<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 26, 1997
REGISTRATION NO. 333-31427
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
AMERICAN FINANCIAL GROUP HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
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OHIO 6331 31-1544320
(State or other jurisdiction of (Primary Standard Industrial (IRS Employer Identification
incorporation or organization) Classification Code Number) Number)
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ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-2121
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
------------------------
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WITH COPIES TO: JAMES E. EVANS, ESQ. WITH COPIES TO:
SENIOR VICE PRESIDENT AND
GARY P. KREIDER, ESQ. GENERAL COUNSEL JOSEPH W. BARTLETT, ESQ.
KEATING, MUETHING & KLEKAMP AMERICAN FINANCIAL GROUP MORRISON & FOERSTER, LLP.
1800 PROVIDENT TOWER HOLDINGS, INC. 1290 AVENUE OF THE AMERICAS
ONE EAST FOURTH STREET ONE EAST FOURTH STREET NEW YORK, NEW YORK 10104-0050
CINCINNATI, OHIO 45202 CINCINNATI, OHIO 45202 (212) 468-8000
(513) 579-6400 (513) 579-2536
</TABLE>
(Name, address, including zip code, and
telephone number, including area code, of agent for service)
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are being offered in connection
with the formation of a holding company and there is compliance with General
Instruction G, check the following box. [ ]
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
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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 OCTOBER , 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 October , 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: September , 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.
Subject to completion, dated September 26, 1997
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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 OCTOBER , 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 October , 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 June 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: September , 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.
Subject to completion, dated September 26, 1997
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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 OCTOBER , 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
October , 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 September , 1997, the closing price for AFG Common Stock
on the New York Stock Exchange was $ per share. On September , 1997, the
closing price for AFEI Common Stock on the Pacific Exchange was $ per
share.
SEE "RISK FACTORS" BEGINNING ON PAGE 17 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 September ,
1997.
The date of this Joint Proxy Statement/Prospectus is September , 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.
<PAGE> 5
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;
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;
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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PAGE
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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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3
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The AFG Reorganization................................................................ 30
General............................................................................. 30
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....................................................................... 31
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....................................................................... 33
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................................. 36
Tax Treatment of the Merger Transactions............................................ 37
Tax Basis of AFG Holdings Common Stock.............................................. 37
Holding Period of AFG Holdings Common Stock......................................... 37
Backup Withholding on Cash Payments................................................. 37
Pro Forma Financial Information....................................................... 38
Description Of Capital Stocks......................................................... 43
AFG Holdings........................................................................ 43
AFG................................................................................. 43
AFEI................................................................................ 44
Comparative Rights.................................................................... 44
AFG Holdings and AFG Shareholders................................................... 44
AFG Holdings and AFEI Shareholders.................................................. 44
Legal Matters......................................................................... 47
Experts............................................................................... 47
Proxy Solicitation.................................................................... 47
Shareholder Proposals For 1998 Annual Meeting......................................... 47
Financial Statements Of AFG Holdings.................................................. 48
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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
- ---------------
(a) Assuming the consummation of the transactions described herein.
5
<PAGE> 9
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
<PAGE> 10
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 June 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 81.9% 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> 11
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> 12
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 34.
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> 13
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. Management
of AFEI believes that the lawsuit is without merit
and intends to defend it vigorously. See "Special
Factors -- Certain Litigation Affecting the AFEI
Merger."
THE SPECIAL MEETINGS
TIME, DATE AND PLACE....... The Special Meetings will be held on October
, 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................... September 12, 1997
SHARES ENTITLED TO VOTE.... AFG: 57,570,584 shares
AFEI: 13,727,521 shares
VOTE REQUIRED TO APPROVE
THE AFG REORGANIZATION..... The affirmative vote of a majority of the
outstanding shares of AFG Common Stock voting at
the AFG Special Meeting.
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 80.1% 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").
In the AFC Merger, each share of AFC Series F
Preferred Stock would be converted into the right
to receive $22.35 and each share of AFC Series G
Preferred Stock would be converted into the right
to receive $10.50 plus accrued dividends. The
aggregate merger consideration to be received by an
AFC preferred shareholder would be payable, at the
holder's election, either in shares of a new AFC
Series J Preferred Stock (subject to proration), in
cash, or a combination of the two. The maximum
number of shares of Series J Preferred Stock which
a holder may elect to receive will be equal to the
aggregate merger consideration
10
<PAGE> 14
to which the holder is entitled, divided by $22.35
(the liquidation value of the Series J Preferred
Stock).
