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Filed Pursuant to Rule 424(b)(3)
File No. 333-31427
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AMERICAN FINANCIAL ONE EAST FOURTH STREET
GROUP, INC. CINCINNATI, OHIO 45202
TELEPHONE (513) 579-2121
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 2, 1997
Dear Shareholder:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of American
Financial Group, Inc. ("AFG") will be held at The Cincinnatian Hotel, 601 Vine
Street, Cincinnati, Ohio on December 2, 1997 at 10:00 a.m., Eastern Time, for
the following purposes:
1. To consider and act upon a proposal to approve an Agreement and Plan of
Reorganization, a copy of which is attached hereto as Annex A (the "AFG
Reorganization"), pursuant to which AFG would become a wholly-owned
subsidiary of a newly-formed holding company, American Financial Group
Holdings, Inc., an Ohio corporation ("AFG Holdings"), and each share of
AFG common stock would be converted into one share of AFG Holdings
common stock;
2. To grant authority to management to adjourn the meeting from time to
time to solicit additional votes on Proposal No. 1; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
The Board of Directors has approved the proposed AFG Reorganization and
recommends that you vote in favor of it. Details of the proposed AFG
Reorganization and other information concerning the AFG Special Meeting are
included in the accompanying Joint Proxy Statement/Prospectus. Please give this
material your careful attention.
Approval of the AFG Reorganization requires the affirmative vote of the
holders of a majority of the outstanding shares of AFG's common stock.
Accordingly, whether or not you plan to attend the AFG Special Meeting, please
complete, sign and date the accompanying Proxy Form and return it in the
enclosed envelope. If you attend the AFG Special Meeting, you may vote in
person, even if you have previously returned your Proxy Form. We would
appreciate your prompt consideration.
By Order of the Board of Directors,
James C. Kennedy
Secretary
Date: November 3, 1997
IF THE AFG REORGANIZATION IS CONSUMMATED, CERTIFICATES REPRESENTING SHARES OF
AFG WILL REPRESENT A LIKE NUMBER OF SHARES OF AFG HOLDINGS WITHOUT ANY FURTHER
ACTION. AS AFG HOLDINGS INTENDS TO CHANGE ITS NAME TO "AMERICAN FINANCIAL GROUP,
INC." FOLLOWING THE AFG REORGANIZATION, AFG SHAREHOLDERS WILL NOT BE REQUIRED TO
EXCHANGE THEIR EXISTING CERTIFICATES.
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AMERICAN FINANCIAL ONE EAST FOURTH STREET
ENTERPRISES, INC. CINCINNATI, OHIO 45202
TELEPHONE (513) 579-2171
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON DECEMBER 2, 1997
Dear Shareholder:
NOTICE IS HEREBY GIVEN that a Special Meeting of Shareholders of American
Financial Enterprises, Inc. ("AFEI") will be held at The Cincinnatian Hotel, 601
Vine Street, Cincinnati, Ohio on December 2, 1997 at 10:15 a.m., Eastern Time,
immediately following a special meeting of the shareholders of American
Financial Group, Inc. ("AFG"), for the following purposes:
1. To consider and act upon a proposal under which the shares of AFEI
common stock which AFG does not beneficially own would be acquired by a
new holding company parent of AFG and AFEI (the "AFEI Merger") pursuant
to the Agreement and Plan of Merger attached hereto as Annex B (the
"AFEI Merger Agreement"). Under the terms of the AFEI Merger Agreement,
AFEI would merge with a subsidiary of American Financial Group Holdings,
Inc. (a holding company newly-formed to own both AFG and AFEI, "AFG
Holdings"), pursuant to which each share of AFEI common stock, not then
beneficially owned by AFG, would be exchanged, at the option of each
AFEI shareholder, for either (i) one new share of AFG Holdings common
stock or (ii) $37.00 in cash;
2. To grant authority to management to adjourn the meeting from time to
time to solicit additional votes on Proposal No. 1; and
3. To transact such other business as may properly come before the meeting
or any adjournment thereof.
Based on the unanimous recommendation of a Special Committee of independent
directors, the Board of Directors has approved the proposed AFEI Merger and
recommends that you vote in favor of it. In arriving at its recommendation to
the Board, the Special Committee gave careful consideration to a number of
factors described in the enclosed Joint Proxy Statement/Prospectus, including an
opinion of Oscar Gruss & Son, Incorporated, the financial advisor of the Special
Committee, to the effect that the merger consideration is fair, from a financial
point of view, to holders of the common stock of AFEI, other than AFG and its
subsidiaries. Affiliates of Oscar Gruss & Son, Incorporated owned approximately
7.2% of AFEI Common Stock at September 30, 1997.
Details of the proposed AFEI Merger and other information concerning the
AFEI Special Meeting are included in the accompanying Joint Proxy
Statement/Prospectus. Please give this material your careful attention. Under
Sections 33-855 to 33-872, inclusive, of the Connecticut Business Corporation
Act ("CBCA"), holders of shares of AFEI's common stock are entitled to assert
dissenters' rights. The full text of those sections of the CBCA, as well as a
discussion of dissenters' rights, are contained in the Joint Proxy
Statement/Prospectus.
Under the AFEI Merger Agreement, approval of the AFEI Merger will require
the affirmative vote of both the holders of at least 80% of the outstanding
shares of AFEI's common stock and the holders of at least two-thirds of those
shares of AFEI's common stock not beneficially owned by AFG or its affiliates or
associates. Accordingly, whether or not you plan to attend the AFEI Special
Meeting, please complete, sign and date the accompanying Proxy Form and return
it in the enclosed envelope. If you attend the AFEI Special Meeting, you may
vote in person, even if you have previously returned your Proxy Form. We would
appreciate your prompt consideration.
By Order of the Board of Directors,
James C. Kennedy
Secretary
Date: November 3, 1997
YOUR VOTE IS IMPORTANT. PLEASE DATE, SIGN AND RETURN PROMPTLY THE ENCLOSED PROXY
FORM WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
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PROSPECTUS RELATING TO
61,660,397 SHARES OF COMMON STOCK OF
AMERICAN FINANCIAL GROUP HOLDINGS, INC.
------------------------
JOINT PROXY STATEMENT RELATING TO
SPECIAL MEETINGS OF THE SHAREHOLDERS OF
AMERICAN FINANCIAL GROUP, INC. AND AMERICAN FINANCIAL ENTERPRISES, INC.
BOTH TO BE HELD DECEMBER 2, 1997
INTRODUCTION
This Prospectus relates to the shares of Common Stock of American Financial
Group Holdings, Inc. ("AFG Holdings") to be issued in connection with (i) an
Agreement and Plan of Reorganization dated as of July 11, 1997, a copy of which
is attached hereto as Annex A (the "Reorganization Agreement"), providing for a
merger (the "AFG Reorganization") pursuant to which American Financial Group,
Inc. ("AFG") would become a wholly-owned subsidiary of AFG Holdings, and (ii) an
Agreement and Plan of Merger dated as of July 11, 1997, a copy of which is
attached hereto as Annex B (the "AFEI Merger Agreement"), providing for a merger
pursuant to which American Financial Enterprises, Inc. ("AFEI"), would become a
wholly-owned subsidiary of AFG Holdings (the "AFEI Merger"). The Prospectus also
serves as a Proxy Statement for Special Meetings of Shareholders of each of AFG
(the "AFG Meeting") and AFEI (the "AFEI Meeting"), both of which will be held on
November 25, 1997 (together, the "Special Meetings"). Upon the effectiveness of
the AFG Reorganization, each share of AFG Common Stock outstanding would be
automatically converted into one share of AFG Holdings Common Stock. Upon the
effectiveness of the AFEI Merger, each share of AFEI Common Stock outstanding
(other than shares which are beneficially owned by AFG) would be exchanged, at
the option of each AFEI shareholder, for either one share of AFG Holdings Common
Stock or $37.00 in cash. AFEI shareholders may elect to receive their merger
consideration partly in shares of AFG Holdings Common Stock and partly in cash.
AFG Common Stock is traded on the New York Stock Exchange and the AFG
Holdings Common Stock into which it would be exchanged on a share-for-share
basis is expected to be approved for listing on the same exchange upon
consummation of the AFG Reorganization. AFEI Common Stock is traded on the
Pacific Exchange. On October 30, 1997, the closing price for AFG Common Stock on
the New York Stock Exchange was $37 13/16 per share. On October 30, 1997, the
closing price for AFEI Common Stock on the Pacific Exchange was $39 7/8 per
share.
SEE "RISK FACTORS" BEGINNING ON PAGE 18 FOR A DISCUSSION OF
CERTAIN FACTORS WHICH SHOULD BE CONSIDERED BEFORE VOTING.
This Joint Proxy Statement/Prospectus and the accompanying proxy are first
being mailed to shareholders of both AFG and AFEI on or about November 4, 1997.
The date of this Joint Proxy Statement/Prospectus is November 3, 1997.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE
COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS PASSED UPON THE ACCURACY OR
ADEQUACY OF THE INFORMATION CONTAINED IN THIS JOINT PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
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NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS JOINT PROXY
STATEMENT/PROSPECTUS IN CONNECTION WITH THE SOLICITATION OF PROXIES HEREBY AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY AFG HOLDINGS, AFG, AFEI OR ANY OTHER PERSON. THIS
JOINT PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO PURCHASE ANY SECURITIES OTHER THAN THE SHARES OF AFG
HOLDINGS TO WHICH IT RELATES, OR AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO PURCHASE ANY SECURITIES COVERED BY THIS JOINT PROXY STATEMENT/PROSPECTUS OR
THE SOLICITATION OF A PROXY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM,
IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY OF
THIS JOINT PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SUCH SHARES SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF AFG HOLDINGS, AFG OR AFEI SINCE THE DATE HEREOF, OR THE DATE AS
OF WHICH CERTAIN INFORMATION IS SET FORTH HEREIN.
AVAILABLE INFORMATION
AFG and AFEI are each subject to the informational requirements of the
Securities and Exchange Act of 1934 (the "Exchange Act"), and in accordance
therewith each files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). These materials can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 75 Park Place, 14th Floor, New York, New
York 10007 and Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511. Copies can also be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
Such material may also be accessed electronically by means of the Commission's
home page on the World Wide Web located at http://www.sec.gov. In addition,
material filed by AFG can be inspected at the offices of the New York Stock
Exchange, Inc. (the "NYSE"), 20 Broad Street, New York, New York 10005, on which
the AFG Common Stock is traded. AFEI Common Stock is traded on the Pacific
Exchange. Reports can be inspected at the offices of the Pacific Exchange at 301
Pine Street, San Francisco, California 94104, Attention: Records Department.
AFG Holdings has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act of 1933
(the "Securities Act"). This Joint Proxy Statement/Prospectus does not contain
all the information set forth in the Registration Statement, certain portions of
which are omitted in accordance with the Rules and Regulations of the
Commission. For further information pertaining to AFG Holdings and the shares to
be issued in the AFG Reorganization and the AFEI Merger, reference is made to
the Registration Statement and the exhibits thereto, which may be inspected
without charge at the office of the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission by AFG and AFEI are
incorporated herein by reference:
1. Annual Report of AFG on Form 10-K for the year ended December 31, 1996,
as amended on April 30, 1997 and October 29, 1997;
2. Quarterly Reports of AFG on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997;
3. Current Report of AFG on Form 8-K dated July 14, 1997;
4. Proxy Statement of AFG for its 1997 Annual Meeting of Shareholders;
5. Annual Report of AFEI on Form 10-K for the year ended December 31, 1996,
as amended on April 30, 1997;
6. Quarterly Reports of AFEI on Form 10-Q for the quarters ended March 31,
1997 and June 30, 1997; and
7. Current Report of AFEI on Form 8-K dated July 14, 1997.
All documents filed after the date hereof by AFG or AFEI pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, and prior to the
termination of the offering hereunder, shall be deemed to be incorporated in
this Joint Proxy Statement/Prospectus by reference and to be a part of this
Joint Proxy Statement/Prospectus from the date of filing of such documents.
AFG and AFEI undertake to provide without charge to each person to whom a
copy of this Joint Proxy Statement/ Prospectus has been delivered, on the
written or oral request of any such person, a copy of any or all of the
information that has been incorporated by reference herein (not including
exhibits to information incorporated by reference unless such exhibits are
specifically incorporated by reference to information that this Joint Proxy
Statement/Prospectus incorporates). These documents are available, upon request,
from Fred J. Runk, Senior Vice President and Treasurer, American Financial
Group, Inc., One East Fourth Street, Cincinnati, Ohio 45202, telephone (513)
579-2488. In order to ensure timely delivery of the documents, any request
should be made by five business days prior to the Special Meetings. AFG Holdings
intends to furnish shareholders with annual reports containing audited financial
statements.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Joint Proxy Statement/
Prospectus to the extent that a statement contained herein or in any
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of the Registration Statement or this Joint Proxy
Statement/Prospectus.
2
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TABLE OF CONTENTS
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Introduction.......................................................................... 1
Available Information................................................................. 2
Documents Incorporated By Reference................................................... 2
Corporate Structure................................................................... 5
Summary............................................................................... 6
Proposed Reorganization And Merger Transactions....................................... 6
The Parties......................................................................... 6
The AFG Reorganization.............................................................. 7
The AFEI Merger..................................................................... 8
The Special Meetings................................................................ 10
The AFC Merger...................................................................... 10
Summary Historical Financial Information.............................................. 12
Summary Pro Forma Financial Information (Unaudited)................................... 13
Comparative Per Share Data............................................................ 14
Comparative Per Share Market Information.............................................. 15
Introduction.......................................................................... 16
The AFG Meeting....................................................................... 16
General............................................................................. 16
Record Date; Shares Entitled to Vote; Vote Required................................. 16
Proxy Solicitation.................................................................. 17
The AFEI Meeting...................................................................... 17
General............................................................................. 17
Record Date; Shares Entitled to Vote; Vote Required................................. 17
Proxy Solicitation.................................................................. 18
Risk Factors.......................................................................... 18
Holding Company Structure; Dividend Restrictions.................................... 18
Cyclicality of the Insurance Industry; Impact of Catastrophes....................... 18
Regulation.......................................................................... 19
Ratings; Competition................................................................ 19
Investment Portfolio; Effects of Changes in Interest Rates.......................... 19
Annuity Product Concentration; Potential Impact of Future Changes in Federal Income
Tax Treatment of Annuity Products................................................ 20
Adequacy of Insurance Loss Reserves................................................. 20
Reinsurance......................................................................... 21
USX Litigation...................................................................... 21
Special Factors....................................................................... 22
Background of and Reasons for the AFEI Merger....................................... 22
Recommendations of the Special Committee and the Board of Directors of AFEI; Reasons
for Recommendations.............................................................. 25
Opinion of Financial Advisor........................................................ 26
Summary of Analysis................................................................. 27
Certain Holdings of AFG and AFEI Common Stock....................................... 29
Certain Litigation Affecting the AFEI Merger........................................ 30
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The AFG Reorganization................................................................ 31
General............................................................................. 31
Conditions to the AFG Reorganization................................................ 31
Principal Reasons for the AFG Reorganization........................................ 31
AFG Holdings Company Structure, No Change in AFG's Business......................... 31
Vote Required....................................................................... 32
Directors' Recommendation........................................................... 32
Name Changes........................................................................ 32
Authorized Capital Stock............................................................ 32
AFG Holdings' Board of Directors, Management........................................ 32
Dissenters' Rights.................................................................. 32
The AFEI Merger....................................................................... 33
Terms of the Merger................................................................. 33
Vote Required....................................................................... 34
Effective Time of the Acquisition................................................... 34
Effect on Common Stock; Effect on Stock Options..................................... 34
Cash Election....................................................................... 34
Conditions.......................................................................... 34
Amendment and Termination........................................................... 35
Expenses............................................................................ 35
Dissenters' Rights.................................................................. 35
Certain United States Federal Income Tax Consequences................................. 37
Tax Treatment of the Merger Transactions............................................ 37
Tax Basis of AFG Holdings Common Stock.............................................. 37
Holding Period of AFG Holdings Common Stock......................................... 38
Backup Withholding on Cash Payments................................................. 38
Pro Forma Financial Information....................................................... 39
Description Of Capital Stocks......................................................... 44
AFG Holdings........................................................................ 44
AFG................................................................................. 44
AFEI................................................................................ 45
Comparative Rights.................................................................... 45
AFG Holdings and AFG Shareholders................................................... 45
AFG Holdings and AFEI Shareholders.................................................. 45
Legal Matters......................................................................... 48
Experts............................................................................... 48
Shareholder Proposals For 1998 Annual Meeting......................................... 48
Financial Statements Of AFG Holdings.................................................. 49
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Annex A Agreement and Plan of Reorganization among AFG Acquisition Corp.,
American Financial Group Holdings, Inc. and American Financial Group,
Inc. dated July 11, 1997.
Annex B Agreement and Plan of Merger among American Financial Enterprises,
Inc., AFEI Acquisition Corp., American Financial Group Holdings, Inc.
and American Financial Group, Inc. dated July 11, 1997.
Annex C Opinion of Oscar Gruss & Son, Incorporated, dated July 9, 1997.
Annex D Ohio Dissenters' Rights Statute
Annex E Connecticut Dissenters' Rights Statute
4
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CORPORATE STRUCTURE
The following summary organizational chart illustrates the current and
proposed common stock ownership relationships among AFG and certain of its
subsidiaries. It does not reflect precise ownership relationships.
CORPORATE CHART
LOGO
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(a) Assuming the consummation of the transactions described herein.
5
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SUMMARY
The following summary has been prepared to assist (i) the shareholders of
AFG in their consideration of the AFG Reorganization and (ii) the shareholders
of AFEI in their consideration of the AFEI Merger. This summary is qualified in
its entirety by the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Joint Proxy
Statement/Prospectus and as incorporated herein by reference.
PROPOSED REORGANIZATION AND MERGER TRANSACTIONS
At the AFG Meeting, the shareholders of AFG will consider the AFG
Reorganization pursuant to which AFG would become a wholly-owned subsidiary of
AFG Holdings and the former shareholders of AFG will become shareholders of AFG
Holdings. At the AFEI Meeting, the shareholders of AFEI will consider the AFEI
Merger pursuant to which AFEI would merge with a subsidiary of AFG Holdings and
each share of AFEI common stock not then beneficially owned by AFG would be
exchanged, at the option of each AFEI shareholder, for either one share of AFG
Holdings common stock or $37.00 in cash.
In early 1997, AFG and AFEI began examining the feasibility of a
transaction whereby AFEI would become a wholly owned subsidiary of AFG. AFG
proposed the AFEI Merger so that it would not incur the costs (estimated to be
approximately $500,000 annually) and other burdens associated with AFEI having
public shareholders. AFG believed that since at least one principal outside
shareholder of AFEI held shares of AFEI Common Stock with a very low tax basis,
any proposed transaction should be structured to be tax-free to AFEI
shareholders. For that reason, as well as the facts that AFG Common Stock
represents approximately three-fourths of AFEI's assets and AFEI is a subsidiary
of AFG, AFEI did not consider alternatives to a merger with AFG. AFG management
believes that the form of the AFG Reorganization and AFEI Merger accomplish the
goals of the transactions more fully set forth below under "Summary -- Reasons
for the AFG Reorganization and Formation of AFG Holdings" and "-- Reasons for
the AFEI Merger" and has determined, subject to the qualifications noted below
in "Certain United States Federal Income Tax Consequences," that the
transactions will be tax-free to the shareholders of AFG and AFEI receiving
solely AFG Holdings Common Stock. The AFEI Merger is conditioned upon the
closing of the AFG Reorganization.
THE PARTIES
AMERICAN FINANCIAL GROUP,
INC........................ AFG, through its ownership of American Financial
Corporation ("AFC"), is engaged primarily in
specialty and multi-line property and casualty
insurance businesses and in the sale of
tax-deferred annuities and certain life and health
insurance products. AFG's principal executive
offices are located at One East Fourth Street,
Cincinnati, Ohio 45202; its telephone number is
(513) 579-2121.
AFG HOLDINGS............... AFG Holdings is a recently formed Ohio corporation
which does not itself conduct any business
operations. AFG Holdings owns all of the
outstanding stock of AFEI Acquisition Corp. and AFG
Acquisition Corp., both of which were recently
formed solely to serve as acquisition vehicles to
facilitate the AFG Reorganization and the AFEI
Merger. In the AFG Reorganization, AFG Holdings
would acquire the stock of AFG. As a result of the
AFEI Merger, AFG Holdings would also own, directly
or indirectly, all of the outstanding stock of
AFEI. Upon the consummation of the AFG
Reorganization, AFG Holdings will change its name
to "American Financial Group, Inc." and AFG will
change its name to "AFC Holding Company." See "The
AFG Reorganization -- Name Changes." AFG Holdings'
principal executive offices are those of AFG.
6
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AMERICAN FINANCIAL
ENTERPRISES, INC........... AFEI's assets consist primarily of cash and
investments in AFG and American Annuity Group, Inc.
("AAG"), an 81%-owned subsidiary of AFC. Its
principal executive offices are located at One East
Fourth Street, Cincinnati, Ohio 45202. AFEI's
telephone number is (513) 579-2172.
COMMON CONTROL............. At September 30, 1997, Carl H. Lindner, members of
his family and trusts for their benefit (the
"Lindner Family") beneficially owned (exclusive of
employee stock options) approximately 45% of the
outstanding Common Stock of AFG, which in turn
beneficially owned 80.7% of the outstanding shares
of AFEI Common Stock and 100% of the outstanding
shares of AFC Common Stock.
THE AFG REORGANIZATION
GENERAL, EXCHANGE RATIO.... The Reorganization Agreement provides that AFG will
merge with AFG Acquisition Corp., a recently formed
Ohio corporation wholly-owned by AFG Holdings.
Pursuant to the AFG Reorganization, each share of
AFG Common Stock would be converted into one share
of AFG Holdings Common Stock. Outstanding employee
stock options of AFG would be converted into
similar employee stock options of AFG Holdings on a
share-for-share basis. See "The AFG
Reorganization -- General."
REASONS FOR THE AFG
REORGANIZATION........... The principal reasons for the AFG Reorganization
are to reduce administrative costs and
inefficiencies and facilitate the elimination of
one publicly traded company. See "The AFG
Reorganization -- Principal Reasons for the AFG
Reorganization."
CONDITIONS TO THE AFG
REORGANIZATION........... The consummation of the AFG Reorganization is
subject to approval by the shareholders of AFG.
Management has been advised by members of the
Lindner Family that the Lindner Family plans to
vote its shares of AFG Common Stock in favor of the
AFG Reorganization. See "The AFG
Reorganization -- Vote Required and Board of
Directors' Recommendation." The AFG Board of
Directors may abandon the AFG Reorganization if the
Board believes that the AFG Reorganization is no
longer in the best interests of AFG and its
shareholders.
TAX EFFECT ON
SHAREHOLDERS............... AFG believes that the AFG Reorganization will be
tax-free to all shareholders of AFG receiving AFG
Holdings Common Stock and that the basis and
holding period for AFG Holdings Common Stock
received will be those attributed to shares
surrendered in the AFG Reorganization. See "Certain
United States Federal Income Tax Consequences."
NAME CHANGES............... Upon the consummation of the AFG Reorganization,
AFG Holdings will change its name to "American
Financial Group, Inc." and AFG will change its name
to "AFC Holding Company." See "The AFG
Reorganization -- Name Changes."
CERTAIN BENEFIT PLANS...... As of the Effective Time, AFG Holdings will have
adopted the AFG stock option plan, dividend
reinvestment plan and employee stock purchase plan.
7
<PAGE> 10
DISSENTERS' RIGHTS......... Record holders of AFG Common Stock not voted in
favor of the AFG Reorganization may exercise the
rights of a dissenting shareholder by complying
with Ohio law. Dissenters' rights entitle such
holders to receive the fair cash value of their
shares in the form of a cash payment under the
circumstances provided by Ohio law. A written
demand must be served upon AFG Holdings on or
before the tenth day after the shareholder vote to
initiate the process. Beneficial owners of shares
must contact the record owner of the shares, such
as a bank or broker, to exercise these rights. See
"The AFG Reorganization -- Dissenters' Rights" on
page 31.
THE AFEI MERGER
GENERAL, CONSIDERATION..... The AFEI Merger Agreement provides for AFEI to
merge with AFEI Acquisition Corp., a recently
formed Connecticut corporation wholly-owned by AFG
Holdings. In the AFEI Merger, each share of AFEI
Common Stock not then beneficially owned by AFG
would be exchanged, at the option of the holder,
for either one share of AFG Holdings Common Stock
or $37.00 in cash. The AFEI Merger consideration
was established through arms' length negotiations
and has been approved by a Special Committee made
up of the independent members of the AFEI Board of
Directors, after a review of an opinion by Oscar
Gruss & Son, Incorporated ("Gruss") as to the
fairness of the consideration, from a financial
point of view, to be received by holders of AFEI
Common Stock other than AFG and its subsidiaries.
See "Special Factors -- Opinion of Financial
Advisor."
REASONS FOR THE AFEI
MERGER..................... As a result of the AFEI Merger, AFEI would no
longer be a public company. This would provide
savings to AFEI and AFG from not having to incur
the costs and other burdens associated with AFEI
having public shareholders estimated to be
approximately $500,000 annually (AFG estimates the
one-time transaction costs of the AFG
Reorganization and AFEI Merger to be approximately
$2.2 million). The AFEI Merger would also simplify
AFG's corporate structure by eliminating a public
subsidiary whose principal asset is AFG Common
Stock. See "Special Factors -- Background of and
Reasons for the AFEI Merger."
CONDITIONS TO THE AFEI
MERGER..................... The consummation of the AFEI Merger is subject to
various conditions, including approval of the AFEI
Merger by holders of at least two-thirds of the
shares of Common Stock of AFEI other than AFG, and
the completion of the AFG Reorganization. See "The
AFEI Merger -- Conditions."
EFFECT ON STOCK OPTIONS.... Pursuant to the AFEI Merger Agreement holders of
options to acquire AFEI Common Stock wishing to
exercise such options must do so prior to the
Effective Time, at which time such options would
otherwise expire. See "The AFEI Merger -- Effect on
Common Stock; Effect on Stock Options."
INTENTION OF CERTAIN
PERSONS WITH RESPECT TO THE
AFEI MERGER.............. AFG and AFEI directors and executive officers who
beneficially own approximately 420,000 shares (3%)
of AFEI Common Stock and Regina Gruss, who
beneficially owns 986,472 (7.2%) of AFEI's Com-
8
<PAGE> 11
mon Stock, have expressed their intention to vote
in favor of the AFEI Merger and receive AFG Common
Stock in the AFEI Merger. The Merger would result
in Mrs. Gruss owning approximately 1.5% of AFG's
Common Stock.
CONFLICTS OF INTEREST...... Directors, executive officers and persons
affiliated with AFG hold five of the seven
directorships and the positions of Chairman of the
Board and President of AFEI.
RECOMMENDATION OF THE BOARD
OF DIRECTORS OF AFEI....... Based solely on the unanimous recommendation of the
Special Committee, the Board of Directors has
unanimously approved the AFEI Merger and has
recommended that AFEI's shareholders vote in favor
of the AFEI Merger. See "Special
Factors -- Recommendations of the Special Committee
and the Board of Directors of AFEI; Reasons for
Recommendations."
OPINION OF FINANCIAL
ADVISOR.................... On July 9, 1997, Oscar Gruss & Son, Incorporated,
financial advisor engaged by the Special Committee
of AFEI's Board of Directors, delivered its opinion
to the effect that the AFEI Merger consideration is
fair from a financial point of view to holders of
AFEI Common Stock, other than AFG and its
affiliates. Directors, officers and shareholders of
Gruss beneficially own approximately 16,000 shares
of AFEI Common Stock. In addition, Regina Gruss, a
family member of a principal of the firm, owns
approximately one million shares of AFEI Common
Stock. See "Special Factors -- Certain Holdings of
AFG and AFEI Common Stock."
CASH ELECTION.............. Holders of shares of AFEI Common Stock must fill
out and return a properly completed Letter of
Transmittal by the Effective Time if they desire to
receive their merger consideration in cash, or
partly in cash and partly in AFG Holdings Common
Stock. If no election is specified by a
shareholder, or if a Letter of Transmittal is not
received by AFG Holdings on or before the Effective
Time, such shareholder will receive solely AFG
Holdings Common Stock.
DISSENTERS' RIGHTS......... AFEI shareholders may elect dissenters' rights
under Connecticut law, but only as to all shares
beneficially owned by such holder and only if none
of such shares beneficially owned are voted in
favor of the AFEI Merger. Dissenters' rights
entitle such holders to receive the fair value of
their shares in the form of a cash payment under
the circumstances provided by Connecticut law.
Notice of exercise of this right must be given to
AFEI prior to the vote on approval of the AFEI
Merger to initiate the process. Beneficial owners
of shares must contact the record owner of the
shares, such as a bank or broker, to exercise this
right. See "The AFEI Merger -- Dissenters' Rights"
on page 35.
TAX EFFECT ON
SHAREHOLDERS............... AFEI believes that the AFEI Merger will be tax-free
to those shareholders of AFEI taking only shares of
AFG Holdings Common Stock in the AFEI Merger. Those
shareholders of AFEI taking only cash in the AFEI
Merger may recognize taxable gain or loss in an
amount equal to the difference between the cash
received and the particular shareholder's basis in
the shares of AFEI Common Stock surrendered. Those
shareholders of AFEI taking a combination of some
shares of AFG Holdings Common Stock and some cash
may recognize taxable income on the
9
<PAGE> 12
transfer, but only to the extent of the cash
received in the exchange. See "Certain United
States Federal Income Tax Consequences."
LAWSUIT.................... On April 28, 1997, AFG, AFEI and six of AFEI's
seven directors were sued based on allegations that
the price to be paid by AFG Holdings in the AFEI
Merger is unfair to AFEI shareholders. On September
24, 1997, counsel for the plaintiffs filed a motion
for approval of withdrawal of class action.
Management of AFEI believes that the lawsuit is
without merit. See "Special Factors -- Certain
Litigation Affecting the AFEI Merger."
THE SPECIAL MEETINGS
TIME, DATE AND PLACE....... The Special Meetings will be held on Tuesday,
December 2, 1997, at The Cincinnatian Hotel, 601
Vine Street, Cincinnati, Ohio. The AFG Meeting will
be held at 10:00 a.m. and the AFEI Meeting will be
held immediately following at 10:15 a.m., or later,
Eastern Time.
RECORD DATE FOR THE
MEETINGS................... October 10, 1997
SHARES ENTITLED TO VOTE.... AFG: 57,604,920 shares
AFEI: 13,617,521 shares
VOTE REQUIRED TO APPROVE
THE AFG REORGANIZATION..... The affirmative vote of a majority of the
outstanding shares of AFG Common Stock.
VOTE REQUIRED TO APPROVE
THE AFEI MERGER............ The affirmative vote of at least 80% of the
outstanding shares of AFEI Common Stock, and
two-thirds of those shares of AFEI Common Stock not
beneficially owned by AFG or its affiliates and
associates.
EXPECTED VOTING AT THE
MEETINGS................... The Lindner Family has advised AFG Management that
they plan to vote the approximately 45% of the
outstanding shares of AFG Common Stock owned by
them in favor of the AFG Reorganization.
AFG and Regina Gruss have expressed their intention
to vote the approximately 80.7% and 7.2% of the
outstanding shares of AFEI Common Stock
beneficially owned by them, respectively, in favor
of the AFEI Merger.
THE AFC MERGER
GENERAL, CONSIDERATION..... In July 1997, AFG and AFC entered into an Agreement
and Plan of Merger which provides for AFC to merge
with AFC Acquisition Corp., a recently formed Ohio
corporation wholly-owned by AFC (the "AFC Merger").
The Agreement and Plan of Merger was amended and
restated in October 1997.
In the AFC Merger, each share of AFC Series F
Preferred Stock would be converted into the right
to receive merger consideration equal to the
greater of (i) $23.75 or (ii) a Fixed Spread Price
which represents an amount which would provide a
current yield of 140 basis points (1.40%) over the
yield on a reference security (the 6 5/8% U.S.
Treasury Bond due February 2027), plus $0.75. Each
share of AFC Series G Preferred Stock would be
converted into the right to receive merger
consideration equal to $10.50.
The aggregate merger consideration to be received
by an AFC preferred shareholder would be payable,
at the holder's election, either in shares of
10
<PAGE> 13
new AFC Series J Preferred Stock (having a
liquidation value of $25.00 and paying an annual
dividend of $2.00 per share), in cash, or in a
combination of the two.
If the AFC Merger is consummated, the liquidation
value of the AFC preferred stock outstanding will
be reduced from $259 million to approximately $70.4
million and the annual AFC preferred stock dividend
requirement will be reduced from $23.5 million to
approximately $5.6 million.
Neither the AFG Reorganization nor the AFEI Merger
is conditioned upon the completion of the AFC
Merger and neither AFG nor AFEI shareholders will
vote on the AFC Merger proposal.
