-----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, WPPn3klVHSS+yc5I1RXDmLvQG6fb4j8PlcNxdr41TbQ+fkQ71JN0hCmwtAknpQ06 ThbzPoi/4BhkuCp90PfKeA== 0000950134-97-008876.txt : 19971126 0000950134-97-008876.hdr.sgml : 19971126 ACCESSION NUMBER: 0000950134-97-008876 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19971125 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: SEC FILE NUMBER: 001-12922 FILM NUMBER: 97728333 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 06/30/97 1 ================================================================================ SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 --------- FORM 10-Q (Mark One) [X] Quarterly report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended June 30, 1997 or [ ] Transition report pursuant to section 13 or 15(d) of the Securities Exchange Act of 1934 For the Transition period from to --------- ---------- Commission file number 1-12922 AMERICAN EAGLE GROUP, INC. (Exact name of registrant as specified in its charter) Delaware 75-2100622 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 12801 North Central Expressway, Suite 800, Dallas, 75243 Texas (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (214) 448-1400 - -------------------------------------------------------------------------------- (Former name, former address and former fiscal year, if changed since last year.) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No X --- --- APPLICABLE ONLY TO CORPORATE ISSUERS: As of October 31, 1997, the number of shares outstanding of each of the issuer's classes of common stock was as follows: Common Stock........................7,047,098 shares, par value $.01 per share - -------------------------------------------------------------------------------- 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 June 30, 1997 (unaudited) and December 31, 1996 and parent company condensed balance sheet as of June 30, 1997 (unaudited)..................................................... 3 Condensed consolidated statements of operations for the periods ended June 30, 1997 (unaudited) and June 30, 1996 (unaudited)............................ 4 Condensed consolidated statements of cash flows for the periods ended June 30, 1997 (unaudited) and June 30, 1996 (unaudited)............................ 5 Notes to condensed consolidated financial statements (unaudited)............................................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................... 7 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................. 15 SIGNATURES......................................................................... 16
2 3 AMERICAN EAGLE GROUP, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS AND PARENT COMPANY CONDENSED BALANCE SHEET (IN THOUSANDS EXCEPT SHARE DATA)
(Unaudited) Parent Co. ASSETS December 31, June 30, (Unaudited) 1996 1997 June 30, 1997 --------- --------- ------------- Cash and investments $ 89,087 $ 51,724 $ 1,476 Accounts receivable 48,714 39,487 114 Reinsurance recoverable, net 69,242 72,548 Deferred policy acquisition costs 14,509 -0- Deferred reinsurance premiums 26,706 41,061 Other assets 13,701 2,350 --------- --------- --------- Total assets $ 261,959 $ 207,170 $ 1,590 ========= ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Reserve for losses and loss adjustment expenses $ 138,133 $ 133,214 Unearned premiums 60,065 26,764 Other policy liabilities 7,646 35,384 Agency payables to insurance companies 1,094 2,798 Accounts payable and other liabilities 12,732 8,926 $ 1,506 --------- --------- --------- Total liabilities 219,670 207,086 1,506 --------- --------- --------- Commitments and contingent liabilities Series B Cumulative Preferred Stock, $.01 par value; 162,857 shares authorized and outstanding in 1996 and 142,857 shares outstanding in 1997 1,629 1,429 1,429 Series D Cumulative Convertible Redeemable Preferred Stock, $0.01 par value; 546,200 shares authorized, 350,000 shares issued and outstanding at December 31, 1996 33,164 -0- -0- Stockholders' equity: Common Stock, $.01 par value, 21,000,000 shares authorized 7,120,980 shares issued and outstanding 71 71 71 Additional paid-in-capital 45,563 45,563 45,563 Unrealized apprec.(deprec.) on investment securities, net of deferred taxes 106 (241) -0- Retained earnings (38,157) (46,651) (46,892) Less - 73,882 shares of common stock held in the treasury, at cost (87) (87) (87) --------- --------- --------- Total stockholders' equity 7,496 (1,345) (1,345) --------- --------- --------- Total liabilities and stockholders' equity $ 261,959 $ 207,170 $ 1,590 ========= ========= =========
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 Six Months Ended June 30, June 30, June 30, June 30, 1996 1997 1996 1997 ----------- ----------- ----------- ----------- Revenues Earned premiums, net of reinsurance $ 33,497 $ (6,177) $ 66,331 $ 17,629 Agency operations, net (20) 322 (53) 648 Investment income, net 1,044 1,026 2,447 2,304 Realized investment gains (losses), net (55) (106) 98 (164) ----------- ----------- ----------- ----------- Total revenues 34,466 (4,935) 68,823 20,417 ----------- ----------- ----------- ----------- Expenses Losses and loss adjustment expenses, net of reinsurance 21,140 14,344 48,659 34,297 Policy acquisition and other underwriting expenses 13,716 3,288 24,474 14,430 Interest expense 285 -0- 535 -0- ----------- ----------- ----------- ----------- Total expenses 35,141 17,632 73,668 48,727 ----------- ----------- ----------- ----------- Extraordinary gain, net 21,878 21,878 ----------- ----------- ----------- ----------- Income (loss) before income tax expense (675) (689) (4,845) (6,432) Income tax expense (benefit) (119) 1,277 (1,537) 1,277 ----------- ----------- ----------- ----------- Net income (loss) $ (556) $ (1,966) $ (3,308) $ (7,709) =========== =========== =========== =========== Net income (loss) available for common stockholders (1) $ (580) $ (1,970) $ (3,357) $ (8,522) =========== =========== =========== =========== Weighted average number of common shares outstanding 7,049,898 7,047,098 7,050,098 7,047,098 =========== =========== =========== =========== Net income (loss) per share of common stock (1) $ (0.08) $ (0.28) $ (0.48) $ (1.21) =========== =========== =========== ===========
(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 SIX MONTHS ENDED (UNAUDITED) (IN THOUSANDS)
June 30, June 30, 1996 1997 -------- -------- Cash and cash equivalents derived from: Total provided by (used in) operating activities $(22,637) $(45,073) Investing activities- Net proceeds (purchases) of short-term investments 26,688 (1,217) Purchases of fixed income securities (22,677) (15,583) Proceeds from sales of fixed income securities 16,468 33,414 Proceeds from maturities of fixed income securities 1,710 3,065 Purchases (sales) of property and equipment (849) 3,798 -------- -------- Total provided by investing activities 21,340 23,477 -------- -------- Financing activities- Dividends paid or accrued on Series B and D Cumulative Preferred Stock (49) (831) Dividends paid on common stock (564) 787 Proceeds of note payable 2,000 Redemption of Series B Cumulative Preferred Stock -- (200) -------- -------- Total provided by financing activities 1,387 (244) -------- -------- Net change in cash and cash equivalents 90 (21,840) Cash and cash equivalents, beginning of period 2,922 23,094 -------- -------- Cash and cash equivalents, end of period $ 3,012 $ 1,254 ======== ========
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 JUNE 30, 1996 AND 1997 (UNAUDITED) BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements of the American Eagle Group, Inc. (American Eagle) and subsidiaries for the periods ended June 30, 1997 and 1996 have been prepared in accordance with the instructions to the Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all considered necessary for a fair presentation of the results for the interim period have been included. Operating results for the periods ended June 30, 1997 are not necessarily indicative of the results that may be expected for the year ending December 31, 1997. These statements should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 1996 included in the Company's Form 10-K. American Eagle's principal subsidiary, American Eagle Insurance Company, was placed in conservation with The Texas Department of Insurance on July 23, 1997. As a result of the impact of conservation on American Eagle Insurance Company and its affiliate Aviation Office of America, Inc., American Eagle reduced its net carrying value of such subsidiaries to zero and has deconsolidated such subsidiaries as of June 30, 1997. 