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Filed Pursuant to Rule 424(b)(3)
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PROSPECTUS SUPPLEMENT
APRIL 12, 1999
(TO PROSPECTUS -- DECEMBER 10, 1997)
AMERICAN FINANCIAL GROUP, INC.
$350,000,000
7 1/8% SENIOR DEBENTURES DUE 2009
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THE COMPANY
American Financial Group, Inc.
One East Fourth Street
Cincinnati, Ohio 45202
(513) 579-2121
THE SENIOR DEBENTURES AND THE OFFERING
- - Maturity: April 15, 2009
- - Interest Rate: 7(1)/(8)%
- - Interest payments: semi-annually on April 15, and October 15, commencing on
October 15, 1999
- - Closing: April 14, 1999
<TABLE>
<CAPTION>
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Per Debenture Total
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<S> <C> <C>
Public offering price:........................ 99.282% $347,487,000
Underwriting fees:............................ 0.65 2,275,000
Net proceeds to Company:...................... 98.632 345,212,000
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</TABLE>
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved any of the securities offered by this
prospectus supplement or the attached prospectus or determined if this
prospectus supplement or the attached prospectus is accurate or complete. Any
representation to the contrary is a criminal offense.
We expect that the Senior Debentures will be ready for delivery in book-entry
form through The Depository Trust Company, on or about April 14, 1999.
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DONALDSON, LUFKIN & JENRETTE
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
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TABLE OF CONTENTS
<TABLE>
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PAGE
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PROSPECTUS SUPPLEMENT
THE COMPANY.................................. S-1
THE OFFERING................................. S-1
USE OF PROCEEDS.............................. S-1
RECENT DEVELOPMENTS.......................... S-2
SUMMARY HISTORICAL FINANCIAL INFORMATION..... S-3
CAPITALIZATION............................... S-4
DESCRIPTION OF SENIOR DEBENTURES............. S-5
UNDERWRITING................................. S-7
NOTICE TO CANADIAN RESIDENTS................. S-8
</TABLE>
<TABLE>
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PAGE
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<S> <C>
PROSPECTUS
AVAILABLE INFORMATION........................ 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.................................. 3
THE COMPANY.................................. 4
THE TRUST.................................... 4
USE OF PROCEEDS.............................. 5
RATIO OF EARNINGS TO FIXED CHARGES........... 5
DESCRIPTION OF DEBT SECURITIES............... 6
DESCRIPTION OF COMMON STOCK.................. 14
DESCRIPTION OF PREFERRED SECURITIES OF THE
TRUST...................................... 14
DESCRIPTION OF TRUST GUARANTEE............... 15
PLAN OF DISTRIBUTION......................... 18
LEGAL MATTERS................................ 19
EXPERTS...................................... 19
</TABLE>
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE REFER YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY BE USED ONLY WHERE IT IS LEGAL
TO SELL THESE SECURITIES. YOU SHOULD NOT ASSUME THAT THE INFORMATION IN THIS
DOCUMENT IS ACCURATE AS OF ANY DATE OTHER THAN THE DATE ON THE FRONT COVER.
i
<PAGE> 3
THE COMPANY
American Financial Group, Inc. is engaged primarily in private passenger
automobile and specialty property and casualty insurance businesses and in the
sale of tax-deferred annuities and certain life and health insurance products.
At December 31, 1998, AFG had total assets of $15.8 billion and shareholders'
equity of $1.7 billion.
AFG's property and casualty operations originated in the 1800's and is one
of the 25 largest property and casualty groups in the United States based on
statutory net premiums written. We have achieved outstanding results that
consistently outperform insurance industry averages by focusing on highly
specialized niche products and markets, supplemented with personal automobile
products.
Our annuity, life and health operations are headed by American Annuity
Group, Inc., an 83%-owned subsidiary with over $7 billion in assets. AAG
specializes in the sale of retirement products, including traditional fixed,
equity-indexed and variable annuities. In 1998, AAG's retirement annuity
premiums were in excess of $500 million; its life and health premiums exceeded
$100 million.
THE OFFERING
Securities Offered.............. $350 million aggregate principal amount of
7 1/8% Senior Debentures due 2009.
Maturity........................ April 15, 2009.
Interest Payment Dates.......... April 15 and October 15
Ranking......................... The Senior Debentures rank equally in terms
of payment priority with our other unsecured
obligations. The amount of these obligations
at December 31, 1998 was $100 million,
consisting solely of senior debentures of a
separate series issued in a public offering
in December 1997. Holders of the indebtedness
of subsidiaries have a claim to the assets of
those subsidiaries before holders of the
Senior Debentures. Subsidiary indebtedness
amounted to approximately $490 million at
December 31, 1998.
Optional Redemption............. We may redeem all or part of the Senior
Debentures, at any time, at a redemption
price equal to the sum of (i) the principal
amount of Senior Debentures being redeemed
plus interest to the redemption date, and
(ii) the Make-Whole Amount, if any. The Make-
Whole Amount is essentially a redemption
premium, compensating a holder if we redeem
the Senior Debentures prior to maturity, and
is more fully described under "Description of
Senior Debentures -- Optional Redemption."
USE OF PROCEEDS
We intend to use the net proceeds from this offering to redeem (in May)
approximately $79 million of outstanding 9 3/4% debentures due 2004 and to
retire (at maturity) the $89 million of outstanding 9 3/4% subordinated notes
due August 1, 1999, and the $41 million of outstanding 10 5/8% subordinated
notes due April 15, 2000, all of which are issued by subsidiaries. The remainder
of the proceeds will be used to reduce a subsidiary's revolving bank line of
credit which bears interest at floating rates based on prime or Eurodollar
rates. In the interim, funds available from the proceeds will be invested in
short-term instruments.
S-1
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RECENT DEVELOPMENTS
STRATEGIC ACQUISITION
On April 8, 1999, we acquired Worldwide Insurance Company (formerly,
Providian Auto and Home Insurance Company) from AEGON Insurance Group for
approximately $160 million in cash. The purchase price was increased from $115
million after AEGON agreed that Worldwide would not pay a $45 million dividend
prior to the closing. Worldwide is a provider of direct response private
passenger automobile insurance and is licensed in 45 states. Worldwide generated
premiums of approximately $121 million in 1998, has assets of approximately $325
million and employs approximately 375 people. The acquisition provides us with a
significant entry into a new distribution channel for our private passenger auto
insurance business as well as other insurance products.
MOODY'S DEBT RATING
On April 6, 1999, Moody's Investors Service, Inc. upgraded its debt ratings
of AFG and our subsidiaries, American Financial Corporation, American Premier
Underwriters, Inc. and American Annuity Group, Inc. Our group's senior debt
securities, including the Senior Debentures, received an improved rating of Baa2
(from Baa3). The subordinated debt of American Premier Underwriters received an
investment grade rating of Baa3 (from Ba1).
S-2
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SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial information of AFG shown 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 by
reference.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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1998 1997 1996 1995 1994
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<S> <C> <C> <C> <C> <C>
EARNINGS STATEMENT DATA:
Total Revenues $ 4,050.0 $ 4,020.7 $ 4,115.4 $ 3,629.6 $ 2,104.3
Earnings Before Income Taxes and
Extraordinary Items 204.8 319.6 353.3 246.9 43.6
Earnings Before Extraordinary Items 125.2 199.5 262.0 190.4 18.9
Extraordinary Items (.8) (7.2) (28.7) .8 (16.8)
Net Earnings 124.4 192.3 233.3 191.2 2.1
BASIC EARNINGS (LOSS) PER COMMON SHARE (A):
Earnings (Loss) before Extraordinary Items
and Premium on Redemption of Preferred
Stock $2.04 $3.34 $4.31 $3.87 ($.24)
Net Earnings (Loss) Available to Common
Shares 2.03 .65 3.84 3.88 (.83)
DILUTED EARNINGS (LOSS) PER COMMON SHARE
(A):
Earnings (Loss) before Extraordinary Items
and Premium on Redemption of Preferred
Stock $2.01 $3.28 $4.26 $3.83 ($.24)
Net Earnings (Loss) Available to Common
Shares 2.00 .64 3.79 3.85 (.83)
Cash Dividends Paid Per Share of Common
Stock $1.00 $1.00 $1.00 $.75 (b)
Ratio of Earnings to Fixed Charges (c) 3.2 4.0 4.2 2.6 1.7
BALANCE SHEET DATA:
Total Assets $15,845.2 $15,755.3 $15,051.1 $14,953.9 $10,592.7
Long-term Debt 592.4 580.7 517.9 882.1 1,106.7
Minority Interest (d) 521.8 513.0 494.4 314.4 105.5
Capital Subject to Mandatory Redemption -- -- -- -- 2.9
Other Capital 1,716.2 1,662.7 1,554.4 1,440.1 396.0
</TABLE>
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(a) Net earnings available to common shares for 1997 is calculated after
deducting a premium over stated value on redemption of a subsidiary's
preferred stock of $153.3 million. The number of shares used for periods
prior to April 1995 is the 28.3 million AFG shares issued in exchange for
American Financial Corporation ("AFC") shares in 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. 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.
AFG declared two quarterly $.25 per share dividends in 1995 subsequent to
the mergers.
(c) Fixed charges are computed on a "total enterprise" basis. For purposes of
calculating the ratios, "earnings" have been computed by adding to pretax
earnings the fixed charges and the minority interest in earnings of
subsidiaries having fixed charges and deducting (adding) the undistributed
equity in earnings (losses) of investees. Fixed charges include interest
(excluding interest on annuity benefits), amortization of debt
premium/discount and expense, preferred dividend and distribution
requirements of subsidiaries and a portion of rental expense deemed to be
representative of the interest factor.
(d) Includes AFC preferred stock following the mergers in 1995 and trust
preferred securities issued by trust subsidiaries of AFG in 1996 and 1997.
S-3
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CAPITALIZATION
The following table shows the capitalization of AFG at December 31, 1998,
and as adjusted to give pro forma effect to (i) the sale of the Senior
Debentures by AFG, and (ii) the proceeds being used for the retirement of
subsidiary debt including the borrowings described in note (a) below.
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
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(IN THOUSANDS)
<S> <C> <C>
Long-term debt:
Direct obligations of AFG................................. $ 100,000 $ 447,487
Obligations of AFG subsidiaries:
AFC and APU (parent only) (a).......................... 315,536 48,333
American Annuity Group, Inc............................ 131,032 131,032
Other subsidiaries..................................... 45,864 45,864
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Total long-term debt.............................. 592,432 672,716
Minority interest (b)....................................... 521,776 521,776
Shareholders' equity:
Common Stock and capital surplus.......................... 831,649 831,649
Retained earnings......................................... 527,028 524,832
Net unrealized gain on marketable securities, net of
deferred income tax.................................... 357,500 357,500
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Total shareholders' equity........................ 1,716,177 1,713,981
---------- ----------
Total capitalization........................................ $2,830,385 $2,908,473
========== ==========
</TABLE>
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(a) Excludes additional borrowings of $75 million made under the AFC bank line
of credit through April 12, 1999.
(b) Minority interest represents the interests of noncontrolling shareholders in
AFG subsidiaries, including AFC preferred stock and preferred securities
issued by trust subsidiaries of AFG.
