<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 17, 1995
REGISTRATION NO. 33-58317
NO. 33-58317-01
NO. 33-58317-02
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
AMENDMENT NO. 4
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
<TABLE>
<S> <C> <C>
AMERICAN GENERAL CORPORATION TEXAS 74-0483432
AMERICAN GENERAL DELAWARE, L.L.C. DELAWARE 51-0366269
AMERICAN GENERAL CAPITAL, L.L.C. DELAWARE 51-0366270
(EXACT NAME OF EACH REGISTRANT AS (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
SPECIFIED IN ITS CHARTER) INCORPORATION OR IDENTIFICATION NO.)
ORGANIZATION)
AMERICAN GENERAL CORPORATION AMERICAN GENERAL DELAWARE, L.L.C.
2929 ALLEN PARKWAY AMERICAN GENERAL CAPITAL, L.L.C.
HOUSTON, TEXAS 77019-2155 2099 SOUTH DUPONT AVENUE
(713) 522-1111 DOVER, DELAWARE 19901
(302) 697-1912
</TABLE>
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF EACH
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
---------------------
<TABLE>
<S> <C>
JON P. NEWTON, ESQ. DAVID C. HUGHES
AMERICAN GENERAL CORPORATION AMERICAN GENERAL DELAWARE
2929 ALLEN PARKWAY MANAGEMENT CORPORATION
HOUSTON, TEXAS 77019-2155 2099 SOUTH DUPONT AVENUE
(713) 522-1111 DOVER, DELAWARE 19901
(302) 697-1912
</TABLE>
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE FOR EACH REGISTRANT)
PLEASE SEND COPIES OF ALL COMMUNICATIONS TO:
<TABLE>
<S> <C>
SCOTT N. WULFE, ESQ. JOHN H. NEWMAN, ESQ.
VINSON & ELKINS L.L.P. BROWN & WOOD
2300 FIRST CITY TOWER ONE WORLD TRADE CENTER
1001 FANNIN NEW YORK, NEW YORK 10048
HOUSTON, TEXAS 77002 (212) 839-5336
(713) 758-2222
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: from time
to time after the effective date of this registration statement, as determined
in light of market conditions.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. /X/
---------------------
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains the following two separate
prospectuses:
1. A form to be used in connection with offerings by American General
Corporation of, among other things, its Debt Securities, Common Stock, par
value $.50 per share, Preferred Stock, par value $1.50 per share, or
Warrants to purchase Debt Securities, Common Stock or Preferred Stock, the
pages following the cover of which are numbered B-2 through B-22.
2. A form to be used in connection with offerings by American General
Delaware, L.L.C. or American General Capital, L.L.C. of, among other
things, their respective Preferred Securities, the pages following the
cover of which are numbered 2 through 28.
This Registration Statement also contains (i) a form of a Prospectus
Supplement to the Prospectus referred to in 2 above which may be used in
connection with an offering by American General Delaware, L.L.C. of its Series A
Preferred Securities, the pages following the cover of which are numbered S-2
through S-91 and (ii) a form of a Prospectus Supplement to the Prospectus
referred to in 2 above which may be used in connection with an offering by
American General Capital, L.L.C. of its Series A Preferred Securities, the pages
following the cover of which are numbered CS-2 through CS-31.
<PAGE> 3
***************************************************************************
* *
* Information contained herein is subject to completion or amendment. A *
* registration statement relating to these securities has been filed *
* with the Securities and Exchange Commission. These securities may not *
* be sold nor may offers to buy be accepted prior to the time the *
* registration statement becomes effective. This prospectus supplement *
* shall not constitute an offer to sell or the solicitation of an offer *
* to buy nor shall there be any sale of these securities in any State *
* in which such offer, solicitation or sale would be unlawful prior to *
* registration or qualification under the securities laws of any such *
* State. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED MAY 17, 1995
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MAY , 1995
(LOGO)
4,500,000 PREFERRED SECURITIES
AMERICAN GENERAL DELAWARE, L.L.C.
% CONVERTIBLE MONTHLY INCOME PREFERRED SECURITIES, SERIES A
(CONVERTIBLE MIPSSM*)
(LIQUIDATION PREFERENCE $50 PER SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY, AND CONVERTIBLE INTO COMMON STOCK
OF,
AMERICAN GENERAL CORPORATION
---------------------
The % Convertible Monthly Income Preferred Securities, Series A (the
"Series A Preferred Securities"), representing the preferred limited liability
company interests offered hereby, are being issued by American General Delaware,
L.L.C., a Delaware limited liability company ("American General Delaware"). All
of the common limited liability company interests in American General Delaware
(the "Common Securities") are owned directly or indirectly by American General
Corporation, a Texas corporation ("American General" or the "Company"). American
General Delaware exists for the purpose of issuing limited liability company
interests and investing the proceeds thereof in debt securities of American
General. The proceeds from the offering of the Series A Preferred Securities
will be used by American General Delaware to purchase from American General its
% Series A Convertible Junior Subordinated Debentures due 2025 (the "Series
A Junior Subordinated Debentures") having the terms described herein and in the
accompanying Prospectus.
(continued on next page)
---------------------
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN MATERIAL RISKS
TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES A PREFERRED
SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH
PAYMENTS ON THE SERIES A PREFERRED SECURITIES AND THE SERIES A JUNIOR
SUBORDINATED DEBENTURES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX
CONSIDERATIONS.
---------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING AMERICAN GENERAL
OFFERING PRICE COMMISSION(1) DELAWARE(2)(3)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Series A Preferred Security........ $50.00 (2) $50.00
Total(4)............................... $ (2) $
</TABLE>
(1) American General Delaware and American General have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) In view of the fact that the proceeds of the sale of the Series A Preferred
Securities will be used by American General Delaware to purchase the Series
A Junior Subordinated Debentures of American General, the Underwriting
Agreement provides that American General will pay to the Underwriters, as
compensation ("Underwriters' Compensation"), $ per Series A Preferred
Security (or $ in the aggregate). See "Underwriting".
(3) Expenses of the offering, which are payable by American General, are
estimated to be $ .
(4) American General Delaware and American General have granted the Underwriters
an option for 30 days to purchase up to an additional 500,000 Series A
Preferred Securities at the initial public offering price per Series A
Preferred Security solely to cover over-allotments, if any. American General
will pay to the Underwriters, as Underwriters' Compensation, $ per
Series A Preferred Security purchased pursuant to this option. If such
option is exercised in full, the total initial public offering price,
Underwriters' Compensation and proceeds to American General Delaware will be
$ , $ and $ , respectively. See "Underwriting".
---------------------
The Series A Preferred Securities offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Series A Preferred Securities will be made only in
book-entry form through the facilities of The Depository Trust Company on or
about May , 1995.
- ---------------
* MIPS is a service mark of Goldman, Sachs & Co.
---------------------
GOLDMAN, SACHS & CO. J.P. MORGAN SECURITIES INC.
CS FIRST BOSTON
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
---------------------
The date of this Prospectus Supplement is May , 1995.
<PAGE> 4
(continued from previous page)
The Series A Junior Subordinated Debentures are subordinated in right of
payment to all Senior Indebtedness (as defined under "Description of the Junior
Subordinated Debentures -- Subordination" in the accompanying Prospectus) of
American General. As of March 31, 1995, American General had approximately $2.8
billion of indebtedness constituting Senior Indebtedness.
Holders of the Series A Preferred Securities will be entitled to receive
cumulative cash distributions ("dividends") from American General Delaware at
the annual rate of % of the liquidation preference of $50 per Series A
Preferred Security, accruing from the date of original issuance and payable
monthly in arrears on the last day of each calendar month of each year,
commencing June 30, 1995. See "Description of the Series A Preferred
Securities -- Dividends".
In the event of the liquidation, dissolution or winding-up of American
General Delaware, holders of Series A Preferred Securities will be entitled to
receive for each Series A Preferred Security a liquidation preference of $50
plus an amount equal to any accumulated and unpaid dividends (whether or not
earned or declared), including any Additional Dividends (as defined herein), to
the date of payment, subject to certain limitations, unless such liquidation,
dissolution or winding-up is in connection with or after the exchange of the
Series A Preferred Securities for the Series A Junior Subordinated Debentures.
See "Description of the Series A Preferred Securities -- Liquidation Rights".
Each Series A Preferred Security is convertible in the manner described
herein at the option of the holder, at any time prior to the Conversion
Expiration Date (as defined herein), into shares of Common Stock, par value $.50
per share, of American General ("American General Common Stock"), at the rate of
shares of American General Common Stock for each Series A Preferred
Security (equivalent to a conversion price of $ per share of American
General Common Stock), subject to adjustment in certain circumstances. Whenever
American General issues shares of American General Common Stock upon conversion
of Series A Preferred Securities, American General will, subject to certain
conditions, issue, together with each share of American General Common Stock,
one Right (as defined herein) entitling the holder thereof, under certain
circumstances, to purchase shares of Series A Junior Participating Preferred
Stock (or other securities in lieu thereof). See "Description of the Series A
Preferred Securities -- Conversion Rights". The last reported sale price of
American General Common Stock, which is reported under the symbol "AGC" on the
New York Stock Exchange Composite Tape, on May 16, 1995, was $33 3/4 per share.
See "Market Prices of American General Common Stock and Dividends". On and after
May , , American General Delaware may, at its option, cause the
conversion rights of holders of the Series A Preferred Securities to expire.
American General Delaware may exercise this option only if (i) American General
Delaware is then current in the payment of dividends on the Series A Preferred
Securities and (ii) for 20 trading days within any period of 30 consecutive
trading days, including the last trading day of such period, the Current Market
Price (as defined herein) of American General Common Stock has exceeded 120% of
the conversion price of the Series A Preferred Securities, subject to adjustment
in certain circumstances. In order to exercise its conversion expiration option,
American General Delaware must issue a press release announcing the date (which
date must be not less than 30 and not more than 60 calendar days following the
issuance of such press release) upon which conversion rights will expire prior
to the opening of business on the second trading day after a period in which the
conditions in the preceding sentence have been met, but in no event prior to May
, . See "Description of the Series A Preferred Securities -- Conversion
Rights".
The Series A Preferred Securities will be redeemable at the option of
American General Delaware (subject to the prior consent of American General), in
whole or in part, from time to time, on or after May , 2003, at a cash
redemption price equal to the liquidation preference for such Series A Preferred
Securities plus accumulated and unpaid dividends (whether or not earned or
(continued on next page)
S-2
<PAGE> 5
(continued from previous page)
declared), including any Additional Dividends, to the date fixed for redemption
(the "Redemption Price"). In addition, if at any time after the Conversion
Expiration Date, less than 10% of the Series A Preferred Securities issued in
the Offering (as defined herein) remains outstanding, then such Series A
Preferred Securities will be redeemable at the option of American General
Delaware (subject to the prior consent of American General), in whole but not in
part, at the Redemption Price. The Series A Preferred Securities will not have a
stated maturity date, although they will be subject to mandatory redemption upon
repayment of the principal of the Series A Junior Subordinated Debentures at
stated maturity (May , 2025), earlier redemption or otherwise, including as a
result of acceleration thereof. See "Description of the Series A Preferred
Securities -- Redemption".
In addition, the Series A Preferred Securities are subject to exchange in
the manner described herein, in whole but not in part, for shares of Series A
Cumulative Convertible Preferred Stock, par value $1.50 per share, of American
General ("American General Series A Preferred Stock"), at the rate of one share
of American General Series A Preferred Stock for each Series A Preferred
Security, upon a vote of the holders of a majority of the aggregate liquidation
preference of all outstanding Series A Preferred Securities following the
failure of holders of Series A Preferred Securities to receive dividends in full
(including arrearages) for 15 consecutive months. The American General Series A
Preferred Stock will have dividend, liquidation, optional redemption and
conversion provisions and certain other terms substantially similar to those of
the Series A Preferred Securities, except that, among other things, the holders
of American General Series A Preferred Stock will have the right (voting
together with holders of certain other series of capital stock of American
General) to elect two additional directors of American General whenever
dividends on the American General Series A Preferred Stock are in arrears for 18
or more consecutive months, no interest will accumulate or be payable on any
dividend arrearages on the American General Series A Preferred Stock and the
American General Series A Preferred Stock will not be subject to mandatory
redemption. See "Description of the Series A Preferred Securities -- Optional
Exchange for American General Series A Preferred Stock".
American General will irrevocably and unconditionally guarantee, on a
subordinated basis and to the extent set forth herein and in the accompanying
Prospectus, the payment of dividends by American General Delaware on the Series
A Preferred Securities (but only if and to the extent declared from funds of
American General Delaware legally available therefor), the Redemption Price
payable with respect to Series A Preferred Securities (but only to the extent
payable out of funds of American General Delaware legally available therefor)
and payments on liquidation, dissolution or winding-up with respect to the
Series A Preferred Securities (but only to the extent that assets of American
General Delaware are available for distribution to holders of the Series A
Preferred Securities) (the "Guarantee"). The Guarantee will be unsecured and
will be subordinate to all other liabilities of American General (other than
certain other guarantees) and will rank pari passu with the most senior
preferred stock issued by American General. See "Description of the Guarantees"
in the accompanying Prospectus.
American General Delaware's ability to pay amounts due on the Series A
Preferred Securities is solely dependent upon its receipt of payments from
American General on the Series A Junior Subordinated Debentures as and when
required. Interest on the Series A Junior Subordinated Debentures is payable
monthly in arrears but such interest payment period may be extended from time to
time by American General to a period not exceeding 60 consecutive months (an
"Extension Period"), in which event monthly dividend payments on the Series A
Preferred Securities by American General Delaware would be deferred but would
continue to accumulate monthly and Additional Dividends, intended to provide
monthly compounding on dividend arrearages, would also
(continued on next page)
S-3
<PAGE> 6
(continued from previous page)
accumulate. Prior to the termination of any Extension Period of less than 60
consecutive months, American General may further extend the interest payment
period as long as such Extension Period, as further extended, does not exceed 60
consecutive months and does not extend beyond the stated maturity date or date
of redemption of the Series A Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all accrued and unpaid
interest (including compounded interest), American General may select a new
Extension Period, subject to the preceding sentence. No interest will be due
during an extended interest payment period until the end of such period. At the
end of any such Extension Period, American General will be required to pay all
accrued and unpaid interest (including compounded interest) and upon such
payment American General Delaware should be able to pay all accumulated and
unpaid dividends on the Series A Preferred Securities (including Additional
Dividends). If American General does not make interest payments on the Series A
Junior Subordinated Debentures, American General Delaware will not have
sufficient funds to pay the dividends on the Series A Preferred Securities. The
Guarantee does not cover payment of dividends when American General Delaware
does not have sufficient legally available funds to pay such dividends. The
failure of holders of the Series A Preferred Securities to receive dividends in
full (including arrearages) for 15 consecutive months would trigger the right of
such holders to obtain American General Series A Preferred Stock in the manner
described herein. See "Description of the Series A Preferred
Securities -- Dividends" and "Description of the Series A Junior Subordinated
Debentures".
At any time after the occurrence of a Special Event (as defined herein),
American General Delaware (subject to the prior consent of American General) may
exchange in the manner described herein, in whole but not in part, the Series A
Preferred Securities for Series A Junior Subordinated Debentures having an
aggregate principal amount and accrued and unpaid interest equal to the
aggregate liquidation preference and accumulated and unpaid dividends (including
Additional Dividends), respectively, of the Series A Preferred Securities. In
connection with any such exchange, American General Delaware may be liquidated,
dissolved or wound-up. Such Series A Junior Subordinated Debentures will have
provisions with respect to interest, optional redemption and conversion into
American General Common Stock (including Conversion Expiration Date provisions)
and certain other terms substantially similar or analogous to those of the
Series A Preferred Securities for which they are exchanged. See "Description of
the Series A Preferred Securities -- Special Event Exchange for Series A Junior
Subordinated Debentures".
The Series A Preferred Securities have been approved for listing on the New
York Stock Exchange ("NYSE"), subject to notice of issuance, under the symbol
"AGC prC".
The Series A Preferred Securities will be represented by a global
certificate or certificates registered in the name of Cede & Co. (as nominee for
The Depository Trust Company ("DTC")). Beneficial interests in the Series A
Preferred Securities will be shown on, and transfers thereof will be effected
only through, records maintained by the participants in DTC. Except as described
herein, Series A Preferred Securities in certificated form will not be issued in
exchange for the global certificate or certificates. See "Description of the
Preferred Securities -- Book-Entry-Only Issuance -- The Depository Trust
Company" in the accompanying Prospectus.
------------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
PREFERRED SECURITIES OFFERED HEREBY AND AMERICAN GENERAL COMMON STOCK AT LEVELS
ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS
MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET
OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
S-4
<PAGE> 7
PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read
in connection with, the more detailed information and financial data appearing
elsewhere in this Prospectus Supplement, including the information under
"Investment Considerations," and in the accompanying Prospectus.
AMERICAN GENERAL CORPORATION
American General, with assets of $56 billion and shareholders' equity of
$4.4 billion as of March 31, 1995, is one of the nation's largest consumer
financial services organizations. American General is headquartered in Houston,
Texas and operates through its subsidiaries in all 50 states, the District of
Columbia, Canada, Puerto Rico, and the U.S. Virgin Islands. American General was
incorporated as a general business corporation in Texas in 1980 and is the
successor to American General Insurance Company, incorporated in Texas in 1926.
American General's operations are classified into three business segments:
Retirement Annuities, which specializes in providing tax-deferred retirement
plans and annuities to employees of educational, health care and other
not-for-profit organizations; Consumer Finance, which offers consumer and home
equity loans, credit cards, and credit-related insurance to individuals through
more than 1,300 branch offices; and Life Insurance, which provides traditional
and interest-sensitive life insurance and both fixed and variable annuity
products through 14,000 sales representatives and general agents.
AMERICAN GENERAL DELAWARE, L.L.C.
American General Delaware is a special purpose limited liability company
recently formed under the laws of the State of Delaware. All of its common
limited liability company interests are owned directly or indirectly by American
General. American General Delaware has no board of directors, and all of its
business and affairs are managed by American General Delaware Management
Corporation, a wholly-owned subsidiary of American General.
American General Delaware exists for the purpose of issuing its limited
liability company interests and lending substantially all of the proceeds
thereof to American General, and may not engage in any other activities. The
Series A Preferred Securities constitute a series of American General Delaware's
Preferred Securities and the proceeds of the sale of the Series A Preferred
Securities will be invested by American General Delaware in American General's
Series A Junior Subordinated Debentures. The payment by American General
Delaware of dividends due on the Series A Preferred Securities is solely
dependent on its receipt of interest payments from American General on the
Series A Junior Subordinated Debentures.
THE OFFERING
Securities Offered......... 4,500,000 of American General Delaware's %
Convertible Monthly Income Preferred Securities,
Series A. Additionally, American General Delaware
and American General have granted the Underwriters
an option for 30 days to purchase up to an
additional 500,000 Series A Preferred Securities at
the initial public offering price solely to cover
over-allotments, if any.
Dividends.................. Dividends on the Series A Preferred Securities will
be cumulative from the date of original issuance of
the Series A Preferred Securities and will be
payable at the annual rate of $ , or
% of the liquidation preference of $50 per
Series A Preferred Security. Subject to the
dividend deferral provisions described below,
dividends will be payable monthly in arrears on the
last day
S-5
<PAGE> 8
of each calendar month, commencing June 30, 1995.