If the AFC Merger is consummated, the liquidation
value of the AFC preferred stock outstanding will
be reduced from $259 million to approximately $70
million and the annual AFC preferred stock dividend
requirement will be reduced from $23.5 million to
approximately $6.0 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.
11
<PAGE> 15
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> 16
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 HISTORICAL ALL STOCK 50% CASH
---------- --------- --------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Total Revenues................. $ 1,933.4 $ 1,933.4 $ 1,933.4 $ 4,115.4 $ 4,115.4 $ 4,115.4
Earnings Before Income Taxes
and Extraordinary Items...... 197.0 199.1 197.3 353.3 364.7 361.1
Earnings Before Extraordinary
Items........................ 124.4 129.0 127.8 262.0 278.5 276.1
Earnings Before Extraordinary
Items Per Common Share....... $ 2.07 $ 2.05 $ 2.07 $ 4.31 $ 4.38 $ 4.44
BALANCE SHEET DATA:
Total Assets................... $ 15,358.1 $15,149.0 $15,097.8
Long-Term Debt................. 470.1 470.1 470.1
Minority Interest.............. 656.1 493.0 493.0
Total Shareholders' Equity..... $ 1,618.9 $ 1,572.9 $ 1,521.7
</TABLE>
13
<PAGE> 17
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
------ ------ --------- --------
<S> <C> <C> <C> <C>
PER COMMON SHARE (a):
Earnings Before Extraordinary Items.......... $ 2.07 $ 0.51 $ 2.05 $ 2.07
Book Value................................... 27.48 33.65(b) 25.50 25.24
Cash Dividends Declared...................... 0.50 0.20 0.50 0.50
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1996
----------------------------------------------------
HISTORICAL PRO FORMA
------------------- ------------------------
AFG AFEI ALL STOCK 50% CASH
------ ------ --------- --------
<S> <C> <C> <C> <C>
PER COMMON SHARE (a):
Earnings Before Extraordinary Items.......... $ 4.31 $ 4.26 $ 4.38 $ 4.44
Book Value................................... 25.45 31.91(b) 23.63 23.33
Cash Dividends Declared...................... 1.00 0.40 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> 18
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 (through September
8)............................ 491/4 42 3/16 .25 48 39 1/2 .10
</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 September
8, 1997, the closing price per share of AFG Common Stock was $45 3/4, and the
closing price of AFEI Common Stock was $48.
15
<PAGE> 19
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 October , 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 September 12,
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 57,570,584 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> 20
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.
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 September 12,
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 13,727,521 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 80.1% 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> 21
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.
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 also discussed
the business prospects for AFG and AFEI, including a recent research report by
an independent investment banking firm that indicated a potential trading range
for AFG in the future of $40 to $45, which would enhance the attractiveness of
the merger proposal. It was 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 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
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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), 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
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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 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.
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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").
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
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<PAGE> 30
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, dated July 9, 1997, 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 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
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<PAGE> 31
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
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.
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<PAGE> 32
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.
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 1, 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) 80.1%
One East Fourth Street
Cincinnati, Ohio 45202
Regina Gruss............................................ 986,472(b) 7.2%
33 Riverside Drive
New York, New York 10023
</TABLE>
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<PAGE> 33
- ---------------
(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 1, 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 names AFG, AFEI and six of AFEI's directors as defendants, alleges that
the price offered in the proposal for AFEI's Common Stock is inadequate, and
seeks to temporarily or permanently enjoin any transaction, or, alternatively,
seeks rescission or compensatory damages. The class action complaint alleges
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
have 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.
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
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<PAGE> 34
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
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 voting at the AFG Special Meeting is required to approve the AFG
Reorganization.
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<PAGE> 35
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 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.
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<PAGE> 36
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.
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
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<PAGE> 37
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 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.
34
<PAGE> 38
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 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
35
<PAGE> 39
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.
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.
36
<PAGE> 40
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.