S-4
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DESCRIPTION OF SENIOR DEBENTURES
This description of the Senior Debentures (referred to in the Prospectus as
"Senior Debt Securities") supplements, and to the extent inconsistent replaces,
the description of the general terms and provisions of the Senior Debt
Securities in the Prospectus.
GENERAL
The Senior Debentures are to be issued as a series of Senior Debt
Securities under the Indenture, dated as of November 12, 1997, as supplemented
to date, between AFG and Firstar Bank, N.A. (formerly Star Bank N.A.), as
Trustee, which is also described in the accompanying Prospectus.
The following statements are summaries of certain terms of the Senior
Debentures adopted pursuant to the provisions of, and incorporated into, the
Indenture. These statements do not purport to be complete and are qualified in
their entirety by reference to the terms of the Senior Debentures which will be
filed as an exhibit to our Current Report on Form 8-K dated April 13, 1999,
which is incorporated by reference in the accompanying Prospectus.
The Senior Debentures will be general unsecured obligations of AFG and will
rank pari passu with our other senior unsecured indebtedness. The Senior
Debentures are structurally subordinated to all indebtedness of AFG's
subsidiaries.
PRINCIPAL, MATURITY, INTEREST AND DENOMINATION
The principal amount of Senior Debentures offered for sale pursuant to this
prospectus supplement is $350 million. The Senior Debentures will mature on
April 15, 2009. The Senior Debentures will bear interest from the date of
issuance, payable semi-annually on April 15 and October 15 of each year,
commencing October 15, 1999, to the person in whose name a Senior Debenture is
registered at the close of business on April 1 or October 1, as the case may be,
next preceding such Interest Payment Date. The Senior Debentures will be issued
in book entry form in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
We may redeem the Senior Debentures in whole or in part, upon not less than
30 nor more than 60 days' notice, at a redemption price equal to the sum of (i)
the principal amount of the Senior Debentures being redeemed plus accrued
interest to the redemption date, and (ii) the Make-Whole Amount (as defined
below), if any, with respect to such Senior Debentures.
"Make-Whole Amount" means the excess, if any, of (i) the sum, as determined
by a Quotation Agent (as defined below) of the present values of the principal
amount of such Senior Debentures, together with scheduled payments of interest
from the redemption date to the Stated Maturity of the Senior Debentures, in
each case discounted to the redemption date on a semi-annual basis (assuming a
360-day year consisting of twelve 30-day months) at the Adjusted Treasury Rate
(as defined below) over (ii) 100% of the principal amount of the Senior
Debentures to be redeemed.
"Adjusted Treasury Rate" means, with respect to any redemption date, the
rate per annum equal to the semi-annual equivalent yield to maturity of the
Comparable Treasury Issue, calculated using a price for the Comparable Treasury
Issue (expressed as a percentage of its principal amount) equal to the
Comparable Treasury Price for such redemption date, calculated on the third
Business Day preceding the redemption date, plus in each case 0.35% (35 basis
points).
"Comparable Treasury Issue" means the U.S. Treasury 4.75% Note due November
15, 2008. If such security shall cease to be outstanding then Comparable
Treasury Issue shall mean the United States Treasury security selected by the
Quotation Agent as having a maturity comparable to the remaining term from the
redemption date to the Stated Maturity Date of the Senior Debentures that would
be utilized, at the time of selection and in accordance with customary financial
practice, in pricing new issues of corporate debt securities of comparable
maturity to the remaining term of the Senior Debentures.
S-5
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"Quotation Agent" means the Reference Treasury Dealer selected by the
Indenture Trustee after consultation with the Company. "Reference Treasury
Dealer" means a primary U.S. Government securities dealer.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
Business Day preceding such redemption date, as set forth in the daily
statistical release (or any successor release) published by the Federal Reserve
Bank of New York and designated "Composite 3:30 p.m. Quotations for U.S.
Government Securities" or (ii) if such release (or any successor release) is not
published or does not contain such prices on such Business Day, (A) the average
of the Reference Treasury Dealer Quotations for such redemption date, after
excluding the highest and lowest such Reference Treasury Dealer Quotations, or
(B) if the Indenture Trustee obtains fewer than three such Reference Treasury
Dealer Quotations, the average of such Quotations.
"Reference Treasury Dealer Quotations" means, with respect to each
Reference Treasury Dealer and any prepayment date, the average, as determined by
the Indenture Trustee, of the bid and asked prices for the Comparable Treasury
Issue (expressed in each case as a percentage of its principal amount) quoted in
writing to the Indenture Trustee by such Reference Treasury Dealer at 5:00 p.m.,
New York City time, on the third Business Day preceding such redemption date.
BOOK-ENTRY, DELIVERY AND FORM
The Senior Debentures offered for sale by this prospectus supplement will
be issued in the form of one Global Debenture held in book-entry form. The
Global Debenture will be deposited on the date of the closing of the sale of the
Senior Debentures with, or on behalf of, The Depository Trust Company ("DTC")
and registered in the name of Cede & Co., as nominee of DTC (such nominee being
referred to as the "Global Debenture holder").
DTC has advised us that it is a limited-purpose trust company that holds
securities for its participating organizations ("Participants") and facilitates
the clearance and settlement of transactions in these securities between
Participants through electronic book-entry changes in accounts. DTC's
Participants include securities brokers and dealers (including the Underwriter),
banks and trust companies, clearing corporations and certain other
organizations. Access to DTC's system is also available to other similar
entities ("Indirect Participants") that clear through or maintain a custodial
relationship with a Participant, either directly or indirectly. Persons who are
not Participants may beneficially own securities held by or on behalf of DTC
only through DTC's Participants or DTC's Indirect Participants.
Under the Indenture, beneficial owners of Senior Debentures evidenced by
the Global Debenture will not be considered the owners or holders of the Senior
Debentures for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee or receiving notices under
the Indenture. Neither AFG nor the Trustee will have any responsibility or
liability for the records of DTC or any of its Participants or Indirect
Participants or for maintaining, supervising or reviewing any records of DTC or
any of its Participants or Indirect Participants relating to the Senior
Debentures.
The Global Debenture may not be transferred except as a whole by DTC to a
nominee of DTC. The Global Debenture is exchangeable only if (1) DTC notifies
AFG that it is unwilling or unable to continue as a Depository for the Global
Debenture or if at any time DTC ceases to be a clearing agency registered under
the Securities Exchange Act of 1934, (2) AFG in its sole discretion determines
that the Global Debenture shall be exchangeable or (3) there shall have occurred
and be continuing an Event of Default or an event which with the giving of
notice or lapse of time or both would constitute an Event of Default with
respect to the Senior Debentures represented by the Global Debenture. The Global
Debenture that is exchangeable pursuant to the preceding sentence shall be
exchangeable for certificates in definitive form representing Senior Debentures
in authorized denominations and registered in such names as DTC directs. Subject
to the foregoing, the Global Debenture is not exchangeable, except for a Global
Debenture of like denomination to be registered in the name of DTC or its
nominee.
Payments of the principal of and interest on any Senior Debentures
registered in the name of the Global Debenture holder on a record date will be
payable by the Trustee to, or at the direction of, the Global Debenture
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holder. Under the terms of the Indenture, AFG and the Trustee may treat the
persons in whose names the Senior Debentures, including the Global Debenture,
are registered as the owners thereof for the purpose of receiving such payments.
Consequently, neither AFG nor the Trustee has or will have any responsiblity or
liability for any payments to beneficial owners of the Senior Debentures. DTC
has informed AFG, however, that it is currently DTC's policy to immediately
credit the accounts of Participants with such payments, in amounts proportionate
to their respective holdings of beneficial interests of securities as shown on
DTC's records. Payments by DTC's Participants and DTC's Indirect Participants to
the beneficial owners of the Senior Debentures will be governed by standing
instructions and customary practice and will be the responsibility of DTC's
Participants or DTC's Indirect Participants.
UNDERWRITING
Subject to the terms and conditions of our underwriting agreement with the
underwriters named below, we have agreed to sell and each underwriter has
severally agreed to purchase from us the principal amount of Senior Debentures
set forth opposite its name below:
<TABLE>
<CAPTION>
PRINCIPAL AMOUNT
UNDERWRITERS OF SENIOR DEBENTURES
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<S> <C>
Donaldson, Lufkin & Jenrette Securities Corporation........ $213,500,000
Bear, Stearns & Co. Inc.................................... 45,500,000
Credit Suisse First Boston Corporation..................... 45,500,000
Merrill Lynch, Pierce, Fenner & Smith Incorporated......... 45,500,000
------------
Total................................................. $350,000,000
============
</TABLE>
The underwriting agreement provides that the obligations of the
underwriters are subject to conditions precedent and that the underwriters will
purchase all of the Senior Debentures if any are purchased.
We have been advised by the underwriters that they propose to offer the
Senior Debentures to the public at the public offering price set forth on the
cover page of this prospectus supplement and to certain dealers at that price
less a concession not in excess of .40% of the principal amount of the Senior
Debentures. The underwriters may allow, and those dealers may reallow, a
discount not in excess of .30% of the principal amount of the Senior Debentures
to certain other dealers. After the initial offering of the Senior Debentures,
the public offering price and other selling terms may be changed by the
underwriters at any time without notice.
In connection with this offering and in compliance with applicable law, the
underwriters may engage in transactions which stabilize or maintain the market
price of the Senior Debentures at levels above those which might otherwise
prevail in the open market. Specifically, the underwriters may over-allot in
connection with this offering creating a short position in the Senior Debentures
for their own accounts. For the purposes of covering a syndicate short position
or stabilizing the price of the Senior Debentures, the underwriters may place
bids for the Senior Debentures or effect purchases of the Senior Debentures in
the open market. Finally, the underwriters may impose a penalty bid whereby
selling concessions allowed to syndicate members or other broker-dealers for
distributing the Senior Debentures in this offering may be reclaimed by the
syndicate if the syndicate repurchases previously distributed Senior Debentures
in transactions to cover short positions, in stabilization transactions or
otherwise. These activities may stabilize, maintain or otherwise affect the
market price of the Senior Debentures, which may be higher than the price that
might otherwise prevail in the open market, and, if commenced, may be
discontinued at any time.
We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act and to contribute to payments
that they may be required to make in this connection.
Some of the underwriters have from time to time conducted investment
banking services on our behalf for which they have received customary fees.
The Senior Debentures are a new issue of securities. There is no active
public trading market for the Senior Debentures. We do not intend to apply for
listing of the Senior Debentures on any securities exchange or the
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Nasdaq National Market. The underwriters have advised us that they currently
intend to make a market in the Senior Debentures, but the underwriters are not
obligated to do so and may discontinue any market-making at any time. There can
be no assurance as to the liquidity of any market that may develop for the
Senior Debentures, your ability to sell your Senior Debentures or the price at
which you would be able to sell your Senior Debentures.
NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the Senior Debentures in Canada is being made only on a
private placement basis exempt from the requirement that AFG prepare and file a
prospectus with the securities' regulatory authorities in each province where
trades of Senior Debentures are effected. Accordingly, any resale of the Senior
Debentures in Canada must be made in accordance with applicable securities laws,
which will vary depending on the relevant jurisdiction and which may require
resales to be made in accordance with statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the Senior Debentures.
