as to give
validity and effect to its terms or conditions and to effect the obligations of
AFG set forth in paragraph 2 of this Agreement and the mutual releases set
forth in paragraphs 3 and 4 of this Agreement.
14. Notwithstanding anything herein to the contrary, this Settlement
Agreement and Mutual Release shall be effective only when (i) the Related
Agreements have been executed by all parties thereto, (ii) the escrow deposit
has been made by AEG, as required under the Escrow Agreement attached hereto as
Exhibit B, and (iii) AFG and GAIC have received a release executed by AEIC in
conservatorship, releasing the obligation of GAIC pursuant to the Purchase
Agreement, dated July 31, 1997, to pay AEIC commissions based on renewals or
reissuances of certain insurance policies, and acknowledging that AEG has
assumed such obligation in place of GAIC.
15. New York law shall govern the validity, construction, performance,
and enforcement of this Agreement.
<PAGE> 6
AMERICAN EAGLE GROUP, INC.
By:
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Title:
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AMERICAN FINANCIAL GROUP, INC.
By:
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Title:
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GREAT AMERICAN INSURANCE COMPANY
By:
-----------------------
Title:
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<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<DEBT-HELD-FOR-SALE> 50,470
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