RECENT DEVELOPMENTS
SALE OF SUBSIDIARY......... On October 22, 1997, AFG announced that it agreed
to sell the assets of its wholly-owned subsidiary,
Millennium Dynamics, Inc., to a subsidiary of
Peritus Software Services, Inc. AFG is to receive
$30 million in cash and up to 2.222 million shares
of Peritus common stock and expects to realize a
pre-tax gain of approximately $65 million. The
actual number of shares will be determined by a
formula based on the average closing price of
Peritus common stock. The transaction is subject to
certain conditions, including regulatory approval.
AFG THIRD QUARTER
RESULTS.................... Also on October 22, 1997, AFG reported its earnings
for the three and nine months ended September 30.
The following information was derived from that
news release.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
1997 1996 1997 1996
------- ------ ------ ------
<S> <C> <C> <C> <C>
NINE MONTHS ENDED
SEPTEMBER 30,
Earnings before extraordinary items....... $ 33.7 $121.5(a) $158.1 $261.1(a)
Extraordinary Items....................... (7.0) (2.4) (7.1) (25.9)
Net Earnings.............................. $ 26.7 $113.1 $151.0 235.2
Earnings Per Common Share:
Earnings before extraordinary items..... $ .57 $ 2.00 $ 2.65 $ 4.30
Extraordinary Items..................... (.12) (.14) (.12) (.43)
Net Earnings............................ $.45.... $ 1.86 $ 2.53 $ 3.87
Combined Ratio (GAAP)..................... 102.0% 100.7%(b) 99.8% 100.5%(b)
</TABLE>
(a) Earnings for the 1996 third quarter included $165.7 million ($2.72 per
share) of net realized gains, principally from the sale of AFG's
investment in Citicasters Inc., and a charge of $80 million ($1.31 per
share) resulting from strengthening of the insurance reserves relating
to asbestos and other environmental matters.
(b) Excluding the $80 million reserve charge in 1996.
Third quarter operating results declined due primarily to deteriorating
underwriting margins in the California workers' compensation business, several
unusually large commercial lines casualty losses and a nonrecurring charge
associated with an arbitration settlement.
11
<PAGE> 14
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial information of AFG set forth below (in millions,
except per share amounts) is derived from, and should be read in conjunction
with, the financial statements and other financial information which are
incorporated herein by reference. Results for interim periods are not
necessarily indicative of results to be expected for the year.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Total Revenues................. $1,933.4 $2,063.7 $4,115.4 $3,629.6 $2,104.3 $2,720.7 $3,928.9
Earnings (Loss) From Continuing
Operations Before Income
Taxes........................ 197.0 204.8 353.3 246.9 43.6 262.0 (144.9)
Earnings (Loss) From:
Continuing Operations........ 124.4 139.5 262.0 190.4 18.9 224.7 (162.3)
Extraordinary Items.......... (.1) (17.5) (28.7) .8 (16.8) (4.6) --
Cumulative Effect of
Accounting Change.......... -- -- -- -- -- -- 85.4
Net Earnings (Loss)............ 124.3 122.0 233.3 191.2 2.1 220.1 (76.9)
Earnings (Loss) Per Common
Share (a):
Continuing Operations........ $2.07 $2.30 $4.31 $3.87 ($.24) $7.01 ($6.66)
Extraordinary Items.......... -- (.29) (.47) .01 (.59) (.16) --
Cumulative Effect of
Accounting Change.......... -- -- -- -- -- -- 3.02
Net Earnings (Loss).......... 2.07 2.01 3.84 3.88 (.83) 6.85 (3.64)
Cash Dividends Paid Per Share
of Common Stock.............. $.50 $.50 $1.00 $.75 (b) (b) (b)
BALANCE SHEET DATA:
Total Assets................... $15,358.1 $14,820.9 $15,051.1 $14,953.9 $10,592.7 $10,077.5 $12,388.8
Long-term Debt................. 470.1 678.0 517.9 882.1 1,106.7 1,054.0 2,009.2
Minority Interest (c).......... 656.1 301.9 494.4 314.4 105.5 109.2 812.7
Capital Subject to Mandatory
Redemption................... -- -- -- -- 2.9 49.2 27.7
Other Capital.................. 1,618.9 1,395.5 1,554.4 1,440.1 396.0 537.2 280.0
</TABLE>
- ---------------
(a) The number of shares used for periods prior to April 1995 is the 28.3
million AFG shares issued in exchange for AFC shares in the merger
transactions completed in April 1995.
(b) Prior to the April 1995 mergers involving AFC and American Premier
Underwriters, Inc. ("APU") which created AFG, AFC's common stock was
privately held by members of the Lindner family. In 1995, APU declared and
paid cash dividends per share of $.25 prior to the mergers; it also declared
cash dividends of $.91 in 1994, $.85 in 1993 and $.81 in 1992. AFG declared
two quarterly $.25 per share dividends subsequent to the mergers in 1995.
(c) Includes AFC preferred stock following the mergers in 1995 and preferred
securities issued in 1996 and 1997 by trust subsidiaries of AFG.
12
<PAGE> 15
SUMMARY PRO FORMA FINANCIAL INFORMATION (UNAUDITED)
The summary pro forma unaudited financial information of AFG set forth
below (in millions, except per share amounts) is derived from, and should be
read in conjunction with, the information appearing herein under "Pro Forma
Financial Information." The Earnings Statement Data assumes that the AFEI Merger
and AFC Merger were consummated on January 1, 1996. The Balance Sheet Data at
June 30, 1997 assumes the Mergers were consummated at that date. The pro forma
earnings statement data do not necessarily reflect results of operations of AFG
which would have actually resulted had the Mergers occurred as of the date
indicated, nor should they be taken as indicative of AFG's future results of
operations.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997 YEAR ENDED DECEMBER 31, 1996
---------------------------------------------- ----------------------------------------------
PRO FORMA PRO FORMA
--------------------------------- ---------------------------------
HISTORICAL ALL STOCK 50% CASH 100% CASH HISTORICAL ALL STOCK 50% CASH 100% CASH
---------- --------- --------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Total Revenues........ $ 1,933.4 $ 1,933.4 $ 1,933.4 $1,933.4 $ 4,115.4 $ 4,115.4 $ 4,115.4 $4,115.4
Earnings Before Income
Taxes and
Extraordinary
Items............... 197.0 206.5 206.5 206.5 353.3 379.4 379.4 379.4
Earnings Before
Extraordinary
Items............... 124.4 133.9 133.9 133.9 262.0 288.1 288.1 288.1
Earnings Before
Extraordinary Items
Per Common Share.... $ 2.07 $ 2.13 $ 2.17 $ 2.22 $ 4.31 $ 4.53 $ 4.63 $ 4.74
BALANCE SHEET DATA:
Total Assets.......... $ 15,358.1 $15,129.4 $15,078.2 $15,027.0
Long-Term Debt........ 470.1 470.1 470.1 470.1
Minority Interest..... 656.1 493.0 493.0 493.0
Total Shareholders'
Equity.............. $ 1,618.9 $ 1,553.3 $ 1,502.1 $1,450.9
</TABLE>
13
<PAGE> 16
COMPARATIVE PER SHARE DATA
The following table presents certain per share data derived from historical
financial statements of AFG and AFEI and as adjusted to reflect consummation of
the AFG Reorganization, the AFEI Merger and the AFC Merger. This pro forma
information is not necessarily indicative of actual or future operating results
or financial position that would occur upon consummation of such transactions.
This information should be read in conjunction with the information appearing
under "Pro Forma Financial Information" and the separate historical consolidated
financial statements of AFG and AFEI which are incorporated herein by reference.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1997
----------------------------------------------------------
HISTORICAL PRO FORMA
----------------- ------------------------------------
AFG AFEI ALL STOCK 50% CASH 100% CASH
------ ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE (a):
Earnings Before Extraordinary Items....... $ 2.07 $ 0.51 $ 2.13 $ 2.17 $ 2.22
Book Value................................ 27.48 33.65(b) 25.18 24.91 24.63
Cash Dividends Declared................... 0.50 0.20 0.50 0.50 0.50
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------------
HISTORICAL PRO FORMA
----------------- ------------------------------------
AFG AFEI ALL STOCK 50% CASH 100% CASH
------ ------ --------- -------- ---------
<S> <C> <C> <C> <C> <C>
PER COMMON SHARE (a):
Earnings Before Extraordinary Items....... $ 4.31 $ 4.26 $ 4.53 $ 4.63 $ 4.74
Book Value................................ 25.45 31.91(b) 23.32 23.02 22.70
Cash Dividends Declared................... 1.00 0.40 1.00 1.00 1.00
</TABLE>
- ---------------
(a) Since AFEI shareholders receive cash or AFG Common Stock on a
share-for-share basis, the AFG Holdings pro forma per share amounts shown
above also represent pro forma amounts for AFEI shareholders.
(b) Includes AFEI's carrying value in AFG Common Stock of $42.62 per share at
June 30, 1997, and $39.93 per share at December 31, 1996. Accordingly, pro
forma comparison is not meaningful.
14
<PAGE> 17
COMPARATIVE PER SHARE MARKET INFORMATION
AFG Common Stock is traded on the New York Stock Exchange. AFEI Common
Stock is traded on the Pacific Exchange.
The information below shows the high and low sales prices per share of AFG
Common Stock as reported on the NYSE Composite Tape and of AFEI as reported on
the Pacific Exchange and the dividends paid.
<TABLE>
<CAPTION>
AFG COMMON AFEI COMMON
STOCK STOCK
-------------- DIVIDENDS -------------- DIVIDENDS
HIGH LOW PAID HIGH LOW PAID
----- ---- --------- ----- ---- ---------
<S> <C> <C> <C> <C> <C> <C>
1995
-----
First Quarter (a)............... $261/8 $22 7/8 $ .25 $24 $21 1/4 $ .10
Second Quarter (a).............. 261/4 23 1/4 .25 223/4 20 5/8 .10
Third Quarter................... 321/8 25 1/4 .25 231/2 22 1/4 .10
Fourth Quarter.................. 305/8 27 3/4 .25 241/2 23 3/4 .25
1996
-----
First Quarter................... 341/2 29 3/4 .25 26 22 5/8 .10
Second Quarter.................. 32 28 1/2 .25 25 23 1/2 .10
Third Quarter................... 331/4 28 .25 26 22 1/4 .10
Fourth Quarter.................. 387/8 31 1/4 .25 281/4 25 1/2 .10
1997
-----
First Quarter................... 383/8 34 7/8 .25 371/4 25 .10
Second Quarter.................. 423/4 32 3/8 .25 39 36 .10
Third Quarter................... 491/4 42 3/16 .25 48 39 1/2 .10
Fourth Quarter (through October
28)........................... 4611/16 35 11/16 .25 44 39 7/8 --
</TABLE>
- ---------------
(a) Prior to April 3, 1995, the prices for AFG represent the high and low sales
prices of the common stock of APU as the predecessor to AFG.
On February 27, 1997, the last full day of trading immediately preceding
the public announcement of the consideration of AFEI merging with AFG, the
reported closing price per share of AFEI Common Stock was $25.00. On October 30,
1997, the closing price per share of AFG Common Stock was $37 13/16, and the
closing price of AFEI Common Stock was $39 7/8.
15
<PAGE> 18
INTRODUCTION
This Joint Proxy Statement/Prospectus is being furnished to holders of (i)
AFG Common Stock in connection with the solicitation of proxies by the Board of
Directors of AFG for use at a Special Meeting of Shareholders to be held at The
Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio, at 10:00 a.m., and (ii)
AFEI Common Stock in connection with the solicitation of proxies by the Board of
Directors of AFEI for use at a Special Meeting of Shareholders to be held at The
Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio, immediately following,
each on November 25, 1997.
The principal executive offices of AFG, AFG Holdings and AFEI are located
at One East Fourth Street, Cincinnati, Ohio 45202. The telephone number of AFG
and AFG Holdings is (513) 579-2121; AFEI's telephone number is (513) 579-2172.
AFG, through AFC, is engaged primarily in specialty and multi-line property
and casualty insurance businesses and in the sale of tax-deferred annuities and
certain life and health insurance products.
AFG Holdings is a recently formed Ohio corporation which has not conducted
any business operations. Immediately following the AFG Reorganization and the
AFEI Merger, AFG Holdings' only material assets would be (i) the stock of AFG
(other than shares held by AFC and its subsidiaries) and (ii) the shares of AFEI
Common Stock it acquires in the AFEI Merger. AFG Holdings' currently owns all of
the outstanding stock of AFEI Acquisition Corp. and AFG Acquisition Corp., which
were recently formed solely to serve as acquisition vehicles to accomplish the
AFG Reorganization and the AFEI Merger.
AFEI is a holding company whose assets consist primarily of cash and
investments in AFG and AAG.
THE AFG MEETING
GENERAL
The AFG Meeting is being held to consider and act upon a proposal to
approve the AFG Reorganization pursuant to which AFG would become a wholly-owned
subsidiary of AFG Holdings, with outstanding capital stock immediately after the
AFG Reorganization virtually identical to that of AFG prior to the AFG
Reorganization. See "The AFG Reorganization." AFG shareholders will also vote on
any other matters that properly come before the AFG Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
AFG's Board of Directors has fixed the close of business on October 10,
1997 as the record date for determination of the holders of AFG Common Stock who
are entitled to notice of and to vote at the AFG Special Meeting. As of the
record date, there were 57,604,920 shares of AFG Common Stock outstanding and
eligible to vote.
The AFG Reorganization is proposed to be accomplished by means of a merger
under Ohio law. Approval by the holders of a majority of the outstanding shares
of AFG Common Stock is required to approve the AFG Reorganization. Approximately
45% of the outstanding AFG Common Stock is owned or controlled by the Lindner
Family. The Lindner Family has informed AFG management that they plan to vote
the shares of AFG Common Stock owned by them in favor of the AFG Reorganization.
Abstentions, shares not voted for any reason and broker non-votes will have the
same effect as a negative vote.
AFG Common Stock represented by properly executed proxies received at or
prior to the AFG Special Meeting and which have not been revoked will be voted
in accordance with the instructions contained therein. Shares represented by
properly executed proxies for which no instructions are given will be voted FOR
approval of the AFG Reorganization.
AFG shareholders are requested to complete, sign, date and return promptly
the enclosed Proxy Form in the postage prepaid envelope provided. AFG
shareholders may revoke proxies by submitting, at any time prior to the vote on
the AFG Reorganization, a later dated proxy with respect to the same shares, by
delivering
16
<PAGE> 19
written notice of revocation to the Secretary of AFG at any time prior to such
vote or by attending the AFG Special Meeting and voting in person. Attendance at
the AFG Special Meeting will not in and of itself revoke the proxy.
PROXY SOLICITATION
The cost of the solicitation of AFG proxies will be borne by AFG.
Solicitations will be made only by mail, except that directors, officers and
employees of AFG may solicit proxies personally or by telephone, but such
persons will not be specially compensated for such services. AFG may also
reimburse brokers, banks, custodians, nominees and fiduciaries for their
reasonable charges and expenses in forwarding proxy material to beneficial
owners of such stock. AFG has also retained Morrow & Co., Inc. to aid in the
solicitation of proxies for a fee estimated at $4,000 plus out-of-pocket
expenses.
THE AFEI MEETING
GENERAL
The AFEI Meeting is being held to consider and act upon a proposal to
approve the AFEI Merger pursuant to which each share of AFEI common stock, not
then beneficially owned by AFG, would be exchanged, at the option of the holder,
for either one share of AFG Holdings Common Stock or $37.00 in cash. AFEI
shareholders may elect to receive their merger consideration partly in shares of
AFG Holdings Common Stock and partly in cash. See "The AFEI Merger." The AFEI
shareholders will also vote on any other matters that properly come before the
AFEI Meeting.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED
AFEI's Board of Directors has fixed the close of business on October 10,
1997 as the record date for determination of the holders of AFEI Common Stock
who are entitled to notice of and to vote at the AFEI Special Meeting. As of the
record date, there were 13,617,521 shares of AFEI Common Stock outstanding.
The AFEI Merger is proposed to be accomplished by means of a merger under
Connecticut law. Under the AFEI Merger Agreement, approval by the holders of at
least (i) 80% of the outstanding shares of AFEI Common Stock and (ii) two-thirds
of those shares of AFEI Common Stock which are not beneficially owned by AFG or
its affiliates or associates (approximately 2,265,000 shares, including the
986,472 shares beneficially owned by Mrs. Gruss) is required to approve the AFEI
Merger. AFG and Mrs. Gruss have expressed their intention to vote the
approximately 80.7% and 7.2% of the outstanding shares of AFEI Common Stock
owned by them, respectively, in favor of the AFEI Merger.
AFEI Common Stock represented by properly executed proxies received at or
prior to the AFEI Special Meeting and which have not been revoked will be voted
in accordance with the instructions contained therein. Shares represented by
properly executed proxies for which no instructions are given will be voted FOR
approval of the AFEI Merger. Abstentions, shares not voted for any reason and
broker non-votes will have the same effect as a negative vote.
AFEI shareholders are requested to complete, sign, date and return promptly
the enclosed Proxy Form in the postage prepaid envelope provided. AFEI
shareholders may revoke proxies by submitting, at any time prior to the vote on
the AFEI Merger, a later dated proxy with respect to the same shares, by
delivering written notice of revocation to the Secretary of AFEI at any time
prior to such vote or by attending the AFEI Special Meeting and voting in
person. Attendance at the AFEI Special Meeting will not in and of itself revoke
the proxy.
AFG management presently intends that the AFEI Merger will be abandoned if
it is not approved by the required vote.
17
<PAGE> 20
PROXY SOLICITATION
The cost of the solicitation of AFEI proxies will be borne by AFEI.
Solicitations will be made only by mail, except that directors, officers and
employees of AFEI may solicit proxies personally or by telephone, but such
persons will not be specially compensated for such services. AFEI may also
reimburse brokers, banks, custodians, nominees and fiduciaries for their
reasonable charges and expenses in forwarding proxy material to beneficial
owners of such stock.
RISK FACTORS
In deciding how to vote on the AFEI Merger proposal, shareholders of AFEI
will be deciding whether to exchange their existing holdings of AFEI Common
Stock for either cash or AFG Holdings Common Stock. Persons considering whether
to exchange their holdings for AFG Holdings Common Stock should consider the
following factors, in addition to the other information contained in this Joint
Proxy Statement/Prospectus or incorporated herein by reference, before making
that decision.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
AFG, AFC and APU are organized as holding companies with almost all of
their operations being conducted by subsidiaries. These parent corporations,
however, have continuing expenditures for administrative expenses, corporate
services, the payment of principal and interest on borrowings and, with respect
to AFC, for dividends on AFC preferred stock. They rely primarily on dividends
and/or tax payments from their subsidiaries for funds to meet their obligations.
Payments of dividends by the insurance subsidiaries of AFC and APU are
subject to various laws and regulations which limit the amount of dividends that
can be paid without prior approval from applicable state Departments of
Insurance. In 1996, AFG's insurance company subsidiaries paid approximately $387
million in dividends, including approximately $180 million of dividends paid
with prior approval. Without prior Department of Insurance approval, the maximum
dividends that can be paid in 1997 by AFG's insurance subsidiaries is
approximately $225 million. In the first six months of 1997, AFG's insurance
subsidiaries have paid $135 million in dividends, including approximately $33
million paid with prior approval. The maximum dividend permitted by law is not
indicative of an insurer's actual ability to pay dividends, which may be further
constrained by business and regulatory considerations, such as the impact of
dividends on surplus, which could affect an insurer's ratings, competitive
position, the amount of premiums that can be written and the ability to pay
future dividends. Furthermore, each state Department of Insurance has broad
discretion to limit the payment of dividends by insurance companies domiciled in
that state.
AFG believes that the amounts currently available through dividends and tax
payments without approval are sufficient to meet the expenditures of AFG, AFC
and APU. A prolonged material decline in insurance subsidiary profits or
materially adverse insurance regulatory developments, however, could subject
AFG, AFC or APU to shortages of cash because of their inability to receive
dividends from subsidiaries.
CYCLICALITY OF THE INSURANCE INDUSTRY; IMPACT OF CATASTROPHES
AFG's insurance subsidiaries operate in a highly competitive industry that
is affected by many factors which can cause significant fluctuations in their
results of operations. The property and casualty insurance industry has
historically been subject to pricing cycles characterized by periods of intense
competition and lower premium rates (a "downcycle") followed by periods of
reduced competition, reduced underwriting capacity and higher premium rates (an
"upcycle"). The property and casualty insurance industry is currently in an
extended downcycle, which has lasted approximately eight years. The underwriting
results for AFG's property and casualty operations have been adversely affected
by this downcycle, particularly in unfavorable pricing in certain standard
commercial lines of business.
As with other property and casualty insurers, AFG's operating results can
be adversely affected by unpredictable catastrophe losses. AFG's insurance
subsidiaries generally seek to reduce their exposure to such events through
individual risk selection and the purchase of reinsurance. Total net losses to
AFG's insurance
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operations from catastrophes were approximately $12 million during the first six
months of 1997; $85 million in the year 1996; $70 million in 1995; $56 million
in 1994; $30 million in 1993; and $45 million in 1992.
REGULATION
AFG's insurance subsidiaries are regulated under the insurance and
insurance holding company laws of their states of domicile and other states in
which they operate. These laws, in general, require approval of the particular
insurance regulators prior to certain actions by the insurance companies, such
as the payment of dividends in excess of statutory limitations (as discussed
under "Holding Company Structure; Dividend Restrictions" above) and certain
transactions and continuing service arrangements with affiliates. Regulation and
supervision of each insurance subsidiary is administered by a state insurance
commissioner who has broad statutory powers with respect to the granting and
revoking of licenses, approvals of premium rates, forms of insurance contracts
and types and amounts of business which may be conducted in light of the
policyholders' surplus of the particular company. The statutes of most states
provide for the filing of premium rate schedules and other information with the
insurance commissioner, either directly or through rating organizations. The
commissioner generally has powers to disapprove such filings or make changes to
the rates if they are found to be excessive, inadequate or unfairly
discriminatory. The determination of rates is based on various factors,
including loss and loss adjustment expense experience. The failure to obtain, or
delay in obtaining, required approvals could have an adverse impact on the
operations of AFG's insurance subsidiaries.
The National Association of Insurance Commissioners has adopted the Risk
Based Capital For Insurers Model Act (the "Model Act") which applies to both
life and property and casualty companies. The risk-based capital formulas
determine the amount of capital that an insurance company needs to ensure that
it has an acceptably low expectation of becoming financially impaired. The Model
Act provides for increasing levels of regulatory intervention as the ratio of an
insurer's total adjusted capital and surplus decreases relative to its
risk-based capital, culminating with mandatory control of the operations of the
insurer by the domiciliary insurance department at the so-called "mandatory
control level." The risk-based capital formulas became effective in 1993 for
life companies and in 1994 for property and casualty companies.
RATINGS; COMPETITION
A.M. Best, publisher of Best's Insurance Reports, Property-Casualty, has
given AFC's principal insurance subsidiaries a rating of "A" (Excellent).
Although some of the large insurance companies against which these insurers
compete have higher ratings, management believes that the current rating is
adequate to enable them to compete successfully. A downgrade in the A.M. Best
rating below "A" (Excellent) could adversely affect their competitive position.
Great American Life Insurance Company ("GALIC"), the principal insurance
subsidiary of AAG is rated "A" (Excellent). Management believes that a rating in
the "A" category is necessary to successfully market tax-deferred annuities to
public education employees and other not-for-profit groups, the markets in which
GALIC competes. A downgrade in the A.M. Best rating below the "A" category could
materially and adversely affect the competitive position of GALIC.
Holders of AFG Common Stock should realize that the ratings discussed above
are in no way a measure of protection offered to such investors, but are
intended to indicate the ability of certain of AFG's insurance subsidiaries to
pay insurance claims.
INVESTMENT PORTFOLIO; EFFECTS OF CHANGES IN INTEREST RATES
AFG's investment portfolio consists primarily of fixed maturity securities,
such as investment grade, publicly traded corporate debt securities and
mortgage-backed securities. At June 30, 1997, 88% of AFG's investment portfolio
was invested in fixed maturity securities, of which approximately 27% was
invested in mortgage-backed securities. Certain risks are inherent in connection
with fixed maturity securities, including loss upon default and price volatility
in reaction to changes in interest rates and general market factors. Certain
additional risks are inherent with mortgage-backed securities, including the
risks associated with reinvestment of proceeds due to prepayments of such
obligations in a period of declining interest rates.
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ANNUITY PRODUCT CONCENTRATION; POTENTIAL IMPACT OF FUTURE CHANGES IN FEDERAL
INCOME TAX TREATMENT OF ANNUITY PRODUCTS
GALIC's business is primarily the sale of tax-deferred annuities. Current
federal income tax laws generally permit the tax-deferred accumulation of
earnings on the premiums paid by an annuitant. Taxes, if any, are payable on the
accumulated tax-deferred earnings when those earnings are paid to the annuitant.
If the federal income tax laws were to change so that accumulated earnings on
annuity products do not enjoy the tax deferral described above, or such that
other savings and investment products were to achieve similar tax deferral
status, or such that tax rates were significantly lowered so that the
annuitant's ability to defer income tax on annuity earnings was no longer a
significant factor for the policyholder, consumer demand for the affected
annuity products could decline materially or be eliminated. From time to time,
proposals to one or more of these effects have been made in Congress and no
assurance can be given that a tax law change will not occur in the future. If
the demand for its annuity products were to decrease significantly for any
reason, GALIC's operations and financial condition could be materially and
adversely affected.
In August 1996, a new federal law became effective which expanded the
ability of not-for-profit organizations to offer non-qualified deferred
compensation plans to their employees. The full impact of this change is
impossible to predict. However, if the increased availability of these plans
reduces the demand for annuities qualified under Section 403(b) of the Code,
GALIC's business could be adversely affected. In addition, new federal tax
legislation was enacted in August 1997. AAG management believes that such tax
legislation primarily impacts variable annuity products which GALIC did not
offer until 1996, and the sales of which do not comprise a material portion
(less than 10%) of AAG's revenues. As a result, AAG does not believe that such
legislation will have a material effect on GALIC's business.
ADEQUACY OF INSURANCE LOSS RESERVES
The insurance subsidiaries of AFG establish reserves to cover their
estimated liability for losses and loss adjustment expense with respect to both
reported and unreported claims as of the end of each accounting period. By their
nature, such reserves do not represent an exact calculation of liabilities.
Rather, except for reserves related to asbestos and environmental ("A&E")
claims, such reserves are estimates involving management's projections as to the
ultimate settlement and administration of claims. These expectations are, in
turn, based on facts and circumstances known at the time, predictions of future
events, estimates of future trends in the severity and frequency of claims and
judicial theories of liability as well as inflation.
Estimation of loss reserves for many specialty commercial lines of business
is more difficult than for certain standard commercial lines because claims may
not become apparent for a number of years (such period of time being referred to
as the "tail"), and a relatively higher proportion of ultimate losses is
considered incurred but not reported. As a result, variations in loss
development are more likely in these lines of business.
Certain of AFG's insurance subsidiaries, including Great American Insurance
Company, face liabilities for A&E claims. A&E claims arise out of general
liability and commercial multi-peril policies issued prior to the early 1980's
when providing coverage for A&E exposures was not specifically contemplated by
such policies.
The insurance industry typically includes only claims relating to polluted
waste sites and asbestos in defining environmental exposures. AFG extends its
definition of A&E claims to include claims relating to breast implants,
repetitive stress on keyboards, DES (a drug used in pregnancies years ago
alleged to cause cancer and birth defects) and other latent injuries.
Establishing reserves for A&E claims is subject to uncertainties that are
greater than those presented by other types of claims. Factors contributing to
those uncertainties include a lack of historical data, long reporting delays,
uncertainty as to the number and identity of insureds with potential exposure,
unresolved legal issues regarding policy coverage and the extent and timing of
any such contractual liability. Courts have reached different and sometimes
inconsistent conclusions as to when a loss is deemed to have occurred, what
policies provide coverage, what claims are covered, whether there is an insured
obligation to defend, how
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policy limits are determined and other policy provisions. Management believes
these issues are not likely to be resolved in the near future and that, as a
result, a reasonable estimate of ultimate liability for A&E exposure is not
possible at this time. The reserve for A&E exposures for AFG's insurance
subsidiaries are reevaluated regularly based on an analysis of the insurers'
exposures, together with industry reserving levels and financial reporting
principles.
During 1995 and 1996, a number of insurers recorded large reserve increases
for A&E exposures. By the end of 1995, the industry's three-year survival ratio
(reserves divided by three-year average annual paid losses) for A&E claims had
increased from a multiple of six times in recent years to more than nine times.
In the third quarter of 1996, AFG strengthened its A&E reserve to approximately
10.5 times average annual paid losses based upon these revised insurance
industry standards for reserving such claims. This action resulted in a
non-cash, pretax charge of approximately $80 million. AFG's A&E reserves (net of
reinsurance recoverable) at December 31, 1996 were approximately $340 million.
AFG regularly reviews its reserving techniques and reserve positions and
believes that adequate provision has been made for loss reserves. Nevertheless,
there can be no assurance that currently established reserves will prove
adequate in light of subsequent actual experience. Future earnings could be
adversely impacted should future loss development require increases in reserves
previously established.
REINSURANCE
AFG relies to a certain extent on the use of reinsurance to limit the
amount of risk it retains. The availability and cost of reinsurance are subject
to prevailing market conditions which are beyond AFG's control and which may
affect its level of business and profitability. As of December 31, 1996, AFG had
reinsurance recoverables of approximately $720 million, representing estimated
amounts recoverable from reinsurers pertaining to paid and unpaid claims. AFG is
subject to credit risk with respect to its reinsurers, as the ceding of risk to
reinsurers does not relieve AFG of its liability to insureds.
USX LITIGATION
In May 1994, lawsuits were filed against APU by USX Corporation ("USX") and
its former subsidiary, Bessemer and Lake Erie Railroad Company ("B&LE"), seeking
contribution by APU, as the successor to the railroad business conducted by Penn
Central Transportation Company ("PCTC") prior to 1976, for all or a portion of
the approximately $600 million that USX paid in satisfaction of a judgment
against B&LE in 1991 for its participation in an unlawful antitrust conspiracy
among certain railroads commencing in the 1950's and continuing through the
1970's. The lawsuits argue that USX's liability for that payment was
attributable to PCTC's alleged activities in furtherance of the conspiracy. APU
argued that the lawsuits were barred by an order issued in connection with
PCTC's bankruptcy reorganization.
In May 1996, the U.S. Supreme Court declined to hear APU's petition with
respect to the bankruptcy bar issue, thereby permitting USX's lawsuits to
proceed. APU and its outside counsel (Kaye, Scholer, Fierman, Hays & Handler,
LLP) continue to believe that APU has substantial defenses and should not suffer
a material loss as a result of this litigation.
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SPECIAL FACTORS
BACKGROUND OF AND REASONS FOR THE AFEI MERGER
During the week of February 17, 1997, AFG and AFEI began examining the
feasibility of a transaction pursuant to which AFEI would become a wholly-owned
subsidiary of AFG. The original AFG proposal was that each issued and
outstanding share of AFEI Common Stock (other than those beneficially owned by
AFG and its affiliates) would be converted into or exchanged for one share of
AFG Common Stock. Prices for AFG and AFEI Common Stock ranged from $35.63 to
$37.00 and $25.00 to $26.00, respectively, during February 1997. AFG believed
that since at least one principal outside shareholder of AFEI (Mrs. Gruss) held
shares of AFEI Common Stock with a very low tax basis, any proposed transaction
should be structured to be tax-free to AFEI shareholders and therefore AFEI did
not consider other alternatives to the transaction proposed by AFG. AFG proposed
the merger so that it would not incur the costs (estimated to be approximately
$500,000 annually) and other burdens associated with AFEI having public
shareholders. In addition, because AFG Common Stock represents approximately
three-fourths of AFEI's assets and AFEI is a subsidiary of AFG, AFEI did not
consider alternatives to a merger with AFG.
On February 24, 1997, the Board of Directors of AFEI created a special
committee of the Board of Directors (the "Special Committee"), which was charged
with the duty of evaluating the feasibility of such a transaction with AFG and,
if so deemed feasible, of evaluating, negotiating and finalizing such a
transaction on behalf of the shareholders of AFEI (other than AFG and its
affiliates). Mr. Anreder, the sole director of AFEI who is not an employee or
otherwise an affiliate of AFG, was appointed the member of the Special
Committee. The other members of AFEI's Board of Directors are Carl H. Lindner,
James E. Evans, Robert D. Lindner, Thomas E. Mischell, Fred J. Runk, and Neil M.
Hahl who was elected to the Board on April 23, 1997.
On February 28, 1997, AFG and AFEI jointly announced that they were
examining the feasibility of such a transaction, which they intended would be
structured so as to be tax-deferred to AFEI shareholders electing to receive
stock.