REPRESENTATIONS OF PURCHASERS
Each purchaser of Senior Debentures in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the Senior Debentures without
the benefit of a prospectus qualified under such securities laws, (ii) where
required by law, the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
section 32 of the Regulation under the Securities Act (Ontario). As a result,
Ontario purchasers must rely on other remedies that may be available, including
common law rights of action for damages or rescission of rights of action under
the civil liability provisions of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named in
this document may be located outside of Canada and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada upon
the issuer or those persons. All or a substantial portion of the assets of the
issuer and those persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or those persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or those persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of Senior Debentures to whom the Securities Act (British
Columbia) applies is advised that the purchaser is required to file with the
British Columbia Securities Commission a report within ten days of the sale of
any Senior Debentures acquired by the purchaser pursuant to this offering. This
report must be in the form attached to British Columbia Securities Commission
Blanket Order BOR #95/17, a copy of which may be obtained from us. Only one such
report must be filed in respect of Senior Debentures acquired on the same date
and under the same prospectus exemption.
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TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of Senior Debentures should consult their own legal and
tax advisers with respect to the tax consequence of an investment in the Senior
Debentures in their particular circumstances and with respect to the eligibility
of the Senior Debentures for investment by the purchaser under relevant Canadian
legislation.
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PROSPECTUS
$500,000,000
AMERICAN FINANCIAL GROUP, INC.
DEBT SECURITIES AND COMMON STOCK
AND
AMERICAN FINANCIAL CAPITAL TRUST II
PREFERRED SECURITIES GUARANTEED TO THE EXTENT SET FORTH HEREIN BY AMERICAN
FINANCIAL GROUP, INC.
American Financial Group, Inc. ("AFG" or the "Company") may from time to
time offer, together or separately, (i) in one or more series, unsecured debt
securities which may be either senior or subordinated debt securities (together,
the "Debt Securities"), consisting of debentures, notes and/or other evidences
of indebtedness and (ii) shares of its Common Stock, without par value ("Common
Stock"), in amounts, at prices and on terms to be determined at the time of the
offering.
American Financial Capital Trust II, a statutory business trust formed
under the laws of the State of Delaware (the "Trust"), may from time to time
offer preferred securities, representing undivided beneficial interests in the
assets of the Trust ("Preferred Securities"). The payment of periodic cash
distributions ("Distributions") with respect to Preferred Securities will be
made from moneys held by the Trust, and payments on liquidation, redemption or
otherwise with respect to such Preferred Securities, will be guaranteed (a
"Trust Guarantee") by the Company to the extent described herein. See
"Description of Trust Guarantee." The Company's obligations under the Trust
Guarantee will rank junior and subordinate in right of payment to all other
liabilities of the Company and pari passu with its obligations under the
senior-most preferred or preference stock of the Company. See "Description of
Trust Guarantee -- Status of Trust Guarantees." The proceeds from the offering
of Preferred Securities and Common Securities (as defined herein) by the Trust
will be invested in subordinated debt securities of the Company. The
subordinated debt securities purchased by the Trust may be subsequently
distributed pro rata to holders of Preferred Securities and Common Securities in
connection with the dissolution of the Trust, upon the occurrence of certain
events as may be described in an accompanying supplement to the prospectus
("Prospectus Supplement").
The Debt Securities, Common Stock and Preferred Securities (collectively
the "Securities") may be offered as separate series or issuances at an aggregate
initial public offering price not to exceed $500,000,000 or, if applicable, the
equivalent thereof in one or more foreign currencies or in amounts determined by
reference to an index as shall be designated by the Company or the Trust. While
the amount of the various Securities to be offered, as well as the prices and
terms of issuance, will be determined in light of market conditions at the time
of sale, none of the Debt Securities, Common Stock nor Preferred Securities will
individually exceed an initial public offering price of $300,000,000.
Specific terms of the particular Securities covered by this Prospectus will
be set forth in a Prospectus Supplement which will describe, where applicable,
(i) in the case of Debt Securities, the specific designation, aggregate
principal amount, ranking as senior or subordinated debt securities,
denominations, maturity, any interest rate and method of calculating payment of
any interest, dates on which any premium or any interest is payable, any terms
for redemption, any terms for sinking fund payments, any terms for conversion or
exchange into other securities, any right of the Company to defer payment of
interest on the Debt Securities, and the maximum length of such deferral period,
subordination terms, currency or currencies of denomination and payment, if
other than U.S. dollars, the purchase price, any listing on a securities
exchange and any other terms in connection with the offering and sale of the
Debt Securities in respect of which this Prospectus is delivered; (ii) in the
case of Common Stock, the number of shares offered and the terms of the offering
and sale thereof, (iii) in the case of Preferred Securities, the specific
designation, number of securities, liquidation preference per security, the
purchase price, any listing on a securities exchange, distribution rate (or
method of calculation thereof), dates on which distributions shall be payable
and dates from which distributions shall accrue, any voting rights, terms for
any conversion or exchange into other securities, any redemption, exchange or
sinking fund provisions, any other rights, preferences, privileges, limitations
or restrictions relating to the Preferred Securities and the terms upon which
the proceeds of the sale of the Preferred Securities shall be used to purchase a
specific series of Debt Securities of the Company. The Debt Securities may be
issued in registered or bearer form, or both. If so specified in the applicable
Prospectus Supplement, Securities may be issued in whole or in part in the form
of one or more temporary or permanent global securities.
The Securities may be sold by the Company or the Trust directly, or to or
through underwriters or through dealers or agents. See "Plan of Distribution."
The names of any underwriters, dealers or agents involved in the sale of the
Securities in respect of which this Prospectus is being delivered and any
applicable fee, commission or discount arrangements with them will be set forth
in the applicable Prospectus Supplement. See "Plan of Distribution" for possible
indemnification arrangements for dealers, underwriters and agents.
This Prospectus may not be used to consummate sales of Securities unless
accompanied by a Prospectus Supplement.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Prospectus is December 10, 1997.
<PAGE> 13
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR DEEMED INCORPORATED BY
REFERENCE HEREIN, AND ANY INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN OR
THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
TRUST OR BY ANY AGENT, DEALER OR UNDERWRITER. THIS PROSPECTUS AND ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
periodic reports, proxy and information statements and other information with
the Securities and Exchange Commission (the "Commission"). The Company has filed
a Registration Statement on Form S-3 (the "Registration Statement") with the
Commission under the Securities Act of 1933 (the "Securities Act") with respect
to the Securities. This Prospectus does not contain all the information,
exhibits and undertakings contained in the Registration Statement, to which
reference is hereby made. Statements contained in this Prospectus as to the
terms of any contract or other document are not necessarily complete with
respect to each such contract, agreement or other document filed as an exhibit
to the Registration Statement. Reference is made to the exhibits for a more
complete description of the matter involved. Such reports, proxy and information
statements, the Registration Statement and other information filed with the
Commission by AFG may be inspected at and obtained from the Commission at its
public reference facilities at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the Commission's regional offices located at Suite 1400, 500 West Madison
Avenue, Chicago, Illinois, and at 7 World Trade Center, 13th Floor, New York,
New York. Copies of such material can also be obtained, at prescribed rates, by
mail from the Public Reference Section of the Commission at its Washington, D.C.
address set forth above. 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 the Company can be obtained
and inspected at the offices of the New York Stock Exchange, Inc., 20 Broad
Street, New York, New York 10005 (the "NYSE"), on which AFG's Common Stock is
listed.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company does not consider that such
financial statements would be material to holders of the Preferred Securities
because (i) all of the voting securities of the Trust will be owned, directly or
indirectly, by the Company, a reporting company under the Exchange Act, (ii) the
Trust has no independent operations but exists for the sole purpose of issuing
securities representing undivided beneficial interests in its assets and
investing the proceeds thereof in Debt Securities issued by the Company, and
(iii) the obligations of the Trust under the Preferred Securities are fully and
unconditionally guaranteed by the Company to the extent that the Trust shall
have funds available to meet such obligations. See "Description of Preferred
Securities" and "Description of Trust Guarantees."
2
<PAGE> 14
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents relating to the
Company which are not delivered herewith. These documents (other than the
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents) are available, without charge, on oral or
written request by any person to whom this Prospectus is delivered. Written or
telephone requests should be directed to Fred J. Runk, Senior Vice President and
Treasurer, One East Fourth Street, Cincinnati, Ohio 45202, telephone (513)
579-2488. The following documents, which have been filed by the Company's
predecessor (File No. 1-11453) with the Commission, are hereby incorporated by
reference in this Prospectus:
(i) Annual Report on Form 10-K for the year ended December 31, 1996,
as amended on April 30, 1997 and October 29, 1997;
(ii) Quarterly Reports on Form 10-Q for the quarters ended March 31,
1997, June 30, 1997 and September 30, 1997; and
(iii) Current Report on Form 8-K dated July 14, 1997.
The Company's Current Report on Form 8-K dated December 3, 1997 (File No.
1-13653) is hereby incorporated by reference in this Prospectus.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this Offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof.
Any statement contained in a document incorporated by reference herein
shall be deemed to be modified or superseded for purposes of this Prospectus to
the extent that a statement contained herein or in any other 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 this Prospectus.
3
<PAGE> 15
THE COMPANY
American Financial Group, Inc. ("AFG" or the "Company") is a holding
company which, through its subsidiaries, 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. AFG's property and
casualty operations originated in 1872 and are the twentieth largest property
and casualty group in the United States based on 1996 statutory net premiums
written of $2.8 billion. At September 30, 1997, the Company had total assets of
$15.7 billion and shareholders' equity of $1.7 billion.
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust (the "Declaration") executed by the Company as
sponsor for such trust (the "Sponsor"), and the Trustees (as defined herein) of
such trust and (ii) the filing of a certificate of trust with the Secretary of
State of the State of Delaware on February 4, 1997. The Trust will engage solely
in the following activities: (i) issuing and selling the Preferred Securities
and common securities representing undivided beneficial interests in the assets
of the Trust (the "Common Securities" and, together with the Preferred
Securities, the "Trust Securities"), (ii) using the gross proceeds from the sale
of the Trust Securities to acquire the Debt Securities and (iii) engaging in
only those other activities necessary or incidental thereto. All of the Common
Securities will be directly or indirectly owned by the Company. The Common
Securities will rank pari passu, and payments will be made thereon pro rata,
with the Preferred Securities, except that, if an event of default under the
Declaration has occurred and is continuing, the rights of the holders of the
Common Securities to payment in respect of distributions and payments upon
liquidation, redemption and otherwise will be subordinated to the rights of the
holders of the Preferred Securities. The Company will directly or indirectly
acquire Common Securities, in an aggregate liquidation amount equal to at least
3% of the total capital of the Trust.