Payment of dividends is limited to the funds held
by American General Delaware and legally available
for distribution to the holders of the Series A
Preferred Securities.
Dividend Deferral
Provisions................. The ability of American General Delaware to pay
dividends on the Series A Preferred Securities is
solely dependent on its receipt of interest
payments from American General on the Series A
Junior Subordinated Debentures. American General
has the right, at any time and from time to time,
to extend the interest payment period on the Series
A Junior Subordinated Debentures for an Extension
Period not exceeding 60 consecutive months, as
described below under "Series A Junior Subordinated
Debentures." Monthly dividends on the Series A
Preferred Securities would be deferred by American
General Delaware (but would continue to accumulate
monthly and Additional Dividends, intended to
provide monthly compounding on dividend arrearages,
would also accumulate) during any such Extension
Period. American General Delaware will give written
notice of American General's extension of an
interest payment period to the holders of the
Series A Preferred Securities no later than the
last date on which it would be required to notify
the NYSE of the record or payment date of the
related dividend, which is currently 10 days prior
to such record or payment date. See "Investment
Considerations -- Option to Extend Interest Payment
Period (Deferral of Dividends on Series A Preferred
Securities)," "Description of the Series A
Preferred Securities -- Dividends" and "Description
of the Series A Junior Subordinated
Debentures -- Option to Extend Interest Payment
Period." If an extension of an interest payment
period occurs, American General Delaware, except in
very limited circumstances, will continue to accrue
income for United States income tax purposes which
will be allocated, but not distributed, to the
holders of Series A Preferred Securities in advance
of any corresponding cash distribution. See
"Investment Considerations -- Tax Considerations of
Extended Interest Payment Period (Deferral of
Dividends on Series A Preferred Securities)" and
"Certain Federal Income Tax
Considerations -- Original Issue Discount."
Rights Upon Deferral of
Dividends................ During any extension of an interest payment period
on the Series A Junior Subordinated Debentures,
interest on the Series A Junior Subordinated
Debentures will, to the extent permitted by
applicable law, compound monthly and monthly
dividends and Additional Dividends, intended to
provide monthly compounding on dividend arrearages,
will accumulate on the Series A Preferred
Securities. The failure of holders of the Series A
Preferred Securities to receive dividends in full
(including arrearages) for 15 consecutive months
would give such holders the right to obtain
American General Series A Preferred Stock in the
manner described below under "Optional Exchange for
American General Series A Preferred Stock."
Additionally, American General has agreed, among
other things, not to declare or pay any dividend on
any of its common or preferred stock during any
Extension Period.
S-6
<PAGE> 9
See "Description of the Guarantees -- Certain
Covenants of American General" in the accompanying
Prospectus.
Conversion into American
General Common Stock..... Each Series A Preferred Security is convertible at
the option of the holder, at any time prior to the
Conversion Expiration Date, into shares of American
General Common Stock, at the rate of shares of
American General Common Stock for each Series A
Preferred Security (equivalent to a conversion
price of $ per share of American General
Common Stock), subject to adjustment in certain
circumstances. The last reported sale price of
American General Common Stock on the NYSE Composite
Tape on May 16, 1995, was $33 3/4 per share. In
connection with any conversion of a Series A
Preferred Security, the Conversion Agent (as
defined herein) will exchange such Series A
Preferred Security for the appropriate principal
amount of the Series A Junior Subordinated
Debentures held by American General Delaware and
immediately convert such Series A Junior
Subordinated Debentures into American General
Common Stock. On and after May , , American
General Delaware may, at its option, cause the
conversion rights of the holders of the Series A
Preferred Securities to expire. American General
Delaware may exercise this option if it is current
in the payment of dividends on the Series A
Preferred Securities and if for 20 trading days
within any period of 30 consecutive trading days,
including the last trading day of such period, the
Current Market Price of American General Common
Stock has exceeded 120% of the then applicable
conversion price of the Series A Preferred
Securities. To exercise its conversion expiration
option, American General Delaware must issue a
press release for publication on the Dow Jones News
Service announcing the date upon which conversion
rights will expire prior to the opening of business
on the second trading day after a period in which
the conditions in the preceding sentence have been
met. The "Conversion Expiration Date" shall be the
close of business on a date not less than 30 and
not more than 60 calendar days following the date
of such press release; provided, however, that if
American General Delaware has not exercised its
conversion expiration option, the Conversion
Expiration Date with respect to any Series A
Preferred Securities which are called for
redemption will be the close of business on the
third Business Day (as defined herein) prior to the
scheduled date for such redemption. Whenever
American General issues shares of American General
Common Stock upon conversion of Series A Preferred
Securities, American General will, subject to
certain conditions, issue, together with each share
of American General Common Stock, one Right (as
defined herein) entitling the holder thereof, under
certain circumstances, to purchase shares of Series
A Junior Participating Preferred Stock (or other
securities in lieu thereof). See "Description of
the Series A Preferred Securities -- Conversion
Rights."
S-7
<PAGE> 10
Optional Exchange for
American General Series A
Preferred Stock.......... Upon the failure of holders of the Series A
Preferred Securities to receive, for 15 consecutive
months, the full amount of dividend payments
(including any arrearages), the holders of a
majority of the aggregate liquidation preference of
Series A Preferred Securities then outstanding,
voting at a special meeting called for such purpose
or by written consent, may, at their option, direct
the Conversion Agent to exchange all (but not less
than all) Series A Preferred Securities for Series
A Junior Subordinated Debentures held by American
General Delaware and to immediately exchange the
Series A Junior Subordinated Debentures on behalf
of such holders for shares of American General
Series A Preferred Stock at the rate of one share
of American General Series A Preferred Stock for
each Series A Preferred Security. The American
General Series A Preferred Stock will have
dividend, conversion, liquidation preference,
optional redemption and certain other terms
substantially similar to the terms of the Series A
Preferred Securities, except that, among other
things, the holders of American General Series A
Preferred Stock will have the right (voting
separately as a class together with the holders of
shares of any series of capital stock of American
General ranking pari passu with American General
Series A Preferred Stock as to the payment of
dividends on which like voting rights have been
conferred and are exercisable) to elect two
additional directors of American General whenever
dividends on the American General Series A
Preferred Stock are in arrears for 18 or more
consecutive months (including for this purpose any
arrearage with respect to the Series A Preferred
Securities), no interest will accumulate or be
payable on any dividend arrearages on the American
General Series A Preferred Stock and the American
General Series A Preferred Stock will not be
subject to mandatory redemption. If the Series A
Preferred Securities are exchanged for American
General Series A Preferred Stock, American General
will use its best efforts to have the American
General Series A Preferred Stock listed on the NYSE
or other exchange on which the Series A Preferred
Securities may then be listed. See "Description of
the Series A Preferred Securities -- Optional
Exchange for American General Series A Preferred
Stock." Certain tax consequences of an exchange,
including the possibility of additional income tax
to the extent accrued interest on the Series A
Junior Subordinated Debentures is converted into
accumulated dividends on American General Series A
Preferred Stock, are described under "Certain
Federal Income Tax Considerations -- Exchange of
Series A Preferred Securities for American General
Stock."
Liquidation Preference..... $50 per Series A Preferred Security, plus an amount
equal to any accumulated and unpaid dividends
(whether or not earned or declared), including any
Additional Dividends, to the date of payment. See
"Description of the Series A Preferred
Securities -- Liquidation Rights."
Redemption................. The Series A Preferred Securities will be
redeemable for cash, at the option of American
General Delaware (subject to the prior
S-8
<PAGE> 11
consent of American General), in whole or in part,
from time to time, on or after May , 2003, at the
Redemption Price. In addition, if, at any time
following the Conversion Expiration Date, less than
10% of the Series A Preferred Securities issued in
the Offering remains outstanding, then such Series
A Preferred Securities will be redeemable for cash
at the option of American General Delaware (subject
to the prior consent of American General), in whole
but not in part, at the Redemption Price. The
Series A Preferred Securities will not have a
stated maturity date, although they will be subject
to mandatory redemption upon the repayment of the
Series A Junior Subordinated Debentures at stated
maturity (May , 2025), earlier redemption or
otherwise, including as a result of acceleration
thereof. See "Description of the Series A Preferred
Securities -- Redemption."
Guarantee.................. American General will irrevocably guarantee, on a
subordinated basis and to the extent set forth
herein and in the accompanying Prospectus, the
payment in full of (a) the dividends on the Series
A Preferred Securities if and to the extent
declared from funds of American General Delaware
legally available therefor, (b) the Redemption
Price of the Series A Preferred Securities to the
extent of funds of American General Delaware
legally available therefor, and (c) the liquidation
preference of the Series A Preferred Securities to
the extent of the assets of American General
Delaware available for distribution to holders of
Series A Preferred Securities. The Guarantee will
be unsecured and will be subordinate to all other
liabilities of American General except for certain
other guarantees executed by American General. The
Guarantee will rank pari passu with the most senior
preferred stock issued by American General. Upon
the liquidation, dissolution or winding-up of
American General, its obligations under the
Guarantee will rank junior to all of its other
liabilities (other than certain other guarantees)
and, therefore, funds may not be available for
payment under the Guarantee. See "Investment
Considerations -- Subordinate Obligations Under
Guarantee and Series A Junior Subordinated
Debentures." Also see "Description of the
Guarantees" in the accompanying Prospectus.
Voting Rights.............. Generally, holders of the Series A Preferred
Securities will not have any voting rights.
However, if American General Delaware fails to pay
dividends in full (including any arrearages) on the
Series A Preferred Securities for 18 consecutive
months, an Event of Default with respect to the
Series A Junior Subordinated Debentures occurs and
is continuing, or American General defaults under
the Guarantee with respect to the Series A
Preferred Securities, the holders of the Series A
Preferred Securities will be entitled to appoint
and authorize a Special Trustee to enforce American
General Delaware's rights under the Series A Junior
Subordinated Debentures, enforce American General's
obligations under the Guarantee with respect to the
Series A Preferred Securities and declare, other
than during an Extension Period, and pay dividends
on the Series A Preferred Securities to the extent
funds of American General Delaware are legally
available therefor. In addition, if for any reason
(including an extension by
S-9
<PAGE> 12
American General of the interest payment period on
the Series A Junior Subordinated Debentures)
holders of Series A Preferred Securities fail to
receive, for 15 consecutive months, the full amount
of dividend payments (including any arrearages),
the holders of the Series A Preferred Securities
will be entitled to call a special meeting for the
purpose of deciding whether to exchange all Series
A Preferred Securities then outstanding for shares
of American General Series A Preferred Stock, as
described above under "Optional Exchange for
American General Series A Preferred Stock." See
"Description of the Series A Preferred
Securities -- Voting Rights."
Special Event Exchange for
Series A Junior
Subordinated Debentures.... At any time after the occurrence of a Tax Event or
an Investment Company Event (each, as defined
herein, and each, a "Special Event"), American
General Delaware (subject to the prior consent of
American General) may exchange, in whole but not in
part, the Series A Preferred Securities for Series
A Junior Subordinated Debentures having an
aggregate principal amount and accrued and unpaid
interest equal to the aggregate liquidation
preference and accumulated and unpaid dividends
(including Additional Dividends), respectively, of
the Series A Preferred Securities. In connection
with any such exchange, American General Delaware
may be liquidated, dissolved or wound-up. Such
Series A Junior Subordinated Debentures will have
provisions with respect to interest, optional
redemption and conversion into American General
Common Stock (including Conversion Expiration Date
provisions) and certain other terms substantially
similar or analogous to those of the Series A
Preferred Securities. If the Series A Preferred
Securities are so exchanged for Series A Junior
Subordinated Debentures, American General will use
its best efforts to have the Series A Junior
Subordinated Debentures listed on the NYSE or other
exchange on which the Series A Preferred Securities
may then be listed. See "Description of the Series
A Preferred Securities -- Special Event Exchange
for Series A Junior Subordinated Debentures."
Series A Junior
Subordinated Debentures.... The Series A Junior Subordinated Debentures will
mature on May , 2025, and will bear interest at
the rate of % per annum, payable monthly in
arrears. Such payment period may be extended from
time to time by American General (during which
period interest would continue to accrue and
compound monthly) to an Extension Period not
exceeding 60 consecutive months. Prior to the
termination of any Extension Period of less than 60
consecutive months, American General may further
extend the interest payment period as long as such
Extension Period, as further extended, does not
exceed 60 consecutive months and does not extend
beyond the stated maturity date or date of
redemption of the Series A Junior Subordinated
Debentures. Upon the termination of any Extension
Period and the payment of all accrued and unpaid
interest (including compounded interest), American
General may select a new Extension Period, subject
to the preceding sentence. No interest shall be due
during an ex-
S-10
<PAGE> 13
tended interest payment period until the end of
such period. If American General extends an
interest payment period, it will be prohibited from
paying dividends on any of its capital stock and
making certain other restricted payments until
monthly interest payments are resumed and all
accumulated and unpaid interest (including any
interest payable to effect monthly compounding) on
the Series A Junior Subordinated Debentures is
brought current. The payment of the principal of
and interest on the Series A Junior Subordinated
Debentures will be subordinated in right of payment
to all Senior Indebtedness (as defined under
"Description of the Junior Subordinated
Debentures -- Subordination" in the accompanying
Prospectus) of American General. As of March 31,
1995, American General had approximately $2.8
billion of Senior Indebtedness. The Series A Junior
Subordinated Debentures will have provisions with
respect to interest, optional redemption and
conversion into American General Common Stock
(including Conversion Expiration Date provisions)
and certain other terms substantially similar or
analogous to those of the Series A Preferred
Securities. See "Description of the Series A Junior
Subordinated Debentures" and "Investment
Considerations -- Subordinate Obligations Under
Guarantee and Series A Junior Subordinated
Debentures."
Use of Proceeds............ American General Delaware will invest the proceeds
received from the sale of the Series A Preferred
Securities in the Series A Junior Subordinated
Debentures of American General. After paying the
expenses associated with the offering made hereby
(the "Offering"), American General will use the net
proceeds to repay short-term real estate debt. See
"Use of Proceeds."
Form of Series A Preferred
Securities............... The Series A Preferred Securities will be
represented by a global certificate or certificates
registered in the name of Cede & Co., as nominee
for DTC. Beneficial interests in the Series A
Preferred Securities will be evidenced by, and
transfers thereof will be effected only through,
records maintained by the participants in DTC.
Except as described herein, Series A Preferred
Securities in certificated form will not be issued
in exchange for the global certificate or
certificates. See "Description of the Preferred
Securities -- Book-Entry-Only Issuance -- The
Depository Trust Company" in the accompanying
Prospectus.
S-11
<PAGE> 14
SUMMARY FINANCIAL INFORMATION OF AMERICAN GENERAL
The following table presents summary consolidated financial information
derived from American General's audited financial statements as of and for the
five years ended December 31, 1994. The financial data as of March 31, 1995 and
for the three months ended March 31, 1995 and 1994 was derived from American
General's unaudited quarterly financial statements, which, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
necessary for a fair presentation of the Company's results of operations and
financial position. The results of operations for the three months ended March
31, 1995 are not necessarily indicative of results to be anticipated for the
entire year. The table should be read in conjunction with "Management's
Discussion and Analysis of American General" herein and the consolidated
financial statements and the related notes incorporated herein by reference.
(IN MILLIONS, EXCEPT PER SHARE DATA)
Operating Results and Per Share Data
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 1,518 $ 1,214 $ 4,841 $ 4,829 $ 4,602 $ 4,395 $ 4,434
======== ======== ======== ======== ======== ======== ========
Business segment earnings
Retirement Annuities................. $ 54 $ 53 $ 187 $ 162 $ 130 $ 110 $ 99
Consumer Finance..................... 60 53 245 206 161 136 125
Life Insurance....................... 84(a) 64 257 (9)(b) 323 326 303
-------- -------- -------- -------- -------- -------- --------
Total business segments........ 198 170 689 359 614 572 527
-------- -------- -------- -------- -------- -------- --------
Corporate operations
Net interest on corporate debt....... (27) (19) (76) (81) (85) (87) (119)
Expenses not allocated to segments... (9) (6) (29) (25) (28) (37) (52)
Earnings on corporate assets......... 6 15 43 21 23 31 69
Net equity in WNC.................... 6 - - - - - -
Net realized investment gains
(losses)........................... 1 1 (114)(c) 6 9 1 137(d)
-------- -------- -------- -------- -------- -------- --------
Total corporate operations..... (23) (9) (176) (79) (81) (92) 35
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect and tax
rate related adjustment.............. 175 161 513 280 533 480 562
Tax rate related adjustment............ - - - (30) - - -
Cumulative effect of accounting
changes.............................. - - - (46) - - -
-------- -------- -------- -------- -------- -------- --------
Net income..................... $ 175 $ 161 $ 513 $ 204 $ 533 $ 480 $ 562
======== ======== ======== ======== ======== ======== ========
Net income per share................... $ .85 $ .75 $ 2.45 $ .94(b) $ 2.45 $ 2.13 $ 2.35
======== ======== ======== ======== ======== ======== ========
Dividends per share.................... $ .31 $ .29 $ 1.16 $ 1.10 $ 1.04 $ 1.00 $ .79(e)
======== ======== ======== ======== ======== ======== ========
Average shares outstanding............. 205.2 213.3 209.4 216.6 217.7 225.4 238.6
======== ======== ======== ======== ======== ======== ========
</TABLE>
Financial Position and Book Value Per Share
<TABLE>
<CAPTION>
MARCH DECEMBER 31,
31, --------------------------------------------------------
1995 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Assets............................................ $ 55,667(f) $ 46,295(g) $ 43,982(g) $ 39,742 $ 36,105 $ 33,808
Debt (including short-term)
Corporate....................................... 2,359 1,475 1,257 1,371 1,391 1,555
Real Estate..................................... 349 361 429 616 590 498
Consumer Finance................................ 7,261 7,090 5,843 5,484 5,243 5,096
Redeemable equity................................. 47 47 - - - 296
Shareholders' equity.............................. 4,422(f) 3,457(g) 5,137(g) 4,616 4,329 4,138
Book value per share.............................. 21.77(f) 17.05(g) 23.96(g) 21.33 19.86 18.57
</TABLE>
- ------------
(a) Includes two months of operations for American Franklin Company ("AFC"),
which was acquired January 31, 1995.
(b) Includes $300 million write-down of goodwill. See "Management's Discussion
and Analysis of American General -- For the Three Years Ended December 31,
1994 -- Significant Events -- 1993 Significant Events" herein and Note 1.7
within Item 8 of American General's Annual Report on Form 10-K for the
fiscal year ended December 31, 1994 incorporated herein by reference.
(c) Results primarily from the capital gains offset program. See "Management's
Discussion and Analysis of American General -- for the Three Years Ended
December 31, 1994 -- Significant Events -- Capital Gains Offset Program."
(d) Results primarily from the sale of substantially all of the common stock
portfolio.
(e) Excludes special dividends of $.61 per share.
(f) Includes $172 million, $106 million, and $.52 decrease in assets,
shareholders' equity, and book value per share, respectively, due to the
effect of SFAS 115. See "Management's Discussion and Analysis of American
General -- For the Three Months Ended March 31, 1995 -- Investments."
(g) Includes $986 million, $950 million, and $4.65 decrease in assets,
shareholders' equity, and book value per share, respectively, at December
31, 1994, and $1.0 billion, $676 million, and $3.14 increase in assets,
shareholders' equity, and book value per share, respectively, at December
31, 1993, due to the effect of SFAS 115. See "Management's Discussion and
Analysis of American General -- For the Three Years Ended December 31,
1994 -- Significant Events -- Effect of SFAS 115" herein and Note 1.2 within
Item 8 of American General's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 incorporated herein by reference.