6 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS As previously reported, American Eagle Insurance Company (AEIC), American Eagle's principal subsidiary was placed in conservatorship with The Texas Department of Insurance in order to protect and conserve its assets and business. The Department informed American Eagle that the Department, in its role as conservator, will seek to maximize value and preserve assets of American Eagle and to finalize a transaction with protection for the policyholders of AEIC. To this end, the Department has subsequently informed American Eagle that it has entered into an agreement with Great American Insurance Company under which Great American Insurance Company will continue to write new and renewal aviation business and will continue to reinsure AEIC's aviation in force business as of March 31, 1997 and all aviation business written subsequent to that date. Great American Insurance Company has assumed some of the employees and space formerly occupied by American Eagle and has also purchased the fixed assets and aviation operating systems. Recently, American Eagle has reached an agreement with American Financial Group, Inc., the parent of Great American Insurance Company whereby among other matters, American Financial Group, Inc. has returned the Series D Preferred Stock outstanding of American Eagle to American Eagle and American Eagle assumed the obligation to AEIC under a Renewal Retention Commission Agreement which is estimated to be valued at approximately $1.3 million. The cost of this agreement, however, could exceed $1.3 million depending on the volume of business renewed. The cancellation of the Series D Preferred Stock resulted in an extraordinary gain of $34.0 million and the Renewal Retention Commission Agreement obligation of $1.3 million, together with the transfer of the in force book of business as of April 1, 1997 to Great American Insurance Company have been reflected in the consolidated financial statements for the periods ended June 30, 1997. American Eagle also sold its Marine Division business in force as of April 30, 1997 and the furniture and fixtures and office lease occupied by the operation. The Artisan Contractor operation, the last of the Property & Casualty Division ongoing operations was also sold. This sale included all in force business as of March 1, 1997 together with furniture and fixtures, the Property & Casualty operating systems and the office lease for the space occupied by the operation. Most of the Artisan Contractor employees became employees of the acquiring company. The sales of the three operations and the resultant write-off of deferred acquisition costs and goodwill resulted in a second quarter 1997 charge of $8.6 million. As a result of the American Eagle's principal subsidiary having been placed in conservation and the impact that conservation has on the operations of its other remaining active subsidiary, Aviation Office of America, Inc. (AOA), American Eagle has 7 8 deconsolidated and reduced its net carrying value of AEIC and AOA to zero. The reduction in net carrying value was $0.3 million. Accordingly, as of June 30, 1997, and in subsequent quarters, American Eagle's parent company only financial statements will be presented. American Eagle has also recorded its estimated future net operating costs in its second quarter financial statements as it does not currently anticipate generating future revenues. Such future net operating costs are estimated to be $1.9 million. If and when it is determined that either of its two active subsidiaries have any remaining value and the control of such subsidiaries are returned to American Eagle, the entities will again be consolidated with American Eagle and any such value will be reflected in American Eagle's financial statements. The net financial impact of the above noted unusual second quarter 1997 events was included in extraordinary gain, net of $21.9 million. The second quarter of 1997 financial statements include the financial impact of the sales of the Aviation Division, the Marine Division and the Artisan Contractor Operations, the development on losses incurred for accident dates preceding the date on which such operations were sold and on losses of the auto dealer and trucking business which were discontinued, the elimination of the Series D Preferred Stock, the cost of the Renewal Retention Commission Agreement, the write-down of the net investment in AEIC and AOA and the accrual of the estimated future net operating costs of American Eagle. The basis of presentation is generally on a comparable basis with prior periods financial statements. 8 9 SECOND QUARTER OF 1997 COMPARED TO THE SECOND QUARTER OF 1996 Gross Premiums Produced Gross premiums produced for the second quarter of 1997 compared to the second quarter of 1996 were as follows (in millions):
SECOND QUARTER 1996 1997 ---- ---- Gross premiums produced $ 41.3 $ 25.1 For other companies (3.4) (7.3) Assumed from other companies 2.7 0.3 ------- ------- Gross premiums written 40.6 18.1 Ceded premiums (12.8) (46.2) ------- ------- Net premiums written $ 27.8 $ (28.1) ======= =======
Gross premiums produced decreased 39.2% to $25.1 million for the second quarter of 1997 from $41.3 million in the second quarter of 1996. Of this decrease, 42.4% was in the Aviation Division and 4.0% was in the Marine Division, while the Property & Casualty Division (the "P&C Division") increased 7.2%. The decreases resulted primarily from the unacceptable, low credit rating of "D" which had been given to AEIC by A.M. Best in March of 1997. The P&C Division production was less sensitive to the reduced credit ratings and coupled with the pending sale of the operation to a higher rated company, gross premiums produced grew slightly. Each of the ongoing businesses were sold. The Aviation Division was sold effective April 1, 1997; the Artisan Contractor Operation was sold effective March 1, 1997; and the Marine Division was sold effective April 30, 1997. The gross premiums produced for other companies increased 113.4% to $7.3 million in the second quarter of 1997 from $3.4 million in the second quarter of 1996. During the second quarter of 1997, the Company began producing aviation business for the acquirer of the Aviation Division. The gross premiums assumed from other companies decreased 90.2% to $0.3 million in the second quarter of 1997 from $2.7 million in the second quarter of 1996 primarily as a result of the loss of fronting capacity in the second quarter of 1997 due to the decline in the A.M. Best rating in March of 1997. Gross premiums written decreased 55.5% to $18.0 million in the second quarter of 1997 from $40.6 million in the second quarter of 1996 as a result of the decrease in gross premiums produced and the increase in premiums produced for other companies. Ceded premiums increased 261.1% to $46.2 million in the second quarter of 1997, compared to $12.8 million in the second quarter of 1996. This increase is primarily a result of the sale of the Aviation Division, Artisan Contractor Operation and Marine Division 9 10 where the unearned premiums as of the effective dates of the respective sales were ceded to the acquiring companies and also an increase in ceded premiums on the Company's retrospectively rated reinsurance contracts as a result of the substantial losses recorded in the second quarter of 1997. Net premiums written were negative at $28.1 million in the second quarter of 1997, compared to a positive $27.8 million in the second quarter of 1996. This decline was a result of the matters described above. Revenues Earned premiums, net of reinsurance, decreased $39.7 million to a negative $6.2 million in the second quarter of 1997 from $33.5 million in the second quarter of 1996. Of this decrease, $27.7 million was related to the Aviation Division, $11.2 million to the P&C Division, and $0.8 million to the Marine Division. The decrease in earned premiums, net of reinsurance, resulted from the same factors that caused the decline in net premiums written. Agency operations, net, increased to a profit of $0.6 million in the second quarter of 1997 from a minimal loss in the second quarter of 1996 as a result of producing more business for other companies due to the reduced A.M. Best credit rating. Investment income, net, decreased 1.7% to $1.03 million in the second quarter of 1997 from $1.04 million in the second quarter of 1996. The decrease was primarily a result of a decline in the level of invested assets in the second quarter of 1997, compared to the second quarter of 1996. Realized investment gains (losses), net, were insignificant in the second quarter of 1997 and 1996. Operating Expenses Losses and loss adjustment expenses, net of reinsurance, were $14.3 million in the second quarter of 1997 as compared to $21.1 million, in the second quarter of 1997 on significantly reduced premium levels in 1997. The second quarter of 1997 loss and loss adjustment expense levels were largely driven by increased loss reserve levels of the Aviation Division and related to loss events incurred prior to March 31, 1997. Policy acquisition and other underwriting expenses were $3.3 million in the second quarter of 1997 and $13.7 million in the second quarter of 1996. The significant decrease in expenses in the second quarter of 1997 results from the generation of commission income. Commission income was generated by producing more business for other companies and ceding all business written in the second quarter of 1997 for the Aviation Division and Artisan Contractor Operations to the acquirers of those businesses. Commission income reduces the level of expenses incurred. 10 11 Interest expense in the second quarter of 1997 was zero as a result of the repayment of the bank loan on December 31, 1996 as compared to interest expense of $0.29 million in the second quarter of 1996. Extraordinary gain, net Extraordinary gain, net includes the gain of $34.0 million resulting from the cancellation of the Series D Preferred Stock, a loss of $8.6 million on the sales of the Aviation Division, Artisan Contractor Operations and Marine Division, a loss of $1.3 million resulting from the assumption of the Renewal Retention Commission Agreement which was part of the agreement to cancel the Series D Preferred Stock, the write-down to zero of the net carrying value of the net investment in AEIC and AOA which aggregate $0.3 million and the recording of the estimated future net operating costs of American Eagle of $1.9 million. Income The income tax expense of $1.3 million reflected in the second quarter of 1997 resulted from a decision to provide a valuation allowance of 100% of the deferred federal income taxes recoverable. The income tax expense was 17.6% of the loss before tax expense in the second quarter of 1996. The decrease in the effective tax rate in the second quarter of 1996 as compared to the statutory rate is due, in part, to adjusting the year-end estimated tax provision to equal the actual filed 1995 federal income tax return. The second quarter of 1997 net loss was $2.0 million, as compared to a net loss of $0.6 million in the second quarter of 1996. Net income (loss) available for common stockholders in the second quarter of 1997 was $(2.0) million, or $(0.28) per share, as compared to a net loss of $(0.6) million, or $(0.08) per share, in the second quarter of 1996. 11 12 FIRST SIX MONTHS OF 1996 COMPARED TO THE FIRST SIX MONTHS OF 1995 Gross Premiums Produced Gross premiums produced for the first six months of 1997 as compared to the first six months of 1995 were as follows (in millions):
