-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Nb4E9A3gVHYbvyNDIpkJO9585A7gEQXR3l3mbD5FAZITyzIYg30CkW1euBR3vY6Z fGJ/dzAXguj7GBZvS8Nt1w== 0000950134-96-006187.txt : 19961118 0000950134-96-006187.hdr.sgml : 19961118 ACCESSION NUMBER: 0000950134-96-006187 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961114 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN EAGLE GROUP INC CENTRAL INDEX KEY: 0000882800 STANDARD INDUSTRIAL CLASSIFICATION: FIRE, MARINE & CASUALTY INSURANCE [6331] IRS NUMBER: 752100622 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12922 FILM NUMBER: 96663394 BUSINESS ADDRESS: STREET 1: 12801 N CENTRAL EXPRWY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75243 BUSINESS PHONE: 2144481400 MAIL ADDRESS: STREET 1: 12801 N CENTRAL EXPRESSWAY STREET 2: STE 800 CITY: DALLAS STATE: TX ZIP: 75243 10-Q 1 FORM 10-Q FOR QUARTER ENDED SEPTEMBER 30, 1996 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 September 30, 1996 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from ______________to _________________ Commission 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 Identification No.) incorporation or organization) 12801 North Central Expressway, Suite 800, Dallas, Texas 75243 (Address of principal executive offices) (Zip Code) 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 X No ------ ------- APPLICABLE ONLY TO CORPORATE ISSUERS: As of November 8, 1996, the number of shares outstanding of each of the issuer's classes of common stock was as follows: Common Stock . . . . . . . . . . 7,047,398 shares, par value $.01 per share - -------------------------------------------------------------------------------- 2 AMERICAN EAGLE GROUP, INC. INDEX TO FORM 10-Q
Page ---- PART I. FINANCIAL INFORMATION Item 1. Financial Statements Condensed consolidated balance sheets as of September 30, 1996 (unaudited) and December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . 3 Condensed consolidated statements of income for the periods ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) . . . . . . . 4 Condensed consolidated statements of cash flows for the periods ended September 30, 1996 (unaudited) and September 30, 1995 (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
2 3 AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT SHARE DATA)
(Unaudited) ASSETS December 31, September 30, 1995 1996 -------- -------- Cash and investments $106,792 $ 69,178 Accounts receivable 56,890 55,229 Reinsurance recoverable, net 101,125 87,670 Deferred policy acquisition costs 15,296 14,670 Deferred reinsurance premiums 29,355 22,594 Other assets 18,337 15,969 -------- -------- Total assets $327,795 $265,310 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Reserve for losses and loss adjustment expenses $136,528 $123,203 Unearned premiums 79,605 65,996 Other policy liabilities 29,722 1,180 Agency payables to insurance companies, net 1,736 751 Note payable 11,250 13,250 Accounts payable and other liabilities 13,859 12,195 -------- -------- Total liabilities 272,700 216,575 -------- -------- Commitments and contingent liabilities Series B Cumulative Preferred Stock, $.01 par value; 162,857 shares authorized, 162,857 shares issued and outstanding 1,629 1,629 Stockholders' equity: Common Stock, $.01 par value, 21,000,000 shares authorized, 7,121,380 shares issued 71 71 Additional paid-in-capital 45,532 45,555 Unrealized apprec.(deprec.) on investment securities, net of deferred taxes 1,029 (252) Retained earnings 6,921 1,819 Less - 73,882 shares of common stock held in the treasury, at cost (87) (87) -------- -------- Total stockholders' equity 53,466 47,106 -------- -------- Total liabilities and stockholders' equity $327,795 $265,310 ======== ========
The accompanying notes are an integral part of these financial statements. 3 4 AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE PERIODS ENDED (UNAUDITED) (IN THOUSANDS EXCEPT SHARE DATA)
Three Months Ended Nine Months Ended September 30, September 30, September 30, September 30, 1995 1996 1995 1996 --------- --------- --------- --------- Revenues Earned premiums, net of reinsurance $27,171 $27,634 $72,415 $93,965 Agency operations, net 215 225 507 172 Investment income, net 1,351 1,031 4,161 3,478 Realized investment gains (losses), net 452 (46) 458 52 --------- --------- --------- --------- Total revenues 29,189 28,844 77,541 97,667 --------- --------- --------- --------- Expenses Losses and loss adjustment expenses, net of reinsurance 16,347 17,596 45,594 66,255 Policy acquisition and other underwriting expenses 9,109 12,371 23,614 36,845 Interest expense 256 299 733 834 --------- --------- --------- --------- Total expenses 25,712 30,266 69,941 103,934 --------- --------- --------- --------- Income (loss) before income tax expense 3,477 (1,422) 7,600 (6,267) Income tax expense (benefit) 1,078 (263) 2,358 (1,800) --------- --------- --------- --------- Net income (loss) $2,399 ($1,159) $5,242 ($4,467) ========= ========= ========= ========= Net income (loss) available for common stockholders (1) $2,375 ($1,183) $5,169 ($4,540) ========= ========= ========= ========= Weighted average number of common shares outstanding 7,052,898 7,048,498 7,053,698 7,049,098 ========= ========= ========= ========= Net income (loss) per share of common stock (1) $0.34 ($0.17) $0.73 ($0.64)
(1) After deduction of preferred dividends The accompanying notes are an integral part of these financial statements. 4 5 AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE NINE MONTHS ENDED (UNAUDITED) (IN THOUSANDS)
September 30, September 30, 1995 1996 -------- ------- Cash and cash equivalents derived from: Total provid)doperating activities $ 2,198 $(35,521) Investing activities- Net proceeds (purchases) of short-term investments (3,917) 24,743 Purchases of fixed income securities (18,345) (23,715) Proceeds from sales of fixed income securities 16,862 26,882 Proceeds from maturities of fixed income securities 3,009 6,885 Purchases of property and equipment (1,308) (1,049) -------- -------- Total provided by investing activities (3,699) 33,746 -------- -------- Financing activities- Dividends paid on Series B and C Cumulative Preferred Stock (73) (73) Dividends paid on common stock (635) (846) Proceeds of note payable 2,000 2,000 Increase in common stock outstanding 26 -- -------- -------- Total provided by financing activities 1,318 1,081 -------- -------- Net change in cash and cash equivalents (183) (694) Cash and cash equivalents, beginning of period 1,530 2,922 -------- -------- Cash and cash equivalents, end of period $ 1,347 $ 2,228 ======== ========
The accompanying notes are an integral part of these financial statements. 5 6 AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE PERIODS ENDED SEPTEMBER 30, 1995 AND 1996 (UNAUDITED) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of American Eagle Group, Inc. (the "Company") and subsidiaries for the periods ended September 30, 1995 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 periods ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1995 included in the Company's Annual Report. SUBSEQUENT EVENT On November 6, 1996, the Company announced the terms of a $35 million investment in the Company and the formation of a strategic alliance with American Financial Group, Inc. ("American Financial Group"). Under the capital terms of the strategic alliance, American Financial Group has agreed to purchase 350,000 shares of the Company's Series D Preferred Stock for $35 million. This security will have a 9% dividend, with an option for the first five years to pay the dividends in kind with additional shares of Series D Preferred Stock. The preferred stock is convertible at a conversion price of $5.25 per share into common stock of the Company. At the time of issuance, the Series D Preferred Stock will be convertible into approximately 48% of the outstanding common stock (calculated on a fully converted basis). The preferred stock matures in 20 years with mandatory redemption of 10% of principal per year beginning in year eleven. The preferred stock is callable at par at any time. In the event that the preferred stock is called prior to the seventh anniversary of its issuance, the holder will receive warrants to purchase the Company's common stock at $5.25 per share exercisable any time during the period between the call date and the seventh anniversary of the issuance of the 6 7 preferred stock. The preferred stock carries limited voting rights equal to 20% of the total votes eligible to be cast on matters submitted to holders of common stock. Until the seventh anniversary of the issuance of the preferred stock, American Financial Group has the right to nominate for election to the Company's Board of Directors 30% of the number of directors. As part of the overall transaction, the Company has granted to American Financial Group warrants for 800,000 shares of the Company's common stock with an exercise price of $3.45 per share. Such warrants will become exercisable in the event that the Company terminates its agreement with American Financial Group and enters into a competing transaction with another party. These warrants will be canceled upon closing of the transaction with American Financial Group. Proceeds from the transaction will be utilized to contribute capital to the Company's insurance company subsidiary, to reduce bank debt, and for other general corporate purposes. In connection with the transaction, the company would record, at the time of closing of the transaction, a recapitalization charge of $15 million before federal income tax. This recapitalization charge will provide additional strengthening of American Eagle's balance sheet and overall reserve levels and is intended to cover contingencies and estimated exposures associated with various previously reported strategic actions and product line discontinuations. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THIRD QUARTER OF 1996 COMPARED TO THE THIRD QUARTER OF 1995 Gross Premiums Produced Gross premiums produced for the third quarter of 1996 compared to the third quarter of 1995 were as follows (in millions):
THIRD QUARTER 1995 1996 ---- ---- Gross premiums produced $48.0 $37.4 For other companies (4.9) (7.4) Assumed from other companies 2.0 4.6 ----- ----- Gross premiums written 45.1 34.6 Ceded premiums (15.0) (7.7) ----- ----- Net premiums written $30.1 $26.9 ===== =====
Gross premiums produced decreased 22.1% to $37.4 million for the third quarter of 1996 from $48.0 million in the third quarter of 1995. Of this decrease, 14.0% was in the Aviation Division and 8.5% was in the Property & Casualty Division (the "P&C Division"), while the Marine Division had an increase of 0.4%. The decreases in the Aviation and P&C Divisions' gross premiums produced resulted primarily from previously announced actions taken during 1995 and the first nine months of 1996 to eliminate unprofitable segments of the operations. In addition, in the Aviation Division, primarily in the airport segment, certain insureds require insurance written by an insurer with an A.M. Best Company rating of "A-" or better, which resulted in a portion of the decrease in gross premiums produced. The Company is completing arrangements and regulatory filings that will permit it to offer insureds the financial security of an insurer rated "A-" or better. The increase in the Marine Division's gross premiums produced is due to an increase in policies in force. The gross premiums produced for other companies increased 51.0% to $7.4 million in the third quarter of 1996 from $4.9 million in the third quarter of 1995. This increase is primarily a result of the increased use of arrangements that provide the Company the ability to offer its insureds the financial security of insurance companies with an A.M. Best Company rating of "A-" or better. The gross premiums assumed from other companies increased 130.0% to $4.6 million in the third quarter of 1996 from $2.0 million in the third quarter of 1995 primarily as a result of the increase in business produced for other companies. 8 9 Gross premiums written decreased 23.3% to $34.6 million in the third quarter of 1996 from $45.1 million in the third quarter of 1995 as a result of the decrease in gross premiums produced. Ceded premiums decreased 48.7% to $7.7 million in the third quarter of 1996, compared to $15.0 million in the third quarter of 1995. This decrease is primarily a result of a decline in business written in the airport segment that is reinsured with other companies under a facultative reinsurance agreement and, also, a decrease in ceded excess of loss reinsurance premiums for both Aviation and P&C Divisions. Net premiums written decreased 10.6% to $26.9 million in the third quarter of 1996, compared to $30.1 million in the third quarter of 1995. Revenues Earned premiums, net of reinsurance, increased 1.5% to $27.6 million in the third quarter of 1996 from $27.2 million in the third quarter of 1995. Of this increase, 0.4% was in the P&C Division and 2.6% in the Marine Division, while the Aviation Division had a decrease of 1.5%. The growth in earned premiums, net of reinsurance, in comparison to the decline in net premiums written, is due to a higher level of written premiums in earlier quarters, which is now becoming earned premiums. Agency operations, net, increased 5% in the third quarter of 1996 from a minimal gain in the third quarter of 1995. Investment income, net, decreased 23.7% to $1.0 million in the third quarter of 1996 from $1.4 million in the third quarter of 1995. The net tax-effected investment yield on average invested assets for the third quarter of 1996 increased to 6.0% from 5.6% in the comparable quarter of 1995. Average invested assets decreased $27.7 million in the third quarter of 1996, compared to the third quarter of 1995, primarily as a result of cash flow used in operating activities, as discussed below. Realized investment gains (losses), net, were insignificant in the third quarter of 1996 as compared to a gain of $0.5 million in the third quarter of 1995. Operating Expenses Losses and loss adjustment expenses, net of reinsurance, were 63.7% of earned premiums, net of reinsurance, in the third quarter of 1996, compared to 60.2% in the third quarter of 1995. The results in the third quarter of 1996 were negatively affected by a continued high level of reported claims for the transportation segment of the P&C Division. The Aviation Division loss ratio decreased 13.1 percentage points to 45.0% in the third quarter 1996, from 58.1% in the third quarter of 1995, and the P&C Division loss ratio increased 32.3 percentage points to 94.5% in the third quarter of 1996, from 62.2% in the third quarter of 9 10 1995. The Marine Division loss ratio in the third quarter of 1996 was 117.4% as a result of substantial storm- related losses. In the third quarter of 1996 the Aviation and Marine Divisions incurred storm losses of $0.8 million before income tax benefits. Policy acquisition and other underwriting expenses were 44.8% of earned premiums in the third quarter of 1996 and 33.5% of earned premiums in the third quarter of 1995. The increase in the expense ratio in the third quarter of 1996 results from the increased amortization of previously deferred acquisition costs due to the decline in the level of net premiums written in the third quarter of 1996 compared to the third quarter of 1995 and an adjustment of estimated reinsurance ceding commission income to actual. The Company's combined ratio increased 14.8 percentage points to 108.5% in the third quarter of 1996 from 93.7% in the third quarter of 1995 as a result of the factors discussed above. A combined ratio below 100% generally indicates profitable underwriting prior to the consideration of investment income. Interest expense increased 16.8% to $0.30 million in the third quarter of 1996, from $0.26 million in the third quarter of 1995, due primarily to an increase in the Company's note payable of $2.0 million. Income The income tax benefit was 18.5% of loss before tax benefit in the third quarter of 1996 and income tax expense was 31.0% of income before tax expense in the third quarter of 1995. The decrease in the effective tax rate in the third quarter of 1996 is due, in part, to adjusting the year-end estimated tax provision to equal the actual filed 1995 federal income tax return. The third quarter of 1996 net loss was $1.2 million, as compared to net income of $2.4 million in the third quarter of 1995. Net income (loss) available for common stockholders in the third quarter of 1996 was ($1.2) million, or ($0.17) per share, as compared to net income of $2.4 million, or $0.34 per share, in the third quarter of 1995. 10 11 FIRST NINE MONTHS OF 1996 COMPARED TO THE FIRST NINE MONTHS OF 1995 Gross Premiums Produced Gross premiums produced for the first nine months of 1996 as compared to the first nine months of 1995 were as follows (in millions):
FIRST NINE MONTHS 1995 1996 ---- ---- Gross premiums produced $138.7 $121.1 For other companies (12.4) (13.4) Assumed from other companies 5.1 8.8 ------ ------ Gross premiums written 131.4 116.5 Ceded premiums (42.8) (29.2) ------ ------ Net premiums written $ 88.6 $ 87.3 ====== ======
Gross premiums produced decreased 12.7% to $121.1 million for the first nine months of 1996 from $138.7 million in the first nine months of 1995. Of this decrease, 8.4% was in the Aviation Division, and 6.2% was in the P&C Division. The Marine Division gross premium produced increased 1.9%. The decreases in the Aviation and P&C Divisions' gross premiums produced result primarily from previously announced actions taken during 1995 and the first nine months of 1996 to eliminate unprofitable segments of the operations. In addition, in the Aviation Division, primarily in the airport segment, certain insureds require insurance written by an insurer with an A.M. Best Company rating of "A-" or better, which resulted in a portion of the decrease in gross premiums produced. The Company is completing arrangements and regulatory filings that will permit it to offer insureds the financial security of an insurer rated "A-" or better. The increase in the Marine Division's gross premiums produced is due to an increase in policies in force. The gross premiums produced for other companies increased 8.1% to $13.4 million in the first nine months of 1996 from $12.4 million in the first nine months of 1995. This increase is primarily a result of the increased use of arrangements that provide the Company the ability to offer its insureds the financial security of insurance companies with an A.M. Best Company rating of "A-" or better. The gross premiums assumed from other companies increased 72.5% to $8.8 million in the first nine months of 1996 from $5.1 million in the first nine months of 1995, primarily as a result of the increase in business produced for other companies. Gross premiums written decreased 11.3% to $116.5 million in the first nine months of 1996 from $131.4 million in the first nine months of 1995 primarily as a result of the decrease in gross premiums produced. 11 12 Ceded premiums decreased 31.8% to $29.2 million in the first nine months of 1996, compared to $42.8 million in the first nine months of 1995. This decrease is a result of a decline in business written in the airport segment that is reinsured with other companies under a facultative reinsurance agreement and, also, a decrease in ceded excess of loss reinsurance premiums for both Aviation and P&C Divisions. Net premiums written decreased 1.5% to $87.3 million in the first nine months of 1996, compared to $88.6 million in the first nine months of 1995, as a result of the decrease in gross premiums. Revenues Earned premiums, net of reinsurance, increased 29.8% to $94.0 million in the first nine months of 1996 from $72.4 million in the first nine months of 1995. Of this increase, 22.4% was related to the Aviation Division, 3.3% to the Marine Division, and 4.1% to the P&C Division. The growth in earned premiums, net of reinsurance, in comparison to the decline in net written premiums, is due to a higher level of written premiums in earlier quarters, which is now becoming earned premiums. Agency operations, net, decreased 66.1% to a minimal gain in the first nine months of 1996 from a gain of $0.5 million in the first nine months of 1995. Investment income, net, decreased 16.4% to $3.5 million in the first nine months of 1996 from $4.2 million in the first nine months of 1995. The net tax-effected investment yield on average invested assets for the first nine months of 1996 decreased to 4.3% from 4.4% for the comparable period in 1995. This decrease was a result of a decrease of $14.4 million in average invested assets in the first nine months of 1996 compared to the first nine months of 1995 primarily as a result of cash flow used in operating activities, as described below, and a general market decline in investment yields for fixed maturities. Realized investment gains, net, were insignificant in the first nine months of 1996 as compared to a gain of $0.5 million in the first nine months of 1995. Operating Expenses Losses and loss adjustment expenses, net of reinsurance, were 70.5% of earned premiums, net of reinsurance, in the first nine months of 1996, compared to 63.0% in the first nine months of 1995. The Aviation Division loss ratio decreased 4.4 percentage points to 57.6% in the first nine months 1996, from 62.0% in the first nine months of 1995, and the P&C Division loss ratio increased 36.2 percentage points to 100.4% in the first nine months of 1996 from 64.2% in the first nine months of 1995. The increase in the P&C Division loss ratio is driven primarily by a high level of reported claims for the transportation segment of the P&C Division. The Marine Division loss ratio for the first nine months of 1996 was 74.4%. 12 13 Policy acquisition and other underwriting expenses were 39.2% of earned premiums in the first nine months of 1996 and 32.6% of earned premiums in the first nine months of 1995. The increase in the expense ratio in the first nine months of 1996 results from the increased amortization of previously deferred policy acquisition costs due to the decline in the level of net premiums written in the first nine months of 1996, compared to 1995, and an adjustment of estimated reinsurance ceding commission income to actual. The Company's combined ratio increased 14.1 percentage points to 109.7% in the first nine months of 1996 from 95.6% in the first nine months of 1995 as a result of the factors discussed above. A combined ratio below 100% generally indicates profitable underwriting prior to the consideration of investment income. Interest expense increased 13.8% to $0.83 million in the first nine months of 1996 from $0.73 million in the first nine months of 1995 due primarily to an increase in the Company's note payable of $2.0 million. Income The income tax benefit was 28.7% of loss before tax benefit in the first nine months of 1996, and income tax expense was 31.0% of income before tax expense in the first nine months of 1995. The decrease in the effective tax rate in the third quarter of 1996 is due to adjusting the year-end estimated tax provision to equal the actual filed 1995 federal income tax return. Net loss for the first nine months of 1996 was $4.5 million, compared to net income of $5.2 million in the first nine months of 1995. The decrease resulted from the factors discussed above. Operating income (loss), defined as net income (loss) less net realized investment gains or losses, net of the associated income tax effect, was a loss of $4.5 million in the first nine months of 1996, compared to income of $4.9 million in the first nine months of 1995. Net income (loss) available for common stockholders was ($4.5) million, or ($0.64) per share in the first nine months of 1996, compared to $5.2 million, or $0.73 per share, in the first nine months of 1995. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated cash flow used in operations was $35.5 million in the first nine months of 1996, compared to cash flow provided by operations of $2.2 million in the first nine months of 1995. The funds used in the first nine months of 1996 relate primarily to the settlement of a large claim incurred in 1995 and the payment of prior periods' 13 14 retrospectively rated reinsurance premiums and the reduction in written premiums, which was not offset by an equal reduction in claim payments. As described in the Notes to Condensed Consolidated Financial Statements (Pages 6 and 7), the Company announced the terms of a $35 million investment in the Company's Series D Preferred Stock and the formation of a strategic alliance with American Financial Group, Inc. The Company and its bank have amended the Company's credit facility to, among other things, revise certain financial covenants so that no default would occur thereunder at September 30, 1996, and to add certain covenant and default provisions requiring the Company to close the transaction with American Financial Group by March 31, 1997. In addition, the new covenants require that, upon closing of such transaction, the principal amount of the loan will be reduced to $10 million, that additional principal payments will reduce the bank's commitment by an equal amount, and that the Company must hold $10 million of proceeds from such transaction for use only to pay loan obligations, dividends and redemptions required by the terms of the Company's Series B Cumulative Preferred Stock and operating expenses. 14 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 On November 7, 1996, American Eagle filed a Form 8-K regarding the agreement to sell Series D Preferred Stock to American Financial Group, Inc., as discussed above. There were no financial statements filed with the Form 8-K. 15 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 13, 1996 By: /s/ M. Philip Guthrie -------------------------------------------- M. Philip Guthrie, Chairman of the Board and Chief Executive Officer Date: November 13, 1996 By: /s/ Richard M. Kurz -------------------------------------------- Richard M. Kurz, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 16 17 INDEX TO EXHIBITS EXHIBIT NUMBER EXHIBIT - ------- ------- 4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of 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 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 -- Warrant Registration Rights Agreement, dated as of November 5, 1996, by and between American Eagle and American Financial Group, Inc. 10.1 -- American Eagle Group, Inc. 1991 Non-Qualified Stock Option 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). 10.2 -- 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 (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). 10.7 -- American Eagle Group, Inc. 1994 Directors' Stock Option Plan, as amended. (Previously filed on November 11, 1995 with Registrant's Quarterly Report on Form 10-Q, File No. 1-12922, and incorporated herein by reference.) 10.8 -- American Eagle Group, Inc. 1994 Employee Restricted Stock Plan (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). 10.9 -- 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). 10.10 -- American Eagle Group, Inc. Employee Stock Purchase Plan (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference. 17 18 INDEX TO EXHIBITS EXHIBIT NUMBER EXHIBIT - ------ ------- 10.11 -- Amended and Restated Credit Agreement dated as of December 29, 1994 (the "Restated Credit Agreement"), among American Eagle, the Lenders and The First National Bank of Chicago, as Agent (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 -- Amendment to the Restated Credit Agreement dated as of February 23, 1996 by and between American Eagle and The First National Bank of Chicago, individually and as agent. (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.13 -- 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). 10.14 -- Employment Agreement, dated as of August 15, 1996, between American Eagle and Robert W. Conrey. 10.15 -- 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). 10.16 -- 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). 10.17 -- 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). 10.18 -- 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). 10.19 -- 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). 10.20 -- 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 herein by reference). 10.21 -- 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). 10.22 -- 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). 18 19 INDEX TO EXHIBITS EXHIBIT NUMBER EXHIBIT - ------- ------- 10.23 -- 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). 10.24 -- 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). 10.25 -- 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). 10.26 -- 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 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). 10.29 -- 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 herein by reference). 10.30 -- First Through Fifth General Aviation Liability Excess of Loss Reinsurance Agreement AR #4222 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 -- 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). 10.32 -- 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). 10.33 -- 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). 19 20 INDEX TO EXHIBITS EXHIBIT NUMBER EXHIBIT - ------- ------- 10.34 -- 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). 10.35 -- 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). 10.36 -- 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). 10.37 -- General Aviation Hill 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). 10.38 -- 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). 10.39 -- First Through Fifth General Aviation Liability 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). 10.40 -- Amendment to the Restated Credit Agreement, as amended, dated as of March 18, 1996, by and between American Eagle and The First National Bank of Chicago, individually and as Agent (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1- 12922, and incorporated herein by reference). 10.41 -- Amendment to the Restated Credit Agreement, as amended, dated as of May 3, 1996, by and between American Eagle and The First National Bank of Chicago, individually and as Agent (Previously filed on May 10, 1996 with Registrant's Report on Form 10-Q for the period ended March 31, 1996, File No. 1-12922, and incorporated herein by reference). 10.42 -- Amendment to the Restated Credit Agreement, dated as of November 5, 1996, by and between American Eagle and The First National Bank of Chicago, individually and as agent. 10.43 -- Securities Purchase Agreement, dated as of November 5, 1996, by and between American Eagle and American Financial Group, Inc. 10.44 -- Warrant Subscription Agreement, dated as of November 5, 1996, by and between American Eagle and American Financial Group, Inc. 10.45 -- Warrant to Purchase Common Stock, dated as of November 5, 1996, issued by American Eagle to American Financial Group, Inc. 20 21 INDEX TO EXHIBITS EXHIBIT NUMBER EXHIBIT - ------- ------- 10.46 -- Special Underlying General Aviation Liability Excess of Loss Reinsurance Agreement -- AR #4221 -- 1996 Final Placement Slip (subject to a request for confidential treatment). 10.47 -- First through Fifth General Aviation Liability Excess of Loss Reinsurance Agreement -- AR #4222 - - 1996 Final Placement Slip (subject to a request for confidential treatment). 10.48 -- General Aviation Hull Special Underlying Excess of Loss Reinsurance Agreement -- AR #4227 -- 1996 Final Placement Slip (subject to a request for confidential treatment). 27 -- Financial Data Schedule. 21 EX-4.3 2 WARRANT REGISTRATION RIGHTS AGREEMENT 1 EXHIBIT 4.3 WARRANT REGISTRATION RIGHTS AGREEMENT THIS WARRANT REGISTRATION RIGHTS AGREEMENT entered into this 5th day of November, 1996 between American Eagle Group, Inc., a Delaware corporation ("Company"), and American Financial Group, Inc., an Ohio corporation ("Holder"). W I T N E S S E T H: WHEREAS, pursuant to a Warrant Subscription Agreement and Warrant to Purchase Common Stock (the "Warrant"), Holder has the right to acquire 800,000 shares of the Company's Common Stock, .01 par value per share (the "Warrant Shares"); WHEREAS, in connection with the issuance of the Warrant to Holder, the Company agreed to provide Holder with certain rights to require Company to register the Warrant and the Warrant Shares (collectively the "Registrable Securities") with the Securities and Exchange Commission (the "Commission") and applicable state securities agencies in order to permit the free transferability and sale of the Registrable Securities by Holder. NOW, THEREFORE, in consideration of the mutual promises and covenants contained herein, the parties agree as follows: 1. Demand Registration Rights. 