S-12
<PAGE> 15
SUMMARY PRO FORMA FINANCIAL INFORMATION OF AMERICAN GENERAL
The following table presents summary consolidated (i) unaudited pro forma
financial information, (ii) unaudited historical financial information as of and
for the three months ended March 31, 1995, and (iii) historical financial
information as of and for the year ended December 31, 1994 derived from American
General's audited financial statements. The table should be read in conjunction
with "Pro Forma Financial Information of American General" and "Management's
Discussion and Analysis of American General" herein, and the consolidated
financial statements and the related notes incorporated herein by reference. The
results of operations for the three months ended March 31, 1995 are not
necessarily indicative of results to be anticipated for the entire year.
(IN MILLIONS, EXCEPT PER SHARE DATA)
Operating Results and Per Share Data
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
---------------------- ----------------------
PRO PRO
FORMA FORMA
1995(A) 1995 1994(B) 1994
------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenues.................................................... $ 1,599 $ 1,518 $ 5,924 $ 4,841
======= ======= ======= =======
Business segment earnings
Retirement Annuities...................................... $ 54 $ 54 $ 187 $ 187
Consumer Finance.......................................... 60 60 245 245
Life Insurance............................................ 93 84(c) 360 257
------- ------- ------- -------
Total business segments............................. 207 198 792 689
------- ------- ------- -------
Corporate operations
Net interest on corporate debt securities................. (29) (27) (113) (76)
Net dividends on preferred securities of subsidiary....... (4) - (14) -
Expenses not allocated to segments........................ (9) (9) (29) (29)
Earnings on corporate assets.............................. 6 6 44 43
Net equity in WNC......................................... 6 6 19 -
Net realized investment gains (losses).................... 1 1 (114) (114)(d)
------- ------- ------- -------
Total corporate operations.......................... (29) (23) (207) (176)
------- ------- ------- -------
Net income.................................................. $ 178 $ 175 $ 585 $ 513
======= ======= ======= =======
Net income per share........................................ $ .87 $ .85 $ 2.79 $ 2.45
======= ======= ======= =======
Dividends per share......................................... $ .31 $ .31 $ 1.16 $ 1.16
======= ======= ======= =======
Average shares outstanding.................................. 205.2 205.2 209.4 209.4
======= ======= ======= =======
</TABLE>
Financial Position and Book Value Per Share
<TABLE>
<CAPTION>
MARCH 31,
------------------------
PRO DECEMBER 31,
FORMA --------
1995(E) 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Assets................................................................ $ 55,667(f) $ 55,667(f) $ 46,295(g)
Debt (including short-term)
Corporate........................................................... 2,117 2,359 1,475
Real Estate......................................................... 349 349 361
Consumer Finance.................................................... 7,261 7,261 7,090
Company-obligated mandatorily redeemable preferred securities of
subsidiary.......................................................... 242 - -
Redeemable equity..................................................... 47 47 47
Shareholders' equity.................................................. 4,422(f) 4,422(f) 3,457(g)
Book value per share.................................................. 21.77(f) 21.77(f) 17.05(g)
</TABLE>
- ------------
(a) Assuming the AFC acquisition and proposed permanent financing had been
effective as of January 1, 1994. See "Pro Forma Financial Information of
American General."
(b) Assuming the AFC and Western National Corporation ("WNC") acquisitions and
the proposed AFC permanent financing had been effective as of January 1,
1994. See "Pro Forma Financial Information of American General."
(c) Includes two months of operations for AFC, which was acquired January 31,
1995.
(d) Results primarily from the capital gains offset program. See "Management's
Discussion and Analysis of American General -- For the Three Years Ended
December 31, 1994 -- Significant Events -- Capital Gains Offset Program."
(e) Reflects the proposed permanent financing of the AFC acquisition as though
it occurred on March 31, 1995. See "Pro Forma Financial Information of
American General."
(f) Includes $172 million, $106 million, and $.52 decrease in assets,
shareholders' equity, and book value per share, respectively, due to the
effect of SFAS 115. See "Management's Discussion and Analysis of American
General -- For the Three Months Ended March 31, 1995 -- Investments."
(g) Includes $986 million, $950 million, and $4.65 decrease in assets,
shareholders' equity, and book value per share, respectively, at December
31, 1994, and $1.0 billion, $676 million, and $3.14 increase in assets,
shareholders' equity, and book value per share, respectively, at December
31, 1993, due to the effect of SFAS 115. See "Management's Discussion and
Analysis of American General -- For the Three Years Ended December 31,
1994 -- Significant Events -- Effect of SFAS 115" herein and Note 1.2 within
Item 8 of American General's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 incorporated herein by reference.
S-13
<PAGE> 16
INVESTMENT CONSIDERATIONS
Prospective purchasers of Series A Preferred Securities should carefully
review the information contained elsewhere in this Prospectus Supplement and the
accompanying Prospectus and should particularly consider the following matters:
SUBORDINATE OBLIGATIONS UNDER GUARANTEE AND SERIES A JUNIOR SUBORDINATED
DEBENTURES
American General Delaware's ability to pay amounts due on the Series A
Preferred Securities is solely dependent upon its receipt of payments from
American General on the Series A Junior Subordinated Debentures as and when
required. American General's obligations under the Series A Junior Subordinated
Debentures are subordinate and junior in right of payment to all Senior
Indebtedness of American General. American General's obligations under the
Guarantee are subordinate to all other liabilities of American General except
for certain other guarantees executed by American General. The Guarantee will
rank pari passu with the most senior preferred stock issued by American General.
As of March 31, 1995, American General had approximately $2.8 billion of Senior
Indebtedness outstanding. There are no terms in the Series A Preferred
Securities, the Series A Junior Subordinated Debentures, the Junior Subordinated
Indenture (as defined in the accompanying Prospectus) or the Guarantee that
limit American General's ability to incur additional indebtedness, including
indebtedness that ranks senior to the Series A Junior Subordinated Debentures
and the Guarantee, or the ability of its subsidiaries to incur additional
indebtedness. In addition, because American General is a holding company, rights
to participate in any distribution of assets of any subsidiary upon its
liquidation or reorganization or otherwise (and thus the ability of holders of
Series A Junior Subordinated Debentures and, to the extent of the Guarantee, the
holders of Series A Preferred Securities, to benefit indirectly from such
distribution) are subject to the prior claims of creditors of that subsidiary,
except to the extent that American General may itself be a creditor of that
subsidiary. Claims on American General's subsidiaries by other creditors include
substantial claims for policy benefits and debt obligations, as well as other
liabilities incurred in the ordinary course of business. In addition, since many
of American General's subsidiaries are insurance companies subject to regulatory
control by various state insurance departments, the ability of such subsidiaries
to pay dividends to American General without prior regulatory approval is
limited by applicable laws and regulations. Furthermore, certain non-insurance
subsidiaries are restricted in their ability to make dividend payments by
long-term debt agreements. At December 31, 1994, the amount available to
American General for dividends from subsidiaries not limited by such
restrictions was $1.1 billion.
The Guarantee guarantees payment to the holders of the Series A Preferred
Securities of accumulated and unpaid monthly dividends (but only if and to the
extent declared by American General Delaware), amounts payable on redemption and
amounts payable upon the liquidation, dissolution or winding-up of American
General Delaware. In each case, however, such amount is guaranteed only to the
extent that American General Delaware has funds on hand legally available
therefor and payment thereof does not otherwise violate applicable law. If
American General were to default on its obligation to pay interest or amounts
payable on redemption or maturity of the Series A Junior Subordinated
Debentures, American General Delaware would lack legally available funds for the
payment of dividends or amounts payable on redemption of the Series A Preferred
Securities, and in such event holders of the Series A Preferred Securities would
not be able to rely upon the Guarantee for payment of such amounts. Upon the
liquidation, dissolution or winding-up of American General, its obligations
under the Guarantee would rank junior to all of its other liabilities (other
than certain other guarantees) and, therefore, funds may not be available for
payment under the Guarantee. See "Description of the Guarantees" and
"Description of the Junior Subordinated Debentures -- Subordination" in the
accompanying Prospectus.
S-14
<PAGE> 17
OPTION TO EXTEND INTEREST PAYMENT PERIOD (DEFERRAL OF DIVIDENDS ON SERIES A
PREFERRED SECURITIES)
American General has the right to extend the interest payment period on the
Series A Junior Subordinated Debentures from time to time to a period not
exceeding 60 consecutive months, in which event monthly dividend payments on the
Series A Preferred Securities by American General Delaware would be deferred but
would continue to accumulate monthly and Additional Dividends, intended to
provide monthly compounding on dividend arrearages, would also accumulate. Prior
to the termination of any Extension Period of less than 60 consecutive months,
American General may further extend the interest payment period as long as such
Extension Period, as further extended, does not exceed 60 consecutive months and
does not extend beyond the stated maturity date or date of redemption of the
Series A Junior Subordinated Debentures. Upon the termination of any Extension
Period and the payment of all accrued and unpaid interest (including compounded
interest), American General may select a new Extension Period, subject to the
preceding sentence. No interest will be due during an extended interest payment
period until the end of such period. During any Extension Period, American
General may not declare or pay any dividend on, and, subject to certain
exceptions, American General may not, and American General may not permit any of
its majority-owned subsidiaries to, redeem, purchase, acquire or make a
liquidation payment with respect to, any of American General's capital stock or
make any guarantee payments with respect to the foregoing. See "Description of
the Series A Junior Subordinated Debentures -- Option to Extend Interest Payment
Period."
TAX CONSIDERATIONS OF EXTENDED INTEREST PAYMENT PERIOD (DEFERRAL OF DIVIDENDS ON
SERIES A PREFERRED SECURITIES)
If an extension of an interest payment period occurs, American General
Delaware, except in very limited circumstances, would continue to accrue income
for United States federal income tax purposes, which would be allocated, but no
corresponding amount of cash would be distributed, to holders of record of
Series A Preferred Securities. As a result, such holders would be required to
include such interest in gross income for United States federal income tax
purposes in advance of the receipt of cash and would not receive the cash
dividend related to such income from American General Delaware if such a holder
disposed of its Series A Preferred Securities prior to the record date for
payment of dividends. See "Certain Federal Income Tax Considerations -- Original
Issue Discount."
SPECIAL EVENT EXCHANGE FOR SERIES A JUNIOR SUBORDINATED DEBENTURES
At any time after the occurrence of a Special Event, American General
Delaware (subject to the prior consent of American General) may exchange, in
whole but not in part, the Series A Preferred Securities for Series A Junior
Subordinated Debentures having an aggregate principal amount and accrued and
unpaid interest equal to the aggregate liquidation preference and accumulated
and unpaid dividends (including Additional Dividends), respectively, of the
Series A Preferred Securities. Under current United States federal income tax
law, such an exchange would not be a taxable event to holders of Series A
Preferred Securities unless the relevant Special Event is a Tax Event which
causes American General Delaware to be treated as an association taxable as a
corporation. In such case, an exchange of Series A Preferred Securities for
Series A Junior Subordinated Debentures may be a taxable event to holders of the
Series A Preferred Securities. See "Description of the Series A Preferred
Securities -- Special Event Exchange for Series A Junior Subordinated
Debentures" and "Certain Federal Income Tax Considerations -- Exchange of Series
A Preferred Securities for Series A Junior Subordinated Debentures."
TAX CONSIDERATIONS OF AN EXCHANGE FOR AMERICAN GENERAL SERIES A PREFERRED STOCK
In the event of a deferral of monthly dividends on the Series A Preferred
Securities for more than 15 consecutive months, the holders of a majority of the
aggregate liquidation preference of the
S-15
<PAGE> 18
Series A Preferred Securities then outstanding may cause the exchange of all of
the Series A Preferred Securities for shares of American General Series A
Preferred Stock. For a discussion of certain of the tax consequences of such an
exchange to holders, including the possibility that holders who exchange their
Series A Preferred Securities for American General Series A Preferred Stock may
be subject to additional income tax to the extent accrued but unpaid interest on
the Series A Junior Subordinated Debentures is converted into accumulated and
unpaid dividends on the American General Series A Preferred Stock received in
exchange for the Series A Preferred Securities, see "Certain Federal Income Tax
Considerations -- Exchange of Series A Preferred Securities for American General
Stock."
EXPIRATION OF CONVERSION RIGHTS
On and after May , , American General Delaware may, subject to
certain conditions, at its option, cause the conversion rights of holders of
Series A Preferred Securities to expire, provided that American General Delaware
is then current in the payment of dividends on the Series A Preferred Securities
and the Current Market Price (as defined herein) of American General Common
Stock has exceeded 120% of the then applicable conversion price of the Series A
Preferred Securities for a specified period. A holder of Series A Preferred
Securities will not be entitled to receive any payment or allowances for
accumulated and unpaid dividends, whether or not in arrears, upon conversion
thereof, unless the holder converts his Series A Preferred Securities into
American General Common Stock between a dividend record date and the
corresponding dividend payment date, in which case such holder will be entitled
to receive the dividend payable on such dividend payment date. See "Description
of the Series A Preferred Securities -- Conversion Rights."
S-16
<PAGE> 19
AMERICAN GENERAL CORPORATION
GENERAL
American General, with assets of $56 billion and shareholders' equity of
$4.4 billion as of March 31, 1995, is the parent company of one of the nation's
largest consumer financial services organizations. American General provides
financial services directly to consumers, emphasizing personal service and
frequent customer contact. American General's operating subsidiaries are leading
providers of retirement annuities, consumer loans and life insurance. American
General, headquartered in Houston, was incorporated as a general business
corporation in Texas in 1980 and is the successor to American General Insurance
Company, an insurance company incorporated in Texas in 1926. The principal
executive offices of American General are located at 2929 Allen Parkway,
Houston, Texas 77019-2155, and its telephone number is (713) 522-1111.
RETIREMENT ANNUITIES
Retirement Annuities represented 27% of the Company's segment earnings for
the year ended December 31, 1994 and 27% for the three months ended March 31,
1995. The Variable Annuity Life Insurance Company ("VALIC"), American General's
retirement annuity subsidiary with assets of $23 billion as of March 31, 1995,
is a leading provider of tax-deferred retirement plans and annuities to
employees of educational, health care and other not-for-profit organizations.
Based on assets of $22 billion as of December 31, 1994, VALIC ranks as the 18th
largest life insurance company in the United States.
VALIC markets products in 50 states and the District of Columbia to
approximately 840,000 customers through a national network of approximately 800
sales representatives. These sales representatives are highly trained retirement
specialists, providing personalized service to VALIC's customers.
VALIC currently holds among the strongest claims-paying ability ratings in
the life insurance industry. Management believes that these ratings provide
VALIC with a significant competitive advantage.
VALIC is committed to using advanced technologies to improve customer
service. VALIC recently introduced a new product, Portfolio DirectorSM, which
offers customers an array of 18 different investment options, as well as access
to professional investment managers, in order to have more flexibility in
creating a diversified retirement portfolio. VALIC has also introduced Portfolio
OptimizerSM, an innovative software program developed exclusively for VALIC
which helps customers allocate retirement funds among investment options.
VALIC's strategy for future growth is centered on increasing the size and
effectiveness of its sales force in order to enter new geographic territories
and further penetrate existing markets.
CONSUMER FINANCE
Consumer Finance represented 36% of the Company's segment earnings for the
year ended December 31, 1994 and 30% for the three months ended March 31, 1995.
American General Finance, Inc. and subsidiaries ("AGF"), with finance
receivables of $8.2 billion as of March 31, 1995, is a leading provider of
consumer and home equity loans, credit cards and credit-related insurance to
individuals. With more than three million customers and over 1,300 branch
offices, AGF ranks among the nation's largest consumer finance organizations.
AGF provides financing programs through approximately 20,000 retail merchants
and offers personalized service through over 9,000 employees in 41 states,
Puerto Rico and the U.S. Virgin Islands. AGF has traditionally focused on
marketing to creditworthy, middle-income families with annual household incomes
of $25,000 to $50,000 and with a head of household typically between the ages of
25 and 45.
S-17
<PAGE> 20
Management believes that AGF's competitive advantages are its large branch
office network, improved technology, new market development and strong credit
ratings. AGF's branch office network gives it a local presence in approximately
900 communities. AGF continually seeks to develop local markets. For example,
AGF provides retail financing programs through approximately 20,000 merchants
nationwide. This growing merchant base provides a flow of new business and
represents AGF's largest source of new loan customers.
AGF's strategy for future growth is centered on growing the branch office
customer base, further developing the retail dealer network and providing a
wider array of financial products and services to its customers.
LIFE INSURANCE
Life Insurance represented 37% of the Company's segment earnings for the
year ended December 31, 1994 and 43% for the three months ended March 31, 1995.
American General's life insurance companies, with assets of $22 billion as of
March 31, 1995, provide traditional and interest-sensitive life insurance and
both fixed and variable annuity products to nearly five million households
throughout all 50 states, the District of Columbia and Canada. This large
customer base is served principally by American General Life and Accident
Insurance Company ("AGLA"), American General Life Insurance Company ("AGL"),
and, since January 1995, The Franklin Life Insurance Company ("Franklin Life")
(see "Recent Developments" below). The life insurance companies meet the
financial security needs of individual consumers, business owners and customers
of financial institutions, and offer personalized service through 14,000 sales
representatives and general agents.
Management believes that specialization is the key to success in the highly
competitive life insurance marketplace. Each of American General's life
insurance companies specializes in serving a different market segment. AGLA
concentrates on meeting the basic life insurance needs of families with incomes
of less than $50,000. AGL serves the estate planning needs of middle- and
upper-income households. Franklin Life provides individual life insurance to
middle-income households, primarily in the Midwest.
Management believes that the life insurance companies' competitive
advantages are a strong market presence, financial strength and a commitment to
personalized customer service. The life insurance companies' strategy for future
growth centers on growing internally by increasing the size and productivity of
the agency field force and externally by pursuing selective acquisitions.
RECENT DEVELOPMENTS
As of November 29, 1994, the Company signed a definitive agreement to
acquire American Franklin Company ("AFC"), the holding company of Franklin Life,
for $1.17 billion. The transaction closed on January 31, 1995. The purchase
price consisted of $920 million in cash paid at closing and a $250 million
dividend paid by AFC to its former parent prior to closing. This acquisition was
accounted for using the purchase method. Beginning with the first quarter of
1995, Franklin Life was reported as part of the Life Insurance segment,
increasing that segment's assets and life insurance in force by approximately
45% and 35%, respectively. Franklin Life was acquired to complement American
General's existing life insurance distribution systems and further strengthen
the Company's position in middle-income households, particularly in the Midwest.
On December 23, 1994, the Company acquired a 40% interest in Western
National Corporation ("WNC") through the acquisition of 24,947,500 shares of
WNC's common stock for $274 million in cash. The acquisition was reflected in
the Company's 1994 consolidated financial statements using the equity method of
accounting. The Company's equity in the operating results of WNC for the period
from the acquisition date to December 31, 1994 did not have a material impact on
the Company's 1994 consolidated results of operations. The shares of WNC were
acquired for investment purposes.
S-18
<PAGE> 21
For additional information regarding these transactions, see "Pro Forma
Financial Information of American General."
AMERICAN GENERAL DELAWARE, L.L.C.