THE DISCUSSION HEREIN OF TAX CONSEQUENCES TO EXCHANGING SHAREHOLDERS RELIES UPON
THE OPERATION OF SECTION 351 OF THE CODE. RECENTLY ENACTED LEGISLATION COULD BE
CONSTRUED TO PRECLUDE THE APPLICATION OF SECTION 351 TO THESE TRANSACTIONS. THE
LEGISLATION GENERALLY IS EFFECTIVE FOR TRANSFERS AFTER JUNE 8, 1997. HOWEVER,
BASED UPON REPRESENTATIONS MADE BY AFG AND AFEI TO THE EFFECT THAT AFG HOLDINGS
WILL NOT BE AN INVESTMENT COMPANY UNDER SECTION 351(E) AS REVISED BY THE
RECENTLY ENACTED LEGISLATION AND AS SUCH LEGISLATION HAS BEEN INTERPRETED IN THE
LEGISLATIVE HISTORY THERETO, TAX COUNSEL DOES NOT BELIEVE SUCH LEGISLATION WILL
ADVERSELY AFFECT THE INSTANT TRANSACTIONS. IT IS ANTICIPATED THAT THIS
LEGISLATION WILL BE CLARIFIED SO THAT IT DOES NOT ADVERSELY AFFECT THE INSTANT
TRANSACTIONS, BUT IT IS NOT CERTAIN AT THIS TIME THAT SUCH CLARIFICATION WILL BE
IMPLEMENTED.
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.
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.
37
<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% of such shares 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 $216.2 million in cash and $70.4 million in a new issue
of AFC Series J Preferred Stock.
The fair value of the consideration to be issued by AFC for its Series F
Preferred Stock exceeds the stated value by $123.8 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.
38
<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 PRO FORMA
--------------------- ---------------------- ADJUSTMENTS
HISTORICAL ALL STOCK 50% CASH ALL STOCK 50% CASH AFC MERGER
---------- --------- -------- --------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and investments.................... $ 11,993.8 $ 7.1(a) $(44.1)(d) $12,000.9 $11,949.7 $ (216.2)(f)
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 --
--------- ------ ------ --------- --------- -------
$ 15,358.1 $ 7.1 $(44.1) $15,365.2 $15,314.0 $ (216.2)
========= ====== ====== ========= ========= =======
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....................... 656.1 (70.7)(b) (70.7)(b) 585.4 585.4 (92.4)(g)
Common Stock and capital surplus........ 779.8 77.8(c) 26.6(e) 857.6 806.4 --
Retained earnings....................... 600.5 -- -- 600.5 600.5 (123.8)(f)
Net unrealized gains on marketable
securities, net of deferred income
taxes................................. 238.6 -- -- 238.6 238.6 --
--------- ------ ------ --------- --------- -------
Total shareholders' equity.......... 1,618.9 77.8 26.6 1,696.7 1,645.5 (123.8)
--------- ------ ------ --------- --------- -------
$ 15,358.1 $ 7.1 $(44.1) $15,365.2 $15,314.0 $ (216.2)
========= ====== ====== ========= ========= =======
Number of Shares Outstanding.............. 58.9 2.8 1.4 61.7 60.3 --
========= ====== ====== ========= ========= =======
Book Value per Share...................... $ 27.48 $ 27.51 $ 27.29
========= ========= =========
<CAPTION>
PRO FORMA
----------------------
ALL STOCK 50% CASH
--------- ---------
<S> <C> <C> <C>
ASSETS
Cash and investments.................... $11,784.7 $11,733.5
Recoverables from reinsurers and prepaid
reinsurance premiums.................. 951.5 951.5
Agents balances and premiums
receivable............................ 676.7 676.7
Other assets............................ 1,736.1 1,736.1
--------- ---------
$15,149.0 $15,097.8
========= =========
LIABILITIES AND CAPITAL
Unpaid losses and loss adjustment
expenses.............................. $ 4,086.0 $ 4,086.0
Unearned premiums....................... 1,336.8 1,336.8
Annuity benefits accumulated............ 5,469.5 5,469.5
Life, accident and health benefit
reserves.............................. 589.5 589.5
Long-term debt.......................... 470.1 470.1
Other liabilities....................... 1,131.2 1,131.2
--------- ---------
Total liabilities................... 13,083.1 13,083.1
Minority interest....................... 493.0 493.0
Common Stock and capital surplus........ 857.6 806.4
Retained earnings....................... 476.7 476.7
Net unrealized gains on marketable
securities, net of deferred income
taxes................................. 238.6 238.6
--------- ---------