1.1 At any time on any three (3) separate occasions, upon the written request of the Holder, the Company will prepare and file, promptly after such request and in no case more than Sixty (60) days after receipt of such notice, and thereafter use its best efforts to cause to become effective a registration statement ("Registration Statement") on a proper form to be selected by the Company under and complying with the Securities Act of 1933, as amended (the "Act"), covering such number of Warrants and Warrant Shares as shall be specified in the Holder's request; provided, however, that the Company shall, in no event (including by reason of any assignment of rights by a Holder), be subject to more than Three (3) demand registrations under this Agreement and shall not be obligated at any time to register the lesser of (i) 25% of the total number of Warrants or Warrant Shares outstanding or (ii) Warrant Shares with a market value (based on the market value of the underlying shares of Common Stock) of less than One Million and 00/100 Dollars ($1,000,000.00) pursuant to any such request. 1.2 Within seven (7) business days of receipt of a written request for registration under Section 1.1, the Company shall notify all other persons or entities who beneficially own Registrable Securities at their respective addresses as shown on the books of the Company of a proposed registration and such persons or entities shall have the opportunity for a period of ten (10) business days after receipt of such notice to notify the Company in writing of their intention to have included in such registration such number of Registrable Securities as shall be specified in their response. 2 -2- 1.3 If the Holder so requests, the offering or distribution of Registrable Securities under this Section shall be pursuant to a firm underwriting. The managing underwriter shall be a nationally recognized investment banking firm recommended by the Holder for the Company's reasonable consideration and approval. The Company will enter into an underwriting agreement with such managing underwriter containing representations, warranties and agreements not substantially different from those customarily included by an issuer in underwriting agreements with respect to secondary distributions; provided, however, that the Holder shall be entitled to negotiate the underwriting discounts and commission and other fees of such underwriter. 1.4 No securities to be sold by the Company or any security holder of the Company shall be included in any Registration Statement filed pursuant to this Section, unless (i) the offering is pursuant to a firm underwriting and the managing or principal underwriter for the Holder shall have consented to the inclusion of such other securities and (ii) all the Registrable Securities requested to be included by the Holder are so included. 1.5 The Company shall be entitled to postpone the filing of any Registration Statement otherwise required to be prepared and filed by it pursuant to this Section if, at the time it receives a request for registration, counsel for the Company is reasonably of the opinion (which opinion shall be expressed in writing) that a material pending transaction of the Company or any of its subsidiaries render the effecting of such Registration Statement inappropriate at the time; provided, that the duration of such delay shall not exceed One Hundred Eighty (180) days; provided further, that the Company shall promptly make such filing as soon as the conditions which permit it to delay such filing no longer exist; and provided further that in the event of any such deferral, the Holder shall have the right to withdraw its request for Registration and such withdrawn request shall not be considered one of the Holder's permitted requests for registration under Section 1.1. 2. Piggy-Back Registration Rights. 2.1 If the Company or any security holder of the Company (the "Initiating Securityholder") shall propose to file a Registration Statement for the purpose of effecting a primary or secondary offering under the Act on Form S-1, S-2 or S-3 or any equivalent general form for registration of equity securities under the Act with respect to a public offering of any Company equity security, the Company shall as promptly as practicable, but in no event later than Thirty (30) days prior to the proposed filing date, give notice of such intention to the Holder and shall include in such Registration Statement all Warrant and Warrant Shares as the Holder shall request within Ten (10) days of the giving of such notice, subject to the following limitations: 2.1.1 If the offering to be made pursuant to this Section is initiated by the Company or by a holder pursuant to any other registration rights agreement with the Company (a "Demanding Holder"), the inclusion of the Registrable Securities may be conditioned or restricted if, in the good faith opinion of the managing underwriter (or underwriters) of the securities to be sold (or, in the absence thereof, of the principal investment banker acting on behalf of the Company or the Demanding Holder in effecting such sale) for which such Registration Statement is being filed, such inclusion will have a material adverse 3 -3- impact on the offering of the securities being so registered. If the number of Registrable Securities is so restricted, then no securities of other securityholders shall be included in the offering unless all securities which the Company or the Demanding Holder, as the case may be, is attempting to sell are included therein, and any reduction required thereafter is made among the selling securityholders pro rata based on the number of securities held. 2.2 The Company may, without the consent of the Holder, withdraw any Registration Statement filed pursuant to this Section 2 and abandon any such proposed offering in which the Holder requested to participate. The Holder may withdraw any or all of the Registrable Securities held by the Holder from a Registration Statement filed or proposed to be filed pursuant to this Section 2 at any time prior to the effectiveness of such Registration Statement. 2.3 The notice from the Company to the Holder under Section 2 shall specify whether the securities to be included in such registration for a sale by the Company are to be sold through underwriters in a firm commitment offering. If Shares of the Holder are included in such an offering, they shall be included on the same terms (including the same underwriting discount or commission) applicable to the securities of the Company. 2.4 Anything in this Agreement to the contrary notwithstanding, if at the time the Company receives a request pursuant to Section 1.1, it gives notice to the requesting Holders that it intends within 180 calendar days of the date of such notice to make a public offering of shares of its Common Stock pursuant to a firm underwriting, such request shall be deemed to be a request by such Holder to participate in such public offering by the Company pursuant to Section 2.1 rather than a request pursuant to Section 1.1 of this Agreement; provided, however, that if such proposed public offering shall not have occurred within such 180 days, or such additional period not to exceed 90 days as the Company considers appropriate, such Holders may renew such Request and the Company shall comply with its obligations under this Agreement without giving effect to this Section 2.4. 3. Covenants of the Holder. Any request for registration made by the Holder shall specify the number of Registrable Securities as to which such request relates, express the Holder's present intention to offer such Registrable Securities for distribution and contain an undertaking to provide all such information and materials and take all such actions and execute all such documents as may be required in order to permit the Company to comply with all applicable requirements of the Commission and to obtain acceleration of the effective date of the Registration Statement. 4. Covenants of the Company. So long as the Company is under an obligation pursuant to the provisions of Section 1, the Company shall: 4.1 Prepare and file with the Commission such amendments and supplements to 4 -4- such Registration Statement and the prospectus forming part of such Registration Statement as may be necessary to keep such Registration Statement effective for such period as shall be necessary to complete the marketing of the Registrable Securities included therein, but in no event for longer than One (1) year after the date the Registrable Securities may first be sold, not including any period during which the Holder is prohibited from selling any Registrable Securities; 4.2 Furnish to the Holder such number of copies of a prospectus, including, without limitation, a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as the Holder may reasonably request in order to facilitate the public sale or other disposition of such Registrable Securities; 4.3 Use its best efforts to register or qualify, not later than the effective date of any Registration Statement filed pursuant to this Agreement, the Registrable Securities covered by such Registration Statement under the securities or Blue Sky laws of such jurisdictions within the United States as the Holder may reasonably request and do any and all other acts or things which may be necessary or advisable to enable the Holder to consummate the public sale or other disposition in such jurisdiction of such Registrable Securities; provided, however, that the Company shall not be required to qualify as a foreign corporation or to execute a general service of process in any such jurisdiction; 4.4 Promptly notify the Holder, at any time when a prospectus relating to the Registrable Securities being distributed is required to be delivered under the Act, of the happening of any event as a result of which the prospectus included in such Registration Statement, as then in effect, includes an untrue statement of material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and, at the request of the Holder, promptly prepare, file with the Commission and furnish to the Holder a reasonable number of copies of a supplement to, or an amendment of, such prospectus as may be necessary, or make any other appropriate filing with the Commission pursuant to the Securities Exchange Act of 1934, as amended, which will be incorporated by reference into the Registration Statement so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances then existing; 4.5 Use its best efforts to furnish, at the request of the Holder or any underwriter of any distribution of the Registrable Securities, an opinion of legal counsel to the Company, covering such matters as are typically covered by opinions of issuer's counsel in underwritten offerings under the Act; 4.6 Enter into an agreement with the underwriters for such offering in which the Company shall provide indemnities similar to those described in Section 6 hereof to the underwriters and in which the Company shall make the usual representations and warranties made by issuers of equity securities to underwriters. 5 -5- 4.7 Use its best efforts to cause all of the Warrants and Warrant Shares as to which the Holder shall have requested registration to be listed on any recognized securities exchange, including, without limitation, the National Association of Securities Dealers Automated Quotation System, on which the Common Stock is then listed and to maintain the currency and effectiveness of any such listings. 5. Costs and Expenses. Except for expenses referred to in the following sentence, with respect to the first two registrations pursuant to Section 1 and any registrations pursuant to Section 2, the Company shall bear the entire cost and expense of any such registration, including, without limitation, all registration and filing fees, printing expenses, the fees and expenses of the Company's counsel and its independent accountants and all other out-of-pocket expenses incident to the preparation, printing and filing under the Act of the Registration Statements and all amendments and supplements thereto, the cost of furnishing copies of each preliminary prospectus, each final prospectus and each amendment or supplement thereto to underwriters, brokers and dealers and other purchasers of the securities so registered, and the costs and expenses incurred in connection with the qualification of the securities so registered under "blue sky" or other state securities laws. Notwithstanding the foregoing, the Company shall not be liable or responsible for the fees and expenses of counsel and accountants of the Holder, all underwriting discounts and commissions attributable to Registrable Securities registered at the request of the Holder, and in any registration made pursuant to Section 2, all filing fees attributable to Registrable Securities registered at the request of the Holder. All such fees and expenses not paid by the Company shall be paid by the Holder or, if appropriate, prorated among all selling securityholders. 6. Indemnification. 6.1 Indemnity to the Holder. The Company will indemnify the Holder, its officers, directors and each underwriter of Registrable Securities as well as any person who controls the Holder or such underwriters against all claims, losses, damages, liabilities and expenses resulting from any untrue statement or alleged untrue statement of a material fact contained in a prospectus or in any related Registration Statement, notification or similar filing under the securities laws of any jurisdiction or from any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as the same may have been based upon information furnished in writing to the Company by the Holder or such underwriter expressly for use therein and used in accordance with such writing. 6.2 Indemnity to the Company. The Holder, by requesting any such registration, agrees to furnish to the Company such information concerning it as may be requested by the Company and which is necessary or required by then applicable securities laws and the rules and regulations thereunder in connection with any Registration or qualification of the Registrable Securities and to indemnify the Company, its officers, directors and any person who controls the Company, against all claims, losses, damages, liabilities and expenses resulting from the utilization of such information furnished in writing to the Company expressly for use therein and used in 6 -6- accordance with such writing. 6.3 Indemnification Procedures. If any action is brought or any claim is made against any party entitled to be indemnified pursuant to this Section 6 in respect of which indemnity may be sought against the indemnitor pursuant to Section 6 hereof, such party shall promptly notify the indemnitor in writing of the institution of such action or the making of such claim and the indemnitor shall assume the defense of such action or claim, including the employment of counsel and payment of expenses. Such indemnified party shall have the right to employ its or their own counsel in any such case, but the fees and expenses of such counsel shall be at the expense of such party unless the employment of such counsel shall have been authorized in writing by the indemnitor in connection with the defense of such action or claim or such indemnified party or parties shall have reasonably concluded that there may be defenses available to it or them which are different from or additional to those available to the indemnitor (in which case the indemnitor shall not have the right to direct any different or additional defense of such action or claim on behalf of the indemnified party or parties), in any of which events such fees and expenses of not more than one additional counsel for the indemnified parties shall be borne by the indemnitor. Except as expressly provided above, if the indemnitor shall not previously have assumed the defense of any such action or claim, at such time as the indemnitor does assume the defense of such action or claim, the indemnitor shall thereafter be liable to any person indemnified pursuant to this Agreement for any legal or other expenses subsequently incurred by such person in investigating, preparing or defending against such action or claim. Anything in this paragraph to the contrary notwithstanding, the indemnitor shall not be liable for any settlement of any such claim or action effected without its written consent. 7. Miscellaneous. 7.1 Notices. Notices given under this Agreement shall be deemed given when received and the addresses for the parties set forth below and may be delivered by telex or other telecommunications device producing a document setting forth such notice. If to the Company: American Eagle Group, Inc. 12801 N. Central Parkway Suite 800 Dallas, Texas 75243 Attn: Chief Executive Officer Facsimile No.: (972) 448-1401 If to the Holder: American Financial Group, Inc. One East Fourth Street, Suite 919 Cincinnati, Ohio 45202 Attn: Samuel J. Simon Facsimile No: (513) 579-2113 7 -7- 7.2 Binding Agreement. This Agreement shall be binding upon, and shall inure to the benefit of, the parties hereto and their respective successors and assigns. 7.3 Governing Law. This Agreement shall be governed by and construed under the laws of the State of Delaware. 7.4 Assignability. The rights and obligations of the Holder hereunder may be assigned by it to any corporation or corporations, or other entity or entities controlled by it or controlling it or to which it may transfer any Registrable Securities. Upon such transfer, each transferee shall be deemed for all purposes of this Agreement to be the "Holder." 7.5 Succeeding Securities. If the Registrable Securities of the Company covered by this Agreement are converted into any other security of the Company or any other corporation, the terms of this Agreement shall apply with full force and effect to any such other security and the obligations of the Company to effect registration shall include such other filings, qualifications, notices and similar acts as may be necessary to enable the Holder to realize the benefits of registration provided by this Agreement. 7.6 Counterparts. This Agreement may be executed in Two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. 7.7 Other Registration Rights. Nothing in this Agreement shall prohibit the Company from granting registration rights on its securities in the future. 8 -8- IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above written. AMERICAN FINANCIAL GROUP, INC. BY: Carl H. Lindner ITS: Co-President ------------------------------- AMERICAN EAGLE GROUP, INC. BY: M. Philip Guthrie ITS: Chairman of the Board, CEO and President ------------------------------- EX-10.14 3 EMPLOYMENT AGREEMENT - ROBERT CONREY 1 EXHIBIT 10.14 EMPLOYMENT AGREEMENT This Agreement, entered into as of August 15, 1996, is between AMERICAN EAGLE GROUP, INC., a Delaware corporation (the "Employer"), and Robert W. Conrey, (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 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, the Board of Directors of the Employer or the officer to whom Employee reports, upon the terms and conditions set forth in this Agreement. 2. TERM. (a) Unless sooner terminated in accordance with the provisions hereof, the term of employment shall continue for a period of three years from the date hereof. (b) On each anniversary of this Agreement, the term of this Agreement shall be automatically extended for a period of one additional year unless at least 60 days before any such anniversary either party provides the other party written notice that the automatic extension shall be terminated. 1 2 3. COMPENSATION. (a) The Employee shall receive the following compensation for his services: (i) Annual cash compensation of not less than $112,500, with such increases as the Board of Directors of the Employer, in its sole discretion, may approve, which will be paid periodically pursuant to the Employer's normal salary payment policy; (ii) Such annual bonuses in amounts up to 50% of the Employee's annual cash compensation under Section 3(a)(i), as the Board of Directors of the Employer, in its sole discretion, may approve; and (iii) 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. (b) As additional compensation for the Employee's services, the Employee may be granted additional options, awards, rights or participations under present or future incentive compensation or other plans, in each case as and to the extent approved or determined by the Board of Directors of the Employer or an appropriate committee thereof. (c) The Employer may offset against any compensation due the Employee under this Agreement any compensation paid to the Employee by subsidiaries of the Employer for services rendered by the Employee to the subsidiary. 2 3 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 making personal passive investments in other business entities. 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 inability, because of injury or illness, whether physical or mental, to perform the material services to the Employer contemplated by this Agreement for a continuous period of 150 days or for 180 days out of a continuous period of 300 days; 3 4 (iii) The delivery by the Employer to the Employee of written notice of termination of employment due to conduct by the Employee constituting (a) an act that the Board of Directors of the Employer deems to be materially injurious to the Employer; or (b) continuing poor performance of the Employee's duties hereunder after the Company has given the Employee written notice of his poor performance, specifying the performance criteria that the Employee is performing poorly, and has given the Employee at least three months to improve his performance to an acceptable level; (iv) 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 and 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; (v) The willful material breach by the Employee of any duty or obligation hereunder; or (vi) The retirement, resignation or other termination of employment by the Employee for any reason other than good reason (as defined below). (b) The Employee may terminate his employment for good reason following a Change of Control (as defined below). For purposes of this Agreement, "good reason" means 4 5 that, because of a Change of Control, the Employee is required to relocate without his consent, or the Employee is required to accept a diminished position or diminished responsibilities with the Employer. The Employee must deliver to the Employer written notice of termination for good reason, in which event his employment will terminate 30 days after the date of the notice. (c) Upon termination of employment of the Employee for any reason, the Employer shall pay the Employee or his legal representative the compensation accrued and unpaid at the date of termination. Except as provided in Section 6(d) below, the Employer shall have no further obligation to the Employee or his legal representative. (d) Upon the termination of employment of the Employee for any reason other than those set forth in Section 6(a) hereof, or in the event of a Change of Control (as defined below), upon the subsequent termination of employment by the Employee for good reason or by the Employer for any reason other than those set forth in Sections 6(a) (i), (ii), (iv), (v) or (vi) 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)(i) hereof for the term 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)(i) hereof had the Employee's employment not been terminated. 5 6 (e) For the purposes of this Agreement, the term "Change of Control" shall mean: (i) The acquisition, after the effective date of this Agreement, by an individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (a) the shares of the Common Stock of the Employer, or (b) the combined voting power of the voting securities of the Employer entitled to vote generally in the election of directors (the "Voting Securities"); provided, however, that the following shall not constitute a Change of Control: (w) any such acquisition so long as Mason Best Company, L.P. continues to own more shares of the Common Stock and Voting Securities than does the acquiring individual, entity or group, but such acquisition shall constitute a Change of Control once Mason Best Company, L.P. does not own more such shares than the acquiring individual, entity or group; or (x) any distribution by Mason Best Company, L.P. to its partners of shares of Common Stock; or (y) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Employer or any subsidiary, or (z) any acquisition by any corporation if, immediately following such acquisition, more than 80% of the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such 6 7 corporation (entitled to vote generally in the election of directors), is beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who, immediately prior to such acquisition, were the beneficial owners of the Common Stock and the Voting Securities in substantially the same proportions, respectively, as their ownership, immediately prior to such acquisition, of the Common Stock and Voting Securities; (ii) Individuals who, as of the effective date of this Agreement, constitute the Board of Directors of the Employer (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the effective date of this Agreement whose election, or nomination for election by the Employer's shareholders, was approved by a vote of at least a majority of the directors then serving and comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents; or 7 8 (iii) Approval by the shareholders of the Employer of a reorganization, merger or consolidation, other than a reorganization, merger or consolidation with respect to which all or substantially all of the individuals and entities who were the beneficial owners, immediately prior to such reorganization, merger or consolidation, of the Common Stock and Voting Securities beneficially own, directly or indirectly, immediately after such reorganization, merger or consolidation more than 80% of the then outstanding common stock and voting securities (entitled to vote generally in the election of directors) of the corporation resulting from such reorganization, merger or consolidation in substantially the same proportions as their respective ownership, immediately prior to such reorganization, merger or consolidation, of the Common Stock and the Voting Securities; or (iv) Approval by the shareholders of the Employer of (a) a complete liquidation or dissolution of the Employer, or (b) the sale or other disposition of all or substantially all of the assets of the Employer, other than to a subsidiary, wholly-owned, directly or indirectly, by the Employer. For purposes of this Agreement, and without limiting the generality of the preceding sentence, the sale or other disposition by the Employer of more than 50% of the common stock or the voting securities (entitled to vote generally in the election of directors) of 8 9 American Eagle Insurance Company shall be deemed to constitute a sale or other disposition of substantially all the assets of the Employer. 7. EMPLOYEE'S COVENANTS. (a) During his term of employment and for three years thereafter: (i) The Employee acknowledges that information about the Employer and its affiliates and their businesses, operations and financial condition that has not been publicly disclosed by the Employer constitutes valuable, special and unique property of the Employer and its affiliates. The Employee agrees not to disclose to any person or use for any purpose, any such confidential information of the Employer or its affiliates except as may be required by law or in the course and scope of his employment by the Employer. (ii) The Employee agrees not to directly or indirectly solicit or induce in any way any officer, director, employee, agent or broker of, or any person having a business relationship with, the Employer or any of its affiliates to terminate such person's relationship with the Employer or its affiliates. (iii) The Employee agrees not to directly or indirectly solicit from any customer of the Employer or its affiliates any insurance business of the same class or type that such customer conducts with the Employer or any of its affiliates, unless such solicitation is on behalf of the Employer or its affiliates. 9 10 (iv) The Employee agrees not at any time to make negative or disparaging statements directly or indirectly concerning or relating to the Employer, its affiliates or their businesses. (b) The agreements made in this Section shall be in addition to, and not in limitation or derogation of, any obligations otherwise imposed by law or by separate agreement upon the Employee in respect of the matters set forth in this Section. 8. 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 1, and to thereafter abide by the provisions thereof. 9. 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: (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. 10. INJUNCTIVE RELIEF. In the event of a breach or threatened breach by 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 10 11 remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Employee. 11. 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. 12. 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. 13. BENEFIT. This Agreement shall be binding upon the Employee, his heirs and personal representatives, and the Employer, its successors and assigns. Neither this Agreement, nor the rights and obligations created under it, may be assigned by the Employee without the prior consent of the Employer. 14. 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. AMERICAN EAGLE GROUP, INC. By: /s/ M. PHILIP GUTHRIE ---------------------------------------- Name: M. Philip Guthrie ------------------------------------- Title: Chairman of the Board ------------------------------------- /s/ ROBERT W. CONREY ------------------------------------- Robert W. Conrey 11 EX-10.42 4 AMENDMENT TO RESTATED CREDIT AGREEMENT 1 EXHIBIT 10.42 AMENDMENT This Amendment (the "Amendment") is entered into as of November 5, 1996 by and between American Eagle Group, Inc. (the "Borrower") and The First National Bank of Chicago, individually and as Agent. W I T N E S S E T H : WHEREAS, the Borrower and The First National Bank of Chicago, as the sole Lender (the "Lender") and as Agent (in such capacity, the "Agent"), are parties to that certain Amended and Restated Credit Agreement dated as of December 29, 1994, as amended from time to time prior to the date hereof (as so amended; the "Agreement"); and WHEREAS, the Borrower and the Lender desire to amend certain provisions of the Agreement as more fully described hereinafter; NOW, THEREFORE, In consideration of the premises herein contained, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Defined Terms. Capitalized terms used herein and not otherwise defined herein shall have the meanings attributed to such terms in the Agreement. 2. Amendment. 2.1. Article 1 of the Agreement is hereby amended by inserting, in proper alphabetical order, the following definitions: "'Equity Issuance' means the issuance by the Borrower of any shares of any class of stock, warrants or other equity interests of the Borrower." "'Required Equity Issuance' means an Equity Issuance consummated substantially on the terms set forth in that certain Securities Purchase Agreement dated November 5, 1996 between American Financial Group, Inc. and the Borrower, or on such other terms and conditions as shall be satisfactory to the Required Lenders, pursuant to which the Borrower shall realize gross cash proceeds of not less than $35,000,000." 2.2. Section 2.2 of the Agreement is hereby amended by inserting, immediately after the table set forth therein, the following sentence: "In addition to the reductions set forth above, concurrently with the consummation of the Required Equity Issuance, the Aggregate Commitment shall be automatically and permanently reduced by $5,000,000. In addition, concurrently with the payment of any Obligations in accordance with Section 7.29 the Aggregate Commitment shall be automatically and permanently reduced in an amount equal to any such payment." 2 2.3. Section 7.10 of the Agreement is hereby ammended to read in its entirety as follows: "7.10. Consolidated Tangible Net Worth. The Borrower will maintain Consolidated Tangible Net Worth of not less that (i) at all times prior to December 30, 1996, $43,500,000, and (ii) at all times thereafter, $46,500,000. The amount set forth in the foregoing clause (ii) shall be increased by $.65 for each $1.00 received by the Borrower on or after November 5, 1996 from an Equity Issuance, including without limitation the Required Equity Issuance." 2.4. Section 7.11 of the Agreement is hereby amended by deleting the period at the end thereof and inserting the following in lieu thereof: "provided further that the calculation of the Fixed Charge Coverage Ratio for any period shall be exclusive of operating losses on an after-tax basis, incurred or taken during such period directly related to operations of the transportation and dealer lines of businesses, calculated in accordance with Agreement Accounting Principles." 2.5. Seciton 7.12 of the Agreement is hereby amended to read in its entirety as follows: "7.12. Statutory Capital and Surplus. The Borrower will not permit the total Statutory Capital and Surplus of American Eagle to be less than (i) $44,500,000 at any time prior to December 30, 1996 and (ii) $48,000,000 at any time thereafter. The amount set forth in the foregoing clause (ii) shall be increased by $.25 for each $1.00 received by American Eagle from any capital contribution made by the Borrower or any other Person." 2.6. Section 7.13 of the Agreement is hereby amended to read in its entirety as follows: "7.13. Combined Ratio. The borrower will cause American Eagle to maintain, as at the last day of each fiscal quarter ending during the following periods, a Combined Ratio, calculated for the four consecutive fiscal quarters ending on such day, not greater that (i) prior to October 1, 1996, 1.05 to 1.0. and (ii) thereafter, 1.02 to 1.0." 