FIRST SIX MONTHS 1996 1997 ---- ---- Gross premiums produced $ 83.7 $ 48.9 For other companies (6.0) (11.2) Assumed from other companies 4.2 3.6 -------- -------- Gross premiums written 81.9 41.3 Ceded premiums (21.5) (54.4) -------- -------- Net premiums written $ 60.4 $ (13.1) ======== ========
Gross premiums produced decreased 41.5% to $48.9 million for the first six months of 1997 from $83.7 million in the first six months of 1996. Of this decrease, 33.3% was in the Aviation Division, and 7.1% was in the P&C Division and 1.1% was in the Marine Division. The decreases in all Division's gross premiums produced resulted primarily from the unacceptable low credit rating of "D" which had been given to AEIC by A.M. Best in March of 1997. The decline in the P&C Division was also a result of the decision made in the third quarter of 1996 to discontinue the short and intermediate haul trucking operation. Each of the ongoing businesses have been sold. The Aviation Division was sold effective April 1, 1997; the Artisan operation was sold effective March 1, 1997; and the Marine Division was sold effective April 30, 1997. The gross premiums produced for other companies increased 87.0% to $11.2 million in the first six months of 1997 from $6.0 million in the first six months of 1996. During the second quarter of 1997, the company began producing aviation business for the acquirer of the Aviation Division. The gross premiums assumed from other companies decreased 15.7% to $3.6 million in the first six months of 1997 from $4.2 million in the first six months of 1996 primarily as a result of loss of the fronting capacity due to the decline in the A.M. Best rating in March of 1997. Gross premiums written decreased 49.6% to $41.3 million in the first six months of 1997 from $81.9 million in the first six months of 1996 primarily as a result of the decrease in gross premiums produced. Ceded premiums increased 153.3% to $54.4 million in the first six months of 1997, compared to $21.5 million in the first six months of 1996. This increase is primarily a result of the sale of the Aviation Division, the Artisan Contractor Operation and Marine Division where the unearned premiums as of the effective dates of the sales were ceded to 12 13 the acquiring companies and also an increase in the second quarter in ceded premiums on the Company's retrospectively rated reinsurance contracts as a result of the substantial losses recorded in the second quarter of 1997. Net premiums written were a negative $13.1 million in the first six months of 1997, compared to $60.4 million in the first six months of 1996. This decline was as a result of the matters described above. Revenues Earned premiums, net of reinsurance, decreased 73.4% to $17.6 million in the first six months of 1997 from $66.3 million in the first six months of 1996. Of this decrease, 52.7% was related to the Aviation Division, and 21.0% to the P&C Division with the Marine Division increasing 0.3%. The decrease in earned premiums, net of reinsurance, resulted from the same factors that caused the decline in net premiums written. Agency operations, net, increased to a profit of $0.6 million in the first six months of 1997 as compared to a minimal loss in the first six months of 1996 as a result of producing more business for other companies due to the reduced A.M. Best credit rating in March 1997. Investment income, net, decreased 5.8% to $2.3 million in the first six months of 1997 from $2.4 million in the first six months of 1996. The decrease was primarily a result of a decline in average invested assets in the first six months of 1997 compared to the first six months of 1996. Realized investment gains (losses), net, were insignificant in the first six months of 1997 and 1996. Operating Expenses Losses and loss adjustment expenses, net of reinsurance, were 194.5% of earned premiums, net of reinsurance, in the first six months of 1997, compared to 73.4% in the first six months of 1996. As noted above, the earned premium levels in the first six months of 1997 were significantly below the comparable period of 1996. The first six months of 1997 loss and loss adjustment expense levels were largely a result of increased loss reserve levels of the Aviation Division and related to loss events incurred prior to March 31, 1997. Policy acquisition and other underwriting expenses were 81.8% of earned premiums in the first six months of 1997 and 36.9% of earned premiums in the first six months of 1996. The increase in the expense ratio in the first six months of 1997 results from the decreased level of net premiums earned in the first six months of 1997 as compared to the comparable period of 1996. Interest expense decreased to zero in the first six months of 1997 from $0.54 million in the first six months of 1996 due to the repayment of the bank loan on December 31, 1996. 13 14 Extraordinary gain, net Extraordinary gain, net includes the gain of $34.0 million resulting from the cancellation of the Series D Preferred Stock, a loss of $8.6 million on the sales of the Aviation Division, Artisan Contractor Operations and Marine Division, a loss of $1.3 million resulting from the assumption of the Renewal Retention Commission Agreement which was part of the Agreement to cancel the Series D Preferred Stock, the write-down to zero of the net carrying value of the net investment in AEIC and AOA which aggregated $0.3 million and the recording of the estimated future net operating costs of American Eagle of $1.9 million. Income The income tax expense of $1.3 million reflected in the first six months of 1997 resulted from a decision to provide a valuation allowance of 100% of the federal deferred income taxes recoverable. The income tax benefit was 31.7% of loss before tax benefit in the first six months of 1996. The net loss for the first six months of 1997 was $7.7 million, compared to net loss of $3.3 million in the first six months of 1996. The increase resulted from the factors discussed above. Net income (loss) available for common stockholders was ($8.5) million, or ($1.21) per share in the first six months of 1997, compared to ($3.4) million, or ($0.48) per share, in the first six months of 1996. LIQUIDITY AND CAPITAL RESOURCES The Company's consolidated cash flow used in operations was $45.1 million in the first six months of 1997, compared to cash flow used by operations of $22.6 million in the first six months of 1996. The funds used in the first six months of 1997 relate to the transfer of business to the acquiring companies, the continued settlement of claims and the payment of retrospectively rated reinsurance premiums while premiums collected were immaterial. The Company's source of cash flow is its insurance operation conducted through its principal subsidiary, AEIC. As previously noted, AEIC is in conservation. Although the Company does not have any ongoing sources of cash, it currently has cash at the parent company adequate to cover all known creditor obligations and to continue to fund its reduced level of operating expenses through 1998. 14 15 PART II. OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K (a) Exhibits See Index to Exhibits attached hereto and incorporated herein by reference. (b) Reports on Form 8-K None. 15 16 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMERICAN EAGLE GROUP, INC. Date: November 21, 1997 By: /s/ M. Philip Guthrie ----------------- ------------------------------------- M. Philip Guthrie, Chairman of the Board and Chief Executive Officer Date: November 21, 1997 By: /s/ Richard M. Kurz ----------------- ------------------------------------- Richard M. Kurz, Senior Vice President and Chief Financial Officer (Principal Financial and Accounting Officer) 16 17 EXHIBITS TO FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR AMERICAN EAGLE GROUP, INC. FOR QUARTER ENDED JUNE 30, 1997 18 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------ ------- 4.1 -- Specimen Certificate for shares of Common Stock, $.01 par value, of American Eagle Group, Inc. ("Registrant"), the "Company" or "American Eagle") (Previously filed on May 11, 1994 with Registrant's Amendment No. 2 to Registration Statement on Form S-1, File No. 33-75490, and incorporated herein by reference). 4.2 -- Registration Rights Agreement, dated as of March 21, 1995, by and among American Eagle, Mason Best Company, L.P. ("Mason Best") and Nelson Hurst (Previously filed on March 29, 1994 with Registrant's Amendment No. 1 to Registration Statement on Form S-1, File No. 33-75490, and incorporated herein by reference). 4.3 -- Amended Registration Rights Agreement, dated December 31, 1996, between American Eagle and Mason Best. (Previously filed with Registrant's Report on Form 10-Q for the quarter ended March 31, 1997 and incorporated herein by reference). 10.2 -- Amended and Restated P&C Stock Option Plan - Wise (Previously filed on February 18, 1994 with Registrant's Registration Statement on Form S-1, File No. 33-75490, and incorporated herein by reference). 10.3 -- Amended and Restated P&C Stock Option Plan - Hill (Previously filed on February 18, 1994 with Registrant's Registration Statement on Form S-1, File No. 33-75490, and incorporated herein by reference). 10.7 -- American Eagle Group, Inc. 1994 Director Stock Option Plan, as amended (Previously filed on March 31, 1997 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.8 -- American Eagle Group, Inc. Employee Profit Sharing and Savings Plan (Previously filed on February 18, 1994 with Registrant's Registration Statement on Form S-1, File No. 33-75490, and incorporated herein by reference). 10.16 -- Consulting Agreement, dated as of December 24, 1992, between American Eagle and Don D. Hutson (Previously filed on February 18, 1994 with Registrant's Registration Statement on Form S-1, File No. 33-75490, and incorporated hereby by reference). 10.17 -- Agreement dated as of February 15, 1991, between Luther King Capital Management Corporation and AEIC (Previously filed on February 18, 1994 with Registrant's Registration Statement on Form S-1, File No. 33-75490, and incorporated herein by reference).