By letter dated March 11, 1997 to Mr. Anreder, AFG proposed that the merger
be effected by exchanging or converting each issued and outstanding share of
AFEI Common Stock (other than those owned by AFG) into one share of AFG Common
Stock. The letter also stated that any proposed transaction would be structured
in a tax-efficient manner intended to ensure that no taxable gain would be
recognized by holders of AFEI Common Stock.
In its initial negotiations with AFG, Mr. Anreder, as the Special
Committee, requested that AFG consider paying cash at $37.00 per share to any
AFEI shareholder who elected to receive cash so long as providing a cash
alternative did not make the exchange of AFEI Common Stock for AFG Common Stock
a taxable event to those electing the stock alternative. Subsequently, AFG
determined that such a transaction should be undertaken in conjunction with a
reorganization of AFG. As set forth elsewhere in this Joint Proxy
Statement/Prospectus, AFG has requested its shareholders to approve the AFG
Reorganization. AFG considered that the AFEI Merger would (i) allow holders of
AFEI Common Stock to hold directly what is now held indirectly, namely AFG
Common Stock, (ii) provide holders of AFEI Common Stock a more liquid security
than they presently hold, and (iii) accomplish the factors set forth in (i) and
(ii) in a tax-free transaction, assuming the cash option available in the AFEI
Merger were not selected. Most of the members of AFG's Board of Directors and
its executive officers are beneficial owners of a substantial number of shares
of AFG Common Stock and have an interest in minimizing the expenses and
administrative burdens of AFG and its subsidiaries, including AFEI. Since the
sale of its Citicasters Inc. common stock in September 1996, AFEI now invests
only in the common stock of AFG (approximately three-fourths of AFEI's assets at
June 30, 1997) and an AFG subsidiary, American Annuity Group, Inc.
On March 19, 1997, the Special Committee retained the law firm of Morrison
& Foerster LLP to provide legal services in connection with consideration of the
proposed transaction.
By letter dated April 23, 1997 to the Special Committee, AFG proposed to
AFEI a merger transaction in which AFEI shareholders (other than AFG and its
affiliates) could elect to receive either $37.00 per share in
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cash or shares of AFG Holdings Common Stock on a one-for-one basis, subject to
customary approvals and conditions. On that date, AFG also issued a press
release announcing the proposed AFEI Merger. The primary factor in AFG proposing
the $37.00 cash value was the relative trading prices of the AFG Common Stock
and AFEI Common Stock just prior to announcing the AFEI Merger.
On April 23, 1997, the Board of Directors of AFEI reviewed AFG's merger
proposal, discussed that there was no limitation on the percentage of AFEI
shareholders who could elect cash in the AFG proposal, reviewed the functions
and powers of the Special Committee and determined the compensation payable to
the members of the Special Committee. In addition, the AFEI Board of Directors
elected Neil M. Hahl to the Board of Directors and appointed him a member of the
Special Committee. Mr. Hahl was a senior officer of AFG and a predecessor of AFG
for approximately 12 years. Since then, Mr. Hahl has been an independent
consultant to, among others, businesses spun off by AFG. Mr. Hahl currently is
not an employee of, a consultant to or otherwise affiliated with AFG. It was
also noted that Mr. Carl H. Lindner and Mr. Robert D. Lindner, members of the
AFEI Board of Directors, had expressed their intention to refrain from acting or
participating in any negotiations or deliberations relating to the proposed
merger transaction.
At a meeting on April 24, 1997, the Special Committee, consisting of
Messrs. Anreder and Hahl, ratified the engagement of Morrison & Foerster LLP as
counsel to the Committee. It also began preliminary discussions of the AFG
offer. Mr. Anreder noted that each minority AFEI shareholder would likely be
able to elect all cash, an improvement from an earlier AFG proposal, which,
because of certain tax requirements, would have required a majority of
shareholders to accept shares. He also discussed the origin of $37.00 as the
exchange price for a share of AFEI Common Stock. When a merger transaction was
initially proposed in February 1997, AFG Common Stock was trading at about
$37.00 per share. As of April 23, 1997, the date of the joint press release, the
AFG Common Stock was trading at about $33.00 per share, and, therefore, the
$37.00 per share in cash was attractive downside protection. To the Special
Committee's knowledge, AFG did not consider either increasing or reducing the
cash portion of the merger consideration. Mr. Hahl noted that certain
transactions resulting in the formation of AFG in 1995 had an effect on the
structure of the AFEI Merger. AFG was formed in 1995 in connection with its
acquisition of the common stock of AFC and APU. The 1995 transactions were
structured in a manner that ensured the continued existence of the AFC and APU
groups for tax purposes, thereby preserving the separate tax attributes of each
group. It was also noted that the Merger Agreement would be reviewed carefully
from the point of view of the minority shareholders to ensure that those
shareholders electing stock would obtain tax-free treatment, and that (to the
extent possible) any restriction relating to tax requirements would not be
overly onerous to the AFEI shareholders. The Special Committee then discussed
the business prospects for AFG and AFEI. The Special Committee also noted a
research report of Credit Suisse First Boston Corporation, prepared in the
ordinary course of business and dated March 5, 1997, which suggested a 12-month
price objective for AFG Common Stock of $47 per share, based upon its estimates
of AFG's earnings, the asset value of its investment in Chiquita Brands
International, Inc. and its dividend yield. The research report was not
solicited by the Special Committee, AFEI, AFG or their affiliates. The Special
Committee did not view Credit Suisse First Boston as an expert with respect to
its deliberations, did not obtain its consent to this reference and neither AFG
nor the Special Committee adopts the conclusions of this report. The Special
Committee also noted that a substantial majority of AFEI assets consisted of AFG
and AAG stock and that other assets were primarily liquid securities.
On May 1, 1997, AFEI was served with a complaint entitled Harry Lewis v.
Carl H. Lindner, et al. (the "Shareholder Litigation"). For additional
information about such lawsuit, see "-- Certain Litigation Affecting the AFEI
Merger." The Special Committee met on May 2, 1997, together with Mr. Bartlett of
Morrison & Foerster LLP, its counsel, to discuss the complaint on a preliminary
basis. The Committee members discussed the possibility that merger negotiations
could slow down in the short term. Mr. Bartlett also indicated that employment
of local Connecticut counsel for the Special Committee with respect to the
Shareholder Litigation, separate from that for AFEI, might be appropriate. Such
local counsel was hired by the Special Committee on June 12, 1997.
By letter dated May 7, 1997, a first draft of the proposed merger agreement
was distributed.
On May 15, 1997, the Special Committee, together with Mr. Bartlett of
Morrison & Foerster LLP, met and discussed possible improvements to the Merger
Agreement from the AFEI minority shareholders' point of
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view, including, among others, receipt of a tax opinion with respect to the tax
consequences of the AFEI Merger, necessary quorum and voting requirements for
approval of the Merger Agreement, and providing sufficient notice to the AFEI
shareholders of the meeting. At the meeting, the proposed retention of Oscar
Gruss & Son, Incorporated ("Gruss") as financial advisor to the Special
Committee was discussed. It was noted that Mr. Anreder is an executive vice
president of Gruss and that a member of the Gruss family owned 7.4% of AFEI's
outstanding Common Stock. Because of Mr. Anreder's relationship with Gruss and
such ownership interest as well as Gruss' existing knowledge about AFEI and AFG,
no other investment advisors were considered by the Special Committee. The
engagement letter of Gruss was discussed, with Mr. Anreder recusing himself. In
addition, it was determined that local Connecticut counsel be retained to
represent the Special Committee in connection with the Shareholder Litigation in
order to maintain the separate constituencies and responsibilities of AFEI and
AFG.
On May 27, 1997, Mr. Hahl, as the Special Committee of the Board of
Directors (Mr. Anreder did not participate), and AFEI engaged Gruss on an
exclusive basis to act as its financial advisor to render an opinion with
respect to the fairness, from a financial point of view, to AFEI's common
shareholders (other than AFG and its affiliates) of the consideration to be
received in the proposed AFEI Merger. See "-- Opinion of Financial Advisor."
Pursuant to an engagement letter dated May 28, 1997, AFEI has agreed to pay
Gruss $600,000, payable upon delivery of the Opinion (whether favorable or
unfavorable) to the Special Committee. AFEI has also agreed to reimburse Gruss
for its reasonable out of pocket expenses, including the fees and disbursements
of its counsel, and to indemnify Gruss and certain related entities and persons
against certain liabilities in connection with its engagement, including certain
liabilities under the federal securities laws.
On May 29, 1997, a due diligence session was held in Cincinnati, Ohio. At
the meeting, representatives of Gruss and the Special Committee's legal counsel
reviewed AFG's financial condition, results of operations, cash flow,
competitive position and business prospects. There were also presentations made
on specific business segments of AFG.
Between May 7, 1997 and June 6, 1997, the Special Committee and its legal
counsel continued to negotiate the terms of the Merger Agreement with AFG and
its legal counsel in order to resolve open issues and to establish the final
terms of the transaction for consideration by the Special Committee. By June 6,
1997, substantially all of the business terms of the Merger Agreement had been
negotiated.
On June 12, 1997, the Special Committee met, together with representatives
of Gruss and Mr. Bartlett of Morrison & Foerster LLP. The Special Committee
reviewed the terms of the draft Merger Agreement, the process and timing of the
due diligence review by its legal counsel and Gruss of AFG and the AFEI Merger,
and the proposed nature and timing of any fairness opinion that could be issued
by Gruss.
On June 20, 1997, the Special Committee met, together with representatives
of Gruss and Mr. Bartlett of Morrison & Foerster LLP. Representatives of Gruss
presented a draft of their proposed presentation and opinion. Messrs. Anreder
and Hahl asked questions concerning the procedures Gruss had followed in
reaching its tentative conclusions and explored the remaining diligence and
analysis to be accomplished. See "-- Summary of Analyses" below. The Committee
also discussed negotiating an increase in the cash portion of the merger
consideration to reflect the recent increase in the price of AFG Common Stock.
It was noted that many minority holders (other than certain members of the Gruss
family) might elect the cash alternative, and, after further discussion, it was
decided to discuss an increase in the cash alternative with AFG.
On June 24, 1997, at a meeting of the Special Committee at which Mr.
Bartlett and other representatives of Morrison & Foerster LLP were present,
representatives of Gruss presented a final draft of its proposed opinion as to
the fairness, from a financial point of view, of the merger consideration of the
proposed AFEI Merger. See "-- Opinion of Financial Advisor." Mr. Hahl stated
that he had discussed increasing the cash alternative with a representative of
AFG, and that the merger consideration would remain unchanged. Messrs. Anreder
and Hahl asked questions concerning the relative valuations of the cash and
stock portions of the exchange ratios. A representative of Gruss discussed the
comparisons to comparable transactions. The representative also noted that
AFEI's stock price was relatively suppressed, because AFEI was somewhat similar
to a closed-end investment fund (because approximately three-quarters of its
assets consist of securities of another company and there is a fixed number of
shares of AFEI Common Stock outstanding),
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which typically trades at a discount from net asset value. See "Opinion of
Financial Advisor -- Summary of Analysis." After reviewing the current status of
the Merger Agreement, the results of due diligence by Gruss and legal counsel to
the Committee and the status of the Shareholder Litigation, the Special
Committee unanimously resolved to recommend the AFEI Merger to the AFEI Board of
Directors and shareholders, subject to receipt of (a) a final Merger Agreement,
substantially identical to the terms previously negotiated by them, executed by
AFG and (b) an executed opinion from Gruss, substantially identical to the
opinion reviewed by them at the meeting.
On July 9, 1997, the AFEI Board of Directors held a special meeting at
which all members were present, including the two members of the Special
Committee. The AFEI Board of Directors, based solely upon the recommendation of
the Special Committee, unanimously approved the Merger Agreement, which
previously had been executed by AFG. This approval was given after presentations
by the financial advisor and legal counsel for the Special Committee. In
addition, Gruss delivered its opinion and written report to the Special
Committee to the effect that, as of such date and based upon and subject to
certain matters stated therein, the merger consideration is fair to the holders
of AFEI common stock (other than AFG and its affiliates), from a financial point
of view. See "-- Opinion of Financial Advisor." Copies of the opinion and
written report were delivered to all members of the AFEI Board of Directors.
Following the meeting, the Merger Agreement was executed by AFEI, and
immediately thereafter, a joint press release was issued announcing the
execution of the definitive Merger Agreement.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF AFEI;
REASONS FOR RECOMMENDATIONS
The Special Committee has concluded that the consideration to be received
by the holders of AFEI Common Stock (other than AFG and its affiliates) pursuant
to the AFEI Merger, is fair to such holders from a financial point of view. As a
result, the Special Committee has recommended approval of, and, based solely on
the recommendation of the Special Committee, the Board of Directors of AFEI has
unanimously approved, the Merger Agreement and the transactions contemplated
thereby. THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF AFEI UNANIMOUSLY
RECOMMEND THAT THE SHAREHOLDERS OF AFEI VOTE FOR APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT AND THE AFEI MERGER.
In reaching the conclusion and recommendation described above, the Special
Committee considered the following factors:
1. The terms of the Merger Agreement, which reflect the results of
negotiations between, and satisfy the competing interests of, AFG and
AFEI.
2. The written opinion, dated July 9, 1997, of Oscar Gruss & Son,
Incorporated to the Special Committee to the effect that, as of such
date and based upon and subject to certain matters stated therein, the
merger consideration to be received by the holders of AFEI Common Stock
(other than AFG and its affiliates) pursuant to the AFEI Merger, was
fair to such holders from a financial point of view. The Special
Committee viewed this factor, together with the factors set forth in
paragraphs 4, 5 and 6 as favorable, since it provided an additional
indication that the consideration to be offered to the holders of AFEI
Common Stock is fair to such holders.
3. The structure of the transaction, including that each of the holders of
AFEI Common Stock (other than AFG and its affiliates) have the choice
to receive cash or AFG Holdings Common Stock. The Special Committee
viewed this factor, together with the factors set forth in paragraphs 6
and 7, as favorable because holders of AFEI Common Stock would be able
both to receive cash for a portion of their AFEI Common Stock and
participate in any growth of AFG Holdings through their ownership of
AFG Holdings Common Stock.
4. The fact that the cash alternative substantially exceeds the highest
trading price of AFEI Common Stock prior to the announcement of the
AFEI Merger proposal was considered a favorable factor by the Special
Committee. In addition, the Special Committee considered favorable the
fact that $37.00 per share, although less than the price of AFG Common
Stock on July 9, 1997, was approximately
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the price of AFG Common Stock when the merger transaction was proposed
in February 1997, represented a slight premium over Gruss' calculated
value of AFEI Common Stock (see "Opinion of Financial Advisor") and
downside protection if the price of AFG Common Stock were to decrease
prior to the time a shareholder was required to elect cash or AFG
Holdings Common Stock. The Special Committee felt that the primary
factor in determining the $37.00 per share cash alternative was the
relative trading prices of AFG Common Stock and AFEI Common Stock just
prior to the announcement of the AFEI Merger.
5. The anticipated greater liquidity available for holders of shares of
AFEI Common Stock who exchange such shares for shares of AFG Holdings
Common Stock, because of the significantly greater number of shares of
AFG Holdings Common Stock expected to be outstanding after the AFEI
Merger was considered a favorable factor by the Special Committee.
6. A review of AFG's financial condition, results of operations, cash
flows, competitive position and business prospects. The Special
Committee viewed this factor, in conjunction with the factors set forth
in paragraphs 3 and 7, as favorable.
7. The fact that as of June 30, 1997, three-fourths of AFEI's assets
consisted of AFG Common Stock. The Special Committee viewed this factor
as favorable because those holders of AFEI Common Stock exchanging
their shares for shares of AFG Holdings Common Stock will be able to
own their interests in AFG directly, eliminating AFEI as the
intermediary.
8. As a result of the AFEI Merger, AFEI would no longer be a public
company. This will provide savings to AFEI as well as to AFG because
AFEI would no longer have to incur the costs associated with AFEI
having public shareholders, which was considered a favorable factor by
the Special Committee.
9. The treatment of the AFEI Merger as a tax-free transaction for federal
income tax purposes for those AFEI shareholders receiving solely shares
of AFG Holdings Common Stock, which will permit the holders of AFEI
Common Stock to avoid having to realize gain upon the receipt of AFG
Common Stock in the AFEI Merger, which was considered a favorable
factor by the Special Committee.
10. The fact that approval of the AFEI Merger requires the affirmative vote
of both the holders of 80% of the outstanding shares of AFEI Common
Stock and the holders of two-thirds of those shares of AFEI Common
Stock not beneficially owned by AFG or its officers, directors or
associates. The Special Committee viewed this factor as favorable
because it allows nonaffiliated holders to determine independently
whether the AFEI Merger should be approved.
The Special Committee did not assign relative weights to the factors or
determine that any factor was of particular importance. Rather, the Special
Committee viewed their position and recommendations as being based on the
totality of the information presented to and considered by them.
OPINION OF FINANCIAL ADVISOR
Oscar Gruss & Son, Incorporated acted as financial advisor to the AFEI
Special Committee in connection with the AFEI Merger. Gruss was founded in 1947
as a private investment and merchant bank and securities firm. Among other
services, Gruss provides valuations of businesses and their securities in
connection with mergers and acquisitions, public offerings and for other
purposes.
In connection with Gruss' engagement, the Special Committee requested that
Gruss evaluate the fairness, from a financial point of view, to AFEI of the
consideration to be received by the holders of AFEI Common Stock (other than AFG
and its affiliates) in the AFEI Merger. At a meeting of the Special Committee,
held on July 9, 1997, Gruss rendered to the Special Committee a written opinion
to the effect that, as of such date and based upon and subject to certain
matters stated therein, the consideration to be received by the holders of AFEI
Common Stock (other than AFG and its affiliates) in the AFEI Merger was fair to
such holders from a financial point of view (the "Gruss Opinion").
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<PAGE> 29
In arriving at its opinion, Gruss (i) reviewed the Merger Agreement, (ii)
reviewed publicly available information concerning AFEI, AFG and certain
affiliates of AFG that Gruss believed to be relevant to its inquiry, (iii)
reviewed financial and operating information with respect to the business,
operations and prospects of AFG and AFEI furnished to Gruss by AFG, (iv) met
with certain officers and employees of AFG and AFEI and certain affiliates
concerning their respective businesses, operations, assets, present condition
and future prospects, (v) considered certain financial and stock market data of
AFEI and AFG and compared that data with similar data for other publicly traded
companies that Gruss deemed relevant, (vi) considered analyses of the respective
contributions in terms of assets, liabilities and earnings of AFG and AFEI to
AFG Holdings and the relative ownership of AFG Holdings after the Merger by the
current shareholders of AFG and AFEI and (vii) considered the elimination of the
costs and other burdens associated with AFEI having public shareholders. The
cost savings have been estimated to be approximately $500,000 annually,
including a reduction in state franchise taxes, audit services, shareholder
communications costs, personnel costs, stock exchange expenses, insurance costs
and other miscellaneous expenses of operation (ranging individually from $30,000
to $150,000). Gruss did not review any financial projections with respect to
AFG, AFEI or any affiliates of AFG as it was advised by AFG management that such
companies did not prepare projections of operating results.
In reaching its opinion, Gruss assumed and relied upon the accuracy and
completeness of the financial and other information furnished to it and did not
assume responsibility for or make any independent verification of such
information. Gruss also took into account its assessment of general economic,
market and financial conditions and its expertise in similar transactions as
well as its experience in securities valuation generally. The Gruss Opinion
necessarily is based upon regulatory, economic, market and other conditions as
they existed on, and the information made available to it as of, the date of the
Gruss Opinion. Gruss did not express any opinion as to the value of AFG Holdings
Common Stock when issued pursuant to the AFEI Merger or the price at which AFG
Holding Common Stock will trade subsequent to the AFEI Merger.
The full text of the Gruss Opinion, which has been updated to October 31,
1997, and which sets forth the assumptions made, matters considered and
limitations on the review undertaken, is attached as Annex C to this Joint Proxy
Statement/Prospectus and is incorporated herein by reference. AFEI SHAREHOLDERS
ARE URGED TO READ THE GRUSS OPINION CAREFULLY IN ITS ENTIRETY. The Gruss Opinion
is directed only to the fairness of the consideration to be received by
shareholders of AFEI Common Stock (other than AFG and its affiliates) in the
AFEI Merger from a financial point of view, does not address any other aspect of
the AFEI Merger or any related transaction and does not constitute a
recommendation to any shareholder as to how such shareholder should vote with
respect to the proposed AFEI Merger or whether any such shareholder should elect
to receive cash or shares of AFG Holdings Common Stock. The summary of the Gruss
Opinion set forth in this Joint Proxy Statement/Prospectus is qualified in its
entirety by reference to the full text of Gruss Opinion.
SUMMARY OF ANALYSIS
Pro Forma Acquisition Analysis. Gruss performed a series of analyses based
on the Pro Forma Financial Information for the year ended December 31, 1996 and
the three months ended March 31, 1997, prepared by AFG management, which
included adjustments for the AFEI Merger and the AFC Merger and certain other
adjustments. See "Pro Forma Financial Information" included elsewhere in this
Joint Proxy Statement/Prospectus. The pro forma adjustments also assume in the
first scenario that AFEI holders elect to receive solely AFG Holdings Common
Stock in exchange for their AFEI common stock and in the second scenario that
AFEI holders elect to receive 50% cash and 50% AFG Holdings Common Stock. Based
upon such information and assumptions, AFG's pro forma earnings before
extraordinary items per share of common stock for the year ended December 31,
1996, increased from $4.31 to $4.38 in the first scenario and $4.44 in the
second scenario (1.6% and 3.0% increases, respectively). This increase resulted
primarily from a decrease in the charge for minority interest. This increase in
pro forma earnings supported Gruss's opinion that the merger consideration to be
received by holders of AFEI Common Stock electing to receive AFG Holding Common
Stock was fair from a financial point of view.
Analysis of AFG. AFG is primarily a multi-line property and casualty and
an annuity and life insurance company. AFG also owns 42.7% of the common stock
of Chiquita Brands International, Inc. ("Chiquita"), a
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<PAGE> 30
publicly traded company. In analyzing AFG, Gruss reviewed, among other things;
(i) the closing price of AFG common stock on June 20, 1997($40.63 per share);
(ii) the previous two-year trading range of AFG Common Stock; (iii) relevant
publicly available financial information on AFG, including its Annual Reports,
Forms 10-K, Forms 10-Q and Proxy Statements, as well as news releases and
research reports; and (iv) selected comparable publicly traded companies.
Gruss' valuation methodology segmented AFG into the insurance operations
and the Chiquita holdings (which represented approximately 15% of AFG's Equity
Market Capitalization (total shares of Common Stock outstanding multiplied by
the closing market price per share as of a specified date) as of June 20, 1997).
Gruss valued the insurance operations based primarily upon an analysis of
comparable publicly traded companies. Gruss did not perform a discounted cash
flow analysis since AFG does not engage in forward projections of operating
results because its management believes that such projections have limited
utility. In addition, because AFG owns approximately 82% of AFEI Common Stock,
Gruss did not perform an analysis of comparable merger and acquisition
transaction multiples. Gruss selected publicly traded property and casualty and
annuity insurance companies that, in Gruss' judgement, were most closely
comparable to AFG (the "AFG Comparable Companies") based upon general business,
operating and financial characteristics, although Gruss recognized that each of
the AFG Comparable Companies is distinguishable from AFG in certain respects.
However, the guiding principle behind the choice of the AFG Comparable Companies
was finding a group of companies with a business mix as close as possible to
AFG's. To facilitate this process, Gruss disaggregated AFG's business into
property and casualty and annuity operations. Gruss then searched for firms with
a significant percentage of their business operations in complementary areas.
The AFG Comparable Companies included as part of the property and casualty
insurance group were Argonaut Group, Inc., W.R. Berkeley Corp., The Chubb Corp.,
Fremont General Corporation, Guaranty National Corp., Integon Corp., Orion
Capital Corporation, The Progressive Corporation, TIG Holdings Inc., and Zenith
National Insurance Corp. The AFG Comparable Companies included as part of the
annuity insurance group were Amvestors Financial Corporation, Equitable of Iowa
Companies, Presidential Life Corp., Sunamerica Inc. and Western National Corp.
Gruss reviewed, among other things, each AFG Comparable Company's (i) selected
balance sheet data (both on a statutory and GAAP accounting basis); (ii)
operating statement data, including latest twelve month ("LTM") net income;
(iii) future net income estimates made by research analysis; and (iv) historical
trading ranges of common stock.
Gruss calculated a range of market multiples for the AFG Comparable
Companies by dividing the Total Market Capitalization (Equity Market
Capitalization as of June 20, 1997 plus total debt, preferred stock and minority
interest, less equity in investee companies and cash and cash equivalents as
reported in its most recently available Form 10-Q) for each AFG Comparable
Company by such company's statutory surplus as reported in its most recently
available Form 10-Q or Form 10-K. Multiples of Total Market Capitalization to
statutory surplus for the AFG Comparable Companies ranged from 1.4x to 5.3x.
Gruss then calculated a range of market multiples by dividing each of the AFG
Comparable Company's respective Equity Market Capitalization as of June 20, 1997
by its book value and tangible book value as reported in the most recently
available Form 10-Q. Gruss also calculated the multiples of common stock prices
per share to actual 1996 earnings per share, LTM earnings per share (ending
March 31, 1997) and composite equity research analysts' estimates of 1997 and
1998 earnings per share (as reported by I/B/E/S International Inc.) for the AFG
Comparable Companies. Multiples of Equity Market Capitalization to book value
and tangible book value ranged from 1.1x to 3.6x for property and casualty
companies (median of 1.7x) and from 1.2x to 3.2x for annuity companies (median
of 1.8x). Multiples of common stock prices to actual 1996 earnings per share
ranged from 11.5x to 24.6x for property and casualty companies (median of 13.9x)
and from 10.6x to 25.8x for annuity companies (median of 14.7x). Multiples of
common stock to estimated 1997 earnings per share ranged from 11.1x to 21.9x for
property and casualty companies (median of 12.8x) and from 11.0x to 18.7x for
annuity companies (median of 14.2x). Multiples of common stock to estimated 1998
earnings per share ranged from 10.2x to 19.8x for property and casualty
companies (median of 11.1x) and from 9.7x to 15.9x for annuity companies (median
of 12.8x). Multiples of common stock prices to LTM earnings per share ranged
from 10.5x to 22.2x for property and casualty companies (median of 12.4x) and
from 10.3x to 22.9x for annuity companies (median of 14.4x). In reviewing the
AFG Comparable Companies, Gruss placed greatest emphasis on multiples for LTM
earnings per share of common stock, since AFG did not supply Gruss with
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<PAGE> 31
projected 1997 and 1998 earnings per share. Based on the aforementioned multiple
ranges of the comparable companies, Gruss selected an 11x to 16x multiple range
to apply to LTM adjusted net income for AFG's insurance operations. (Adjusted
LTM net income was computed from AFG's 1996 net income, adjusted for the LTM
period ending March 31, 1997, and excludes certain nonrecurring events including
net realized gains, the environmental reserve, an after-tax adjustment for
excess catastrophe rate and the results of Chiquita which is valued separately
in the Gruss analysis.) Based on these multiples and adjusted LTM net income,
Gruss derived an implied range of values for AFG's insurance business of $2.3
billion to $3.3 billion.
In addition to its insurance business, AFG holds a significant position in
Chiquita. Based on the closing market price at June 20, 1997 of $15.00 per
share, AFG's holding in Chiquita had a value of $362.1 million. Gruss also
reviewed Chiquita's previous 52-week trading range of common stock and relevant
publicly available financial information including its Annual Reports, Forms
10-K, Forms 10-Q and Proxy Statements as well as new releases and research
reports.
Overall Analysis of AFG. Adding the implied valuation range for AFG's
insurance businesses of $2.28 billion to $3.32 billion to the valuation of AFG's
Chiquita holdings of $362.1 million, Gruss derived a valuation range for AFG of
$2.64 billion to $3.68 billion. This valuation range in turn implied a valuation
range for AFG common stock of $43.20 to $60.14 per share, which supports Gruss'
conclusion as to the fairness of the merger consideration from a financial point
of view to the shareholders of AFEI (other than AFG and its affiliates).
Analysis Relating to AFEI. AFEI is a holding company the principal assets
of which consist of cash, shares of common stock of AFG, a multi-line property
and casualty insurance company, and of AAG, an annuity insurance company. Gruss
reviewed AFEI's (i) closing price of common stock on February 28, 1997, prior to
the initial merger announcement ($27.50 per share); (ii) the previous two-year
trading range of AFEI common stock, and (iii) relevant publicly available
financial information, including its Annual Reports, Forms 10-K, Forms 10-Q and
Proxy Statements, as well as new releases. In performing its analysis of AFEI,
Gruss used such valuation methodologies as Gruss deemed necessary or appropriate
for purposes of rendering its opinion.
Gruss derived a range of equity valuations for AFEI by applying market
prices to its holdings of AFG and AAG. Based upon the June 20, 1997 closing
prices, AFEI's holdings of AFG and AAG common stock, plus the market value of
its other assets as of March 31, 1997, less AFEI's $68.4 million intercompany
debt to AFC (as of March 31, 1997), Gruss calculated a value of $36.43 per share
of AFEI common stock. AFEI shareholders are offered either $37.00 or one share
of AFG (which Gruss calculated to be worth between $43.20 and $60.14 per share)
for each share of AFEI. Since both of these options are greater than or equal to
the calculated value of a share of AFEI Common Stock (which Gruss calculated to
be $36.43), this analysis supports Gruss' conclusion that the merger
consideration is fair from a financial point of view to the AFEI public
shareholders.
CERTAIN HOLDINGS OF AFG AND AFEI COMMON STOCK
AFG
The Lindner Family is the beneficial owner of approximately 45% of AFG's
Common Stock. The Lindner Family may be deemed to be controlling persons of AFG.
For additional information concerning the ownership of AFG Common Stock by the
principal shareholders, directors and executive officers of AFG, please see the
Proxy Statement of AFG for its 1997 Annual Meeting of Shareholders which has
been filed with the Commission by AFG and is incorporated herein by reference.
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<PAGE> 32
AFEI
The following shareholders are the only persons known by AFEI to own
beneficially five percent or more of the outstanding AFEI Common Stock as of
September 30, 1997:
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE OF PERCENT
OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
-------------------------------------------------------- -------------------- --------
<S> <C> <C>
American Financial Group, Inc........................... 10,986,429(a) 80.7%
One East Fourth Street
Cincinnati, Ohio 45202
Regina Gruss............................................ 986,472(b) 7.2%
33 Riverside Drive
New York, New York 10023
</TABLE>
- ---------------
(a) The Lindner Family shares with AFG voting and dispositive power with
respect to the shares of AFEI Common Stock owned by AFG.
(b) Additionally, Mrs. Gruss is a director of a charitable and educational
foundation which beneficially owns 145,616 shares of AFEI. Mrs. Gruss
disclaims beneficial ownership with respect to all of the shares held in the
foundation.
Information concerning AFEI's Common Stock beneficially owned by each
director and executive officer of AFEI as of September 30, 1997, is shown in the
following table:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
BENEFICIAL OWNERSHIP
---------------------------------
SHARES EXERCISABLE PERCENT
OWNED OPTIONS(b) TOTAL OF CLASS
----- ----------- ------- -----------
<S> <C> <C> <C> <C>
Carl H. Lindner (a)........................ -0- -0- -0- --
Julius S. Anreder.......................... 14,744 -0- 14,744 (c)
James E. Evans............................. 56,000 60,000 116,000 (c)
Robert D. Lindner.......................... 10,000 -0- 10,000 (c)
Fred J. Runk............................... 88,194 -0- 88,194 (c)
Thomas E. Mischell......................... 40,000 35,000 75,000 (c)
Neil M. Hahl............................... -0- -0- -0- --
</TABLE>
- ---------------
(a) In addition, Mr. Carl H. Lindner may be deemed to beneficially own the
shares of AFEI Common Stock held by AFG.
(b) Represents shares which may be acquired upon exercise of stock options.
(c) Less than 1%.
CERTAIN LITIGATION AFFECTING THE AFEI MERGER
A lawsuit was filed following the April 23, 1997 public announcement of a
proposal whereby AFG would acquire the AFEI Common Stock not owned by AFG. The
lawsuit named AFG, AFEI and six of AFEI's directors as defendants, alleged that
the price offered in the proposal for AFEI's Common Stock is inadequate, and
sought to temporarily or permanently enjoin any transaction, or, alternatively,
sought rescission or compensatory damages. The class action complaint alleged
breaches of fiduciary and common law duties and was filed in Superior Court in
Hartford, Connecticut, as Harry Lewis v. Carl H. Lindner, et al. The defendants
filed a motion to dismiss based on Connecticut law "prior demand" requirements
and cases and statutes which would hold or indicate that appraisal is the sole
remedy which would be available to plaintiffs in this instance. While
defendants' motion to dismiss was pending, Mr. Lewis passed away. The
administrator of his estate has decided not to proceed with this action either
as a plaintiff or as a class representative. On September 24, 1997, counsel for
plaintiffs filed a motion for approval of withdrawal of class action.