2.7. Section 7.14 of the Agreement is hereby amended to read in its entirety as follows: "7.14. Ratio of Net Premiums Written to Statutory Capital and Surplus. The Borrower will cause American Eagle to maintain as at the last day of each fiscal quarter ending during the following periods, a Ratio of Net Premiums Written to Statutory Capital and Surplus, calculated for the four consecutive fiscal quarters ending on such day, not greater than (i) prior to October 1, 1996, 2.85 to 1.0 (ii) during the period from October 1, 1996 to (but excluding) the earlier to occur of (a) March 31, 1997 and (b) the date of consummation of the Required Equity Issuance 2.75 to 1.0 and (iii) thereafter, 2.25 to 1.0." 2.8. Section 7.21 (ii) of the Agreement is hereby amended by deleting the period at the end thereof and inserting the following in lieu thereof: -2- 3 "; provided that any such investments made with the proceeds of the Required Equity issuance shall not exceed, in the aggregate, the excess, if any, of (a) the amount of net cash proceeds realized by the Borrower from the Required Equity Issuance over (b) $15,000,000." 2.9. Article VII of the Agreement is hereby amended by inserting the following new Section 7.29 at the end thereof: "7.29. Proceeds of Required Equity Issuance. The Borrower will cause not less than $10,000,000 of the proceeds of the Required Equity Issuance to be held as cash or invested in Cash Equivalents; provided, however, that the Borrower may also use any or all of such proceeds to (i) pay any Obligations under the Loan Documents, (ii) to pay mandatory dividends on or make mandatory redemptions of the Borrow's Series B Cumulative Preferred Stock, and (iii) to pay operating expenses of the Borrower in the ordinary course of business." 2.10. Article VIII of the Agreement is hereby amended by inserting the following new Section 8.13 at the end thereof: "8.13. The Borrower shall fail to consummate, on or before March 31, 1997, the Required Equity Issuance." 3. Representations and Warranties. In order to induce the Lender and the Agent to enter into this Amendment, the Borrower represents and warrants that: 3.1. The representations and warranties set forth in Article VI of the Agreement are true and correct on the date hereof as if made on and as of the date hereof, except to the extent any such representation or warranty is stated to relate solely to an earlier date, in which case such representation or warranty was true and correct on and as of such earlier date, and there exists no Default or Unmatured Default on the date hereof. 3.2. The execution and delivery by the Borrower of this Amendment have been duly authorized by proper corporate proceedings, and this Amendment and the Agreement, as amended by this Amendment, constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their terms, except as enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors' rights generally. 3.3. Neither the execution and delivery by the Borrower of this Amendment, nor the consummation of the transactions herein contemplated, nor compliance with the provisions hereof will violate any law, rule, regulation, order, writ, judgement, injunction, decree or award binding on the Borrower or any of its Subsidiaries or the Borrower's or any of its Subsidiaries' articles of incorporation or by-laws or the provisions of any indenture, instrument or agreement to which the Borrower or any of its Subsidiaries is a party or is subject, or by which it or its property is bound, or conflict with or constitute a default thereunder. No consent, approval or authorization of any Person is required to authorize, or is required in connection with the execution, delivery and performance of, or the legality, validity, binding effect or enforceability of, this Amendment or the Agreement, as amended by this Agreement. -3- 4 4. Effective Date. This Amendment shall become effective as of the date first above written (the "Effective Date") upon receipt by the Agent of the following: (i) Counterparts of this Amendment duly executed by the Borrower and the Lender. (ii) Copies, certified by the Secretary or an Assistant Secretary of the Borrower, of its Board of Directors' resolutions authorizing the execution of this Amendment. (iii) Such other documents, in each case in form and substance satisfactory to the Agent, as the Agent may reasonably request. Notwithstanding the foregoing, upon the receipt of all such documents by the Agent, the amendments contained in Sections 2.3 through 2.7 hereof shall be deemed to become effective as of September 30, 1996. 5. Ratification. The Agreement, as amended hereby, shall remain in full force and effect and is hereby ratified, approved and confirmed in all respects. 6. Reference to Agreement. From and after the Effective Date, each reference in the Agreement to "this Agreement", "hereof", or "hereunder" or words of like import, and all references to the Agreement in any and all agreements, instruments, documents, notes, certificates and other writings of every kind and nature shall be deemed to mean the Agreement, as amended by this Agreement. 7. Costs and Expenses. The Borrower agrees to pay all reasonable costs, fees and out-of-pocket expenses (including attorneys' fees and time charges of attorneys for the Agent, which attorneys may be employees of the Agent) incurred by the Agent in connection with the preparation, execution and enforcement of this Amendment. 8. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE LAW OF CONFLICTS) OF THE STATE OF ILLINOIS, BUT GIVING EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS. 9. Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. IN WITNESS WHEREOF, the Borrower, the Lender and the Agent have executed this Amendment as of the date first above written. AMERICAN EAGLE GROUP, INC. By: /s/ M. PHILIP GUTHRIE --------------------------------- Title: Chairman, CEO and President ------------------------------ THE FIRST NATIONAL BANK OF CHICAGO, individually and as Agent By: /s/ THOMAS W. DODDRIDGE --------------------------------- Title: Vice President ------------------------------ -4- EX-10.43 5 SECURITIES PURCHASE AGREEMENT 1 EXHIBIT 10.43 ================================================================================ SECURITIES PURCHASE AGREEMENT BETWEEN AMERICAN FINANCIAL GROUP, INC., PURCHASER AND AMERICAN EAGLE GROUP, INC., SELLER ================================================================================ Execution Copy 2 - i - TABLE OF CONTENTS
Page ARTICLE 1 INTERPRETATION 1.1 Definitions . . . . . . . . . . . . . . . . . . . . 1 1.2 Rules of Construction . . . . . . . . . . . . . . . 7 ARTICLE 2 SALE AND PURCHASE OF PURCHASED SECURITIES 2.1 Sale and Purchase of Purchased Securities . . . . . 8 2.2 Purchase Price . . . . . . . . . . . . . . . . . . 8 2.3 Delivery of Warrants . . . . . . . . . . . . . . . 8 2.4 Closing. . . . . . . . . . . . . . . . . . . . . . 8 2.5 Use of Proceeds . . . . . . . . . . . . . . . . . . 8 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER 3.1 Corporate Existence . . . . . . . . . . . . . . . . 9 3.2 Corporate Power; Authorization . . . . . . . . . . 9 3.3 Enforceable Obligations . . . . . . . . . . . . . . 9 3.4 No Legal Bar . . . . . . . . . . . . . . . . . . . 9 3.5 Absence of Conflicts . . . . . . . . . . . . . . . 10 3.6 Litigation . . . . . . . . . . . . . . . . . . . . 10 3.7 Financial Condition . . . . . . . . . . . . . . . . 10 3.8 No Change . . . . . . . . . . . . . . . . . . . . . 10 3.9 No Default . . . . . . . . . . . . . . . . . . . . 10 3.10 Compliance with Laws . . . . . . . . . . . . . . . 11 3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . 11 3.12 ERISA . . . . . . . . . . . . . . . . . . . . . . . 11 3.13 Environmental Matters . . . . . . . . . . . . . . . 11 3.14 Investment Company Act . . . . . . . . . . . . . . 11 3.15 Capitalization of Seller . . . . . . . . . . . . . 11 3.16 Capitalization of Subsidiaries . . . . . . . . . . 11 3.17 Title to Assets; Leases . . . . . . . . . . . . . . 12 3.18 Disclosure . . . . . . . . . . . . . . . . . . . . 12 3.19 Undisclosed Liabilities . . . . . . . . . . . . . . 12 3.20 Compliance with Federal Reserve Regulations . . . . 12 3.21 Survival of Representations and Warranties . . . . 12 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER 4.1 Representations and Warranties of Purchaser . . . . 12 ARTICLE 5 AFFIRMATIVE COVENANTS 5.1 Financial Statements . . . . . . . . . . . . . . . 15 5.2 Conduct of Business and Maintenance of Existence . 16 5.3 Maintenance of Property; Insurance . . . . . . . . 16 5.4 Strategic Alliance. . . . . . . . . . . . . . . . . 16 5.5 Recapitalization Charge . . . . . . . . . . . . . . 16
Execution Copy 3 - ii - ARTICLE 6 OTHER PROVISIONS 6.1 Shareholder Approval . . . . . . . . . . . . . . . 17 6.2 Regulatory Approvals . . . . . . . . . . . . . . . 17 6.3 Reservation of Shares . . . . . . . . . . . . . . . 17 6.4 Good Faith by Seller . . . . . . . . . . . . . . . 17 6.5 Board of Directors . . . . . . . . . . . . . . . . 18 6.6 Voting Agreement. . . . . . . . . . . . . . . . . . 18 6.7 No Solicitation and Other Actions. . . . . . . . . 18 ARTICLE 7 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS 7.1 Conditions Precedent . . . . . . . . . . . . . . . 20 ARTICLE 8 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS 8.1 Conditions Precedent . . . . . . . . . . . . . . . 22 ARTICLE 9 TERMINATION OF AGREEMENT 9.1 Termination . . . . . . . . . . . . . . . . . . . . 23 9.2 Effect of Termination . . . . . . . . . . . . . . . 24 9.3 Default under the Agreement. . . . . . . . . . . . 24 ARTICLE 10 MISCELLANEOUS 10.1 Amendments and Waivers . . . . . . . . . . . . . . 24 10.2 No Waiver; Cumulative Remedies . . . . . . . . . . 24 10.3 Notices . . . . . . . . . . . . . . . . . . . . . . 25 10.4 Successors and Assigns . . . . . . . . . . . . . . 26 10.5 Enforcement Costs . . . . . . . . . . . . . . . . . 26 10.6 Counterparts . . . . . . . . . . . . . . . . . . . 26 10.7 Term . . . . . . . . . . . . . . . . . . . . . . . 26 10.8 Consent to Jurisdiction . . . . . . . . . . . . . . 26
Execution Copy 4 EXHIBITS Exhibit A Amended Registration Rights Agreement Exhibit B Preferred Stock Designation Exhibit C Intentionally Omitted Exhibit D Form of Registration Rights Agreement Exhibit E Form of Warrant Exhibit F Form of Warrant Registration Rights Agreement Exhibit G Form of Mason Best Commitment SCHEDULES Schedule 3.2 Consents Schedule 3.6 Litigation Schedule 3.8 Absence of Change Schedule 3.15 Capitalization of Seller Schedule 3.16 Capitalization of Subsidiaries 5 SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT is made this 5th day of November, 1996, by and between AMERICAN EAGLE GROUP, INC., a Delaware corporation ("Seller"), and AMERICAN FINANCIAL GROUP, INC., an Ohio corporation ("Purchaser"). ARTICLE 1 INTERPRETATION Section 1.1 Definitions. The following capitalized terms are defined as follows: "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. "AFG" shall mean American Financial Group, Inc., an Ohio corporation, and any of its subsidiaries designated to purchase Seller's securities hereunder. "Agreement" or "this Agreement" means this Securities Purchase Agreement (including all exhibits and schedules annexed hereto) as originally executed, or if supplemented, amended, or restated from time to time, as so supplemented, amended, or restated. "Amended Registration Rights Agreement" means the Amended Registration Rights Agreement in the form of Exhibit A, to be executed by Seller and Mason Best Company L.P. amending the Registration Rights Agreement between such parties dated March 21, 1994. "Bank Debt" means the indebtedness of Seller pursuant to the terms of an Amended and Restated Credit Agreement dated as of December 29, 1994 among Seller, the lenders described therein and The First National Bank of Chicago, as Agent, as amended by Amendments to the Restated Credit Agreement dated as of February 23, 1996, March 18, 1996, May 3, 1996 and September 20, 1996, and as may be amended in the future. "Business Day" means any day, except a Saturday, Sunday or legal holiday, on which commercial banking institutions are open for business in Dallas, Texas, Cincinnati, Ohio and New York, New York. "Capitalized Lease" shall mean any lease the obligation for Rentals with respect to which is required to be capitalized on a balance sheet of the lessee in accordance with GAAP. Execution Copy 6 - 2 - "Certificate of Designation" shall mean the Certificate of Designation of the terms of the Preferred Stock, in the form of Exhibit B, to be executed and filed by Seller authorizing the issuance of, and setting forth the terms of, the Preferred Stock. "Closing Date" means the fifth Business Day following the date on which all conditions precedent specified in Article 7 hereof shall have been satisfied in full or waived in writing, but in any event, such date shall be within one hundred eighty (180) days of the execution of this Agreement. "Code" means the Internal Revenue Code of 1986, as amended from time to time. "Commission" shall mean the United States Securities and Exchange Commission and any successor federal agency having similar powers. "Common Stock" shall mean the voting Common Stock of the Seller, par value $.01 per share. "Commonly Controlled Entity" means an entity, whether or not incorporated, which is under common control with the Seller within the meaning of Section 4001 of ERISA or is part of a group which includes the Seller and which is treated as a single employer under Section 414 of the Code. "Competing Proposal" means any proposal or offer to the Seller or the stockholders of the Seller with respect to (i) any merger, consolidation, share exchange, business combination, or other similar transaction, (ii) any sale, lease, exchange, transfer or other disposition of all or substantially all of the assets of the Seller and its material Subsidiaries, taken as a whole, in a single transaction or series of related transactions, or (iii) any tender, exchange or other offer for shares of the Seller's Stock. "Contractual Obligation" means, with respect to any Person, any provision or requirement of any security issued by such Person or of any agreement, instrument or other undertaking to which such Person is a party or by which it or any of its property is bound. "Convertible Securities" shall mean evidence of indebtedness, shares of stock or other securities which are directly or indirectly convertible into or exchangeable for, with or without payment of additional consideration, shares of Stock, either immediately or upon the arrival of a specified date or the happening of a specified event. "Director Duty" has the meaning set forth in Section 6.7 hereof. "Employee Benefit Plan" means any employee benefit plan within the meaning of Section 3(3) of ERISA, other than a Multiemployer Plan. Execution Copy 7 - 3 - "Environmental Laws" means all federal, state and local laws, rules, regulations, ordinances, permits, orders, writs, judgments, injunctions, decrees, determinations, awards and consent decrees relating to hazardous substances and environmental matters applicable to the business, operations or activities of the Seller or any Subsidiary of the Seller. "ERISA" means the Employee Retirement Income Security Act of 1974 and the rules and regulations issued thereunder, as amended from time to time and any successor statute. "ERISA Affiliate" means, in relation to any Person, any trade or business (whether or not incorporated) which is a member of a group of which that Person is a member and which is under common control within the meaning of the regulations promulgated under Section 414 of the Code. "Exchange" means the New York Stock Exchange, Inc. "Financial Statements" means those audited consolidated financial statements of Seller and its Subsidiaries for the periods ended December 31, 1995 and those unaudited statements for the nine months ended September 30, 1996, previously delivered to the Purchaser. "GAAP" means generally accepted accounting principles in the United States at the time in effect. "Guarantee Obligation" means, with respect to any Person, any obligation in the nature of a guaranty, repurchase arrangement, loan or advancement agreement, reimbursement obligation, comfort letter, hold harmless, indemnity or counter-indemnity or similar obligation, with respect to any indebtedness, lease, dividend or other obligations of any other Person, directly or indirectly, fixed or contingent, matured or unmatured which is required to be disclosed in the financial statements of Seller under GAAP; provided, however, that the term shall not include endorsements of instruments for deposit or collection in the ordinary course of business. The amount of any Guarantee Obligation shall be deemed to be the maximum amount for which the guaranteeing person may be liable pursuant to the terms of the instrument embodying such Guarantee Obligation, or if not stated or determinable, the maximum reasonably anticipated liability in respect thereof. "Indebtedness" means, with respect to any Person at any date, (a) all indebtedness of such Person for borrowed money, (b) indebtedness of such Person for the deferred purchase price of services or property, which purchase price is (i) due twelve (12) months or more from the date of incurrence of the obligation in respect thereof or (ii) is evidenced by a note, bond, debenture or similar instrument, (c) all obligations of such Person under Capitalized Leases, (d) all obligations of such Person in respect of acceptances, letters of credit or similar facilities issued or created for the account of such Person, and (e) all liabilities secured by any Lien on any property owned by such Person even though such Person has not assumed or otherwise become liable for the payment thereof. Execution Copy 8 - 4 - "Lien" means any mortgage, pledge, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including, without limitation, any conditional sale or other title retention agreement, any Capitalized Lease having substantially the same economic effect as any of the foregoing, and the filing of any Financing Statement under the Uniform Commercial Code or comparable law of any jurisdiction in respect of any of the foregoing). The term "Lien" shall include reservations, exceptions, encroachments, easements, rights-of-way, covenants, conditions, restrictions, leases and other title exceptions and encumbrances affecting property. "Market Price" per share of Common Stock on any date shall be deemed to be the average of the daily closing prices for the preceding five business days before the day in question. The closing price for each day shall be the last reported sale price regular way or, in case no such reported sale takes place on such day, the average of the reported closing bid and asked prices regular way, in either case on the Exchange or, if the Common Stock is not listed or admitted to trading on the Exchange, on the principal national securities exchange on which the Common Stock is listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices as reported by the National Association of Securities Dealers Automated Quotation System. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, property or condition (financial or otherwise) of the Seller and its Subsidiaries, considered as one entity, (b) the ability of the Seller to perform its obligations under this Agreement or any other Transaction Document to which it is a party, or (c) the validity or enforceability of this Agreement or any of the other Transaction Documents or the rights or remedies of the Purchaser. "Multiemployer Plan" means a Plan which is a multiemployer plan as defined in Section 4001(a)(3) of ERISA. "Obligations" means, the obligations of the Seller to the Purchaser presently existing or hereafter arising under any Transaction Documents, including without limitation, the Seller's obligation to redeem or repurchase the Preferred Stock in accordance with the terms of the Certificate of Designation. "Options" shall mean any options or other rights to subscribe for, purchase or acquire any Stock. "PBGC" means the Pension Benefit Guaranty Corporation. Execution Copy 9 - 5 - "Permitted Liens" shall mean: (a) liens securing the Bank Debt; (b) liens arising by operation of law for taxes not yet due and payable; (c) statutory liens of mechanics, materialmen, shippers and warehousemen for services or materials for which payment is not yet due and which occur in the ordinary course of business; (d) liens, charges, encumbrances and priority claims incidental to the conduct of business or the ownership of properties and assets or other liens of like general nature incurred in the ordinary course of business and not in connection with the borrowing of money, provided in each case, the obligation secured is not overdue or, if overdue is being contested in good faith and by appropriate and lawful proceedings promptly initiated and diligently conducted (of which the Seller has given prior written notice to the Purchaser) and for which appropriate reserves (in accordance with GAAP) have been established and so long as levy and execution have been and continue to be stayed; (e) liens incurred or pledges or deposits made in the ordinary course of business in connection with workers' compensation, unemployment insurance and other types of social security; and (f) liens imposed by law, such as carriers', warehousemen's or mechanics' liens, incurred by it in good faith in the ordinary course of business, and liens arising out of a judgment or award against it with respect to which it will currently be prosecuting an appeal, a stay of execution pending such appeal having been secured. "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. "Preferred Stock" means the shares of Series D Preferred Stock of the Seller issued pursuant to the terms of the Certificate of Designation. "Preferred Stock Certificate" means the stock certificate of Seller representing 350,000 shares of Preferred Stock to be issued to Purchaser. "Purchased Securities" means the 350,000 shares of Preferred Stock purchased pursuant to the terms of this Agreement. Execution Copy 10 - 6 - "Registration Rights Agreement" means the Registration Rights Agreement to be executed between Seller and Purchaser on or before the Closing in the form of Exhibit D attached hereto. "Rentals" shall mean and include all fixed rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the property) payable by the Seller or its Subsidiaries, as lessee or sublessee under a lease of real or personal property, but shall be exclusive of any amounts required to be paid by the Seller or its Subsidiaries (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. "Reportable Event" means any of the events set forth in Section 4043(b) of ERISA, other than those events as to which the thirty (30) day notice period is waived under subsections .13, .14, .16, .18, .19 or .20 of PBGC Reg. Section 2615. "Requirements of Law" means, with respect to any Person, the Certificate of Incorporation and By-Laws or other organizational or governing documents of such Person, and any law, treaty, rule or regulation or determination of any governmental or political subdivision of any agency, authority, bureau, central bank, commission, department or any court, arbitrator, or grand jury, in each case whether foreign or domestic, applicable to or binding upon such Person or any of its property or to which such Person or any of its property is subject. "Responsible Officer" means, with respect to any Person, the (i) chief executive officer or the president of such Person, and (ii) with respect to financial matters, the chief financial officer, or any vice president with financial responsibilities of such Person. "Stock" shall mean all classes and categories of the capital stock of the Seller or any of its Subsidiaries whether then issued or issuable, including without limitation, the Common Stock. "Stock Purchase Rights" shall mean Options and Convertible Securities. "Subsidiary" means, with respect to any Person, a corporation, partnership or other entity of which shares of stock or other ownership interests having ordinary voting power to elect a majority of the board of directors or other managers of such corporation, partnership or other entity are at the time owned, or the management of which is otherwise controlled, directly or indirectly, through one or more intermediaries, or both, by such Person. Unless otherwise qualified, all references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer to any Subsidiary or all Subsidiaries of the Seller, whether now in existence or hereafter organized. "Transaction Documents" means this Agreement, the Warrants, the Preferred Stock Certificate, the Certificate of Designation, the Warrant Registration Rights Agreement, the Registration Rights Agreement, the Amended Registration Rights Agreement, and all other Execution Copy 11 - 7 - documents, instruments, certificates and other agreements in connection with the sale of the Purchased Securities. "Underlying Shares" means shares of Common Stock issued or issuable upon exercise of conversion rights relating to the Preferred Stock or exercise of warrants issued upon redemption of Preferred Stock. "Uniform Commercial Code" or "UCC" means the Uniform Commercial Code in each case in effect in the jurisdiction where the Collateral is located. "Warrant" or "Warrants" means one or more of the Warrants for the purchase of 800,000 shares of Common Stock issued by Seller to the Purchaser on the date hereof, a copy of which is attached hereto as Exhibit E. "Warrant Holder" and "Warrant Holders" shall mean the Purchaser and any subsequent holder of the Warrants. "Warrant Registration Rights Agreement" means the Registration Rights Agreement executed contemporaneously herewith and attached hereto as Exhibit F. Section 1.2 Rules of Construction. (a) Use of Capitalized Terms. For purposes of this Agreement, unless the context otherwise requires, the capitalized terms used in this Agreement shall have the meanings herein assigned to them, and such definitions shall be applicable to both singular and plural forms of such terms. (b) Construction. All references in this Agreement to the single number and neuter gender shall be deemed to mean and include the plural number and all genders, and vice versa, unless the context shall otherwise require. (c) Headings. The underlined headings contained herein are for convenience only and shall not affect the interpretation of this Agreement. (d) Entire Agreement. This Agreement and the other Transaction Documents shall constitute the entire agreement of the parties with respect to the subject matter hereof. (e) Severability. Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, Execution Copy 12 - 8 - and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction. (f) Governing Law. This Agreement and the rights and obligations of the parties under this Agreement shall be governed by, and construed and interpreted in accordance with, the law of the State of Delaware. ARTICLE 2 SALE AND PURCHASE OF PURCHASED SECURITIES Section 2.1 Sale and Purchase of Purchased Securities. Subject to all of the terms and conditions hereof and in reliance on the representations and warranties set forth or referred to herein, the Seller agrees to issue and sell to the Purchaser, and the Purchaser agrees to purchase, the Purchased Securities from the Seller on the Closing Date. Section 2.2 Purchase Price. The aggregate purchase price for the Purchased Securities is Thirty-Five Million and 00/100 Dollars ($35,000,000.00) (the "Purchase Price"). Section 2.3 Delivery of Warrants. In consideration for the execution and delivery of this Agreement by Purchaser; contemporaneously with the execution of this Agreement, the Seller shall deliver the Warrants and the Warrant Registration Rights Agreement to Purchaser. If the Seller terminates this Agreement on or before the Closing Date pursuant to Section 9.1(e) or (f) hereof, the Warrants shall become immediately exercisable. Upon Closing (as defined below), the Warrants and the Warrant Registration Rights Agreement will be cancelled. Section 2.4 Closing. The Closing of the purchase and sale of the Purchased Securities (the "Closing") will take place at the offices of the Seller in Dallas, Texas on the date that all conditions to closing have been met or waived (the "Closing Date") or such other location and date as the parties may mutually agree. At the Closing, the Seller will deliver the Purchased Securities to the Purchaser against payment by the Purchaser of the Purchase Price in immediately available funds. The Purchased Securities will be issued to the Purchaser on the Closing Date and registered in the Purchaser's name on the Seller's records. Section 2.5 Use of Proceeds. Substantially all proceeds of the sale of the Purchased Securities shall be used by the Seller to pay transaction expenses and for general corporate purposes. Seller shall also use such proceeds to repay Bank Debt to the extent repayment is consistent with banking, regulatory and rating agency considerations of Seller. Execution Copy 13 - 9 - ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SELLER In order to induce the Purchaser to enter into this Agreement, the Seller hereby represents and warrants to the Purchaser that: Section 3.1 Corporate Existence. Each of the Seller and its Subsidiaries now in existence is a corporation duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation, with full power and authority to conduct its respective business as presently conducted. Each of the Seller and its Subsidiaries is duly qualified as a foreign corporation and in good standing in all other jurisdictions in which their respective activities or ownership of property requires such qualification, except where the failure to be so qualified would not have a Material Adverse Effect. Section 3.2 Corporate Power; Authorization. Subject to the approval of the stockholders of Seller of the transactions contemplated by this Agreement, the Seller has the corporate power and authority to make, deliver and perform this Agreement and such other Transaction Documents to which it is a party and has taken, or by the Closing Date will have taken, all necessary corporate action to authorize the issuance of the Purchased Securities on the terms and conditions of this Agreement and to authorize the execution, delivery and performance of this Agreement and such other Transaction Documents to which it is a party. No consent or authorization of, or filing with, any Person (including, without limitation, any governmental authority or agency having jurisdiction over the Seller or its Subsidiaries), is required to be made or obtained by Seller in connection with the issuance of the Purchased Securities or the execution, delivery and performance by the Seller, and the validity or enforceability (with respect to the Seller) of this Agreement, or such other Transaction Documents to which Seller is a party, except for consents and filings referred to or disclosed on Schedule 3.2. Section 3.3 Enforceable Obligations. This Agreement, the Warrant 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 constitute, or will constitute, the legal, valid and binding obligation of the Seller, enforceable against it 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). Section 3.4 No Legal Bar. Except as set forth on Schedule 3.2, the execution, delivery and performance of this Agreement, the Warrant and the other Transaction Documents and the consummation of the transactions contemplated thereby, will not violate any Requirements of Law or any Contractual Obligation of the Seller or its Subsidiaries. Execution Copy 14 - 10 - Section 3.5 Absence of Conflicts. Except as set forth on Schedule 3.2, neither the execution and delivery of this Agreement, the Warrant or the other Transaction Documents, the consummation of the transactions contemplated by such documents nor the performance of or compliance with the terms and conditions of such documents will (i) result in a breach of or a default under any agreement or instrument to which the Seller or any Subsidiary of the Seller is a party or by which their properties may be subject or bound, or (ii) except as contemplated by such documents, result in the creation or imposition of any Lien upon any property of the Seller or any Subsidiary of the Seller. Section 3.6 Litigation. Except as set forth on Schedule 3.6, to the knowledge of the Seller, no litigation, investigation or proceeding of or before any arbitrator or governmental authority is pending or threatened by or against the Seller or against any Subsidiary of the Seller or any of their properties or revenues, existing or future which could have a Material Adverse Effect. Section 3.7 Financial Condition. The Financial Statements delivered to Purchaser fairly present the assets, liabilities and financial condition of the Seller and its Subsidiaries, as of the dates thereof and in accordance with GAAP (except that any unaudited Financial Statements may not contain any or all of the footnotes required by GAAP and are subject to usual year-end audit adjustments not materially affecting the results of operations). The