The Trust's business and affairs will be conducted by the trustees (the
"Trustees") appointed by the Company as the direct or indirect holder of all of
the Common Securities. The holder of the Common Securities will be entitled to
appoint, remove or replace any of, or increase or reduce the number of, the
Trustees of the Trust. The duties and obligations of the Trustees shall be
governed by the Declaration. The Trust will have three Trustees (the "Regular
Trustees") who are employees or officers of or who are affiliated with the
Company. One Trustee of the Trust will be a financial institution that is not
affiliated with the Company and has a minimum amount of combined capital and
surplus of not less than $50,000,000, which shall act as property trustee and as
indenture trustee for the purposes of compliance with the provisions of Trust
Indenture Act of 1939 (the "Trust Indenture Act"), pursuant to the terms set
forth in the applicable Prospectus Supplement (the "Property Trustee"). In
addition, unless the Property Trustee maintains a principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
one Trustee of the Trust will be an entity having a principal place of business
in, or a natural person resident of, the State of Delaware (the "Delaware
Trustee"). The Company will pay all fees and expenses related to the Trust and
the offering of the Trust Securities.
The Property Trustee for the Trust is The Bank of New York and its
principal corporate trust office is at 101 Barclay Street, 21st Floor, New York,
New York 10286, Attention: Corporate Trust Trustee Administration. The Delaware
Trustee for the Trust is The Bank of New York (Delaware) and its address in the
State of Delaware is White Clay Center, Route 273, Newark, Delaware 19711. The
Delaware Trustee is an affiliate of the Property Trustee. The address for the
Trust is c/o American Financial Group, Inc., the Sponsor of the Trust, at the
Company's corporate headquarters located at One East Fourth Street, Cincinnati,
Ohio 45202, telephone (513) 579-2121.
4
<PAGE> 16
USE OF PROCEEDS
Unless otherwise indicated in the accompanying Prospectus Supplement, the
net proceeds received by the Company from the sale of any Debt Securities
(including Debt Securities sold to the Trust) or Common Stock offered hereby are
expected to be used for general corporate purposes, which may include investment
in insurance businesses and the repayment of outstanding debt of the Company and
its subsidiaries. Until the net proceeds are used for these purposes, the
Company may deposit them in interest-bearing accounts or invest them in
short-term marketable securities. The specific allocations, if any, of the
proceeds of any of the Securities will be described in the Prospectus Supplement
relating thereto.
The proceeds from any sale of Preferred Securities by the Trust will be
invested in Debt Securities of the Company.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the Company and its subsidiaries. Fixed charges are computed on a
"total enterprise" basis. For purposes of calculating the ratios, "earnings"
have been computed by adding to pretax earnings (excluding discontinued
operations) the fixed charges and minority interest in earnings of subsidiaries
having fixed charges and deducting (adding) the undistributed equity in earnings
(losses) of investees. Fixed charges include interest (excluding annuity
benefits), amortization of debt discount and expense, preferred dividend
requirements of subsidiaries and a portion of rental expense deemed to represent
the interest factor.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------- --------------------------------
1997 1996 1996 1995 1994 1993 1992
----- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Historical ratio of earnings to fixed
charges...................................... 3.45 4.78 4.22 2.60 1.69 2.62 2.15
</TABLE>
5
<PAGE> 17
DESCRIPTION OF DEBT SECURITIES
GENERAL
The following description of the Debt Securities sets forth certain general
terms and provisions of the Debt Securities to which any Prospectus Supplement
may relate. The particular terms of the Debt Securities offered by any
Prospectus Supplement and the extent, if any, to which such general provisions
do not apply to those Debt Securities will be described in the Prospectus
Supplement relating to such Debt Securities.
The Debt Securities will be general unsecured obligations of the Company
and will constitute either senior debt securities or subordinated debt
securities. In the case of Debt Securities that will be senior debt securities
("Senior Debt Securities"), the Senior Debt Securities will be issued under an
Indenture (the "Senior Indenture") to be executed by the Company and Star Bank,
N.A., Cincinnati, Ohio, as trustee (the "Senior Debt Trustee"). In the case of
Debt Securities that will be subordinated debt securities ("Subordinated Debt
Securities"), the Debt Securities will be issued under an Indenture (the
"Subordinated Indenture") to be executed by the Company and The Bank of New
York, as trustee (the "Subordinated Debt Trustee") under the Subordinated
Indenture. Subordinated Debt Securities, if issued, will be initially issued to
the Trust in connection with an offering of Preferred Securities. The Senior
Debt Trustee and the Subordinated Debt Trustee are sometimes referred to herein
individually as the "Trustee" or collectively as the "Trustees." The Senior
Indenture and the Subordinated Indenture, as each may be amended or supplemented
from time to time, are sometimes referred to herein individually as the
"Indenture" or collectively as the "Indentures". The statements made under this
caption relating to the Debt Securities and the Indentures are summaries only,
do not purport to be complete, and are qualified in their entirety by reference
to the form of Indenture and the terms of the Debt Securities filed with the
Commission. Such summaries make use of terms defined in the Indentures. Wherever
such terms are used herein, such terms are incorporated by reference from the
Indentures as part of the statements made herein. Summaries of certain terms
used herein will be included in the Prospectus Supplement relating to the
issuance of any particular series of Debt Securities.
Except as may be set forth in the terms of the Debt Securities and
described in the Prospectus Supplement relating to such Debt Securities, the
Indentures do not limit the amount of Debt Securities which can be issued
thereunder and provide that additional Debt Securities may be issued thereunder
up to the aggregate principal amount which may be authorized from time to time
by the Company's Board of Directors. Reference is made to the Prospectus
Supplement for the following terms of the particular series of Debt Securities
being offered thereby: (i) the title of the Debt Securities; (ii) the aggregate
principal amount and authorized denominations of the offering; (iii) the price
at which the Debt Securities will be issued; (iv) the date or dates on which the
Debt Securities will mature (or manner of determining the same); (v) the rate or
rates per annum, if any, at which the Debt Securities will bear interest (or the
manner of calculation thereof) and the date or dates from which such interest
will accrue; (vi) certain covenants which will be applicable to the offered Debt
Securities; (vii) the times at which any interest will be payable (or manner of
determining the same) and the Regular Record Dates for Interest Payment Dates;
(viii) the place or places where the principal of (and premium, if any) and
interest, if any, on the Debt Securities will be payable and each office or
agency, as described below under "Denominations, Registration and Transfer,"
where the Debt Securities may be presented for transfer or exchange; (ix) any
mandatory or optional sinking fund or analogous provisions; (x) the date, if
any, after which, and the price at which, such Debt Securities are payable
pursuant to any optional or mandatory redemption provisions; (xi) the terms and
conditions upon which the Debt Securities may be repayable prior to maturity at
the option of the holder thereof and the price at which such Debt Securities are
so repayable; (xii) any provisions regarding exchangeability or conversion of
the Debt Securities; (xiii) information with respect to book-entry procedures,
if any; (xiv) whether the Debt Securities are Senior Debt Securities or
Subordinated Debt Securities; and (xv) any other additional provisions or
specific terms which may be applicable to such Debt Securities.
Some of the Debt Securities may be issued as discounted Debt Securities
(bearing no interest or interest at a rate which at the time of issuance is
below market rates) to be sold at a substantial discount below their stated
principal amount. Federal income tax consequences and other special
considerations applicable to any Discounted Debt Securities will be described in
the Prospectus Supplement relating thereto.
6
<PAGE> 18
Neither the Senior Indenture nor the Subordinated Indenture contain
provisions that afford the holders of the Senior Debt Securities or Subordinated
Debt Securities protection in the event of a highly leveraged transaction
involving the Company or other similar transaction that may adversely affect
such holders.
PROVISIONS APPLICABLE TO THE SENIOR DEBT SECURITIES
DENOMINATIONS, REGISTRATION AND TRANSFER. Unless otherwise indicated in the
applicable Prospectus Supplement, the Senior Debt Securities of a series will be
issuable only in fully registered form. Unless otherwise provided in an
applicable Prospectus Supplement with respect to a series of Senior Debt
Securities, Senior Debt Securities will be issued only in denominations of
$1,000 or any integral multiple thereof.
Senior Debt Securities may be presented for exchange or for registration of
transfer (with the form of transfer duly executed) at the office of a transfer
agent designated by the Company for such purpose with respect to any series of
Senior Debt Securities. If a Prospectus Supplement refers to any transfer agent
initially designated by the Company with respect to any series of Senior Debt
Securities, the Company may at any time rescind the designation of any such
transfer agent or approve a change in the location through which any such
transfer agent acts.
The Company is not required to issue, register the transfer of, or exchange
Senior Debt Securities of any series for the 15-day period prior to the mailing
of a notice of redemption and, with respect to any Senior Debt Securities called
for redemption in whole or in part (except for the unredeemed portion of any
Senior Debt Securities being redeemed in part), following such mailing.
PAYMENT AND PAYING AGENTS. Unless otherwise indicated in an applicable
Prospectus Supplement, payment of principal of (and premium, if any) and
interest, if any, on Senior Debt Securities will be made (i) by check mailed or
delivered to the address of the Person entitled thereto as such address shall
appear in the Debt Security Register or (ii) by wire transfer to an account
(with a bank located inside the United States) designated by the Person entitled
thereto. Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any installment of interest on any Debt Security will be made to the
Person in whose name such Debt Security is registered at the close of business
on the Regular Record Date for such interest payment.
All moneys paid by the Company to the Senior Debt Trustee or a Paying Agent
for the payment of principal of (and premium, if any) and interest, if any, on
any Debt Security which remains unclaimed at the end of two years after such
principal, premium or interest shall have become due and payable may be repaid
to the Company and the holder of such Debt Security will thereafter look only to
the Company for payment thereof.
CONSOLIDATION, MERGER AND TRANSFER OF ASSETS. Under the Senior Indenture,
the Company may not consolidate with or merge into any other entity or sell,
convey, assign, transfer, lease or otherwise dispose of all or substantially all
of its properties and assets to any entity, unless: (1) either (a) the Company
shall be the continuing corporation or (b) the entity (if other than the
Company) formed by such consolidation or into which the Company is merged or the
entity that acquires, by sale, assignment, conveyance, transfer, lease or
disposition, all or substantially all of the properties and assets of the
Company as an entirety shall be a corporation, partnership or trust organized
and validly existing under the laws of the United States or any State thereof or
the District of Columbia, and shall expressly assume by a supplemental
indenture, the due and punctual payment of the principal of and premium, if any,
and interest on all the Senior Debt Securities and the performance and
observance of every covenant of the Senior Indenture on the part of the Company
to be performed or observed; (2) immediately thereafter, no Event of Default
(and no event that, after notice or lapse of time, or both, would become an
Event of Default) shall have occurred and be continuing; and (3) certain other
conditions, if any, are met, as are described in the Prospectus Supplement
relating to the Senior Debt Securities being offered thereby.
In the event of any transaction (other than a lease) described in and
complying with the conditions listed in the immediately preceding paragraphs in
which the Company is not the continuing corporation, the successor entity formed
or remaining would be substituted for the Company and the Company would be
discharged from all obligations and covenants under the Senior Indenture and the
Senior Debt Securities.