American General Delaware, L.L.C. is a limited liability company formed in
March 1995 under the laws of the State of Delaware. American General and
American General Delaware Management Corporation, a wholly-owned subsidiary of
American General, own all of the common limited liability company interests (the
"Common Securities") of American General Delaware, which securities are
nontransferable. American General Delaware is managed by American General
Delaware Management Corporation, as manager (the "Manager"), in accordance with
the Amended and Restated Limited Liability Company Agreement of American General
Delaware (the "LLC Agreement"). American General Delaware exists solely for the
purpose of issuing Preferred Securities and Common Securities and investing 99%
of the proceeds thereof in Junior Subordinated Debentures. The remaining 1% of
such proceeds will be invested in Eligible Investments (as defined in the LLC
Agreement). See "Use of Proceeds." American General Delaware's principal
executive offices are located c/o American General Delaware Management
Corporation at 2099 South Dupont Avenue, Dover, Delaware 19901, and its
telephone number at such address is (302) 697-1912.
S-19
<PAGE> 22
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of American General as of March 31, 1995, as adjusted to reflect
the proposed permanent financing of the AFC acquisition, and as further adjusted
to reflect the application of the estimated net proceeds from the sale of the
Series A Preferred Securities (assuming the Underwriters' over-allotment option
is not exercised). See "Pro Forma Financial Information of American General" and
"Use of Proceeds."
<TABLE>
<CAPTION>
MARCH 31, 1995
------------------------------------------
PRO PRO
FORMA, FORMA,
REFLECTING ADJUSTED
(UNAUDITED) AFC FOR
(IN MILLIONS) HISTORICAL FINANCING(A) OFFERING(B)
---------- ------------ -----------
<S> <C> <C> <C>
Short-term debt
Corporate....................................... $ 1,375 $ 685 $ 685
Real Estate..................................... 349 349
Consumer Finance................................ 2,498 2,498 2,498
-------- -------- --------
Total short-term debt................... $ 4,222 $ 3,532 $
======== ======== ========
Long-term debt
Corporate....................................... $ 984 $ 1,432 $ 1,432
Consumer Finance................................ 4,763 4,763 4,763
-------- -------- --------
Total long-term debt.................... 5,747 6,195 6,195
-------- -------- --------
Company-obligated mandatorily redeemable preferred
securities of American General Capital,
L.L.C.(c)....................................... - 242 242
Company-obligated mandatorily redeemable preferred
securities of American General Delaware,
L.L.C.(d)....................................... - -
Common stock subject to put contracts............. 47 47 47
Shareholders' equity
Common stock.................................... 365 365 365
Net unrealized gains (losses) on
securities(e)................................ (84) (84) (84)
Retained earnings............................... 4,606 4,606 4,606
Cost of treasury stock.......................... (465) (465) (465)
-------- -------- --------
Total shareholders' equity.............. 4,422 4,422 4,422
-------- -------- --------
Total capitalization (excluding
short-term debt)...................... $ 10,216 $ 10,906 $
======== ======== ========
</TABLE>
- ---------------
(a) Reflects the proposed permanent financing of the AFC acquisition as though
it occurred on March 31, 1995. Such proposed permanent financing includes an
offering of 10,000,000 % Cumulative Monthly Income Preferred Securities,
Series A (liquidation preference $25 per security) of American General
Capital, L.L.C. (excluding any underwriters' over-allotment option), which
is expected to be made at or about the same time as the Offering made
hereby. The closing of the Offering is not contingent on the closing of such
offering by American General Capital, L.L.C. See "Pro Forma Financial
Information of American General."
(b) Reflects the Offering and related reduction in short-term real estate debt.
(c) Assuming the proposed offering by American General Capital, L.L.C. is made,
American General Capital, L.L.C. will own approximately $313 million in
principal amount of the Company's % Series A Junior Subordinated
Debentures if the underwriters' over-allotment option is not exercised, or
approximately $360 million in principal amount of the Company's % Series A
Junior Subordinated Debentures if the underwriters over-allotment option is
exercised in full, which in each case will constitute approximately 99% of
the assets of American General Capital, L.L.C.
(d) American General Delaware will own approximately $282 million in principal
amount of the Series A Junior Subordinated Debentures if the Underwriters'
over-allotment option is not exercised, or approximately $313 million in
principal amount of Series A Junior Subordinated Debentures if the
Underwriters' over-allotment option is exercised in full, which in each case
will constitute approximately 99% of the assets of American General
Delaware.
(e) Includes a $106 million unrealized loss at March 31, 1995, due to the effect
of SFAS 115. See "Management's Discussion and Analysis of American
General -- For the Three Months Ended March 31, 1995 -- Investments."
S-20
<PAGE> 23
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the historical and pro forma ratios of
earnings to combined fixed charges and preferred stock dividends for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS YEAR ENDED
ENDED MARCH 31, DECEMBER 31,
-------------- --------------
PRO PRO
FORMA FORMA
1995(A) 1995 1994(B) 1994
------- ---- ------- ----
<S> <C> <C> <C> <C>
Ratio of earnings to combined fixed charges and
preferred stock dividends:
Consolidated operations............................. 2.5 2.5 2.4 2.4
Consolidated operations, corporate (parent company)
fixed charges and preferred stock dividends
only............................................. 6.4 7.6 5.6 7.6
</TABLE>
- ---------------
(a) Assuming the AFC acquisition and proposed permanent financing had been
effective as of January 1, 1994. See "Pro Forma Financial Information of
American General."
(b) Assuming the AFC and WNC acquisitions and the proposed AFC permanent
financing had been effective as of January 1, 1994. See "Pro Forma Financial
Information of American General."
The pro forma ratios of earnings to combined fixed charges and preferred
stock dividends do not include the effect of the Offering. If the effect of the
Offering was included, the above pro forma ratios are not expected to change by
more than 10%.
USE OF PROCEEDS
American General Delaware will invest the proceeds received from the sale
of the Series A Preferred Securities in the Series A Junior Subordinated
Debentures of American General. After paying the Underwriters' Compensation and
other expenses associated with the Offering, American General will use the net
proceeds of approximately $ (approximately $ if the
Underwriters' over-allotment option is exercised in full) to repay short-term
real estate debt. At May , 1995, the blended interest rate on American
General's short-term real estate debt was % per annum.
S-21
<PAGE> 24
MARKET PRICES OF AMERICAN GENERAL COMMON STOCK AND DIVIDENDS
The American General Common Stock is listed on the NYSE and Pacific, London
and Swiss stock exchanges. The following table sets forth, for the periods
indicated, the reported high and low sale prices of the American General Common
Stock on the NYSE Composite Tape and the respective cash dividends paid per
share of American General Common Stock:
<TABLE>
<CAPTION>
PER
SHARE
CASH
DIVIDENDS
HIGH LOW PAID
------- ------- -------
<S> <C> <C> <C>
1993
1st Quarter....................................... $ 32.88 $ 27.31 $ .275
2nd Quarter....................................... 33.25 27.75 .275
3rd Quarter....................................... 36.50 30.13 .275
4th Quarter....................................... 34.75 26.25 .275
1994
1st Quarter....................................... $ 29.63 $ 25.50 $ .29
2nd Quarter....................................... 29.38 24.88 .29
3rd Quarter....................................... 30.50 26.88 .29
4th Quarter....................................... 28.88 25.63 .29
1995
1st Quarter....................................... $ 33.25 $ 27.50 $ .31
2nd Quarter (through May 16, 1995)................ 34.25 31.13
</TABLE>
The closing price of the American General Common Stock on the NYSE
Composite Tape on May 16, 1995 was $33 3/4. The Board of Directors of American
General has declared a quarterly dividend of $.31 per share of American General
Common Stock, payable June 1, 1995 to holders of record as of May 9, 1995.
American General has paid cash dividends on the American General Common
Stock in each year since 1929. American General currently pays cash dividends
quarterly at an annual rate of $1.24 per share. Future payment of dividends on
the American General Common Stock will depend on earnings, financial condition,
capital requirements and other relevant factors. Because American General is a
holding company, its capacity to pay dividends is limited by the ability of its
subsidiaries to pay dividends. Since many of American General's subsidiaries are
insurance companies subject to regulatory control by various state insurance
departments, the ability of such subsidiaries to pay dividends to American
General without prior regulatory approval is limited by applicable laws and
regulations. Furthermore, certain non-insurance subsidiaries are restricted in
their ability to make dividend payments by long-term debt agreements. See
"Investment Considerations -- Subordinate Obligations Under Guarantee and Series
A Junior Subordinated Debentures." At December 31, 1994, the amount available to
American General for dividends from subsidiaries not limited by such
restrictions was $1.1 billion.
S-22
<PAGE> 25
SELECTED FINANCIAL INFORMATION OF AMERICAN GENERAL
The following table presents selected consolidated financial information
from American General's audited financial statements as of and for the five
years ended December 31, 1994. The financial data as of and for the three months
ended March 31, 1995 and 1994 has been derived from American General's unaudited
quarterly financial statements, which, in the opinion of management, include all
adjustments (consisting of normal recurring accruals) necessary for a fair
presentation of the Company's results of operations and financial position. The
results of operations for the three months ended March 31, 1995 are not
necessarily indicative of results to be anticipated for the entire year. The
table should be read in conjunction with "Management's Discussion and Analysis
of American General" herein and the consolidated financial statements and the
related notes incorporated herein by reference.
(IN MILLIONS, EXCEPT PER SHARE DATA)
Operating Results and Per Share Data
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
------------------ ---------------------------------------------------
1995(A) 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Premiums and other considerations..................... $ 403 $ 289 $ 1,210 $ 1,252 $ 1,213 $ 1,168 $ 1,154
Net investment income................................. 722 621 2,493 2,437 2,327 2,178 2,064
Finance charges....................................... 359 281 1,248 1,083 994 977 946
Realized investment gains (losses).................... 2 3 (172)(b) 8 18 8 216(c)
Equity in earnings of WNC............................. 9 - - - - - -
Other................................................. 23 20 62 49 50 64 54
------- ------- ------- ------- ------- ------- -------
Total revenues................................ 1,518 1,214 4,841 4,829 4,602 4,395 4,434
------- ------- ------- ------- ------- ------- -------
Insurance and annuity benefits........................ 693 539 2,224 2,311 2,198 2,065 1,868
Operating costs and expenses.......................... 317 258 1,075 970 986 950 1,005
Provision for finance receivable losses............... 72 43 214 163 135 137 118
Write-down of acquisition-related goodwill............ - - - 300(d) - - -
Interest expense
Corporate........................................... 39 28 110 108 116 132 175
Consumer Finance.................................... 125 93 416 375 392 433 432
------- ------- ------- ------- ------- ------- -------
Total benefits and expenses................... 1,246 961 4,039 4,227 3,827 3,717 3,598
------- ------- ------- ------- ------- ------- -------
Income before income tax expense and cumulative effect
of accounting changes............................... 272 253 802 602 775 678 836
------- ------- ------- ------- ------- ------- -------
Income tax expense
Excluding tax rate related adjustment............... 97 92 289 322 242 198 274
Tax rate related adjustment......................... - - - 30 - - -
------- ------- ------- ------- ------- ------- -------
Total income tax expense...................... 97 92 289 352 242 198 274
------- ------- ------- ------- ------- ------- -------
Income before cumulative effect of accounting
changes............................................. 175 161 513 250 533 480 562
Cumulative effect of accounting changes............... - - - (46) - - -
------- ------- ------- ------- ------- ------- -------
Net income.................................... $ 175 $ 161 $ 513 $ 204 $ 533 $ 480 $ 562
======== ======== ======== ======== ======== ======== ========
Net income per share.................................. $ .85 $ .75 $ 2.45 $ .94(e) $ 2.45 $ 2.13 $ 2.35
======== ======== ======== ======== ======== ======== ========
Dividends per share................................... $ .31 $ .29 $ 1.16 $ 1.10 $ 1.04 $ 1.00 $ .79(f)
======== ======== ======== ======== ======== ======== ========
Average shares outstanding............................ 205.2 213.3 209.4 216.6 217.7 225.4 238.6
======== ======== ======== ======== ======== ======== ========
</TABLE>
Financial Position and Book Value Per Share
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
------------------ ---------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets................................................ $55,667(g) $44,281(g) $46,295(h) $43,982(h) $39,742 $36,105 $33,808
Debt (including short-term)
Corporate........................................... 2,359 1,354 1,475 1,257 1,371 1,391 1,555
Real Estate......................................... 349 412 361 429 616 590 498
Consumer Finance.................................... 7,261 5,947 7,090 5,843 5,484 5,243 5,096
Redeemable equity..................................... 47 - 47 - - - 296
Shareholders' equity.................................. 4,422(g) 4,593(g) 3,457(h) 5,137(h) 4,616 4,329 4,138
Book value per share.................................. 21.77(g) 21.74(g) 17.05(h) 23.96(h) 21.33 19.86 18.57
</TABLE>
- ---------------
(a) Includes two months of operations for AFC, which was acquired January 31,
1995.
(b) Results primarily from the capital gains offset program. See "Management's
Discussion and Analysis of American General -- For the Three Years Ended
December 31, 1994 -- Significant Events -- Capital Gains Offset Program."
(c) Results primarily from the sale of substantially all of the common stock
portfolio.
(d) See "Management's Discussion and Analysis of American General -- For the
Three Years Ended December 31, 1994 -- Significant Events -- 1993
Significant Events" herein and Note 1.7 within Item 8 of American General's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994
incorporated herein by reference.
(e) Includes $300 million write-down of goodwill. See (d) above.
(f) Excludes special dividends of $.61 per share.
(g) Includes $172 million, $106 million, and $.52 decrease in assets,
shareholders' equity, and book value per share, respectively, at March 31,
1995, and $195 million, $126 million, and $.59 increase in assets,
shareholders' equity, and book value per share, respectively, at March 31,
1994, due to the effect of SFAS 115. See "Management's Discussion and
Analysis of American General -- For the Three Months Ended March 31, 1995 --
Investments."
(h) Includes $986 million, $950 million, and $4.65 decrease in assets,
shareholders' equity, and book value per share, respectively, at December
31, 1994, and $1.0 billion, $676 million, and $3.14 increase in assets,
shareholders' equity, and book value per share, respectively, at December
31, 1993, due to the effect of SFAS 115. See "Management's Discussion and
Analysis of American General -- For the Three Years Ended December 31,
1994 -- Significant Events -- Effect of SFAS 115" herein and Note 1.2 within
Item 8 of American General's Annual Report on Form 10-K for the fiscal year
ended December 31, 1994 incorporated herein by reference.
S-23
<PAGE> 26
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL
American General's Management's Discussion and Analysis for the three years
ended December 31, 1994 and the three months ended March 31, 1995, set forth
below, should be read in conjunction with American General's consolidated
financial statements within Item 8 of American General's Annual Report on Form
10-K for the fiscal year ended December 31, 1994, and within American General's
Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1995,
incorporated herein by reference.
FOR THE THREE YEARS ENDED DECEMBER 31, 1994
American General is one of the nation's largest consumer financial services
organizations, with assets of $46 billion and shareholders' equity of $3.5
billion at December 31, 1994. The Company provides retirement annuities,
consumer loans, and life insurance products to more than seven million
households throughout the United States, Canada, Puerto Rico, and the U.S.
Virgin Islands.
American General reported net income of $513 million ($2.45 per share) in
1994, compared to $204 million ($.94 per share) in 1993 and $533 million ($2.45
per share) in 1992. Reducing 1994 net income were $114 million of net realized
investment losses arising from the Company's capital gains offset program and
increases in real estate reserves. The 1993 net income was decreased by $376
million of adjustments for the write-down of goodwill, accounting changes, and a
tax charge. The 1992 net income reflected normal operations and did not include
the unusual reductions that occurred in 1994 and 1993.
SIGNIFICANT EVENTS
The following events of 1994 and 1993 significantly affected or will affect
American General's financial condition and results of operations.
Acquisitions and Divestitures
As of November 29, 1994, the Company signed a definitive agreement to
acquire Franklin Life for $1.17 billion. The transaction to purchase Franklin
Life and its parent company, AFC, closed on January 31, 1995. The purchase price
consisted of $920 million in cash paid at closing and a $250 million dividend
paid by AFC to its former parent prior to closing. This acquisition was
accounted for using the purchase method. Beginning with the first quarter of
1995, Franklin Life was reported as part of the Life Insurance segment,
increasing that segment's assets and life insurance in force by approximately
45% and 35%, respectively. The permanent financing of this acquisition will be
finalized in 1995 and is expected to consist of a mix of short-term
floating-rate debt, long-term fixed-rate debt, and preferred stock. Franklin
Life was acquired to complement American General's existing life insurance
distribution systems and further strengthen the Company's position in middle-
income households, particularly in the Midwest.
On December 23, 1994, the Company acquired a 40% interest in WNC through
the acquisition of 24,947,500 shares of WNC's common stock for $274 million in
cash. The acquisition was reflected in the 1994 financial statements using the
equity method of accounting. The Company's equity in the operating results of
WNC for the period subsequent to the acquisition did not have a material impact
on 1994 results of operations. The shares of WNC were acquired for investment
purposes.
These two acquisitions and related financings are expected to increase
earnings per share in 1995.
On August 31, 1994, the Company completed the sale of American-Amicable
Life Insurance Company of Texas ("American-Amicable"), a special niche
subsidiary in the Life Insurance segment. The sales price, which included a $10
million dividend paid prior to closing, was $105 million.
S-24
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (CONTINUED)
On August 31, 1994, the Company also announced that it had ended
discussions to sell Financial Life Assurance Company of Canada ("Financial
Life") due to adverse developments in the Canadian life insurance market.
On August 2, 1994, the Company publicly announced a $2.6 billion all-cash
merger offer to acquire Unitrin, Inc. ("Unitrin"). Unitrin provides basic
financial services, including insurance and consumer loans, to individuals and
small businesses throughout the United States. Although this offer expired on
February 7, 1995, American General continues to believe that a combination of
Unitrin's operations with those of American General is in the best interests of
the customers and shareholders of both companies, and continues to seek
regulatory approval to purchase additional shares of Unitrin.
Effect of SFAS 115
American General adopted SFAS 115, "Accounting for Certain Investments in
Debt and Equity Securities," at December 31, 1993, and all fixed maturity and
equity securities were classified as available-for-sale and recorded at fair
value. SFAS 115 requires that the carrying value of most fixed maturity
securities be adjusted for changes in market value, primarily caused by interest
rates. However, the insurance liabilities supported by these securities are not
adjusted under SFAS 115, thereby creating volatility in shareholders' equity as
interest rates change. Therefore, care should be exercised in drawing
conclusions based on balance sheet amounts that include the SFAS 115 effect.
SFAS 115 does not affect results of operations.
Rising interest rates in 1994 caused decreases in bond values. As a result,
the effect of the SFAS 115 adjustment for fixed maturity securities was to
reduce shareholders' equity by $1.6 billion during 1994.