Total shareholders' equity.......... 1,572.9 1,521.7
--------- ---------
$15,149.0 $15,097.8
========= =========
Number of Shares Outstanding.............. 61.7 60.3
========= =========
Book Value per Share...................... $ 25.50 $ 25.24
========= =========
</TABLE>
39
<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 PRO FORMA
----------------------- -------------------- ADJUSTMENTS
HISTORICAL ALL STOCK 50% CASH ALL STOCK 50% CASH AFC MERGER
---------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Insurance premiums...................... $1,414.8 $ -- $ -- $1,414.8 $1,414.8 $ --
Investment income....................... 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...... 27.6 (0.3)(h) 1.5(h) 27.3 29.1 7.6(h)
Minority interest....................... 30.1 (0.6)(i) (0.6)(i) 29.5 29.5 (8.8)(k)
Other operating and general expenses.... 147.2 -- -- 147.2 147.2 --
-------- ----- ----- -------- -------- -----
1,736.4 (0.9) 0.9 1,735.5 1,737.3 (1.2)
Earnings before income taxes and
extraordinary items..................... 197.0 0.9 (0.9) 197.9 196.1 1.2
Provision for income taxes................ 72.6 0.1(j) (0.5)(j) 72.7 72.1 (2.6)(j)
-------- ----- ----- -------- -------- -----
EARNINGS BEFORE EXTRAORDINARY ITEMS....... $ 124.4 $ 0.8 $ (0.4) $ 125.2 $ 124.0 $ 3.8
======== ===== ===== ======== ======== =====
EARNINGS BEFORE EXTRAORDINARY ITEMS PER
COMMON SHARE............................ $ 2.07 $ 1.99 $ 2.01
======== ======== ========
Average number of Common Shares........... 60.2 2.8 1.4 63.0 61.6 --
<CAPTION>
PRO FORMA
-----------------------
ALL STOCK 50% CASH
--------- --------
<S> <C> <C> <C>
INCOME
Insurance premiums...................... $1,414.8 $1,414.8
Investment income....................... 427.5 427.5
Other income............................ 91.1 91.1
-------- --------
1,933.4 1,933.4
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses... 964.5 964.5
Commissions and other underwriting
expenses............................ 377.6 377.6
Annuity, life, accident and health
benefits.............................. 189.4 189.4
Interest charges on borrowed money...... 34.9 36.7
Minority interest....................... 20.7 20.7
Other operating and general expenses.... 147.2 147.2
-------- --------
1,734.3 1,736.1
Earnings before income taxes and
extraordinary items..................... 199.1 197.3
Provision for income taxes................ 70.1 69.5
-------- --------
EARNINGS BEFORE EXTRAORDINARY ITEMS....... $ 129.0 $ 127.8
======== ========
EARNINGS BEFORE EXTRAORDINARY ITEMS PER
COMMON SHARE............................ $ 2.05 (l) $ 2.07 (l)
======== ========
Average number of Common Shares........... 63.0 61.6
</TABLE>
40
<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 PRO FORMA
----------------------- -------------------- ADJUSTMENTS
HISTORICAL ALL STOCK 50% CASH ALL STOCK 50% CASH AFC MERGER
---------- --------- -------- --------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
INCOME
Insurance premiums...................... $2,948.1 $ -- $ -- $2,948.1 $2,948.1 $ --
Investment income....................... 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...... 76.1 (0.7)(h) 2.9(h) 75.4 79.0 15.1(h)
Minority interest....................... 47.8 (8.3)(i) (8.3)(i) 39.5 39.5 (17.5)(k)
Other operating and general expenses.... 348.9 -- -- 348.9 348.9 --
-------- ----- ----- -------- -------- ------
3,762.1 (9.0) (5.4) 3,753.1 3,756.7 (2.4)
Earnings before income taxes and
extraordinary items..................... 353.3 9.0 5.4 362.3 358.7 2.4
Provision for income taxes................ 91.3 0.2(j) (1.0)(j) 91.5 90.3 (5.3)(j)
-------- ----- ----- -------- -------- ------
EARNINGS BEFORE EXTRAORDINARY ITEMS....... $ 262.0 $ 8.8 $ 6.4 $ 270.8 $ 268.4 $ 7.7
======== ===== ===== ======== ======== ======
EARNINGS BEFORE EXTRAORDINARY ITEMS PER
COMMON SHARE............................ $ 4.31 $ 4.26 $ 4.32
========
Average number of Common Shares........... 60.8 2.8 1.4 63.6 62.2 --
<CAPTION>
PRO FORMA
-----------------------
ALL STOCK 50% CASH
--------- --------
<S> <C> <C> <C>
INCOME
Insurance premiums...................... $2,948.1 $2,948.1
Investment income....................... 846.4 846.4