-2- 19 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------ ------- 10.18 -- Investment Management Agreement, dated as of June 17, 1994, between American Eagle Insurance Company and Aon Advisors, Inc. (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10- K, File No. 1-12922, and incorporated herein by reference). 10.19 -- Agreement for the Purchase of all of the Outstanding Capital Stock of Aviation Office of America, Inc. and American Eagle Insurance Company dated as of May 7, 1986, among Folmar Corporation, Crum and Forster, Inc. and United States Fire Insurance Company (the "Purchase Agreement") (Previously filed on March 29, 1994 with Registrant's Amendment No. 1 to Registration Statement on Form S-1, File No. 33- 75490, and incorporated herein by reference). 10.20 -- Amendment to Purchase Agreement dated as of June 6, 1987 (Previously filed on March 29, 1994 with Registrant's Amendment No. 1 to Registration Statement on Form S-1, File No. 33-75490, and incorporated herein by reference). 10.21 -- Amendment to Purchase Agreement dated as of December 11, 1987 (Previously filed on March 29, 1994 with Registrant's Amendment No. 1 to Registration Statement on Form S-1, File No. 33-75490, and incorporated herein by reference). 10.22 -- First through Fifth General Aviation Liability Excess of Loss Reinsurance Agreement AR #4222 1994 Final Placement Slip (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.23 -- Casualty First and Second Excess of Loss Reinsurance Agreement AR #4038-94 1994 Final Placement Slip (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.24 -- Special Underlying General Aviation Liability Excess of Loss Reinsurance Agreement AR #4221 1994 Final Placement Slip (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.25 -- General Aviation Hull Special Underlying Excess of Loss Reinsurance Agreement AR #4227 1994 Final Placement Slip (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference.
-3- 20 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------ ------- 10.26 -- First through Fifth General Aviation Liability Excess of Loss Reinsurance Agreement AR#4222 1994 Final Placement Slip (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.27 -- Casualty First and Second Excess of Loss Reinsurance Agreement AR#4038-94 1994 Final Placement Slip (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.28 -- Special Underlying General Aviation Liability Excess of Loss Reinsurance Agreement AR#4221 Final Placement Slip (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated hereby by reference). 10.29 -- General Aviation Hull Special Underlying Excess of Loss Reinsurance Agreement AR#4227 1994 Final Placement Slip (Previously filed on March 30, 1995 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated hereby by reference). 10.30 -- Special Underlying General Aviation Liability Excess of Loss Reinsurance Agreement AR#4221 1995 Final Placement Slip (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.31 -- General Aviation Hull Special Underlying Excess of Loss Reinsurance Agreement AR #4227 1995 Final Placement Slip (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.32 -- First and Second Property Excess of Loss Reinsurance Agreement--ARA #4039-91 (subject to a request for confidential treatment). (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.33 -- First and Second Casualty Excess of Loss Reinsurance Agreement--ARA #4038-91 (subject to a request for confidential treatment). (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.34 -- Casualty First and Second Excess of Loss Reinsurance Agreement--AR #4038-95 (subject to a request for confidential treatment). (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference).
-4- 21 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------ ------- 10.35 -- First and Second Casualty Excess of Loss Reinsurance Agreement--AR #4038-95 (subject to a request for confidential treatment. (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.36 -- General Aviation Hull Special Underlying Excess of Loss Reinsurance Agreement--AR #4227-94 (subject to a request for confidential treatment). (previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.37 -- Special Underlying General Aviation Liability Excess of Loss Reinsurance Agreement--AR #4221-94 (subject to a request for confidential treatment). (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.38 -- First Through Fifth General Aviation Excess of Loss Reinsurance Agreement--AR #4222-94 (subject to a request for confidential treatment). (Previously filed on March 28, 1996 with Registrant's Annual Report on Form 10-K, File No. 1-12922, and incorporated herein by reference). 10.39 -- Securities Purchase Agreement, dated as of November 5, 1996, by and between American Eagle and American Financial Group, Inc. (Previously filed with Registrant's Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference). 10.40 -- Special Underlying General Aviation Liability Excess of Loss Reinsurance Agreement--AR #4221--1996 Final Placement Slip (Previously filed with Registrant's Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference). 10.41 -- First Through Fifth General Aviation Liability Excess of Loss Reinsurance Agreement--AR #4222--1996 Final Placement Slip (Previously filed with Registrant's Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference (Previously filed with Registrant's Report on Form 10-Q for the quarter ended September 30, 1996, and incorporated herein by reference). 10.43 -- Asset Purchase Agreement dated April 23, 1997 between AEIC and HDR Insurance Managers, Inc. (Previously filed with Registrant's Report on Form 10-Q for the quarter ended March 31, 1997, and incorporated herein by reference.) 10.44 -- Employment Agreement dated as of August 21, 1997 between American Eagle Group, Inc. and M. Philip Guthrie. 10.45 -- Employment Agreement dated as of August 21, 1997 between American Eagle Group, Inc. and Richard M. Kurz. 10.46 -- Renewal/Retention Commission Agreement dated as of November 4, 1997 between American Eagle Group, Inc., American Eagle Insurance Company and Great American Insurance Company.
-5- 22 INDEX TO EXHIBITS
EXHIBIT NUMBER EXHIBIT - ------ ------- 10.47 -- Settlement Agreement and Mutual Release dated as of November 4, 1997 between American Eagle Group, Inc., American Financial Group, Inc.and Great American Insurance Company. 27 -- Financial Data Schedule.