The components of the fair value adjustment to report securities in
accordance with SFAS 115 at December 31, and the 1994 change, were as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) 1994 1993 CHANGE
------- ------ -------
<S> <C> <C> <C>
Fair value adjustment to fixed maturity securities... $(1,387) $1,594 $(2,981)
Increase (decrease) in deferred policy acquisition
costs.............................................. 401 (554) 955
Decrease (increase) in deferred income taxes......... 351 (364) 715
Valuation allowance on deferred tax asset............ (315) - (315)
------- ------ -------
Net unrealized gains (losses) on fixed maturity
securities.................................... (950) 676 (1,626)
Net unrealized gains (losses) on equity
securities.................................... 15 33 (18)
------- ------ -------
Net unrealized gains (losses) on
securities............................... $ (935) $ 709 $(1,644)
======== ====== ========
</TABLE>
The fair value adjustment to fixed maturity securities recorded at December
31, 1994 generated a deferred tax asset of $485 million. The Company believes
that a portion of the deferred tax asset is realizable, since the Company has
the ability to carryback $418 million of future capital losses against prior
years' capital gains (see "Capital Gains Offset Program" below). In addition,
the Company may hold certain securities until maturity and, therefore, would not
realize future losses on such investments. At December 31, 1994, since
management determined that the remainder of the deferred tax asset may not be
realized, a valuation allowance of $315 million was provided.
Capital Gains Offset Program
During fourth quarter 1994, American General initiated a program to realize
capital losses for tax purposes to offset prior period capital gains. The
purpose of the program is to realize tax
S-25
<PAGE> 28
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (CONTINUED)
refunds of approximately $200 million. In conjunction with this program, the
Company has realized net capital losses for tax purposes of $136 million as of
December 31, 1994, primarily through the sale of $1.2 billion of fixed maturity
securities. The Company received a tax refund of $46 million in 1995 from the
tax losses carried back to offset 1991 capital gains. This program reduced 1994
net income by approximately $60 million.
Reinvestment of the sales proceeds in higher yielding fixed maturity
securities and investment of the tax refunds are expected to increase future
pretax investment income by approximately $100 million over the next 10 years.
Additionally, the Company realized net capital gains of $162 million and
$256 million in 1992 and 1993, respectively, that can be used for tax loss
carryback purposes in 1995 and 1996. While the Company may generate capital
losses in 1995 to offset the 1992 capital gains, the ability to realize such
losses is dependent on future market conditions and alternative tax planning
strategies. As of March 31, 1995, no additional losses were realized due to the
decline in market interest rates.
Share Buyback Program
In 1994, the Company purchased 9.5 million shares of American General
Common Stock at a cost of $262 million, compared to 2.7 million shares and 2.0
million shares in 1993 and 1992, respectively. Share purchases under this
program in 1994 increased 1994 earnings per share by $.02. Purchases in 1993 had
no significant impact on 1993 earnings per share, while 1992 purchases increased
1992 earnings per share by $.01.
Since inception of the share buyback program in 1987, 97.1 million shares
of American General Common Stock, or 32% of the total shares then outstanding,
have been purchased for an aggregate cost of $1.9 billion. The Company has
suspended its share buyback program as a result of the previously discussed
acquisition activity.
Derivatives
In 1994, derivative financial instruments received significant scrutiny by
investors and regulators due to well-publicized losses by major companies.
American General makes very limited use of derivative financial instruments to
manage the cost of debt and investment transactions and does not use derivatives
for speculative purposes.
1993 Significant Events
In 1993, the Company recorded a $300 million non-cash write-down of
acquisition-related goodwill in the Life Insurance segment. This write-down was
one of the decisions resulting from a strategic review of the Company's four
ordinary life insurance subsidiaries, primarily AGL, begun in 1993. The
strategic review was initiated to assess alternatives for optimizing the use of
capital allocated to these subsidiaries in light of increasing public market
multiples for life insurance companies in early 1993 and new risk-based capital
requirements facing the life insurance industry. While AGL had been profitable
in recent years, it operated in increasingly competitive markets and its
performance was not meeting management's expectations, particularly in
comparison to the Company's other businesses.
In connection with the strategic review, the Company retained an outside
advisor to assess AGL's market value, assuming the Company chose to sell AGL.
The outside advisor's report, received on November 22, 1993, indicated that
AGL's fair value was below its book value. This report, together with the
marketing and profitability review performed by management, suggested an
impairment of AGL's goodwill. The primary source of AGL's goodwill was the $1.2
billion acquisition of the Gulf United insurance operations in 1984. Since that
time, there had been a series
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (CONTINUED)
of consolidations within the Company's ordinary life insurance operations. In
addition, AGL's marketing focus gradually changed, causing a decline in the
acquired agency force and its in force business. In the past several years,
AGL's business mix also continued to shift from life insurance to annuities,
which have different distribution systems and lower interest margins. Management
concluded, based on the cumulative effect of these trends and the outside
advisor's report, that a portion of goodwill was permanently impaired.
Following a special board of directors meeting on November 29, 1993, the
Company announced the board's decision to retain AGL and a related New York
subsidiary, seek future growth through acquisitions, sell the two special niche
life insurance subsidiaries, and write down $300 million of goodwill associated
with the four subsidiaries. While the write-down resulted in a $164 million net
loss in fourth quarter 1993, it did not affect the Company's debt or
claims-paying ability ratings and is not expected to have a material impact on
future operating results.
In addition, the Company adopted new accounting standards as of January 1,
1993 that reduced 1993 net income by $46 million. The Company also recorded a
$30 million charge to reflect the federal corporate income tax rate increase
caused by the Revenue Reconciliation Act of 1993.
BUSINESS SEGMENTS
American General reports the results of its business operations in three
segments: Retirement Annuities, Consumer Finance, and Life Insurance. To
facilitate meaningful period-to-period comparisons, earnings of each segment
include earnings from its business operations and earnings on that amount of
equity considered necessary to support its business, and exclude net realized
investment gains (losses), non-recurring items, and the effect of accounting
changes. Segment earnings were as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Retirement Annuities........................................ $187 $162 $130
Consumer Finance............................................ 245 206 161
Life Insurance.............................................. 257 291 323
---- ---- ----
Segment earnings.......................................... 689 659 614
Non-recurring items....................................... - (329) -
---- ---- ----
Total............................................. $689 $330 $614
===== ===== =====
</TABLE>
Non-recurring items in 1993 included a $300 million write-down of goodwill
in the Life Insurance segment and a $29 million charge due to the 1993 tax rate
change.
Retirement Annuities
VALIC, American General's retirement annuity subsidiary, specializes in
providing tax-deferred retirement plans and annuities to employees of
not-for-profit organizations.
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Assets............................................ $22,007 $20,896 $17,673
Fixed deposits.................................... 1,657 1,700 1,630
Variable deposits................................. 573 432 271
Revenues.......................................... 1,537 1,470 1,358
Segment earnings.................................. 187 162 130
</TABLE>
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<PAGE> 30
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (CONTINUED)
Profitability of the retirement annuity business is a function of three
elements: asset growth, net interest margin, and operating expenses.
Asset growth (excluding the effect of SFAS 115) was 11% in 1994 and 15% in
1993. A key component of asset growth is new deposits from customers, who may
elect fixed or variable account options. The strong growth in variable deposits
and decline in fixed deposits are a result of the attractiveness of equity
investments due to relatively low interest rates in 1993 and early 1994. In
response to this trend, VALIC significantly expanded the variable investment
options offered to its customers during 1994. The assets and liabilities related
to these variable account options are reflected in Separate Account assets and
liabilities because the customer bears the investment risk.
Revenues, over 97% of which are net investment income, increased as a
result of growth in total assets, despite declines of 57 and 59 basis points in
average investment yields on fixed accounts in 1994 and 1993, respectively. As a
result of management's ability to make corresponding reductions in the rates
credited to policyholders, the net interest margin increased 14 basis points in
1994 and 7 basis points in 1993.
The ratio of operating expenses to average assets was .57%, .59%, and .67%
in 1994, 1993, and 1992, respectively. Operating expenses for 1994, 1993, and
1992 were increased by pretax charges of $6 million, $7 million, and $12
million, respectively, for actual and anticipated assessments by state insurance
guaranty associations.
Substantially all of this segment's business is tax-qualified retirement
annuities, which generally experience lower withdrawal rates than non-qualified
annuities. The rate of policyholder surrenders of fixed accounts increased to
4.9% of average reserves in 1994, compared to 3.9% in 1993 and 3.8% in 1992. The
1994 increase was due in part to the surrender of one large group account, as
well as customers seeking higher returns in other equity-based investments.
Despite increased competition, especially from equity mutual funds, this
segment should continue to experience asset growth, due to its leading market
position, exclusive distribution system, and strong claims-paying ability
ratings. By managing interest-crediting rates to reflect changing investment
yields, the Company expects to maintain net interest margins within its pricing
assumptions. As a result, earnings in this segment should continue to increase.
Consumer Finance
AGF offers consumer loans, home equity loans, retail sales financing,
credit cards, and credit-related insurance products through a national network
of 1,300 branch offices.
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Finance receivables.................................... $ 7,920 $ 6,574 $ 6,200
Finance receivable volume.............................. 6,978 5,408 4,362
Revenues............................................... 1,491 1,282 1,178
Segment earnings....................................... 245 206 161
</TABLE>
Principal influences on this segment's results include the aggregate amount
and mix of finance receivables, credit loss experience, cost of borrowed funds,
and operating expenses.
Finance receivables grew 20% in 1994 and 6% in 1993. The increase in
finance receivables and finance receivable volume is primarily due to branch
expansion and business development efforts in retail sales financing. A leading
contributor to this growth has been private label products, which offer
revolving financing services through large retail merchants. Growth in
higher-yielding non-real
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (CONTINUED)
estate consumer loans and retail receivables increased the yield on finance
receivables by 63 and 21 basis points during 1994 and 1993, respectively.
As expected, growth in higher-yielding finance receivables influenced
credit quality in 1994 and 1993. Delinquencies increased to 2.9% at December 31,
1994, compared to 2.5% and 2.2% for 1993 and 1992, respectively. Charge offs
increased to 2.5% in 1994 from 2.2% in both 1993 and 1992, while the allowance
for finance receivable losses increased to 2.9% of finance receivables at
December 31, 1994, compared to 2.8% for 1993 and 2.6% for 1992.
Cost of borrowing for this segment declined 7 basis points in 1994 and 82
basis points in 1993, due to refinancing long-term debt at lower rates and the
decline in market rates during 1993 and 1992.
Operating expenses increased 12% in 1994 and 3% in 1993, compared to growth
in average finance receivables of 11% and 8% in 1994 and 1993, respectively. The
increase in operating expenses reflected increased staffing and costs related to
growth in branch offices, including 100 new branches opened in 1994, and a major
branch office automation program, partially offset by increased deferrals of
finance receivable origination costs.
Management expects to continue to increase the size of the finance
receivable portfolio and to emphasize retail and higher-yielding non-real estate
consumer loans. Revenues associated with this growth are expected to be
partially offset by higher cost of borrowed funds and an increase in the
provision for finance receivable losses. Overall, earnings in this segment
should continue to increase.
Life Insurance
The Life Insurance segment includes AGLA, which emphasizes the sale and
service of basic needs life insurance products, and AGL, which provides life
insurance and annuity products for estate planning and capital accumulation
needs. In January 1995, the Company acquired Franklin Life, which provides
individual insurance and annuity products through an agency distribution system.
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Assets.............................................. $14,156 $14,192 $13,328
Deposits
Annuities......................................... 598 472 403
Life insurance.................................... 547 521 435
Revenues
Premiums and other considerations................. 999 1,085 1,070
Net investment income............................. 902 942 948
Life and annuity sales.............................. 859 697 595
Segment earnings.................................... 257 291 323
</TABLE>
Earnings for this segment have decreased due to declining investment yields
and higher income taxes beginning in 1993. In addition, 1994 segment results
excluded American-Amicable, which had earnings of $8 million and $9 million in
1993 and 1992, respectively, and was sold in August 1994.
The decline in net investment income is primarily a result of declining
yields, partially offset by growth in assets (excluding the effect of SFAS 115).
The average investment yield for the Life Insurance segment decreased to 8.6% in
1994, compared to 9.3% and 9.9% in 1993 and 1992,
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<PAGE> 32
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (CONTINUED)
respectively. The lower yields reflect significant prepayments of
mortgage-backed securities and bond calls in 1992 and 1993, with reinvestment of
proceeds at lower interest rates.
Premiums and other considerations include premiums on traditional life
insurance and mortality, expense, and surrender charges on interest-sensitive
products. The decrease in 1994 was primarily due to the sale of
American-Amicable and the ceding of Medicare supplement business to another
insurance company. The revenues ceded were largely offset by a related decrease
in benefit expense.
Annuity sales increased 37% to $601 million in 1994, compared to an
increase of 18% in 1993. The strong growth in annuity sales is primarily due to
the successful introduction of a new variable product marketed through a network
of financial institutions. Life sales, as measured by new annualized premiums,
decreased 1% to $258 million in 1994, compared to a 16% increase in 1993. The
1994 decrease was due to lower sales of traditional life insurance and the sale
of American-Amicable.
Segment earnings were adversely affected by higher income taxes in 1994 and
1993, due to the loss of certain tax benefits which totaled $29 million in 1992.
Excluding the acquisition of Franklin Life, management expects continued
pressure on segment earnings in 1995. Despite continued increases in sales of
annuity and other interest-sensitive products, net investment income is expected
to decline as a result of lower investment yields. Including Franklin Life,
segment earnings are expected to substantially increase in 1995.
ECONOMIC FACTORS
Interest Rates
The pricing and profit margins of the products and services offered by
American General's operating subsidiaries are sensitive to interest rates.
Fluctuations in interest rates also affect the economic value and duration of
the assets and liabilities supporting these products and services. American
General may respond to fluctuations in interest rates by adjusting
interest-crediting rates, repricing products, and/or changing investment
strategy. See the discussion of the Company's asset/liability management program
below.
Competition
On January 18, 1995, the U.S. Supreme Court ruled that all national banks
may compete with insurance companies in the sale of annuities. VALIC was the
named plaintiff on behalf of the life insurance industry in the litigation
(VALIC vs. NationsBank).
VALIC currently sells variable annuities to specialized markets for
qualified retirement plans through NASD-licensed representatives. American
General's life insurance companies sell annuities through their own agency
distribution systems and through a network of financial institutions. As a
result, the impact of the decision on American General's insurance operations is
expected to be minimal.
Taxation
Tax laws affect not only the way American General is taxed but also the
design of many of its products. Changes in tax laws or regulations could
adversely affect operating results. The Revenue Reconciliation Act of 1993
increased the federal corporate tax rate by 1% and caused an increase in current
taxes and a one-time increase in deferred income taxes, which together decreased
net income by $30 million in 1993.
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<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (CONTINUED)
Regulation
Concerns about asset quality and capital adequacy of the insurance industry
have resulted in increased scrutiny by insurance regulators. American General is
not aware of any regulations or pending regulatory actions that would have a
material effect on the Company's liquidity, capital resources, or operations.
On January 1, 1994, the National Association of Insurance Commissioners
("NAIC") adopted a risk-based capital ("RBC") formula that can be used to
evaluate the adequacy of life insurance companies' statutory capital and
surplus. The RBC formula specifies various weighting factors that are applied to
financial balances or levels of activity of each company, based on the perceived
degree of risk, to calculate RBC. The formula focuses on: (1) asset impairment
risks, (2) insurance risks, (3) interest rate risks, and (4) general business
risks. The "Company Action Level" RBC ratio ("RBC ratio") is determined by
dividing a life insurance company's total adjusted capital by its calculated
RBC.
Calculations at December 31, 1994, using the RBC formula, indicate that
each of the Company's Life Insurance and Retirement Annuities subsidiaries'
total adjusted capital is equal to or greater than 250% of amounts required at
the "Company Action Level."
The RBC requirements provide for four different levels of regulatory
attention depending on an insurance company's RBC ratio. The "Company Action
Level" is triggered if a company's RBC ratio is less than 100% but greater than
or equal to 75%, or if a negative trend (as defined by the regulations) has
occurred and the company's RBC ratio is less than 125%. At the "Company Action
Level," a company must submit a comprehensive financial plan to the state
insurance commissioner that discusses proposed corrective actions to improve its
capital position. The "Regulatory Action Level" is triggered if a company's RBC
ratio is less than 75% but greater than or equal to 50%. At the "Regulatory
Action Level," the state insurance commissioner will perform a special
examination of a company and issue an order specifying corrective actions that
must be followed. The "Authorized Control Level" is triggered if a company's RBC
ratio is less than 50% but greater than or equal to 35%. At this level, the
state insurance commissioner may take any action it deems necessary, including
placing the company under regulatory control. The "Mandatory Control Level" is
triggered if a company's RBC ratio is less than 35%. At this level, the state
insurance commissioner is required to place the company under its control.
Legal Contingencies
Two real estate subsidiaries of the Company were defendants in a lawsuit
that alleged damages based on lost profits and related claims arising from
certain loans and joint venture contracts. On July 16, 1993, a judgment was
entered against the subsidiaries jointly for $47.3 million in compensatory
damages and against one of the subsidiaries for $189.2 million in punitive
damages. On September 17, 1993, a Texas state district court reduced the
previously-awarded punitive damages by $60.0 million, resulting in a reduced
judgment in the amount of $176.5 million plus post-judgment interest. An appeal
on numerous legal grounds has been filed. The Company is continuing to contest
the matter vigorously through the appeals process; and the Company believes,
based on advice of legal counsel, that plaintiffs' claims are without merit.
Accordingly, no provision has been made in the consolidated financial statements
related to this contingency.
In April 1992, the Internal Revenue Service ("IRS") issued Notices of
Deficiency in the amount of $12.4 million for the 1977-1981 tax years of certain
insurance subsidiaries. The basis of the dispute was the tax treatment of
modified coinsurance agreements. The Company elected to pay all related
assessments plus associated interest, totaling $59 million. A claim for refund
of tax and interest was disallowed by the IRS in January 1993. On June 30, 1993,
a suit for refund was filed in the Court of Federal Claims. Trial is expected to
occur in mid-1995. The Company believes that the
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<PAGE> 34
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (CONTINUED)
IRS's claims are without merit and is continuing to vigorously pursue refund of
the amounts paid. Accordingly, no provision has been made in the consolidated
financial statements related to this contingency.
American General and certain of its subsidiaries are defendants in various
other lawsuits and proceedings arising in the normal course of business. Some of
these lawsuits and proceedings arise in jurisdictions such as Alabama that
permit punitive damages disproportionate to the actual damages alleged. Although
no assurances can be given and no determination can be made at this time as to
the outcome of any particular lawsuit or proceeding, American General and its
subsidiaries believe that there are meritorious defenses for all of these claims
and are defending them vigorously. The Company also believes that the total
amounts that would ultimately be paid, if any, arising from these claims would
have no material effect on the Company's consolidated results of operations and
financial position.
Guaranty Associations
All 50 states have laws requiring solvent life insurance companies to pay
assessments to state guaranty associations to protect the interests of
policyholders of insolvent life insurance and annuity companies. A portion of
these assessments can be recovered against the payment of future premium taxes;
however, changes in state laws could decrease the amount available for recovery.
The amounts assessed American General's life insurance and annuity
subsidiaries under such laws were $16 million for 1994 and $14 million each for
1993 and 1992. The assessments were reduced by $6 million for 1994 and $5
million each for 1993 and 1992, considered recoverable against future premium
taxes. At year-end 1994, the accrued liability for anticipated unrecoverable
assessments was $21 million, compared to $19 million for 1993 and $17 million
for 1992.
Environmental
American General's principal exposure to environmental regulation arises
from its ownership of investment real estate. Probable costs related to
environmental cleanup were estimated to be $3 million at December 31, 1994 and
March 31, 1995, and appropriate liabilities have been recorded to reflect these
costs.