Financial Statements of Seller and its Subsidiaries contain no omissions or misstatements which are or may be material to the Seller and its Subsidiaries, treated as one entity. There has been no material adverse change in the assets, liabilities, business or financial condition of the Seller and its Subsidiaries, treated as one entity, since the date of such Financial Statements. Except for trade payables arising in the ordinary course of business since the dates reflected in such Financial Statements, the Seller and its Subsidiaries have no Indebtedness and no Guarantee Obligations other than as reflected in such Financial Statements. The Financial Statements of Seller and its Subsidiaries, including the related schedules and notes thereto, have been prepared in accordance with GAAP consistently applied throughout the periods involved (except that any unaudited Financial Statements may not contain any or all of the footnotes required by GAAP and are subject to year end audit adjustments). Section 3.8 No Change. Except as set forth on Schedule 3.8, since September 30, 1996 through the date of this Agreement, to the knowledge of the Seller, there has been no development or event, which has had or could reasonably be expected to have a Material Adverse Effect, and no dividends or other distributions have been declared, paid or made upon any shares of the Stock of the Seller or its Subsidiaries, nor has any of such Stock been redeemed, retired, purchased or otherwise acquired for value by the Seller or its Subsidiaries. Section 3.9 No Default. Neither the Seller nor any Subsidiary of the Seller is in default under or with respect to any of its Contractual Obligations in any respect which could reasonably be expected to have a Material Adverse Effect. Execution Copy 15 - 11 - Section 3.10 Compliance with Laws. Except for any violation which, individually or in the aggregate, would not have a Material Adverse Effect, Seller and its Subsidiaries are in compliance with all Requirements of Law. Section 3.11 Taxes. The Seller has filed or caused to be filed all tax returns which are required to be filed by it or any of its Subsidiaries and all taxes shown to be due and payable on said returns or on any assessments made against it, any Subsidiary or any of their property, and all other taxes, fees or other charges imposed on Seller, any Subsidiary of Seller 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 such Subsidiary); to the knowledge of Seller, no tax Lien has been filed and no claim is being asserted, with respect to any such tax, fee or other charge. Section 3.12 ERISA. Seller and its ERISA Affiliates are in compliance, in all material respects, with any applicable provisions of ERISA and the regulations thereunder and the Code, with respect to all Employee Benefit Plans. Section 3.13 Environmental Matters. Except for any violation which, individually or in the aggregate, would not have a Material Adverse Effect, neither the Seller nor any of its Subsidiaries is in violation of any Environmental Law. Section 3.14 Investment Company Act. Neither the Seller nor any of its Subsidiaries is an "investment company" or a company "controlled" by an "investment company," within the meaning of the Investment Company Act of 1940, as amended. Section 3.15 Capitalization of Seller. Schedule 3.15 hereto states the authorized capitalization of the Seller and the number of shares of each class of Stock of the Seller issued and outstanding thereof. All such issued and outstanding shares have been duly authorized and validly issued, are fully paid and nonassessable and free of any claims of preemptive rights. Other than as created pursuant to this Agreement and stock option plans adopted prior to the date hereof by Seller, there are no outstanding Stock Purchase Rights issued by the Seller. Section 3.16 Capitalization of Subsidiaries. Schedule 3.16 attached hereto contains a list of the Subsidiaries of the Seller, the jurisdictions of incorporation applicable thereto and the percentage of the voting common stock or other issued capital stock thereof owned by the Seller or its Subsidiaries. There are no Stock Purchase Rights issued by any Subsidiary of the Seller. The Seller or its Subsidiaries, as the case may be, have good and valid title to all shares they purport to own of the capital stock of each such Subsidiary, free and clear in each case of any Lien, except liens securing the Bank Debt. All Stock of each Subsidiary has been duly issued and is fully paid and non- assessable. Execution Copy 16 - 12 - Section 3.17 Title to Assets; Leases. The Seller and its Subsidiaries will own all of the assets reflected in the Financial Statements as of the Closing Date, subject to no Liens other than Permitted Liens except for assets sold prior thereto in the ordinary course of business. Each of the Seller and its Subsidiaries enjoys peaceful and undisturbed possession, and is in compliance with the terms of all leases of real property on which facilities operated by them are situated and of all leases of personal property, except where failure to enjoy such possession or such noncompliance would not have a Material Adverse Effect. Section 3.18 Disclosure. No representation or warranty made by the Seller 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 3.19 Undisclosed Liabilities. Neither the Seller nor any Subsidiary of Seller has any material obligation or liability (whether accrued, absolute, contingent, unliquidated, or otherwise, whether due or to become due) arising out of transactions entered into at or prior to the Closing Date, or any action or inaction at or prior to the Closing Date, except liabilities reflected on the Financial Statements or notes thereto; liabilities incurred in the ordinary course of business (none of which are liabilities for breach of contract, breach of warranty, torts, infringements, claims or lawsuits); liabilities or obligations disclosed in the schedules hereto; and liabilities or obligations incurred pursuant to the Transaction Documents. Section 3.20 Compliance with Federal Reserve Regulations. None of the transactions contemplated in the Agreement will violate or result in a violation of Section 7 of the Securities Exchange Act of 1934, as amended, or any regulation issued pursuant thereto, including, without limitation, Regulations G, T, U and X of the Board of Governors of the Federal Reserve System, 12 C.F.R., Chapter II. Section 3.21 Survival of Representations and Warranties. The foregoing representations and warranties are made by the Seller with the knowledge and intention that the Purchaser will rely thereon and shall survive the execution and delivery of this Agreement until the Closing Date. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF PURCHASER Section 4.1 Representations and Warranties of Purchaser. In order to induce the Seller to enter into this Agreement, the Purchaser hereby represents and warrants to the Seller as set forth in this Section 4.1. Execution Copy 17 - 13 - (a) Corporate Existence. The Purchaser is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation. (b) Corporate Power; Authorization. (i) Authorization and Compliance With Law. The Purchaser has the corporate power and authority to make, deliver and perform this Agreement and the other Transaction Documents to which it is a party. The execution, delivery and performance of this Agreement by the Purchaser and such other Transaction Documents to which it is a party, and the acquisition of the Warrant and the Purchased Securities pursuant to the terms hereof or thereof, have been duly authorized by all necessary action, corporate and otherwise, on the part of the Purchaser. The execution, delivery and performance of this Agreement by the Purchaser and such other Transaction Documents to which it is a party, the acquisition and ownership of the Warrant or the Purchased Securities issued to the Purchaser and the consummation of the transactions contemplated by the foregoing, do not and will not violate any Requirements of Law applicable to the Purchaser or any Contractual Obligation of the Purchaser. (ii) Approvals. No authorization, consent, approval, license or filing with any Person (including, without limitation, any governmental authority or agency having jurisdiction over the Purchaser) is or will be necessary for the valid execution, delivery or performance of this Agreement by the Purchaser and such other Transaction Documents to which it is a party, the acquisition and ownership of the Warrant and/or the Purchased Securities issued to the Purchaser or the consummation of the transactions contemplated by the foregoing, or the validity or enforceability (with respect to the Purchaser) of this Agreement, or such other Transaction Documents to which the Purchaser is a party. (c) Enforceable Obligations. This Agreement and the other Transaction Documents to which the Purchaser, is a party have been, or on or prior to the Closing Date will be, duly executed and delivered on behalf of the Purchaser, and constitute or will constitute the legal, valid and binding obligation of the Purchaser, enforceable against it 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). Execution Copy 18 - 14 - (d) Investment Representations of the Purchaser. (i) No Distributive Intent; Restricted Securities. The Purchaser is acquiring the Purchased Securities and Warrants for its own account with no present intention of reselling or otherwise distributing any of the Purchased Securities or the Warrants or participating in a distribution of such Purchased Securities or Warrants in violation of the Securities Act, or any applicable state securities laws. The Purchaser acknowledges that it has been advised and is aware that (A) the Seller is relying upon an exception under the Securities Act predicated upon the Purchaser's representations and warranties contained in this Agreement in connection with the issuance of the Purchased Securities and the Warrants pursuant to this Agreement, (B) the Purchased Securities and the Warrants in the hands of the Purchaser will be "restricted securities" within the meaning of Rule 144 promulgated by the Commission pursuant to the Securities Act and, unless and until registered under the Securities Act, will be subject to limitations on resale (including, among others, limitations on the amount of securities that can be resold and the timing and manner of resale) set forth in Rule 144 or in administrative interpretations of the Securities Act by the Commission or in other rules and regulations promulgated thereunder by the Commission, in effect at the time of the proposed sale or other disposition of the Purchased Securities or the Warrants, and (C) the Purchaser has no registration rights except as provided for in the Registration Rights Agreement, and the Seller has no plans to register any securities except in accordance with those rights. (e) Survival of Representations and Warranties. The foregoing representations and warranties are made by the Purchaser with the knowledge and intention that the Seller will rely thereon and shall survive the execution and delivery of this Agreement. Section 4.2 Commissions. (a) No Commissions of Purchaser. 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. (b) No Commissions of Seller. Seller 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. Execution Copy 19 - 15 - ARTICLE 5 AFFIRMATIVE COVENANTS Section 5.1 Financial Statements. So long as any of the Warrants or Purchased Securities are outstanding, the Seller will comply, and will cause each of its Subsidiaries, where applicable, to comply, with the following provisions: (a) Year End Report. If the Seller has no securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, as soon as available, but in any event within ninety (90) days after the end of each fiscal year of the Seller, Seller shall deliver to the Purchaser copies of the audited consolidated financial statements of the Seller and its Subsidiaries including the balance sheets as at the end of such year and the related statements of income and retained earnings and of cash flows for such year, in each case containing in comparative form the figures for the previous year. Such financial statements shall be accompanied by an opinion of a firm of independent certified public accountants of nationally recognized standing reasonably acceptable to the Purchaser, stating that such financial statements fairly present the respective financial positions of the Seller and its Subsidiaries, as the case may be, and the results of operations and changes in financial position for the fiscal year then ended in conformity with GAAP. (b) Quarterly Reports. If the Seller has no securities registered under Section 12 of the Securities Exchange Act of 1934, as amended, as soon as available, but in any event not later than forty-five (45) days after the end of each fiscal quarter (except the last fiscal quarter) of each fiscal year, the Seller shall deliver to the Purchaser copies of the unaudited consolidated balance sheets of the Seller and its Subsidiaries as at the end of such quarter and the related unaudited statements of income and retained earnings and of cash flows for such quarter and the portion of the fiscal year through the end of such quarter, setting forth in each case in comparative form the figures for the previous year, certified by a Responsible Officer of the Seller as being properly prepared, complete and correct in all material respects (subject to normal year-end audit adjustments). All of such financial statements shall be complete and correct in all material respects and be prepared in reasonable detail and in accordance with GAAP applied consistently throughout the periods reflected therein and with prior periods. (c) Commission and Other Reports. Promptly upon becoming available, Seller shall furnish, or if necessary cause its Subsidiaries to furnish, one copy of each financial statement, report, notice or proxy statement required to be sent by the Seller or any of its Subsidiaries to stockholders generally and of each regular or periodic report filed by the Seller or any of its Subsidiaries with any securities exchange or the Commission or any Execution Copy 20 - 16 - successor agency, and copies of any orders in any proceedings to which the Seller or any of its Subsidiaries is a party, issued by any governmental agency, federal or state, having jurisdiction over the Seller or any of its Subsidiaries, which could have a Material Adverse Effect. Section 5.2 Conduct of Business and Maintenance of Existence. Prior to the Closing Date, Seller will, and will cause each of its Subsidiaries to, preserve, renew and keep in full force and effect its corporate existence and take all reasonable action to maintain all rights, privileges and franchises necessary or desirable in the normal conduct of its business. Seller shall, and shall cause each of its Subsidiaries to, comply with all Contractual Obligations and Requirements of Law, except to the extent the failure to comply therewith could not be reasonably expected to have a Material Adverse Effect. Section 5.3 Maintenance of Property; Insurance. Prior to the Closing Date, the Seller will maintain, preserve and keep, and will cause its Subsidiaries to maintain, preserve and keep, its properties which are used or useful in the conduct of its business (whether owned in fee or a leasehold interest) in good repair and working order and from time to time make all necessary repairs, replacements, renewals and additions so that at all times the efficiency thereof, in all material respects, shall be maintained. Seller shall maintain, and shall cause each of its Subsidiaries to maintain, with financially sound and reputable insurance companies, insurance on all of their real and personal property in such forms and amounts and against such risks as are usually insured against in the same general area by companies engaged in the same or a similar business; and furnish to the Purchaser, upon written request, full information as to the insurance carried. Section 5.4 Strategic Alliance. (a) After the Closing, the Purchaser agrees to provide to Seller a facility that will permit Seller to offer workers compensation insurance to its aviation insureds. (b) After the Closing, Purchaser and Seller shall negotiate, in good faith, the terms of an underwriting management agreement pursuant to which Seller shall offer to provide underwriting and claims management services to Purchaser for those lines of aviation insurance that Seller currently underwrites, and Purchaser shall offer to provide Seller, where commercially desirable, underwriting capacity of an insurance carrier rated "A" by A.M. Best Company. (c) The Purchaser and Seller agree to fulfill their respective obligations under this Section through their appropriate subsidiaries. The Purchaser and Seller agree to negotiate, in good faith, terms of agreements that are mutually agreeable. Execution Copy 21 - 17 - Section 5.5 Recapitalization Charge. Seller agrees that it will record a Fifteen Million and 00/100 Dollar ($15,000,000.00) (pre-tax) recapitalization charge in its financial results for the quarter in which this transaction is recorded. ARTICLE 6 OTHER PROVISIONS Section 6.1 Shareholder Approval. The Seller 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 the Seller 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, the Seller shall mail the Information Statement to all holders of the Seller's Common Stock. The Purchaser and the Seller 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 the Seller, 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 6.2 Regulatory Approvals. Seller 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. Section 6.3 Reservation of Shares. The Seller agrees to authorize and reserve for issuance a sufficient number of authorized but unissued shares of Common Stock and Preferred Stock for the purposes of this Agreement and to take such action as may be necessary to ensure that all shares of Common Stock issued upon exercise of the Warrants or upon conversion of the Preferred Stock will be duly and validly authorized and issued, fully paid and nonassessable and that all shares of Preferred Stock issued at the Closing or thereafter issued to Purchaser pursuant to the Certificate of Designation will be duly and validly authorized and issued, fully paid and nonassessable. Section 6.4 Good Faith by Seller. The Seller will not, by amendment to its certificate of incorporation or through any reorganization, reclassification, or any other means, avoid or seek to avoid the observance or performance of any of the terms of Articles 6 hereof, but will at all times in good faith carry out all such terms and take all such action as may be necessary or appropriate to protect the rights of the Purchaser. Execution Copy 22 - 18 - Section 6.5 Board of Directors. Purchaser shall have the rights set forth in this Section until the earlier of (i) the time that Purchaser and its Affiliates no longer own Preferred Stock and Underlying Shares representing in the aggregate the ownership, or right to acquire ownership, of fifty-one percent (51%) of the Underlying Shares or (ii) the seventh anniversary of the Closing Date. Purchaser may nominate for election to Seller's Board of Directors and the Seller shall place on the proxy sent to its shareholders, applicable nominees who represent thirty percent (30%) (rounded up to the next director) of the number of directors serving at any one time, and at least one of the directors representing the Purchaser shall serve on each of the standing committees of the Board of Directors. Notwithstanding the foregoing, the number of directors which the Purchaser shall be entitled to nominate pursuant to this Section 6.5 shall be reduced to the extent and by the number of directors the holders of Preferred Stock are entitled to elect as a class under the terms of the Certificate of Designation. In the event the Purchaser's representatives fail to be elected as directors, Seller agrees that Purchaser shall be entitled to have an equal number of representatives in place of such directors attend each meeting of the Board of Directors. Such representatives shall be entitled to receive all materials and information provided to Seller's Board of Directors and shall receive the same notice as is given to the Seller's Board of Directors. Section 6.6 Voting Agreement. For so long as Purchaser and its Affiliates shall beneficially own Preferred Stock or Underlying Shares which represent in the aggregate the ownership, or right to acquire ownership, of at least fifty-one percent (51%) of the Underlying Shares, the Purchaser shall and shall cause its Affiliates, to vote all shares of Preferred Stock and Common Stock held by Purchaser or its Affiliates as follows: (a) With respect to any matter on which the holders of Common Stock have the right to vote, if Purchaser and its Affiliates hold any combination of Preferred Stock and Common Stock that represents the right to vote more than 20% of the total votes eligible to be voted on such matter, then Purchaser agrees to vote all of its votes in excess of such 20% in proportion to the actual vote of holders of all remaining votes (including the Purchaser's 20% vote); (b) The voting agreement contained in this Section will terminate and expire on the date that is three years and one hundred eighty (180) days after the Closing Date. (c) Purchaser agrees that all certificates representing shares of Preferred Stock or Underlying Shares shall contain a legend referencing the foregoing restrictions on voting rights for so long as such restrictions are applicable. Section 6.7 No Solicitation and Other Actions. (a) From and after the date of this Agreement and except as set forth in subsection 6.7(b), the Seller shall not, and the Seller shall direct and use its reasonable best Execution Copy 23 - 19 - efforts to cause the officers, directors, employees, agents, advisors and other representatives of the Seller not to, directly or indirectly, (i) solicit, initiate, knowingly encourage, or participate in discussions or negotiations regarding, any proposals or offers from any Person (an "Offeror") relating to any Competing Proposal, or (ii) furnish to any other Offeror any non-public information or access to such information with respect to, or otherwise concerning, any Competing Proposal. The Seller shall immediately cease and cause to be terminated any existing discussions or negotiations with any Person conducted heretofore with respect to any proposed Competing Proposal. (b) Notwithstanding anything to the contrary contained in this Section 6.7 or in any other provision of this Agreement, until the Shareholders of the Seller have approved the transactions contemplated by this Agreement, the Seller shall not be prohibited by this Agreement from (i) participating in discussions or negotiations with, and, during such period, the Seller may furnish information to, an Offeror that seeks to engage in discussions or negotiations, requests information or makes a proposal to acquire the Seller pursuant to a Competing Proposal, if the Seller'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 regularly engaged legal counsel and financial advisors (a "Director Duty"); (ii) complying 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) making any disclosure to the Seller's shareholders in accordance with a Director Duty; (iv) failing to make, modifying or amending its recommendations, consents or approvals referred to herein in accordance with a Director Duty; (v) terminating this Agreement and entering 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 Board of Directors to act in a manner that is consistent with its fiduciary obligations under applicable law . In the event that the Seller or any of its 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 shall immediately disclose to the Purchaser the decision of the Seller'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 its agents, provides or causes to be provided to such Offeror or any of its officers, directors, employees, agents, advisors or representatives. Execution Copy 24 - 20 - ARTICLE 7 CONDITIONS PRECEDENT TO PURCHASER'S OBLIGATIONS Section 7.1 Conditions Precedent. The obligation of the Purchaser to purchase the Purchased Securities pursuant to this Agreement on the Closing Date is subject to the satisfaction or waiver in writing of the following conditions precedent (in form, substance and action as is reasonably satisfactory to Purchaser): (a) Certified Copies of Charter Documents. The Purchaser shall have received from the Seller and each of its Subsidiaries a copy, certified by a duly authorized officer of the Seller to be true and complete on and as of the Closing Date, of each of the charter or other organization documents and by-laws of the Seller or each Subsidiary each as in effect on such date of certification (together with all, if any, amendments thereto); (b) Proof of Appropriate Action. The Purchaser shall have received from the Seller a copy, certified by a duly authorized officer of the Seller to be true and complete on and as of the Closing Date, of the records of all action taken by the board of directors and shareholders of the Seller to authorize the execution and delivery of this Agreement, each of the Transaction Documents and any other agreements entered into on the Closing Date and to which it is a party or is to become a party as contemplated or required by this Agreement, and its performance in all material respects of all of its agreements and obligations under each of such documents; (c) Incumbency Certificates. The Purchaser shall have received from the Seller an incumbency certificate, dated the Closing Date, signed by a duly authorized officer of the Seller and giving the name and bearing a specimen signature of each individual who shall be authorized to sign, in the name and on behalf of the Seller this Agreement and each of the other Transaction Documents to which such person is or is to become a party on the Closing Date, and to give notices and to take other action on behalf of the Seller under such documents; (d) Representations and Warranties. Each of the representations and warranties made by and on behalf of the Seller and its Subsidiaries to the Purchaser in this Agreement and in the other Transaction Documents shall be true and correct when made and the representations and warranties contained in Sections 3.15 and 3.16 hereof shall be true and correct as of the Closing Date; (e) Transaction Documents. Each of the Transaction Documents shall have been duly and properly authorized, executed and delivered to the Purchaser and filed by Seller, Execution Copy 25 - 21 - if required of Seller to be effective and shall be in full force and effect on and as of the Closing Date; (f) Legality of Transactions. No change in applicable law shall have occurred as a consequence of which it shall have become and continue to be unlawful for the Purchaser to perform any of its agreements or obligations under this Agreement, or under any of the other Transaction Documents, or for the Seller or any Subsidiary of the Seller to perform any of its agreements or obligations under this Agreement or under any of the other Transaction Documents; (g) Performance, Etc. The Seller shall have duly and properly performed, complied with and observed its respective covenants, agreements and obligations contained in each of the Transaction Documents in all material respects. (h) Legal Opinions. The Purchaser shall have received a written legal opinion of counsel to Seller, addressed to the Purchaser, dated the Closing Date, which shall be reasonably acceptable to the Purchaser; (i) Consents. The Purchaser and Seller shall have received all consents necessary for the completion of the transactions contemplated by this Agreement and each of the Transaction Documents, including any regulatory approvals and all instruments and documents incidental thereto. (j) Amended Registration Rights Agreement. Mason Best Company L.P. and Seller shall have entered into the Amended Registration Rights Agreement. (k) Commitment of Mason Best Company L.P. Within five (5) days after the date hereof, the Purchaser shall have received a written commitment from Mason Best Company L.P. substantially in the form of the attached Exhibit "G" that it will vote its shares of Common Stock in favor of (i) the transactions contemplated herein and (ii) the representatives of Purchaser to be elected as directors of the Seller. (l) Adjustment to Stock Option Exercise Price. The Seller shall have adjusted the exercise price of existing Stock Options granted to continuing officers and directors of Seller or its Subsidiaries pursuant to its 1991 Nonqualified Stock Option Plan, 1994 Stock Incentive Plan and 1994 Directors Option Plan effective on the Closing Date to the market price on the date of adjustment (the "Reset Options"). The Reset Options shall have a vesting period of three (3) years, with one-third ( 1/3) of the Options vesting on each anniversary of the date of the Reset Options. Execution Copy 26 - 22 - ARTICLE 8 CONDITIONS PRECEDENT TO SELLER'S OBLIGATIONS Section 8.1 Conditions Precedent. The obligation of the Seller to sell the Purchased Securities pursuant to this Agreement on the Closing Date is subject to the satisfaction or waiver in writing of the following conditions precedent (in form, substance and action as is reasonably satisfactory to the Seller): (a) Proof of Appropriate Action. The Seller shall have received from the Purchaser a copy, certified by a duly authorized officer of the Purchaser to be true and complete on and as of the Closing Date, of the records of all action taken by the Board of Directors or Executive Committee of the Purchaser to authorize the execution and delivery of this Agreement and any other agreements entered into on the Closing Date and to which it is a party or is to become a party as contemplated or required by this Agreement, and its performance of all of its agreements and obligations under each of such documents; (b) Incumbency Certificates. The Seller shall have received from the Purchaser an incumbency certificate, dated the Closing Date, signed by a duly authorized officer of the Purchaser and giving the name and bearing a specimen signature of each individual who shall be authorized (i) to sign, in the name and on behalf of the Purchaser, this Agreement and each of the other Transaction Documents to which such person is or is to become a party on the Closing Date, and (ii) to give notices and to take other action on behalf of the Purchaser under such documents; (c) Representations and Warranties. Each of the representations and warranties made by and on behalf of the Purchaser to the Seller in this Agreement and in the other Transaction Documents shall be true and correct when made; (d) Transaction Documents. Each of the Transaction Documents shall have been duly and properly authorized, executed and delivered to the Seller by the respective party or parties thereto and shall be in full force and effect on and as of the Closing Date; (e) Legality of Transactions. No changes in applicable law shall have occurred as a consequence of which it shall have become and continue to be unlawful (i) for the Purchaser to perform any of its agreements or obligations under this Agreement, or under any of the other Transaction Documents, or (ii) for the Seller or any Subsidiary of the Seller to perform any of its agreements or obligations under this Agreement or under any of the other Transaction Documents; Execution Copy 27 - 23 - (f) Approvals and Consents. The Seller shall have received all approvals and consents necessary for the completion of the transactions contemplated by the Agreement and each of the Transaction Documents, including Shareholder approval as contemplated by Section 6.1 hereof and regulatory consent as contemplated by Section 6.2 hereof; and (g) Performance, Etc. The Purchaser shall have duly and properly performed, complied with and observed its respective covenants, agreements and obligations contained in each of the Transaction Documents. ARTICLE 9 TERMINATION OF AGREEMENT Section 9.1 Termination. Notwithstanding any other provision of this Agreement, this Agreement may be terminated at any time prior to the Closing Date: (a) by mutual written consent of the Seller and the Purchaser; (b) by the Seller or the Purchaser, upon written notice to the other party, if the Closing shall not have occurred on or prior to March 31, 1997 (the "Outside 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 or the Purchaser, upon written notice to the other party, 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 required efforts to remove such injunction, order or decree; (d) by the Seller, if prior to approval by the Shareholders of the Seller of the transactions contemplated by this Agreement, the Board of Directors of the Seller determines in accordance with a Director Duty that such termination is required by reason of a Competing Proposal; or (e) by the Seller or the Purchaser, if prior to approval by the Shareholders of the Seller of the transactions contemplated by this Agreement, the Board of Directors of the Seller shall have withdrawn or modified in a manner materially adverse to the Purchaser its Execution Copy 28 - 24 - approval of the adoption of this Agreement, because