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<PAGE> 33
THE AFG REORGANIZATION
GENERAL
The Board of Directors of AFG has unanimously approved the AFG
Reorganization Agreement, pursuant to which AFG would become a wholly-owned
subsidiary of AFG Holdings and the shareholders of AFG would become the
shareholders of AFG Holdings. The members of AFG's Board of Directors are Carl
H. Lindner, James E. Evans, Thomas M. Hunt, Theodore H. Emmerich, Keith E.
Lindner, Carl H. Lindner III, S. Craig Lindner and William R. Martin. The Board
of Directors and executive officers of AFG Holdings are identical to those of
AFG.
On the effective date of the AFG Reorganization (the "AFG Reorganization
Effective Date"), the shareholders of AFG (other than AFC and its subsidiaries)
would receive AFG Holdings Common Stock in exchange for their AFG Common Stock
on a one-for-one basis. The AFG Holdings Common Stock would be listed on the New
York Stock Exchange as the AFG Common Stock now is, and AFG stock certificates
would constitute "good delivery" for transactions occurring after the AFG
Reorganization. It would not be necessary to exchange AFG stock certificates for
AFG Holdings stock certificates, as outstanding AFG stock certificates would
automatically represent the AFG Holdings shares into which they would be
converted. AFG Common stock held by AFC and its subsidiaries (which is treated
as retired for AFG's financial accounting purposes and, under state law, cannot
be voted) would not be affected by the AFG Reorganization.
The AFG Reorganization would be accomplished through the merger of AFG
Acquisition Corp., an Ohio corporation, with and into AFG, with AFG surviving,
pursuant to the AFG Reorganization Agreement, a copy of which is attached hereto
as Annex A. The Articles of Incorporation and Code of Regulations of AFG would
be those of the surviving company following the AFG Reorganization. In the AFG
Reorganization, the shares of common stock of AFG Acquisition Corp. issued and
owned by AFG Holdings would be converted to, and thereafter represent, all of
the issued and outstanding shares of AFG Common Stock (except for shares held by
AFC and its subsidiaries). The officers and directors of AFG immediately prior
to the AFG Reorganization would be the officers and directors of the surviving
company. All issued and outstanding shares of AFG Common Stock prior to the AFG
Reorganization would thereafter constitute AFG Holdings Common Stock.
Applicable Ohio law provides, generally, that the surviving corporation in
an Ohio merger succeeds to all of the rights, properties, obligations and
liabilities of each of the constituent corporations. As a result, after the AFG
Reorganization, AFG would generally be entitled to the benefit of the
pre-reorganization rights and properties, and would be responsible for the
pre-reorganization obligations and liabilities, of both AFG and AFG Acquisition
Corp. However, AFG Acquisition Corp. is not intended to have any rights,
properties, obligations or liabilities other than those associated with the AFG
Reorganization.
CONDITIONS TO THE AFG REORGANIZATION
If the shareholders of AFG approve the AFG Reorganization, the transaction
would be completed as promptly as practicable. However, subject to contractual
obligations under the AFEI Merger Agreement, the AFG Reorganization Agreement
may be abandoned if circumstances develop which, in the opinion of the AFG Board
of Directors, make the AFG Reorganization no longer in the best interests of the
shareholders of AFG.
PRINCIPAL REASONS FOR THE AFG REORGANIZATION
The principal reasons for the AFG Reorganization are to reduce
administrative costs and inefficiencies and facilitate the elimination of one
publicly traded company (AFEI).
AFG HOLDINGS COMPANY STRUCTURE, NO CHANGE IN AFG'S BUSINESS
The AFG Reorganization would result in AFG's shareholders becoming
shareholders of a holding company initially whose sole assets would be the stock
of AFG and any other entities which it may acquire or form in the future
(including by operation of the AFEI Merger). See "Principal Reasons for the AFG
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<PAGE> 34
Reorganization." The AFG Reorganization itself would not effect any change in
the business, management, properties or financial condition of AFG. The employee
benefit plans and arrangements of AFG are not expected to be materially affected
by the AFG Reorganization, although certain of them would be assumed by AFG
Holdings and others would remain the obligations of AFG. In particular, AFG
Holdings has adopted a stock option plan covering 5,294,778 shares of its Common
Stock and options under this plan would be issued to replace the outstanding
options exercisable for shares of AFG Common Stock on the same terms and
conditions as those outstanding options.
VOTE REQUIRED
An affirmative vote of a majority of the outstanding shares of AFG Common
Stock.
DIRECTORS' RECOMMENDATION
Based primarily on the expected reduction in administrative costs and the
benefits of a simplified organizational structure if the AFG Reorganization and
AFEI Merger are consummated, the AFG Board of Directors unanimously approved the
AFG Reorganization and has recommended that AFG's shareholders vote in favor of
the transaction.
NAME CHANGES
Upon the consummation of the AFG Reorganization, AFG Holdings will change
its name to "American Financial Group, Inc." and AFG will change its name to
"AFC Holding Company."
AUTHORIZED CAPITAL STOCK
The authorized capital stock of AFG consists of 200 million shares of
Common Stock and 25 million shares of Preferred Stock. At the effective time of
the AFG Reorganization, the authorized capital stock of AFG Holdings will also
consist of 200 million shares of Common Stock and 25 million shares of Preferred
Stock.
AFG HOLDINGS' BOARD OF DIRECTORS, MANAGEMENT
Following the AFG Reorganization, AFG Holdings will have the same directors
and executive officers as AFG's present management. Information concerning those
persons as well as a description of executive compensation and certain
relationships and related transactions involving those persons is contained in
the material incorporated by reference herein with respect to AFG.
DISSENTERS' RIGHTS
The following is a summary of the principal steps which an AFG shareholder
must take to perfect dissenters' rights under Section 1701.85 of the Ohio
Revised Code (the "ORC"). The summary is qualified in its entirety by Section
1701.85 of the ORC, a copy of which is attached hereto as Annex D. Failure to
take any one of the required steps may result in forfeiture of the rights of the
shareholder under the ORC.
Exercise of dissenters' rights under the ORC may result in a judicial
determination that the "fair cash value" of the dissenting AFG shareholder's
shares is higher or lower than the value of the AFG Holdings Common Stock to be
paid for each share of AFG Common Stock in the AFG Reorganization.
Any AFG shareholder whose shares are not voted for adoption of the AFG
Reorganization may be entitled, if the AFG Reorganization is consummated, to be
paid the "fair cash value" of such shares held of record on the record date. To
be entitled to such payment, such shareholder must serve a written demand
therefor upon AFG Holdings at One East Fourth Street, Cincinnati, Ohio, 45202 on
or before the tenth day after the shareholder vote adopting the AFG
Reorganization and must otherwise comply with Section 1701.85 of the ORC. AFG
Holdings will not inform shareholders of the expiration of the ten-day period
and therefore dissenting shareholders are advised to retain this Joint Proxy
Statement/Prospectus. A vote for adoption of the AFG Reorganization constitutes
a waiver of dissenters' rights. Submission of a properly executed proxy
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<PAGE> 35
without a designation of "against" or "abstain" will constitute a vote for the
AFG Reorganization. Failure to vote does not constitute a waiver of dissenters'
rights. The required written demand must specify the shareholder's name and
address, the number of shares of AFG Common Stock held of record on the record
date and the amount claimed as the "fair cash value" of the shares. Voting
against adoption of the AFG Reorganization will not of itself constitute a
written demand as required by Section 1701.85 of the ORC.
If AFG Holdings requests, dissenting shareholders must submit their share
certificates to AFG Holdings within 15 days after the making of such request for
endorsement thereon by AFG Holdings of a legend that demand for appraisal has
been made. Such certificates will be returned promptly to the dissenting
shareholder by AFG Holdings. AFG Holdings intends to make such a request to
dissenting shareholders.
If AFG Holdings and any dissenting shareholder cannot agree on the "fair
cash value" of the shares of AFG Common Stock, either may within three months
after service of the demand by the shareholder, file a complaint in the Court of
Common Pleas of Hamilton County, Ohio, for a determination of the "fair cash
value" of such shareholder's AFG Common Stock. The Court, if it determines that
the dissenting shareholder is entitled to be paid the "fair cash value" of the
AFG Common Stock, may appoint one or more appraisers to determine its value. If
the Court approves the appraisers' report, judgment will be entered therefor,
and the costs of the proceeding, including reasonable compensation to the
appraisers, shall be assessed or apportioned as the Court considers equitable.
"Fair cash value" is the amount which a willing seller, under no compulsion to
sell, would be willing to accept, and which a willing buyer, under no compulsion
to purchase, would be willing to pay, but in no event in excess of the amount
specified in the shareholder's demand. "Fair cash value" would be determined as
of the day prior to that on which the shareholder vote is taken at the Special
Meeting and would exclude any appreciation or depreciation in market value of
AFG Common Stock resulting from the proposed transaction. AFG Holdings does not
intend to file such a complaint. Therefore, a dissenting shareholder must timely
file such a complaint to protect his rights to a judicial determination under
the ORC.
The right of any dissenting shareholder to be paid the "fair cash value" of
the AFG Common Stock will terminate if: (i) for any reason the AFG
Reorganization, although adopted by shareholder vote, does not become effective;
(ii) the dissenting shareholder fails to serve an appropriate timely written
demand upon AFG Holdings; (iii) the dissenting shareholder does not, upon
request of AFG Holdings, timely surrender certificates for an endorsement
thereon of a legend to the effect that demand for the "fair cash value" of such
AFG Common Stock has been made; (iv) the demand is withdrawn by the dissenting
shareholder, with the consent of the Board of Directors of AFG Holdings; (v) AFG
Holdings and the dissenting shareholder shall not have come to an agreement as
to the "fair cash value" of the AFG Common Stock and neither shall have filed a
complaint in the Court as described above or (vi) the dissenting shareholder has
otherwise not complied with the requirements of Section 1701.85 of the ORC.
From the time a dissenting shareholder's demand is made until the
termination of the right arising from that demand, all rights accruing from such
AFG Common Stock, including dividend and voting rights, shall be suspended. If
the right to receive "fair cash value" is terminated other than by purchase of
the dissenting shareholder's AFG Common Stock by AFG Holdings, all such
shareholder's rights with respect to AFG Common Stock shall be restored to the
shareholder; if the AFG Reorganization has then been consummated, such rights
shall consist solely of the right to receive the shares of AFG Holdings as
provided in the AFG Reorganization.
THE AFEI MERGER
TERMS OF THE MERGER
AFEI, AFG Holdings, AFEI Acquisition Corp. (a wholly-owned subsidiary of
AFG Holdings formed for purposes of the Merger) and AFG entered into the AFEI
Merger Agreement on July 11, 1997. If the AFEI Merger is approved by the
required vote of AFEI shareholders, AFEI Acquisition Corp. will merge with and
into AFEI with AFEI being the surviving corporation. As a result of the AFEI
Merger, each share of AFEI Common Stock not beneficially owned by AFG or AFG
Holdings shall be converted into the right to receive either one share of AFG
Holdings Common Stock or $37.00 in cash.
33
<PAGE> 36
The consummation of the AFEI Merger will take place within five business
days of the satisfaction or waiver of certain conditions in the AFEI Merger
Agreement or at such other time as the parties may mutually agree.
VOTE REQUIRED
Under Connecticut law and the AFEI Merger Agreement, approval of the AFEI
Merger will require the affirmative vote of both (i) the holders of at least 80%
of the outstanding shares of AFEI Common Stock and (ii) the holders of at least
two-thirds of the outstanding shares of AFEI Common Stock not beneficially owned
by AFG or its affiliates or associates (approximately 2,265,000 shares,
including the 986,472 shares beneficially owned by Mrs. Gruss).
EFFECTIVE TIME OF THE ACQUISITION
If approved by AFEI shareholders and if all other conditions to the
completion of the AFEI Merger are either waived or satisfied, the AFEI Merger
will be consummated through the filing of merger documents with the Secretary of
the State of Connecticut, at which time it will become effective.
EFFECT ON COMMON STOCK; EFFECT ON STOCK OPTIONS
Each outstanding share of AFEI Common Stock, not beneficially owned by AFG,
will be exchanged, at the option of the holder, for either (i) one share of AFG
Holdings Common Stock, or (ii) $37.00 in cash. AFEI shareholders may also elect
to receive their merger consideration partly in cash and partly in AFG Holdings
Common Stock. Each holder of outstanding options to purchase AFEI Common Stock
wishing to exercise such options, must do so prior to the Effective Time, at
which time all such options would otherwise expire.
CASH ELECTION
Holders of shares of AFEI Common Stock are receiving with this Joint Proxy
Statement/Prospectus a Letter of Transmittal form which they must fill out and
return by the Effective Time, if they desire to receive their merger
consideration in cash, or partly in cash and partly in AFG Holdings Common
Stock. If no election is specified by a shareholder, or if a properly completed
Letter of Transmittal is not received by AFG Holdings on or before the Effective
Time, such shareholder will receive solely AFG Holdings Common Stock.
CONDITIONS
The respective obligations of AFEI, AFG and AFG Holdings to effect the AFEI
Merger are subject to the satisfaction (or waiver by AFEI and either AFG or AFG
Holdings) at or prior to the Effective Time, of certain conditions as follows:
(a) consummation of the AFG Reorganization.
(b) any applicable waiting period relating to the AFEI Merger shall
have expired or been terminated;
(c) there shall not be in effect: (i) any judgment, injunction, decree
or order issued by any federal, state or local court or arbitrator of
competent jurisdiction; or (ii) any statute, rule, regulation or order
enacted or promulgated by any federal, state or local, legislative,
administrative or regulatory body of competent jurisdiction, that, in
either case, prohibits or restricts the consummation of the AFEI Merger or
makes such consummation illegal or restricts in any material respect or
prohibits the effective operation of the business of AFG and AFEI;
(d) the approval of the AFEI Merger by the affirmative vote of the
requisite votes of the shareholders of AFEI as provided in Sections
33-817(j) and 33-841 of the Connecticut Business Corporation Act (See
"-- Vote Required");
(e) the receipt of an opinion of tax counsel substantially to the
effect that: (i) no gain or loss will be recognized by AFEI or AFG Holdings
as a result of the AFEI Merger; (ii) no gain or loss will be
34
<PAGE> 37
recognized by shareholders of AFEI who receive only shares of AFG Holdings
Common Stock in the AFEI Merger; (iii) the tax basis of the shares of AFG
Holdings Common Stock owned by each former shareholder of AFEI who takes
only stock will be the same as the tax basis of the shares of AFEI Common
Stock formerly owned by the particular shareholder; and (iv) the holding
period of the shares of AFG Holdings Common stock received by an AFEI
shareholder will include the period during which the particular shareholder
held the AFEI Common Stock that is exchanged in the AFEI Merger, provided
that such shares were held as capital assets immediately prior to the AFEI
Merger.
In addition, the obligation of AFEI to effect the AFEI Merger is subject to
the satisfaction (or waiver by AFEI) at or prior to the Effective Time, of the
following additional conditions:
(a) The Special Committee shall have received from Gruss an opinion to
the effect that the consideration for the AFEI Merger is fair, from a
financial point of view, to holders of AFEI Common Stock (other than AFG
and its affiliates); and
(b) The shares of AFG Holdings Common Stock to be received in the AFEI
Merger shall be listed on the New York Stock Exchange.
AFEI intends to resolicit shareholder proxies with respect to approval of
the AFEI Merger if any material conditions are waived.
AMENDMENT AND TERMINATION
The AFEI Merger Agreement may be terminated and the transactions
contemplated thereby may be abandoned at any time, notwithstanding prior
approval by the AFEI shareholders, as follows:
(a) by the mutual written consent of the Board of Directors of each of
AFEI (including the Special Committee) and AFG;
(b) by either AFEI or AFG if the AFEI Merger has not been consummated
by November 1, 1997 except as a result of the failure by the party desiring
termination to fulfill any obligation under the AFEI Merger Agreement;
(c) by either AFEI or AFG if a court of competent jurisdiction in the
United States or any state thereof or other United States governmental,
regulatory or administrative body shall have issued an order, decree or
ruling or taken any other action (which order, decree, ruling or other
action the parties agree to use their best efforts through appeals and
otherwise to vacate) permanently restraining, enjoining or otherwise
prohibiting the transactions contemplated by the AFEI Merger Agreement and
such order, decree, ruling or other action shall have become final and
nonappealable; or
(d) by AFEI, if AFG materially breaches a warranty, representation or
covenant, or by AFG, if AFEI materially breaches a warranty, representation
or covenant.
The AFEI Merger Agreement may be amended at any time before or after
adoption by the shareholders of AFEI, but after shareholder approval no
amendment shall be made which adversely affects the rights of the shareholders
of AFEI without the approval of the affected shareholders.
EXPENSES
Whether or not the AFEI Merger is consummated, each party to the AFEI
Merger Agreement will pay its own expenses in connection with the AFEI Merger.
AFEI's expenses are estimated to be approximately $750,000. AFG's expenses are
estimated to be approximately $1.5 million.
DISSENTERS' RIGHTS
AFEI shareholders objecting to the AFEI Merger and complying with statutory
requirements are entitled to assert dissenters' rights under, and thus have the
right to be paid fair value for their shares as provided in, Sections 33-855 to
33-872 of the Connecticut Business Corporation Act (the "CBCA"), a copy of which
is set forth in Annex E to this Joint Proxy Statement/Prospectus. This right is
the exclusive remedy of an AFEI
35
<PAGE> 38
shareholder with respect to the AFEI Merger, whether or not such shareholder
proceeds as provided in CBCA Sections 33-855 to 33-872.
The following is only a summary of the rights of an objecting holder of
AFEI Common Stock. Any holder of AFEI Common Stock who intends to object to the
AFEI Merger should carefully review the text of the applicable provisions of the
CBCA set forth in Annex E to this Joint Proxy Statement/Prospectus and may also
wish to consult an attorney. The failure of a holder of AFEI Common Stock to
follow precisely the procedures summarized below and set forth in Annex E may
result in loss of dissenters' rights. No further notice of the events giving
rise to dissenters' rights or any steps associated therewith will be furnished
by AFEI to holders of AFEI Common Stock, except as otherwise required by law.
In general, any objecting shareholder who perfects the right to be paid the
fair value of AFEI Common Stock in cash may recognize taxable gain or loss for
federal income tax purposes upon receipt of such cash. (See "Certain United
States Federal Income Tax Consequences.")
Shareholders electing to exercise dissenters' rights must give written
notice to AFEI of their intent to demand payment as provided in the CBCA prior
to the voting on the proposal to approve the AFEI Merger. No shares held by a
shareholder electing to exercise dissenters' rights may be voted in favor of the
AFEI Merger. Beneficial owners of shares must contact the record owner of the
shares, such as a bank or broker, to exercise this right.
If the AFEI Merger is approved, shareholders providing the required notice
to AFEI may require AFEI to purchase their shares at fair value. The CBCA
requires that AFEI send a dissenters' notice to shareholders who have complied
with CBCA Section 33-861 no later than ten days after the consummation of the
AFEI Merger. The dissenters' notice sent by AFEI must state where the demand for
payment must be sent and where and when certificates for shares of AFEI Common
Stock must be deposited; supply a form for demanding payment that includes the
date of the first announcement to news media or to shareholders of the terms of
the AFEI Merger; and requires that each shareholder asserting dissenters' rights
certify whether or not such shareholder acquired beneficial ownership of the
shares before that date. Finally, AFEI must set a date by which AFEI must
receive the payment demand.
A dissenting shareholder must demand payment for shares and make the
certification relating to beneficial ownership referenced above. Such
shareholder must also submit the certificate or certificates representing shares
held to AFEI in accordance with the terms of the dissenters' notice. After AFEI
either receives a demand for payment by an AFEI shareholder, or upon
consummation of the AFEI Merger, AFEI is required to pay each shareholder who
properly makes a demand pursuant to the CBCA the amount AFEI estimates to be the
fair value of such shareholder's shares, plus accrued interest as provided in
the CBCA. The CBCA also sets forth procedures for a dissenting shareholder to
disagree with AFEI's estimate of the fair value and judicial resolution of any
unresolved disagreement.
36
<PAGE> 39
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P., in its
capacity as tax counsel ("Tax Counsel") to AFG, AFEI and AFG Holdings, the
following are the material U.S. federal income tax consequences relevant to
shareholders of AFG and AFEI whose shares of common stock of AFG and AFEI would
be exchanged for shares of common stock of AFG Holdings and/or cash
(collectively, the "Exchanging Shareholders"). This summary does not purport to
be a complete analysis of all potential tax considerations relevant to the
Exchanging Shareholders. The summary is limited solely to U.S. federal income
tax matters. The summary discussion is based upon the Internal Revenue Code of
1986, as amended (the "Code"), Treasury regulations, administrative rulings and
pronouncements of the Internal Revenue Service ("IRS"), and judicial decisions,
all as of the date hereof and all of which are subject to change at any time,
possibly with retroactive effect.
The summary of tax consequences to Exchanging Shareholders is limited to
those Exchanging Shareholders that hold shares of common stock in AFG or AFEI
(and that will hold AFG Holdings Common Stock) as capital assets for U.S.
federal income tax purposes. This summary does not purport to address U.S.
federal income tax consequences that may be applicable to particular categories
of shareholders, including banks, thrifts, real estate investment trusts,
regulated investment companies, insurance companies, tax-exempt persons, dealers
in securities or currencies, persons with significant holdings of AFG or AFEI
Common Stock, persons holding AFG or AFEI Common Stock as a position in a
"straddle," as part of a "synthetic security" or "hedge," as part of a
"conversion transaction" or other integrated investment, non-United States
persons, including foreign corporations and nonresident alien individuals, and
shareholders, partners or beneficiaries of holders of AFG or AFEI Common Stock.
This summary does not address any tax considerations under the laws of any
state, locality, or jurisdiction, or foreign country.
THE UNITED STATES FEDERAL INCOME TAX SUMMARY SET FORTH BELOW IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON AN
EXCHANGING SHAREHOLDER'S PARTICULAR SITUATION. EXCHANGING SHAREHOLDERS SHOULD
CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF
THE EXCHANGE OF SHARES OF COMMON STOCK OF AFG AND AFEI FOR SHARES OF COMMON
STOCK OF AFG HOLDINGS AND/OR CASH, INCLUDING THE TAX CONSEQUENCES UNDER STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS.
TAX TREATMENT OF THE MERGER TRANSACTIONS
The AFG Reorganization. No gain or loss will be recognized by AFG
shareholders who are deemed to have exchanged shares of AFG Common Stock solely
for shares of AFG Holdings Common Stock pursuant to the AFG Reorganization. In
addition, no gain or loss will be recognized as a result of the AFG
Reorganization by AFG Holdings, AFG Acquisition Corp., or AFG.
The AFEI Merger. No gain or loss will be recognized by AFEI shareholders
who exchange shares of AFEI Common Stock solely for shares of AFG Holdings
Common Stock pursuant to the AFEI Merger. Taxable gain (if any), but not loss,
will be recognized by an AFEI shareholder that receives cash in addition to AFG
Holding Common Stock, generally in an amount equal to the lesser of (i) the
excess of the cash plus the fair market value of the stock received over the tax
basis of the stock surrendered, and (ii) the amount of cash received. Also,
taxable gain (or loss) will generally be recognized by a shareholder that
receives solely cash. Exchanging Shareholders should consult their own tax
advisors with respect to the tax character (e.g., capital gain or ordinary
income) of any taxable gain (or loss) recognized in connection with the AFEI
Merger. No gain or loss will be recognized as a result of the AFEI Merger by AFG
Holdings, AFEI Acquisition Corp., or AFEI.
TAX BASIS OF AFG HOLDINGS COMMON STOCK
To Shareholders of AFG. The tax basis of an Exchanging Shareholder in AFG
Holdings Common Stock received in the AFG Reorganization will be the same as
such Exchanging Shareholder's tax basis in the AFG Common Stock surrendered for
such shares of AFG Holdings Common Stock.
37
<PAGE> 40
To Shareholders of AFEI. The tax basis of AFG Holding Common Stock to an
Exchanging Shareholder receiving solely AFG Holdings Common Stock in the AFEI
Merger will be the same as such Exchanging Shareholder's tax basis in the AFEI
Common Stock surrendered for such shares of AFG Holdings Common Stock. An
Exchanging Shareholder receiving both AFG Holdings Common Stock and cash in the
AFEI Merger will generally have a basis in AFG Holdings Common Stock equal to
the basis in the AFEI Common Stock surrendered minus the cash received plus the
gain recognized in the AFEI Merger.
HOLDING PERIOD OF AFG HOLDINGS COMMON STOCK
An Exchanging Shareholder's holding period in AFG Holdings Common Stock
received in the exchange will include the period during which such Exchanging
Shareholder held the AFG or AFEI Common Stock surrendered.
BACKUP WITHHOLDING ON CASH PAYMENTS
Federal income tax backup withholding at a rate of 31 percent on dividends
and proceeds from a sale, exchange, or redemption of AFG Holdings Common Stock
may apply unless the holder (i) is a corporation or comes within certain other
exempt categories (and, when required, demonstrates this fact) or (ii) provides
a taxpayer identification number, certifies as to no loss of exemption from
backup withholding, and otherwise complies with applicable requirements of the
backup withholding rules. The amount of any backup withholding from a payment to
a holder will be allowed as a credit against the holder's federal income tax
liability and may entitle such holder to a refund, provided that the required
information is furnished to the IRS.
38
<PAGE> 41
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Condensed Consolidated Financial Statements are
unaudited and have been derived from, and should be read in conjunction with,
AFG's historical financial statements which are incorporated herein by
reference. The Pro Forma Balance Sheet at June 30, 1997 assumes the AFEI Merger
and AFC Merger were consummated at that date. The Pro Forma Statements of
Earnings for the six months ended June 30, 1997 and the year ended December 31,
1996 assume the Mergers were consummated on January 1, 1996. These statements
give effect to (i) the exercise of all AFEI Common Stock options, (ii) the
acquisition of all shares of AFEI Common Stock not owned by AFG in exchange for
AFG Common Stock on a share-for-share basis, or alternatively, assuming holders
of 50% and 100% of such shares, respectively, elect to receive $37.00 per AFEI
share in cash and (iii) the acquisition of all outstanding shares of AFC Series
F and Series G Preferred Stocks in exchange for $235.8 million in cash and $70.4
million in a new issue of AFC Series J Preferred Stock.
Beneficial holders of approximately 50% of AFEI Common Stock not owned by
AFG have expressed their intention to elect to receive AFG Common Stock in the
AFEI Merger. Management believes that most holders will elect to receive AFG
Common Stock in the AFEI Merger.
The fair value of the consideration to be issued by AFC for its Series F
Preferred Stock exceeds the stated value by $143.4 million. In accordance with a
recent SEC position on accounting, this excess will reduce earnings available to
AFG's common shareholders for purposes of computing earnings per share. Since
this transaction is nonrecurring, it does not affect the Pro Forma Statements of
Earnings.
The pro forma statements of earnings do not necessarily reflect the results
of operations of AFG which would have actually resulted had the AFEI and AFC
Mergers occurred as of the dates indicated, nor should they be taken as
indicative of AFG's future results of operations.