ASSET/LIABILITY MANAGEMENT
Objectives
Asset/liability management is performed on an ongoing basis for each of the
Company's operating companies as well as on an aggregate basis. The primary
objective of the Company's asset/liability management program is to maintain a
reasonable balance in the durations of assets and liabilities to minimize the
risk of inadequate liquidity, while achieving profitability objectives. An
additional objective of the Consumer Finance segment's asset/liability
management program is to manage the spread between the yield on finance
receivables and borrowing costs.
Techniques -- Retirement Annuities and Life Insurance
The primary asset management technique used to maintain duration match in
the Retirement Annuities and Life Insurance segments is to target new cash flows
to meet specific duration objectives. To a lesser extent, portfolio
restructuring actions are used to adjust asset durations. Cash flow testing of
assets and liabilities is performed annually under multiple interest rate
scenarios to evaluate the appropriateness of the Company's investment portfolios
relative to the Company's insurance reserves. The Company's insurance reserves
are supported by high-quality, low-risk investments, including primarily
investment grade fixed maturity securities, mortgage-
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<PAGE> 35
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
backed securities, mortgage loans, and policy loans. Derivatives and
off-balance-sheet transactions were not used for asset/liability management
purposes during 1994, 1993, or 1992.
The primary liability management techniques used to target duration are
product design features and product management, through periodic repricing of
new products and adjustment of interest crediting rates on existing products
where possible. The Company's insurance and annuity liabilities at December 31
were as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Retirement annuities............................... $ 18,656 $ 17,029 $ 15,012
Traditional life................................... 4,334 4,199 4,430
Interest-sensitive life............................ 2,933 2,664 2,258
Other annuities.................................... 3,029 2,765 2,383
Other.............................................. 671 582 653
-------- -------- --------
Total insurance and annuity
liabilities............................ $ 29,623 $ 27,239 $ 24,736
======== ======== ========
</TABLE>
Approximately 80% of the insurance and annuity liabilities were subject to
interest crediting adjustments in the three years ended December 31, 1994.
Techniques -- Consumer Finance
The Company funds its finance receivables with equity and a combination of
fixed-rate debt, principally long-term, and floating-rate or short-term debt,
principally commercial paper. The Company's mix of fixed-rate and floating-rate
debt is a management decision based in part on the nature of the receivables
being supported. The Company limits its exposure to market interest rate
increases by fixing interest rates it pays for term periods. The primary means
by which the Company accomplishes this is through the issuance of fixed-rate
debt. On infrequent occasions, the Company has also used interest rate swap
agreements and options on interest rate swap agreements to synthetically create
fixed-rate debt by altering the nature of floating-rate debt, thereby limiting
its exposure to interest rate movements.
Results -- Retirement Annuities and Life Insurance
The Company's asset/liability management program is designed to minimize
the exposure of the Company's surplus to fluctuations in interest rates while
ensuring adequate liquidity to meet liability cash flow requirements. Cash flow
testing performed as of December 31, 1994 indicated that the Company's insurance
subsidiaries would have future surplus after meeting their insurance
obligations.
In addition, investment margins have been maintained in the Retirement
Annuities segment. While investment margins on interest-sensitive products in
the Life Insurance segment have been maintained, overall investment margins have
declined because some large blocks of in force business have crediting rates
that cannot be adjusted when the investment yields fluctuate. These overall
investment margins are still within product pricing assumptions.
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<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
The average investment yield, interest crediting rate, and investment
margin for the primary operating companies in the Retirement Annuities and Life
Insurance segments for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1994* 1993* 1992
----- ----- -----
<S> <C> <C> <C>
VALIC
Investment yield...................................... 8.37% 8.94% 9.53%
Crediting rate........................................ 6.57 7.28 7.94
----- ----- -----
Investment margin................................ 1.80% 1.66% 1.59%
===== ===== =====
AGLA
Investment yield...................................... 8.97% 9.69% 10.15%
Crediting rate........................................ 6.78 6.93 7.15
----- ----- -----
Investment margin................................ 2.19% 2.76% 3.00%
===== ===== =====
AGL
Investment yield...................................... 8.05% 8.72% 9.61%
Crediting rate........................................ 5.91 6.20 6.75
----- ----- -----
Investment margin................................ 2.14% 2.52% 2.86%
===== ===== =====
</TABLE>
* Excludes the effect of SFAS 115.
Results -- Consumer Finance
Growth in higher-yielding finance receivables and lower cost of borrowings
have resulted in steady increases in the spread between yield and borrowing
costs. The yield on finance receivables, cost of borrowings, and spread between
yield and cost of borrowings for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Yield on finance receivables............................... 17.58% 16.95% 16.74%
Cost of borrowings......................................... 6.60 6.67 7.49
----- ----- -----
Spread................................................ 10.98% 10.28% 9.25%
===== ===== =====
</TABLE>
INVESTMENTS
At year-end 1994, American General's $46 billion of assets included $31
billion of investments, principally supporting insurance and annuity
liabilities.
Fixed Maturity Securities
At year-end 1994, fixed maturity securities included $14.3 billion of
corporate bonds, $10.0 billion of mortgage-backed securities, $1.2 billion of
bonds issued by governmental agencies, and $156 million of preferred stocks with
mandatory redemption provisions.
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<PAGE> 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
The average credit rating of the fixed maturity securities was AA- at
year-end 1994, 1993, and 1992. Average ratings by category at December 31, 1994
were as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
AVERAGE
FAIR VALUE % RATING
---------- ----- -------
<S> <C> <C> <C>
Investment grade........................................ $ 14,782 %58 A
Mortgage-backed......................................... 10,032 39 AAA
Below investment grade.................................. 886 3 BB-
---------- ----- -------
Total fixed maturity securities............... $ 25,700 100% AA-
======== ==== =======
</TABLE>
Investment grade securities include bonds and preferred stock with
mandatory redemption features and have credit ratings of BBB- or better.
Mortgage-backed securities ("MBSs") at December 31 were invested as
follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
1994* 1993* 1992
------- ------- ------
<S> <C> <C> <C>
CMOs................................................. $ 9,180 $10,167 $8,025
Pass-through securities.............................. 784 511 687
Commercial MBSs...................................... 68 - -
------- ------- ------
Total MBSs................................. $10,032 $10,678 $8,712
======== ======== ======
</TABLE>
* Includes the effect of SFAS 115.
Collateralized mortgage obligations ("CMOs") are purchased to diversify the
portfolio risk characteristics from primarily corporate credit risk to a mix of
credit and cash flow risk. The majority of the CMOs in the Company's investment
portfolio have relatively low cash flow variability. In addition, virtually all
CMOs in the portfolio have minimal credit risk because the underlying collateral
is guaranteed by the Federal National Mortgage Association, the Federal Home
Loan Mortgage Corporation, or the Government National Mortgage Association.
These CMOs offer stronger liquidity and higher yields than corporate debt
securities of similar credit quality and expected average lives.
The principal risks inherent in holding CMOs (as well as mortgage-backed,
pass-through securities and other MBSs) are prepayment and extension risks
arising from changes in market interest rates. In declining interest rate
environments, the mortgages underlying the CMOs are prepaid more rapidly than
anticipated, causing early repayment of the CMOs. In rising interest rate
environments, the underlying mortgages are prepaid at a slower rate than
anticipated, causing CMO principal repayments to be extended. Although early CMO
repayments may result in acceleration of income from recognition of any
unamortized discount, the proceeds typically are reinvested at lower current
yields, resulting in a net reduction of future investment income. Proceeds from
repayments of MBSs decreased from $2.7 billion in 1993 to $1.8 billion in 1994.
Repayment of a lower amount is expected in 1995.
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<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
The Company manages this prepayment and extension risk by investing in CMO
tranches that provide for greater stability of cash flows. The mix of CMO
tranches at December 31 was as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
1994* 1993* 1992
------ ------- ------
<S> <C> <C> <C>
Planned Amortization Class............................ $7,006 $ 6,516 $2,484
Z (Accrual)........................................... 821 933 1,231
Sequential............................................ 686 1,743 3,159
Target Amortization Class............................. 656 952 961
Other................................................. 11 23 190
------ ------- ------
Total CMOs.................................. $9,180 $10,167 $8,025
====== ======== ======
</TABLE>
* Includes the effect of SFAS 115.
The Planned Amortization Class ("PAC") tranche is structured to provide
more certain cash flows to the investor and therefore is subject to less
prepayment and extension risk than other CMO tranches. In general, the Company's
PACs are structured to provide average life stability for increases and
decreases in interest rates of 100 to 200 basis points. PACs derive their
stability from two factors: (1) early repayments are applied first to other
tranches to preserve the PACs' originally scheduled cash flows as much as
possible, and (2) cash flows applicable to other tranches are applied first to
the PAC if the PACs' actual cash flows are received later than originally
anticipated. To take advantage of PACs' lower prepayment and extension risks,
the Company began purchasing more PACs and fewer other CMO tranches in early
1992. As interest rates continued to decline during 1992 and 1993, the majority
of the proceeds received from early repayments were reinvested in additional
PACs, causing PACs to account for 70% of total MBSs at December 31, 1994.
The Z tranche (also known as the Accrual class) defers all interest to
another class until that class is paid down, at which time accumulated interest
and principal are paid to the Z tranche. The prepayment and extension risk
associated with a Sequential tranche can vary as interest rates fluctuate, since
this tranche is not supported by other tranches. The Target Amortization Class
tranche has protection similar to PACs in decreasing interest rate environments,
but has minimal protection in increasing rate environments.
The majority of the Company's CMO portfolio is traded in the open market.
As such, the Company obtains market prices from outside vendors. Any security
price not received from the vendor is obtained from the originating broker or,
in rare circumstances, is internally calculated.
Below investment grade securities include bonds and preferred stock with
mandatory redemption provisions that have a credit rating below BBB-. Below
investment grade bonds accounted for 2.8% of invested assets at year-end 1994,
compared to 2.3% for 1993 and 2.5% for 1992. These percentages compare to the
life insurance industry average of 3.8% at December 31, 1993, the latest date
for which information is available. Net income from below investment grade
bonds, including realized investment gains (losses), was $50 million in 1994,
compared to $49 million in 1993 and $40 million in 1992.
Bonds are deemed to be non-performing when the payment of interest is
sufficiently uncertain as to preclude the accrual of interest. Non-performing
bonds were 0.2% of total fixed maturity securities at year-end 1994 and 1993 and
0.5% at year-end 1992.
Mortgage Loans
Mortgage loans on real estate represented 8% of invested assets at December
31, 1994, down from 10% for 1993 and 13% for 1992. These declines reflect
repayment of loans as a result of
S-36
<PAGE> 39
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
declining interest rates in 1992 and 1993 and the Company's reduced emphasis on
mortgage lending.
Mortgage loan information at December 31 was as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
------ ------ ------
<S> <C> <C> <C>
Commercial......................................... $2,656 $2,997 $3,453
Residential........................................ 84 133 303
Allowance for losses............................... (89) (98) (53)
------ ------ ------
Total mortgage loans..................... $2,651 $3,032 $3,703
====== ====== ======
Foreclosures during the year....................... $ 17 $ 45 $ 69
====== ====== ======
Allowance for losses............................... 3.2% 3.1% 1.4%
====== ====== ======
Non-performing
Delinquent (60+ days)............................ 3.0% 2.2% 3.1%
Restructured commercial loans.................... 2.7 2.2 1.6
------ ------ ------
Total non-performing..................... 5.7% 4.4% 4.7%
====== ====== ======
</TABLE>
The increase in the percentage allowance for losses, as well as the
percentage of non-performing loans in 1994, is due to the overall decrease in
the portfolio.
Otherwise performing commercial mortgage loans are placed on the Company's
watch list if they are delinquent 30-59 days, the borrower is in bankruptcy, or
the loan is determined to be undercollateralized. At year-end 1994, $239 million
of commercial mortgage loans were on the Company's watch list, compared to $467
million at year-end 1993 and $188 million at year-end 1992. The decrease in the
watch list since 1993 is primarily due to improving collateral values during
1994. The increase in the watch list amount from 1992 to 1993 is primarily due
to a more active portfolio review and a tightening of standards for the
identification of loans to be placed on the watch list. The mortgage loan review
process consists of a formal annual review and an ongoing monitoring process.
The loan reviews include analysis of collateral operating information, debt
coverage ratios, and tenant data. While the watch list loans may be predictive
of higher non-performing loans in the future, American General does not
anticipate a significant effect on operations, liquidity, or capital from these
loans.
Non-performing mortgage loans include loans delinquent 60 days or more and
commercial loans that have been restructured. Non-performing mortgage loans
totaled $157 million at year-end 1994, compared to $137 million and $179 million
at year-end 1993 and 1992, respectively. At year-end 1994, the average yield on
restructured commercial mortgage loans was 7.9%.
At year-end 1994, 5.8% of the commercial mortgage loan portfolio was
non-performing, up from 4.4% and 5.0% at year-end 1993 and 1992, respectively.
This portfolio continues to outperform the life insurance industry averages for
non-performing commercial mortgage loans, which were 13.0%, 13.9%, and 14.1% at
year-end 1994, 1993, and 1992, respectively.
Policy Loans
Policy loans are policyholder borrowings against the cash surrender value
of life insurance products that provide for cash accumulation benefits. Policy
loans represented 4% of invested assets at year-end 1994, 1993, and 1992. Policy
loan interest rates, which are contractually established, averaged 6.3% during
1994.
S-37
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
Investment Real Estate
Investment real estate at December 31 was as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- ------
<S> <C> <C> <C>
Land development projects............................... $ 613 $ 642 $ 653
American General Center, Houston........................ 120.. 125 130
Income-producing real estate............................ 96 189 282
Foreclosed real estate.................................. 56 69 130
Allowance for losses.................................... (321) (253) (129)
----- ----- ------
Total investment real estate.................. $ 564 $ 772 $1,066
====== ====== ======
</TABLE>
The 1994 and 1993 decreases in income-producing and foreclosed real estate
were due to sales. The increase in the allowance for losses over the past two
years reflects declines in the net realizable value of certain real estate
investments. While the value of any property may fluctuate with local market
conditions, the net realizable value of the investment real estate portfolio is
at least equal to the value reflected in the financial statements. In March
1995, the Financial Accounting Standards Board issued SFAS 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of." This standard, which must be adopted by first quarter 1996, will require
the Company to report certain investment real estate at fair value, rather than
at net realizable value as previously required. Upon adoption of SFAS 121, the
carrying value of certain land development projects will be permanently reduced
by the amount of the related allowance for losses. American General has not
determined when SFAS 121 will be adopted. The Company does not anticipate a
material effect on net income, liquidity, or capital related to adoption of this
standard.
Pretax net realized losses on real estate investments, including sales and
reserve increases, totaled $88 million, $170 million, and $74 million in 1994,
1993, and 1992, respectively.
No new real estate investments are planned, except for commitments on
existing land development projects and possible foreclosures. All foreclosed
real estate is held for sale.
Realized Investment Gains (Losses)
Realized investment gains (losses) may vary significantly from year to year
since the decision to sell investments is determined principally by
considerations of investment timing and tax consequences. Realized investment
gains (losses) can also result from early redemption of securities at the
election of the issuer ("calls") and changes in write-downs and reserves.
Realized gains (losses) for the years ended December 31 were as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Sales of fixed maturity securities....................... $(150)(a) $ (6) $ (2)
Write-downs/reserve changes(b)........................... (123) (298) (155)
Calls of fixed maturity securities....................... 29 129 102
Sales/calls of equity securities......................... 9 123 61
Other.................................................... 63 60 12
----- ----- -----
Total realized investment gains (losses)....... $(172) $ 8 $ 18
====== ====== ======
</TABLE>
(a) See "Significant Events -- Capital Gains Offset Program" above.
(b) Primarily related to investment real estate.
S-38
<PAGE> 41
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
CAPITAL REQUIREMENTS
The overall financial strength of American General and its subsidiaries is
based on consolidated shareholders' equity of $3.5 billion at December 31, 1994,
and is confirmed by strong ratings for both debt-paying and claims-paying
ability. For analysis of capital requirements, the parent company and the
business segments are discussed separately.
Parent Company
Total capital of the parent company is referred to as "corporate capital."
Since the parent company is a holding company, the level of corporate capital is
determined primarily by the required equity of its business segments, while the
mix of corporate capital between debt and equity is influenced by overall
corporate strategy and structure.
At year-end 1994, corporate capital included $3.5 billion of shareholders'
equity and $1.5 billion of corporate debt.
The ratio of corporate debt to corporate capital, excluding the effect of
SFAS 115, was 25% and 22% at year-end 1994 and 1993, respectively. This ratio
increased to 35% at January 31, 1995 from the issuance of short-term debt to
initially finance the Franklin Life acquisition. Management expects this ratio
to decrease to approximately 25% by year-end 1995 as the Company finalizes the
permanent financing for the acquisition. Currently, the Company expects to
refinance approximately 50% of the acquisition cost using long-term fixed-rate
corporate debt and approximately 25% using non-convertible preferred stock.
The Company's current corporate debt ratings are as follows:
<TABLE>
<CAPTION>
LONG-TERM
COMMERCIAL PAPER DEBT
------------------ -------------
<S> <C> <C>
Standard & Poor's............................. A-1+ (Highest) AA- (Strong)
Duff & Phelps................................. Duff 1+ (Highest) AA- (Strong)
Moody's....................................... P-1 (Highest) A1 (Strong)
</TABLE>
As a result of American General's announcement of the Franklin Life
acquisition and its then outstanding merger offer to acquire Unitrin for an
aggregate cost of $3.8 billion, two rating agencies downgraded the Company's
corporate long-term debt ratings from AA to AA- on November 30, 1994.
Consumer Finance Segment
The capital of American General's Consumer Finance segment varies directly
with the amount of finance receivables outstanding. The capital mix of consumer
finance debt and equity is based primarily upon maintaining leverage at a level
that supports cost-effective funding.
At year-end 1994, consumer finance capital was $8.3 billion, compared to
$6.9 billion a year earlier, due to an increase in debt to support a $1.3
billion increase in finance receivables. The 1994 capital included $7.1 billion
of consumer finance debt, which is not guaranteed by the parent company, and
$1.2 billion of equity.
The ratio of debt to tangible net worth (equity less goodwill and the
effect of SFAS 115), a key measure of financial risk in the consumer finance
industry, was 7.5 to 1 for the Consumer Finance segment at year-end 1994, 1993,
and 1992. Management expects to maintain the current level of debt to tangible
net worth.
S-39
<PAGE> 42
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
The current consumer finance debt ratings are as follows:
<TABLE>
<CAPTION>
COMMERCIAL PAPER LONG-TERM DEBT
------------------ --------------
<S> <C> <C>
Standard & Poor's.............................. A-1+ (Highest) A+ (Strong)
Duff & Phelps.................................. Duff 1+ (Highest) -
Moody's........................................ P-1 (Highest) A1 (Strong)
</TABLE>
During 1994, the consumer finance debt ratings were placed on rating watch
lists with negative implications by one rating agency as a result of the
Company's $2.6 billion merger offer to acquire Unitrin. Subsequent to the
expiration of the offer to acquire Unitrin on February 7, 1995, the rating
agency confirmed the consumer finance debt ratings with no change.
Retirement Annuities and Life Insurance Segments
The amount of statutory equity required to support the business of American
General's Retirement Annuities and Life Insurance segments is a function of
three factors: (1) the quality of the assets invested to support insurance and
annuity reserve liabilities; (2) the mortality risk of the life insurance in
force; and (3) the interest-rate risk resulting from potential mismatching of
asset and liability durations. Each of these items is a key factor in the NAIC's
risk-based capital formula, used to evaluate the adequacy of a life insurance
company's statutory equity (see "Economic Factors -- Regulation" above).