7
<PAGE> 19
EVENTS OF DEFAULT. Unless otherwise set forth in the applicable Prospectus
Supplement and Indenture, the following events will constitute "Events of
Default" with respect to a series of Senior Debt Securities: (i) default in the
payment of any installment of interest on any Senior Debt Securities in such
series for 30 consecutive days after becoming due; (ii) default in the payment
of the principal of (or premium, if any, on) any Senior Debt Securities in such
series when due; (iii) default in the performance of any other covenant or
warranty applicable to such series contained in the Senior Debt Securities or
the Senior Indenture for a period of 60 days after written notice of such
failure, requiring the Company to remedy the same, shall have been given to the
Company by the Senior Debt Trustee or to the Company and the Senior Debt Trustee
by the holders of 25% in aggregate principal amount of such series of Senior
Debt Securities then Outstanding; (iv) default shall have occurred under any
other series of Senior Debt Securities or any agreements, indentures or
instruments under which the Company then has outstanding Indebtedness in excess
of $10 million in the aggregate and, if not already matured in accordance with
its terms, such Indebtedness shall have been accelerated and such acceleration
shall not have been rescinded or annulled within ten days after notice thereof
shall have been given to the Company by the Senior Debt Trustee or to the
Company and the Senior Debt Trustee by the holders of at least 25% in aggregate
principal amount of such series of Senior Debt Securities then Outstanding,
provided, that if, prior to the entry of judgment in favor of the Senior Debt
Trustee, such default under such Senior Indenture or instrument shall be
remedied or cured by the Company, or waived by the holders of such Indebtedness,
then the Event of Default under such Senior Indenture shall be deemed likewise
to have been remedied, cured or waived and provided, further, that if such
default results from an action of the United States government or a foreign
government which prevents the Company from performing its obligations under such
agreement, indenture or instrument, the occurrence of such default will not be
an Event of Default under such Senior Indenture; (v) one or more judgments,
orders or decrees for the payment of money in excess of $10 million, either
individually or in the aggregate, shall be entered against the Company and shall
not be discharged, there shall have been a period of 60 days during which a stay
of enforcement of such judgment or order, by reason of an appeal or otherwise,
shall not be in effect and there shall have been given written notice of the
default to the Company by the Senior Debt Trustee or to the Company and the
Senior Debt Trustee by the holders of 25% in aggregate principal amount of such
series of Senior Debt Securities then Outstanding; or (vi) certain events of
bankruptcy, insolvency or reorganization with respect to the Company shall have
occurred. If an Event of Default shall occur and be continuing with respect to a
series of Senior Debt Securities, either the Senior Debt Trustee or the holders
of at least 25% in principal amount of the Outstanding Senior Debt Securities of
such series may declare the entire principal amount, or, in the case of
Discounted Securities, such lesser amount as may be provided for in such
Discounted Securities, of all the Senior Debt Securities of such series to be
immediately due and payable.
Under the Senior Indenture, the Company is required to furnish the Senior
Debt Trustee annually a statement by certain officers of the Company to the
effect that to the best of their knowledge the Company is not in default in the
fulfillment of any of its obligations under the Senior Indenture or, if there
has been a default in the fulfillment of any such obligation, specifying each
such default.
The Senior Indenture provides that the Senior Debt Trustee shall, within 90
days after the occurrence of a default with respect to a particular series of
Senior Debt Securities (unless such default has been cured or waived), give the
holders of the Senior Debt Securities of such series notice of such default
known to it (the term default to mean the events specified above without grace
periods); provided that, except in the case of a default in the payment of
principal of (or premium, if any) or interest, if any, on any of the Senior Debt
Securities of such series, the Senior Debt Trustee shall be protected in
withholding such notice if it in good faith determines the withholding of such
notice is in the interest of the holders of the Senior Debt Securities of such
series.
The holders of a majority in principal amount of a particular series of
Senior Debt Securities Outstanding have the right, subject to certain
limitations, to direct the time, method and place of conducting any proceeding
for any remedy available to the Senior Debt Trustee with respect to such series
or exercising any trust or power conferred on the Senior Debt Trustee, and to
waive certain defaults. The Senior Indenture provides that in case an Event of
Default shall occur and be continuing, the Senior Debt Trustee shall exercise
such of its rights and powers under the Senior Indenture, and use the same
degree of care and skill in its exercise, as a prudent person would exercise or
use under the circumstances in the conduct of his or her own affairs. Subject to
such provisions, the Senior Debt Trustee will be under no obligation to exercise
any of its rights or powers under the Senior
8
<PAGE> 20
Indenture at the request of any of the holders of the Senior Debt Securities
unless they shall have offered to the Senior Debt Trustee reasonable security or
indemnity against the costs, expenses and liabilities which might be incurred by
it in compliance with such request.
SATISFACTION AND DISCHARGE. Except as may otherwise be set forth in the
Prospectus Supplement relating to a series of Senior Debt Securities, the Senior
Indenture provides that the Company shall be deemed to have satisfied and
discharged its obligations under the Senior Debt Securities of such series (with
certain exceptions) at any time prior to the Stated Maturity or redemption
thereof when (a) the Company has deposited with the Senior Debt Trustee, in
trust, sufficient funds to pay the principal of (and premium, if any) and
interest, if any, to Stated Maturity (or to Redemption Date) on, the Senior Debt
Securities of such series, (b) the Company has paid all other sums payable with
respect to the Senior Debt Securities of such series and (c) certain other
conditions are met. Upon such discharge, the holders of the Senior Debt
Securities of such series shall no longer be entitled to the benefits of the
Senior Indenture, except for certain rights, including registration of transfer
and exchange of the Senior Debt Securities of such series and replacement of
mutilated, destroyed, lost or stolen Senior Debt Securities, and shall look only
to such deposited funds.
Such discharge may be treated as a taxable exchange of the related Senior
Debt Securities for an issue of obligations of the trust or a direct interest in
the cash and securities held in the trust. In that case, holders of such Senior
Debt Securities would recognize gain or loss as if the trust obligations or the
cash or securities deposited, as the case may be, had actually been received by
them in exchange for their Senior Debt Securities. Such holders thereafter might
be required to include in income a different amount than would be includable in
the absence of discharge. Prospective investors are urged to consult their own
tax advisors as to the specific consequences of discharge.
MODIFICATION AND WAIVER. Certain modifications and amendments (which,
generally, either benefit or do not affect the holders of Outstanding Senior
Debt Securities) of the Senior Indenture may be made by the Company and the
Senior Debt Trustee without the consent of holders of the Senior Debt
Securities. Other modifications and amendments of each Senior Indenture require
the consent of the holders of more than 50% in principal amount of the
Outstanding Senior Debt Securities of each series issued under the Senior
Indenture affected by the modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the holder of each
Outstanding Senior Debt Security affected thereby, (a) change the Stated
Maturity of the principal of, or any installment of principal of or interest, if
any, on any Senior Debt Security, (b) reduce the principal amount of (or
premium, if any) or interest, if any, on any Senior Debt Security, (c) reduce
the amount of principal of a Discounted Senior Debt Security payable upon
acceleration of the Maturity thereof, (d) impair the right to institute suit for
the enforcement of any payment on or with respect to any Senior Debt Security on
or after the Stated Maturity thereof (or, in the case of redemption, on or after
the Redemption Date) or (e) reduce the percentage in principal amount of
Outstanding Senior Debt Securities of any series, the consent of the holders of
which is required for modification or amendment of such Senior Indenture or for
waiver of compliance with certain provisions of such Senior Indenture or for
waiver of certain defaults.
The holders of a majority in principal amount of the Outstanding Senior
Debt Securities of any series may on behalf of the holders of all Senior Debt
Securities of that series waive, insofar as that series is concerned, compliance
by the Company with certain restrictive provisions of the Senior Indenture. The
holders of a majority in principal amount of the Outstanding Senior Debt
Securities of any series may on behalf of the holders of all Senior Debt
Securities of that series waive any past default under the Senior Indenture with
respect to that series, except a default in the payment of the principal of (or
premium, if any) and interest, if any, on any Debt Security of that series or in
respect of a provision which under the Senior Indenture cannot be modified or
amended without the consent of the holder of each Outstanding Debt Security of
that series affected.
PROVISIONS APPLICABLE TO THE SUBORDINATED DEBT SECURITIES
DENOMINATIONS, REGISTRATION AND TRANSFER. If Subordinated Debt Securities
are distributed to holders of Preferred Securities in liquidation of such
holders' interests in the Trust, it is presently anticipated that such
Subordinated Debt Securities will initially be issued in the form of one or more
Global Securities (as defined below). As described herein, under certain limited
circumstances, Subordinated Debt Securities may be issued in
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definitive certificated form in exchange for a Global Security. See
"-- Book-Entry and Settlement" below. Payments on Subordinated Debt Securities
issued as a Global Security will be made to DTC or its nominee, a successor
depository or its nominee. In the event Subordinated Debt Securities are issued
in definitive certificated form, principal and interest will be payable, the
transfer of the Subordinated Debt Securities will be registrable and
Subordinated Debt Securities will be exchangeable for Subordinated Debt
Securities of other denominations of a like aggregate principal amount at the
principal corporate trust office of the Subordinated Debt Trustee in New York,
New York; provided that payment of interest may be made at the option of the
Company by check mailed to the address of the persons entitled thereto.
SUBORDINATION. The Subordinated Indenture will provide that the
Subordinated Debt Securities are subordinated and junior in right of payment to
the prior payment in full of all Senior Indebtedness of the Company whether now
existing or hereafter incurred. In the event and during the continuation of any
default by the Company in the payment of principal, premium, interest or any
other payment due on any Senior Indebtedness of the Company, or in the event
that the maturity of any Senior Indebtedness of the Company has been accelerated
because of a default, then in either case, no payment will be made by the
Company with respect to the principal (including redemption payments) of or
interest on the Subordinated Debt Securities. Upon any distribution of assets of
the Company to creditors upon any dissolution, winding-up, liquidation or
reorganization, whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all principal, premium, if any, and interest
due or to become due on all Senior Indebtedness of the Company (including
interest after the commencement of any bankruptcy, insolvency, receivership or
other proceedings at the rate specified in the applicable Senior Indebtedness,
whether or not such interest is an allowable claim in any such proceeding) must
be paid in full before the holders of Subordinated Debt Securities are entitled
to receive or retain any payment. In the event that the Subordinated Debt
Securities are declared due and payable before the Maturity Date, then all
amounts due or to become due on all Senior Indebtedness shall have been paid in
full (including interest after the commencement of any bankruptcy, insolvency,
receivership or other proceedings at the rate specified in the applicable Senior
Indebtedness, whether or not such interest is an allowable claim in any such
proceeding) before holders of the Subordinated Debt Securities are entitled to
receive or retain any payment. Upon satisfaction of all claims of all Senior
Indebtedness then outstanding, the rights of the holders of the Subordinated
Debt Securities will be subrogated to the rights of the holders of Senior
Indebtedness of the Company to receive payments or distributions applicable to
Senior Indebtedness until all amounts owing on the Subordinated Debt Securities
are paid in full.