39
<PAGE> 42
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET (UNAUDITED)
JUNE 30, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS PRO FORMA --
AFEI MERGER AFEI MERGER
----------------------------------- ---------------------------------
HISTORICAL ALL STOCK 50% CASH 100% CASH ALL STOCK 50% CASH 100% CASH
---------- --------- -------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and investments.................... $11,993.8 $ 7.1(a) $(44.1)(d) $ (95.3)(d) $12,000.9 $11,949.7 $11,898.5
Recoverables from reinsurers and prepaid
reinsurance premiums.................. 951.5 -- -- -- 951.5 951.5 951.5
Agents balances and premiums
receivable............................ 676.7 -- -- -- 676.7 676.7 676.7
Other assets............................ 1,736.1 -- -- -- 1,736.1 1,736.1 1,736.1
--------- ------ ------ ------ --------- --------- -------
$15,358.1 $ 7.1 $(44.1) $ (95.3) $15,365.2 $15,314.0 $15,262.8
========= ====== ====== ====== ========= ========= =======
LIABILITIES AND CAPITAL
Unpaid losses and loss adjustment
expenses.............................. $ 4,086.0 $ -- $ -- $ -- $4,086.0 $4,086.0 $4,086.0
Unearned premiums....................... 1,336.8 -- -- -- 1,336.8 1,336.8 1,336.8
Annuity benefits accumulated............ 5,469.5 -- -- -- 5,469.5 5,469.5 5,469.5
Life, accident and health benefit
reserves.............................. 589.5 -- -- -- 589.5 589.5 589.5
Long-term debt.......................... 470.1 -- -- -- 470.1 470.1 470.1
Other liabilities....................... 1,131.2 -- -- -- 1,131.2 1,131.2 1,131.2
--------- ------ ------ ------ --------- --------- -------
Total liabilities................... 13,083.1 -- -- -- 13,083.1 13,083.1 13,083.1
Minority interest....................... 656.1 (70.7)(b) (70.7)(b) (70.7)(b) 585.4 585.4 585.4
Common Stock and capital surplus........ 779.8 77.8(c) 26.6(e) (24.6)(f) 857.6 806.4 755.2
Retained earnings....................... 600.5 -- -- -- 600.5 600.5 600.5
Net unrealized gains on marketable
securities, net of deferred income
taxes................................. 238.6 -- -- -- 238.6 238.6 238.6
--------- ------ ------ ------ --------- --------- -------
Total shareholders' equity.......... 1,618.9 77.8 26.6 (24.6) 1,696.7 1,645.5 1,594.3
--------- ------ ------ ------ --------- --------- -------
$15,358.1 $ 7.1 $(44.1) $ (95.3) $15,365.2 $15,314.0 $15,262.8
========= ====== ====== ====== ========= ========= =======
Number of Shares Outstanding.............. 58.9 2.8 1.4 -- 61.7 60.3 58.9
========= ====== ====== ====== ========= ========= =======
Book Value per Share...................... $ 27.48 $ 27.51 $ 27.29 $ 27.06
========= ========= ========= =======
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ---------------------------------
AFC MERGER ALL STOCK 50% CASH 100% CASH
---------- --------- --------- ---------
<S> <C> <C> <C> <C>
ASSETS
Cash and investments.................... $ (235.8)(g) $11,765.1 $11,713.9 $11,662.7
Recoverables from reinsurers and prepaid
reinsurance premiums.................. -- 951.5 951.5 951.5
Agents balances and premiums
receivable............................ -- 676.7 676.7 676.7
Other assets............................ -- 1,736.1 1,736.1 1,736.1
--------- --------- --------- ---------
$ (235.8) $15,129.4 $15,078.2 $15,027.0
========= ========= ========= =========
LIABILITIES AND CAPITAL
Unpaid losses and loss adjustment
expenses.............................. $ -- $4,086.0 $4,086.0 $4,086.0
Unearned premiums....................... -- 1,336.8 1,336.8 1,336.8
Annuity benefits accumulated............ -- 5,469.5 5,469.5 5,469.5
Life, accident and health benefit
reserves.............................. -- 589.5 589.5 589.5
Long-term debt.......................... -- 470.1 470.1 470.1
Other liabilities....................... -- 1,131.2 1,131.2 1,131.2
--------- --------- --------- ---------
Total liabilities................... -- 13,083.1 13,083.1 13,083.1
Minority interest....................... (92.4)(h) 493.0 493.0 493.0
Common Stock and capital surplus........ -- 857.6 806.4 755.2
Retained earnings....................... (143.4)(g) 457.1 457.1 457.1
Net unrealized gains on marketable
securities, net of deferred income
taxes................................. -- 238.6 238.6 238.6
--------- --------- --------- ---------
Total shareholders' equity.......... (143.4) 1,553.3 1,502.1 1,450.9
--------- --------- --------- ---------
$ (235.8) $15,129.4 $15,078.2 $15,027.0
========= ========= ========= =========
Number of Shares Outstanding.............. -- 61.7 60.3 58.9
========= ========= ========= =========
Book Value per Share...................... $ 25.18 $ 24.91 $ 24.63
========= ========= =========
</TABLE>
40
<PAGE> 43
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
SIX MONTHS ENDED JUNE 30, 1997
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS PRO FORMA --
AFEI MERGER AFEI MERGER
---------------------------------- ---------------------------------
HISTORICAL ALL STOCK 50% CASH 100% CASH ALL STOCK 50% CASH 100% CASH
---------- --------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Insurance premiums...................... $1,414.8 $ -- $ -- $ -- $1,414.8 $1,414.8 $1,414.8
Investment income....................... 427.5 --(i) --(i) --(i) 427.5 427.5 427.5
Other income............................ 91.1 -- -- -- 91.1 91.1 91.1
-------- ----- ----- ---- -------- -------- -----
1,933.4 -- -- -- 1,933.4 1,933.4 1,933.4
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses... 964.5 -- -- -- 964.5 964.5 964.5
Commissions and other underwriting
expenses............................ 377.6 -- -- -- 377.6 377.6 377.6
Annuity, life, accident and health
benefits.............................. 189.4 -- -- -- 189.4 189.4 189.4
Interest charges on borrowed money...... 27.6 --(i) --(i) --(i) 27.6 27.6 27.6
Minority interest....................... 30.1 (0.6)(j) (0.6)(j) (0.6)(j) 29.5 29.5 29.5
Other operating and general expenses.... 147.2 -- -- -- 147.2 147.2 147.2
-------- ----- ----- ---- -------- -------- -----
1,736.4 (0.6) (0.6) (0.6) 1,735.8 1,735.8 1,735.8
Earnings before income taxes and
extraordinary items..................... 197.0 0.6 0.6 0.6 197.6 197.6 197.6
Provision for income taxes................ 72.6 --(k) --(k) --(k) 72.6 72.6 72.6
-------- ----- ----- ---- -------- -------- -----
EARNINGS BEFORE EXTRAORDINARY ITEMS....... $ 124.4 $ 0.6 $ 0.6 $ 0.6 $ 125.0 $ 125.0 $ 125.0
======== ===== ===== ==== ======== ======== =====
EARNINGS BEFORE EXTRAORDINARY ITEMS PER
COMMON SHARE............................ $ 2.07 $ 1.98 $ 2.03 $ 2.08
======== ======== ======== =====
Average number of Common Shares........... 60.2 2.8 1.4 -- 63.0 61.6 60.2
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ----------------------------------
AFC MERGER ALL STOCK 50% CASH 100% CASH
---------- --------- -------- ---------
<S> <<C> <C> <C> <C>
INCOME
Insurance premiums...................... $ -- $1,414.8 $1,414.8 $1,414.8
Investment income....................... --(i) 427.5 427.5 427.5
Other income............................ -- 91.1 91.1 91.1
----- -------- -------- -----
-- 1,933.4 1,933.4 1,933.4
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses... -- 964.5 964.5 964.5
Commissions and other underwriting
expenses............................ -- 377.6 377.6 377.6
Annuity, life, accident and health
benefits.............................. -- 189.4 189.4 189.4
Interest charges on borrowed money...... --(i) 27.6 27.6 27.6
Minority interest....................... (8.9)(l) 20.6 20.6 20.6
Other operating and general expenses.... -- 147.2 147.2 147.2
----- -------- -------- -----
(8.9) 1,726.9 1,726.9 1,726.9
Earnings before income taxes and
extraordinary items..................... 8.9 206.5 206.5 206.5
Provision for income taxes................ --(k) 72.6 72.6 72.6
----- -------- -------- -----
EARNINGS BEFORE EXTRAORDINARY ITEMS....... $ 8.9 $ 133.9 $ 133.9 $ 133.9
===== ======== ======== =====
EARNINGS BEFORE EXTRAORDINARY ITEMS PER
COMMON SHARE............................ $ 2.13 (m) $ 2.17 (m) $ 2.22 (m)
======== ======== =====
Average number of Common Shares........... -- 63.0 61.6 60.2
</TABLE>
41
<PAGE> 44
AMERICAN FINANCIAL GROUP, INC. AND SUBSIDIARIES
PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS (UNAUDITED)
YEAR ENDED DECEMBER 31, 1996
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS PRO FORMA --
AFEI MERGER AFEI MERGER
-------------------------------------- --------------------------------
HISTORICAL ALL STOCK 50% CASH 100% CASH ALL STOCK 50% CASH 100% CASH
---------- --------- -------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME
Insurance premiums...................... $2,948.1 $ -- $ -- $ -- $2,948.1 $2,948.1 $2,948.1
Investment income....................... 846.4 --(i) --(i) --(i) 846.4 846.4 846.4
Other income............................ 320.9 -- -- -- 320.9 320.9 320.9
-------- ----- ----- ----- -------- -------- --------
4,115.4 -- -- -- 4,115.4 4,115.4 4,115.4
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses... 2,131.4 -- -- -- 2,131.4 2,131.4 2,131.4
Commissions and other underwriting
expenses............................ 793.8 -- -- -- 793.8 793.8 793.8
Annuity, life, accident and health
benefits.............................. 364.1 -- -- -- 364.1 364.1 364.1
Interest charges on borrowed money...... 76.1 --(i) --(i) --(i) 76.1 76.1 76.1
Minority interest....................... 47.8 (8.3)(j) (8.3)(j) (8.3)(j) 39.5 39.5 39.5
Other operating and general expenses.... 348.9 -- -- -- 348.9 348.9 348.9
-------- ----- ----- ----- -------- -------- --------
3,762.1 (8.3) (8.3) (8.3) 3,753.8 3,753.8 3,753.8
Earnings before income taxes and
extraordinary items..................... 353.3 8.3 8.3 8.3 361.6 361.6 361.6
Provision for income taxes................ 91.3 --(k) --(k) --(k) 91.3 91.3 91.3
-------- ----- ----- ----- -------- -------- --------
EARNINGS BEFORE EXTRAORDINARY ITEMS....... $ 262.0 $ 8.3 $ 8.3 $ 8.3 $ 270.3 $ 270.3 $ 270.3
======== ===== ===== ===== ======== ======== ========
EARNINGS BEFORE EXTRAORDINARY ITEMS PER
COMMON SHARE............................ $ 4.31 $ 4.25 $ 4.35 $ 4.45
======== ======== ======== ========
Average number of Common Shares........... 60.8 2.8 1.4 -- 63.6 62.2 60.8
<CAPTION>
PRO FORMA PRO FORMA
ADJUSTMENTS ------------------------------------
AFC MERGER ALL STOCK 50% CASH 100% CASH
---------- --------- -------- ---------
<S> <C> <C> <C> <C>
INCOME
Insurance premiums...................... $ -- $2,948.1 $2,948.1 $2,948.1
Investment income....................... --(i) 846.4 846.4 846.4
Other income............................ -- 320.9 320.9 320.9
------ -------- -------- --------
-- 4,115.4 4,115.4 4,115.4
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses... -- 2,131.4 2,131.4 2,131.4
Commissions and other underwriting
expenses............................ -- 793.8 793.8 793.8
Annuity, life, accident and health
benefits.............................. -- 364.1 364.1 364.1
Interest charges on borrowed money...... --(i) 76.1 76.1 76.1
Minority interest....................... (17.8)(l) 21.7 21.7 21.7
Other operating and general expenses.... -- 348.9 348.9 348.9
------ -------- -------- --------
(17.8) 3,736.0 3,736.0 3,736.0
Earnings before income taxes and
extraordinary items..................... 17.8 379.4 379.4 379.4
Provision for income taxes................ --(k) 91.3 91.3 91.3
------ -------- -------- --------
EARNINGS BEFORE EXTRAORDINARY ITEMS....... $ 17.8 $ 288.1 $ 288.1 $ 288.1
====== ======== ======== ========
EARNINGS BEFORE EXTRAORDINARY ITEMS PER
COMMON SHARE............................ $ 4.53 (m) $ 4.63 (m) $ 4.74 (m)
======== ======== ========
Average number of Common Shares........... -- 63.6 62.2 60.8
</TABLE>
42
<PAGE> 45
AMERICAN FINANCIAL GROUP, INC.
NOTES TO UNAUDITED PRO FORMA FINANCIAL INFORMATION
(a) Assumes $7.1 million in cash is received from the exercise of options for
337,500 shares of AFEI Common Stock at an average price of $20.97 per
share.
(b) Elimination of the interests of minority shareholders in AFEI.
(c) Reflects the issuance of 2,766,107 shares of AFG (AFG Holdings prior to the
name change) Common Stock in exchange for a like number of shares of AFEI
Common Stock.
(d) Assumes $7.1 million in cash is received from the exercise of options as
discussed in note (a) and (i) $51.2 million ($37.00 per share) in cash is
paid for 50% of the 2,766,107 shares of AFEI Common Stock and (ii) $102.4
million in cash is paid for 100% of the 2,766,107 shares of AFEI Common
Stock.
(e) Reflects the issuance of 1,383,054 shares of AFG (AFG Holdings prior to the
name change) Common Stock in exchange for a like number of shares of AFEI
Common Stock.
(f) Represents the excess of the cash assumed used to repurchase 2,766,107
shares of AFEI Common Stock over the interests of minority shareholders in
AFEI.
(g) Represents exchange of AFC Series F and Series G Preferred Stock for cash
and issuance of AFC Series J Preferred Stock as follows:
<TABLE>
<S> <C>
11,900,725 shares of AFC Series F Preferred Stock at $24.00 per share... $285.6
1,964,158 shares of AFC Series G Preferred Stock at $10.50 per share.... 20.6
Less shares exchanged for AFC Series J Preferred Stock.................. (70.4)
------
Total cash assumed used to retire AFC Preferred Stock................... 235.8
AFC Series J assumed issued in exchange for AFC Preferred Stock......... 70.4
------
306.2
Stated value of AFC Series F and G Preferred Stock...................... 162.8
------
Charge to retained earnings............................................. $143.4
======
</TABLE>
(h) Represents excess of stated value of AFC Series F and Series G Preferred
Stock assumed retired ($162.8 million) over the estimated fair value of AFC
Series J Preferred Stock assumed issued ($70.4 million).
(i) In accordance with SEC guidelines, the pro forma Statements of Earnings do
not include adjustments for the cost of funds assumed used to retire AFEI
Common Stock and AFC Preferred Stock. At a rate of 7%, interest expense
would increase (or investment income would decrease) annually by $6.5
million ($4.2 million after tax) due to the AFEI Merger, assuming 100%
elect cash, and by $16.5 million ($10.7 million after tax) due to the AFC
Merger.
(j) Represents elimination of AFG's minority interest in AFEI's historical
earnings.
(k) AFEI's earnings are included in AFC's consolidated tax return. Minority
interest in note (j) above is not subject to tax effects.
(l) Represents the net reduction in AFC's preferred dividend requirement from
the assumed retirement of the AFC Series F and Series G Preferred Stock and
issuance of the Series J Preferred Stock in the AFC Merger.
(m) Pro forma earnings per share exclude a deduction to earnings available to
Common Shares of $143.4 million to be recognized as a result of the proposed
Merger. Per share amounts for this charge are as follows:
<TABLE>
<CAPTION>
PRO FORMA
-------------------------------------
ALL STOCK 50% CASH 100% CASH
--------- --------- ---------
<S> <C> <C> <C>
Six months ended June 30, 1997................ $2.28 $2.33 $2.38
Year ended December 31, 1996.................. 2.25 2.31 2.36
</TABLE>
43
<PAGE> 46
DESCRIPTION OF CAPITAL STOCKS
AFG HOLDINGS
The following description is a summary and is qualified in its entirety by
the provisions of AFG Holdings' Articles of Incorporation, Code of Regulations
and the Ohio General Corporation Law.
At the Effective Time of the AFG Merger, the total number of authorized
shares of AFG Holdings Common Stock will be 200 million. There are 100 shares of
AFG Holdings Common Stock issued and outstanding. Following the AFG
Reorganization and the AFEI Merger, AFG Holdings will have approximately 62
million shares of Common Stock issued and outstanding.
Holders of Common Stock of AFG Holdings are entitled to vote cumulatively
for the election of directors. On all other matters, holders of AFG Holdings
Common Stock are entitled to one vote per share. Holders of AFG Holdings Common
Stock are not entitled to any preemptive rights.
Subject to preferences which may be granted to holders of Preferred Stock,
holders of AFG Holdings Common Stock are entitled to such dividends as the Board
of Directors, in its discretion, may validly declare from funds legally
available. In the event of liquidation, each outstanding share of Common Stock
entitles its holder to participate ratably in the assets remaining after the
payment of liabilities and any Preferred Stock liquidation preferences.
AFG Holdings is authorized to issue 25 million shares of Preferred Stock,
without par value. AFG Holdings' Articles of Incorporation authorize the Board
of Directors, without further shareholder approval, to designate for any series
of Preferred Stock not fixed in AFG Holdings' Articles of Incorporation the
voting powers, designations, preferences, conversion rights, and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as they determine and as are permitted by the Ohio
General Corporation Law. The Board of Directors, without shareholder approval,
could issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of the AFG Holdings Common
Stock.
The affirmative vote of the holders of a majority of the outstanding shares
of AFG Holdings Common Stock is required to amend the Articles of Incorporation
and to approve mergers, reorganizations, share exchanges and similar
transactions.
AFG Holdings will act as its own transfer agent and registrar.
AFG
The following description is a summary and is qualified in its entirety by
the provisions of AFG's Articles of Incorporation, by-laws and the Ohio General
Corporation Law.
The total number of authorized shares of AFG Common Stock is 200 million.
At September 30, 1997, there were 58,974,057 shares of AFG Common Stock issued
and outstanding (not including 18,666,614 shares of AFG Common Stock held by AFC
and AFEI), of which 1,369,635 shares were held by APU for the benefit of
claimants under the 1978 Plan of Reorganization of AFG's predecessor. Also at
that date, 5.3 million shares were reserved for issuance upon exercise of stock
options granted or to be granted pursuant to AFG's Stock Option Plan.
Any Preferred Stock issued would rank prior to the Common Stock as to
dividends and as to distributions in the event of liquidation, dissolution or
winding up of AFG. No Preference Stock is outstanding.
Holders of Common Stock of AFG are entitled to vote cumulatively for the
election of directors. On all other matters, holders of AFG Common Stock are
entitled to one vote per share. Holders of AFG Common Stock are not entitled to
any preemptive rights.
AFG is authorized to issue 25 million shares of Preferred Stock, without
par value. The Board of Directors is authorized to designate for any series of
Preferred Stock not fixed in AFG's Amended and Restated Articles of
Incorporation the voting powers, designations, preferences, conversion rights,
and relative, participating, optional and other special rights, and such
qualifications, limitations or restrictions, as they determine and as are
permitted by the Ohio General Corporation Law. The Board of Directors, without
44
<PAGE> 47
shareholder approval, could issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of the
Common Stock.
The affirmative vote of the holders of a majority of the outstanding shares
of AFG Common Stock is required to amend the Articles of Incorporation and to
approve mergers, reorganizations, share exchanges and similar transactions.
AFG acts as its own transfer agent and registrar.
AFEI
The following description is a summary and is qualified in its entirety by
the provisions of AFEI's Certificate of Incorporation, Bylaws and the
Connecticut Business Corporation Act.
The total number of authorized shares of AFEI Common Stock is 20 million,
of which 13,617,521 shares were issued and outstanding at September 30, 1997. At
that date, options for 110,000 shares of AFEI Common Stock were outstanding.
Holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of shareholders. Shareholders are entitled to
vote cumulatively in the election of directors, but do not have preemptive
rights.
The affirmative vote of a majority of all votes entitled to be cast is
required to approve mergers, sales of all or substantially all of AFEI's assets
and similar transactions; provided that certain sections of the Connecticut
Business Corporation Act discussed below under "Comparative
Rights -- Anti-Takeover Provisions" may impose additional requirements for
certain business combinations. Amendments to the certificate of incorporation
and shareholder amendments to the by-laws require the affirmative votes of a
majority of the votes entitled to be cast which are voted; provided that a
majority of all votes entitled to be cast is required with respect to an
amendment to the certificate of incorporation that would create dissenters'
rights, and that AFEI's certificate of incorporation also requires the vote of
holders of 55% of shares of AFEI's Common Stock (other than shares held by a
controlling person or such person's affiliates) with respect to amendments of
certain sections.
AFEI acts as its own transfer agent and registrar.
COMPARATIVE RIGHTS
AFG HOLDINGS AND AFG SHAREHOLDERS
If the AFG Reorganization is consummated, all holders of AFG Common Stock
(other than subsidiaries of AFG) will become common shareholders of AFG
Holdings. The rights of holders of common stock of both AFG Holdings and AFG are
governed by Ohio law. In addition, the rights and obligations of shareholders
are also governed by the Articles of Incorporation and Code of Regulations of
the respective companies.
Because both AFG Holdings and AFG are Ohio corporations and their Articles
of Incorporation and Codes of Regulations are substantially the same, there will
be no change in the relative rights and obligations of holders of common stock
of AFG when they become holders of common stock of AFG Holdings.
AFG HOLDINGS AND AFEI SHAREHOLDERS
If the AFEI Merger is consummated, holders of AFEI Common Stock, other than
AFG, will become common shareholders of AFG Holdings. The rights of holders of
common stock of AFG Holdings are governed by Ohio law and those of AFEI by
Connecticut law. In addition, the rights and obligations of shareholders are
also governed by the Articles or Certificate of Incorporation and Code of
Regulations or By-laws of the respective companies. As a result, there will be
changes in the relative rights and obligations of holders of AFEI Common Stock
when they become holders of AFG Holdings Common Stock.
Voting of Shares of Common Stock
Each share of AFG Holdings Common Stock and each share of AFEI Common Stock
are entitled to one vote on each matter submitted to a vote of shareholders. No
holder of any shares of AFG Holdings or AFEI has preemptive rights. Holders of
AFG Holdings Common Stock and AFEI Common Stock can vote cumulatively with
respect to the election of directors.
45
<PAGE> 48
Dividend Rights
Subject to preferences granted to holders of Preferred Stock, if any,
shareholders of AFG Holdings Common Stock and AFEI Common Stock are entitled to
dividends declared by their respective Boards of Directors in their sole
discretion, subject to the limitations set forth in the Ohio General Corporation
Law and the Connecticut Business Corporation Act, respectively. Neither AFG
Holdings nor AFEI has any preferred stock outstanding.
Shareholder Approval
Under AFG Holdings governing documents and the Ohio General Corporation
Law, amendments to the Articles of Incorporation, mergers, sales of all or
substantially all of AFG Holdings assets and similar transactions require
approval of a majority of the outstanding voting power of the Corporation. An
exception is provided for any amendment to the Articles of Incorporation which
would eliminate cumulative voting in that the approval of two-thirds of the
outstanding voting power of the Corporation would be required for any such
amendment. AFG Holdings' Regulations may be amended at a meeting of shareholders
by the affirmative vote of those shareholders holding a majority of AFG
Holdings' outstanding voting power; the Regulations may be amended without a
meeting by the affirmative vote of those shareholders holding two-thirds of AFG
Holdings' outstanding voting power.
The affirmative vote of a majority of all votes entitled to be cast is
required to approve mergers, sales of all or substantially all of AFEI's assets
and similar transactions. Amendments to the Certificate of Incorporation and
shareholder amendments to the By-laws require the affirmative votes of a
majority of the votes entitled to be cast which are voted; provided that a
majority of all votes entitled to be cast is required with respect to an
amendment to the Certificate of Incorporation that would create dissenters'
rights, and that AFEI's Certificate of Incorporation also requires the vote of
holders of 55% of the shares of AFEI Common Stock (other than shares held by a
controlling person or such person's affiliates) with respect to amendments of
certain sections.
Dissenters' Rights
Under Ohio law, appraisal rights are provided for mergers, amendments,
sales of all or substantially all assets, and other similar transactions. A
shareholder is entitled to relief as a dissenting shareholder provided that the
shareholder was a record holder of the shares of the corporation on the date at
which the proposal was submitted and such shares were not voted in favor of the
proposal. Under Ohio law, the dissenting shareholder must deliver to the
corporation a written demand for payment of the fair cash value of the shares as
to which the shareholder seeks relief not later than ten days from the date on
which the vote was taken on the proposal.
Under Connecticut law, a shareholder is entitled to dissent and obtain fair
value of the shares in the event of mergers, sales of all or substantially all
of the corporation's assets and other similar transactions, and certain
amendments to the corporation's certificate of incorporation. Before the vote is
taken, the dissenting shareholder must deliver to the corporation a written
notice of an intent to demand payment for such shares, and the shareholder must
not vote in favor of the proposal.
Call of Special Meetings
Under AFG Holding's Code of Regulations, persons holding twenty-five
percent of AFG Holdings' outstanding voting power are entitled to call a special
meeting of shareholders. Under AFEI's By-laws, a special meeting of shareholders
may be called by persons holding at least fifteen percent of all votes entitled
to be cast on any issue proposed.
Anti-Takeover Provisions
AFG Holdings' Articles of Incorporation provide that the statutory
provisions of Sections 1701.831 and Chapter 1704 of the Ohio Revised Code, both
of which can have an anti-takeover effect, are not applicable to AFG Holdings.
The Connecticut Business Corporation Act contains two sets of provisions
regulating business combinations which may be viewed as having anti-takeover
effects. The first of these sets of provisions, which is applicable to the
present merger proposal, prohibits AFEI from engaging in a business combination
with an
46
<PAGE> 49
interested shareholder, generally defined as a owner of 10% or more of the
outstanding voting power of the Company, unless the combination satisfies
certain requirements or is approved by the affirmative vote of at least 80% of
the voting power and two-thirds of the voting power, other than stock held by
the interested shareholder or its affiliates or associates. All voting power in
AFEI resides in its Common Stock. Business combinations are generally defined to
include mergers, asset sales, certain types of stock issuances and other
transactions resulting in a disproportionate financial benefit to the interested
shareholder. A separate set of provisons of the Act prohibits any such business
combination with an interested shareholder for a period of five years after the
time the person became an interested shareholder unless the combination is
approved in a prescribed manner.
Removal of Directors
The directors of both AFG Holdings and AFEI may be removed with cause at
any time by vote of the shareholders. However, unless all directors are removed,
a director may not be removed if the number of votes cast by shareholders
against removal of that director would be sufficient to elect a director if
cumulatively voted at an election for the entire Board.
Indemnification of Directors
Section 1701.13(E) of the Ohio General Corporation Law allows
indemnification by a corporation to any person made or threatened to be made a
party to any proceedings, other than a proceeding by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, against expenses, including judgments and
fines, if he acted in good faith and in a manner reasonably believed to be in or
not opposed to the best interests of the corporation and, with respect to
criminal actions, in which he had no reasonable cause to believe that his
conduct was unlawful. Similar provisions apply to actions brought by or in the
right of the corporation, except that no indemnification shall be made in such
cases when the person shall have been adjudged to be liable for negligence or
misconduct to the corporation unless determined by the court. The right to
indemnification is mandatory in the case of a director or officer who is
successful on the merits or otherwise in defense of any action, suit or
proceeding or any claim, issue or matter therein. Permissive indemnification is
to be made by a court of competent jurisdiction, the majority vote of a quorum
of disinterested directors, the written opinion of independent counsel or by the
shareholders. AFG Holdings' Regulations provide that AFG Holdings shall
indemnify its officers and directors to the fullest extent provided by Ohio law.
Sections 33-771 and 33-776 of the Connecticut Business Corporation Act
permit a corporation generally to indemnify any individual made a party to a
proceeding because he is or was a director or officer of the corporation against
any liabilities incurred by such person in such proceedings if: (i) he conducted
himself in good faith; and (ii) he reasonably believed (A) in the case of
conduct in his official capacity; that his conduct was in the best interests of
the Corporation and (B) in all other cases, that his conduct was at least not
opposed to its best interests; and (iii) in the case of any criminal proceeding,
he had no reasonable cause to believe his conduct was unlawful; provided,
however, a corporation may not indemnify a director or officer under such
section: (i) in connection with a proceeding by or in the right of the
corporation except for reasonable expenses incurred in connection with the
proceeding if it is determined that he has met the relevant standard of conduct
set forth above; or (ii) in connection with any proceeding in which he was
adjudged liable on the basis that he received a financial benefit to which he
was not entitled, whether or not involving action in his official capacity. In
addition, Sections 33-772 and 33-776 of the Connecticut Business Corporation Act
provide that a corporation shall indemnify each director and officer who was
wholly successful, on the merits or otherwise, in the defense of any proceeding
to which he was a party because he was a director or officer of the corporation
against reasonable expenses incurred by him in connection with the proceeding.
Moreover, because AFEI was incorporated prior to adoption of the Connecticut
Business Corporation Act, AFEI is required to provide each of its directors and
officers with the full amount of indemnification (except for advancement of
expenses) permitted by Section 33-771, subject to a determination that such
person has met the relevant standard of conduct and to authorization in the
specific case.
47
<PAGE> 50
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for AFG
Holdings by James C. Kennedy, Esq., Deputy General Counsel and Secretary of AFG
Holdings and AFG. Mr. Kennedy is a full-time employee of AFG and beneficially
owns 6,298 shares of AFG Common Stock.
EXPERTS
The balance sheet of AFG Holdings at July 1, 1997, appearing in this
Registration Statement, has been audited by Ernst & Young LLP, independent
auditors, as set forth in their report thereon, appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
The consolidated financial statements of AFG appearing in the AFG Annual
Report (Form 10-K) for the year ended December 31, 1996, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
The financial statements of AFEI appearing in the AFEI Annual Report (Form
10-K) for the year ended December 31, 1996 have been audited by Ernst & Young
LLP, independent auditors, as set forth in their report thereon included therein
and incorporated herein by reference. Such financial statements are incorporated
herein by reference in reliance upon such report given upon the authority of
such firm as experts in accounting and auditing.
SHAREHOLDER PROPOSALS FOR 1998 ANNUAL MEETING
Proposals intended to be presented by Shareholders at the 1998 Annual
Meeting of Shareholders of AFG or AFEI must be received by AFG or AFEI, as the
case may be, not later than December 31, 1997, in order to be considered for
inclusion in the proxy statement and form of proxy relating to that meeting. Any
such proposal should be communicated in writing to the particular company's
Secretary at the address indicated above. If the AFEI Merger is consummated, no
such AFEI meeting will be held.
48
<PAGE> 51
FINANCIAL STATEMENTS OF AFG HOLDINGS
REPORT OF INDEPENDENT AUDITORS
Board of Directors
American Financial Group Holdings, Inc.
We have audited the accompanying balance sheet of American Financial Group
Holdings, Inc. as of July 1, 1997 (date of inception). This balance sheet is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this balance sheet based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amount and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of American Financial Group Holdings, Inc. at
July 1, 1997, in conformity with generally accepted accounting principles.
ERNST & YOUNG LLP
Cincinnati, Ohio
July 15, 1997
49
<PAGE> 52
AMERICAN FINANCIAL GROUP HOLDINGS, INC.
BALANCE SHEET
JULY 1, 1997 (DATE OF INCEPTION)
ASSETS
<TABLE>
<S> <C>
Cash.................................................................................. $100
====
</TABLE>
SHAREHOLDERS' EQUITY
<TABLE>
<S> <C>
Shareholders' Equity:
Common Stock, no par value
1,000 shares authorized
100 shares issued and outstanding................................................ $100
====
</TABLE>
American Financial Group Holdings, Inc. ("AFG Holdings") was formed on July
1, 1997, to facilitate the reorganization of its parent, American Financial
Group, Inc. ("AFG") and the merger of American Financial Enterprises, Inc.
("AFEI"), AFG's 81.9%-owned subsidiary. Upon the consummation of the AFG
Reorganization, AFG Holdings will change its name to "American Financial Group,
Inc." and AFG will change its name to "AFC Holding Company."
50
<PAGE> 53
ANNEX A
AGREEMENT AND PLAN OF MERGER
AMONG
AFG ACQUISITION CORP.
AMERICAN FINANCIAL GROUP HOLDINGS, INC.,
AND
AMERICAN FINANCIAL GROUP, INC.
------------------------------------------------------
DATED AS OF JULY 11, 1997
------------------------------------------------------
<PAGE> 54
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 THE MERGER................................................................ A-1
Section 1.1 The Merger............................................................. A-1
Section 1.2 Effects of Merger...................................................... A-2
Section 1.3 Conversion of Certificates; Issuance of New Certificates............... A-2
Section 1.4 Effective Time......................................................... A-2
Section 1.5 Surviving Corporation Officers; Directors; Articles of Incorporation an
Code of Regulations............................................................. A-2
ARTICLE 2 SHAREHOLDER APPROVAL...................................................... A-3
Section 2.1 Shareholders' Meetings................................................. A-3
Section 2.2 Proxy Statement/Prospectus............................................. A-3
Section 2.3 Correction of Statements............................................... A-3
ARTICLE 3 THE MERGER CLOSING........................................................ A-4
Section 3.1 Time and Place......................................................... A-4
Section 3.2 Filing of Certificate of Merger........................................ A-4
ARTICLE 4 ADDITIONAL AGREEMENTS..................................................... A-4
Section 4.1 Registration, Listing and Issuance of AFG Holdings Common Stock........ A-4
Section 4.2 Treatment of AFG Stock Options......................................... A-4
Section 4.3 Best Efforts........................................................... A-4
Section 4.4 Post-Merger Matters.................................................... A-5
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER.................................. A-5
Section 5.1 Conditions to the Obligations of Each Party............................ A-5
ARTICLE 6 TERMINATION; AMENDMENTS; WAIVER........................................... A-6
Section 6.1 Termination............................................................ A-6
Section 6.2 Amendment.............................................................. A-6
Section 6.3 Extension; Waiver...................................................... A-6
ARTICLE 7 MISCELLANEOUS............................................................. A-6
Section 7.1 Survival of Covenants and Agreements................................... A-6
Section 7.2 Entire Agreement; Assignment........................................... A-7
Section 7.3 Validity............................................................... A-7
Section 7.4 Notices................................................................ A-7
Section 7.5 Governing Law.......................................................... A-8
Section 7.6 Expenses............................................................... A-8
Section 7.7 Interpretation......................................................... A-8
Section 7.8 Counterparts........................................................... A-8
Section 7.9 Parties in Interest.................................................... A-8
</TABLE>
i
<PAGE> 55
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of July 11, 1997,
is made by and among AFG ACQUISITION CORP., an Ohio corporation ("AFG
Acquisition"), AMERICAN FINANCIAL GROUP HOLDINGS, INC., an Ohio corporation
("AFG Holdings"), and AMERICAN FINANCIAL GROUP, INC., an Ohio corporation
("AFG").
RECITALS:
WHEREAS, AFG, AFG Holdings and AFEI Acquisition Corp., a wholly-owned
subsidiary of AFG Holdings (AFEI Acquisition), and American Financial
Enterprises, Inc. ("AFEI"), have entered into a Merger Agreement, of even date
herewith, pursuant to which AFEI shall become an indirect wholly-owned
subsidiary of AFG Holdings through a merger of AFEI Acquisition with and into
AFEI (the "AFEI Merger");
WHEREAS, the Board of Directors of each of AFG Acquisition, AFG Holdings
and AFG determined that it is advisable and in the best interests of their
respective shareholders that in order to achieve more flexibility for AFG under
its capital structure, AFG, as a condition precedent to the effectiveness of the
AFEI Merger, become a wholly-owned subsidiary of AFG Holdings by a merger of AFG
Acquisition, a wholly-owned subsidiary of AFG Holdings, with and into AFG,
pursuant to the terms set forth in this Merger Agreement;
WHEREAS, pursuant to the Merger Agreement, AFG shareholders will become
shareholders of AFG Holdings and AFG Holdings will succeed, therefore, to the
public company status of AFG; and
WHEREAS, for federal income tax purposes, it is intended that the
transaction contemplated by this Merger Agreement will be treated as a tax free
exchange under Section 351 of the Internal Revenue Code of 1986, as amended, and
that the parties hereto and their respective shareholders will recognize no gain
or loss for federal income tax purposes as a result of consummation of the
transaction contemplated by this Merger Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 THE MERGER.
(a) AFG Holdings shall cause AFG Acquisition to execute and deliver, and
AFG shall execute and deliver, a Certificate of Merger and any other documents
required under the laws of Ohio to effect the merger of AFG Acquisition with and
into AFG (the "Merger") consistent with this Agreement. The closing and
consummation of the Merger shall be governed by the provisions of Article 3 of
this Agreement.
(b) In the Merger:
(i) Each share of common stock, $1.00 par value per share, of AFG
("AFG Common Stock") issued and outstanding immediately prior to the
Effective Time shall be converted, by virtue of the Merger and without the
need for any further action on the part of the holder thereof, into the
right to receive one share of common stock, without par value, of AFG
Holdings ("AFG Holdings Common Stock" or the "Merger Consideration").
(ii) Each share of common stock, no par value per share, of AFG
Acquisition ("AFG Acquisition Common Stock") shall be converted, by virtue
of the Merger and without the need for any action on the part of the holder
thereof, into one share of the common stock, no par value, of AFG, the
corporation surviving the Merger (the "Surviving Corporation").
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(iii) AFG Holdings shall change its corporate name to American
Financial Group, Inc., and AFG shall change its corporate name to AFC
Holdings Company.
(c) As the sole shareholder of AFG Acquisition, AFG Holdings shall promptly
execute a written consent under Section 1701.54 of the Ohio General Corporation
Law approving and adopting the execution, delivery and performance by AFG
Acquisition of the Merger and this Agreement. AFG shall promptly submit to its
shareholders a proposal for adoption and approval of this Agreement and the
Merger in accordance with Article 2 hereof. Each of AFG and AFG Holdings shall
use its best efforts to cause the Merger to be consummated in accordance with
the terms hereof.