Other income............................ 320.9 320.9
-------- --------
4,115.4 4,115.4
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses... 2,131.4 2,131.4
Commissions and other underwriting
expenses............................ 793.8 793.8
Annuity, life, accident and health
benefits.............................. 364.1 364.1
Interest charges on borrowed money...... 90.5 94.1
Minority interest....................... 22.0 22.0
Other operating and general expenses.... 348.9 348.9
-------- --------
3,750.7 3,754.3
Earnings before income taxes and
extraordinary items..................... 364.7 361.1
Provision for income taxes................ 86.2 85.0
-------- --------
EARNINGS BEFORE EXTRAORDINARY ITEMS....... $ 278.5 $ 276.1
======== ========
EARNINGS BEFORE EXTRAORDINARY ITEMS PER
COMMON SHARE............................ $ 4.38 (l) $ 4.44 (l)
======== ========
Average number of Common Shares........... 63.6 62.2
</TABLE>
41
<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 $51.2 million ($37.00 per share) in cash is paid
for 50% 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 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 $22.35 per share... $266.0
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................... 216.2
AFC Series J assumed issued in exchange for AFC Preferred Stock......... 70.4
------
286.6
Stated value of AFC Series F and G Preferred Stock...................... 162.8
------
Charge to retained earnings............................................. $123.8
======
</TABLE>
(g) 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).
(h) Assumes funds used to retire AFEI Common Stock and AFC Preferred Stock, net
of cash received from the exercise of AFEI stock options, had been borrowed
at a rate of 7%.
(i) Represents elimination of AFG's minority interest in AFEI's historical
earnings.
(j) Represents the statutory federal tax rate of 35% applied to the adjustments
to pretax earnings excluding minority interest.
(k) 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.
(l) Pro forma earnings per share exclude a deduction to earnings available to
Common Shares of $123.8 million to be recognized as a result of the proposed
Merger. Per share amount for this charge are as follows:
<TABLE>
<CAPTION>
PRO FORMA
----------------------
ALL STOCK 50% CASH
--------- ---------
<S> <C> <C>
Six months ended June 30, 1997............................... $1.97 $2.01
Year ended December 31, 1996................................. 1.95 1.99
</TABLE>
42
<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 June 30, 1997, there were 58,914,305 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 1,369,996 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
43
<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 13,410,036 shares were issued and outstanding at June 30, 1997. At that
date, options for 337,500 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.
44
<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
45
<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.
46
<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.
PROXY SOLICITATION
Solicitation of proxies is being made by management at the direction of
AFG's Board of Directors, without additional compensation, through the mail, in
person or by telegraph or telephone. The cost will be borne by AFG. In addition,
AFG will request brokers and other custodians, nominees and fiduciaries to
forward proxy soliciting material to the beneficial owners of shares held of
record by such persons, and AFG will reimburse them for their expenses in so
doing. 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.
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.
47
<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
48
<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."
49
<PAGE> 53
================================================================================
AMERICAN FINANCIAL GROUP
HOLDINGS, INC.
61,660,397 Shares
Common Stock
------------------------
PROXY STATEMENT/PROSPECTUS
------------------------
, 1997
UNTIL , 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.