-6- EX-10.44 2 EMPLOYMENT AGREEMENT - PHILIP GUTHRIE 1 EXHIBIT 10.44 EMPLOYMENT AGREEMENT This Agreement, entered into effective as of August 21, 1997, is by and among AMERICAN EAGLE GROUP, INC., a Delaware corporation (the "Employer"), the Committee of the American Eagle Group, Inc. 1994 Stock Incentive Plan (the "Committee") and M. Philip Guthrie, (the "Employee"). The Employer desires to employ the Employee and the Employee is willing to serve the Employer on the terms and conditions provided in this Agreement. Therefore, the parties hereby agree as follows: 1. EMPLOYMENT. The Employer agrees to employ the Employee as Chairman of the Board and Chief Executive Officer or in any other position with substantially similar title, duties and responsibilities to which Employee may be elected or appointed by the Board of Directors of the Employer. Employee agrees to serve in any such capacity and perform the duties prescribed from time to time by the Bylaws or the Board of Directors of the Employer upon the terms and conditions set forth in this Agreement. 2. TERM. Unless Employee's employment is sooner terminated in accordance with the provisions hereof, the term of employment shall extend from the date hereof until February 28, 1998. 3. COMPENSATION. The Employee shall receive the following compensation for his services: (a) A lump sum payment of $262,500 payable upon the execution of this Agreement; 2 (b) Cash salary compensation for the term of employment hereunder of not less than the appropriate pro rata portion of an annualized salary of $350,000; and (c) Participation in the employee benefit plans maintained by the Employer for its employees generally, as such plans are in effect from time to time in accordance with their terms and the particular term of this Agreement. 4. REIMBURSEMENT OF BUSINESS EXPENSES. The Employer shall reimburse the Employee for all reasonable business expenses incurred by the Employee in accordance with the policies of the Employer in effect from time to time, upon presentation of proper supporting documentation therefor. 5. EXTENT OF SERVICE. The Employee shall devote substantially all of his time, attention and energy to the business of the Employer and its subsidiaries and shall not, during the term of this Agreement, be actively engaged in any other business activity for gain, profit, or other pecuniary advantage. This Section shall not prohibit the Employee from engaging in business activities for Mason Best Company, L.P., or its other affiliates, engaging in other activities or services that do not conflict with the Employee's performance of his duties hereunder, or making personal passive investments in other business activities. 6. TERMINATION. (a) The employment of Employee shall terminate upon the occurrence of any of the following: (i) The death of the Employee; (ii) The delivery by the Employer to the Employee of written notice of termination of employment due to the disability of the Employee, where "disability" shall mean the Employee's -2- 3 inability, because of injury or illness, whether physical or mental, to perform the material services to the Employer contemplated by this Agreement. (iii) The delivery by the Employer to the Employee of written notice of termination of employment due to conduct by the Employee constituting (A) a willful and knowing violation of any law, rule or regulation, or causing the Employer to willfully knowingly violate any law, rule or regulation, which in either case is materially and demonstrably injurious to the Employer; (B) fraud; (C) misappropriation of the Employer's property; or (D) an act of moral turpitude; or (iv) The resignation or other termination of employment by the Employee for any reason other than pursuant to Section 6(a)(i), or (ii) above. (b) Upon termination of employment of the Employee for a reason set forth in Section 6(a)(iii) or (iv) hereof, the Employer shall pay the Employee or his legal representative the compensation accrued and unpaid at the date of termination. The Employer shall have no further obligation to the Employee or his legal representative. (c) Upon the termination of employment of the Employee for any reason other than those set forth in Section 6(a)(iii) or (iv) hereof, the Employer shall have no further obligation to the Employee or his legal representative, except that the Employee or his legal representative shall be entitled to receive the amounts that would have been paid to the Employee at his then current rate of compensation pursuant to Section 3(a) hereof for the term -3- 4 of this Agreement remaining pursuant to Section 2 hereof immediately prior to the date of termination of employment. Such amounts shall be paid as and when they would have been paid pursuant to Section 3(a) hereof had the Employee's employment not been terminated. 7. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT. That prior existing Employment Agreement dated December 31, 1994, between the parties hereto (the "Prior Agreement"), is hereby terminated and made null and void upon the effectiveness of this Agreement which shall supersede the Prior Agreement in all respects. 8. TERMINATION AND WAIVER OF STOCK OPTIONS. Employee hereby agrees with the Employer and the Committee that, in consideration of this Agreement, all outstanding and unexercised options and stock appreciation rights that are held by Employee and that relate to any shares of stock of Employer or any affiliate of Employer (the "Option Agreements") are hereby terminated and Employee shall not receive any further grants of stock options or stock appreciation rights that relate to such stock. Employee hereby waives all rights under the Option Agreements and releases Employer and the Committee from any duty of performance thereunder. The Option Agreements shall include, without limitation, those set forth on Attachment 1 hereto. 9. TERMINATION AND WAIVER OF NON-COMPETITION AND NON-SOLICITATION COVENANTS. Employee and Employer hereby agree that all existing non-competition and non-solicitation promises and covenants of Employee relating to the business of the Employer, including, without limitation, those set forth in Section 7 of the Prior Agreement are terminated and made null and void. Employer hereby releases Employee from any duty of performance under such promises and covenants and waives compliance with them. -4- 5 10. FURTHER SERVICES. Unless Employee's employment terminates prior to February 28, 1998, upon the termination of the term of this Agreement, Employee and Employer shall enter into a written employment agreement for the provision of services by Employee to Employer as needed on an hourly basis. Such services shall be compensated at an hourly rate of $170.00 and shall consist of the giving of advice and assistance to Employer in matters with respect to which the Employee has unique knowledge because of his position and experience as an officer of the Employer; provided, however, that no more than 515 hours of service shall be required of Employee pursuant to this Section 10. Employee shall, during the performance of such 515 hours of service, continue to be provided the same group health, disability and life insurance coverages as were being provided to Employee on February 27, 1998. At such time as the Employer adopts a plan of liquidating, Employer shall pay Employee a cash lump sum amount equal to the difference, if any, between $87,500 and the aggregate amount of cash compensation Employee has them received pursuant to this Section 10. In addition, for a period of nine months after (i) such time as Employee completes such 515 hours of service, or if earlier, (ii) the date on which Employer adopts a plan of liquidation, the Employer shall provide the same group health, disability and life insurance coverages as were being provided to the employee immediately prior to such termination. 11. CONFLICTS AND CODE OF ETHICS. On or before the effective date of this Agreement, the Employee agrees to execute and deliver to the Employer the Code of Ethics in the form attached hereto as Attachment 2, and to thereafter abide by the provisions thereof. 12. INDEPENDENT COVENANTS. The provisions in this Agreement are independent and separate. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the terms hereof: -5- 6 (a) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in economic and business terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and unenforceable; and (b) the legality, validity and unenforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 13. INJUNCTIVE RELIEF. In the event of a breach or threatened breach of the Employee of the provisions of this Agreement, the Employer shall be entitled to an injunction to prevent irreparable injury to the Employer. The Employer may also pursue any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Employee. 14. INTEGRATION. This Agreement represents the entire agreement between the parties with respect to the Employee's employment by Employer, and all prior agreements between the parties relating to that subject matter are superseded. 15. AMENDMENT: WAIVER. No modification or amendment of this Agreement shall be valid and binding, unless it is in writing and signed by the parties. The waiver of any provision hereof shall be effective only if in writing and signed by the parties, and then only in the specific instance and for the particular purpose for which it was given. No failure to exercise, and no delay in exercising, any right or power hereunder shall operate as a waiver thereof. 16. BENEFIT. This Agreement shall be binding upon the Employee, his heirs and personal representatives, and the Employer, its successors and assigns. Neither this -6- 7 Agreement, nor the rights and obligations created under it, may be assigned by the Employee without the prior consent of the Employer. 17. GOVERNING LAW. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Texas. EXECUTED as of the date first written above. ---------------------------------- M. Philip Guthrie AMERICAN EAGLE GROUP, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- COMMITTEE OF THE AMERICAN EAGLE GROUP, INC. 1994 STOCK INCENTIVE PLAN By: ------------------------------- Title: ---------------------------- -7- EX-10.45 3 EMPLOYMENT AGREEMENT - RICHARD M. KURZ 1 EXHIBIT 10.45 EMPLOYMENT AGREEMENT This Agreement, entered into effective as of August 21, 1997, is by and among AMERICAN EAGLE GROUP, INC., a Delaware corporation (the "Employer"), the Committee of the American Eagle Group, Inc. 1994 Stock Incentive Plan (the "Committee") and Richard M. Kurz, (the "Employee"). The Employer desires to employ the Employee and the Employee is willing to serve the Employer on the terms and conditions provided in this Agreement. Therefore, the parties hereby agree as follows: 1. EMPLOYMENT. The Employer agrees to employ the Employee as Senior Vice President and Chief Financial Officer or in any other position with substantially similar title, duties and responsibilities to which Employee may be elected or appointed by the Board of Directors of the Employer. Employee agrees to serve in any such capacity and perform the duties prescribed from time to time by the Bylaws or the Board of Directors of the Employer upon the terms and conditions set forth in this Agreement. 2. TERM. Unless Employee's employment is sooner terminated in accordance with the provisions hereof, the term of employment shall extend from the date hereof until February 28, 1998. 3. COMPENSATION. The Employee shall receive the following compensation for his services: (a) A lump sum payment of $121,875 payable upon the execution of this Agreement; 2 (b) Cash salary compensation for the term of employment hereunder of not less than the appropriate pro rata portion of an annualized salary of $162,500; and (c) Participation in the employee benefit plans maintained by the Employer for its employees generally, as such plans are in effect from time to time in accordance with their terms and the particular term of this Agreement. 4. REIMBURSEMENT OF BUSINESS EXPENSES. The Employer shall reimburse the Employee for all reasonable business expenses incurred by the Employee in accordance with the policies of the Employer in effect from time to time, upon presentation of proper supporting documentation therefor. 5. EXTENT OF SERVICE. The Employee shall devote substantially all of his time, attention and energy to the business of the Employer and its subsidiaries and shall not, during the term of this Agreement, be actively engaged in any other business activity for gain, profit, or other pecuniary advantage. This Section shall not prohibit the Employee from engaging in business activities or other activities or services that do not conflict with the Employee's performance of his duties hereunder, or making personal passive investments in other business activities. 6. TERMINATION. (a) The employment of Employee shall terminate upon the occurrence of any of the following: (i) The death of the Employee; (ii) The delivery by the Employer to the Employee of written notice of termination of employment due to the disability of the Employee, where "disability" shall mean the Employee's -2- 3 inability, because of injury or illness, whether physical or mental, to perform the material services to the Employer contemplated by this Agreement. (iii) The delivery by the Employer to the Employee of written notice of termination of employment due to conduct by the Employee constituting (A) a willful and knowing violation of any law, rule or regulation, or causing the Employer to willfully knowingly violate any law, rule or regulation, which in either case is materially and demonstrably injurious to the Employer; (B) fraud; (C) misappropriation of the Employer's property; or (D) an act of moral turpitude; or (iv) The resignation or other termination of employment by the Employee for any reason other than pursuant to Section 6(a)(i), or (ii) above. (b) Upon termination of employment of the Employee for a reason set forth in Section 6(a)(iii) or (iv) hereof, the Employer shall pay the Employee or his legal representative the compensation accrued and unpaid at the date of termination. The Employer shall have no further obligation to the Employee or his legal representative. (c) Upon the termination of employment of the Employee for any reason other than those set forth in Section 6(a)(iii) or (iv) hereof, the Employer shall have no further obligation to the Employee or his legal representative, except that the Employee or his legal representative shall be entitled to receive the amounts that would have been paid to the Employee at his then current rate of compensation pursuant to Section 3(a) hereof for the term -3- 4 of this Agreement remaining pursuant to Section 2 hereof immediately prior to the date of termination of employment. Such amounts shall be paid as and when they would have been paid pursuant to Section 3(a) hereof had the Employee's employment not been terminated. 7. TERMINATION OF PRIOR EMPLOYMENT AGREEMENT. That prior existing Employment Agreement dated December 31, 1994, between the parties hereto (the "Prior Agreement"), is hereby terminated and made null and void upon the effectiveness of this Agreement which shall supersede the Prior Agreement in all respects. 8. TERMINATION AND WAIVER OF STOCK OPTIONS. Employee hereby agrees with the Employer and the Committee that, in consideration of this Agreement, all outstanding and unexercised options and stock appreciation rights that are held by Employee and that relate to any shares of stock of Employer or any affiliate of Employer (the "Option Agreements") are hereby terminated and Employee shall not receive any further grants of stock options or stock appreciation rights that relate to such stock. Employee hereby waives all rights under the Option Agreements and releases Employer and the Committee from any duty of performance thereunder. The Option Agreements shall include, without limitation, those set forth on Attachment 1 hereto. 9. TERMINATION AND WAIVER OF NON-COMPETITION AND NON-SOLICITATION COVENANTS. Employee and Employer hereby agree that all existing non-competition and non-solicitation promises and covenants of Employee relating to the business of the Employer, including, without limitation, those set forth in Section 7 of the Prior Agreement are terminated and made null and void. Employer hereby releases Employee from any duty of performance under such promises and covenants and waives compliance with them. -4- 5 10. FURTHER SERVICES. Unless Employee's employment terminates prior to February 28, 1998, upon the termination of the term of this Agreement, Employee and Employer shall enter into a written employment agreement for the provision of services by Employee to Employer as needed on an hourly basis. Such services shall be compensated at an hourly rate of $80.00 and shall consist of the giving of advice and assistance to Employer in matters with respect to which the Employee has unique knowledge because of his position and experience as an officer of the Employer; provided, however, that no more than 515 hours of service shall be required of Employee pursuant to this Section 10. Employee shall, during the performance of such 515 hours of services, continue to be provided the same group health, disability and life insurance coverages as were being provided to Employee on February 27, 1998. At such time as the Employer adopts a plan of liquidation, Employer shall pay Employee a cash lump sum amount equal to the difference, if any, between $40,625 and the aggregate amount of cash compensation Employee has then received pursuant to this Section 10. In addition, for a period of nine months after (i) such time as Employee completes such 515 hours of service, or, if earlier, (ii) the date on which Employer adopts a plan of liquidation, the Employer shall provide the same group health, disability and life insurance coverages as were being provided to the employee immediately prior to such termination. 11. CONFLICTS AND CODE OF ETHICS. On or before the effective date of this Agreement, the Employee agrees to execute and deliver to the Employer the Code of Ethics in the form attached hereto as Attachment 2, and to thereafter abide by the provisions thereof. 12. INDEPENDENT COVENANTS. The provisions in this Agreement are independent and separate. If any provision of this Agreement is held to be illegal, invalid or unenforceable under present or future laws effective during the terms hereof: -5- 6 (a) in lieu of such illegal, invalid or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in economic and business terms to such illegal, invalid or unenforceable provision as may be possible and be legal, valid and unenforceable; and (b) the legality, validity and unenforceability of the remaining provisions hereof shall not in any way be affected or impaired thereby. 13. INJUNCTIVE RELIEF. In the event of a breach or threatened breach of the Employee of the provisions of this Agreement, the Employer shall be entitled to an injunction to prevent irreparable injury to the Employer. The Employer may also pursue any other remedies available to the Employer for such breach or threatened breach, including the recovery of damages from the Employee. 14. INTEGRATION. This Agreement represents the entire agreement between the parties with respect to the Employee's employment by Employer, and all prior agreements between the parties relating to that subject matter are superseded. 15. AMENDMENT; WAIVER. No modification or amendment of this Agreement shall be valid and binding, unless it is in writing and signed by the parties. The waiver of any provision hereof shall be effective only if in writing and signed by the parties, and then only in the specific instance and for the particular purpose for which it was given. No failure to exercise, and no delay in exercising, any right or power hereunder shall operate as a waiver thereof. 16. BENEFIT. This Agreement shall be binding upon the Employee, his heirs and personal representatives, and the Employer, its successors and assigns. Neither this -6- 7 Agreement, nor the rights and obligations created under it, may be assigned by the Employer. 