Section 1.2 EFFECTS OF MERGER.
When the Merger has been effected, the separate existence of AFG and AFG
Acquisition shall cease and AFG Acquisition shall be merged with and into AFG
(AFG Acquisition and AFG are sometimes referred to herein as the "Constituent
Corporations"), with AFG being the Surviving Corporation. AFG shall continue its
corporate existence under the laws of Ohio and shall become a subsidiary of AFG
Holdings. From and after the Effective Time, the Merger shall have the effects
provided in Section 1701.82 of the Ohio General Corporation Law. Without
limiting the foregoing, AFG shall thereupon and thereafter possess all the
rights, privileges, powers, immunities, purposes and franchises, of a public as
well as of a private nature, of the Constituent Corporations, and, all and
singular, the rights, privileges, powers, immunities, purposes and franchises of
each of the Constituent Corporations, and all property, real, personal and
mixed, tangible and intangible, and all debts due to either of said Constituent
Corporations, on whatever account, as well as for stock subscriptions and all
other things in action or belonging to each of such corporations, shall be
vested in AFG without further act or deed; and all property, rights, privileges,
powers, immunities, purposes and franchises, and all and every other interest
shall be thereafter as effectually the property of AFG as they were of the
Constituent Corporations; and the title to any real estate vested by deed or
otherwise or any other interest in real estate vested by any instrument or
otherwise in either of such Constituent Corporations shall not revert or become
in any way impaired by reason of the Merger, but all rights of creditors and all
liens upon any property of either of the Constituent Corporations shall be
preserved unimpaired, and all debts, liabilities and duties of the Constituent
Corporations shall thenceforth attach to the Surviving Corporation, and shall be
enforceable against it to the same extent as if said debts, liabilities and
duties had been incurred or contracted by it; all of the foregoing in accordance
with the applicable provisions of the Ohio General Corporation Law.
Section 1.3 CONVERSION OF CERTIFICATES; ISSUANCE OF NEW CERTIFICATES.
At the Effective Time, each certificate which immediately prior to the
Effective Time evidenced outstanding shares of AFG Common Stock shall, by virtue
of the Merger and without further act or deed, be deemed to evidence an
identical number of shares of AFG Holdings Common Stock. As certificates
formerly evidencing shares of AFG Common Stock are, over time, surrendered to
AFG Holdings to effect transfers thereof, AFG Holdings shall cancel such
certificates and issue new certificates of AFG Holdings Common Stock in place
thereof. Notwithstanding the foregoing provisions of this paragraph, if prior to
the Effective Time AFG Holdings determines that it is necessary or desirable
that the certificates evidencing shares of AFG Common Stock be surrendered in
exchange for new certificates evidencing shares of AFG Holdings Common Stock,
then the parties hereto shall amend this Agreement to provide for a suitable
mechanism for effecting such exchange.
Section 1.4 EFFECTIVE TIME.
The term "Effective Time" shall mean the date and time at which the Merger
shall have become effective pursuant to the laws of the State of Ohio.
Section 1.5 SURVIVING CORPORATION OFFICERS; DIRECTORS; ARTICLES OF
INCORPORATION AND CODE OF REGULATIONS.
The officers and directors of the Surviving Corporation immediately
following the Effective Time shall be those of AFG immediately prior to the
Effective Time. The Articles of Incorporation and Code of Regulations
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of AFG Acquisition immediately prior to the Effective Time shall be the Articles
of Incorporation and Code of Regulations of the Surviving Corporation. Nothing
in this Section 1.5 shall be construed to grant to any person any contractual or
other right to hold office or a directorship in the Surviving Corporation or to
preclude the shareholders or Board of Directors of the Surviving Corporation
from further amending or modifying the Articles of Incorporation or Code of
Regulations of the Surviving Corporation.
ARTICLE 2
SHAREHOLDER APPROVAL
Section 2.1 SHAREHOLDERS' MEETINGS.
This Agreement shall be submitted for adoption and approval to the holders
of shares of AFG Common Stock at a meeting to be duly held for this purpose by
AFG (the "AFG Shareholders' Meeting"). AFG shall endeavor to hold the AFG
Shareholders' Meeting as soon as practicable after the date hereof. AFG, acting
through its Board of Directors, shall, in accordance with applicable law:
(i) duly call, give notice of, convene and hold the AFG Shareholders'
Meeting;
(ii) include in a proxy statement/prospectus the recommendation of its
Board of Directors that the shareholders of AFG vote in favor of the
approval and adoption of this Agreement and the transactions contemplated
hereby; and
(iii) use its best efforts to solicit from the shareholders of AFG
proxies in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby, and take all other actions necessary or
advisable to secure the approval and adoption by AFG's shareholders of this
Agreement and the transactions contemplated hereby.
Section 2.2 PROXY STATEMENT/PROSPECTUS.
In connection with any solicitations of approval by the shareholders of AFG
of this Agreement and the transactions contemplated hereby, AFG shall file with
the Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and with the appropriate
state governmental offices under the securities or "blue sky" laws of such
states, shall use all reasonable efforts to respond to the comments of the staff
of the Commission (the "Staff") or such state governmental offices and have
cleared by the Commission under the Exchange Act and shall promptly thereafter
mail to its shareholders, proxy solicitation materials, including a letter to
shareholders, notice of meeting, proxy statement and appropriate related forms
of proxies with respect to the AFG Shareholders' Meeting. Such proxy statement
shall also constitute a prospectus of AFG Holdings with respect to the shares of
AFG Holdings Common Stock to be issued in the Merger (such proxy statement and
prospectus, together with all amendments and supplements thereto, are referred
to herein as the "Proxy Statement/Prospectus"), and shall be a part of a
registration statement (the "Registration Statement") to be filed by AFG
Holdings with the Commission for the purpose of registering the public offering
of such shares of AFG Holdings Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"). AFG Holdings shall file promptly such
Registration Statement and shall use its best efforts to respond to the comments
of the Staff with respect thereto and to have it declared effective by the
Commission. AFG Holdings shall notify AFG promptly of the receipt of any
comments of the Staff and of any request by the Staff for amendments or
supplements to the Proxy Statement/Prospectus or the Registration Statement or
for additional information, and shall supply AFG with copies of all
correspondence between AFG or its representatives, on the one hand, and the
Commission or members of the Staff, on the other hand, with respect to the Proxy
Statement/ Prospectus, the Registration Statement or the transactions
contemplated hereby.
Section 2.3 CORRECTION OF STATEMENTS.
Each of AFG and AFG Holdings shall correct promptly any information
specifically provided by it for inclusion in the Proxy Statement/Prospectus
which shall have become false or misleading in any material
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respect. Each of AFG and AFG Holdings shall take all steps necessary to file or
to cause to be filed with the Commission and have declared effective or cleared
by the Commission any amendment or supplement to the Registration Statement or
the Proxy Statement/Prospectus so as to correct the same and to cause the
Registration Statement or the Proxy Statement/Prospectus as so corrected to be
disseminated to the shareholders of AFG as and to the extent required by
applicable law. The Registration Statement and the Proxy Statement/Prospectus
shall comply as to form in all material respects with the provisions of the
Securities Act, the Exchange Act and other applicable law.
ARTICLE 3
THE MERGER CLOSING
Section 3.1 TIME AND PLACE.
The consummation of the Merger (the "Closing") shall take place at the
offices of Keating, Muething & Klekamp, 1800 Provident Tower, One East Fourth
Street, Cincinnati, Ohio 45202, at 10:00 a.m. local time on the date of the
satisfaction or waiver of all conditions set forth in Article 5 of this
Agreement, or at such other place and time as the parties hereto may agree.
Section 3.2 FILING OF CERTIFICATE OF MERGER.
At the Closing, AFG shall cause, and AFG Holdings shall cause AFG
Acquisition to cause agents acceptable to both AFG and AFG Holdings to deliver
to the Secretary of State of Ohio for filing a Certificate of Merger duly
executed by AFG, AFG Holdings and AFG Acquisition and shall make all other
deliveries, filings or recordings required by applicable law to consummate the
Merger.
ARTICLE 4
ADDITIONAL AGREEMENTS
Section 4.1 REGISTRATION, LISTING AND ISSUANCE OF AFG HOLDINGS COMMON STOCK.
AFG Holdings shall use its best efforts to (a) cause the registration of
the issuance of the AFG Holdings Common Stock to be issued pursuant to this
Agreement under the applicable provisions of the Securities Act and the Exchange
Act and (b) cause the AFG Holdings Common Stock to be issued pursuant to this
Agreement to be listed for trading on the NYSE. AFG Holdings covenants that the
AFG Holdings Common Stock issuable pursuant to this Agreement will be duly and
validly authorized and will, upon issuance, be validly issued, fully paid and
nonassessable.
Section 4.2 TREATMENT OF AFG STOCK OPTIONS.
Effective as of the Effective Time, AFG shall amend the AFG Stock Option
Plan to provide that each outstanding option to purchase shares of AFG Common
Stock (each, an "AFG Stock Option" and, collectively, the "AFG Stock Options"),
shall constitute an option to acquire shares of AFG Holdings Common Stock, at
the same exercise price and on the same terms and other conditions as were
applicable to such AFG Stock Option. At the Effective Time, AFG Holdings shall
assume each stock option agreement relating to the AFG Stock Option Plan. To the
extent necessary, the respective Compensation Committees of the Boards of
Directors of AFG and AFG Holdings will take all action necessary or advisable to
provide for the foregoing.
Section 4.3 BEST EFFORTS
Subject to the terms and conditions herein provided, each of the parties
hereto shall use its best efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement
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and to obtain in a timely manner all waivers, consents and approvals of, and to
make all filings with and notifications to, any third parties as are necessary
in order to consummate the transactions contemplated by this Agreement. Each
party hereto shall have the right to review and approve in advance all
characterizations of it and its Subsidiaries which appear in any filing made in
connection with the transactions contemplated by this Agreement with any
governmental body. In exercising the foregoing right, the parties hereto shall
act as promptly as possible.
Section 4.4 POST-MERGER MATTERS.
If at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall take all such necessary action.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 5.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
The respective obligations of AFG, AFG Holdings and AFG Acquisition to
effect the Merger are subject to the satisfaction, at or prior to the Effective
Time, of the following conditions:
(a) Any applicable waiting period (and any extension thereof) under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act") relating to the Merger shall have expired or been terminated;
(b) There shall not be in effect: (i) any judgment, injunction, decree
or order issued by any federal, state or local court or arbitrator of
competent jurisdiction; or (ii) any statute, rule, regulation or order
enacted or promulgated by any federal, state or local, legislative,
administrative or regulatory body of competent jurisdiction, that in either
of cases (i) or (ii) prohibits or restricts the consummation of the
transactions contemplated hereby or makes such consummation illegal or
restricts in any material respect or prohibits the effective operation of
the business of AFG Holdings and its Subsidiaries after the consummation of
the transactions contemplated hereby;
(c) The Registration Statement shall have been declared effective
under the Securities Act and no stop order suspending such effectiveness
shall have been issued or proceedings for such purpose shall have been
instituted;
(d) This Agreement and the Merger hereby contemplated shall have been
adopted and/or approved by the affirmative vote of the holders of a
majority of the outstanding shares of AFG Common Stock;
(e) Special tax counsel to AFG shall have delivered to AFG Holdings an
opinion (dated the date of the Effective Time and based on facts,
representations and assumptions set forth in such opinion which are
consistent with the state of facts existing at the Effective Time),
substantially to the effect that: (i) no gain or loss will be recognized by
AFG, AFG Acquisition or AFG Holdings as a result of the Merger; (ii) no
gain or loss will be recognized by an AFG shareholder who receives solely
shares of AFG Holdings Common Stock pursuant to the Merger; (iii) the tax
basis of the shares of AFG Holdings Common Stock received by a former
shareholder of AFG will be the same as the tax basis of the shares of AFG
Common Stock surrendered by such shareholder; and (iv) the holding period
of the shares of AFG Holdings Common Stock received in the Merger will
include the period during which such shareholder held the shares of AFG
Common Stock, provided such surrendered shares were held as capital assets
immediately prior to the Effective Time. In rendering such opinion, counsel
may require and rely upon representations contained in certificates of
officers of AFG.
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ARTICLE 6
TERMINATION; AMENDMENTS; WAIVER
Section 6.1 TERMINATION.
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time notwithstanding approval thereof by the
shareholders of AFG, but prior to the Effective Time:
(a) By the mutual written consent of the Board of Directors of each of
AFG Holdings and AFG; or
(b) By AFG, on the one hand, or AFG Holdings, on the other, if the
transactions contemplated hereby shall not have been consummated by
November 1, 1997; provided, however, that the right to terminate this
Agreement under this Section 6.1(b) shall not be available to any party,
failure of which to fulfill any obligation under this Agreement has been
the cause of, or resulted in, the failure of the Effective Time to occur on
or before such date; or
(c) By either AFG, on the one hand, or AFG Holdings, on the other, if
a court of competent jurisdiction in the United States or any state thereof
or other United States governmental, regulatory or administrative body
shall have issued an order, decree or ruling or taken any other action
(which order, decree, ruling or other action the parties agree to use their
best efforts through appeals and otherwise to vacate) permanently
restraining, enjoining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and nonappealable; or
(d) By AFG if the shareholders of AFG do not approve the transactions
contemplated by this Agreement.
In the event of the termination of this Agreement pursuant to the terms of
this Section 6.1, this Agreement shall forthwith become void and have no effect,
without any liability on the part of any party hereto.
Section 6.2 AMENDMENT.
This Agreement may be amended by the parties hereto at any time before or
after adoption of this Agreement by the shareholders of AFG but, after any such
shareholder approval, no amendment shall be made which adversely affects the
rights of the shareholders of AFG hereunder without the approval of the affected
shareholders. This Agreement may not be amended, modified or supplemented except
by an instrument in writing signed by all the parties hereto that expressly
states that it amends, modifies or supplements this Agreement.
Section 6.3 EXTENSION; WAIVER.
At any time prior to the Effective Time, any party hereto may: (i) extend
the time for the performance of any of the obligations or other acts of any
other party hereto; or (ii) waive compliance with any of the agreements of any
other party or with any conditions to its own obligations. Any agreement on the
part of any party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE 7
MISCELLANEOUS
Section 7.1 SURVIVAL OF COVENANTS AND AGREEMENTS.
Other than any covenant or agreement herein, the nature of which is to be
performed after the Closing, the covenants and agreements made in this Agreement
shall only survive until the Effective Time.
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Section 7.2 ENTIRE AGREEMENT; ASSIGNMENT.
This Agreement (including any Schedules, Exhibits and Annexes hereto)
constitutes the entire agreement between the parties hereto with respect to the
subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof. This Agreement may not be assigned, by operation of law
or otherwise, by any of the parties hereto without the prior written consent of
each of the other parties hereto. Any such purported assignment undertaken or
occurring without such consent shall be null and void and of no legal force and
effect.
Section 7.3 VALIDITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any of the other provisions of this
Agreement, each of which shall remain in full force and effect.
Section 7.4 NOTICES.
All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by cable, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
If to AFG Holdings or AFG Acquisition, to:
James C. Kennedy, Esq.
One East Fourth Street, Suite 919
Cincinnati, Ohio 45202
Telephone: (513) 579-2538
Facsimile: (513) 579-0108
with copies to:
Edward E. Steiner, Esq.
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Telephone: (513) 579-6467
Facsimile: (513) 579-6957
If to AFG, to:
James E. Evans, Esq.
One East Fourth Street, Suite 919
Cincinnati, Ohio 45202
Telephone: (513) 579-2536
Facsimile: (513) 579-0108
with copies to:
Edward E. Steiner, Esq.
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Telephone: (513) 579-6467
Facsimile: (513) 579-6957
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
(provided, that notice of any change of address shall be effective only upon
receipt thereof).
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Section 7.5 GOVERNING LAW.
This Agreement shall in all respects be governed by and construed in
accordance with the laws of Ohio.
Section 7.6 EXPENSES.
All expenses incurred by any party hereto in connection with this Agreement
and the consummation of the transactions contemplated hereby shall be paid by
the party incurring such expenses.
Section 7.7 INTERPRETATION.
The descriptive headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
Section 7.8 COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement.
Section 7.9 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
THIS SPACE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized on the day and
year first above written.
AFG ACQUISITION CORP.
By: /s/ JAMES C. KENNEDY
----------------------------------
James C. Kennedy
Secretary
AMERICAN FINANCIAL GROUP
HOLDINGS, INC.
By: /s/ JAMES C. KENNEDY
----------------------------------
James C. Kennedy
Secretary
AMERICAN FINANCIAL GROUP, INC.
By: /s/ JAMES E. EVANS
----------------------------------
James E. Evans
Senior Vice President
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ANNEX B
AGREEMENT AND PLAN OF MERGER
AMONG
AMERICAN FINANCIAL ENTERPRISES, INC.,
AFEI ACQUISITION CORP.,
AMERICAN FINANCIAL GROUP HOLDINGS, INC.
AND
AMERICAN FINANCIAL GROUP, INC.
------------------------------------------------------
DATED AS OF JULY 11, 1997
------------------------------------------------------
<PAGE> 65
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 THE MERGER................................................................ B-1
Section 1.1 The Merger............................................................. B-1
Section 1.2 Effects of Merger...................................................... B-2
Section 1.3 Exchange of Certificates............................................... B-2
Section 1.4 Effective Time......................................................... B-3
Section 1.5 Surviving Corporation Officers; Directors; Certificate of Incorporation
and Bylaws...................................................................... B-3
ARTICLE 2 STOCKHOLDER APPROVAL...................................................... B-3
Section 2.1 Stockholders Meeting................................................... B-3
Section 2.2 Proxy Statement/Prospectus............................................. B-4
Section 2.3 Correction of Statements............................................... B-4
ARTICLE 3 THE MERGER CLOSING........................................................ B-5
Section 3.1 Time and Place......................................................... B-5
Section 3.2 Deliveries at Closing.................................................. B-5
Section 3.3 Filing of Certificate of Merger........................................ B-5
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF AFEI.................................... B-5
Section 4.1 Authority Relative to this Agreement................................... B-5
Section 4.2 Consents and Approvals; No Violation................................... B-6
ARTICLE 5 REPRESENTATIONS AND WARRANTIES OF AFG, AFEI ACQUISITION AND AFG
HOLDINGS........................................................................... B-6
Section 5.1 Organization and Qualification; Active Subsidiaries.................... B-6
Section 5.2 Capitalization......................................................... B-6
Section 5.3 Authority Relative to this Agreement................................... B-7
Section 5.4 Consents and Approvals; No Violation................................... B-8
Section 5.5 SEC Reports and Financial Statements................................... B-8
Section 5.6 Litigation............................................................. B-8
Section 5.7 Employee Benefit Plans................................................. B-9
Section 5.8 Taxes and Tax Returns.................................................. B-10
Section 5.9 Compliance with Applicable Law......................................... B-10
Section 5.10 Environmental Protection.............................................. B-10
ARTICLE 6 ACTIONS TO BE TAKEN PRIOR TO THE CLOSING.................................. B-11
Section 6.1 New York Stock Exchange Listing........................................ B-11
ARTICLE 7 ADDITIONAL AGREEMENTS..................................................... B-12
Section 7.1 Access to Information.................................................. B-12
Section 7.2 Public Announcements................................................... B-12
Section 7.3 Best Efforts........................................................... B-12
Section 7.4 Rule 145............................................................... B-12
Section 7.5 Amendment to AFG Holdings' Articles of Incorporation................... B-12
Section 7.6 Post-Merger Matters.................................................... B-12
ARTICLE 8 CONDITIONS TO CONSUMMATION OF THE MERGER.................................. B-13
Section 8.1 Conditions to the Obligations of Each Party............................ B-13
Section 8.2 Merger Consideration................................................... B-13
Section 8.3 Additional Conditions to the Obligations of AFEI....................... B-13
Section 8.4 Additional Conditions to the Obligations of AFG, AFG Holdings and AFEI
Acquisition............................................................ B-14
ARTICLE 9 TERMINATION; AMENDMENTS; WAIVER........................................... B-15
Section 9.1 Termination............................................................ B-15
Section 9.2 Amendment.............................................................. B-15
Section 9.3 Extension; Waiver...................................................... B-16
</TABLE>
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<TABLE>
<S> <C>
ARTICLE 10 MISCELLANEOUS............................................................ B-16
Section 10.1 Survival of Representations, Warranties, Covenants and Agreements..... B-16
Section 10.2 Entire Agreement; Assignment.......................................... B-16
Section 10.3 Validity.............................................................. B-16
Section 10.4 Notices............................................................... B-16
Section 10.5 Governing Law......................................................... B-17
Section 10.6 Expenses.............................................................. B-17
Section 10.7 Interpretation........................................................ B-17
Section 10.8 Counterparts.......................................................... B-18
Section 10.9 Parties in Interest................................................... B-18
EXHIBIT I
EXHIBIT II
EXHIBIT III
EXHIBIT IV
SCHEDULE 5.2(B)
SCHEDULE 5.8
</TABLE>
ii
<PAGE> 67
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of July 11, 1997,
is made by and among AMERICAN FINANCIAL ENTERPRISES, INC., a Connecticut
corporation ("AFEI"), AFEI ACQUISITION CORP., a Connecticut corporation ("AFEI
Acquisition"), AMERICAN FINANCIAL GROUP HOLDINGS, INC., an Ohio corporation
("AFG Holdings"), and AMERICAN FINANCIAL GROUP, INC., an Ohio corporation
("AFG").
RECITALS:
WHEREAS, AFG, AFG Holdings and AFG Acquisition Corp., a wholly-owned
subsidiary of AFG Holdings, entered into a Plan of Reorganization pursuant to
which (i) AFG Acquisition Corp. will be merged with and into AFG and (ii) each
share of AFG common stock, $1.00 par value per share, shall be converted into a
share of AFG Holdings common stock, without par value (the "AFG
Reorganization"); and
WHEREAS, the Board of Directors of each of AFEI, AFEI Acquisition, AFG
Holdings and AFG have determined that it is advisable and in the best interests
of their respective corporations and stockholders that, upon consummation of the
AFG Reorganization, AFEI become an indirect wholly-owned subsidiary of AFG
Holdings by merging AFEI Acquisition, a wholly-owned subsidiary of AFG Holdings
formed solely for the purpose of effecting such a merger, with and into AFEI
pursuant to the merger hereinafter provided for; and
WHEREAS, AFEI, AFEI Acquisition, AFG and AFG Holdings desire to make
certain representations, warranties, covenants and agreements in connection with
such merger; and
NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained, and intending to be legally bound hereby, the parties hereto
agree as follows:
ARTICLE 1
THE MERGER
Section 1.1 THE MERGER.
(a) The name of each corporation planning to merge is American Financial
Enterprises, Inc. and AFEI Acquisition Corp., and the name of the surviving
corporation is American Financial Enterprises, Inc. AFG Holdings shall cause
AFEI Acquisition to execute and deliver, and AFEI shall execute and deliver, a
certificate of merger and any other documents required under the laws of the
State of Connecticut to effect the merger of AFEI Acquisition with and into AFEI
(the "Merger") consistent with this Agreement. The closing and consummation of
the Merger shall be governed by the provisions of Article 3.
(b) In the Merger:
(i) Each share of common stock, $1.00 par value per share, of AFEI
issued and outstanding immediately prior to the Effective Time (the "AFEI
Common Stock"), and not beneficially owned by AFG or AFG Holdings (such
shares of AFEI Common Stock hereinafter referred to as "Non-AFG Shares")
shall be converted, by virtue of the Merger and without the need for any
further action on the part of the holder thereof, into the right to receive
either: (X) one share of common stock, no par value per share, of AFG
Holdings ("AFG Holdings Common Stock" or the "Stock Consideration"); or (Y)
$37.00 in cash (the "Cash Consideration") (the Cash Consideration and Stock
Consideration collectively, the "Merger Consideration"). At the time of the
mailing of the Proxy Statement/Prospectus (as defined in Section 2.2) AFG
Holdings shall provide all persons who are holders of record of Non-AFG
Shares with forms of election, including a related letter of transmittal,
to enable them to elect as to each Non-AFG share held the Cash
Consideration or the Stock Consideration. In the event that a holder of
Non-AFG Shares fails to make an election hereunder on or before the
Effective Time, such holder shall be deemed for all purposes of this
Agreement to have elected to receive Stock Consideration. A holder shall be
deemed to have made the requisite election when the properly completed
forms of election are
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mailed by such holder in the United States by certified or registered mail,
return receipt requested, when given to a commercial overnight delivery or
courier service of nationally recognized standing or when delivered to AFG
or its agent designated for such purpose;
(ii) All options to purchase AFEI Common Stock issued and outstanding
immediately prior to the Effective Time shall expire at the Effective Time;
and
(iii) The shares of common stock, no par value per share, of AFEI
Acquisition issued and outstanding immediately prior to the Effective Time
("AFEI Acquisition Common Stock") shall be converted, by virtue of the
Merger and without the need for any action on the part of the holder
thereof, into an aggregate number of shares of AFEI Common Stock which
shall equal the number of NonAFG Shares issued and outstanding immediately
prior to the Effective Time. AFEI shall be the corporation surviving the
Merger (the "Surviving Corporation").
(c) As the sole stockholder of AFEI Acquisition, AFG Holdings shall
promptly execute a written consent under Section 33-698 of the Connecticut
Business Corporation Act to the execution, delivery and performance by AFEI
Acquisition of the Merger and this Agreement. AFEI shall promptly submit to its
stockholders a proposal for approval of this Agreement and the Merger in
accordance with Article 2 hereof. Each of AFG, AFG Holdings, AFEI Acquisition
and AFEI shall use its best efforts to cause the Merger to be consummated in
accordance with the terms hereof.
Section 1.2 EFFECTS OF MERGER.
(a) When the Merger has been effected, the separate existence of AFEI and
AFEI Acquisition shall cease and AFEI Acquisition shall be merged with and into
AFEI (AFEI Acquisition and AFEI are sometimes referred to herein as the
"Constituent Corporations"), with AFEI surviving as a subsidiary of AFG
Holdings.
(b) At and after the Effective Time, the Merger shall have the effect
provided under the Connecticut Business Corporation Act. Without limiting the
foregoing, the Surviving Corporation shall thereupon and thereafter possess all
the rights, privileges, powers, immunities, purposes and franchises, of a public
as well as of a private nature, of the Constituent Corporations, and, all and
singular, the rights, privileges, powers, immunities, purposes and franchises of
each of the Constituent Corporations, and all property, real, personal and
mixed, tangible and intangible, and all debts due to either of said Constituent
Corporations, on whatever account, as well as for stock subscriptions and all
other things in action or belonging to each of such corporations, shall be
vested in the Surviving Corporation without further act or deed; and all
property, rights, privileges, powers, immunities, purposes and franchises, and
all and every other interest shall be thereafter as effectually the property of
the Surviving Corporation as they were of the Constituent Corporations; and the
title to any real estate vested by deed or otherwise or any other interest in
real estate vested by any instrument or otherwise in either of such Constituent
Corporations shall not revert or become in any way impaired by reason of the
Merger, but all rights of creditors and all liens upon any property of either of
the Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation, and shall be enforceable against it to the same
extent as if said debts, liabilities and duties had been incurred or contracted
by it; all of the foregoing in accordance with the applicable provisions of the
Connecticut Business Corporation Act.
Section 1.3 EXCHANGE OF CERTIFICATES.
(a) After the Effective Time, each holder of an outstanding certificate
which immediately prior to the Effective Time represented outstanding Non-AFG
Shares shall be entitled to receive in exchange therefor, upon surrender thereof
to Securities Transfer Company, One East Fourth Street, Cincinnati, Ohio 45202:
(i) if the holder thereof has elected to receive Stock Consideration, a
certificate or certificates representing the number of whole shares of AFG
Holdings Common Stock into which such holder's shares were converted in
accordance with Section 1.1(b)(i); and (ii) if the holder thereof has elected to
receive Cash Consideration, any cash to be received in connection therewith,
without interest thereon.
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(b) No holder of a certificate or certificates which immediately prior to
the Effective Time represented Non-AFG Shares shall be entitled to vote as a
holder of AFG Holdings Common Stock on any matter whatsoever or to receive any
dividend or other distribution from AFG Holdings until surrender of such
holder's certificate or certificates for a certificate or certificates
representing shares of AFG Holdings Common Stock. Upon such surrender, each
holder who has so surrendered such holder's certificate or certificates shall be
deemed retroactively to have been a holder of record of AFG Holdings Common
Stock as of the Effective Time. Accordingly, there shall be paid to the holder
the amount of any dividends or other distributions (without interest) which
became payable at any time on or after the Effective Time to holders of record
of AFG Holdings Common Stock, but which were not paid by reason of the
foregoing, with respect to the number of whole shares of AFG Holdings Common
Stock represented by the certificates issued upon such surrender.
(c) After the Effective Time, there shall be no further registration of
transfers of Non-AFG Shares. If, after the Effective Time, certificates
representing Non-AFG Shares are presented to AFG Holdings, they shall be
cancelled and exchanged for the Merger Consideration to be received in
accordance with Section 1.1(b)(i). From and after the Effective Time, AFG
Holdings shall, however, be entitled to treat certificates for Non-AFG Shares
which have not yet been surrendered for exchange as evidencing solely the right
to receive the Merger Consideration for such certificates in accordance with
Section 1.1(b)(i), notwithstanding any failure to surrender such certificates in
exchange therefor. If any certificate for shares of AFG Holdings Common Stock is
to be issued in a name other than that in which the certificate for Non-AFG
Shares surrendered in exchange therefor is registered, it shall be a condition
of such issuance that the person requesting such issuance shall pay any transfer
or other tax required by reason of the issuance of certificates for such shares
of AFG Holdings Common Stock in a name other than that of the registered holder
of the certificate surrendered, or shall establish to the satisfaction of AFG
Holdings or its agent that such tax has been paid or is not applicable.
Notwithstanding the foregoing, AFG Holdings shall not be liable to any holder of
Non-AFG Shares for any shares of AFG Holdings Common Stock (or dividends or
distributions with respect thereto), delivered to a public official pursuant to
any applicable abandoned property, escheat or similar law.
Section 1.4 EFFECTIVE TIME.
The term "Effective Time" shall mean the date and time at which the Merger
shall have become effective pursuant to the laws of the State of Connecticut.
Section 1.5 SURVIVING CORPORATION OFFICERS; DIRECTORS; CERTIFICATE OF
INCORPORATION AND BYLAWS.
The officers and directors of the Surviving Corporation immediately
following the Effective Time shall be as set forth on Exhibit I attached hereto.
The Certificate of Incorporation and the Bylaws of AFEI Acquisition immediately
prior to the Effective Time shall become the Certificate of Incorporation and
Bylaws of the Surviving Corporation without any further action of the Board of
Directors or stockholders of the Surviving Corporation. Nothing in this Section
1.5 shall be construed to grant to any person any contractual or other right to
hold office or a directorship in the Surviving Corporation or to preclude the
shareholders or Board of Directors of the Surviving Corporation from further
amending or modifying the Certificate of Incorporation or Bylaws of the
Surviving Corporation.
ARTICLE 2
STOCKHOLDER APPROVAL
Section 2.1 STOCKHOLDERS MEETING.
(a) This Agreement shall be submitted for adoption and approval to the
holders of shares of AFEI Common Stock ("AFEI Stockholders") at a meeting to be
duly held for this purpose by AFEI (the "AFEI Stockholders' Meeting"). AFEI
shall endeavor to hold the AFEI Stockholders' Meeting as soon as
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practicable after the date hereof. AFEI, acting through its Board of Directors,
shall, in accordance with applicable law:
(i) duly call, give notice of, convene and hold the AFEI Stockholders'
Meeting;
(ii) include in a Proxy Statement/Prospectus the recommendation of its
Special Committee that the AFEI Stockholders vote in favor of the approval
and adoption of this Agreement and the transactions contemplated hereby;
and
(iii) use its best efforts to solicit from the AFEI Stockholders
proxies in favor of the approval and adoption of this Agreement and the
transactions contemplated hereby, and take all other actions necessary or
advisable to secure the required approval and adoption by AFEI Stockholders
of this Agreement and the transactions contemplated hereby.
Section 2.2 PROXY STATEMENT/PROSPECTUS.