The term "Senior Indebtedness" means, with respect to the Company, (i) the
principal, premium, if any, and interest in respect of (A) indebtedness of the
Company for money borrowed and (B) indebtedness evidenced by securities,
debentures, bonds or other similar instruments issued by the Company; (ii) all
capital lease obligations of the Company; (iii) all obligations of the Company
issued or assumed as the deferred purchase price of property, all conditional
sale obligations of the Company and all obligations of the Company under any
title retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of the Company for the
reimbursement on any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction; (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
the Company is responsible or liable as obligor, guarantor or otherwise,
including under all support agreements or guarantees by the Company of
debentures, notes and other securities issued by its subsidiaries; and (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of the Company (whether or
not such obligation is assumed by the Company); except in each case for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Debt Securities, and (2) any indebtedness in respect of debt
securities issued to any trust, or a trustee of such trust, partnership or other
entity affiliated with the Company that is a financing entity of the Company (a
"financing entity") in connection with the issuance by such financing entity of
securities that are similar to the Preferred Securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
The Subordinated Indenture does not limit the aggregate amount of Senior
Indebtedness that may be issued by the Company.
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OPTION TO CHANGE SCHEDULED MATURITY DATE. The Company may extend the
scheduled maturity date for one or more periods. The Company must satisfy the
following conditions on the date the Company exercises such right and on the
Maturity Date then in effect prior to such proposed extension: (a) the Company
is not in bankruptcy or otherwise insolvent, (b) the Company is not in default
on any Subordinated Debt Securities issued to the Trust or to any trustee of the
Trust in connection with an issuance of Trust Securities by the Trust, (c) the
Company has made timely payments on the Subordinated Debt Securities for the
immediately preceding six quarters without deferrals, (d) the Trust is not in
arrears on payments of distributions on the Trust Securities, (e) the
Subordinated Debt Securities or Preferred Securities are rated investment grade
by any one of Standard & Poor's Corporation, Moody's Investors Service, Inc.,
Fitch Investor Services, Duff & Phelps Credit Rating Company or any other
nationally recognized statistical rating organization, and (f) the final
maturity of such Subordinated Debt Securities is not later than the 49th
anniversary of the issuance of the Preferred Securities. Pursuant to the
Declaration, the Regular Trustees are required to give notice of the Company's
election to change the Maturity Date to the holders of the Preferred Securities.
OPTION TO EXTEND INTEREST PAYMENT PERIOD. The Company has the right, from
time to time, to defer payment of interest on the Subordinated Debt Securities
for up to 20 consecutive quarters, provided that no Extension Period may extend
beyond the Maturity Date of the Subordinated Debt Securities. There could be
multiple Extension Periods of varying lengths during the term of the
Subordinated Debt Securities. At the end of each Extension Period, if any, the
Company shall pay all interest then accrued and unpaid, together with interest
thereon, compounded quarterly at the rate specified for the Subordinated Debt
Securities to the extent permitted by applicable law ("Compound Interest"). In
the event the Company exercises this right, then during any Extension Period,
(a) the Company shall not declare or pay any dividends on, make any distribution
with respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to any of its capital stock and (b) the Company shall not, directly or
indirectly, and will not allow any of its subsidiaries to, make any payment of
interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities issued by the Company that rank pari passu with or junior to the
Subordinated Debt Securities; provided, however, that, the restriction in clause
(a) above does not apply (i) to repurchases or acquisitions of shares of common
stock of the Company as contemplated by any employment arrangement, benefit plan
or other similar contract with or for the benefit of employees, officers or
directors entered into in the ordinary course of business, (ii) as a result of
an exchange or conversion of any class or series of the Company's capital stock
for common stock, (iii) to the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such capital stock or the security being converted or exchanged or (iv) to the
payment of any stock dividend by the Company payable in common stock. Prior to
the termination of any such Extension Period, the Company may further defer
payments of interest by extending the interest payment period; provided,
however, that each Extension Period, including all such previous and further
extensions if any, may not exceed 20 consecutive quarters or extend beyond the
Maturity Date. Upon the termination of any Extension Period and the payment of
all amounts then due, the Company may commence a new Extension Period, subject
to the terms set forth in this section. No interest during an Extension Period,
except at the end thereof, shall be due and payable.
COVENANTS RELATING TO THE TRUST. The Subordinated Indenture requires that
for so long as the Preferred Securities and the Common Securities remain
outstanding, the Company will be required to (i) maintain 100% of direct or
indirect ownership of the Common Securities, provided, however, that any
permitted successor of the Company under the Subordinated Indenture may succeed
to the Company's ownership of the Common Securities, (ii) not voluntarily
dissolve, wind-up or terminate the Trust, except in connection with the
distribution of Subordinated Debt Securities or certain mergers, consolidations
or amalgamations, each as permitted by the Declaration, (iii) timely perform its
duties as sponsor of the Trust, (iv) use its reasonable efforts to cause the
Trust (a) to remain a business trust classified as a grantor trust, except in
connection with a distribution of the Subordinated Debt Securities to the
holders of Preferred Securities in liquidation of the Trust, the redemption of
all of the Preferred Securities and Common Securities of the Trust or certain
mergers, consolidations or amalgamations, each as permitted by the Declaration,
and (b) continue not to be treated as an association taxable as a corporation
for United States federal income tax purposes other than in connection with a
distribution of the Subordinated Debt Securities to the holders of Preferred
Securities in liquidation of the Trust, and (v) use its
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reasonable efforts to cause each holder of Preferred Securities and Common
Securities to be treated as owning an undivided beneficial interest in the
Subordinated Debt Securities.
CONSOLIDATION, MERGER AND TRANSFER OF ASSETS. Upon any consolidation of the
Company with, or merger of the Company into, any other person or any conveyance,
transfer or lease of the properties and assets of the Company substantially as
an entirety, the successor person formed by such consolidation or into which the
Company is merged or to which such conveyance, transfer or lease is made shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Subordinated Indenture with the same effect as the Company
prior to such transaction, and thereafter, except in the case of a lease, the
Company shall be relieved of all obligations and covenants under the
Subordinated Indenture and the Subordinated Debt Securities.
EVENTS OF DEFAULT. The occurrence of any of the following events with
respect to the Subordinated Debt Securities will, unless otherwise specified,
constitute an "Event of Default" with respect to the Subordinated Debt
Securities: (i) default for thirty (30) days in the payment of any installment
of interest on the Subordinated Debt Securities; (ii) default in the payment of
any of the principal of the Subordinated Debt Securities when due, whether at
maturity, upon redemption, by declaration of acceleration or otherwise; (iii)
default for sixty (60) days by the Company in the observance or performance of
any other covenant or agreement contained in the Subordinated Debt Securities or
the Subordinated Indenture (other than a covenant or agreement default which is
specifically designated as having a different time period) for the benefit of
the Subordinated Debt Securities after written notice thereof as provided in the
Subordinated Indenture; (iv) (a) an event of default occurs under any instrument
(including the Subordinated Indenture) under which there is at the time
outstanding, or by which there may be secured or evidenced, any indebtedness of
the Company for money borrowed by the Company (other than non-recourse
indebtedness) which results in acceleration or nonpayment at maturity (after
giving effect to any applicable grace period) of such indebtedness in an
aggregate amount exceeding $15 million, or any such indebtedness exceeding $15
million shall otherwise be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled prepayment or exercise of an
optional prepayment right), prior to the stated maturity thereof, or any failure
by the Company to make any payment under a guarantee in respect of any
indebtedness, in each case in an amount of at least $15 million, on the date
such payment is due (or within any grace period specified in the agreement or
other instrument governing such indebtedness); in which case the Company shall
immediately give notice to the Trustee of such acceleration or non-payment, and
(b) there shall have been a failure to cure such default or to pay or discharge
such defaulted indebtedness within ten (10) days after written notice thereof as
provided in the Subordinated Indenture; (v) any final non-appealable judgment or
order for the payment of money in excess of $15 million is rendered against the
Company, such judgment or order is not satisfied by payment or bonded and either
enforcement proceedings have been commenced by the judgment creditor or there
has been a period of 60 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not
have been in effect; provided, however, that a judgment or order fully covered
by insurance (or a judgment or order for the payment of money covered by
insurance to the extent of all payments in excess of $15 million), which
coverage has not been disputed by the insurer, shall not be considered a default
or an Event of Default; or (vi) certain events of bankruptcy, insolvency or
reorganization relating to the Company.
In addition, an Event of Default shall include the voluntary or involuntary
dissolution or winding up of the business of the Trust or other termination of
the existence of the Trust, other than in connection with (i) the distribution
of the Subordinated Debt Securities to holders of the Trust Securities in
liquidation of their interests in the Trust, (ii) the redemption of all of the
outstanding Trust Securities, or (iii) certain mergers, consolidations or
amalgamations of the Trust, each as permitted by the Declaration.
If any Event of Default shall occur and be continuing, the Property
Trustee, as the holder of the Subordinated Debt Securities, will have the right
to declare the principal of and the interest on the Subordinated Debt Securities
(including any Compound Interest and any other amounts payable under the
Subordinated Indenture) to be forthwith due and payable and to enforce its other
rights as a creditor with respect to the Subordinated Debt Securities subject to
the subordination provisions in the Subordinated Indenture. An Event of Default
also constitutes a Declaration Event of Default. If the Property Trustee fails
to enforce its rights with
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respect to the Subordinated Debt Securities held by the Trust, any record holder
of Preferred Securities may institute legal proceedings directly against the
Company to enforce the Property Trustee's rights under such Subordinated Debt
Securities without first instituting any legal proceedings against such Property
Trustee or any other person or entity. In addition, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Subordinated Debt
Securities issued to the Trust on the date such interest or principal is
otherwise payable, then a record holder of Preferred Securities may institute a
proceeding directly against the Company for enforcement of payment to the record
holder of the Preferred Securities of the principal of or interest on the
Subordinated Debt Securities on or after the respective due dates specified in
the Subordinated Debt Securities, and the amount of the payment will be based on
the holder's pro rata share of the amount due and owing on all of the Preferred
Securities. The record holder in the case of the issuance of one or more global
Preferred Securities certificates will be DTC acting at the direction of its
Direct Participants, who in turn will be acting at the direction of the
Beneficial Owners. The holders of Preferred Securities in certain circumstances
have the right to direct the Property Trustee to exercise its rights, with
respect to other than principal and interest payments on the Subordinated Debt
Securities, as the holder of the Subordinated Debt Securities. See "Description
of the Preferred Securities -- Declaration Events of Default" and "Description
of the Preferred Securities -- Voting Rights."
SATISFACTION AND DISCHARGE. Except as may otherwise be set forth in the
Prospectus Supplement relating to Subordinated Debt Securities, the Subordinated
Indenture provides that the Company shall be deemed to have satisfied and
discharged its obligations under the Subordinated Debt Securities (with certain
exceptions) at any time prior to the final maturity or redemption thereof when
(a) the Company has deposited with the Subordinated Debt Trustee, in trust,
sufficient funds to pay the principal of (and premium, if any) and interest, if
any, to maturity (or to Redemption Date) on, the Subordinated Debt Securities,
(b) the Company has paid all other sums payable with respect to the Subordinated
Debt Securities and (c) certain other conditions are met. Upon such discharge,
the holders of the Subordinated Debt Securities of such series shall no longer
be entitled to the benefits of the Subordinated Indenture, except for certain
rights, including registration of transfer and exchange of the Subordinated Debt
Securities of such series and replacement of mutilated, destroyed, lost or
stolen Subordinated Debt Securities, and shall look only to such deposited
funds.