Rating agencies use the NAIC approach as one of the factors in determining
an insurance company's claims-paying ability ratings. The Company's target
statutory equity for each of its life insurance and annuity subsidiaries is 250%
of the Company Action Level RBC. At December 31, 1994, all of the Company's life
insurance and annuity subsidiaries had statutory equity equal to or in excess of
this target. Franklin Life also had statutory equity in excess of this target.
The current claims-paying ability ratings of the Company's principal
insurance and annuity subsidiaries are as follows:
<TABLE>
<CAPTION>
AMERICAN
AMERICAN GENERAL LIFE FRANKLIN
VALIC GENERAL LIFE AND ACCIDENT LIFE
----- ------------ ------------- --------
<S> <C> <C> <C> <C>
A.M. Best............................... A++ A++ A++ A+
Standard & Poor's....................... AAA AAA AAA AA
Duff & Phelps........................... AAA AAA - AA+
Moody's................................. Aa2 Aa3 - Aa3
</TABLE>
During 1994, the claims-paying ability ratings of the above companies were
placed on rating watch lists with negative implications by one or more rating
agencies. The ratings watch was the result of the Company's $2.6 billion merger
offer to acquire Unitrin and the announcement of the Franklin Life acquisition.
Subsequent to the expiration of the offer to acquire Unitrin on February 7,
1995, Standard & Poor's and Duff & Phelps confirmed the AAA ratings of the
Company's insurance and annuity subsidiaries. After completion of the
acquisition of Franklin Life on January 31, 1995, each of the four rating
agencies lowered Franklin Life's ratings by one level to the ratings indicated
above. These actions are a result of American General's plan to reduce Franklin
Life's statutory equity to 250% of the Company Action Level RBC to finance a
portion of the acquisition.
S-40
<PAGE> 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
LIQUIDITY
American General's overall liquidity is based on strong cash flows from
each of its business segments and its ability to borrow in both the long-term
and short-term markets at competitive rates. American General believes that its
overall sources of liquidity will continue to be sufficient to satisfy its
foreseeable financial obligations. For analysis of liquidity, the parent company
and the business segments are discussed separately below.
Parent Company
Operating cash flow for the parent company includes dividends from the
business segments, partially offset by interest and other expenses not allocated
to the segments. During 1994, operating cash flow of the parent company of $410
million was used to pay dividends to shareholders, to buy back American General
Common Stock, and to pay interest on corporate debt.
While the subsidiaries are restricted in the amount of dividends they may
pay to the parent company, these restrictions are not expected to affect the
ability of the parent company to meet its cash obligations in 1995.
Retirement Annuities and Life Insurance Segments
In 1994, the Retirement Annuities and Life Insurance segments generated
$2.5 billion of cash, composed of $1.3 billion from operations and $1.2 billion
from the net increase in policyholder fixed account deposits. This compares to
total cash generated of $3.1 billion in 1993 and $3.0 billion in 1992. The
decrease was primarily a result of higher withdrawals and lower deposits related
to fixed accounts and transfers to Separate Accounts by policyholders of the
Retirement Annuities segment seeking higher returns in equity-based investments.
The major uses of cash were the net purchase of investments necessary to
support increases in insurance and annuity liabilities, and dividends paid to
the parent company. These segments paid dividends to the parent company of $367
million in 1994, compared to $506 million in 1993 and $408 million in 1992. The
Retirement Annuities segment and the Life Insurance segment, including Franklin
Life, are expected to pay dividends to the parent company in 1995.
Consumer Finance Segment
Operating cash flow for the Consumer Finance segment includes net income
adjusted for non-cash expenses such as the amortization of intangible assets and
the provision for finance receivable losses. In 1994, operating cash flow
totaled $511 million, an increase from $479 million and $365 million in 1993 and
1992, respectively.
The 1994 operating cash flow, coupled with net proceeds from increased
debt, generated total cash flow of $1.8 billion, compared to $833 million in
1993 and $602 million in 1992. This cash was used to fund the net increase in
receivables and to pay dividends to the parent company. Dividends paid to the
parent company totaled $140 million in 1994, compared to $163 million in 1993
and $137 million in 1992. Dividend levels are adjusted to maintain consumer
finance leverage (ratio of debt to tangible net worth) at 7.5 to 1.
Operating cash flow and access to money and capital markets, resulting from
strong debt and commercial paper ratings, are expected to satisfy 1995 cash
requirements, including long-term debt maturities.
S-41
<PAGE> 44
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
Credit Facilities
During 1994, the Company entered into two new unsecured committed credit
facilities with 47 banks totaling $2.5 billion. These facilities replaced
existing bank credit facilities of equal amount. At December 31, 1994, committed
credit facilities totaled $3.0 billion. On January 31, 1995, one of these
facilities was increased by $1.3 billion to facilitate the Franklin Life
acquisition and to support increases in Consumer Finance receivables. As a
result, American General and its subsidiaries currently maintain committed
credit facilities totaling $4.3 billion with 54 domestic and foreign banks.
While the principal purpose of these facilities is to support the issuance of
commercial paper, they also provide an additional source of cash to American
General and its subsidiaries. At March 31, 1995, there were no outstanding
borrowings under these facilities.
FOR THE THREE MONTHS ENDED MARCH 31, 1995
BUSINESS SEGMENTS
Retirement Annuities
Revenues for the first three months of 1995 compared to 1994 increased $19
million, primarily due to a 5% increase in net investment income, reflecting
growth in invested assets, partially offset by a decrease in the average
investment yield. Invested assets increased $1.3 billion (excluding the effect
of SFAS 115), or 7%, from March 31, 1994 to March 31, 1995, primarily due to
fixed premium deposits and reinvestment of investment income over the last
twelve months.
Segment earnings increased $1 million, reflecting growth in net investment
income which exceeded the increase in interest credited to policyholders. The
ratio of operating expenses to average assets increased slightly to .54% for the
three months ended March 31, 1995 from .53% for the same period in 1994.
The ratio of policyholder surrenders to average deferred policy reserves
was 4.19% for first quarter 1995 compared to 5.81% for first quarter 1994,
primarily due to a free bailout provision (surrender without charge) on certain
accounts and participants seeking higher returns in equity-based investments in
the first quarter of 1994, both due to low market interest rates. While customer
interest in equity-based investments has continued, resulting in a $32 million
increase in variable account deposits, fixed deposits also increased $18 million
in first quarter 1995 compared to first quarter 1994, due to the higher interest
rate environment.
Consumer Finance
Revenues for the first three months of 1995 compared to 1994 increased $96
million, or 28%, primarily from increased finance charges due to growth in
finance receivables, through business development efforts and branch expansion,
and improved yields. Yields improved as a result of the increased emphasis on
non-real estate secured consumer loans and higher yields on the retail sales
finance and credit card portfolios.
Segment earnings increased $7 million, or 13%, due to increased spread on a
higher receivables balance, partially offset by a higher provision for finance
receivable losses and increased operating expenses. The charge off ratio
increased to 2.8% for first quarter of 1995 from 2.2% for the same period of
1994, and delinquencies increased to 2.9% at March 31, 1995 from 2.4% at March
31, 1994. The increase in charge offs, delinquencies, and the provision for
finance receivable losses resulted from growth in finance receivables and the
change in portfolio mix described above.
S-42
<PAGE> 45
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
Life Insurance
The Life Insurance segment includes two months of activity of Franklin
Life, acquired January 31, 1995. The acquisition increased segment revenues $174
million, deposits $69 million, and earnings $21 million in first quarter 1995.
Excluding Franklin Life, revenues for the Life Insurance segment increased
$22 million for the three months ended March 31, 1995 compared to 1994,
primarily due to Financial Life, excluded from first quarter 1994 segment
reporting, and higher investment income. The increase in investment income
resulted from growth in invested assets, partially offset by lower yields which
resulted from prepayment of higher yielding securities through mid-1994 and
reinvestment at lower rates. Excluding Franklin Life, deposits increased 7% due
to the introduction of structured settlement annuity products and growth in
interest-sensitive life deposits.
Segment earnings excluding Franklin Life decreased $1 million in first
quarter 1995 compared to the same period of 1994, primarily due to higher
insurance and annuity benefit expenses, partially offset by the increase in
investment income.
ECONOMIC FACTORS -- GUARANTY ASSOCIATIONS
The Company's life insurance and annuity subsidiaries were assessed $6.6
million by state guaranty associations during first quarter 1995, of which $4.2
million had been accrued at December 31, 1994. Assessments during first quarter
1994 were $3.4 million, of which $2.4 million was accrued at December 31, 1993.
The assessments for 1995 and 1994 were reduced by $2.2 million and $.8 million,
respectively, considered recoverable against future premium taxes. At March 31,
1995, the accrued liability for anticipated unrecoverable assessments was $23
million, compared to $21 million at December 31, 1994.
INVESTMENTS
At March 31, 1995, American General's $56 billion of assets included $38
billion of investments, principally supporting insurance and annuity
liabilities.
Fixed Maturity Securities
Information regarding the fixed maturity securities portfolio at March 31,
1995 was as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
FAIR AVERAGE
VALUE % RATING
------- --- -------
<S> <C> <C> <C>
Investment grade......................................... $20,232 62% A
Mortgage-backed.......................................... 11,169 34 AAA
Below investment grade................................... 1,130 4 BB-
------- --- -------
Total fixed maturity securities................ $32,531 100% AA-
======== ==== =======
</TABLE>
Collateralized mortgage obligations represented 88% and 92% of
mortgage-backed securities at March 31, 1995 and December 31, 1994,
respectively.
Below investment grade fixed maturity securities increased $244 million
from December 31, 1994 to March 31, 1995, primarily due to the acquisition of
Franklin Life. Net income from below investment grade fixed maturity securities,
including realized investment gains and losses, was $16 million and $12 million
for the first three months of 1995 and 1994, respectively. Non-performing fixed
maturity securities were .2% of total fixed maturity securities at March 31,
1995 and December 31, 1994.
S-43
<PAGE> 46
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
Decreases in market interest rates and resulting increases in bond values
during the first three months of 1995 caused the adjustment to shareholders'
equity related to fixed maturity securities under SFAS 115 to decrease from a
net unrealized loss of $950 million at December 31, 1994 to a net unrealized
loss of $106 million at March 31, 1995. The components of the fair value
adjustment to report securities in accordance with SFAS 115 at March 31, 1995
and December 31, 1994 were as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
1995 1994 CHANGE
-------- ----------- -------
<S> <C> <C> <C>
Fair value adjustment to fixed maturity
securities...................................... $ (288) $ (1,387) $ 1,099
Increase (decrease) in deferred policy acquisition
costs and cost of insurance purchased........... 102 401 (299)
Decrease (increase) in deferred income taxes...... 66 351 (285)
Valuation allowance on deferred tax asset......... - (315) 315
Equity in WNC's net unrealized gain............... 14 - 14
------ -------- -------
Net unrealized losses on fixed maturity
securities................................. (106) (950) 844
Net unrealized gains on equity securities.... 22 15 7
------ -------- -------
Net unrealized gains (losses) on
securities............................ $ (84) $ (935) $ 851
====== ======== ======
</TABLE>
Mortgage Loans
Mortgage loan information at March 31, 1995 was as follows:
(IN MILLIONS)
<TABLE>
<S> <C>
Commercial................................................................. $ 3,189
Residential................................................................ 81
Allowance for losses....................................................... (83)
-------
Total mortgage loans............................................. $ 3,187
======
Foreclosures during the quarter............................................ $ -
======
Allowance for losses....................................................... 2.5%
======
Non-performing
Delinquent (60+ days).................................................... 3.0%
Restructured commercial loans............................................ 2.6
-------
Total non-performing............................................. 5.6%
======
</TABLE>
Non-performing mortgage loans represented 5.6% of total commercial loans at
March 31, 1995, compared to 5.8% at December 31, 1994. The increase was
primarily due to the increase in the portfolio from $2.7 billion at December 31,
1994 to $3.2 billion at March 31, 1995, due to the Franklin Life acquisition.
At March 31, 1995, $205 million of performing commercial mortgage loans
were included on the Company's watch list, compared to $239 million at year-end
1994. The decrease in the watch list amount was primarily due to loans which
became non-performing during the quarter. The Company does not anticipate a
significant effect on operations, liquidity, or capital from these loans.
S-44
<PAGE> 47
MANAGEMENT'S DISCUSSION AND ANALYSIS OF AMERICAN GENERAL -- (Continued)
LIQUIDITY
Net cash flows from operating activities on a consolidated basis increased
$267 million in first quarter 1995 compared to the same period in 1994,
primarily due to increases in segment operating cash flows and a $78 million tax
refund received in first quarter 1995 as a result of 1994 capital losses and
overpayment of 1994 taxes.
Parent Company
Operating cash flows of the parent company were $78 million and $92 million
for the three months ended March 31, 1995 and 1994, respectively. The decrease
related to lower dividends from subsidiaries, higher intercompany receivables,
and a $9 million increase in interest expense due to the Franklin Life
acquisition. The decrease was partially offset by an income tax refund in first
quarter 1995 compared to taxes paid in first quarter 1994.
The increase in short-term debt during first quarter 1995 primarily
resulted from financing the Franklin Life acquisition. On March 29, 1995, the
Company issued $150 million of non-redeemable debt securities due April 1, 2005,
which bear interest at 7 3/4% payable semi-annually. Proceeds from this issuance
were used to repay short-term corporate debt.
Retirement Annuities and Life Insurance Segments
Net cash flows generated by the Life Insurance and Retirement Annuities
segments in the first three months of 1995 included $438 million provided by
operating activities and $268 million provided by the increase in fixed
policyholder account deposits, net of withdrawals. This compares to $321 million
and $288 million, respectively, during the first three months of 1994. The $117
million increase in cash provided by operating activities was primarily due to a
$32 million tax payment in the Retirement Annuities segment in first quarter
1994, and cash flows of Franklin Life.
During first quarter 1995, the companies in the Life Insurance and
Retirement Annuities segments paid cash dividends of $52 million to American
General, compared to $54 million during first quarter 1994.
Consumer Finance Segment
The Consumer Finance segment's operating cash flows increased to $204
million during first quarter 1995, compared to $166 million during first quarter
1994. Cash dividends paid to the Company by the Consumer Finance segment totaled
$31 million in the first three months of 1995, compared to $81 million for the
same period of 1994, which included $48 million of dividends accrued in 1993.
S-45
<PAGE> 48
PRO FORMA FINANCIAL INFORMATION OF AMERICAN GENERAL
On January 31, 1995, American General through its wholly-owned subsidiary,
AGC Life Insurance Company ("AGC Life"), acquired AFC, the holding company of
Franklin Life, pursuant to a Stock Purchase Agreement dated as of November 29,
1994, between American General and American Brands, Inc. ("American Brands").
The purchase price was $1.17 billion, consisting of $920 million in cash paid at
closing and a $250 million cash dividend paid by AFC to American Brands prior to
closing. The dividend was paid on January 30, 1995.
On December 23, 1994, American General, through AGC Life, acquired a 40%
interest in WNC, the holding company of Western National Life Insurance Company,
through the acquisition of 24,947,500 shares of WNC common stock from Conseco,
Inc. for $274 million in cash.
Included on the following pages is information related to these
acquisitions, as follows:
Balance Sheet
The unaudited pro forma consolidated balance sheet as of March 31, 1995
presents the historical consolidated balance sheet of American General, as
adjusted to reflect the proposed permanent financing of the AFC acquisition (see
Note C of notes to pro forma consolidated financial statements).
Statement of Income for the Year Ended December 31, 1994
The unaudited pro forma consolidated statement of income for the year ended
December 31, 1994 presents the consolidated results of operations of American
General and AFC and reflects American General's 40% equity in the earnings of
WNC as if the acquisitions had been effective January 1, 1994, after giving
effect to the purchase accounting and other pro forma adjustments described in
the related notes.
Statement of Income for the Three Months Ended March 31, 1995
The unaudited pro forma consolidated statement of income for the three
months ended March 31, 1995 presents the consolidated results of operations of
(i) American General, which includes the operations of AFC for February and
March 1995 and American General's 40% equity in the earnings of WNC, and (ii)
AFC, for January 1995. The purchase accounting and other pro forma adjustments,
as described in the related notes, are calculated as if the AFC acquisition had
been effective January 1, 1994.