================================================================================
<PAGE> 54
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ohio Revised Code, Section 1701.13(E), allows indemnification by the
Registrant 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 Registrant, by
reason of the fact that he is or was a director, officer, employee or agent of
the Registrant, against expenses, including judgment 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 Registrant 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 Registrant, 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 Registrant unless
deemed otherwise by the court. Indemnification is to be made by a majority vote
of a quorum of disinterested directors or the written opinion of independent
counsel or by the shareholders or by the court. The Registrant's Code of
Regulations extends such indemnification.
AFG maintains, at its expense, Directors and Officers Liability and Company
Reimbursement Liability Insurance. The Directors and Officers Liability portion
of such policy covers all directors and officers of AFG and of the companies
which are, directly or indirectly, more than 50% owned by AFG. The policy
provides for payment on behalf of the directors and officers, up to the policy
limits and after expenditure of a specified deductible, of all Loss (as defined)
from claims made against them during the policy period for defined wrongful
acts, which include errors, misstatements or misleading statements, acts or
omissions and neglect or breach of duty by directors and officers in the
discharge of their individual or collective duties as such. The insurance
includes the cost of investigations and defenses, appeals and bonds, settlements
and judgments, but not fines or penalties imposed by law. The insurance does not
cover any claim arising out of acts alleged to have been committed prior to
October 24, 1978. The insurer limit of liability under the policy is $50,000,000
in the aggregate for all losses each year subject to certain individual and
aggregate deductibles. The policy contains various exclusions and reporting
requirements.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- ------------------------------------------------------------
<C> <S>
2.1*** Agreement and Plan of Reorganization (AFG) (attached as
Annex A to the Joint Proxy Statement/Prospectus)
2.2*** Agreement and Plan of Merger (AFEI) (attached as Annex B to
the Joint Proxy Statement/Prospectus)
3.1*** Articles of Incorporation of American Financial Group
Holdings, Inc.
3.2*** Code of Regulations of American Financial Group Holdings,
Inc.
3.3* Articles of Incorporation of American Financial Group, Inc.,
as incorporated by reference to Exhibit 3(a) to AFG's Annual
Report on Form 10-K for the year ended December 31, 1995
3.4* Code of Regulations of American Financial Group, Inc. as
incorporated by reference to Exhibit 3(b) to AFG's Annual
Report on Form 10-K for the year ended December 31, 1995
3.5* Certificate of Incorporation of American Financial
Enterprises, Inc. as incorporated by reference to Exhibit
3(a) to AFEI's Annual Report on Form 10-K for the year ended
December 31, 1993
3.6* Bylaws of American Financial Enterprises, Inc. as
incorporated by reference to Exhibit 3(b) to AFEI's Annual
Report on Form 10-K for the year ended December 31, 1993
</TABLE>
II-1
<PAGE> 55
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- ------------------------------------------------------------
<C> <S>
3.7*** Amended and Restated Articles of Incorporation of American
Financial Group Holdings, Inc.
5*** Opinion of James C. Kennedy, Esq.
8** Opinion on tax matters of Akin, Gump, Strauss, Hauer & Feld,
LLP
23.1 Consent of Ernst & Young, LLP, Independent Auditors
23.2*** Consent of James C. Kennedy, Esq. (Contained on Exhibit 5)
23.3*** Consent of Kaye, Scholer, Fierman, Hays & Handler, LLP
23.4** Consent of Akin, Gump, Strauss, Hauer & Feld, LLP (contained
on Exhibit 8)
24*** Power of Attorney (contained on the signature page)
99.1*** Opinion of Oscar Gruss & Son, Incorporated (attached as
Annex C to the Joint Proxy Statement/Prospectus)
99.2 Form of AFG Proxy
99.3 Form of AFEI Proxy
99.4*** AFEI Letter of Transmittal
</TABLE>
* Incorporated by reference as indicated.
** To be filed by amendment.
*** Previously filed.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act, (ii) to
reflect in the prospectus any facts or events arising after the effective
date of the Registration Statement (or the most recent post-effective
amendment thereof) which, individually or in the aggregate, represent a
fundamental change in the information set forth in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" table in the effective
registration statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
2. That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
3. To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold in the
termination of the offering.