Such discharge may be treated as a taxable exchange of the related
Subordinated Debt Securities for an issue of obligations of the trust or a
direct interest in the cash and securities held in the trust referred to in the
prior paragraph. In that case, holders of such Subordinated Debt Securities
would recognize gain or loss as if the trust obligations or the cash or
securities deposited, as the case may be, had actually been received by them in
exchange for their Subordinated Debt Securities. Such holders thereafter might
be required to include in income a different amount than would be includable in
the absence of discharge. Prospective investors are urged to consult their own
tax advisors as to the specific consequences of discharge.
MODIFICATION AND WAIVER. Certain modifications and amendments (which,
generally, either benefit or do not affect the holders of Subordinated Debt
Securities) of the Subordinated Indenture may be made by the Company and the
Subordinated Debt Trustee without the consent of holders of the Subordinated
Debt Securities. Other modifications and amendments of each Subordinated
Debenture require the consent of the holders of more than 50% in principal
amount of the Subordinated Debt Securities issued under the Subordinated
Indenture affected by the modification or amendment; provided, however, that no
such modification or amendment may, without the consent of the holder of each
Subordinated Debt Security affected thereby, (a) change the Stated Maturity of
the principal of, or any installment of principal of or interest, if any, on any
Subordinated Debt Security, (b) reduce the principal amount of (or premium, if
any) or interest, if any, on any Subordinated Debt Security, (c) reduce the
amount of principal of a Subordinated Debt Security payable upon acceleration of
the Maturity thereof, (d) impair the right to institute suit for the enforcement
of any payment on or with respect to any Subordinated Debt Security on or after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date) or (e) reduce the percentage in principal amount of Outstanding
Senior Debt Securities of any series, the consent of the holders of which is
required for modification or amendment of such Senior Indenture or for waiver of
compliance with certain provisions of such Senior Indenture or for waiver of
certain defaults.
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The holders of a majority in principal amount of the Subordinated Debt
Securities may on behalf of the holders of all Subordinated Debt Securities
waive compliance by the Company with certain restrictive provisions of the
Subordinated Indenture. The holders of a majority in principal amount of the
Subordinated Debt Securities may on behalf of the holders of all Subordinated
Debt Securities waive any past default under the Subordinated Indenture, except
a default in the payment of the principal of (or premium, if any) and interest,
if any, on any Subordinated Debt Security or in respect of a provision which
under the Subordinated Indenture cannot be modified or amended without the
consent of the holder of each Subordinated Debt Security affected; provided,
however, that no waiver of any past default or compliance with any covenant
shall be effective without the prior consent of the holders of at least a
majority of the aggregate liquidation preference of the outstanding Preferred
Securities unless the principal of and any premium on the Subordinated Debt
Securities and all accrued and unpaid interest thereon has been paid in full.
DESCRIPTION OF COMMON STOCK
AFG is incorporated under the laws of the State of Ohio. The following
description is a summary and is qualified in its entirety by the provisions of
AFG's Articles of Incorporation, Code of Regulations and the Ohio General
Corporation Law.
The total number of authorized shares of Common Stock is 200,000,000.
Holders of Common Stock are entitled to one vote for each share held of record
on all matters submitted to a vote of shareholders. Holders of Common Stock have
the right to cumulate their votes in the election of directors but are not
entitled to any preemptive rights.
Subject to preferences which may be granted to holders of preferred stock,
holders of 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 is authorized to issue 12,500,000 shares of voting preferred stock and
12,500,000 shares of nonvoting preferred stock, each without par value, none of
which is outstanding. AFG's Articles of Incorporation authorize the Board of
Directors, without further shareholder approval, to designate for any series of
preferred stock not fixed in AFG's Articles of Incorporation the 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.
AFG's stock option plan allows for the grant of options for shares of
Common Stock at a price not less than the fair market value of the underlying
Common Stock at the date of grant. Options granted to officers and key employees
become exercisable at the rate of 20% per year commencing one year after grant;
those granted to non-employee directors of AFG are fully exercisable upon grant.
All options expire ten years after the date of grant. At December 31, 1996,
there were 5.4 million shares of Common Stock reserved for issuance upon
exercise of the options and 3.3 million options outstanding.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock is required to amend the Articles of Incorporation and to
approve mergers, reorganizations, share exchanges and similar transactions.
The Company acts as its own transfer agent and registrar.
DESCRIPTION OF PREFERRED SECURITIES OF THE TRUST
The following summary of certain provisions of the Declaration of Trust of
the Trust (the "Declaration") does not purport to be complete and is subject to
and qualified in its entirety by reference to the Declaration, a copy of which
has been filed with the Commission.
The Trust may issue a series of Preferred Securities having terms described
in the Prospectus Supplement relating thereto. The Declaration authorizes the
Regular Trustees of the Trust to issue on behalf of the Trust one series of
Preferred Securities. The Declaration will be qualified as an indenture under
the Trust Indenture Act. The Preferred Securities will have such terms,
including distributions, redemption, voting, liquidation rights and
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such other preferred, deferred or other special rights or such restrictions as
shall be established by the Regular Trustees in accordance with the Declaration
or as shall be set forth in the Declaration or made part of the Declaration by
the Trust Indenture Act. Reference is made to any Prospectus Supplement relating
to the Preferred Securities of the Trust for specific terms of the Preferred
Securities, including, to the extent applicable, (i) the distinctive designation
of such Preferred Securities, (ii) the number of Preferred Securities issued by
the Trust, (iii) the annual distribution rate (or method of determining such
rate) for Preferred Securities issued by the Trust and the date or dates upon
which such distributions shall be payable (provided, however, that distributions
on such Preferred Securities shall, subject to any deferral provisions, and any
provisions for payment of defaulted distributions, be payable on a quarterly
basis to Holders of such Preferred Securities as of a record date in each
quarter during which such Preferred Securities are outstanding), (iv) any right
of the Trust to defer quarterly distributions on the Preferred Securities as a
result of an interest deferral right exercised by the Company on the Debt
Securities held by the Trust; (v) whether distributions on Preferred Securities
shall be cumulative, and, in the case of Preferred Securities having such
cumulative distribution rights, the date or dates or method of determining the
date or dates from which distributions on Preferred Securities shall be
cumulative, (vi) the amount or amounts which shall be paid out of the assets of
the Trust to the Holders of Preferred Securities upon voluntary or involuntary
dissolution, winding-up or termination of the Trust, (vii) the obligation or
option, if any, of the Trust to purchase or redeem Preferred Securities and the
price or prices at which, the period or periods within which and the terms and
conditions upon which Preferred Securities shall be purchased or redeemed, in
whole or in part, pursuant to such obligation or option, (viii) the voting
rights, if any, of Preferred Securities in addition to those required by law,
including the number of votes per Preferred Security and any requirement for the
approval by the Holders of Preferred Securities as a condition to specified
action or amendments to the Declaration, (ix) the terms and conditions, if any,
upon which Debt Securities held by the Trust may be distributed to holders of
Preferred Securities, and (x) any other relevant rights, preferences,
privileges, limitations or restrictions of Preferred Securities consistent with
the Declaration or with applicable law. All Preferred Securities offered hereby
will be guaranteed by the Company to the extent set forth below under
"Description of Trust Guarantee." Certain United States federal income tax
considerations applicable to any offering of Preferred Securities will be
described in the Prospectus Supplement relating thereto.
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust one series of Common Securities having such terms including distributions,
redemption, voting, liquidation rights or such restrictions as shall be
established by the Regular Trustees in accordance with the Declaration or as
shall otherwise be set forth therein. The terms of the Common Securities issued
by the Trust will be substantially identical to the terms of the Preferred
Securities issued by the Trust, and the Common Securities will rank pari passu,
and payments will be made thereon pro rata, with the Preferred Securities except
that, if an event of default under the Declaration has occurred and is
continuing, the rights of the holders of the Common Securities to payment in
respect of distributions and payments upon liquidation, redemption and otherwise
will be subordinated to the rights of the holders of the Preferred Securities.
An event of default under the Declaration will be deemed to have occurred
whenever an event of default (as defined in the Indenture) shall have occurred
with respect to the Debt Securities held by the Trust. Except in certain limited
circumstances, the Common Securities will also carry the right to vote and to
appoint, remove or replace any of the Trustees of the Trust. All of the Common
Securities of the Trust will be directly or indirectly owned by the Company.
DESCRIPTION OF TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust Guarantee
that will be executed and delivered by the Company for the benefit of the
holders, from time to time, of Preferred Securities. The Trust Guarantee will be
qualified as an indenture under the Trust Indenture Act. The Bank of New York
will act as indenture trustee under the Trust Guarantee (the "Preferred
Securities Guarantee Trustee"). The terms of the Trust Guarantee will be those
set forth in such Trust Guarantee and those made part of such Trust Guarantee by
the Trust Indenture Act. The summary of certain provisions of the Trust
Guarantee does not purport to be complete and is subject to and qualified in its
entirety by reference to the provisions of the form of Trust Guarantee, a copy
of which has been filed as an exhibit to the Registration Statement of which
this Prospectus is a
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part, and the Trust Indenture Act. The Trust Guarantee will be held by the
Preferred Securities Guarantee Trustee for the benefit of the holders of the
Preferred Securities of the Trust.
GENERAL
Pursuant to the Trust Guarantee, the Company will irrevocably and
unconditionally agree, to the extent set forth therein, to pay in full to the
holders of the Preferred Securities, the Trust Guarantee Payments (as defined
below) (except to the extent paid by the Trust), as and when due, regardless of
any defense, right of set-off or counterclaim which the Trust may have or
assert. The following payments or distributions with respect to the Preferred
Securities (the "Trust Guarantee Payments"), to the extent not paid by the
Trust, will be subject to the Trust Guarantee (without duplication): (i) any
accrued and unpaid distributions that are required to be paid on such Preferred
Securities, to the extent the Trust shall have funds available therefor, (ii)
the redemption price, including all accrued and unpaid distributions to the date
of redemption (the "Redemption Price"), to the extent the Trust has funds
available therefor, with respect to any Preferred Securities called for
redemption by the Trust and (iii) upon a voluntary or involuntary dissolution,
winding-up or termination of the Trust (other than in connection with the
distribution of Debt Securities to the holders of Preferred Securities or the
redemption of all of the Preferred Securities upon maturity or redemption of the
Debt Securities) the lesser of (a) the aggregate of the liquidation amount and
all accrued and unpaid distributions on such Preferred Securities to the date of
payment, to the extent the Trust has funds available therefor or (b) the amount
of assets of the Trust remaining for distribution to holders of such Preferred
Securities in liquidation of the Trust. The Company's obligation to make a Trust
Guarantee Payment may be satisfied by direct payment of the required amounts by
the Company to the holders of Preferred Securities or by causing the Trust to
pay such amounts to such holders.