the Board of Directors has determined to recommend to the Seller's shareholders or approve a Competing Proposal, in accordance with a Director Duty; provided, however, that any communication that advises that Seller has received a Competing Offer or is engaging in any activity permitted under Section 6.7(b) with respect to a Competing Offer shall in no event be deemed a withdrawal or modification adverse to the Purchaser of its approval of this Agreement. Section 9.2 Effect of Termination. In the event that this Agreement is terminated pursuant to clause 9.1(d) or 9.1(e) hereof, the Warrants issued to the Purchaser pursuant to Section 2.3 hereof shall become immediately exercisable and the Purchaser shall have all of the benefits of the Warrant Registration Rights Agreement and Purchaser shall have no further rights hereunder. In the event that this Agreement is terminated pursuant to any other clause of Section 9.1, the Warrants shall be cancelled and neither party shall have any further rights or obligations under this Agreement, the Warrant Registration Rights Agreement or the Warrant Subscription Agreement. Section 9.3 Default under the Agreement. If either party shall default in the performance of its obligations hereunder, the non-defaulting party 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. ARTICLE 10 MISCELLANEOUS Section 10.1 Amendments and Waivers. The Seller and the Purchaser may amend this Agreement or the other Transaction Documents to which they are parties, and the Purchaser may waive future compliance by the Seller with any provision of this Agreement or such other Transaction Documents, but no such amendment or waiver shall be effective unless in a written instrument executed by an authorized officer of the Purchaser and Seller. Section 10.2 No Waiver; Cumulative Remedies. No failure to exercise and no delay in exercising, on the part of the Purchaser or Seller, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege. The Purchaser or Seller, as the case may be, shall not be deemed to have waived any of its' rights hereunder or under any other agreement, instrument or paper signed by it unless such waiver shall be in writing and signed by the Purchaser or Seller, as the case may be. The rights, remedies, powers and privileges herein provided are cumulative and not exclusive of any rights, remedies, powers and privileges provided by law, and are supplemental and in addition to such rights, remedies, powers and privileges provided in Transaction Documents. Execution Copy 29 - 25 - Section 10.3 Notices. All notices, consents, requests and demands to or upon the respective parties hereto shall be in writing and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered by hand, or when deposited in the mail, postage prepaid, or, in the case of telex, telegraphic or telecopy notice, when sent, addressed as follows: If to the Purchaser: American Financial Group, Inc. One East Fourth Street, Suite 919 Cincinnati, Ohio 45202 Attention: Samuel J. Simon Telephone: (513) 579-2542 Telecopy: (513) 579-2113 With a copy to: Keating, Muething & Klekamp, P.L.L. 1800 Provident Tower Cincinnati, Ohio 45202 Attention: Paul V. Muething Telephone: (513) 579-6517 Telecopy: (513) 579-6957 If to the Seller: American Eagle Group, Inc. 12801 North Central Expressway, Suite 800 Dallas, Texas 75243 Attention: Chairman of the Board Telephone: (972) 448-1460 Telecopy: (972) 448-1401 With a copy to: Frederick G. Anderson Senior Vice President and General Counsel American Eagle Group, Inc. 12801 North Central Expressway, Suite 800 Dallas, Texas 75243 Telephone: (972) 448-1431 Telecopy: (972) 448-1401 Execution Copy 30 - 26 - Notices of changes of address shall be given in the same manner. Section 10.4 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the Seller, the Purchaser and their respective successors and permitted assigns. For so long as Purchaser has any rights or obligations specified in Sections 6.5 and 6.6 hereof, the Purchaser and any of its Affiliates may assign or transfer to any Person (including a group as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended), the shares of Preferred Stock or Underlying Shares, representing in the aggregate ownership, or the right to acquire ownership, of at least fifty-one percent (51%) of the Underlying Shares and all of their rights under Section 6.5 above, only if such Person assumes all of the obligations under Section 6.6 above. Section 10.5 Enforcement Costs. All reasonable costs and expenses incurred by a party to enforce the terms of this Agreement and performance by the other party of its obligations hereunder including, without limitation, stationery and postage, telephone and telegraph, secretarial and clerical expenses, the fees or salaries of any collection agents utilized, and all attorneys' fees and legal expenses incurred in connection herewith whether through judicial proceedings or otherwise, or in enforcing or protecting its rights and interests under this Agreement or under any other instrument or document delivered pursuant hereto, or in protecting the rights of any holder or holders with respect thereto, or in defending or prosecuting any actions or proceedings arising out of or relating to the transactions contemplated hereby, shall be paid by the party which does not prevail in such action or proceeding, upon demand. Section 10.6 Counterparts. This Agreement may be executed by one or more of the parties to this Agreement on any number of separate counterparts and all of said counterparts taken together shall be deemed to constitute one and the same instrument. Section 10.7 Term. This Agreement shall terminate upon the latest of (i) the redemption of all shares of the Preferred Stock, or (ii) seven (7) years from the Date of Issuance. Section 10.8 Consent to Jurisdiction. The Seller hereby absolutely and irrevocably consents and submits to the jurisdiction of the courts of the State of Ohio and of any federal court located in the said state in connection with any actions or proceedings brought against the Seller by the Purchaser arising out of or relating to this Agreement or any other Transaction Documents. The Seller hereby waives and shall not assert in any such action or proceeding, in each case, to the fullest extent permitted by applicable law, any claim that (a) the Seller is not personally subject to the jurisdiction of any such court, (b) the Seller is immune from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to it or its property, (c) any such suit, action or proceeding is brought in an inconvenient forum, (d) the venue of any such suit, action or proceeding is improper, or (e) this Agreement or any Transaction Documents may not be enforced in or by any such court. In any such Execution Copy 31 - 27 - action or proceeding, the Seller hereby absolutely and irrevocably waives personal service of any summons, complaint, declaration or other process and hereby absolutely and irrevocably agrees that the service thereof may be made by certified, registered first-class mail directed to the Seller. Anything hereinbefore to the contrary notwithstanding, the Purchaser hereof may sue the Seller in the courts of any other country, state of the United States or place where the Seller or any of the property or assets may be found or in any other appropriate jurisdictions. IN WITNESS WHEREOF, the parties have duly executed this Agreement by their duly authorized officers as of the date first above written. SELLER: AMERICAN EAGLE GROUP, INC. By: M. Philip Guthrie ------------------------------ Its: Chairman of the Board, CEO and President ------------------------------ PURCHASER: AMERICAN FINANCIAL GROUP, INC. By: Carl H. Lendner ------------------------------ Its: Co-President ------------------------------ Execution Copy EX-10.44 6 WARRANT SUBSCRIPTION AGREEMENT 1 EXHIBIT 10.44 ================================================================================ WARRANT SUBSCRIPTION AGREEMENT BY AND BETWEEN AMERICAN EAGLE GROUP, INC. (Company and Warrant Agent) AND AMERICAN FINANCIAL GROUP, INC. (Warrant Agent) Dated as of November 5, 1996 ================================================================================ 2 WARRANT SUBSCRIPTION AGREEMENT WARRANT SUBSCRIPTION AGREEMENT ("Agreement"), dated as of November 5, 1996 between AMERICAN EAGLE GROUP, INC., a Delaware corporation (the "Company"), and AMERICAN FINANCIAL GROUP, INC., an Ohio corporation ("AFG"). The Company proposes to issue Common Stock Purchase Warrants, as hereinafter described (the "Warrants"), to purchase up to an aggregate of 800,000 shares of its Common Stock, no par value, ("Common Stock"), (the shares of Common Stock issuable on exercise of the Warrants being referred to herein as the "Warrant Shares"), pursuant to a Securities Purchase Agreement between the Company and American Financial Group, Inc., an Ohio corporation, dated as of November 5, 1996 (the "Securities Purchase Agreement"), pursuant to which the Company will issue certain of its securities, including the Warrants, each Warrant entitling the holder thereof to purchase one share of Common Stock. In consideration of the foregoing and for the purpose of defining the terms and provisions of the Warrants and the respective rights and obligations thereunder of the Company and the registered owners of the Warrants (the "Holders"), the Company and AFG hereby agree as follows: SECTION 1. APPOINTMENT OF WARRANT AGENT. Until such time as the Company receives notification from the Holders of their intent to require the Company to register the Warrants with the Securities and Exchange Commission (a "Registration"), the Company agrees to act as the Warrant Agent (the "Warrant Agent") in accordance with the instructions hereinafter set forth in this Agreement. Thereafter, the Company shall appoint a successor to act as Warrant Agent in accordance with Section 17 hereof. SECTION 2. TRANSFERABILITY AND FORM OF WARRANT. 2.1 REGISTRATION. The Warrants shall be numbered and shall be registered in a Warrant Register as they are issued. The Company and the Warrant Agent shall be entitled to treat the Holder of any Warrant as the owner in fact thereof for all purposes and shall not be bound to recognize any equitable or other claim to or interest in such Warrant on the part of any other person, and shall not be liable for any registration of transfer of Warrants which are registered or to be registered in the name of a fiduciary or the nominee of a fiduciary unless made with the actual knowledge that a fiduciary or nominee is committing a breach of trust in requesting such registration of transfer, or with knowledge of such facts that its participation therein amounts to bad faith. 2.2 TRANSFER. The Warrants shall be transferable only on the books of the Company maintained at the principal office of the Warrant Agent upon delivery thereof duly endorsed by the Holder or by his duly authorized attorney or representative, or - 1 - 3 accompanied by proper evidence of succession, assignment or authority to transfer, which endorsement shall be guaranteed by a bank or trust company or a broker or dealer which is a member of the National Association of Securities Dealers, Inc. In all cases of transfer by an attorney, the original power of attorney, duly approved, or a copy thereof, duly certified, shall be deposited and remain with the Warrant Agent. In case of transfer by executors, administrators, guardians or other legal representatives, duly authenticated evidence of their authority shall be produced, and may be required to be deposited and remain with the Warrant Agent in its discretion. Upon any registration of transfer, the Warrant Agent shall countersign and deliver a new Warrant or Warrants to the persons entitled thereto. 2.3 FORM OF WARRANT. The text of the Warrant and of the Purchase Form shall be substantially as set forth in Exhibit A attached hereto. The number of warrants, the price per Warrant Share and the number of Warrant Shares issuable upon exercise of each Warrant are subject to adjustment upon the occurrence of certain events, all as hereinafter provided. The Warrants shall be executed on behalf of the Company by its Chairman of the Board, President or one of its Vice Presidents, under its corporate seal reproduced thereon attested by its Secretary or an Assistant Secretary. The signature of any such officers on the Warrants may be manual or facsimile. Warrants bearing the manual or facsimile signatures of individuals who were at any time the proper officers of the Company shall bind the Company, notwithstanding that such individuals or any one of them shall have ceased to hold such offices prior to the delivery of such Warrants or did not hold such offices on the date of this Agreement. Warrants shall be dated as of the date of countersignature thereof by the Warrant Agent either upon initial issuance or upon division, exchange, substitution or transfer. SECTION 3. COUNTERSIGNATURE OF WARRANTS. The Warrants shall be countersigned by the Warrant Agent (or any successor to the Warrant Agent then acting as warrant agent under this Agreement) and shall not be valid for any purpose unless so countersigned. Warrants may be countersigned, however, by the Warrant Agent (or by its successor as warrant agent hereunder) and may be delivered by the Warrant Agent, notwithstanding that the persons whose manual or facsimile signatures appear thereon as proper officers of the Company shall have ceased to be such officers at the time of such countersignature, issuance or delivery. The Warrant Agent shall, upon written instructions of the Chairman of the Board, the President, a Vice President, the Treasurer or the Secretary of the Company, countersign, issue and deliver Warrants entitling the Holders thereof to - 2 - 4 purchase not more than 800,000 Warrant Shares (subject to adjustment pursuant to Sections 9 and 10 hereof) and shall countersign and deliver Warrants as otherwise provided in this Agreement. SECTION 4. EXCHANGE OF WARRANT CERTIFICATES. Each Warrant certificate may be exchanged for another certificate or certificates entitling the Holder thereof to purchase a like aggregate number of Warrant Shares as the certificate or certificates surrendered then entitle such Holder to purchase. Any Holder desiring to exchange a Warrant certificate or certificates shall make such request in writing delivered to the Warrant Agent, and shall surrender, properly endorsed, the certificate or certificates to be so exchanged. Thereupon, the Warrant Agent shall countersign and deliver to the person entitled thereto a new Warrant certificate or certificates, as the case may be, as so requested. SECTION 5. TERM OF WARRANTS; EXERCISE OF WARRANTS. 5.1 TERM OF WARRANTS; CANCELLATION. Subject to this Agreement, each Holder shall have the right to purchase from the Company the number of fully paid and nonassessable Warrant Shares that the Holder may at the time be entitled to purchase on exercise of such Warrants. Such right may be exercised commencing the first business day following the termination of the Securities Purchase Agreement pursuant to Section 9.1 (d) or (e) thereof. The Warrants shall thereafter remain exercisable until 5:00 p.m., New York time, on November 4, 2003. Notwithstanding the foregoing, the Warrants shall be cancelled and this Agreement terminated simultaneously with a "closing" under the Securities Purchase Agreement. 5.2 EXERCISE OF WARRANTS. A Warrant may be exercised upon surrender to the Warrant Agent at its principal office, of the certificate or certificates evidencing the Warrants to be exercised, together with the form of election to purchase on the reverse thereof duly filled in and signed, which signature shall be guaranteed by a bank or trust company or a broker or dealer which is a member of the National Association of Securities Dealers, Inc., and upon payment to the Warrant Agent for the account of the Company of the Warrant Price (as defined in and determined in accordance with the provisions of Sections 9 and 10 hereof), for the number of Warrant Shares in respect of which such Warrants are then exercised. Payment of the aggregate Warrant Price shall be made in cash, by certified or bank cashier's check drawn on a banking institution chartered by the government of the United States or any state thereof, or by surrender of outstanding Company debt at its face value (including accrued interest to the date of exercise) or any combination thereof. - 3 - 5 Subject to Section 6 hereof, upon such surrender of Warrants and payment of the Warrant Price as aforesaid, the Warrant Agent shall cause to be issued and delivered with all reasonable dispatch to or upon the written order of the Holder and in such name or names as the Holder may designate, a certificate or certificates for the number of full Warrant Shares so purchased upon the exercise of such Warrants, together with cash, as provided in Section 11 hereof, in respect of any fractional Warrant Shares otherwise issuable upon such surrender. Such certificate or certificates shall be deemed to have been issued and any person so designated to be named therein shall be deemed to have become a holder of record of such Warrant Shares as of the date of the surrender of such Warrants and payment of the Warrant Price, as aforesaid. The rights of purchase represented by the Warrants shall be exercisable, at the election of the Holders thereof, either in full or from time to time in part and, in the event that a certificate evidencing Warrants is exercised in respect of less than all of the Warrant Shares purchasable on such exercise at any time prior to the date of expiration of the Warrants, a new certificate evidencing the remaining Warrant or Warrants will be issued, and the Warrant Agent is hereby irrevocably authorized to countersign and to deliver the required new Warrant certificate or certificates pursuant to the provisions of this Section and of Section 3 hereof, and the Company, whenever required by the Warrant Agent, will supply the Warrant Agent with Warrant certificates duly executed on behalf of the Company for such purpose. SECTION 6. PAYMENT OF TAXES. The Company will pay all documentary stamp taxes, if any, attributable to the initial issuance of Warrant Shares upon the exercise of Warrants; provided, however, that the Company shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issue or delivery of any Warrants or certificates for Warrant Shares in a name other than that of the registered Holder of Warrants in respect of which such Warrant Shares are issued. SECTION 7. MUTILATED OR MISSING WARRANTS. In case any of the certificates evidencing the Warrants shall be mutilated, lost stolen or destroyed, the Company shall issue, and the Warrant Agent shall countersign and deliver in exchange and substitution for and upon cancellation of the mutilated Warrant certificate, or in lieu of and substitution for the Warrant certificate lost, stolen or destroyed, a new Warrant certificate of like tenor and representing an equivalent right or interest, but only upon receipt of evidence reasonably satisfactory to the Company and the Warrant Agent of such loss, theft or destruction of such Warrant and indemnity or bond, if requested, also reasonably satisfactory to them. An applicant for such a substitute Warrant certificate shall also comply with such other reasonable regulations and pay such other reasonable charges as the Company or the Warrant Agent may prescribe. - 4 - 6 SECTION 8. RESERVATION OF WARRANT SHARES; PURCHASE, CALL AND CANCELLATION OF WARRANTS. 8.1 RESERVATION OF WARRANT SHARES. There have been reserved, and the Company shall at all times keep reserved, out of its authorized Common Stock, a number of shares of Common Stock sufficient to provide for the exercise of the rights of purchase represented by the outstanding Warrants. The Transfer Agent for the Common Stock and every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of any of the rights of purchase aforesaid will be irrevocably authorized and directed at all times to reserve such number of authorized shares as shall be required for such purpose. The Company will keep a copy of this Agreement on file with the Transfer Agent for the Common Stock and with every subsequent transfer agent for any shares of the Company's capital stock issuable upon the exercise of the rights of purchase represented by the Warrants. The Warrant Agent is hereby irrevocably authorized to requisition from time to time from such Transfer Agent the stock certificates required to honor outstanding Warrants upon exercise thereof in accordance with the terms of this Agreement. The Company will supply such Transfer Agent with duly executed stock certificates for such purposes and will provide or otherwise make available any cash which may be payable as provided in Section 11 hereof. All Warrants surrendered in the exercise of the rights thereby evidenced shall be canceled by the Warrant Agent and shall thereafter be delivered to the Company. 8.2 PURCHASE OF WARRANTS BY THE COMPANY. The Company shall have the right, except as limited by law, other agreements or herein, to purchase or otherwise acquire Warrants at such times, in such manner and for such consideration as it may deem appropriate. 8.3 CANCELLATION OF WARRANTS. In the event the Company shall purchase or otherwise acquire Warrants, the same shall thereupon be delivered to the Warrant Agent and be canceled by it and retired. The Warrant Agent shall cancel any Warrant surrendered for exchange, substitution, transfer or exercise in whole or in part. SECTION 9. WARRANT PRICE. The price per share at which Warrant Shares shall be purchasable upon exercise of Warrants shall be $3.45 (the "Warrant Price"), subject to adjustment pursuant to Section 10 hereof. SECTION 10. ADJUSTMENT OF WARRANT PRICE AND NUMBER OF WARRANT SHARES. The number and kind of securities purchasable upon the exercise of each Warrant and the Warrant Price shall be subject to adjustment from time to time upon the happening of certain events, as hereinafter defined. - 5 - 7 10.1 MECHANICAL ADJUSTMENTS. The number of Warrant Shares purchasable upon the exercise of each Warrant and the Warrant Price shall be subject to adjustment as follows: (a) Stock Dividends. In case the Company shall declare a dividend or other distribution on shares of Common Stock which is payable in Common Stock, then the Warrant Price in effect immediately prior to the declaration of such dividend or distribution shall be reduced to the quotient obtained by dividing (i) the product of (x) the number of shares of Common Stock outstanding immediately prior to such declaration, multiplied by (y) the then effective Warrant Price, by (ii) the total number of shares of Common Stock outstanding immediately after such dividend or other distribution is paid. The registered holder of each Warrant shall thereafter be entitled to purchase, at the Warrant Price resulting from such adjustment, the number of shares of Common Stock obtained by multiplying the Warrant Price in effect immediately prior to such adjustment by the number of shares of Common Stock purchasable pursuant hereto immediately prior to such adjustment and dividing the product thereof by the Warrant Price resulting from such adjustment. (b) Stock Splits and Reverse Splits. In case outstanding shares of Common Stock shall be subdivided into a greater number of shares of Common Stock, the Warrant Price in effect at the opening of business on the day immediately prior to the day upon which such subdivision becomes effective shall be proportionately reduced and the number of Warrant Shares purchasable pursuant to this Warrant immediately prior to such subdivision shall be proportionately increased, and, conversely, in case outstanding shares of Common Stock shall be combined into a smaller number of shares of Common Stock, the Warrant Price in effect at the opening of business on the day immediately prior to the day upon which such combination becomes effective shall be proportionately increased and the number of Warrant Shares purchasable upon the exercise of this Warrant immediately prior to such combination shall be proportionately reduced, such reduction or increase, as the case may be, to become effective immediately after the opening of business on the day following the day upon which such subdivision or combination becomes effective. (c) Reclassification of Stock. The reclassification of Common Stock into securities other than Common Stock (other than any reclassification upon a consolidation or merger to which Section 10.5 below applies) shall be - 6 - 8 deemed to involve (x) a distribution of securities other than Common Stock to all holders of Common Stock (and the effective date of such reclassification shall be deemed to be the Record Date within the meaning of subsection (d) below), and (y) a subdivision or combination, as the case may be, of the number of shares of Common Stock outstanding immediately prior to such reclassification into the number of shares of Common Stock outstanding immediately thereafter (and the effective date of such reclassification shall be deemed to be "the day upon which such subdivision becomes effective" and "the day upon which such combination becomes effective" as the case may be, within the meaning of subsection (b) above.) (d) Rights, Options, Warrants and Convertible Securities. In case the Company shall issue rights, options, or warrants or shall issue securities convertible or exchangeable for shares of Common Stock ("Convertible Securities") to all holders of its outstanding Common Stock, without any charge to such holders, entitling them (for a period within forty five (45) days after the record date mentioned below) to subscribe for or purchase shares of Common Stock at a price per share which is lower at the record date fixed for the determination of stockholders entitled to receive such rights, options, warrants or Convertible Securities (other than pursuant to a dividend reinvestment plan or pursuant to any employee or director benefit or stock option plan) (the "Record Date") than the then current market price per share of Common Stock (as defined in paragraph (j) below) the number of Warrant Shares thereafter purchasable upon the exercise of each Warrant shall be determined by multiplying the number of Warrant Shares theretofore purchasable upon exercise of each Warrant by a fraction, of which the numerator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date of such rights, options, warrants or Convertible Securities plus the number of additional shares of Common Stock offered for subscription or purchase, and of which the denominator shall be the number of shares of Common Stock outstanding at the close of business on the Record Date of such rights, options, warrants or Convertible Securities plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered would purchase at the then current market price per share (as defined in paragraph (j) below) of Common Stock. Such adjustment shall be made whenever such rights, options, warrants or Convertible Securities are issued, and shall become effective immediately after the opening of business on the day following the Record Date for the determination of stockholders entitled to receive such rights, - 7 - 9 options, warrants or Convertible Securities. Upon the foregoing adjustment having been made, the Warrant Price payable upon exercise of each Warrant shall be adjusted by multiplying such Warrant Price in effect immediately prior to such adjustment by a fraction, of which the numerator shall be the number of Warrant Shares purchasable upon the exercise of each Warrant immediately prior to such adjustment, and of which the denominator shall be the number of Warrant Shares purchasable immediately thereafter. For the purpose of this paragraph (d), the number of shares of Common Stock at any time outstanding shall not include shares held in the treasury of the Company or issuable pursuant to warrants held in or issued to treasury but shall include shares issuable in respect of scrip certificates issued in lieu of fractions of shares of Common Stock. (e) Extraordinary Events. In case the Company shall distribute to all holders of its shares of Common Stock evidences of its indebtedness or assets (excluding cash dividends or distributions payable out of consolidated earnings or earned surplus and the extraordinary events referred to in paragraphs (a) through (c) above) or rights, options or warrants, or convertible or exchangeable securities containing the right to subscribe for or purchase evidences of such indebtedness or assets, then in each case the Warrant Price shall be reduced by multiplying the Warrant Price in effect immediately prior to the close of business on the date fixed for the determination of stockholders entitled to receive such a distribution by a fraction, of which the numerator shall be the then current market price per share of Common Stock (as defined in paragraph (j) below) on the date of such distribution, less the then fair value (as determined in good faith by the Board of Directors of the Company, whose determination shall in the absence of manifest error be conclusive) of the portion of the assets or evidences of indebtedness so distributed and of which the denominator shall be the then current market price per share of Common Stock. Such adjustment shall be made whenever any such distribution is made, and shall become effective immediately prior to the opening of business on the day following the record date for the determination of stockholders entitled to receive such distribution. In the event of a distribution by the Company to all holders of its shares of Common Stock of capital stock of a subsidiary or rights, options, warrants or Convertible Securities for such stock, then in lieu of an adjustment in the Warrant Price, the Holder of each Warrant, upon the exercise thereof at any time after such distribution shall be entitled to receive the stock or other - 8 - 10 securities to which such Holder would have been entitled if such Holder had exercised such Warrant immediately prior to such distribution. (f) Sale of Convertible Securities. In case the Company shall issue or sell Convertible Securities (excluding issuances or sales referred to in paragraph (d) above), there shall be determined the price per share for which shares of Common Stock are issuable upon the conversion or exchange thereof, such determination to be made by dividing (a) the total amount received or receivable by the Company as consideration for the issue or sale of such Convertible Securities, plus the average of the maximum and minimum aggregate amount of additional consideration, if any, payable to the Company upon the conversion or exchange of all such Convertible Securities by (b) the maximum number of shares of Common Stock of the Company issuable upon conversion or exchange of all of such Convertible Securities; and such issue or sale shall be deemed to be an issue or sale for cash (as of the date of issue or sale of such Convertible Securities) of such maximum number of shares of Common Stock at the price per share so determined. If such Convertible Securities shall by their terms provide for an increase or increases, with the passage of time, in the amount of additional consideration, if any, payable to the Company, or in the rate of exchange, upon the conversion or exchange thereof, the adjusted Warrant Price shall, forthwith upon any such increase becoming effective, be readjusted (but to no greater extent than originally adjusted) to reflect the same. (g) Rights, Warrants, Options -- Common Stock. In case the Company shall grant any rights, warrants or options to subscribe for, purchase or otherwise acquire shares of Common Stock (excluding grants pursuant to employee or director stock option or benefit plans and grants referred to in paragraph (d) above), there shall be determined the minimum price per share for which a share of Common Stock is issuable upon the exercise of all such rights, warrants or options, such determination to be made by dividing (a) the total amount, if any, received or receivable by the Company as consideration for the granting of such rights, warrants or options, plus the average of the maximum and minimum aggregate amount of additional consideration payable to the Company upon the exercise of such rights, warrants or options by (b) the maximum number of shares of Common Stock of the Company issuable upon the exercise of all such rights, warrants or options, and the granting of all such rights, warrants or options shall be deemed to be an issue or sale for cash (as of the date of the granting of such rights, warrants or options) of such maximum number of shares of Common Stock at the price per share so determined. - 9 - 11 If such rights, warrants or options shall by their terms provide for an increase or increases, with the passage of time, in the amount of additional consideration payable to the Company upon the exercise thereof, the adjusted Warrant Price shall, forthwith upon any such increase becoming effective, be readjusted (but to no greater extent than originally adjusted) to reflect the same. (h) Rights, Warrants, Options -- Convertible Securities. In case the Company shall grant any rights, warrants or options to subscribe for, purchase or otherwise acquire Convertible Securities, such Convertible Securities shall be deemed, for the purposes