In connection with: (i) any solicitations of approval by AFEI Stockholders
of this Agreement and the transactions contemplated hereby, AFEI shall file with
the Securities and Exchange Commission (the "Commission") under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and with the appropriate
state governmental offices under the securities or "blue sky" laws of such
states, shall use all reasonable efforts to respond to the comments of the staff
of the Commission (the "Staff") or such state governmental offices and have
cleared by the Commission under the Exchange Act and shall promptly thereafter
mail to its stockholders, proxy solicitation materials, including a letter to
stockholders, notice of meeting, proxy statement and appropriate related forms
of proxies with respect to the AFEI Stockholders' Meeting. Such proxy statement
shall also constitute a prospectus of AFG Holdings with respect to the shares of
AFG Holdings Common Stock to be issued in the Merger (such proxy statement and
prospectus, together with all amendments and supplements thereto, are referred
to herein as the "Proxy Statement/Prospectus"), and shall be a part of a
registration statement (the "Registration Statement") to be filed by AFG
Holdings with the Commission for the purpose of registering the public offering
of such shares of AFG Holdings Common Stock under the Securities Act of 1933, as
amended (the "Securities Act"). AFG and AFG Holdings shall file promptly such
Registration Statement and shall each use its best efforts to respond to the
comments of the Staff with respect thereto and to have it declared effective by
the Commission. AFG Holdings shall notify AFEI promptly of the receipt of any
comments of the Staff and of any request by the Staff for amendments or
supplements to the Proxy Statement/Prospectus or the Registration Statement or
for additional information, and shall supply AFEI with copies of all
correspondence between AFG Holdings or its representatives, on the one hand, and
the Commission or members of the Staff, on the other hand, with respect to the
Proxy Statement/Prospectus, the Registration Statement or the transactions
contemplated hereby.
Section 2.3 CORRECTION OF STATEMENTS.
Each of AFG, AFG Holdings and AFEI shall correct promptly any information
specifically provided by it for inclusion in the Registration Statement or the
Proxy Statement/Prospectus which shall have become false or misleading in any
material respect. Each of AFG, AFG Holdings and AFEI shall take all steps
necessary to file or to cause to be filed with the Commission and have declared
effective or cleared by the Commission any amendment or supplement to the
Registration Statement or the Proxy Statement/Prospectus so as to correct the
same and to cause the Proxy Statement/Prospectus as so corrected to be
disseminated to AFEI Stockholders, in each case as and to the extent required by
applicable law. The Registration Statement and the Proxy Statement/Prospectus
shall comply as to form in all material respects with the provisions of the
Securities Act, the Exchange Act and other applicable law.
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ARTICLE 3
THE MERGER CLOSING
Section 3.1 TIME AND PLACE.
The consummation of the Merger (the "Closing") shall take place at the
offices of Keating, Muething & Klekamp, P.L.L., 1800 Provident Tower, One East
Fourth Street, Cincinnati, Ohio 45202, at 10:00 a.m. local time within five
business days of the satisfaction or waiver of all conditions set forth in
Article 8 of this Agreement, or at such other place and time as the parties
hereto may agree.
Section 3.2 DELIVERIES AT CLOSING.
(a) At the Closing, AFEI shall deliver or cause to be delivered to AFG
Holdings:
(i) an officer's certificate of AFEI in the form attached hereto as
EXHIBIT II; and
(ii) all other documents required to be delivered or caused to be
delivered by AFEI hereunder and such other documents and instruments as AFG
or AFG Holdings may reasonably request in order to effect or evidence the
transactions contemplated hereby.
(b) At the Closing, AFG Holdings shall deliver or cause to be delivered to
AFEI:
(i) an officer's certificate of AFG Holdings in the form attached
hereto as EXHIBIT III;
(ii) the legal opinion of Keating, Muething & Klekamp, P.L.L. in the
form annexed hereto as EXHIBIT IV;
(iii) all other documents required to be delivered or caused to be
delivered by AFG Holdings hereunder and such other documents and
instruments as AFEI may reasonably request in order to effect or evidence
the transactions contemplated hereby.
Section 3.3 FILING OF CERTIFICATE OF MERGER.
Contemporaneously with the deliveries pursuant to Section 3.2 above, AFEI
shall, and AFG Holdings shall cause AFEI Acquisition to, cause agents acceptable
to both AFEI and AFG to deliver to the Secretary of the State of the State of
Connecticut for filing a Certificate of Merger duly executed by AFEI and shall
make all other deliveries, filings or recordings required by applicable law to
consummate the Merger.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF AFEI
AFEI represents and warrants to AFG, AFG Holdings and AFEI Acquisition as
follows:
Section 4.1 AUTHORITY RELATIVE TO THIS AGREEMENT.
AFEI has the corporate power and authority to execute and deliver this
Agreement and to carry out its obligations hereunder. The execution and delivery
by AFEI of this Agreement and the consummation by AFEI of the transactions
contemplated hereby have been duly approved and validly authorized and adopted
by the Board of Directors and by an independent committee of the Board of
Directors of AFEI (the "Special Committee"). The Board of Directors, upon the
recommendation of the Special Committee, has directed that this Agreement be
submitted to the stockholders of AFEI for approval at a meeting of such
stockholders and, except for such approval, no other corporate proceedings on
the part of AFEI are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by AFEI and, assuming the due authorization, execution and delivery of
this Agreement by AFG, AFG Holdings and AFEI Acquisition, constitutes a legal,
valid and binding agreement of AFEI, enforceable against AFEI in accordance with
its terms.
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Section 4.2 CONSENTS AND APPROVALS; NO VIOLATION.
Except in the case of clause (b) below or for such failures to obtain
consents, approvals, authorizations or permits, or make filings or
notifications, or such violations, conflicts, breaches, defaults, terminations,
accelerations and rights of termination, cancellation, amendment or acceleration
which, individually or in the aggregate, would not have a material adverse
effect on the business, operations or financial condition of AFEI and its
Subsidiaries, taken as a whole, none of the execution and delivery of this
Agreement by AFEI, the consummation by AFEI of the transactions contemplated
hereby or compliance by AFEI or any of its Subsidiaries with any of the
provisions hereof will: (a) conflict with or result in a breach of any provision
of the charter or Bylaws (or other organizational or governing document) of AFEI
or any Subsidiary of AFEI; (b) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except (i) pursuant to the Exchange Act, the Securities Act, the
securities or "blue sky" laws of certain states, and (ii) for filing a
certificate of merger pursuant to the Connecticut Business Corporation Act; (c)
violate or conflict with any judgment, order, writ, injunction, decree, statute,
rule or regulation applicable to AFEI or any of its Subsidiaries or any of their
respective assets; or (d) conflict with, result in a breach of any provisions
of, constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in a termination of, accelerate the
performance required by, give to any third party any right of termination,
cancellation, amendment or acceleration under, or result in the creation of a
lien, security interest, charge or other encumbrance on any of the assets of
AFEI or any of its Subsidiaries pursuant to, any note, bond, mortgage,
indenture, license, lease, agreement or other instrument or obligation to which
AFEI or any of its Subsidiaries is a party or by which AFEI or any of its
Subsidiaries or any of their respective assets may be bound or affected.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
OF AFG, AFEI ACQUISITION AND AFG HOLDINGS
AFG, AFEI Acquisition and AFG Holdings each represent and warrant to AFEI
as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION; ACTIVE SUBSIDIARIES.
(a) AFG and each Subsidiary of AFG is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and each has all requisite corporate power and authority to own,
lease or operate the properties that it purports to own, lease or operate and to
carry on its business as it is now being conducted. Each of AFG and each of its
Subsidiaries is duly qualified or licensed as a foreign corporation to do
business and is in good standing in each jurisdiction where the property owned,
leased or operated by it or the nature of its activities makes such
qualification or licensing necessary, except for such failures to be so duly
qualified or licensed and in good standing which would not have a material
adverse effect on the business, operations or financial condition of AFG and its
Subsidiaries, taken as a whole.
Section 5.2 CAPITALIZATION.
(a) AFG. The authorized capital stock of AFG consists of 200,000,000
shares of AFG Common Stock and 25,000,000 shares of preference stock ("AFG
Preferred Stock"). As of March 31, 1997, 58,160,445 shares of AFG Common Stock
were outstanding, excluding 1,371,203 shares held by a Subsidiary and set aside
for issuance pursuant to a plan of reorganization, and 8,713,222 shares
beneficially owned by a Subsidiary, American Financial Corporation, and
9,953,392 shares owned by AFEI. In addition, 5,298,742 shares of AFG Common
Stock were reserved for issuance in connection with the AFG Stock Option Plan,
of which 3,865,354 shares were reserved for issuance upon the exercise of
outstanding AFG Stock Options. All of the issued and outstanding shares of
capital stock of AFG are validly issued, fully paid and nonassessable and are
not subject to, nor were they issued in violation of, any preemptive rights.
Since March 31, 1997, AFG has not issued any shares of its capital stock or
additional options to purchase shares of its capital stock except for the
issuance of shares of AFG Common Stock (i) upon exercise of AFG Stock Options,
(ii) in connection with shares issued pursuant to a Subsidiary's plan of
reorganization, and (iii) in connection with shares issued
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pursuant to AFG's Employee Stock Purchase Plan. Except as set forth above, or
pursuant to the AFG Reorganization, as of the date hereof, (i) there are no
shares of capital stock of AFG authorized, issued or outstanding and (ii) there
are no outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character obligating AFG or
its Subsidiaries, to issue, transfer or sell, presently or in the future, any
shares of the capital stock or any securities convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of the capital stock
of AFG. Except as set forth in the AFG SEC Filings (as defined in Section 5.5
below), all of the outstanding shares of capital stock of each of the AFG
Subsidiaries have been validly issued and are fully paid and nonassessable and
are beneficially owned by either AFG or another of the AFG Subsidiaries free and
clear of all liens, charges, claims or encumbrances. Except as set forth in the
AFG SEC Filings, there are no outstanding subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character relating to the issued or unissued capital stock of any of the AFG
Subsidiaries or securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock, or otherwise obligating
any such AFG Subsidiary to issue, transfer or sell any such capital stock or
other securities. There are no voting trusts or other agreements or
understandings to which AFG or any of its subsidiaries is a party with respect
to the voting of the capital stock of AFG or any of the AFG Subsidiaries.
(b) AFG Holdings. The authorized capital stock of AFG Holdings consists of
1,000 shares of AFG Holdings Common Stock and 100 shares of preferred stock
("AFG Holdings Preferred Stock"). As of the date of this Agreement, (i) 100
shares of AFG Holdings Common Stock were issued and outstanding and owned in the
manner set forth in Schedule 5.2(b) of this Agreement, and (ii) no shares of AFG
Holdings Preferred Stock were issued and outstanding. All of the issued and
outstanding shares of AFG Holdings Common Stock are validly issued, fully paid
and nonassessable and are not subject to, nor were they issued in violation of,
any preemptive rights. Except as contemplated by this Agreement and the AFG
Reorganization, there are no outstanding subscriptions, warrants, calls, rights,
convertible securities or other agreements or commitments obligating AFG
Holdings to issue, transfer, sell, presently or in the future, any shares of
capital stock.
(c) AFEI Acquisition. The authorized capital stock of AFEI Acquisition
consists of 1,000 shares of common stock, no par value ("AFEI Acquisition Common
Stock"). As of the date of this Agreement, 100 shares of AFEI Acquisition Common
Stock were issued and outstanding, all of which were held directly by AFG
Holdings. All of the issued and outstanding shares of AFEI Acquisition Common
Stock are validly issued, fully paid and non-assessable and are not subject to,
nor were they issued in violation of, any preemptive rights. Except as
contemplated by this Agreement, there are no outstanding subscriptions,
warrants, calls, rights, convertible securities or other agreements or
commitments obligating AFEI Acquisition to issue, transfer, sell, presently or
in the future, any shares of capital stock.
Section 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT.
(a) AFG has the corporate power and authority to execute and deliver this
Agreement and to carry out its obligations hereunder. The execution and delivery
of this Agreement by AFG and the consummation by AFG of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors of AFG. Except for the AFG Reorganization, no other corporate
proceedings on the part of AFG are necessary to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered by AFG
and, assuming the due authorization, execution and delivery of this Agreement by
AFEI, AFG Holdings and AFEI Acquisition, constitutes a legal, valid and binding
agreement of AFG, enforceable against AFG in accordance with its terms.
(b) AFG Holdings has the corporate power and authority to execute and
deliver this Agreement and to carry out its obligations hereunder. The execution
and delivery of this Agreement by AFG Holdings and the consummation by AFG
Holdings of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of AFG Holdings. Except for the AFG
Reorganization, no other corporate proceedings on the part of AFG Holdings are
necessary to consummate the transactions contemplated hereby. This Agreement has
been duly executed and delivered by AFG Holdings and, assuming the due
authorization, execution and delivery of this Agreement by AFEI, AFG and AFEI
Acquisition constitutes a
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legal, valid and binding agreement of AFG Holdings, enforceable against AFG
Holdings in accordance with its terms.
(c) AFEI Acquisition has the corporate power and authority to execute and
deliver this Agreement and to carry out its obligations hereunder. The execution
and delivery by AFEI Acquisition of this Agreement and the consummation by AFEI
Acquisition of the transactions contemplated hereby have been duly and validly
authorized and adopted by the Board of Directors of AFEI Acquisition and shall
be duly and validly authorized by AFG Holdings as the sole stockholder of AFEI
Acquisition. Except for such sole stockholder approval, no other corporate
proceedings on the part of AFEI Acquisition are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby.
Section 5.4 CONSENTS AND APPROVALS; NO VIOLATION.
Except in the case of clause (b) below or for such failures to obtain
consents, approvals, authorizations or permits, or make filings or
notifications, or such violations, conflicts, breaches, defaults, terminations,
accelerations and rights of termination, cancellation, amendment or acceleration
which, individually or in the aggregate, would not have a material adverse
effect on the business, operations or financial condition of AFG and its
Subsidiaries, taken as a whole, none of the execution and delivery of this
Agreement by AFG, the consummation by AFG of the transactions contemplated
hereby or compliance by AFG or any of its Subsidiaries with any of the
provisions hereof will: (a) conflict with or result in a breach of any provision
of the charter or Bylaws (or other organizational or governing document) of AFG
or any Subsidiary of AFG; (b) require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority, except (i) pursuant to the Exchange Act, the Securities Act, the
securities or "blue sky" laws of certain states, and (ii) for filing a
certificate of merger pursuant to the Connecticut Business Corporation Act; (c)
violate or conflict with any judgment, order, writ, injunction, decree, statute,
rule or regulation applicable to AFG or any of its Subsidiaries or any of their
respective assets; or (d) conflict with, result in a breach of any provisions
of, constitute a default (or an event which with notice or lapse of time or both
would become a default) under, result in a termination of, accelerate the
performance required by, give to any third party any right of termination,
cancellation, amendment or acceleration under, or result in the creation of a
lien, security interest, charge or other encumbrance on any of the assets of AFG
or any of its Subsidiaries pursuant to, any note, bond, mortgage, indenture,
license, lease, agreement or other instrument or obligation to which AFG or any
of its Subsidiaries is a party or by which AFG or any of its Subsidiaries or any
of their respective assets may be bound or affected.
Section 5.5 SEC REPORTS AND FINANCIAL STATEMENTS.
AFG has previously delivered to AFEI true and complete copies of its (i)
Annual Report on Form 10-K for the year ended December 31, 1996, as filed with
the Commission, and all amendments thereto; and (ii) all other reports,
statements, proxies and registration statements (including Current Reports on
Form 8-K) filed by it with the Commission since December 31, 1996 (collectively,
the "AFG SEC Filings"). As of their respective dates, the AFG SEC Filings did
not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of AFG included in the AFG SEC Filings (the
"Financial Statements") present fairly, in all material respects, the financial
condition, results of operations and changes in financial position of AFG as at
the dates or for the periods indicated therein in conformity with generally
accepted accounting principles ("GAAP") applied on a consistent basis (except as
otherwise indicated in such financial statements or the notes thereto), subject,
in the case of unaudited interim financial statements, to normal recurring
year-end adjustments.
Section 5.6 LITIGATION.
Except as set forth in the AFG SEC Filings, there are no actions, suits,
claims, investigations or proceedings pending or, to the knowledge of AFG,
threatened against, relating to, involving or otherwise affecting AFG or any of
its Subsidiaries before any court, governmental agency, commission, or
administrative or regulatory authority which, if adversely decided, in the
aggregate, may reasonably be expected to have a
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material adverse effect on the financial condition of AFG and its Subsidiaries
taken as a whole. Except as set forth in the AFG SEC Filings, neither AFG nor
any of its Subsidiaries is subject to any order, judgment, injunction or decree
that materially and adversely affects or will materially and adversely affect
the financial condition of AFG and its Subsidiaries taken as a whole.
Section 5.7 EMPLOYEE BENEFIT PLANS.
(a) For purposes hereof, the term "Benefit Plan" shall mean any plan
maintained currently by AFG or any Subsidiary of AFG for the benefit of
employees, former employees or Directors of AFG or any Subsidiary of AFG.
(b) With respect to each Benefit Plan which is an employee pension benefit
plan (as defined in Section 3(2) of the Employee Retirement Income Security Act
of 1974 ("ERISA") other than any such plan that meets the "top-hat" exception
under Section 201(1) of ERISA (a "Qualified Benefit Plan"): (i) the IRS has
issued a determination letter which determined that such Qualified Benefit Plan
satisfied the requirements of Section 401(a) of the Code, as amended, such
determination letter has not been revoked or threatened to be revoked by the IRS
and the scope of such determination letter is complete or a determination letter
will be applied for from the IRS within the appropriate time periods of the
Internal Revenue Code of 1986 (the "Code"); (ii) such Qualified Benefit Plan is
in compliance with all qualification requirements of Section 401(a) of the Code;
(iii) no application has been made to the IRS under the voluntary compliance
resolution program or the walk-in closing agreement program and no circumstance
or condition exists which would qualify as a subject matter of such a filing;
and (iv) such Qualified Benefit Plan has been operated in compliance with all
notice, reporting and disclosure requirements of ERISA which apply to employee
pension benefit plans.
(c) With respect to each Benefit Plan: (i) to the extent such Benefit Plan
is intended to provide benefits to plan participants that are not subject to
federal income tax so long as specific provisions of the Code are met, such
Benefit Plan currently meets such Code provisions; (ii) such Benefit Plan has
been operated in compliance with all applicable notice, reporting and disclosure
requirements of ERISA and the Code (including but not limited to the filing of
timely Forms 5500); (iii) such Benefit Plan, if a group health plan subject to
the requirements of Section 4980B of the Code or Sections 601 through 608 of
ERISA, has been operated in compliance with such requirements; and (iv) there is
not now, and never has been, any "unrelated business taxable income" as defined
in Section 512 through 514 of the Code.
(d) No prohibited transaction under Section 408 of ERISA has occurred with
respect to any Benefit Plan which would result, with respect to any person, in
(i) the imposition, directly or indirectly, of an excise tax under Section 4975
of the Code or (ii) fiduciary liability under Section 409 of ERISA.
(e) No actions, suits or claims (other than routine claims for benefits not
subject to challenge by the plan administrator) are pending or threatened
against any Benefit Plan or against AFG or any affiliate of AFG with respect to
any Benefit Plan.
(f) All material Unfunded Liabilities, as hereinafter defined, with respect
to each Benefit Plan have been recorded and disclosed on the most recent
financial statement of AFG. For purposes hereof, the term "Unfunded Liabilities"
shall mean any amounts properly accrued to date under (i) GAAP, or (ii) amounts
not yet accrued for GAAP purposes but for which an obligation (which has legally
accrued and cannot legally be eliminated) exists for payment in the future which
is attributable to any Benefit Plan, including but not limited to (1) severance
pay benefits, (2) deferred compensation or unpaid bonuses, (3) any liabilities
on account of the change in control which will result from this Agreement,
including any potential 20% excise tax under Section 4999 of the Code relating
to excess parachute payments under Section 280G of the Code, (4) any unpaid
pension contributions for the current plan year or any accumulated funding
deficiency under Section 412 of the Code and related penalties under Section
4971 of the Code, (iii) authorized but unpaid profit sharing contributions or
contributions under Section 401(k) and Section 401(m) of the Code, (5) former
employee or Director health benefit or life insurance coverage, and (6) unpaid
premiums for contributions required under any group health plan to maintain such
planIs coverage through the Closing Date.
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(g) AFG and affiliates of AFG (or any pension plan maintained by any of
them) have not incurred any material liability to the Pension Benefit Guaranty
Corporation ("PBGC") or the IRS with respect to any Benefit Plan which is a
defined pension plan, except for the payment of PBGC premiums, all of which if
due prior to the date of this Agreement have been fully paid, and no PBGC
reportable event under Section 4043(b) of ERISA has occurred with respect to any
such pension plan.
(h) AFG has all power and authority necessary to amend or terminate each
Benefit Plan without incurring any penalty or liability provided that, in the
case of an employee pension benefit plan (as defined in Section 3(2) of ERISA),
benefits accrued as of the date of amendment or termination are not reduced.
Section 5.8 TAXES AND TAX RETURNS.
AFG and each of its Subsidiaries (collectively, the "Group") has timely
filed or been included in all tax returns, declarations, reports, estimates,
information returns, statements and other material returns (collectively,
"Returns") relating to Taxes (as hereinafter defined) required to be filed under
U.S. federal, state, local or any foreign laws (taking into account any
extensions of time for filing such Returns). The Group has paid or made
provision for (by a tax accrual or tax reserve on the most recent consolidated
balance sheets of the Group (the "Balance Sheets") contained in the AFG SEC
Filings, which accruals or reserves have been recorded in accordance with GAAP),
all Taxes (except for such Taxes which if not so paid or provided for would not,
in the aggregate, have a material adverse effect on the financial condition of
AFG and its subsidiaries taken as a whole) in respect of all taxable periods or
portions thereof ending on or before the date of the Balance Sheets. There are
no material liens for Taxes upon the assets of AFG or any of its subsidiaries
except liens for Taxes not yet due. The Group is not delinquent in the payment
of any federal income or other Taxes and, except as set forth in Schedule 5.8 of
the AFG Disclosure Schedule, there are no outstanding deficiencies, assessments
or written proposals for assessment of federal income or other Taxes proposed,
asserted or assessed against the Group. Except as set forth in the Financial
Statements or in Schedule 5.8 of the AFG Disclosure Schedule, no waivers are
presently open for the statute of limitations for the assessment of federal
income taxes for any consolidated federal income tax return of AFG and its
Subsidiaries. Except as set forth in the Financial Statements or in Schedule 5.8
of the AFG Disclosure Schedule, no federal, state, local or foreign audits or
other administrative proceedings or court proceedings which are material to the
financial condition of the Group taken as a whole are presently pending with
regard to any Taxes or Returns of AFG or its Subsidiaries. As used herein,
"Taxes" means (A) all net income, gross income, gross receipts, sales, use,
transfer, franchise, profits, withholding, payroll, employment, excise,
severance, property or windfall profits taxes, or other taxes of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any taxing authority (domestic or foreign) upon
AFG or any of its Subsidiaries with respect to all periods or portions thereof
ending on or before the Effective Time and/or (B) any liability of AFG or any of
its Subsidiaries for the payment of any amounts of the type described in the
immediately preceding clause (A) as a result of being a member of an affiliated
or combined group.
Section 5.9 COMPLIANCE WITH APPLICABLE LAW.
Each of AFG and its Subsidiaries holds all material licenses, franchises,
permits and authorizations necessary for the lawful conduct of its business
under and pursuant to all, and has complied with and is not in default in any
respect under any, applicable law, statute, order, rule, regulation, policy or
guideline of any federal, state or local governmental authority relating to AFG
or any of its Subsidiaries (other than where such default or noncompliance would
not result in a material limitation on the conduct of the business of AFG or any
of its Subsidiaries, or not cause AFG or any of its Subsidiaries to incur
material financial penalty, or would not be likely to otherwise have a material
adverse effect on the business, operations or financial condition of AFG and its
Subsidiaries, taken as a whole) and none of AFG or any of its Subsidiaries has
received written notice of violation of, or knows of any violation of, any of
the above.
Section 5.10 ENVIRONMENTAL PROTECTION.
(a) Except as set forth in the AFG SEC Filings:
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(i) Each of AFG and its Subsidiaries is, in all material respects, in
compliance with all Environmental Laws (as hereinafter defined) and has not
received any communication within the last three years from a governmental
authority that alleges that AFG or any of its Subsidiaries is not in such
full compliance;
(ii) There is no Environmental Claim (as hereinafter defined) pending
or, to AFG's knowledge, threatened against AFG or any of its Subsidiaries
or, to AFG's knowledge, pending or threatened against any person or entity
whose liability for any Environmental Claim AFG or any of its Subsidiaries
has retained or assumed either contractually or by operation of law; and
(iii) Except to the extent the same would not have a material adverse
effect on the Condition of AFG and its Subsidiaries, taken as a whole,
there are no past or present actions, activities, circumstances,
conditions, events or incidents, including, without limitation, the
release, emission, discharge or disposal of any Material of Environmental
Concern (as hereinafter defined), that could reasonably be expected to
result in any Environmental Claim against AFG or any of its Subsidiaries or
against any person or entity whose liability for any Environmental Claim
AFG or any of its Subsidiaries has retained or assumed either contractually
or by operation of law.
(b) "Environmental Claim" means any written notice by any governmental or
regulatory agency, authority or instrumentality alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by AFG or any of its
Subsidiaries, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Laws.
(c) "Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
(d) "Materials of Environmental Concern" means any substance, material or
waste which is regulated by any governmental authority, including, without
limitation, any material, substance or waste which is defined under Applicable
Environmental Law as a "hazardous waste," "hazardous material," "hazardous
substance," "extremely hazardous waste," "restricted hazardous waste,"
"contaminant," "toxic waste" or "toxic substance" under any law or regulation,
including, but not limited to, petroleum, petroleum products, asbestos, urea
formaldehyde and polychlorinated biphenyls.
ARTICLE 6
ACTIONS TO BE TAKEN PRIOR TO THE CLOSING
Section 6.1 NEW YORK STOCK EXCHANGE LISTING.
Promptly after execution and delivery of this Agreement, AFG and AFG
Holdings shall initiate, and thereafter diligently pursue, the process of
applying for a listing of the AFG Holdings Common Stock on the New York Stock
Exchange.
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ARTICLE 7
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION.
From the date of this Agreement, AFEI and AFG shall, and shall cause their
respective authorized officers, directors, employees, auditors, agents and
Subsidiaries, and the authorized officers, directors, employees, auditors and
agents of their respective Subsidiaries, to, give to the other party and its
authorized officers, employees, counsel, advisors and representatives full
access to all authorized officers, employees, agents, properties, offices and
other facilities and to all books and records of it and its Subsidiaries and
shall furnish the other party with such financial, operating and other data and
information as such other party, through its authorized officers, employees,
agents or representatives, may from time to time reasonably request.
Section 7.2 PUBLIC ANNOUNCEMENTS.
AFEI and AFG shall promptly issue a joint press release to announce the
execution and delivery of this Agreement. Thereafter, AFEI and AFG shall consult
with each other before issuing any press release or otherwise making any public
statements with respect to any of the transactions contemplated by this
Agreement and shall not issue any such press release or make any such public
statement prior to such consultation, except as may be required by law.
Section 7.3 BEST EFFORTS.
Subject to the terms and conditions herein provided, each of the parties
hereto shall use its best efforts to take, or cause to be taken, all action, and
to do, or cause to be done, all things necessary, proper or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to obtain in a timely manner all waivers,
consents and approvals of, and to make all filings with and notifications to,
any third parties as are necessary in order to consummate the transactions
contemplated by this Agreement and the AFG Reorganization.
Section 7.4 RULE 145.
AFEI will use all reasonable efforts to cause each person who is an
affiliate of AFEI to deliver to AFG Holdings prior to the Effective Time a
written agreement that such affiliate will not offer to sell or otherwise
dispose of any AFG Holdings Common Stock issued to such affiliate in connection
with the Merger otherwise than within the limits and in accordance with the
provisions of Rule 145 under the Securities Act, as such rule may be amended
from time to time, or except in a transaction that, in the opinion of legal
counsel reasonably satisfactory to AFG Holdings, is exempt from registration
under the Securities Act.
Section 7.5 AMENDMENT TO AFG HOLDINGSI ARTICLES OF INCORPORATION.
Prior to the Effective Time, AFG Holdings shall cause its Articles of
Incorporation to be amended to provide for the authorization of (i) 200,000,000
shares of AFG Holdings Common Stock and (ii) 25,000,000 shares of AFG Holdings
Preferred Stock, with terms substantially identical in all material respects
with the existing capital structure of AFG.
Section 7.6 POST-MERGER MATTERS.
If at any time after the Effective Time any further action is necessary to
carry out the purposes of this Agreement, the proper officers and directors of
each party to this Agreement shall take all such action.
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ARTICLE 8
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY.
The respective obligations of AFEI, AFG, AFG Holdings and AFEI Acquisition
to effect the Merger are subject to the satisfaction (or waiver by AFEI and AFG
or AFG Holdings), at or prior to the Effective Time, of the following
conditions:
(a) Consummation of the AFG Reorganization;
(b) Any applicable waiting period relating to the Merger shall have expired
or been terminated;
(c) There shall not be in effect: (i) any judgment, injunction, decree or
order issued by any federal, state or local court or arbitrator of competent
jurisdiction; or (ii) any statute, rule, regulation or order enacted or
promulgated by any federal, state or local, legislative, administrative or
regulatory body of competent jurisdiction, that in either of cases (i) or (ii)
prohibits or restricts the consummation of the transactions contemplated hereby
or makes such consummation illegal or restricts in any material respect or
prohibits the effective operation of the business of AFEI and its Subsidiaries
or AFG and its Subsidiaries after the consummation of the transactions
contemplated hereby;
(d) The Registration Statement shall have been declared effective under the
Securities Act and no stop order suspending such effectiveness shall have been
issued or proceedings for such purpose shall have been instituted;
(e) This Agreement and the Merger hereby contemplated shall have been
adopted and/or approved by the affirmative vote of the requisite votes of AFEI
Stockholders as set forth in Section 33-817(j) and Section 33-841 of the
Connecticut Business Corporation Act;
(f) Special tax counsel to AFG shall have delivered to AFEI an opinion to
the reasonable satisfaction of Morrison & Foerster, LLP (dated the date of the
Effective Time, based on facts, representations and assumptions set forth in
such opinion which are consistent with the state of facts existing at the
Effective Time), substantially to the effect that: (i) no gain or loss will be
recognized by AFEI, AFEI Acquisition, AFG or AFG Holdings as a result of the
Merger; (ii) no gain or loss will be recognized by any AFEI stockholder who
receives only shares of AFG Holdings Common Stock pursuant to the Merger; (iii)
the tax basis of the shares of AFG Holdings Common Stock owned by a former
stockholder of AFEI will be the same as the tax basis of the shares of AFEI
Common Stock formerly owned by such stockholder; and (iv) the holding period of
the shares of AFG Holdings Common Stock received as a result of the Merger will
include the period during which the shares formerly representing AFEI Common
Stock were held, provided such shares were held as capital assets immediately
prior to the Effective Time (in rendering such opinion, counsel may require and
rely upon representations contained in certificates of officers of AFEI).
Section 8.2 MERGER CONSIDERATION.
All shares of AFG Holdings Common Stock to be issued to the holders of
Non-AFG Shares pursuant to this Agreement at Closing shall, when issued, be duly
authorized, validly issued, fully paid and non-assessable and listed on the New
York Stock Exchange.
Section 8.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF AFEI.
The obligation of AFEI to consummate the Merger is further subject to the
satisfaction (or waiver by AFEI), at or prior to the Effective Time, of the
following conditions:
(a) AFEI Acquisition, AFG and AFG Holdings shall have performed in all
material respects all their respective obligations hereunder required to be
performed by them at or prior to the Effective Time;
(b) The representations and warranties of AFG, AFG Holdings and AFEI
Acquisition contained in this Agreement and in any certificate or other writing
delivered by such parties pursuant hereto which are qualified
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by the term "material" or "materiality" shall be true and correct in all
respects, and all other representations and warranties of AFG, AFG Holdings and
AFEI Acquisition contained in this Agreement and in any certificate or other
writing delivered by AFG, AFG Holdings and AFEI Acquisition pursuant hereto
shall be true and correct in all material respects, at and as of the date of
this Agreement and at and as of the Closing as if made at and as of such time
(except as to any representation or warranty which specifically relates to an
earlier date);
(c) AFEI shall have received the deliveries described in Section 3.2(b) and
all agreements included in such deliveries shall have been duly executed and
delivered by all parties thereto;
(d) AFEI shall have received all documents it may reasonably request
relating to the existence of AFG, AFG Holdings and AFEI Acquisition and their
corporate authority for this Agreement and all other agreements and documents
contemplated herein, all in form and substance reasonably satisfactory to AFEI;
(e) Any and all material permits, consents, waivers, clearances, approvals
and authorizations of and filings with all third parties and governmental bodies
shall have been obtained which are required to consummate the transactions
contemplated hereby;
(f) AFG Holdings shall have caused to be delivered to AFEI a "bringdown"
certificate executed by two officers in their respective corporate capacities
and not in their individual capacities, dated the date on which the Registration
Statement (or last amendment thereto) shall become effective and redated as of
the Effective Time, and addressed to AFEI, in form and substance customary in
transactions of the nature contemplated hereby;
(g) The Special Committee shall have received from Oscar Gruss & Son,
Incorporated, an opinion dated the date of the mailing of the Proxy Statement
and redated as of the Effective Time, in customary form, to the effect that the
consideration for the Merger is fair to holders of Non-AFG Shares from a
financial point of view;
(h) The shares of AFG Holdings Common Stock to be received as Merger
Consideration shall have been listed on the New York Stock Exchange.