17. GOVERNING LAW. This Agreement shall be construed in accordance with, and governed by, the laws of the State of Texas. EXECUTED as of the date first written above. ------------------------------- Richard M. Kurz AMERICAN EAGLE GROUP, INC. By: ---------------------------- Name: -------------------------- Title: ------------------------- COMMITTEE OF THE AMERICAN EAGLE GROUP, INC. 1994 STOCK INCENTIVE PLAN By: ---------------------------- Title: ------------------------- -7- EX-10.46 4 RENEWAL/RETENTION COMMISSION AGREEMENT-11/04/97 1 EXHIBIT 10.46 RENEWAL/RETENTION COMMISSION AGREEMENT THIS RENEWAL/RETENTION COMMISSION AGREEMENT dated as of November 4, 1997, is by and among American Eagle Group, Inc. ("AEG"), a Delaware corporation, American Eagle Insurance Company ("AMERICAN EAGLE"), a Texas corporation, and Great American Insurance Company (together with its affiliates, successors, and assigns "GREAT AMERICAN"), an Ohio corporation. PRELIMINARY STATEMENT American Eagle and Great American are parties to that certain Purchase Agreement between Great American Insurance Company and American Eagle Insurance Company dated July 31, 1997 (the "PURCHASE AGREEMENT"). Pursuant to Section 4.2 of the Purchase Agreement, Great American agreed to pay to American Eagle commissions based on renewals or reissuances of certain insurance policies. AEG has agreed to assume Great American's obligation to pay such commissions to American Eagle. Accordingly, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows: STATEMENT OF AGREEMENT ARTICLE 1 ASSUMPTION OF OBLIGATION TO PAY COMMISSION Section 1.1 Assumption of Obligations; Release of Great American. Subject to the terms and conditions of this Agreement, AEG hereby assumes Great American's obligations under Section 4.2 of the Purchase Agreement to pay certain renewal/retention commissions (as more fully described in Section 1.2 below) to American Eagle. The parties hereto acknowledge that Great American is hereby released and discharged from its obligations under Section 4.2 of the Purchase Agreement to pay such renewal/retention commissions to American Eagle. Section 1.2 Commission. Subject to the terms and conditions of this Agreement, AEG hereby agrees to pay to American Eagle the following commissions: (a) A commission equal to four percent of the Renewal Premiums (as hereinafter defined) received by Great American during the first year which commenced on April 1, 1997, on all Reinsured Business (as hereinafter defined) transferred to Great American; 2 (b) A commission equal to two percent of the Renewal Premiums received by Great American during the second year which commences on April 1, 1998, on all Reinsured Business transferred to Great American; and (c) A commission equal to one percent of the Renewal Premiums received by Great American during the third year which commences on April 1, 1999, on all Reinsured Business transferred to Great American. For purposes of this Agreement, "REINSURED BUSINESS" shall mean (i) all aviation business of American Eagle in force as of March 31, 1997, and (ii) all aviation business written or renewed by American Eagle from March 31, 1997, until the date on which Great American became qualified to issue directly its own policies. For purposes of this Agreement, "RENEWAL PREMIUMS" shall mean all direct written premiums on policies renewing, or being reissued with respect to, Reinsured Business on or after April 1, 1997, less the sum of any returned premiums or cancellations. ARTICLE 2 PAYMENT OF COMMISSION Section 2.1 Commission Calculation. Amounts payable by AEG hereunder shall be computed by AEG each March 31, June 30, September 30, and December 31, during the period beginning April 1, 1997 and ending March 31, 2000. As soon as practicable after the end of each such quarter, Great American will provide AEG with all information necessary for AEG to prepare a written calculation (each a "QUARTERLY COMMISSION CALCULATION") of the amount owed by AEG for the immediately preceding quarter (each a "QUARTERLY COMMISSION PAYMENT"). AEG shall have until the later of (i) 10 days after the date Great American has provided all information necessary for AEG to make the Quarterly Commission Calculation and (ii) 30 days after the end of each such quarter, to complete the Quarterly Commission Calculation and make the Quarterly Commission Payment to American Eagle (each such date of payment a "QUARTERLY COMMISSION PAYMENT DATE"). Each Quarterly Commission Calculation shall show, by policy number (i) the policies renewed or reissued with respect to Reinsured Business in the applicable quarter, (ii) the amount of all premiums received by Great American with respect to Reinsured Business during the applicable quarter, and (iii) the amount of any returned premiums or cancellations with respect to Reinsured Business during the applicable quarter. Section 2.2 Access to Information; Arbitration. AEG, American Eagle, and their respective accountants, auditors, agents, employees and other representatives shall have the right, from time to time, at their own expense, to conduct such financial or other due diligence with respect to the information provided by Great American under Section 2.1 hereof as AEG or American Eagle may deem appropriate. Should any dispute arise among the parties hereto with respect to this Agreement which cannot be resolved by the parties to such dispute, the dispute shall be submitted to arbitration pursuant to the Commercial Arbitration Rules of the 2 3 American Arbitration Association. The decision resulting from any such arbitration shall be binding upon the parties hereto. Section 2.3 Method of Payment by AEG; Escrow Deposit. Pursuant to that certain Escrow Agreement dated as of March 25, 1997, among AEG, The Insurance Corporation of New York, and Fleet Bank, AEG deposited $1,300,000 in assets into an escrow account with Fleet Bank (the "FLEET ESCROW ACCOUNT"). AEG hereby assigns to American Eagle all of its right, title and interest in the Fleet Escrow Account. On the date hereof, AEG has deposited the amount of $200,000 (the "ESCROW DEPOSIT") pursuant to that certain Escrow Agreement dated the date hereof among AEG, American Eagle and U.S. Trust Company of Texas, N.A. For purposes of determining amounts owed by AEG hereunder, the present value of each Quarterly Commission Payment (each a "DISCOUNTED QUARTERLY COMMISSION PAYMENT") shall be calculated as of July 31, 1997 at a rate equal to the rate of interest earned during the quarter on the Fleet Escrow Account; provided that upon disbursement to American Eagle of the $1,300,000 from the Fleet Escrow Account, the rate used thereafter for calculations of the Discounted Quarterly Commission Payment shall be equal to the market rate for U.S. Treasury Bonds. Section 2.4 Disbursement of Escrow Deposit. If at any time upon calculation of a Discounted Quarterly Commission Payment the sum of all Discounted Quarterly Commission Payments exceeds the $1,300,000 transferred to American Eagle, American Eagle shall have the right to withdraw from the Escrow Deposit an amount equal to the difference between the sum of all Discounted Quarterly Commission Payments and $1,300,000. Thereafter, on each subsequent Quarterly Commission Payment Date, American Eagle shall have the right to withdraw from the Escrow Deposit an amount equal to the Quarterly Commission Payment for such quarter. Any amounts remaining in the Escrow Deposit after satisfaction of AEG's obligations hereunder shall be promptly returned to AEG. In the event that amounts owed by AEG hereunder exceed in the aggregate $1,500,000, AEG shall be obligated to pay any such amounts when due pursuant to the terms of this Agreement. Section 2.5 Return of Escrow Deposit. On or about April 1, 1998, the parties hereto shall discuss in good faith whether AEG's interest in the Fleet Escrow Account, transferred to American Eagle hereunder, is sufficient to meet AEG's obligations under this Agreement. If the parties agree that such transfer is sufficient to meet AEG's obligations, the parties shall instruct the Escrow Agent to disburse the Escrow Deposit to AEG. The parties hereto agree that, notwithstanding any provision in this Agreement to the contrary, in no event shall American Eagle be required to return to AEG any portion of AEG's interest in the Fleet Escrow Account transferred to American Eagle on the date hereof. 3 4 ARTICLE 3 MISCELLANEOUS Section 3.1 Notices. Any and all notices permitted or required to be given under the terms of this Agreement shall be in writing and may be served by mail, postage prepaid, and addressed to the party to be notified at the appropriate addressed specified below, or by delivering the same in person to such party, or by telecopy, prepaid telegram or cablegram, addressed to the party to be notified at said address. The mailing addresses of the parties are as follows: Party Address If to AEG: American Eagle Group, Inc 12801 N. Central Expressway Suite 800 Dallas, Texas 75243 Attn: M. Philip Guthrie Telecopy: 972-448-1401 If to American Eagle: American Eagle Insurance Company 12801 N. Central Expressway Suite 800 Dallas, Texas 75243 Attention: Neal Rockhold, Conservator Telecopy: 972-448-1401 If to Great American: Great American Insurance Company 580 Walnut Street Cincinnati, Ohio 45202 Attention: Gary J. Gruber Telecopy: 513-579-0108 The above addresses may be changed by any party by notice given in the manner provided in this Section 3.1. Section 3.2 Entire Agreement. This Agreement and the Escrow Agreement constitute the entire understanding among the parties as to the subject matter hereof and no waiver or modification of the terms hereof shall be valid unless in writing signed by the parties hereto and only to the extent therein set forth. Section 3.3 Effect of Agreement. This Agreement shall be binding on, inure to the benefit of, and be enforceable by the parties hereto and their respective heirs, successors and assigns. 4 5 Section 3.4 Section and Paragraph Headings. The section and paragraph headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. Section 3.5 Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the State of Texas, without giving effect to the conflict of law rules or choice of law rules thereof. Section 3.6 Counterparts. This Agreement may be executed in multiple counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument. [SIGNATURE PAGE FOLLOWS] 5 6 IN WITNESS WHEREOF, the undersigned parties have caused this Agreement to be executed as of the date first written above. AMERICAN EAGLE GROUP, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- AMERICAN EAGLE INSURANCE COMPANY By: ------------------------------- Name: ----------------------------- Title: ---------------------------- GREAT AMERICAN INSURANCE COMPANY By: ------------------------------- Name: ----------------------------- Title: ---------------------------- EX-10.47 5 SETTLEMENT AGREEMENT & MUTUAL RELEASE - 11/4/97 1 EXHIBIT 10.47 SETTLEMENT AGREEMENT AND MUTUAL RELEASE American Eagle Group, Inc. ("AEG"), American Financial Group, Inc. ("AFG"), and Great American Insurance Company ("GAIC"), enter into this Settlement Agreement and Mutual Release (the "Agreement") effective as of November 4, 1997 (the "Effective Date"). 