of paragraph (f), to have been issued and sold (as of the actual date of issue or sale of such Convertible Securities) for the total amount received or receivable by the Company as consideration for the granting of such rights, warrants or options plus the average of the maximum and minimum aggregate amount of additional consideration, if any, payable to the Company upon the exercise of all such rights, warrants or options. If such rights, warrants or options shall by their terms provide for an increase or increases, with the passage of time, in the amount of additional consideration payable to the Company upon the exercise thereof, the adjusted Warrant Price shall, forthwith upon any such increase becoming effective, be readjusted (but to no greater extent than originally adjusted) to reflect the same. (i) Sales Below Market Price. In case the Company shall issue or sell its shares of Common Stock or be deemed to have issued or sold Common Stock in accordance with the provisions of paragraphs (f), (g) or (h) above, for a consideration per share which is below the then current market price per share (as defined in paragraph (j)) for its shares of Common Stock, then the following provisions shall apply. An Adjusted Fair Market Value shall be computed (to the nearest cent, a half cent or more being considered a full cent) by dividing: (i) the sum of (x) the result obtained by multiplying the number of shares of Common Stock of the Company outstanding immediately prior to such issue or sale by the then current market price (as defined in paragraph (j) below), plus (y) the consideration, if any, received by the Company upon such issue or sale; by (ii) the number of shares of Common Stock of the Company outstanding immediately after such issue or sale. - 10 - 12 The resulting number shall be deemed to be the Adjusted Fair Market Value per share. Thereafter, the Warrant Price shall be adjusted to be equal to the product of the Warrant Price in effect immediately prior to such actions, multiplied by a fraction the numerator of which is the Adjusted Fair Market Value per share and the denominator of which is the current market price per share, immediately prior to such actions as determined in paragraph (j) below. Upon any such adjustment of the Warrant Price hereunder, the number of shares of Common Stock acquirable upon exercise of this Warrant will be adjusted to the number of shares determined by multiplying the Warrant Price in effect immediately prior to such adjustment by the number of shares of Common Stock acquirable upon exercise of this Warrant immediately prior to such adjustment and dividing the product thereof by the Warrant Price resulting from such adjustment. The provisions of this paragraph (i) shall not apply to an issuance or sale of shares of the Company's Common Stock in connection with an underwritten public offering for cash, unless the underwritten public offering is in the form of a transaction exempted from registration in the United States under Regulation S. (j) For the purpose of any computation under paragraphs (d), (e) and (i) of this Section, the current market price per share of Common Stock at any date shall be the average of the daily closing prices for thirty (30) consecutive trading days commencing forty five (45) trading days before the date of such computation. The closing price for each day shall be the last reported sales price regular way or, in case no reported sale takes place on such day, the average of the closing bid and asked prices regular way for such day, in each case on the New York Stock Exchange or, if the Common Stock is no longer listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the shares of Common stock are listed or admitted to trading or, if not listed or admitted to trading on any national securities exchange, the average of the closing bid and asked prices of the Common Stock in the over-the- counter market as reported by the National Association of Securities Dealers Automated Quotations National Market System (or any comparable system) or, if the Common Stock is not quoted on such National Market System (or any comparable system), the average of the closing bid and asked prices in the over-the-counter market as furnished by any New York Stock Exchange member firm selected from time to time by the Board of Directors for that purpose or, in the absence of such quotations, such other method of determining market value as the Board of Directors shall in good faith from time to time reasonably deem to be fair. - 11 - 13 In the absence of one or more such quotations, the Company shall determine the current market price on the basis of such quotations as it considers appropriate. (k) No adjustment in the number of Warrant Shares purchasable hereunder shall be required unless such adjustment would require an increase or decrease of at least one percent (1%) in the number of Warrant Shares purchasable upon the exercise of each Warrant; provided, however, that any adjustments which by reason of this paragraph (k) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations shall be made to the nearest one-thousandth of a share. (l) No adjustment in the number of Warrant Shares purchasable upon the exercise of each Warrant need be made under paragraphs (d) and (e) if the Company issues or distributes to each Holder of Warrants the rights, options, warrants, or convertible or exchangeable securities, or evidence of indebtedness or assets referred to in those paragraphs which each Holder of Warrants would have been entitled to receive had the Warrants been exercised prior to the happening of such event or the record date with respect thereto. No adjustment in the number of Warrant Shares purchasable upon the exercise of each Warrant need be made for sales of Common Stock pursuant to a Company plan for reinvestment of dividends or interest. No adjustment need be made for a change in the par value of the Warrant Shares. No such adjustment need be made in respect of the issuance and subsequent exercise of employee or director benefit or stock option shares of Common Stock. (m) For the purpose of this subsection 10.1, the term "shares of Common Stock" shall mean (i) the class of stock designated as the Common Stock of the Company at the date of this Agreement, or (ii) any other class of stock resulting from successive changes or reclassification of such shares consisting solely of changes in par value, or from par value to no par value, or from no par value to par value. In the event that at any time, as a result of an adjustment made pursuant to paragraph (c) above, the Holders shall become entitled to purchase any shares of the Company other than shares of Common Stock, thereafter the number of such other shares so purchasable upon exercise of each Warrant and the Warrant Price of such shares shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to the Warrant Shares contained in paragraph (a) through (i), inclusive, above, and the provisions of Section 5 and subsections 10.2 through 10.4, inclusive, with respect to the Warrant Shares, shall apply on like terms to any such other shares. - 12 - 14 (n) Upon the expiration of any rights, options, warrants or conversion or exchange privileges, if any thereof shall not have been exercised, the Warrant Price and the number of shares of Common Stock purchasable upon the exercise of each Warrant shall, upon such expiration, be readjusted and shall thereafter be such as it would have been had it been originally adjusted (or had the original adjustment not been required, as the case may be) as if (A) the only shares of Common Stock so issued were the shares of Common Stock, if any, actually issued or sold upon the exercise of such rights, options, warrants or conversion or exchange rights and (B) such shares of Common Stock, if any, were issued or sold for the consideration, if any, actually received by the Company for the issuance, sale or grant of all such rights, options, warrants or conversion or exchange rights whether or not exercised; provided, further, that no such readjustment shall have the effect of increasing the Warrant Price by an amount in excess of the amount of the adjustment initially made in respect to the issuance, sale of grant of such rights, options, warrants or conversion or exchange rights. 10.2 DETERMINATION OF CONSIDERATION. Upon any issuance or sale for a consideration other than cash, or a consideration part of which is other than cash, of any shares of Common Stock or Convertible Securities or any rights or options to subscribe for, purchase or otherwise acquire any shares of Common Stock or Convertible Securities, the amount of the consideration other than cash received by the Company shall be deemed to be the fair value of such consideration as determined in good faith by the Board of Directors of the Company. In case any shares of Common Stock or Convertible Securities or any rights, options or warrants to subscribe for, purchase or otherwise acquire any shares of Common Stock or Convertible Securities shall be issued or sold together with other shares, stock or securities or other assets of the Company for a consideration which covers both, the consideration for the issue or sale of such shares of Common Stock or Convertible Securities or such rights or options shall be deemed to be the portion of such consideration allocated thereto in good faith by the Board of Directors of the Company. 10.3 NOTICE OF ADJUSTMENT. Whenever the number of Warrant Shares purchasable upon the exercise of each Warrant or the Warrant Price of such Warrant Shares is adjusted, as herein provided, the Company shall cause the Warrant Agent promptly to mail by first class mail, postage prepaid, to each Holder notice of such adjustment or adjustments and shall deliver to the Warrant Agent a certificate of a firm of independent public accountants selected by the Board of Directors of the Company (who may be the regular accountants employed by the Company) setting forth the number of Warrant Shares purchasable upon the exercise of each Warrant and the Warrant Price of such Warrant Shares after such adjustment, setting forth a brief statement of the facts requiring such - 13 - 15 adjustment and setting forth the computation by which such adjustment was made. Such certificate shall be conclusive evidence of the correctness of such adjustment. The Warrant Agent shall in the absence of manifest error be entitled to rely on such certificate and shall be under no duty or responsibility with respect to any such certificate, except to exhibit the same, from time to time, to any Holder desiring an inspection thereof during reasonable business hours. The Warrant Agent shall not at any time be under any duty or responsibility to any Holders to determine whether any facts exist which may require any adjustment of the Warrant Price or the number of Warrant Shares or other stock or property purchasable on exercise thereof, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed in making such adjustment. 10.4 NO ADJUSTMENT OF DIVIDENDS. Except as provided in subsection 10.1, no adjustment in respect of any dividends shall be made during the term of a Warrant or upon the exercise of a Warrant. 10.5 PRESERVATION OF PURCHASE RIGHTS ON ACCOUNT OF RECLASSIFICATION, CONSOLIDATION, ETC. In case of any consolidation of the Company with or merger of the Company into another corporation or in case of any sale, transfer or lease to another corporation of all or substantially all the property of the Company, the Company or such successor or purchasing corporation, as the case may be, shall execute with the Warrant Agent an agreement that each Holder shall have the right thereafter upon payment of the Warrant Price in effect immediately prior to such action to purchase upon exercise of each Warrant the kind and amount of cash, shares and other securities and property which he would have owned or have been entitled to receive after the happening of such consolidation, merger, sale, transfer or lease had such Warrant been exercised immediately prior to such action; provided, however, that no adjustment in respect of dividends, interest or other income on or from such shares or other securities and property shall be made during the term of a Warrant or upon the exercise of a Warrant. The Company shall mail by first class mail, postage prepaid, to each Holder, notice of the execution of any such agreement. Such agreement shall provide for adjustments, which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Section 10. The provisions of this subsection 10.5 shall similarly apply to successive consolidations, mergers, sales, transfers or leases. The Warrant Agent shall be under no duty or responsibility to determine the correctness of any provisions contained in any such agreement relating to the kind or amount of shares of stock or other securities or property receivable upon exercise of Warrants or with respect to the method employed and provided therein for any adjustments and shall be entitled to rely upon the provisions contained in any such agreement. 10.6 STATEMENT ON WARRANTS. Irrespective of any adjustments in the Warrant Price or the number or kind of shares purchasable upon the exercise of the - 14 - 16 Warrants, Warrants theretofore or thereafter issued may continue to express the same price and number and kind of shares as are stated in the Warrants initially issuable pursuant to this Agreement. SECTION 11. FRACTIONAL INTERESTS. The Company shall not be required to issue fractional Warrant Shares on the exercise of Warrants. If more than one Warrant shall be presented for exercise in full at the same time by the same Holder, the number of full Warrant Shares which shall be issuable upon the exercise thereof shall be computed on the basis of the aggregate number of Warrant Shares purchasable on exercise of the Warrants so presented. If any fraction of a Warrant Share would, except for the provisions of this Section 11, be issuable on the exercise of any Warrant (or specified portion thereof), the Warrant Agent shall pay (and shall be promptly reimbursed by the Company upon demand therefor) an amount in cash equal to the closing price for one share of the Common Stock, as defined in paragraph (i) of subsection 10.1, on the trading day immediately preceding the date the Warrant is presented for exercise, multiplied by such fraction. SECTION 12. NO RIGHTS AS STOCKHOLDERS; NOTICES TO HOLDERS. Nothing contained in this Agreement or in any of the Warrants shall be construed as conferring upon the Holders or their transferees the right to vote or to receive dividends or to consent or to receive notice as stockholders in respect of any meeting of stockholders for the election of directors of the Company or any other matter, or any rights whatsoever as stockholders of the Company. If however, at any time prior to the expiration of the Warrants and prior to their exercise, any of the following events shall occur: (a) the Company shall declare any dividend payable in any securities upon its shares of Common Stock or make any distribution (other than a regular cash dividend) to the holders of its shares of Common Stock; or (b) the Company shall offer to the holders of its shares of Common Stock any additional shares of Common Stock or securities convertible into shares of Common Stock or any right to subscribe thereto; or (c) a dissolution, liquidation or winding up of the Company (other than in connection with a consolidation, merger transfer or lease of all or substantially all of its property, assets, and business as an entirety) shall be proposed, then in any one or more of said events the Company shall give notice in writing of such event to the Warrant Agent and the Holders as provided in Section 18 hereof, such giving of notice to be completed at least twenty (20) days prior to the date fixed as a record date or the date - 15 - 17 of closing the transfer books for the determination of the stockholders entitled to such dividend, distribution, or subscription rights, or for the determination of stockholders entitled to vote on such proposed dissolution, liquidation or winding up. Such notice shall specify such record date or the date of closing the transfer books, as the case may be. Failure to mail such notice or any defect therein or in the publication or mailing thereof shall not affect the validity of any action taken in connection with such dividend, distribution or subscription rights, or such proposed dissolution, liquidation or winding up. SECTION 13. DISPOSITION OF PROCEEDS ON EXERCISE OF WARRANTS; INSPECTION OF WARRANT SUBSCRIPTION AGREEMENT. The Warrant Agent shall account to the Company with respect to Warrants exercised two business days thereafter and concurrently pay to the Company all monies received by the Warrant Agent for the purchase of the Warrant Shares through the exercise of such Warrants. The Warrant Agent shall keep copies of this Agreement and any notices given or received hereunder available for inspection by the Holders during normal business hours at its principal office. The Company shall supply the Warrant Agent from time to time with such numbers of copies of this Agreement as the Warrant agent may request. SECTION 14. MERGER OR CONSOLIDATION OR CHANGE OF NAME OF WARRANT AGENT. Any corporation into which the Warrant Agent may be merged or with which it may be consolidated, or any corporation resulting from any merger or consolidation to which the Warrant Agent shall be a party, or any corporation succeeding to the corporation trust business of the Warrant Agent, shall be the successor to the Warrant Agent hereunder without the execution or filing of any paper or any further act on the part of any of the parties hereto, provided that such corporation would be eligible for appointment as a successor Warrant Agent under the provisions of Section 16 hereof. In case at the time such successor to the Warrant Agent shall succeed to the agency created by this Agreement, any of the Warrants shall have been countersigned but not delivered, any such successor to the Warrant Agent may adopt the countersignature of the original Warrant Agent and deliver such Warrants so countersigned; and in case at that time any of the Warrants shall not have been countersigned, any successor to the Warrant Agent may countersign such Warrants either in the name of the predecessor Warrant Agent or in the name of the successor Warrant Agent; and in all such cases Warrants shall have the full force provided in the Warrants and in this Agreement. In case at any time the name of the Warrant Agent shall be changed and at such time any of the Warrants shall have been countersigned but not delivered, the Warrant Agent may adopt the countersignatures under its prior name and deliver such Warrants so countersigned; and in case at that time any of the Warrants shall not have been - 16 - 18 countersigned, the Warrant Agent may countersign such Warrants either in its prior name or in its changed name; and in all such Warrants shall have the full force provided in the Warrants and in this Agreement. SECTION 15. LEGEND. 15.1 SECURITIES ACT LEGEND. Each certificate representing the Warrants may be endorsed with the following legend and any other legend required by applicable state securities laws: THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY SATISFACTORY TO THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT. The Company need not register a transfer of any Warrant, and may also instruct its transfer agent not to register the transfer of the Warrants unless the conditions specified in the foregoing legends are satisfied. 15.2 REMOVAL OF LEGEND. (a) Any legend endorsed on a certificate pursuant to Section 15.1 and the stop transfer instructions with respect to such Warrants shall be removed and the Company shall issue a certificate without such legend to any Holder if such Warrants are registered under the Securities Act and a prospectus meeting the requirements of Section 10 of the Securities Act is available, if such legend may be properly removed under the terms of Rule 144 promulgated under the Securities Act or if the Holder provides the Company with an opinion of counsel, reasonably satisfactory to legal counsel for the Company, to the effect that a sale, transfer or assignment of such Warrants may be made without registration. (b) Any legend endorsed on a certificate pursuant to Section 15.1 and the stop transfer instructions with respect to such Warrants shall be removed upon receipt by the Company of either a legal opinion reasonably satisfactory to the Company to the effect that - 17 - 19 such legend may be removed, or appropriate federal or state securities authority authorizing such removal. SECTION 16. CONCERNING THE WARRANT AGENT. The Warrant Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Company and the Holders, by their acceptance of Warrants, shall be bound. 16.1 CORRECTNESS OF STATEMENTS. The statements contained herein and in the Warrants shall be taken as statements of the Company and the Warrant Agent assumes no responsibility for the correctness of any of the same except such as describe the Warrant Agent or action taken by it. The Warrant Agent assumes no responsibility with respect to the distribution of the Warrants except as herein otherwise provided. 16.2 BREACH OF COVENANTS. The Warrant Agent shall not be responsible for any failure of the Company to comply with any of the covenants contained in this Agreement or in the Warrant to be complied with by the Company. 16.3 PERFORMANCE OF DUTIES. The Warrant Agent may execute and exercise any of the rights or powers hereby vested in it or perform any duty hereunder either itself or by or through its attorneys or agents (which shall not include its employees) and shall not be responsible for the misconduct or negligence of any agent appointed with due care. 16.4 RELIANCE ON COUNSEL. The Warrant Agent may consult at any time with legal counsel satisfactory to it and the Company (who may be counsel for the Company) and the Warrant Agent shall incur no liability or responsibility to the Company or to any Holder in respect of any action taken, suffered or omitted by it hereunder in good faith and in accordance with the opinion or the advice of such counsel. 16.5 PROOF OF ACTIONS TAKEN. Whenever in the performance of its duties under this Agreement the Warrant Agent shall deem it necessary or desirable that any fact or matter be proved or established by the Company prior to taking or suffering any action hereunder, such fact or matter (unless other evidence in respect thereof be herein specifically prescribed) may be deemed conclusively to be proved and established by a certificate signed by the Chairman of the Board or President, a Vice President, the Treasurer or the Secretary of the Company and delivered to the Warrant Agent; and such certificate shall be full authorization to the Warrant Agent for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate. - 18 - 20 16.6 COMPENSATION. The Company agrees to pay the Warrant Agent reasonable compensation for all services rendered by the Warrant Agent in the performance of its duties under this Agreement, to reimburse the Warrant Agent for all expenses, taxes and governmental charges and other charges of any kind and nature reasonably incurred by the Warrant Agent in the performance of its duties under this Agreement, and to indemnify the Warrant Agent and save it harmless against any and all liabilities, including judgments, costs and counsel fees, for anything done or omitted by the Warrant Agent in the performance of its duties under this Agreement except as a result of the Warrant Agent's negligence or bad faith. 16.7 LEGAL PROCEEDINGS. The Warrant Agent shall be under no obligation to institute any action, suit or legal proceeding or to take any other action likely to involve expense unless the Company or one or more Holders shall furnish the Warrant Agent with reasonable security and indemnity for any costs and expenses which may be incurred, but this provision shall not affect the power of the Warrant Agent to take such action as the Warrant Agent may consider proper, whether with or without any such security or indemnity. All rights of action under this Agreement or under any of the Warrants may be enforced by the Warrant Agent without the possession of any of the Warrants or the production thereof at any trial or other proceedings relative thereto, any such action, suit or proceeding instituted by the Warrant Agent shall be brought in its name as Warrant Agent, and any recovery of judgment shall be for the ratable benefit of the Holders, as their respective rights or interests may appear. 16.8 OTHER TRANSACTIONS IN SECURITIES OF COMPANY. The Warrant Agent and any stockholder, director, officer or employee of the Warrant Agent may buy, sell or deal in any of the Warrants, or other securities of the Company or become pecuniarily interested in any transaction in which the Company may be interested or contract with or lend money to the Company or otherwise act as fully and freely as though it were not Warrant Agent under this Agreement. Nothing herein shall preclude the Warrant Agent from acting in any other capacity for the Company or for any other legal entity. 16.9 LIABILITY OF WARRANT AGENT. The Warrant Agent shall act hereunder solely as agent, and its duties shall be determined solely by the provisions hereof. The Warrant Agent shall not be liable for anything which it may do or refrain from doing in connection with this Agreement except for its own negligence or bad faith. 16.10 RELIANCE ON DOCUMENTS. The Warrant Agent will not incur any liability or responsibility to the Company or to any Holder for any action taken in reliance on any notice, resolution, waiver, consent, order, certificate, or other paper, documents or - 19 - 21 instrument reasonably believed by it to be genuine and to have been signed, set or presented by the proper party or parties. 16.11 VALIDITY OF AGREEMENT. The Warrant Agent shall not be under any responsibility in respect of the validity of this Agreement or the execution and delivery hereof (except the due execution hereof by the Warrant Agent) or in respect of the validity or execution of any Warrant (except its countersignature thereof); nor shall the Warrant Agent by any act hereunder be deemed to make any representation or warranty as to the authorization or reservation of any Warrant Shares (or other stock) to be issued pursuant to this Agreement or any Warrant, or as to whether any Warrant Shares (or other stock) will, when issued, be validly issued, fully paid and nonassessable, or as to the Warrant Price or the number or amount of Warrant Shares or other securities or other property issuable upon exercise of any Warrant. 16.12 INSTRUCTIONS FROM COMPANY. The Warrant Agent is hereby authorized and directed to accept instructions with respect to the performance of its duties hereunder from the Chairman of the Board, the President, the Secretary or the Treasurer of the Company, and to apply to such officer for advice or instructions in connection with its duties, and shall not be liable for any action taken or suffered to be taken by it in good faith in accordance with instructions of any such officer or officers. SECTION 17. CHANGE OF WARRANT AGENT. The Warrant Agent may resign and be discharged from its duties under this Agreement by giving to the Company thirty (30) days notice in writing. The Warrant Agent may be removed by like notice to the Warrant Agent from the Company. If the Warrant Agent shall resign or be removed or shall otherwise become incapable of acting, the Company shall appoint a successor to the Warrant Agent. If the Company shall fail to make such appointment within a period of thirty (30) days after such removal or after it has been notified in writing of such resignation or incapacity by the resigning or incapacitated Warrant Agent or by any Holder (who shall with such notice submit his Warrant for inspection by the Company), then any Holder may apply to any court of competent jurisdiction for the appointment of a successor to the Warrant Agent. Any successor warrant agent, whether appointed by the Company or such a court, shall be a bank or trust company, in good standing, incorporated under the laws of the United States of America or any state thereof and having at the time of its appointment as warrant agent a combined capital and surplus of at least $100,000,000. After appointment, the successor warrant agent shall be vested with the same powers, rights, duties and responsibilities as if it had been originally named as Warrant Agent without further act or deed, but the former Warrant Agent shall deliver and transfer to the successor warrant agent any property at the time held by it hereunder, and execute and deliver for further assurance, conveyance, act or deed necessary for the purpose. Failure to file any notice provided for in this Section 17, - 20 - 22 however, or any defect therein, shall not affect the legality or validity of the resignation or removal of the Warrant Agent or the appointment of the successor warrant agent, as the case may be. In the event of such resignation or removal, the successor warrant agent shall mail, by first class mail, postage prepaid, to each Holder, written notice of such removal or resignation and the name and address of such successor warrant agent. SECTION 18. IDENTITY OF TRANSFER AGENT. Forthwith upon the appointment of any subsequent transfer agent for the Common Stock, or any other shares of the Company's capital stock issuable upon the exercise of the Warrants, the Company will file with the Warrant Agent a statement setting forth name and address of such subsequent transfer agent. SECTION 19. NOTICES. Any notice pursuant to this Agreement by the Company or by any Holder to the Warrant Agent, or by the Warrant Agent or by any Holder to the Company, shall be in writing and shall be delivered in person or by facsimile transmission, or mailed first class, postage prepaid (a) to the Company, at its offices at 12801 North Central Expressway, Suite 800, Dallas, Texas 75243, Attention: Chief Executive Officer; or (b) the Warrant Agent, to 12801 North Central Expressway, Suite 800, Dallas, Texas 75243, Attention: Secretary. Each party hereto may from time to time change the address to which notices to it are to be delivered or mailed hereunder by notice to the other party. Any notice mailed pursuant to this Agreement by the Company or the Warrant Agent to the Holders shall be in writing and shall be mailed first class, postage prepaid, or otherwise delivered to such Holders at their respective addresses on the books of the Warrant Agent. SECTION 20. SUPPLEMENTS AND AMENDMENTS. The Company and the Warrant Agent may from time to time supplement or amend this Agreement without the approval of any Holder, in order to cure any ambiguity or to correct or supplement any provision contained herein which may be defective or inconsistent with any other provision herein, or to make any other provisions in regard to matters or questions arising hereunder which the Company and the Warrant Agent may deem necessary or desirable and which shall not be inconsistent with the provisions of the Warrants and which shall not materially adversely affect the interests of the Holders. The Holders of a majority of the Warrants outstanding at the time an amendment is proposed that may be inconsistent with the provisions of the Warrants or which may materially adversely affect the interest of the Holders may consent to such an amendment to this Agreement. - 21 - 23 SECTION 21. SUCCESSORS. All the covenants and provisions of this Agreement by or for the benefit of the Company or the Warrant Agent shall bind and inure to the benefit of their respective successors and assigns hereunder. SECTION 22. MERGER OR CONSOLIDATION OF THE COMPANY. The Company will not merge or consolidate with or into, or sell, transfer or lease all or substantially all of its property to, any other corporation unless the successor or purchasing corporation, as the case may be (if not the Company), shall expressly assume, by supplemental agreement satisfactory in form to the Warrant Agent and executed and delivered to the Warrant Agent, the due and punctual performance and observance of each and every covenant and condition of this Agreement to be performed and observed by the Company. SECTION 23. APPLICABLE LAW. This Agreement and each Warrant issued hereunder shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to principles of conflict of laws. SECTION 24. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be construed to give to any person or corporation other than the Company, the Warrant Agent, and the Holders any legal or equitable right, remedy or claim under this Agreement; but this Agreement shall be for the sole and exclusive benefit of the Company, the Warrant Agent and the Holders of the Warrants. SECTION 25. COUNTERPARTS. This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. SECTION 26. CAPTIONS. The captions of the Sections and subsections of this Agreement have been inserted for convenience only and shall have no substantive effect. - 22 - 24 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed, all as of the day and year first above written. AMERICAN EAGLE GROUP, INC. By: M. Philip Guthrie -------------------------------- Title: Chairman of the Board, CEO and President ---------------------------- [SEAL] Attest: Frederick G. Anderson - --------------------------------------- Title: Senior Vice President/General Counsel of Secretary -------------------------------- AMERICAN FINANCIAL GROUP, INC., By: Carl H. Lendner ------------------------------ Title: Co-President ---------------------------- [SEAL] Attest: Karl J. Grafe - --------------------------------------- Title: Assistant Secretary -------------------------------- - 23 - 25 EXHIBIT A TO THE WARRANT SUBSCRIPTION AGREEMENT VOID AFTER 5:00 P.M. NEW YORK TIME, NOVEMBER 4, 2003 No. Warrants to Purchase 800,000 Shares of Common Stock AMERICAN EAGLE GROUP, INC. WARRANT TO PURCHASE COMMON STOCK This certifies that, for value received, American Financial Group, Inc. or registered assigns (the "Holder"), is entitled to purchase from American Eagle Group, Inc., a Delaware corporation (the "Company") , at any time after the date and for the term set forth in Section 5.1 of the Warrant Subscription Agreement referred to below, at the purchase price of $3.45 per share (the "Warrant Price"), the number of shares of Common Stock, $.01 par value per share, of the Company ("Common Stock"), shown above. The number of warrants, the number of shares purchasable upon exercise of the Warrants and the Warrant Price are subject to adjustment from time to time as set forth in the Warrant Subscription Agreement referred to below. Warrants may be exercised in whole or in part by presentation of this Warrant Certificate with the Purchase Form on the reverse side hereof duly executed, which signature shall be guaranteed by a bank or trust company or a broker or dealer which is a member of the National Association of Securities Dealers, Inc., and simultaneous payment of the Warrant Price at the principal office of American Eagle Group, Inc. (the "Warrant Agent"). Payment of such price shall be made at the option of the Holder hereof in cash, by certified or bank cashier's check drawn upon a bank chartered by the government of the United States or any state thereof, by surrender of outstanding Company debt at its face value (with no regard to accrued interest) or any combination thereof. This Warrant Certificate is issued under and in accordance with a Warrant Subscription Agreement dated as of November 5, 1996, between the Company and the Warrant Agent and is subject to the terms and provisions contained in the Warrant Subscription Agreement, to all of which the Holder of this Warrant Certificate by acceptance - 24 - 26 hereof consents. A copy of the Warrant Subscription Agreement may be obtained by the Holder hereof upon written request to the Company. Upon any partial exercise of the Warrants evidenced by this Warrant Certificate, there shall be countersigned and issued to the Holder hereof a new Warrant Certificate for the shares of Common Stock as to which the Warrants evidenced by this Warrant Certificate shall not have been exercised. This Warrant Certificate may be exchanged at the office of the Warrant Agent by surrender of this Warrant Certificate properly endorsed either separately or in combination with one or more other Warrant Certificates for one or more new Warrant Certificates evidencing the right of the Holder thereof to purchase the same aggregate number of shares as were purchasable on exercise of the Warrants evidenced by the Warrant Certificate or Certificates exchanged. No fractional shares will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Subscription Agreement. This Warrant Certificate is transferable at the office of the Warrant Agent in the manner and subject to the limitations set forth in the Warrant Subscription Agreement. The Holder hereof may be treated by the Company, the Warrant Agent, and all other persons dealing with this Warrant Certificate as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding, and until such transfer on such books, the Company may treat the Holder hereof as the owner for all purposes. Neither the Warrants nor this Warrant Certificate entitle any Holder hereof to any of the rights of a stockholder of the Company. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] - 25 - 27 This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. DATED: COUNTERSIGNED: AMERICAN EAGLE GROUP, INC. as Warrant Agent By: --------------------------------- AMERICAN EAGLE GROUP, INC. Attest: By: ----------------------------- -------------------------------- Secretary Name: ------------------------------ Title: ----------------------------- - 26 - 28 AMERICAN EAGLE GROUP, INC. PURCHASE FORM (To be executed upon exercise of Warrant) Warrant Agent The undersigned hereby irrevocably elects to exercise the right to purchase _______________ shares of Common Stock evidenced by the within Warrant Certificate, according to the terms and conditions thereof, and herewith makes payment of the purchase price in full by tendering cash or certified or bank cashier's check drawn upon a bank chartered by the government of the United States or any state thereof or debt of the Company at its principal amount in the aggregate amount of $__________________________. The undersigned requests that certificates for such shares of Common Stock shall be issued in the name of - -------------------------------------------------------------------------------- (Please print Name, Address and Social Security No.) - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- and, if said number of shares shall not be all the shares purchasable thereunder, that a New Warrant Certificate for the balance remaining of the shares purchasable under the within Warrant Certificate be issued in the name of the undersigned Warrantholder or his Assignee as below indicated and delivered to the address stated below. DATED: , 1996 --------------- Name of Warrantholder or Assignee: -------------------------------------------------------- (Please Print) Address: --------------------------------------- --------------------------------------- Signature: ------------------------------------- Signature Guaranteed: (The above signature must correspond with the name as written upon the face of this Warrant Certificate in every particular, without alteration or enlargement or any change whatever, unless this Warrant Certificate has been assigned.) EX-10.45 7 WARRANT TO PURCHASE COMMON STOCK 1 EXHIBIT 10.45 VOID AFTER 5:00 P.M. NEW YORK TIME, NOVEMBER 4, 2003 No. Warrants to Purchase 800,000 Shares of Common Stock AMERICAN EAGLE GROUP, INC. WARRANT TO PURCHASE COMMON STOCK This certifies that, for value received, American Financial Group, Inc. or registered assigns (the "Holder"), is entitled to purchase from American Eagle Group, Inc., a Delaware corporation (the "Company") , at any time after the date and for the term set forth in Section 5.1 of the Warrant Subscription Agreement referred to below, at the purchase price of $3.45 per share (the "Warrant Price"), the number of shares of Common Stock, $.01 par value per share, of the Company ("Common Stock"), shown above. The number of warrants, the number of shares purchasable upon exercise of the Warrants and the Warrant Price are subject to adjustment from time to time as set forth in the Warrant Subscription Agreement referred to below. Warrants may be exercised in whole or in part by presentation of this Warrant Certificate with the Purchase Form on the reverse side hereof duly executed, which signature shall be guaranteed by a bank or trust company or a broker or dealer which is a member of the National Association of Securities Dealers, Inc., and simultaneous payment of the Warrant Price at the principal office of American Eagle Group, Inc. (the "Warrant Agent"). Payment of such price shall be made at the option of the Holder hereof in cash, by certified or bank cashier's check drawn upon a bank chartered by the government of the United States or any state thereof, by surrender of outstanding Company debt at its face value (with no regard to accrued interest) or any combination thereof. This Warrant Certificate is issued under and in accordance with a Warrant Subscription Agreement dated as of November 5, 1996, between the Company and the Warrant Agent and is subject to the terms and provisions contained in the Warrant Subscription Agreement, to all of which the Holder of this Warrant Certificate by acceptance hereof consents. A copy of the Warrant Subscription Agreement may be obtained by the Holder hereof upon written request to the Company. Upon any partial exercise of the Warrants evidenced by this Warrant Certificate, there shall be countersigned and issued to the Holder hereof a new Warrant Certificate for the shares of Common Stock as to which the Warrants evidenced by this Warrant Certificate shall not have been exercised. This Warrant Certificate may be exchanged at the office of the Warrant Agent by surrender of this Warrant Certificate properly 2 endorsed either separately or in combination with one or more other Warrant Certificates for one or more new Warrant Certificates evidencing the right of the Holder thereof to purchase the same aggregate number of shares as were purchasable on exercise of the Warrants evidenced by the Warrant Certificate or Certificates exchanged. No fractional shares will be issued upon the exercise of any Warrant, but the Company will pay the cash value thereof determined as provided in the Warrant Subscription Agreement. This Warrant Certificate is transferable at the office of the Warrant Agent in the manner and subject to the limitations set forth in the Warrant Subscription Agreement. The Holder hereof may be treated by the Company, the Warrant Agent, and all other persons dealing with this Warrant Certificate as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding, and until such transfer on such books, the Company may treat the Holder hereof as the owner for all purposes. Neither the Warrants nor this Warrant Certificate entitle any Holder hereof to any of the rights of a stockholder of the Company. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] - 2 - 3 This Warrant Certificate shall not be valid or obligatory for any purpose until it shall have been countersigned by the Warrant Agent. DATED: COUNTERSIGNED: AMERICAN EAGLE GROUP, INC. as Warrant Agent By: M. Philip Guthrie --------------------------------- AMERICAN EAGLE GROUP, INC. Attest: Frederick G. Anderson By: M. Philip Guthrie ----------------------------- -------------------------------- Secretary Name: M. Philip Guthrie ------------------------------ Title: Chairman, CEO and President ----------------------------- - 3 - EX-10.46 8 SPECIAL UNDERLYING LOSS REINSURANCE AGREEMENT 1 EXHIBIT 10.46 AMERICAN EAGLE GROUP AMERICAN EAGLE INSURANCE COMPANY SPECIAL UNDERLYING GENERAL AVIATION LIABILITY EXCESS OF LOSS REINSURANCE AGREEMENT 1996 RENEWAL FINAL PLACEMENT SLIP COMPANY: AMERICAN EAGLE INSURANCE COMPANY a Texas corporation and any company now or hereafter affiliated with American Eagle Group, Inc. and/or VIRGINIA SURETY COMPANY, INC. an Illinois Corporation (as respects business underwritten by American Eagle Group, Inc., and any subsidiaries of American Eagle Group, Inc.) and/or THE REINSURANCE CORPORATION OF NEW YORK a New York corporation (as respects business underwritten by American Eagle Group, Inc., and any subsidiaries of American Eagle Group, Inc.) and/or ZURICH REINSURANCE CENTRE, INC. a New York corporation (as respects business underwritten by American Eagle Group, Inc., and any subsidiaries of American Eagle Group, Inc.) and/or TIG INSURANCE COMPANY a California corporation (as respects business underwritten by American Eagle Group, Inc., and any subsidiaries of American Eagle Group, Inc.)
Page --1 of 10-- 2 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL INCEPTION: 12:01 a.m. standard time (as defined in the Company's policies), July 1, 1994, as respects written and renewal business. EFFECTIVE: Continuous and to take effect 12:01 a.m. standard time, July 1, 1996, as respects written and renewal business. CANCELLATION: Any July 1 by either party via 90 days prior notice by certified or registered mail. If at any time the Company or any Reinsurer loses the whole or part of its paid up capital, becomes insolvent, is placed in conservation, rehabilitation, or liquidation, or has a receiver appointed, or is acquired or controlled by, merged with, or reinsures its entire business with any other company or corporation, the other party will have the right to cancel this reinsurance by giving 90 days notice by certified or registered mail. In the event of cancellation, the Company will have the option of terminating Reinsurers' liability in force at cancellation date ("cut-off"), or of continuing Reinsurers' liability ("run-off"). In the event the Company elects run-off, Reinsurers' liability will continue until the first anniversary date following cancellation, but in no event will Reinsurers' liability continue for more than 12 months plus odd time, not to exceed 18 months in all. Premium to Reinsurers for the run-off period calculated at the rates applicable at cancellation date, applied to the GNEP developed during the run-off period on risks protected hereunder. Regardless of the cancellation option elected by the Company, coverage to continue: 1. As respects any policy the Company is unable to cancel due to regulatory action, until the Company is able to cancel or non-renew such policy.
Page --2 of 10-- 3 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL 2. As respects aggregate coverage provided by this Agreement, until the next normal anniversary or renewal date of the policies following cancellation date of this Agreement. BUSINESS All business classified by the Company as General Aviation Liability. COVERED: EXCLUSIONS: As attached. TERRITORY: To follow the Company's policies. LIMIT AND $300,000 each and every risk, each and every occurrence, excess of RETENTION: $200,000 each and every risk, each and every occurrence, in turn excess of an annual aggregate deductible of $3,000,000, or an amount equal to 5.45% of GNEP, whichever the greater. The definition of "occurrence" will follow the Company's policy. Reinsurers' limit and Company's retention to apply on an aggregate loss basis where the Company's policies provide such aggregate limits for the hazards of Products and Completed Operations only. Company will be the sole judge of what constitutes one risk. Any such determination shall be made by the Company with utmost good faith, giving due consideration to the interest of the Company and the Reinsurer. LOSS Prorated in proportion to each party's share of loss and in addition to EXPENSE: limit hereof except where the Company's policy includes all loss expenses within the policy limits.
Page --3 of 10-- 4 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL WARRANTY: No more than [BLACKOUT] helicopters in total, to be subject to this Agreement, or so deemed. REIN- Unlimited free reinstatements. However, helicopter losses will be STATEMENT: limited to [BLACKOUT] or [BLACKOUT] of GNEP whichever the greater for each Agreement Year. PREMIUM, Retrospectively rated (three-year blocks): REPORTS AND REMITTANCES: 1. Annual Deposit Premium: [BLACKOUT], payable [BLACKOUT] in equal installments quarterly in arrears. 2. Ceding Commission: [BLACKOUT] of deposit premium only (no ceding commission to be taken or returned on retrospective premium adjustment). 3. Retrospective Premium Adjustment: Ultimate reinsurance premium to be based on the sum of the incurred losses plus [BLACKOUT] of GNEP, subject, however, to the following: Provisional Rate: [BLACKOUT] of GNEP Minimum Rate: [BLACKOUT] of GNEP Maximum Rate: [BLACKOUT] of GNEP 4. This is the third year of a three-year retrospective rating block which incepted July 1, 1994, with cumulative interim adjustments annually beginning July 1, 1995, for the first Agreement Year, and annually thereafter until all losses for the three-year block are closed. However, there shall be no return premium due (i.e., no adjustment of premium below the provisional rate) prior to 48 months from the inception of each three-year block. 5. Retrospective adjustments to be made within 60 days after the end of each Agreement year, and recalculated annually thereafter until all losses are settled.
SUBJECT TO A REQUEST FOR CONFIDENTIAL TREATMENT Page --4 of 10-- 5 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL DEFINITION "Agreement Year" will be the 12-month period beginning each OF July 1, and will include all premiums earned and losses incurred AGREEMENT arising from written and renewal policies taking effect during the YEAR: Agreement year in question. OTHER Company permitted to purchase facultative and other treaty REINSURANCE: reinsurance and to deduct the premium thereof if it inures to the benefit of this Agreement. Company permitted to carry contingency reinsurance, recoveries under which will inure to its sole benefit. FUNDING: Letters of Credit and/or Trust Agreements required from unauthorized Reinsurers for outstanding losses and expenses, recoverables, and IBNR. AGENCY: For all purposes of this Agreement, the reinsured company that is set forth first in the "COMPANY" section of this Placement Slip will be deemed the agent of all other reinsured companies referenced in said section. In no event, however, will any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article. ORIGINAL The liability of the Reinsurers under each and every policy covered CONDITIONS under this Agreement will be subject in all respects to the same AND LIABILITY interpretations, terms, conditions, waivers, modifications, OF REINSURERS: alterations, and cancellations as the respective policies of the Company to which this Agreement relates. The Company will be the sole judge as to what will constitute a claim or loss covered under the Company's policy and as to the Company's liability thereunder, and will at its sole discretion adjust, settle, or compromise all claims and losses. All such adjustments, settlements, and compromises will be binding on the Reinsurers in proportion to their participation, provided they are within the terms and conditions of this Agreement. Ex Gratia payments made by the Company will be included in this Agreement subject to the approval of the Lead Reinsurer.
Page --5 of 10-- 6 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL While the Reinsurers do not have the duty to investigate or defend claims or suits, they will nevertheless have the right and the opportunity, with the full cooperation of the Company, to associate with the Company at the Reinsurers' expense in the defense of any claim, suit, or proceeding that is likely to involve this Agreement. OTHER Access to Records Clause PROVISIONS: Amendments Clause Aon Re Inc. Intermediary Clause Arbitration Clause Aviation Grounding Liability Clause (1988 Amendment) Currency Clause (U.S. Dollars) Delays, Errors, or Omissions Clause Entire Agreement Clause Extra Contractual Obligations (90%) and Excess of Policy Limits (90%) Clause Insolvency Clause (as attached) Loss and Loss Expense Clause (including the Company's own costs and legal expenses incurred in direct connection with costs of declaratory judgment actions) Net Retained Liability Clause Loss Notices and Settlements Clause Offset Clause Service of Suit Clause Taxes/FET Clauses ESTIMATED SUBJECT GNEP: [BLACKOUT] (Liability only) * * * * *
Page --6 of 10-- 7 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL In accordance with your instructions, we have placed reinsurance with the Reinsurer listed hereon, subject to the terms and conditions hereinabove stated. We ask that you promptly advise us if the terms, conditions, or Reinsurer vary in any respect from your instructions. Aon Re Inc. will not be responsible for the financial or other obligations of any Reinsurer. Should you desire financial information regarding the Reinsurer listed hereon, please contact us and we will furnish it. The Reinsurer's obligations under this Agreement are several and not joint and are limited solely to the extent of their individual participation. The Reinsurer is not responsible for the participation of any co-subscribing Reinsurer that for any reason does not satisfy all or part of its obligations.
REINSURED WITH: % PARTICIPATION --------------- Zurich Reinsurance Centre, Inc. {06-1325038} [BLACKOUT] TOTAL PLACEMENT [BLACKOUT] ==========
Assuming that you find everything in order, please indicate your acceptance and approval by signing and returning this Final Placement Slip to Aon Re Inc., 201 California Street, Suite 900, San Francisco, California 94111. ACCEPTED AND APPROVED BY: /s/ PHILIP GUTHRIE DATED: 8/9/96 ------------------------------ ---------------------- Page --7 of 10-- 8 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL EXCLUSION LIST No reinsurance indemnity will be afforded under this Agreement for: A. Aircraft policies covering aircraft with more than 40 passenger seats, operated by the policy named insured for the commercial transportation of passengers. B. Satellite Business. C. Assumed treaty reinsurance, except as respects intracompany reinsurance, and not to exclude business assumed from another insurer where said insurer's policy is issued in place of the Company's because of licensing or rating reasons. D. Residual Value Insurance. E. Unearned Premium Insurance, written as such. F. Burning Cost Insurance and Profit Commissions. G. Financial Guarantee. H. Errors and Omissions Insurance, written as such. I. Directors' and Officers' Liability. J. Seepage and Pollution, per Clause AVN46B or its equivalent. Nevertheless, for the purposes of this Agreement, it is agreed that in respect of Aviation fueling, defueling, refueling, and products legal liability policies, paragraph 1(b) of Clause AVN46B or its equivalent is amended to read "Pollution and contamination of any kind whatsoever other than pollution and contamination of a product or products sold or supplied." K. Hot Air Balloon Liability. Page --8 of 10-- 9 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL Notwithstanding the foregoing, any Exclusion (other than Exclusions A, C, and J) will not apply when the operations or exposures outlined in those exclusions are, in the Company's opinion, only incidental to and a comparatively small part of the original insured's major activities or total operations not to exceed 15% of the original policy premium. Furthermore, should the judicial entity having legal jurisdiction invalidate any exclusion of the Company's policy, any amount of loss for which the Company would not be liable except for such invalidation shall not be subject to any of the Exclusions of this Agreement. Should the Company, by reason of an inadvertent act, error, or omission, be bound to afford coverage excluded hereunder, or should an existing insured extend its operations to include coverage excluded hereunder, the Reinsurers will waive the exclusion(s) with the exception of A, C, and J. The duration of said waiver will not extend beyond the time that notice of such coverage has been received by the responsible underwriting authority of the Company plus 60 days thereafter. The Company may submit to the Reinsurers, for special acceptance hereunder, business not covered by this Agreement. If said business is accepted by the Reinsurers, it will be subject to the terms of this agreement, except as such terms are modified by such acceptance. Any special acceptance business covered under the reinsurance Agreement being replaced by this Agreement will be automatically covered hereunder. Further, should Reinsurers become a party to this Agreement subsequent to the acceptance of any business not normally covered hereunder, they will automatically accept same as being a part of this Agreement. Page --9 of 10-- 10 AMERICAN EAGLE INSURANCE COMPANY SPECIAL U/L AVIATION LIABILITY XOL INSOLVENCY In the event of the insolvency of the Company, this reinsurance will be payable on demand, with reasonable provision for verification, on the basis of claims allowed against the insolvent Company by any court of competent jurisdiction or by any liquidator, receiver, or statutory successor of the Company having authority to allow such claims, without diminution because of such insolvency or because such liquidator, receiver, or statutory successor has failed to pay all or a portion of any claims. Such payments by the Reinsurers will be made directly to the Company or its liquidator, receiver, or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (a) where the Agreement specifically provides another payee of such reinsurance in the event of the insolvency of the Company, or (b) the Reinsurers with the consent of the direct insured or insureds have assumed such policy obligations of the Company as direct obligations of the Reinsurers to the payees under such policies and in substitution for the obligations of the Company to such payees. It is agreed, however, that the liquidator, receiver, or statutory successor of the insolvent Company will give written notice to the Reinsurers of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurers within a reasonable time after which claim is filed in the insolvency proceeding, and that during the pendency of such claim, the Reinsurers may investigate such claim and interpose, at their own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that they may deem available to the Company or its liquidator, receiver, or statutory successor. The expense, thus incurred by the Reinsurers will be chargeable, subject to the approval of the court, against the Company as part of the expense of liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurers. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense will be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the insolvent Company. This Article will apply severally to each Company named in the Preamble to this Agreement. Notwithstanding the foregoing, the American Eagle Insurance Company (hereinafter called "AEIC") has entered into agreements with The Reinsurance Corporation of New York (hereinafter called "RECO") and Zurich Reinsurance Centre (hereinafter called "ZRC") where the AEIC will attach Assumption of Liability Endorsements to certain policies within the scope of this Agreement, under which RECO or ZRC will assume the direct policy obligations of the AEIC to certain insureds (as payees of RECO or ZRC) upon the AEIC's insolvency. In such event, RECO or ZRC, as the case may be, is considered the payee of the Reinsurers under this Agreement and payment to RECO or ZRC under this Agreement will extinguish the Reinsurers' liability hereunder to the extent of such payment. In no event will the Reinsurers be subject to multiple liability for any loss or expense payable under this Agreement. Any amount paid by the Reinsurers to RECO or ZRC will be deemed as payment by the Reinsurers under this Agreement and will not be recoverable from the Reinsurers under this Agreement by the AEIC or its liquidator, receiver, or statutory successor. Page -10 of 10-- EX-10.47 9 1ST-5TH GEN. AVIATION LIABILITY EXCESS OF LOSS 1 EXHIBIT 10.47 AMERICAN EAGLE GROUP AMERICAN EAGLE INSURANCE COMPANY FIRST THROUGH FIFTH GENERAL AVIATION LIABILITY EXCESS OF LOSS REINSURANCE AGREEMENT 1996 RENEWAL FINAL PLACEMENT SLIP --------------------------------- COMPANY: AMERICAN EAGLE INSURANCE COMPANY Texas corporation and any company now or hereafter affiliated with American Eagle Group, Inc. and/or VIRGINIA SURETY COMPANY, INC. an Illinois corporation (as respects business underwritten by American Eagle Group, Inc., and any subsidiaries of American Eagle Group, Inc.) and/or REINSURANCE CORPORATION OF NEW YORK (THE) a New York corporation (as respects business underwritten by American Eagle Group, Inc., and any subsidiaries of American Eagle Group, Inc.) and/or ZURICH REINSURANCE CENTRE, INC. a New York corporation (as respects business underwritten by American Eagle Group, Inc., and any subsidiaries of American Eagle Group, Inc.) and/or TIG INSURANCE COMPANY a California corporation (as respects business underwritten by American Eagle Group, Inc., and any subsidiaries of American Eagle Group, Inc.)
Page --1 of 14-- 2 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL INCEPTION: 12:01 a.m. Standard Time (as defined in the Company's policies), July 1, 1992, as respects written and renewal business. EFFECTIVE: Continuous and to take effect 12:01 a.m. standard time, July 1, 1996, as respects written and renewal business. CANCELLATION: Any July 1 by either party via 90 days prior notice by certified or registered mail. If at any time the Company or any Reinsurer loses the whole or part of its paid up capital, becomes insolvent, is placed in conservation, rehabilitation, or liquidation, or has a receiver appointed, or is acquired or controlled by, merged with, or reinsures its entire business with any other company or corporation, the other party will have the right to cancel this reinsurance by giving 90 days notice by certified or registered mail. In the event of cancellation, the Company will have the option of terminating Reinsurers' liability in force at cancellation date ("cut-off"), or of continuing Reinsurers' liability ("run-off"). In the event the Company elects cut-off, and the Fourth and/or Fifth Layer for the current Agreement year is not in a deficit position, any minimum premium provision for the Fourth and/or Fifth Layer will be reduced by 40%. In the event the Company elects run-off, Reinsurers' liability will continue until the first anniversary date following cancellation, but in no event will Reinsurers' liability continue for more than 12 months plus odd time, not to exceed 18 months in all. Premium to Reinsurers for the run-off period calculated at the rates applicable at cancellation date, applied to the GNEP developed during the run-off period on risks protected hereunder.
Page --2 of 14-- 3 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL Regardless of the cancellation option elected by the Company, coverage to continue: 1. As respects any policy the Company is unable to cancel due to regulatory action, until the Company is able to cancel or non-renew said policy. 2. As respects aggregate coverage provided by this Agreement, until the next normal anniversary or renewal date of the policies following cancellation date of this Agreement. BUSINESS COVERED: All business classified by the Company as General Aviation Liability EXCLUSIONS: As attached. TERRITORY: To follow the Company's policies. LIMIT AND First Layer: RETENTION: ------------ $500,000 each and every risk, each and every occurrence, excess of $500,000 each and every risk, each and every occurrence, in turn excess of an annual aggregate deductible of $5,000,000 or 9.09% GNEP, whichever is greater. Second Layer: ------------- $1,000,000 each and every risk, each and every occurrence, excess of $1,000,000 each and every risk, each and every occurrence, in turn excess of an annual aggregate deductible of $2,000,000 or 3.64% of GNEP, whichever is greater.
Page --3 of 14-- 4 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL Third Layer: ------------ $3,000,000 each and every risk, each and every occurrence, excess of $2,000,000 each and every risk, each and every occurrence, in turn excess of an annual agregate deductible of $3,000,000 or 5.45% of GNEP, whichever is greater. Fourth Layer: ------------- $5,000,000 each and every risk, each and every occurrence, excess of $5,000,000 each and every risk, each and every occurrence. Fifth Layer: ------------ $10,000,000 each and every risk, each and every occurrence, excess of $10,000,000 each and every risk, each and every occurrence. Applying to All Layers ---------------------- The definition of "occurrence" will follow the Company's policy. Reinsurers' limit and Company's retention to apply on an aggregate loss basis where the Company's policies provide such aggregate limits for the hazards of Products and Completed Operations only. Company will be the sole judge of what constitutes one risk. Any such determination shall be made by the Company with utmost good faith, giving due consideration to the interest of the Company and the Reinsurers. LOSS Prorated in proportion to each party's share of loss and in addition to EXPENSE: limit hereof except where the Company's policy includes all loss expenses within the policy limits.
Page --4 of 14-- 5 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL WARRANTY: No more than [BLACKOUT] helicopters in total, to be subject to this Agreement, or so deemed. REIN- First Layer: STATEMENT: ------------ Unlimited free reinstatements. However, helicopter losses will be limited to [BLACKOUT] or [BLACKOUT] of GNEP whichever the greater for each Agreement Year. Second Layer: ------------- Unlimited free reinstatements. However, helicopter losses will be limited to [BLACKOUT] or [BLACKOUT] of GNEP whichever the greater for each Agreement Year. Third Layer: ------------ Seven full, free, annual reinstatements. Fourth Layer: ------------- Two full annual reinstatements, each at additional premium, [BLACKOUT] as to time, pro rata as to amount. Fifth Layer: ------------ Two full annual reinstatements, each at additional premium, [BLACKOUT] as to time, pro rata as to amount. PREMIUM, First Layer: REPORTS, AND ------------ REMITTANCES: Retrospectively rated (three-year blocks): 1. Annual Deposit Premium: [BLACKOUT] payable in equal installments of [BLACKOUT] quarterly in arrears.