(i) Any and all material permits, consents, waivers, clearances, approvals
and authorizations of and filings with all third parties and governmental bodies
shall have been obtained which are required (i) to consummate the transactions
contemplated hereby or (ii) to prevent a breach, default or right of termination
under any agreement to which AFG, AFG Holdings and AFEI Acquisition are a party
or by which they are bound caused by consummation of the transactions
contemplated hereby.
Section 8.4 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF AFG, AFG HOLDINGS AND
AFEI ACQUISITION.
The obligation of AFG, AFG Holdings and AFEI Acquisition to consummate the
Merger are further subject to the satisfaction (or waiver by AFG or AFG
Holdings), at or prior to the Effective Time, of the following conditions:
(a) AFEI shall have performed in all material respects all of its
obligations hereunder required to be performed by it at or prior to the
Effective Time;
(b) The representations and warranties of AFEI contained in this Agreement
and in any certificate or other writing delivered by AFEI pursuant hereto which
are qualified by the term "material" or "materiality" shall be true and correct
in all material respects, and all other representations and warranties of AFEI
contained in this Agreement and in any certificate or other writing delivered by
AFEI pursuant hereto shall be true and correct in all material respects, at and
as of the date of this Agreement and at and as of the Closing as if made at and
as of such time (except as to any representation or warranty which specifically
relates to an earlier date);
(c) AFG Holdings shall have received the deliveries described in Section
3.2(a) and all agreements included in such deliveries shall have been duly
executed and delivered by all parties thereto;
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(d) AFG Holdings shall have received all documents it may reasonably
request relating to the existence of AFEI and its corporate authority for this
Agreement, all in form and substance reasonably satisfactory to AFG Holdings;
(e) Any and all material permits, consents, waivers, clearances, approvals
and authorizations of and filings with all third parties and governmental bodies
shall have been obtained which are required (i) to consummate the transactions
contemplated hereby or (ii) to prevent a breach, default or right of termination
under any agreement to which AFEI is a party or by which it is bound caused by
consummation of the transactions contemplated hereby.
ARTICLE 9
TERMINATION; AMENDMENTS; WAIVER
Section 9.1 TERMINATION.
This Agreement may be terminated and the transactions contemplated hereby
may be abandoned at any time, whether before or after and notwithstanding
approval of the Merger by the AFEI Stockholders, but prior to the Effective
Time:
(a) By the mutual written consent of the Board of Directors of each of AFEI
and AFG; or
(b) By AFEI, on the one hand, or AFG, on the other, if the Effective Time
shall not have occurred by November 1, 1997; provided, however, that the right
to terminate this Agreement under this Section 9.1(b) shall not be available to
any party, failure of which to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time to occur on
or before such date; or
(c) By either AFEI, on the one hand, or AFG, on the other, if a court of
competent jurisdiction in the United States or any state thereof or other United
States governmental, regulatory or administrative body shall have issued an
order, decree or ruling or taken any other action (which order, decree, ruling
or other action the parties agree to use their best efforts through appeals and
otherwise to vacate) permanently restraining, enjoining or otherwise prohibiting
the transactions contemplated by this Agreement and such order, decree, ruling
or other action shall have become final and nonappealable; or
(d) By either AFEI or AFG if, in the case of AFEI, AFG, AFG Holdings or
AFEI Acquisition materially breaches a warranty, representation or covenant
contained herein, or, in the case of AFG, AFEI materially breaches a warranty,
representation or covenant contained herein.
In the event of the termination of this Agreement pursuant to the terms of
this Section 9.1, this Agreement shall forthwith become void and have no effect,
without any liability on the part of either party hereto, except that: (A) the
provisions of this Section 9.1, Section 7.2 and Section 10.6 hereof shall
survive any such termination and shall continue to be binding on the parties
hereto; and (B) nothing contained in this Section 9.1 shall relieve any party
from any liability, if any, for any termination of this Agreement under
paragraph (d) above.
Section 9.2 AMENDMENT.
This Agreement may be amended, modified or supplemented by the parties
hereto, whether before or after approval of the Merger by the AFEI Stockholders
but, after AFEI Stockholder approval, no amendment shall be made which adversely
affects the rights of the AFEI Stockholders hereunder without the approval of
the affected stockholders. This Agreement may not be amended, modified or
supplemented except by an instrument in writing signed by all the parties hereto
that expressly states that it amends, modifies or supplements this Agreement.
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Section 9.3 EXTENSION; WAIVER.
At any time prior to the Effective Time, any party hereto may: (i) extend
the time for the performance of any of the obligations or other acts of any
other party hereto; (ii) waive any inaccuracies in the representations and
warranties contained herein by any other party or in any document or writing
delivered pursuant hereto by such other party; or (iii) waive compliance with
any of the agreements of any other party or with any conditions to its own
obligations. Any agreement on the part of any party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party.
ARTICLE 10
MISCELLANEOUS
Section 10.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS.
Other than any covenant or agreement herein, the nature of which is to be
performed after the Effective Time, the representations, warranties, covenants
and agreements made in this Agreement or in any certificate or Disclosure
Schedules delivered pursuant to Article 5 hereof shall only survive until the
Effective Time.
Section 10.2 ENTIRE AGREEMENT; ASSIGNMENT.
This Agreement (including the Schedules, Disclosure Schedules, and Exhibits
hereto) constitutes the entire agreement between the parties hereto with respect
to the subject matter hereof and supersedes all other prior or contemporaneous
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof. This Agreement may not be assigned, by
operation of law or otherwise, by any of the parties hereto without the prior
written consent of each of the other parties hereto. Any such purported
assignment undertaken or occurring without such consent shall be null and void
and of no legal force and effect.
Section 10.3 VALIDITY.
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of any of the other provisions of this
Agreement, each of which shall remain in full force and effect.
Section 10.4 NOTICES.
All notices, requests, claims, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given when delivered
in person, by cable, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) to the respective parties as
follows:
If to AFG Holdings or AFEI Acquisition:
One East Fourth Street, Suite 919
Cincinnati, Ohio 45202
Attention: James E. Evans, Esq.
Telephone: (513) 579-2536
Facsimile: (513) 579-0108
with copies to:
Keating, Muething & Klekamp, P.L.L.
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Edward E. Steiner, Esq.
Telephone: (513) 579-6468
Facsimile: (513) 579-6957
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If to AFG:
One East Fourth Street, Suite 919
Cincinnati, Ohio 45202
Attention: James E. Evans, Esq.
Telephone: (513) 579-2536
Facsimile: (513) 579-0108
with copies to:
Kelley Drye & Warren LLP
Two Stamford Plaza
281 Tresser Boulevard
Stamford, CT 06901-3229
Attention: John T. Capetta, Esq.
Telephone: (203) 351-8022
Facsimile: (203) 351-8115
If to AFEI:
c/o Oscar Gruss & Son, Incorporated
74 Broad Street
New York, New York 10004-2247
Attention: Julius Anreder, Vice President
Telephone: (212) 943-6412
Facsimile: (212) 797-1638
with copies to:
Morrison & Foerster, LLP
1290 Avenue of the Americas
New York, New York 10104-0050
Attention: Joseph W. Bartlett, Esq.
Telephone: (212) 468-8240
Facsimile: (212) 468-7900
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above
(provided, that notice of any change of address shall be effective only upon
receipt thereof).
Section 10.5 GOVERNING LAW.
This Agreement shall in all respects be governed by and construed in
accordance with the laws of Connecticut.
Section 10.6 EXPENSES.
All expenses incurred by any party hereto in connection with this Agreement
and the consummation of the transactions contemplated hereby shall be paid by
the party incurring such expenses.
Section 10.7 INTERPRETATION.
(a) The descriptive headings herein are inserted for convenience of
reference only and are not intended to be part of, or to affect the meaning or
interpretation of, this Agreement.
(b) The term "Subsidiary" when used herein with respect to any person
means: (i) any corporation, partnership or other business association or entity
which meets the definition of "Significant Subsidiary" as set forth in Rule
12b-2 of the Securities Exchange Act of 1934. The term "person" when used herein
means any individual, corporation, partnership, limited liability company, joint
venture, trust, unincorporated association
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or other entity of any nature whatsoever. The term "knowledge" when used herein
with respect to AFG or AFEI means actual knowledge or actually knowing after due
inquiry within AFG or AFEI, as the case may be, and their respective
Subsidiaries (which due inquiry each party undertakes to make). The term
"beneficially owned" when used herein shall be determined in accordance with the
criteria set forth in Rule 13d-3 of the Exchange Act.
Section 10.8 COUNTERPARTS.
This Agreement may be executed in multiple counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and the
same agreement.
Section 10.9 PARTIES IN INTEREST.
This Agreement shall be binding upon and inure solely to the benefit of
each party hereto, and nothing in this Agreement, express or implied, is
intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement.
THIS SPACE INTENTIONALLY LEFT BLANK
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IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officer thereunto duly authorized on the day and
year first above written.
AMERICAN FINANCIAL ENTERPRISES, INC.
By: /s/ THOMAS E. MISCHELL
------------------------------------
Thomas E. Mischell
Vice President
AFEI ACQUISITION CORP.
By: /s/ JAMES C. KENNEDY
------------------------------------
James C. Kennedy
Secretary
AMERICAN FINANCIAL GROUP
HOLDINGS, INC.
By: /s/ JAMES C. KENNEDY
------------------------------------
James C. Kennedy
Secretary
AMERICAN FINANCIAL GROUP, INC.
By: /s/ JAMES E. EVANS
------------------------------------
James E. Evans
Senior Vice President
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ANNEX C
[OSCAR GRUSS & SON INCORPORATED LETTERHEAD]
74 Broad Street, New York, NY 10004-2247
Telephone: (212) 943-6313 Fax: (212) 797-1638
October , 1997
Special Committee of the Board of Directors
American Financial Enterprises, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Gentlemen:
We understand that American Financial Enterprises, Inc. ("AFEI") will merge
with AFEI Acquisition Corp. ("AFEI Acquisition"), a wholly-owned subsidiary of
American Financial Group Holdings, Inc. ("AFG Holdings"), and that American
Financial Group Inc. ("AFG"), a wholly-owned subsidiary of AFG Holdings, will
merge with AFG Acquisition Corp. ("AFG Acquisition"), a wholly-owned subsidiary
of AFG Holdings, in simultaneous transactions pursuant to which the outstanding
shares of common stock of AFEI ("AFEI Common Stock") (other than those shares
electing to receive $37 per share in cash) and the outstanding shares of common
stock of AFG will be converted into shares of common stock of AFG Holdings ("AFG
Holdings Common Stock") on a share for share basis under terms and conditions
set forth in an Agreement and Plan of Merger dated July 9, 1997 (the "Merger
Agreement") and entered into by and among AFEI, AFEI Acquisition, AFG Holdings
and AFG (the "Merger"). The terms and conditions of the Acquisition will be set
forth in more detail in the Merger Agreement.
You have requested our opinion, as investment bankers, to the fairness,
from a financial point of view, of the merger consideration to the holders of
AFEI, other than AFG and its affiliates. In conducting our analysis and arriving
at our opinion as expressed herein, we have reviewed and analyzed, among other
things, the following:
(i) the Merger Agreement;
(ii) publicly available information concerning AFEI, AFG and certain
affiliates of AFG which Oscar Gruss believed to be relevant to its inquiry;
(iii) financial and operating information with respect to the
business, operations and prospects of AFG furnished to Oscar Gruss by AFG;
(iv) financial and operating information with respect to the business,
operations and prospects of AFEI furnished to Oscar Gruss by AFG;
(v) the common stock price and trading histories of AFG and AFEI
Common Stock and certain affiliates and the common stock of certain
publicly traded affiliates;
(vi) a comparison of the financial positions and operating results of
AFG, AFEI and certain affiliates with those of publicly traded companies
Oscar Gruss deemed relevant;
(vii) analyses of the respective contributions in terms of assets,
liabilities and earnings of AFG and AFEI to AFG Holdings and the relative
ownership of AFG Holdings after the Merger by the current stockholders of
AFG and AFEI;
(viii) synergies and other potential benefits arising from the
Acquisition.
We have also met with certain officers and employees of AFG and AFEI and
certain affiliates concerning their respective businesses, operations, assets,
present condition and future prospects and undertook such other studies,
analyses and investigations as we deemed appropriate. Our opinion is limited
insofar as we were not furnished with financial projections with respect to
Chiquita Brands International, Inc., AFG or AFEI as we
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were advised by management of AFG that the respective companies did not engage
in forward projections of operating results due to their belief in their limited
utility.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us in arriving
at our opinion and have not assumed responsibility for any independent
verification of such information. We have not conducted any independent
evaluation or appraisal of the properties, assets, liabilities, or reserves of
AFG or AFEI, nor have we conducted any independent actuarial evaluations.
We have also taken into account our assessment of general economic, market,
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon regulatory, economic, market and other conditions as they exist on,
and the information made available to us as of, the date hereof. We assumed,
with your consent, that in the course of obtaining necessary regulatory
approvals for the Merger, no restrictions would be imposed that would have a
material adverse effect on the contemplated benefits of the Merger to AFEI.
We are not expressing any opinion as to what the value of AFG Holdings
Common Stock actually will be when issued to the shareholders of AFG and AFEI
pursuant to the Merger or the price at which the AFG Holdings Common Stock will
trade subsequent to the Merger.
Oscar Gruss will receive fees for its services to AFEI in connection with
the Merger, including a fee upon the inclusion of their opinion in a proxy
statement mailed by AFEI in connection with a meeting of its shareholders to
vote on the Merger. In addition, AFEI has agreed to indemnify Oscar Gruss for
certain liabilities arising from the delivery of this opinion. In the ordinary
course of our business, we may trade the equity and debt securities of AFEI and
AFG for our own account, and the account of our customers, and accordingly, may
at any time hold a long or short position in such securities for the accounts of
our customers, the firm and/or the officers of the firm.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, from a financial point of view, the merger consideration is fair
to the holders of AFEI Common Stock, other than AFG and its affiliates.
Very truly yours,
Oscar Gruss & Son Incorporated
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ANNEX D
OHIO DISSENTERS' RIGHTS STATUTE
1701.85 QUALIFICATIONS OF AND PROCEDURES FOR DISSENTING SHAREHOLDERS
(A)(1) A shareholder of a domestic corporation is entitled to relief as a
dissenting shareholder in respect of the proposals described in sections
1701.74, 1701.76, and 1701.84 of the Revised Code, only in compliance with this
section.
(2) If the proposal must be submitted to the shareholders of the
corporation involved, the dissenting shareholder shall be a record holder of the
shares of the corporation as to which he seeks relief as of the date fixed for
the determination of shareholders entitled to notice of a meeting of the
shareholders at which the proposal is to be submitted, and such shares shall not
have been voted in favor of the proposal. Not later than ten days after the date
on which the vote on the proposal was taken at the meeting of the shareholders,
the dissenting shareholder shall deliver to the corporation a written demand for
payment to him of the fair cash value of the shares as to which he seeks relief,
which demand shall state his address, the number and class of such shares, and
the amount claimed by him as the fair cash value of the shares.
(3) The dissenting shareholder entitled to relief under division (C) of
section 1701.84 of the Revised Code in the case of a merger pursuant to section
1701.80 of the Revised Code and a dissenting shareholder entitled to relief
under division (E) of section 1701.84 of the Revised Code in the case of a
merger pursuant to section 1701.801 of the Revised Code shall be a record holder
of the shares of the corporation as to which he seeks relief as of the date on
which the agreement of merger was adopted by the directors of that corporation.
Within twenty days after he has been sent the notice provided in section 1701.80
or 1701.801 of the Revised Code, the dissenting shareholder shall deliver to the
corporation a written demand for payment with the same information as that
provided for in division (A)(2) of this section.
(4) In the case of a merger or consolidation, a demand served on the
constituent corporation involved constitutes service on the surviving or the new
entity, whether the demand is served before, on, or after the effective date of
the merger or consolidation.
(5) If the corporation sends to the dissenting shareholder, at the address
specified in his demand, a request for the certificates representing the shares
as to which he seeks relief, the dissenting shareholder, within fifteen days
from the date of the sending of such request, shall deliver to the corporation
the certificates requested so that the corporation may forthwith endorse on them
a legend to the effect that demand for the fair cash value of such shares has
been made. The corporation promptly shall return such endorsed certificates to
the dissenting shareholder. A dissenting shareholder's failure to deliver such
certificates terminates his rights as a dissenting shareholder, at the option of
the corporation, exercised by written notice sent to the dissenting shareholder
within twenty days after the lapse of the fifteen-day period, unless a court for
good cause shown otherwise directs. If shares represented by a certificate on
which such a legend has been endorsed are transferred, each new certificate
issued for them shall bear a similar legend, together with the name of the
original dissenting holder of such shares. Upon receiving a demand for payment
from a dissenting shareholder who is the record holder of uncertificated
securities, the corporation shall make an appropriate notation of the demand for
payment in its shareholders records. If uncertificated shares for which payment
has been demanded are to be transferred, any new certificate issued for the
shares shall bear the legend required for certificated securities as provided in
this paragraph. A transferee of the shares so endorsed, or of uncertificated
securities where such notation has been made, acquires only such rights in the
corporation as the original dissenting holder of such shares had immediately
after the service of a demand for payment of the fair cash value of the shares.
A request under this paragraph by the corporation is not an admission by the
corporation that the shareholder is entitled to relief under this section.
(B) Unless the corporation and the dissenting shareholder have come to an
agreement on the fair cash value per share of the shares as to which the
dissenting shareholder seeks relief, the dissenting shareholder or the
corporation, which in case of a merger or consolidation may be the surviving or
new entity, within three
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months after the service of the demand by the dissenting shareholder, may file a
complaint in the court of common pleas of the county in which the principal
office of the corporation that issued the shares is located or was located when
the proposal was adopted by the shareholders of the corporation, or, if the
proposal was not required to be submitted to the shareholders, was approved by
the directors. Other dissenting shareholders, within that three-month period,
may join as plaintiffs or may be joined as defendants in any such proceeding,
and any two or more such proceedings may be consolidated. The complaint shall
contain a brief statement of the facts, including the vote and the facts
entitling the dissenting shareholder to the relief demanded. No answer to such a
complaint is required. Upon the filing of such a complaint, the court, on motion
of the petitioner, shall enter an order fixing a date for a hearing on the
complaint and requiring that a copy of the complaint and a notice of the filing
and of the date for hearing be given to the respondent or defendant in the
manner in which summons is required to be served or substituted service is
required to be made in other cases. On the day fixed for the hearing on the
complaint or any adjournment of it, the court shall determine from the complaint
and from such evidence as is submitted by either party whether the dissenting
shareholder is entitled to be paid the fair cash value of any shares and, if so,
the number and class of such shares. If the court finds that the dissenting
shareholder is so entitled, the court may appoint one or more persons as
appraisers to receive evidence and to recommend a decision on the amount of the
fair cash value. The appraisers have such power and authority as is specified in
the order of their appointment. The court thereupon shall make a finding as to
the fair cash value of a share and shall render judgment against the corporation
for the payment of it, with interest at such rate and from such date as the
court considers equitable. The costs of the proceeding, including reasonable
compensation to the appraisers to be fixed by the court, shall be assessed or
apportioned as the court considers equitable. The proceeding is a special
proceeding and final orders in it may be vacated, modified, or reversed on
appeal pursuant to the Rules of Appellate Procedure and, to the extent not in
conflict with those rules, Chapter 2505, of the Revised Code. If, during the
pendency of any proceeding instituted under this section, a suit or proceeding
is or has been instituted to enjoin or otherwise to prevent the carrying out of
the action as to which the shareholder has dissented, the proceeding instituted
under this section shall be stayed until the final determination of the other
suit or proceeding. Unless any provision in division (D) of this section is
applicable, the fair cash value of the shares that is agreed upon by the parties
or fixed under this section shall be paid within thirty days after the date of
final determination of such value under this division, the effective date of the
amendment to the articles, or the consummation of the other action involved,
whichever occurs last. Upon the occurrence of the last such event, payment shall
be made immediately to a holder of uncertificated securities entitled to such
payment. In the case of holders of shares represented by certificates, payment
shall be made only upon and simultaneously with the surrender to the corporation
of the certificates representing the shares for which the payment is made.
(C) If the proposal was required to be submitted to the shareholders of the
corporation, fair cash value as to those shareholders shall be determined as of
the day prior to the day on which the vote by the shareholders was taken and, in
the case of a merger pursuant to section 1701.80 or 1701.801 of the Revised
Code, fair cash value as to shareholders of a constituent subsidiary corporation
shall be determined as of the day before the adoption of the agreement of merger
by the directors of the particular subsidiary corporation. The fair cash value
of a share for the purposes of this section is the amount that a willing seller
who is under no compulsion to sell would be wiling to accept and that a willing
buyer who is under no compulsion to purchase would be wiling to pay, but in no
event shall the fair cash value of a share exceed the amount specified in the
demand of the particular shareholder. In computing such fair cash value, any
appreciation or depreciation in market value resulting from the proposal
submitted to the directors or to the shareholders shall be excluded.
(D)(1) The right and obligation of a dissenting shareholder to receive such
fair cash value and to sell such shares as to which he seeks relief, and the
right and obligation of the corporation to purchase such shares and to pay the
fair cash value of them terminates if any of the following applies:
(a) The dissenting shareholder has not complied with this section,
unless the corporation by its directors waives such failure;
(b) The corporation abandons the action involved or is finally
enjoined or prevented from carrying it out, or the shareholders rescind
their adoption of the action involved;
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(c) The dissenting shareholder withdraws his demand, with the consent
of the corporation by its directors;
(d) The corporation and the dissenting shareholder have not come to an
agreement as to the fair cash value per share, and neither the shareholder
nor the corporation has filed or joined in a complaint under division (B)
of this section within the period provided in that division.
(2) For purposes of division (D)(1) of this section, if the merger or
consolidation has become effective and the surviving or new entity is not a
corporation, action required to be taken by the directors of the corporation
shall be taken by the general partners of a surviving or new partnership or the
comparable representatives of any other surviving or new entity.
(E) From the time of the dissenting shareholder's giving of the demand
until either the termination of the rights and obligations arising from it or
the purchase of the shares by the corporation, all other rights accruing from
such shares, including voting and dividend or distribution rights, are
suspended. If during the suspension, any dividend or distribution is paid in
money upon shares of such class or any dividend, distribution, or interest is
paid in money upon any securities issued in extinguishment of or in substitution
for such shares, an amount equal to the dividend, distribution, or interest
which, except for the suspension, would have been payable upon such shares or
securities, shall be paid to the holder of record as a credit upon the fair cash
value of the shares. If the right to receive fair cash value is terminated other
than by the purchase of the shares by the corporation, all rights of the holder
shall be restored an all distributions which, except for the suspension, would
have been made shall be made to the holder of record of the shares at the time
of termination.
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ANNEX E
CONNECTICUT DISSENTERS' RIGHTS STATUTE
SEC. 33-855. DEFINITIONS
As used in sections 33-855 to 33-872, inclusive:
(1) "Corporation" means the issuer of the shares held by a dissenter
before the corporate action or the surviving or acquiring corporation by
merger or share exchange of that issuer.
(2) "Dissenter means a shareholder who is entitled to dissent from
corporate action under section 33-856 and who exercises that right when and
in the manner required by sections 33-860 to 33-868, inclusive.
(3) "Fair value", with respect to a dissenter's shares, means the
value of the shares immediately before the effectuation of the corporate
action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action.
(4) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair
and equitable under all the circumstances.
(5) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of
shares to the extent of the rights granted by a nominee certificate on file
with a corporation.
(6) "Beneficial shareholder" means the person who is a beneficial
owner of shares held in a voting trust or by a nominee as the record
shareholder.
(7) "Shareholder" means the record shareholder or the beneficial
shareholder.
SEC. 33-856. RIGHT TO DISSENT
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation is a
party (A) if shareholder approval is required for the merger by section
33-817 or the certificate of incorporation and the shareholder is entitled
to vote on the merger or (B) if the corporation is a subsidiary that is
merged with its parent under section 33-818;
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
(3) Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation other than in the usual and regular
course of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed to
the shareholders within one year after the date of sale;
(4) An amendment of the certificate of incorporation that materially
and adversely affects rights in respect of a dissenter's shares because it:
(A) Alters or abolishes a preferential right of the shares; (B) creates,
alters or abolishes a right in respect of redemption, including a provision
respecting a sinking fund for the redemption or repurchase, of the shares;
(C) alters or abolishes a preemptive right of the holder of the shares to
acquire shares or other securities; (D) excludes or limits the right of the
shares to vote on any matter, or to cumulate votes, other than a limitation
by dilution through issuance of shares or other securities with similar
voting rights; or (E) reduces the number of shares owned by the shareholder
to a fraction of a share if the fractional share so created is to be
acquired for cash under section 33-668; or
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(5) Any corporate action taken pursuant to a shareholder vote to the
extent the certificate of incorporation, bylaws or a resolution of the
board of directors provides that voting or nonvoting shareholders are
entitled to dissent and obtain payment for their shares.
(b) Where the right to be paid the value of shares is made available to a
shareholder by this section, such remedy shall be his exclusive remedy as holder
of such shares against the corporate transactions described in this section,
whether or not he proceeds as provided in sections 33-855 to 33-872, inclusive.
SEC. 33-857. DISSENT BY NOMINEES AND BENEFICIAL OWNERS
(a) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if he dissents with respect to all shares
beneficially owned by any one person and notifies the corporation in writing of
the name and address of each person on whose behalf he asserts dissenters'
rights. The rights of a partial dissenter under this subsection are determined
as if the shares as to which he dissents and his other shares were registered in
the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares
held on his behalf only if: (1) He submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and (2) he does so with
respect to all shares of which he is the beneficial shareholder or over which he
has power to direct the vote.
SEC. 33-860. NOTICE OF DISSENTERS' RIGHTS
(a) If proposed corporate action creating dissenters' rights under section
33-856 is submitted to a vote at a shareholders' meeting, the meeting notice
shall state that shareholders are or may be entitled to assert dissenters'
rights under sections 33-855 to 33-872, inclusive, and be accompanied by a copy
of said sections.
(b) If corporate action creating dissenters' rights under section 33-856 is
taken without a vote of shareholders, the corporation shall notify in writing
all shareholders entitled to assert dissenters' rights that the action was taken
and send them the dissenters' notice described in section 33-862.
SEC. 33-861. NOTICE OF INTENT TO DEMAND PAYMENT
(a) If proposed corporate action creating dissenters' rights under section
33-856 is submitted to a vote at a shareholders' meeting, a shareholder who
wishes to assert dissenters' rights (1) shall deliver to the corporation before
the vote is taken written notice of his intent to demand payment for his shares
if the proposed action is effectuated and (2) shall not vote his shares in favor
of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
of this section is not entitled to payment for his shares under sections 33-855
to 33-872, inclusive.
SEC. 33-862. DISSENTERS' NOTICE
(a) If proposed corporate action creating dissenters' rights under section
33-856 is authorized at a shareholders' meeting, the corporation shall deliver a
written dissenters' notice to all shareholders who satisfied the requirements of
section 33-861.
(b) The dissenters' notice shall be sent no later than ten days after the
corporate action was taken and shall:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person
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asserting dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty nor more than sixty days
after the date the subsection (a) of this section notice is delivered; and
(5) Be accompanied by a copy of sections 33-855 to 33-872, inclusive.
SEC. 33-863. DUTY TO DEMAND PAYMENT
(a) A shareholder sent a dissenters' notice described in section 33-862
must demand payment, certify whether he acquired beneficial ownership of the
shares before the date required to be set forth in the dissenters' notice
pursuant to subdivision (3) of subsection (b) of said section and deposit his
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits his share certificates
under subsection (a) of this section retains all other rights of a shareholder
until these rights are cancelled or modified by the taking of the proposed
corporate action.
(c) A shareholder who does not demand payment or deposit his share
certificates where required, each by the date set in the dissenters' notice, is
not entitled to payment for his shares under sections 33-855 to 33-872,
inclusive.
SEC. 33-864. SHARE RESTRICTIONS
(a) The corporation may restrict the transfer of uncertificated shares from
the date the demand for their payment is received until the proposed corporate
action is taken or the restrictions released under section 33-866.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
SEC. 33-865. PAYMENT
(a) Except as provided in section 33-867, as soon as the proposed corporate
action is taken, or upon receipt of a payment demand, the corporation shall pay
each dissenter who complied with section 33-863 the amount the corporation
estimates to be the fair value of his shares, plus accrued interest.
(b) The payment shall be accompanied by: (1) The corporation's balance
sheet as of the end of a fiscal year ending not more than sixteen months before
the date of payment, an income statement for that year, a statement of changes
in shareholders' equity for that year and the latest available interim financial
statements, if any; (2) a statement of the corporation's estimate of the fair
value of the shares; (3) an explanation of how the interest was calculated; (4)
a statement of the dissenter's right to demand payment under section 33-860; and
(5) a copy of sections 33-855 to 33-872, inclusive.
SEC. 33-866. FAILURE TO TAKE ACTION
(a) If the corporation does not take the proposed action within sixty days
after the date set for demanding payment and depositing share certificates, the
corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 33-862 and repeat the payment demand procedure.
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SEC. 33-867. AFTER ACQUIRED SHARES
(a) A corporation may elect to withhold payment required by section 33-865
from a dissenter unless he was the beneficial owner of the shares before the
date set forth in the dissenters' notice as the date of the first announcement
to news media or to shareholders of the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a) of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
pay this amount to each dissenter who agrees to accept it in full satisfaction
of his demand. The corporation shall send with its offer a statement of its
estimate of the fair value of the shares, an explanation of how the interest was
calculated and a statement of the dissenter's right to demand payment under
section 33-868.
SEC. 33-868. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER
(a) A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and amount of interest due, and demand payment
of his estimate, less any payment under section 33-865, or reject the
corporation's offer under section 33-867 and demand payment of the fair value of
his shares and interest due, if:
(1) The dissenter believes that the amount paid under section 33-865
or offered under section 33-867 is less than the fair value of his shares
or that the interest due is incorrectly calculated;
(2) The corporation fails to make payment under section 33-865 within
sixty days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty days after the date set for
demanding payment.
(b) A dissenter waives his right to demand payment under this section
unless he notifies the corporation of his demand in writing under subsection (a)
of this section within thirty days after the corporation made or offered payment
for his shares.
SEC. 33-871. COURT ACTION
(a) If a demand for payment under section 33-868 remains unsettled, the
corporation shall commence a proceeding within sixty days after receiving the
payment demand and petition the court to determine the fair value of the shares
and accrued interest. If the corporation does not commence the proceeding within
the sixty-day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in the superior court for
the judicial district where a corporation's principal office or, if none in this
state, its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the superior court for the judicial district where the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
(c) The corporation shall make all dissenters, whether or not residents of
this state, whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) of this section is plenary and exclusive. The court may
appoint one or more persons as appraisers to receive evidence and recommend
decision on the question of fair value. The appraisers have the powers described
in the order appointing them, or in any amendment to it. The dissenters are
entitled to the same discovery rights as parties in other civil proceedings.
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(e) Each dissenter made a party to the proceeding is entitled to judgment
(1) for the amount, if any, by which the court finds the fair value of his
shares, plus interest, exceeds the amount paid by the corporation, or (2) for
the fair value, plus accrued interest, of his after-acquired shares for which
the corporation elected to withhold payment under section 33-867.
SEC. 33-872. COURT COSTS AND COUNSEL FEES
(a) The court in an appraisal proceeding commenced under section 33-871
shall determine all costs of the proceeding, including the reasonable
compensation and expenses of appraisers appointed by the court. The court shall
assess the costs against the corporation, except that the court may assess costs
against all or some of the dissenters, in amounts the court finds equitable, to
the extent the court finds the dissenters acted arbitrarily, vexatiously or not
in good faith in demanding payment under section 33-868.
(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable: (1) Against
the corporation and in favor of any or all dissenters if the court finds the
corporation did not substantially comply with the requirements of sections
33-860 to 33-868, inclusive; or (2) against either the corporation or a
dissenter, in favor of any other party, if the court finds that the party
against whom the fees and expenses are assessed acted arbitrarily, vexatiously
or not in good faith with respect to the rights provided by sections 33-855 to
33-872, inclusive.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
E-5
<PAGE> 96
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AMERICAN FINANCIAL GROUP
HOLDINGS, INC.
61,660,397 Shares
Common Stock
------------------------
PROXY STATEMENT/PROSPECTUS
------------------------
November 3, 1997
UNTIL NOVEMBER 28, 1997 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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