4. To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes
II-2
<PAGE> 56
information contained in documents filed subsequent to the effective date
of the Registration Statement through the date of responding to the
request.
5. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the Registration Statement when
it became effective.
6. Prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within
the meaning of Rule 145(c), the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items
of the applicable form.
7. That every prospectus (i) that is filed pursuant to paragraph 6
immediately preceding, or (ii) that purports to meet the requirements of
Section 10(a)(3) of the Act and is used in connection with an offering of
securities subject to Rule 415, will be filed as a part of an amendment to
the registration statement and will not be used until such amendment is
effective, and that, for purposes of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
8. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of AFG pursuant to the provisions described under Item
20 above, or otherwise (other than insurance), AFG has been advised that in
the opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by AFG of expenses incurred or paid by
a director, officer or controlling person of AFG in the successful defense
of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the Securities being registered, AFG
will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it, other than indemnification
pursuant to court order and not including any coverage under, or agreement
to pay premiums for, any policy of insurance, is against public policy as
expressed in the Act and will be governed by the final adjudication of such
issue.
II-3
<PAGE> 57
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Cincinnati,
State of Ohio, on the 25th day of September, 1997.
AMERICAN FINANCIAL GROUP HOLDINGS, INC.
BY: CARL H. LINDNER
---------------------------------------
Carl H. Lindner
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the dates indicated. Persons whose names are marked with an
asterisk (*) below hereby designate James C. Kennedy and Karl J. Grafe, or
either of them, as their attorney-in-fact to sign all amendments, including
post-effective amendments, to this Registration Statement.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ----------------------------------- -------------------------------------- -------------------
<S> <C> <C>
* Chairman of the Board and Chief September 25, 1997
- ----------------------------------- Executive Officer (Principal Executive
Carl H. Lindner Officer)
* Co-President and Director September 25, 1997
- -----------------------------------
Carl H. Lindner III *
* Co-President and Director September 25, 1997
- -----------------------------------
Keith E. Lindner
* Co-President and Director September 25, 1997
- -----------------------------------
S. Craig Lindner
* Director September 25, 1997
- -----------------------------------
Theodore H. Emmerich
* Director September 25, 1997
- -----------------------------------
James E. Evans
* Director September 25, 1997
- -----------------------------------
Thomas M. Hunt
* Director September 25, 1997
- -----------------------------------
William R. Martin
FRED J. RUNK Senior Vice President and Treasurer September 25, 1997
- ----------------------------------- (Principal Financial and Accounting
Fred J. Runk Officer)
* By: KARL J. GRAFE
----------------------------
Karl J. Grafe
Attorney-in-fact
</TABLE>
II-4
<PAGE> 1
Exhibit 23.1
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-4 No. 333-31427) and Prospectus
relating to the registration of 61,660,397 shares of common stock of American
Financial Group Holdings, Inc. and to the incorporation by reference therein of
our reports dated March 25, 1997, with respect to the consolidated financial
statements and schedules of American Financial Group, Inc. and the financial
statements and schedules of American Financial Enterprises, Inc. included in
their Annual Reports (Forms 10-K, as amended) for the year ended December 31,
1996, filed with the Securities and Exchange Commission and to the use of our
report dated July 15, 1997, with respect to the financial statements of American
Financial Group Holdings, Inc. included in the Registration Statement and
related Prospectus referred to above.
Cincinnati, Ohio ERNST & YOUNG LLP
September 26, 1997
<PAGE> 1
Exhibit 99.2
- --------------------------------------------------------------------------------
AMERICAN FINANCIAL GROUP, INC.
COMMON STOCK
Proxy Solicited on Behalf of Directors for Special Meeting on October , 1997
- --------------------------------------------------------------------------------
Registration Name and Address
- --------------------------------------------------------------------------------
The undersigned hereby appoints James C. Kennedy and Karl J. Grafe, and
either of them, proxies, with the power of substitution to each, to vote
all shares of Common Stock of American Financial Group, Inc. (the
"Company") that the undersigned may be entitled to vote at a Special
Meeting of Shareholders of the Company to be held on October , 1997, at
10:00 a.m., at The Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio,
on the matter set forth below and on such other matters as may properly
come before the meeting or any adjournment thereof.