Page --5 of 14-- 6 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL 2. Ceding Commission: [BLACKOUT] of deposit premium only (no ceding commission to be taken or returned on retrospective premium adjustment). 3. Retrospective Premium Adjustment: Ultimate reinsurance premium to be based on the sum of the incurred losses multiplied by [BLACKOUT], subject, however, to the following: Provisional Rate: [BLACKOUT] of GNEP Minimum Rate: [BLACKOUT] of GNEP Maximum Rate: [BLACKOUT] of GNEP 4. This is the third year of a three-year retrospective rating block which incepted July 1, 1994, with cumulative interim adjustments annually beginning July 1, 1995, for the first Agreement Year, and annually thereafter until all losses for the three-year block are closed. However, there shall be no return premium due (i.e., no adjustment of premium below the provisional rate) prior to 48 months from the inception of each three-year block. 5. Retrospective adjustments to be made within 60 days after the end of each Agreement year, and recalculated annually thereafter until all losses are settled. Second Layer: ------------- Retrospectively rated (three-year blocks): 1. Annual Deposit Premium: [BLACKOUT] payable in equal installments of [BLACKOUT] quarterly in arrears.
Page --6 of 14-- 7 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL 2. Retrospective Premium Adjustment: Ultimate reinsurance premium to be based on the sum of the incurred losses multiplied by [BLACKOUT]; subject, however, to the following: Provisional Rate: [BLACKOUT] of GNEP Minimum Rate: [BLACKOUT] of GNEP Maximum Rate: [BLACKOUT] of GNEP 3. This is the third year of a three-year retrospective rating block which incepted July 1, 1994, with cumulative interim adjustments annually beginning July 1, 1995, for the first Agreement Year, and annually thereafter until all losses for the three-year block are closed. However, there shall be no return premium due (i.e., no adjustment of premium below the provisional rate) prior to 48 months from the inception of each three-year block. 4. Retrospective adjustments to be made within 60 days after the end of each Agreement year, and recalculated annually thereafter until all losses are settled. Third Layer: ------------ Retrospectively rated (three year-block): 1. Annual Minimum and Deposit Premium: [BLACKOUT], payable in equal installments of [BLACKOUT] quarterly in arrears. 2. Retrospective Premium Adjustment: Ultimate reinsurance premium to be based on the sum of the incurred losses multiplied by [BLACKOUT]; subject, however, to the following: Provisional Rate: [BLACKOUT] of GNEP Minimum Rate: [BLACKOUT] of GNEP Maximum Rate: [BLACKOUT] of GNEP
Page --7 of 14-- 8 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL 3. This is the third year of a three-year retrospective rating block which incepted July 1, 1994, with cumulative interim adjustments annually beginning July 1, 1995, for the first Agreement Year, and annually thereafter until all losses for the three-year block are closed. However, there shall be no return premium due (i.e., no adjustment of premium below the provisional rate) prior to 48 months from the inception of each three-year block. 4. Retrospective adjustments to be made within 60 days after the end of each Agreement year, and recalculated annually thereafter until all losses are settled. Fourth Layer: ------------- 1. Minimum and Deposit Premium for the Agreement Year beginning July 1, 1996: [BLACKOUT] payable in six equal installments of [BLACKOUT] at July 1, 1996, October 1, 1996, January 1, 1997, April 1, 1997, July 1, 1997, and October 1, 1997. Minimum and deposit premiums for subsequent Agreement Years are to be determined. 2. Rate: [BLACKOUT] of GNEP. 3. First adjustment due within 150 days after the end of each Agreement year, and adjusted at each July 1 thereafter, until all premiums are earned. 4. In the event of a total paid loss to this layer, the full deposit premium will immediately become due and payable. Fifth Layer: ------------ 1. Minimum and Deposit Premium for the Agreement year beginning July 1, 1996: [BLACKOUT] payable in four equal installments of [BLACKOUT] at July 1, 1996, October 1, 1996, January 1, 1997, and April 1, 1997. Minimum and deposit premiums for subsequent agreement years are to be determined.
Page --8 of 14-- 9 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL 2. Rate: [BLACKOUT] of GNEP. 3. First adjustment due within 60 days after the end of each Agreement year, and adjusted annually thereafter, until all premiums are earned. All Layers: ----------- Quarterly reports of information required by reinsurers for completion of their NAIC statements. DEFINITION "Agreement year" will be each 12-month period beginning each OF July 1, and will include all premiums earned and losses incurred AGREEMENT arising from written and renewal policies taking effect during the YEAR Agreement year in question. OTHER Company permitted to purchase facultative and other treaty REINSURANCE: reinsurance and to deduct the premium thereof if it inures to the benefit of this Agreement. Company permitted to carry contingency reinsurance, recoveries under which will inure to its sole benefit. FUNDING: Letters of Credit and/or Trust Agreements required from unauthorized Reinsurers for outstanding losses and expenses, recoverables, and IBNR. AGENCY: For all purposes of this Agreement, the reinsured company that is set forth first in the "COMPANY" section of this Placement Slip will be deemed the agent of all other reinsured companies referenced in said section. In no event, however, will any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article.
Page --9 of 14-- 10 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL ORIGINAL The liability of the Reinsurers under each and every policy covered CONDITIONS under this Agreement will be subject in all respects to the same AND LIABILITY interpretations, terms, conditions, waivers, modifications, alterations, OF REINSURERS: and cancellations as the respective policies of the Company to which this Agreement relates. The Company will be the sole judge as to what will constitute a claim or loss covered under the Company's policy and as to the Company's liability thereunder, and will at its sole discretion adjust, settle, or compromise all claims and losses. All such adjustments, settlements, and compromises will be binding on the Reinsurers in proportion to their participation, provided they are within the terms and conditions of this Agreement. Ex Gratia payments made by the Company will be included in this Agreement subject to the approval of the Lead Reinsurer. While the Reinsurers do not have the duty to investigate or defend claims or suits, they will nevertheless have the right and the opportunity, with the full cooperation of the Company, to associate with the Company at the Reinsurers' expense in the defense of any claim, suit, or proceeding that is likely to involve this Agreement. OTHER Access to Records Clause PROVISIONS: Amendments Clause Aon Re Inc. Intermediary Clause Arbitration Clause Aviation Grounding Liability Clause (1988 Amendment) Currency Clause (U.S. Dollars) Entire Agreement Clause Extra Contractual Obligations (90%) Clause Excess of Policy Limits (90%) Clause Delays, Errors, or Omissions Clause Insolvency Clause (as attached) Loss and Loss Expense Clause (including the Company's own costs and legal expenses incurred in direct connection with costs of declaratory judgment actions) Net Retained Liability Clause Loss Notices and Settlements Clause Offset Clause (domestic reinsurers only) Service of Suit Clause Taxes/FET Clauses
Page --10 of 14-- 11 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL ESTIMATED SUBJECT GNEP: [BLACKOUT] (Liability only) * * * * * * * *
In accordance with your instructions, we have placed reinsurance with the Reinsurers listed hereon, subject to the terms and conditions hereinabove stated. We ask that you promptly advise us if the terms, conditions, or Reinsurers vary in any respect from your instructions. Aon Re Inc. will not be responsible for the financial or other obligations of any Reinsurer. Should you desire financial information regarding the Reinsurers listed hereon, please contact us and we will furnish it. The Reinsurers' obligations under this Agreement are several and not joint and are limited solely to the extent of their individual participation. The Reinsurers are not responsible for the participation of any co-subscribing Reinsurer that for any reason does not satisfy all or part of its obligations.
First Second Third Fourth Fifth Reinsured with: Layer Layer Layer Layer Layer ----- ------ ----- ------ ----- DOMESTIC COMPANIES Chartwell Reinsurance Company {41-1353943} [BLACKOUT] Through F & G Re Inc. United States Fidelity and Guaranty Company {52-0515280} [BLACKOUT] Security Insurance Company of Hartford {06-0529570} [BLACKOUT] Signet Star Reinsurance Company {47-0574325} [BLACKOUT] Transatlantic Reinsurance Company {13-5616275} [BLACKOUT] USF Re Insurance Company {04-1590940} [BLACKOUT] Zurich Reinsurance Centre, Inc. {06-1325038} [BLACKOUT] TOTAL DOMESTIC COMPANIES [BLACKOUT]
Assuming that you find everything in order, please indicate your acceptance and approval by signing and returning this Final Placement Slip to Aon Re Inc., 201 California Street, Suite 900, San Francisco, California 94111. ACCEPTED AND APPROVED BY: /s/ PHILIP GUTHRIE DATED: 8/9/96 --------------------------------- ----------------- Page --11 of 14-- 12 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL EXCLUSION LIST No reinsurance indemnity will be afforded under this Agreement for: A. Aircraft policies covering aircraft with more than 40 passenger seats, operated by the policy named insured for the commercial transportation of passengers. B. Satellite Business. C. Assumed treaty reinsurance, except as respects intracompany reinsurance, and not to exclude business assumed from another insurer where said insurer's policy is issued in place of the Company's because of licensing or rating reasons. D. Residual Value Insurance. E. Unearned Premium Insurance, written as such. F. Burning Cost Insurance and Profit Commissions. G. Financial Guarantee. H. Errors and Omissions Insurance, written as such. I. Directors' and Officers' Liability. J. Seepage and Pollution, per Clause AVN46B or its equivalent. Nevertheless, for the purposes of this Agreement, it is agreed that in respect of Aviation fueling, defueling, refueling, and products legal liability policies, paragraph 1(b) of Clause AVN46B or its equivalent is amended to read "Pollution and contamination of any kind whatsoever other than pollution and contamination of a product or products sold or supplied." K. Hot Air Balloon Liability. Page --12 of 14-- 13 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL Notwithstanding the foregoing, any Exclusion (other than Exclusions A, C, and J) will not apply when the operations or exposures outlined in those exclusions are, in the Company's opinion, only incidental to and a comparatively small part of the original insured's major activities or total operations not to exceed 15% of the original policy premium. Furthermore, should the judicial entity having legal jurisdiction invalidate any exclusion of the Company's policy, any amount of loss for which the Company would not be liable except for such invalidation shall not be subject to any of the Exclusions of this Agreement. Should the Company, by reason of an inadvertent act, error, or omission, be bound to afford coverage excluded hereunder, or should an existing insured extend its operations to include coverage excluded hereunder, the Reinsurers will waive the exclusion(s) with the exception of A, C, and J. The duration of said waiver will not extend beyond the time that notice of such coverage has been received by the responsible underwriting authority of the Company plus 60 days thereafter. The Company may submit to the Reinsurers, for special acceptance hereunder, business not covered by this Agreement. If said business is accepted by the Reinsurers, it will be subject to the terms of this agreement, except as such terms are modified by such acceptance. Any special acceptance business covered under the reinsurance Agreement being replaced by this Agreement will be automatically covered hereunder. Further, should Reinsurers become a party to this Agreement subsequent to the acceptance of any business not normally covered hereunder, they will automatically accept same as being a part of this Agreement. Page --13 of 14-- 14 AMERICAN EAGLE INSURANCE COMPANY 1ST THROUGH 5TH AVIATION LIABILITY XOL INSOLVENCY In the event of the insolvency of the Company, this reinsurance will be payable on demand, with reasonable provision for verification, on the basis of claims allowed against the insolvent Company by any court of competent jurisdiction or by any liquidator, receiver, or statutory successor of the Company having authority to allow such claims, without diminution because of such insolvency or because such liquidator, receiver, or statutory successor has failed to pay all or a portion of any claims. Such payments by the Reinsurers will be made directly to the Company or its liquidator, receiver, or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (a) where the Agreement specifically provides another payee of such reinsurance in the event of the insolvency of the Company, or (b) the Reinsurers with the consent of the direct insured or insureds have assumed such policy obligations of the Company as direct obligations of the Reinsurers to the payees under such policies and in substitution for the obligations of the Company to such payees. It is agreed, however, that the liquidator, receiver, or statutory successor of the insolvent Company will give written notice to the Reinsurers of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurers within a reasonable time after which claim is filed in the insolvency proceeding, and that during the pendency of such claim, the Reinsurers may investigate such claim and interpose, at their own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that they may deem available to the Company or its liquidator, receiver, or statutory successor. The expense, thus incurred by the Reinsurers will be chargeable, subject to the approval of the court, against the Company as part of the expense of liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurers. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense will be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the insolvent Company. This Article will apply severally to each Company named in the Preamble to this Agreement. Notwithstanding the foregoing, the American Eagle Insurance Company (hereinafter called "AEIC") has entered into agreements with The Reinsurance Corporation of New York (hereinafter called "RECO") and Zurich Reinsurance Centre (hereinafter called "ZRC") where the AEIC will attach Assumption of Liability Endorsements to certain policies within the scope of this Agreement, under which RECO or ZRC will assume the direct policy obligations of the AEIC to certain insureds (as payees of RECO or ZRC) upon the AEIC's insolvency. In such event, RECO or ZRC, as the case may be, is considered the payee of the Reinsurers under this Agreement and payment to RECO or ZRC under this Agreement will extinguish the Reinsurers' liability hereunder to the extent of such payment. In no event will the Reinsurers be subject to multiple liability for any loss or expense payable under this Agreement. Any amount paid by the Reinsurers to RECO or ZRC will be deemed as payment by the Reinsurers under this Agreement and will not be recoverable from the Reinsurers under this Agreement by the AEIC or its liquidator, receiver, or statutory successor. Page --14 of 14-- EX-10.48 10 HULL SPECIAL UNDERLYING EXCESS OF LOSS 1 EXHIBIT 10.48 AMERICAN EAGLE GROUP, INC. AMERICAN EAGLE INSURANCE COMPANY GENERAL AVIATION HULL SPECIAL UNDERLYING EXCESS OF LOSS REINSURANCE AGREEMENT 1996 RENEWAL FINAL PLACEMENT SLIP COMPANY: AMERICAN EAGLE INSURANCE COMPANY Texas corporation and/or any company now or hereafter affiliated with American Eagle Group, Inc. and/or VIRGINIA SURETY COMPANY, INC. Illinois corporation (as respects business underwritten by American Eagle Group, Inc. and any subsidiaries of American Eagle Group, Inc.) and/or REINSURANCE CORPORATION OF NEW YORK (THE) a New York corporation (as respects business underwritten by American Eagle Group, Inc. and any subsidiaries of American Eagle Group, Inc.) and/or ZURICH REINSURANCE CENTRE, INC. a New York corporation (as respects business underwritten by American Eagle Group, Inc. and any subsidiaries of American Eagle Group, Inc.) and/or TIG INSURANCE COMPANY a California corporation (as respects business underwritten by American Eagle Group, Inc. and any subsidiaries of American Eagle Group, Inc.) INCEPTION: 12:01 a.m. standard time (as defined in the Company's policies), July 1, 1994, as respects written and renewal business.
Page --1 of 8-- 2 AMERICAN EAGLE INSURANCE COMPANY HULL SPECIAL U/L EXCESS OF LOSS EFFECTIVE: Continuous and to take effect 12:01 a.m. standard time, July 1, 1996, as respects written and renewal business. CANCELLATION: Any July 1 by either party via 90 days prior notice by certified or registered mail. If at any time any Reinsurer loses the whole or part of its paid up capital, becomes insolvent, is placed in conservation, rehabilitation, or liquidation, or has a receiver appointed, or is acquired or controlled by, merged with, or reinsures its entire business with any other company or corporation, the Company will have the right to cancel said Reinsurer's participation by giving 90 days notice by certified or registered mail. In the event of cancellation, the Company will have the option of terminating Reinsurers' liability in force at cancellation date ("cut-off"), or of continuing Reinsurers' liability ("run-off"). In the event the Company elects run-off, Reinsurers' liability will continue until the first anniversary date following cancellation, but in no event will Reinsurers' liability continue for more than 12 months plus odd time not to exceed 18 months in all. Premium to Reinsurers for the run-off period calculated at the rates applicable at cancellation date, applied to the GNEP developed during the run-off period on risks protected hereunder. Regardless of the cancellation option elected by the Company, as respects any policy the Company is unable to cancel due to regulatory action, the Company will be permitted to continue coverage until the Company is able to cancel or non-renew such policy. BUSINESS COVERED: All business classified by the Company as General Aviation Hull and Spares. EXCLUSIONS: As attached. TERRITORY: To follow the Company's policies.
Page --2 of 8-- 3 AMERICAN EAGLE INSURANCE COMPANY HULL SPECIAL U/L EXCESS OF LOSS LIMIT AND RETENTION: $100,000 each and every risk, each and every occurrence, excess of $150,000 each and every risk, each and every occurrence. Subject to an occurrence limitation of $400,000. LOSS EXPENSE: Pro rata in addition to Reinsurers' limit of liability unless loss expense is included within the policy limits. PREMIUM, Retrospectively rated (three-year blocks): REPORTS AND REMITTANCES: 1. Annual Deposit Premium: [BLACKOUT] payable in equal installments of [BLACKOUT] quarterly in arrears. 2. Retrospective Premium Adjustment: Ultimate reinsurance premium to be based on the sum of the incurred losses plus [BLACKOUT] of GNEP, subject, however, to the following: Provisional Rate: [BLACKOUT] of GNEP Minimum Rate: [BLACKOUT] of GNEP Maximum Rate: [BLACKOUT] of GNEP 3. This is the third year of a three-year retrospective rating block which incepted July 1, 1994, with cumulative interim adjustments annually beginning July 1, 1995, for the first Agreement Year, and annually thereafter until all losses for the three-year block are closed. However, there shall be no return premium due (i.e., no adjustment of premium below the provisional rate) prior to 48 months from the inception of each three-year block. 4. Retrospective adjustments to be made within 60 days after the end of each Agreement year, and recalculated annually thereafter until all losses are settled.
Page --3 of 8-- 4 AMERICAN EAGLE INSURANCE COMPANY HULL SPECIAL U/L EXCESS OF LOSS Quarterly reports of information required by reinsurers for completion of their NAIC statements. OTHER The Company is permitted to: REINSURANCE: A. Purchase other treaty reinsurance and to deduct the premium thereof if it inures to the benefit of this Agreement; B. Purchase facultative reinsurance on any subject risk it deems advisable, and the premium for that portion of the Company's policy reinsured elsewhere will be deducted from the gross subject premium hereunder; and C. Carry catastrophe reinsurance, recoveries under which will inure to its sole benefit. FUNDING: Letters of Credit and/or Trust Agreements required from unauthorized Reinsurers for outstanding losses and expenses, recoverables, and IBNR. WARRANTY: The Company will include their Pollution Exclusions on its policies, or so deemed. AGENCY: For all purposes of this Agreement, the reinsured company that is set forth first in the "COMPANY" section of this Placement Slip will be deemed the agent of all other reinsured companies referenced in said section. In no event, however, will any reinsured company be deemed the agent of another with respect to the terms of the Insolvency Article. ORIGINAL The liability of the Reinsurers under each and every policy covered CONDITIONS under this Agreement will be subject in all respects to the same AND interpretations, terms, conditions, waivers, modifications, alterations, LIABILITY OF and cancellations as the respective policies of the Company to which REINSURERS: this Agreement relates.
Page --4 of 8-- 5 AMERICAN EAGLE INSURANCE COMPANY HULL SPECIAL U/L EXCESS OF LOSS The Company will be the sole judge as to what will constitute a claim or loss covered under the Company's policy and as to the Company's liability thereunder, and will at its sole discretion adjust, settle, or compromise all claims and losses. Any such determination shall be made by the Company with utmost good faith giving due consideration to the interests of the Company and the Reinsurers. All such adjustments, settlements, and compromises will be binding on the Reinsurers in proportion to their participation, provided they are within the terms and conditions of this Agreement. Ex-gratia payments made by the Company will be included in this Agreement subject to the approval of the Lead Reinsurer. While the Reinsurers do not have the duty to investigate or defend claims or suits, they will nevertheless have the right and the opportunity, with the full cooperation of the Company, to associate with the Company at the Reinsurers' expense in the defense of any claim, suit, or proceeding that is likely to involve this Agreement. OTHER Access to Records Clause PROVISIONS: Amendments Clause Aon Re Inc. Intermediary Clause Arbitration Clause Currency Clause (U.S. Dollars) Entire Agreement Clause Extra Contractual Obligations (90%) and Excess of Policy Limits (90%) Clause Delays, Errors, or Omissions Clause Insolvency Clause (as attached) Loss and Loss Expense Clause (including the Company's own costs and legal expenses incurred in direct connection with costs of declaratory judgment actions) Loss Notices and Settlements Clause Net Retained Liability Clause Occurrence Definition - As per NMA 2244 Offset Clause Service of Suit Clause Taxes/FET Clauses ESTIMATED [BLACKOUT] SUBJECT GNEP: * * * * *
Page --5 of 8-- 6 AMERICAN EAGLE INSURANCE COMPANY HULL SPECIAL U/L EXCESS OF LOSS In accordance with your instructions, we have placed reinsurance with the Reinsurers listed hereon, subject to the terms and conditions hereinabove stated. We ask that you promptly advise us if the terms, conditions, or Reinsurers vary in any respect from your instructions. Aon Re Inc. will not be responsible for the financial or other obligations of any Reinsurer. Should you desire financial information regarding the Reinsurer listeds hereon, please contact us and we will furnish it. The Reinsurers' obligations under this Agreement are several and not joint and are limited solely to the extent of their individual participations. The Reinsurers are not responsible for the participation of any co-subscribing Reinsurer that for any reason does not satisfy all or part of its obligations.
Reinsured with: % Participation --------------- Zurich Reinsurance Centre, Inc. [BLACKOUT] TOTAL PLACEMENT [BLACKOUT]
Assuming that you find everything in order, please indicate your acceptance and approval by signing and returning this Final Placement Slip to Aon Re Inc., 201 California Street, Suite 900, San Francisco, California 94111. ACCEPTED AND APPROVED BY: /s/ PHILIP GUTHRIE DATED: 8/9/96 -------------------------------- -------------- Page --6 of 8-- 7 AMERICAN EAGLE INSURANCE COMPANY HULL SPECIAL U/L EXCESS OF LOSS EXCLUSION LIST No reinsurance indemnity will be afforded under this Agreement for: A. Hull war business as described in the Common North American Aviation War Exclusion Clause (CNAAWEC) and/or war, hi-jacking and other perils exclusion clause (Aviation) (AVN48B) and/or subsequent like clause, except to include war risks and related perils writebacks as may be included in the Company's policy. B. Aircraft policies covering aircraft with more than 40 passenger seats, operated by the policy named insured for the commercial transportation of passengers. C. Satellite business. D. Assumed treaty reinsurance, except as respects intracompany reinsurance, and not to exclude business assumed from another insurer where said insurer's policy is issued in place of the Company's because of licensing or rating reasons. E. Helicopter hulls, except that the Company may cede up to 5 helicopter hulls to this Agreement each Agreement year. Facultative reinsurance will be purchased to remove any exposure to the Reinsurers from any helicopter hulls written after the foregoing limitation has been exceeded; however, in the event that the Company should discover that facultative reinsurance has not been placed on any such helicopter hull, then this Agreement will cover said risk for 30 days after discovery. Page --7 of 8-- 8 AMERICAN EAGLE INSURANCE COMPANY HULL SPECIAL U/L EXCESS OF LOSS INSOLVENCY In the event of the insolvency of the Company, this reinsurance will be payable on demand, with reasonable provision for verification, on the basis of claims allowed against the insolvent Company by any court of competent jurisdiction or by any liquidator, receiver, or statutory successor of the Company having authority to allow such claims, without diminution because of such insolvency or because such liquidator, receiver, or statutory successor has failed to pay all or a portion of any claims. Such payments by the Reinsurers will be made directly to the Company or its liquidator, receiver, or statutory successor, except as provided by Section 4118(a) of the New York Insurance Law or except (a) where the Agreement specifically provides another payee of such reinsurance in the event of the insolvency of the Company, or (b) the Reinsurers with the consent of the direct insured or insureds have assumed such policy obligations of the Company as direct obligations of the Reinsurers to the payees under such policies and in substitution for the obligations of the Company to such payees. It is agreed, however, that the liquidator, receiver, or statutory successor of the insolvent Company will give written notice to the Reinsurers of the pendency of a claim against the Company indicating the policy or bond reinsured which claim would involve a possible liability on the part of the Reinsurers within a reasonable time after which claim is filed in the insolvency proceeding, and that during the pendency of such claim, the Reinsurers may investigate such claim and interpose, at their own expense, in the proceeding where such claim is to be adjudicated, any defense or defenses that they may deem available to the Company or its liquidator, receiver, or statutory successor. The expense, thus incurred by the Reinsurers will be chargeable, subject to the approval of the court, against the Company as part of the expense of liquidation to the extent of a pro rata share of the benefit which may accrue to the Company solely as a result of the defense undertaken by the Reinsurers. Where two or more Reinsurers are involved in the same claim and a majority in interest elect to interpose defense to such claim, the expense will be apportioned in accordance with the terms of this Agreement as though such expense had been incurred by the insolvent Company. This Article will apply severally to each Company named in the Preamble to this Agreement. Notwithstanding the foregoing, the American Eagle Insurance Company (hereinafter called "AEIC") has entered into agreements with The Reinsurance Corporation of New York (hereinafter called "RECO") and Zurich Reinsurance Centre (hereinafter called "ZRC") where the AEIC will attach Assumption of Liability Endorsements to certain policies within the scope of this Agreement, under which RECO or ZRC will assume the direct policy obligations of the AEIC to certain insureds (as payees of RECO or ZRC) upon the AEIC's insolvency. In such event, RECO or ZRC, as the case may be, is considered the payee of the Reinsurers under this Agreement and payment to RECO or ZRC under this Agreement will extinguish the Reinsurers' liability hereunder to the extent of such payment. In no event will the Reinsurers be subject to multiple liability for any loss or expense payable under this Agreement. Any amount paid by the Reinsurers to RECO or ZRC will be deemed as payment by the Reinsurers under this Agreement and will not be recoverable from the Reinsurers under this Agreement by the AEIC or its liquidator, receiver, or statutory successor. Page --8 of 8-- EX-27 11 FINANCIAL DATA SCHEDULE
7 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM 9/30/95, 12/31/95 AND 8/30/96 CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH 9/30/95, 12/31/95, AND 9/30/96 CONDENSED CONSOLIDATED BALANCE SHEETS AND CONDENSED CONSOLIDATED STATEMENTS OF INCOME. 1,000 9-MOS 9-MOS DEC-31-1996 DEC-31-1995 JAN-01-1996 JAN-01-1995 SEP-30-1996 SEP-30-1995 36,564 58,595 23,530 29,522 23,172 29,061 0 0 0 0 0 0 60,094 88,117 9,084 16,218 87,670 130,187 14,670 18,816 265,310 350,014 123,203 138,190 65,996 78,282 1,180 17,441 751 15,895 13,250 11,250 1,629 1,629 0 0 71 71 47,035 71,234 265,310 350,014 93,965 72,415 3,478 4,161 52 458 172 507 66,255 45,594 36,845 23,614 36,342 29,353 (6,267) 7,600 (1,800) 2,358 (4,467) 5,242 0 0 0 0 0 0 (4,467) 5,242 (0.64) .73 (0.64) .73 57,852 50,451 23,652 13,570 30,271 18,565 32,160 21,562 38,023 42,348 53,923 32,135 (10,442) (10,462)
-----END PRIVACY-ENHANCED MESSAGE-----