The Trust Guarantee will be a full and unconditional guarantee with respect
to the Preferred Securities from the time of issuance of such Preferred
Securities but will not apply to any payment of distributions except to the
extent the Trust shall have funds available therefor. If the Company does not
make interest or principal payments on the Debt Securities purchased by the
Trust, the Trust will not pay distributions on the Preferred Securities issued
by the Trust and will not have funds available therefor.
The Company has also agreed to irrevocably and unconditionally guarantee
the obligations of the Trust with respect to the Common Securities (the "Trust
Common Guarantee") to the same extent as the Trust Guarantee, except that, if an
Event of Default under the Indenture has occurred and is continuing, holders of
Preferred Securities under the Trust Guarantee shall have priority over holders
of the Common Securities under the Trust Common Guarantee with respect to
distributions and payments on liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Trust Guarantee, the Company will covenant that, so long as any
Preferred Securities remain outstanding, if there shall have occurred any event
of default under the Trust Guarantee or under the Declaration, then (a) the
Company will not declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock; (b) the Company shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by the Company which rank pari
passu with or junior to the Debt Securities issued to the Trust and (c) the
Company shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Trust Guarantee)provided, however, that the Company
may declare and pay a stock dividend where the dividend stock is the same stock
as that on which the dividend is being paid.
MODIFICATION OF THE TRUST GUARANTEES; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), the Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities. The manner of obtaining any such approval of
holders of such Preferred Securities will be set forth in an accompanying
Prospectus Supplement. All guarantees and agreements contained in the Trust
Guarantee shall
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bind the successors, assigns, receivers, trustees and representatives of the
Company and shall inure to the benefit of the holders of the Preferred
Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Trust Guarantee will occur upon the failure
of the Company to perform any of its payment or other obligations thereunder.
The holders of a majority in liquidation amount of the Preferred Securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Preferred Securities Guarantee Trustee in respect of
the Trust Guarantee or to direct the exercise of any trust or power conferred
upon the Preferred Securities Guarantee Trustee under the Trust Guarantee.
If the Preferred Securities Guarantee Trustee fails to enforce the Trust
Guarantee, any holder of Preferred Securities may institute a legal proceeding
directly against the Company to enforce its rights under the Trust Guarantee
without first instituting a legal proceeding against the Trust, the Preferred
Securities Guarantee Trustee or any other person or entity. The Company has
waived any right or remedy to require that any action be brought first against
the Trust or any other person or entity before proceeding directly against the
Company.
The Company will be required to provide annually to the Preferred
Securities Guarantee Trustee a statement as to the performance by the Company of
certain of its obligations under the Trust Guarantee and as to any default in
such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default, undertakes to perform only such duties as are specifically set forth in
the Trust Guarantee and, after default with respect to the Trust Guarantee,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provision, the Preferred
Securities Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Guarantee at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate as to the Preferred Securities upon full
payment of the Redemption Price of all Preferred Securities, upon distribution
of the Debt Securities held by the Trust to the holders of all of the Preferred
Securities or upon full payment of the amounts payable in accordance with the
Declaration upon liquidation of the Trust. The Trust Guarantee will continue to
be effective or will be reinstated, as the case may be, if at any time any
holder of Preferred Securities must restore payment of any sums paid under such
Preferred Securities or the Trust Guarantee.
STATUS OF THE TRUST GUARANTEE
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, including the Debt Securities, except those
liabilities of the Company made pari passu or subordinate by their terms, (ii)
pari passu with the most senior preferred or preference stock now or hereafter
issued by the Company and with any guarantee now or hereafter entered into by
the Company in respect of any preferred or preference stock of any affiliate of
the Company and (iii) senior to the Company's Common Stock. The terms of the
Preferred Securities provide that each holder of Preferred Securities by
acceptance thereof agrees to the subordination provisions and other terms of the
Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity).
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PLAN OF DISTRIBUTION
The Company and the Trust may offer and sell Securities in any of the
following ways: (i) directly to purchasers, (ii) through agents, (iii) through
underwriters, (iv) through dealers or (v) through a combination of any such
methods. The Prospectus Supplement with respect to an offering of Securities
will set forth the terms of such offering, including, to the extent applicable,
the name or names of any underwriters (and any managing underwriters), the names
of any dealers or agents, the purchase price of the Securities and the proceeds
to the Company or the Trust from such sale, any underwriting discounts and
commissions or agency fees and other items constituting underwriters' or agents'
compensation, any initial public offering price and any discounts or concessions
allowed or reallowed or paid to dealers and any securities exchanges or
interdealer quotation system on which such Securities are expected to be listed.
Any initial public offering price and any discounts or concessions allowed or
reallowed or paid to dealers may be changed from time to time.
Securities may be offered and sold, and offers to purchase such securities
may be solicited, by agents designated by the Company or the Trust from time to
time. Any such agent involved in the offer or sale of the Securities in respect
of which this Prospectus is delivered will be named, and the terms of such
agency (including any commissions payable by the Company or the Trust to such
agent) will be set forth, in the applicable Prospectus Supplement. Unless
otherwise indicated in such Prospectus Supplement, any such agent will be acting
on a best efforts basis for the period of its appointment.
If an underwriter or underwriters are utilized in the sale of Securities,
the Company or the Trust will execute an underwriting agreement with such
underwriter or underwriters at the time an agreement for such sale is reached,
and the names of the managing underwriter or managing underwriters, as well as
any other underwriters, and the terms of the transaction, including commissions,
discounts and other compensation of the underwriters and dealers, if any, will
be set forth in the Prospectus Supplement, which will be used by the
underwriters to make resales of the Securities in respect of which such
Prospectus Supplement is delivered to the public. If underwriters are used in
the sale, such underwriters will acquire Securities for their own account and
may resell such Securities from time to time in one or more transactions,
including negotiated transactions, at fixed public offering prices or at varying
prices determined by the underwriter at the time of sale. Securities may be
offered to the public either through underwriting syndicates represented by
managing underwriters, or directly by underwriters without a syndicate. Only
underwriters named in the Prospectus Supplement are deemed to be underwriters in
connection with the Securities offered thereby. If any underwriters are utilized
in the sale of the Securities, unless otherwise set forth in the Prospectus
Supplement relating thereto the underwriting agreement will provide that the
obligations of the underwriters are subject to certain conditions precedent and
that the underwriters with respect to a sale of Securities will be obligated to
purchase all such Securities, if any are purchased.
If a dealer is utilized in the sale of the Securities, the Company or the
Trust will sell such Securities to the dealer, as principal. The dealer may then
resell such Securities to the public at varying prices to be determined by such
dealer at the time of resale. The name of the dealer and the terms of the
transaction will be set forth in the Prospectus Supplement relating thereto.
Agents, underwriters and dealers may be entitled under agreements that may
be entered into with the Company or the Trust to indemnification by the Company
or the Trust against certain liabilities, including liabilities under the
Securities Act of 1933, as amended, or to contribution with respect to payments
which the agents, underwriters or dealers may be required to make in respect
thereof. Agents, underwriters and dealers may be customers of, engage in
transactions with, or perform services for the Company and affiliates of the
Company. Any agents, dealers or underwriters participating in the offering of
Securities may be deemed "underwriters" within the meaning of the Securities Act
of 1933, as amended, of the Securities so offered.
Offers to purchase Securities may be solicited directly by the Company or
the Trust and sales thereof may be made by the Company or the Trust directly to
institutional investors or others, who may be deemed to be underwriters within
the meaning of the Securities Act with respect to any resale thereof. The terms
of any such sales, including the terms of any bidding or auction process, if
utilized, will be described in the Prospectus Supplement relating thereto.
Each series of Securities will be a new issue of securities and may have no
established trading market. Agents and underwriters may from time to time
purchase and sell Securities in the secondary market or may
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make a market in the Securities, but are not obligated to do so, and there can
be no assurance that there will be a secondary market for the Securities or
liquidity in the secondary market if one develops.
If so indicated in the applicable Prospectus Supplement, the Company or the
Trust will authorize agents, underwriters or dealers to solicit offers by
certain institutions to purchase Securities from the Company or the Trust at the
public offering price set forth in the applicable Prospectus Supplement pursuant
to Delayed Delivery Contracts ("Contracts") providing for payment and delivery
on a specified date in the future. A commission indicated in the applicable
Prospectus Supplement will be paid to underwriters, dealers or agents soliciting
purchases of Securities pursuant to Contracts accepted by the Company or the
Trust. The Contracts will be subject to the conditions set forth in the
applicable Prospectus Supplement.
As one of the means of direct issuances of Securities, the Company or the
Trust may utilize the services of an entity through which it may conduct an
electronic "dutch auction" or similar offering of the Securities among potential
purchasers who are eligible to participate in the auction or offering of such
Securities, if so described in the applicable Prospectus Supplement.
The anticipated place and time of delivery for the Securities in respect of
which this Prospectus is delivered will be set forth in the applicable
Prospectus Supplement.
LEGAL MATTERS
The validity of the Securities offered hereby other than the Preferred
Securities will be passed upon for the Company and the Trust by Keating,
Muething & Klekamp, P.L.L., Cincinnati, Ohio. Certain United States federal
income taxation matters also will be passed upon for the Company and the Trust
by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Washington, D.C. Attorneys in the
Keating, Muething & Klekamp law firm hold certain Securities of the Company and
the Trust. Certain matters of Delaware law relating to the validity of the
Preferred Securities will be passed upon for the Trust by Morris, Nichols, Arsht
& Tunnell, Wilmington, Delaware.
EXPERTS
The consolidated financial statements of the Company's predecessor
appearing in its Annual Report (Form 10-K) for the year ended December 31, 1996,
as amended, 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.
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APRIL 12, 1999
AMERICAN FINANCIAL GROUP, INC.
$350,000,000
7 1/8% SENIOR DEBENTURES DUE 2009
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PROSPECTUS SUPPLEMENT
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DONALDSON, LUFKIN & JENRETTE
BEAR, STEARNS & CO. INC.
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
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WE HAVE NOT AUTHORIZED ANY DEALER, SALESPERSON OR OTHER PERSON TO GIVE YOU ANY
INFORMATION OTHER THAN THIS PROSPECTUS SUPPLEMENT AND THE ATTACHED PROSPECTUS OR
TO MAKE REPRESENTATIONS AS TO MATTERS NOT STATED IN THIS PROSPECTUS SUPPLEMENT
OR THE PROSPECTUS. YOU MUST NOT RELY ON UNAUTHORIZED INFORMATION. THIS
PROSPECTUS SUPPLEMENT IS NOT AN OFFER TO SELL THE SECURITIES OR OUR SOLICITATION
OF YOUR OFFER TO BUY THE SECURITIES IN ANY JURISDICTION WHERE THAT WOULD NOT BE
PERMITTED OR LEGAL. NEITHER THE DELIVERY OF THIS PROSPECTUS SUPPLEMENT AND THE
ATTACHED PROSPECTUS NOR ANY SALES MADE HEREUNDER AFTER THE DATE OF THIS
PROSPECTUS SUPPLEMENT SHALL CREATE AN IMPLICATION THAT THE INFORMATION CONTAINED
HEREIN OR THE AFFAIRS OF THE COMPANY HAVE NOT CHANGED SINCE THE DATE HEREOF.
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