THE PROXY HOLDERS WILL VOTE THE SHARES REPRESENTED BY THIS PROXY IN THE
MANNER INDICATED BELOW. UNLESS A CONTRARY DIRECTION IS INDICATED, THE PROXY
HOLDERS WILL VOTE SUCH SHARES "FOR" THE PROPOSALS SET FORTH BELOW. IF ANY
FURTHER MATTERS PROPERLY COME BEFORE THE MEETING, SUCH SHARES SHALL BE
VOTED ON SUCH MATTERS IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXY
HOLDERS NAMED ABOVE.
The Board of Directors recommends a vote FOR the following Proposals.
1. To adopt an Agreement and Plan of Merger, pursuant to which AFEI will
merge with a subsidiary of American Financial Group Holdings, Inc.
("AFG Holdings"), with each share of AFEI common stock, not then
beneficially owned by American Financial Group, Inc., would be
exchanged, at the option of each AFEI shareholder, for either one new
share of AFG Holdings common stock or $37.00 in cash.
[ ] FOR THE REORGANIZATION [ ] AGAINST THE MERGER [ ] ABSTAIN
2. To grant authority to Management to adjourn the Special Meeting
from time to time to solicit additional votes on Proposal No. 1.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
Date: _________________ 1997 Signature___________________________
Signature___________________________
(if held jointly) Important: Please sign
as name appears hereon indicating, where
proper, official position or
representative capacity. Executors,
administrators, trustees, guardians,
attorneys and corporate officers should
give their full titles as such. In case
of joint holders, all should sign.
- --------------------------------------------------------------------------------
To vote your shares, please mark, sign, date and return this proxy form using
the enclosed envelope.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
------------------------------------------------------------
<PAGE> 1
Exhibit 99.3
- --------------------------------------------------------------------------------
AMERICAN FINANCIAL ENTERPRISES, INC.
COMMON STOCK
Proxy Solicited on Behalf of Directors for Special Meeting on October , 1997
- --------------------------------------------------------------------------------
Registration Name and Address
- --------------------------------------------------------------------------------
The undersigned hereby appoints James C. Kennedy and Karl J. Grafe, and
either of them, proxies, with the power of substitution to each, to vote
all shares of Common Stock of American Financial Enterprises, Inc. ("AFEI")
that the undersigned may be entitled to vote at the Annual Meeting of
Shareholders of AFEI to be held on October , 1997, at 10:15 a.m., local
time, at the Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio, on the
matters set forth below and on such other matters as may properly come
before the meeting or any adjournment thereof.
THE PROXY HOLDERS WILL VOTE THE SHARES REPRESENTED BY THIS PROXY IN THE
MANNER INDICATED BELOW. UNLESS A CONTRARY DIRECTION IS INDICATED, THE PROXY
HOLDERS WILL VOTE SUCH SHARES "FOR" THE PROPOSALS SET FORTH BELOW. IF ANY
FURTHER MATTERS PROPERLY COME BEFORE THE MEETING, SUCH SHARES SHALL BE
VOTED ON SUCH MATTERS IN ACCORDANCE WITH THE BEST JUDGMENT OF THE PROXY
HOLDERS NAMED ABOVE.
The Board of Directors recommends a vote FOR the following Proposals.
1. To adopt an Agreement and Plan of Merger, pursuant to which AFEI will
merge with a subsidiary of American Financial Group Holdings, Inc.
("AFG Holdings"), with each share of AFEI common stock, not then
beneficially owned by American Financial Group, Inc., would be
exchanged, at the option of each AFEI shareholder, for either one new
share of AFG Holdings common stock or $37.00 in cash.
[ ] FOR THE REORGANIZATION [ ] AGAINST THE MERGER [ ] ABSTAIN
2. To grant authority to Management to adjourn the Special Meeting from
time to time to solicit additional votes on Proposal No. 1.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
Date: _________________ 1997 Signature___________________________
Signature___________________________
(if held jointly) Important: Please sign
as name appears hereon indicating, where
proper, official position or
representative capacity. In case of
joint holders, all should sign.
- --------------------------------------------------------------------------------
To vote your shares, please mark, sign, date and return this proxy form usin
the enclosed envelope.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
------------------------------------------------------------