1. Concurrently with the execution of this Agreement, one or more of the parties to this Agreement are entering into a Renewal/Retention Commission Agreement and Escrow Agreement (collectively the "Related Agreements"). As between or among the parties to this Agreement, the terms and conditions of the Related Agreements are adopted and incorporated by reference as if fully set forth in this Agreement. True and correct copies of the Related Agreements are attached as Exhibits A and B, respectively, to this Agreement. 2. On the Effective Date, GAIC shall transfer, assign, and deliver to AEG, or cause to be transferred, assigned, and delivered to AEG, the 350,000 shares of Series D Preferred Stock of AEG (the "Purchased Securities") that AEG had issued to GAIC pursuant to the November 5, 1996 Securities Purchase Agreement by and between AEG and AFG, along with any dividends or other benefits accruing thereunder from the date that AEG issued the Purchased Securities to GAIC to the date of their return to AEG pursuant to this paragraph. GAIC warrants and represents to AEG that it has not assigned or transferred all or any portion of its interest in the Purchased Securities and dividends and other benefits accruing thereunder to any other person or entity and that it is returning the Purchased Securities and any dividends or other benefits accruing thereunder free and clear of any liens, security interests, or other claims of any other person or entity. AFG agrees to take such action as shall be necessary or appropriate to fulfill its obligations under this paragraph 2. 2 3. AFG, GAIC, and their respective directors, principals, officers, managers, supervisors, employees, agents, representatives, attorneys, accountants, actuaries, parents, subsidiaries, affiliates, predecessors, successors, and assigns, past, present, and future, directly or indirectly and in any capacity (collectively referred to hereafter as the "AFG Parties" and the "GAIC Parties" respectively), and except as limited below, hereby acquit, discharge, and release AEG and its respective directors, former directors and their affiliates, principals, officers, managers, supervisors, employees, agents, representatives, attorneys, accountants, actuaries, parents, subsidiaries, affiliates, predecessors, successors, and assigns, past or present (collectively referred to hereafter as the "AEG Parties") from any and all debts, damages, claims, liabilities, obligations, and causes of actions, whether known, unknown, or unforeseen, whether liquidated or unliquidated, from the beginning of time to the Effective Date of this Agreement. For purposes of this Agreement, including without limitation Section 4 hereof, the term "AEG Parties" includes, but is not limited to, the persons on the attached Exhibit C to this Agreement (1) in their individual capacities, (2) as present or former officers, directors, or employees of AEG, (3) as former officers, directors, or employees of American Eagle Insurance Company ("AEIC"), or (4) in any other capacity. Notwithstanding the first sentence of this paragraph, excepted from the scope of this release are any debts, damages, claims, liabilities, obligations, or causes of action arising under or in connection with this Agreement or with any of the Related Agreements. 4. The AEG Parties (other than AEIC), past, present, or future, directly or indirectly and in any capacity, and except as limited below, hereby acquit, discharge, and release the AFG Parties and the GAIC Parties from any and all debts, damages, claims, liabilities, obligations, and causes of actions, whether known, unknown, or unforeseen, whether liquidated or unliquidated, from the 3 beginning of time to the Effective Date of this Agreement. For purposes of this Agreement, including without limitation Section 3 hereof, the terms "AFG Parties" and "GAIC Parties" includes, but is not limited to, the persons on the attached Exhibit D to this Agreement (1) in their individual capacities, (2) as present or former officers, directors, or employees of AFG or GAIC, (3) as former officers, directors or employees of AFG or GAIC, or (4) in any other capacity. Notwithstanding the first sentence of this paragraph, excepted from the scope of this release are any debts, damages, claims, liabilities, obligations, or causes of action arising under or in connection with this Agreement or with any of the Related Agreements. 5. Each of the parties to this Agreement warrants and represents to each of the other parties to this Agreement, singly and collectively, that as of the Effective Date, and as of the date of his or its execution of this Agreement, that he or it has not assigned or transferred all or any portion of the debts, damages, claims, liabilities, obligations, and causes of actions being acquitted, discharged, or released under paragraphs 3 and 4 of this Agreement (the "Released Claims") to any other person or entity. 6. Each of the parties to this Agreement warrants and represents to each of the other parties to this Agreement, singly and collectively, that he or it has read and understood this Agreement and has entered into this Agreement of his or its own free will and accord after full opportunity to investigate the facts and law applicable to this Agreement and the transactions and disputes leading up to the execution of this Agreement and in accordance with his or its own judgment and upon advice of their own legal counsel, and states that he or it has not been induced to enter into this Agreement by any statement, act, or representation of any kind or character on the part of anyone except as expressly set forth in this Agreement. 4 7. Each of the parties to this Agreement warrants and represents to each of the other parties to this Agreement, singly and collectively, that each of the signatories to this Agreement is fully authorized to bind the respective parties to this Agreement. 8. Except to the extent required by law, each of the parties agrees that he or it will not make or publicize any statements to any third party regarding this Agreement, any of the Related Agreements, or any of the events, circumstances, transactions, or disputes leading up to the execution of this Agreement or any of the Related Agreements that would tend to damage the reputation or impeach the honesty, integrity, virtue, or reputation of any of the parties to this agreement or any of their respective directors, former directors, and their affiliates, principals, officers, managers, supervisors, employees, agents, representatives, attorneys, accountants, actuaries, parents, subsidiaries, affiliates, partners, joint venturers, predecessors, successors, and assigns, past and present. 9. The Agreement and the Related Agreements contain the entire agreement between or among the parties and supersedes any and all prior oral or written representations, statements, understandings, arrangements, or agreements between or among the parties. Neither this Agreement nor any term or condition of this Agreement may be altered, modified, amended, or waived except by a written agreement signed by the parties. 10. This Agreement was the product of arms-length negotiation between sophisticated parties represented by counsel. Accordingly, the parties agree that the rule that a contract shall be construed against the party who drafted it or selected its language shall have no application to the construction, interpretation, or enforcement of this Agreement. 5 11. This Agreement shall be binding on and inure to the benefit of the parties hereto and their respective heirs, representatives, successors, and assigns. 12. This Agreement may be executed in multiple counterparts. 13. In the event that any of the terms or conditions of this Agreement are held or ruled to be illegal, unenforceable, or invalid in whole or in part, such holding or ruling shall not affect the validity or enforceability of the other terms or conditions of this Agreement, and this Agreement shall be construed, interpreted, and enforced as if the illegal, unenforceable, or invalid provision or part thereof was never part of this Agreement. This Agreement shall be construed or interpreted wherever possible so as to give validity and effect to its terms or conditions and to effect the obligations of AFG set forth in paragraph 2 of this Agreement and the mutual releases set forth in paragraphs 3 and 4 of this Agreement. 14. Notwithstanding anything herein to the contrary, this Settlement Agreement and Mutual Release shall be effective only when (i) the Related Agreements have been executed by all parties thereto, (ii) the escrow deposit has been made by AEG, as required under the Escrow Agreement attached hereto as Exhibit B, and (iii) AFG and GAIC have received a release executed by AEIC in conservatorship, releasing the obligation of GAIC pursuant to the Purchase Agreement, dated July 31, 1997, to pay AEIC commissions based on renewals or reissuances of certain insurance policies, and acknowledging that AEG has assumed such obligation in place of GAIC. 15. New York law shall govern the validity, construction, performance, and enforcement of this Agreement. 6 AMERICAN EAGLE GROUP, INC. By: ----------------------- Title: -------------------- AMERICAN FINANCIAL GROUP, INC. By: ----------------------- Title: -------------------- GREAT AMERICAN INSURANCE COMPANY By: ----------------------- Title: -------------------- EX-27 6 FINANCIAL DATA SCHEDULE
7 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 50,470 0 0 0 0 0 50,470 1,254 72,548 0 207,170 133,214 26,724 35,384 2,798 0 1,428 0 71 (1,416) 207,170 17,629 2,304 (164) 648 34,297 14,430 0 (28,310) 1,277 (29,587) 0 21,878 0 (7,709) (1.21) (1.21) 72,993 20,569 12,604 11,935 31,871 62,360 (12,604)
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