S-46
<PAGE> 49
AMERICAN GENERAL CORPORATION
PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1995
(UNAUDITED)
(IN MILLIONS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
HISTORICAL -----------
--------- RELATING
AMERICAN TO AFC PRO FORMA
GENERAL FINANCING CONSOLIDATED
---------- ----------- ------------
<S> <C> <C> <C>
Assets
Investments
Fixed maturity securities.......................... $ 32,531 $ - $ 32,531
Mortgage loans on real estate...................... 3,187 - 3,187
Equity securities.................................. 248 - 248
Policy loans....................................... 1,538 - 1,538
Investment real estate............................. 553 - 553
Other long-term investments........................ 199 - 199
Short-term investments............................. 241 - 241
---------- ----------- ------------
Total investments............................. 38,497 - 38,497
Cash.................................................. 21 - 21
Finance receivables, net.............................. 7,930 - 7,930
Investment in WNC..................................... 297 - 297
Deferred policy acquisition costs..................... 2,371 - 2,371
Cost of insurance purchased........................... 745 - 745
Acquisition-related goodwill.......................... 592 - 592
Other assets.......................................... 1,648 - 1,648
Assets held in Separate Accounts...................... 3,566 - 3,566
---------- ----------- ------------
Total assets.................................. $ 55,667 $ - $ 55,667
======== ========== ==========
Liabilities
Insurance and annuity liabilities..................... $ 36,046 $ - $ 36,046
Debt (short-term)
Corporate:
Short-term....................................... 1,375 (920)(C) 685
220(C)
10(D)
Long-term........................................ 984 450(C) 1,432
(2)(D)
Real Estate ($349)................................. 349 - 349
Consumer Finance ($2,498).......................... 7,261 - 7,261
Income tax liabilities................................ 793 - 793
Other liabilities..................................... 824 - 824
Liabilities related to Separate Accounts.............. 3,566 - 3,566
---------- ----------- ------------
Total liabilities............................. 51,198 (242) 50,956
---------- ----------- ------------
Company-obligated mandatorily redeemable preferred
securities of subsidiary.............................. - 250(C) 242
(8)(D)
Common stock subject to put contracts................... 47 - 47
Shareholders' equity
Common stock.......................................... 365 - 365
Net unrealized gains (losses) on securities........... (84) - (84)
Retained earnings..................................... 4,606 - 4,606
Cost of treasury stock................................ (465) - (465)
---------- ----------- ------------
Total shareholders' equity.................... 4,422 - 4,422
---------- ----------- ------------
Total liabilities and equity.................. $ 55,667 $ - $ 55,667
======== ========== ==========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
S-47
<PAGE> 50
AMERICAN GENERAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1994
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA ADJUSTMENTS
HISTORICAL ------------------------
------------------- RELATING TO RELATING TO
AMERICAN AFC WNC PRO FORMA
GENERAL AFC ACQUISITION ACQUISITION CONSOLIDATED
-------- ------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Revenues
Premiums and other considerations.. $ 1,210 $ 503 $ - $ - $ 1,713
Net investment income.............. 2,493 479 9 (E) (4)(M) 2,978
(7)(F)
8 (F)
Finance charges.................... 1,248 - - - 1,248
Realized investment gains
(losses)........................ (172) (14) 14 (G) - (172)
Equity in earnings of WNC.......... - - - 27 (N) 27
Other.............................. 62 68 - - 130
-------- ------- ----------- ----------- ------------
Total revenues............. 4,841 1,036 24 23 5,924
-------- ------- ----------- ----------- ------------
Benefits and expenses
Insurance and annuity benefits..... 2,224 721 5 (H) - 2,950
Operating costs and expenses....... 1,013 108 (3)(I) - 1,118
Commission expense................. 400 126 - - 526
Change in deferred policy
acquisition costs............... (142) (40) (71)(I) - (253)
Amortization of cost of insurance
purchased....................... 18 9 (9)(I) - 59
41 (J)
Interest expense
Corporate....................... 110 - 47 (K) 11 (M) 168
Consumer Finance................ 416 - - - 416
-------- ------- ----------- ----------- ------------
Total benefits and
expenses................. 4,039 924 10 11 4,984
-------- ------- ----------- ----------- ------------
Earnings
Income before income tax expense... 802 112 14 12 940
Income tax expense................. 289 44 5 (L) (5)(L) 341
8 (N)
-------- ------- ----------- ----------- ------------
Income before net dividends on
preferred securities of
subsidiary...................... 513 68 9 9 599
Net dividends on preferred
securities of subsidiary........ - - (14)(K) - (14)
-------- ------- ----------- ----------- ------------
Net income................. $ 513 $ 68 $ (5) $ 9 $ 585
======== ====== ========= ========= ==========
Earnings per share and average shares
outstanding:
Primary:
Net income...................... $ 2.45 $ 2.79
======== ==========
Average shares outstanding
(in thousands)................ 209,403 209,403
======== ==========
Fully diluted:
Net income...................... $ 2.45 $ 2.79
======== ==========
Average shares outstanding
(in thousands)................ 209,420 209,420
======== ==========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
S-48
<PAGE> 51
AMERICAN GENERAL CORPORATION
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1995
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL
------------------------
THREE ONE
MONTHS MONTH
ENDED ENDED PRO FORMA
MARCH 31, JANUARY 31, ADJUSTMENTS
1995 1995 -----------
--------- ----------- RELATING TO
AMERICAN AFC PRO FORMA
GENERAL AFC ACQUISITION CONSOLIDATED
--------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Revenues
Premiums and other considerations.................. $ 403 $ 35 $ - $ 438
Net investment income.............................. 722 41 1 (E) 764
(1)(F)
1 (F)
Finance charges.................................... 359 - - 359
Realized investment gains (losses)................. 2 1 (1)(G) 2
Equity in earnings of WNC.......................... 9 - - 9
Other.............................................. 23 4 - 27
--------- ----------- ----------- ------------
Total revenues............................. 1,518 81 - 1,599
--------- ----------- ----------- ------------
Benefits and expenses
Insurance and annuity benefits..................... 693 55 - (H) 748
Operating costs and expenses....................... 306 11 - (I) 317
Commission expense................................. 126 8 - 134
Change in deferred policy acquisition costs........ (54) (3) (6)(I) (63)
Amortization of cost of insurance purchased........ 11 1 (1)(I) 14
3 (J)
Interest expense
Corporate....................................... 39 - 3 (K) 42
Consumer Finance................................ 125 - - 125
--------- ----------- ----------- ------------
Total benefits and expenses................ 1,246 72 (1) 1,317
--------- ----------- ----------- ------------
Earnings
Income before income tax expense................... 272 9 1 282
Income tax expense................................. 97 3 - (L) 100
--------- ----------- ----------- ------------
Income before net dividends on preferred securities
of subsidiary................................... 175 6 1 182
Net dividends on preferred securities of
subsidiary...................................... - - (4)(K) (4)
--------- ----------- ----------- ------------
Net income................................. $ 175 $ 6 $ (3) $ 178
======== ========= ========== ==========
Earnings per share and average shares outstanding:
Primary:
Net income...................................... $ .85 $ .87
======== ==========
Average shares outstanding (in thousands)....... 205,192 205,192
======== ==========
Fully diluted:
Net income...................................... $ .85 $ .87
======== ==========
Average shares outstanding (in thousands)....... 205,244 205,244
======== ==========
</TABLE>
See Notes to Pro Forma Consolidated Financial Statements.
S-49
<PAGE> 52
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE A. BASIS OF PRESENTATION
On January 31, 1995, American General through its wholly-owned subsidiary,
AGC Life, acquired AFC, the holding company of Franklin Life, pursuant to a
Stock Purchase Agreement dated as of November 29, 1994, between American General
and American Brands. The purchase price was $1.17 billion, consisting of $920
million in cash paid at closing and a $250 million cash dividend paid by AFC to
American Brands prior to closing. The dividend was paid on January 30, 1995.
On December 23, 1994, American General through AGC Life acquired a 40%
interest in WNC, the holding company of Western National Life Insurance Company,
through the acquisition of 24,947,500 shares of WNC common stock from Conseco,
Inc. for $274 million in cash.
The unaudited pro forma consolidated balance sheet as of March 31, 1995
presents the historical consolidated balance sheet of American General, as
adjusted to reflect the proposed permanent financing of the AFC acquisition (see
Note C).
The unaudited pro forma consolidated statement of income for the year ended
December 31, 1994, presents the consolidated results of operations of American
General and AFC and reflects American General's 40% equity in the earnings of
WNC as if these acquisitions had been effective January 1, 1994, after giving
effect to the purchase accounting and other pro forma adjustments described in
the related notes.
The unaudited pro forma consolidated statement of income for the three
months ended March 31, 1995 presents the consolidated results of operations of
(i) American General, which includes the operations of AFC for February and
March 1995, and American General's 40% equity in the earnings of WNC, and (ii)
AFC, for January 1995. The purchase accounting and other pro forma adjustments,
as described in the related notes, are calculated as if the AFC acquisition had
been effective January 1, 1994.
The unaudited pro forma consolidated financial statements and the related
notes reflect the application of the purchase method of accounting for the AFC
acquisition. Under this method, the purchase price was allocated to the assets
acquired and liabilities assumed based on their respective estimated fair values
at January 31, 1995, the actual acquisition date, including an adjustment for
income tax effects for the difference between the assigned values and the tax
basis of the assets and liabilities (see Note B). The purchase method of
accounting also was applied to the financial statements of WNC before recording
American General's 40% of WNC's earnings using the equity method of accounting.
Prior to completion of accounting for both the AFC and the WNC
acquisitions, changes to the purchase accounting adjustments included in the
unaudited pro forma consolidated financial statements are anticipated as the
valuations of acquired assets and assumed liabilities are finalized.
Accordingly, the actual consolidated financial statements of American General
reflecting the AFC and the WNC acquisitions will differ from the pro forma
financial statements included herein. The unaudited pro forma consolidated
financial statements are intended for informational purposes only and may not
necessarily be indicative of American General's future financial position or
future results of operations.
American General anticipates first year cost savings of $8 million,
primarily associated with centralizing AFC's investment management function at
American General immediately following the acquisition. This expected savings
has been included in the pro forma consolidated financial statements (see Note
F). American General projects additional future cost savings, the extent and
S-50
<PAGE> 53
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
timing of which may vary from management's expectations. No adjustment has been
included in the pro forma consolidated financial statements for these additional
projected cost savings.
NOTE B. ALLOCATION OF PURCHASE PRICE -- AFC
The total acquisition cost of AFC is allocated as follows:
<TABLE>
<CAPTION>
PRO
HISTORICAL FORMA
---------- -----------
JANUARY 31, DECEMBER 31,
(IN MILLIONS) 1995 1994
---------- -----------
<S> <C> <C>
Net assets of AFC............................................ $ 1,117 $ 1,360
Less dividend paid on January 30, 1995....................... - (250)
------- -------
Net assets purchased......................................... 1,117 1,110
------- -------
Increase (decrease) in AFC's net asset value to estimated
fair value:
Held-to-maturity fixed maturity securities.............. (178) (284)
Mortgage loans on real estate........................... (26) (12)
Equity securities....................................... (4) -
Investment real estate.................................. (2) -
Other long-term investments............................. 2 -
Deferred policy acquisition costs....................... (513) (511)
Cost of insurance purchased (historical)................ (174) (175)
Cost of insurance purchased............................. 645 752
Acquisition-related goodwill............................ (80) (80)
Insurance and annuity liabilities....................... 75 100
Income tax liabilities.................................. 69 45
Other assets/liabilities, net........................... (4) -
------- -------
Total estimated fair value adjustments............. (190) (165)
Acquisition-related costs.................................... - (18)
------- -------
Total acquisition cost............................. 927 927
American General transaction costs........................... (7) (7)
------- -------
Cash purchase price................................ $ 920 $ 920
====== ======
</TABLE>
As explained in Note A, purchase accounting adjustments will change as
additional information becomes available, affecting the ultimate allocation of
the purchase price.
S-51
<PAGE> 54
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE C. DEBT AND PREFERRED SECURITIES OF SUBSIDIARY
The AFC acquisition was financed at closing by short-term floating-rate
corporate debt at an average rate of 6%. The pro forma consolidated financial
statements reflect the expected proposed permanent financing of the transaction,
as follows:
<TABLE>
<CAPTION>
(IN MILLIONS) AMOUNT ASSUMED
TYPE OF ISSUE OUTSTANDING RATE
------------------------------------------------------------- ------------- -------
<S> <C> <C>
Short-term floating-rate corporate debt...................... $ 220 6.05%
Long-term fixed-rate corporate debt.......................... 450 7.45%
Preferred securities of subsidiary........................... 250 8.625%
------
Total.............................................. $ 920
==========
</TABLE>
The assumed floating rate for short-term corporate debt, expected to be
issued on a staggered maturity basis, is based on American General's portfolio
rate with a 16 day average portfolio maturity. The assumed rate for the
long-term fixed-rate corporate debt is based on a 10 year Treasury rate plus 60
basis points. The assumed rate for preferred securities of subsidiary is based
on estimates from investment bankers.
NOTE D. DEBT AND PREFERRED SECURITIES OF SUBSIDIARY ISSUE COSTS
Issue costs, deducted from the proceeds of the expected proposed permanent
financing of the AFC acquisition (see Note C), are assumed to be .35% for
long-term fixed-rate corporate debt and 3.15% for preferred securities of
subsidiary. These costs are capitalized and amortized into expense over an
assumed maturity period of 10 years for long-term corporate debt and 30 years
for preferred securities of subsidiary.
NOTE E. ACCRETION OF DISCOUNT ON FIXED MATURITY SECURITIES AND MORTGAGE LOANS ON
REAL ESTATE
AFC's historical consolidated financial statements accrete the difference
between par value and amortized cost of fixed maturity securities and mortgage
loans to income on an effective yield basis over the remaining lives of the
individual fixed maturity securities and mortgage loans. The pro forma
consolidated financial statements are adjusted to reflect additional accretion
of the difference, at the assumed acquisition date, between amortized cost and
fair value of these same fixed maturity securities and mortgage loans.
Expected incremental accretion of the discount on fixed maturity securities
and mortgage loans for the next five years is $9 million, $11 million, $14
million, $16 million, and $19 million (pretax), respectively.
NOTE F. NET INVESTMENT INCOME
The liquidation by AFC of its investments to fund the $250 million cash
dividend paid to its shareholder prior to the acquisition (see Note A) is
expected to reduce net investment income by $6 million (pretax) per year.
The liquidation of $25 million of short-term investments to fund
transaction and acquisition-related costs is expected to reduce interest income
by $1 million (pretax) per year.
S-52
<PAGE> 55
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
Annual projected expense savings of $8 million, primarily associated with
centralizing AFC's investment management function at American General
immediately following the acquisition, are included in the pro forma
consolidated financial statements.
NOTE G. REALIZED INVESTMENT GAINS (LOSSES)
Realized and unrealized investment losses of $31 million and gains of $1
million (pretax) on trading securities recorded by AFC in 1994 and January 1995,
respectively, are reversed since equity securities were assumed to be liquidated
prior to the acquisition to fund the cash dividend to AFC's shareholder (see
Note A). For purposes of the pro forma consolidated financial statements, the
dividend is assumed to occur on January 1, 1994.
Realized investment gains of $17 million (pretax) on fixed maturity
securities recorded by AFC in 1994 are reversed for purposes of the pro forma
consolidated financial statements, since they will not be a component of total
revenues in the future. The gains realized by AFC were indicative of the low
interest rate environment that prevailed in early 1994. Assuming the acquisition
occurred at January 1, 1994, these gains would not have been realized because
American General's purchased bases in the securities sold would have been
higher.
NOTE H. INSURANCE AND ANNUITY BENEFITS
AFC's historical insurance and annuity benefits are increased primarily to
reflect the change in the pattern of reserving for future benefits, primarily
for AFC's participating life insurance contracts.
NOTE I. AMORTIZATION EXPENSE -- DEFERRED POLICY ACQUISITION COSTS ("DPAC"), COST
OF INSURANCE PURCHASED ("CIP"), AND ACQUISITION-RELATED GOODWILL
The expense recorded on AFC's historical consolidated financial statements
for the amortization of DPAC, historical CIP, and acquisition-related goodwill
is reversed to reflect the elimination of the related intangible assets under
purchase accounting.
NOTE J. AMORTIZATION OF CIP
CIP reflects the estimated fair value of the business in force and
represents the portion of the purchase price that is allocated to the value of
the right to receive future cash flows from insurance contracts existing at the
assumed date of the acquisition. Such value is the actuarially-determined amount
that, when amortized into income, results in expected earnings that meet the
profit objective of American General. This profit objective is an expected
aftertax rate of return of 13.5% on capital required to support the business in
force. This rate of return is believed to be appropriate based on considerations
of the relative risk associated with realizing the expected cash flows, the cost
of capital to American General to fund the acquisition, and the operating
environment of AFC, namely, the regulatory and tax factors affecting future
profitability and the profit objectives of American General for newly issued
policies.
S-53
<PAGE> 56
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The value allocated to CIP is based on a preliminary valuation;
accordingly, this amount will be adjusted after final determination of the
value. On a pro forma basis, assuming that the acquisition occurred at December
31, 1994, expected gross amortization using current assumptions and accretion of
interest based on an interest rate equal to the liability or contract rate (5%
to 8%), for each of the years in the five-year period ending December 31, 1999,
is as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
YEAR ENDING BEGINNING GROSS ACCRETION NET ENDING
DECEMBER 31, BALANCE AMORTIZATION OF INTEREST AMORTIZATION BALANCE
---------------- --------- ------------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
1995....................... $ 752 $ 97 $ 56 $ 41 $ 711
1996....................... 711 93 53 40 671
1997....................... 671 89 50 39 632
1998....................... 632 84 47 37 595
1999....................... 595 79 45 34 561
</TABLE>
NOTE K. INTEREST EXPENSE AND DIVIDENDS ON PREFERRED SECURITIES OF SUBSIDIARY
Interest expense is increased to reflect the issuance of long-term
fixed-rate corporate debt and short-term floating-rate corporate debt assuming
the expected proposed permanent financing of the AFC acquisition had been
effective on January 1, 1994 (see Note C). The components of pretax interest
expense for 1994 are as follows:
<TABLE>
<CAPTION>
ANNUAL
(IN MILLIONS) ASSUMED AMOUNT INTEREST
TYPE OF ISSUE RATE OUTSTANDING EXPENSE
--------------------------------------------------- ------- ----------- -------
<S> <C> <C> <C>
Short-term floating-rate corporate debt............ 6.05% $ 220 $13
Long-term fixed-rate corporate debt................ 7.45% 450 34
----------- -------
$ 670 $47
========== =======
</TABLE>
Interest expense for the three months ended March 31, 1995 is adjusted to
reflect the incremental increase in interest expense assuming the proposed
permanent financing of the AFC acquisition had been effective on January 1, 1995
(see Note C).
A 1% increase/decrease in the short-term floating rate would
increase/decrease the above pro forma annual interest expense by approximately
$2 million (pretax) per year. A 1% increase/
decrease in the long-term fixed rate would increase/decrease the above annual
pro forma interest expense by approximately $5 million (pretax) per year.
Dividends on preferred securities of subsidiary are assumed to be at a
pretax rate of 8.625% on $250 million of preferred securities issued in
connection with the expected proposed permanent financing of the AFC
acquisition. The dividends are shown net of an $8 million tax benefit per year
to reflect the tax deductibility of these dividends (see Note C).
NOTE L. INCOME TAX EXPENSE
All of the applicable pro forma consolidated financial statement
adjustments, except goodwill amortization, are tax effected at an assumed
effective income tax rate of 37% for AFC and 35% for WNC.
S-54
<PAGE> 57
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
NOTE M. INTEREST EXPENSE AND NET INVESTMENT INCOME -- WNC
The purchase of WNC was funded as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
Sale of equity securities............................................ $ 59
Sale or maturity of short-term investments........................... 39
Issuance of short-term floating-rate debt............................ 176
-----
Total...................................................... $ 274
=====
</TABLE>
Interest expense is increased, and net investment income is reduced, in
1994 to reflect the liquidation of investments and the issuance of short-term
debt to fund the acquisition of the 40% interest in WNC. Interest expense of $11
million is calculated at an assumed rate of 6.05% per year on $176 million of
short-term debt. Foregone net investment income is calculated as follows:
(IN MILLIONS)
<TABLE>
<CAPTION>
ANNUAL
FOREGONE
NET
ASSUMED AMOUNT INVESTMENT
TYPE OF ISSUE SOLD RATE SOLD INCOME
------------------------------------------------------ ------ ---- ----------
<S> <C> <C> <C>
Equity securities..................................... 3.37% $ 59 $2
Short-term investments................................ 6.25% 39 2
---- --
$ 98 $4
==== ==
</TABLE>
NOTE N. EQUITY IN EARNINGS OF WNC
The purchase price of WNC was allocated as follows:
<TABLE>
<CAPTION>
(IN MILLIONS)
<S> <C>
40% of net assets of WNC at December 23, 1994........................ $ 136
Increase (decrease) in WNC's net asset value at
December 23, 1994 to estimated fair value:
Mortgage loans on real estate................................... (5)
Credit-tenant loans............................................. (5)
Deferred policy acquisition costs............................... (144)
Cost of insurance purchased (historical)........................ (42)
Cost of insurance purchased..................................... 232
Acquisition-related goodwill.................................... 136
Insurance and annuity liabilities............................... (23)
Income tax liabilities.......................................... (1)
Other assets/liabilities........................................ (10)
-----
Total estimated fair value adjustments..................... 138
-----
Cash purchase price........................................ $ 274
=====
</TABLE>
The investment in WNC is reported using the equity method of accounting.
American General records 40% of WNC's earnings, adjusted for purchase accounting
and other pro forma adjustments. The equity in earnings of WNC is tax effected
by American General at 35%, less an estimated dividends received deduction.
S-55
<PAGE> 58
AMERICAN GENERAL CORPORATION
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(UNAUDITED)
The equity in earnings of WNC and American General's related tax expense
are calculated as follows:
<TABLE>
<CAPTION>
YEAR ENDED
(IN MILLIONS) DECEMBER 31, 1994
-----------------
<S> <C>
40% of WNC's earnings........................................ $ 29
Purchase accounting adjustments:
Reversal of amortization expense........................... 8
Accretion of discount on fixed maturity securities......... 7
Release of reserves........................................ 1
Amortization of CIP........................................ (24)
Pro forma adjustments:
Reduction in investment management fee..................... 3
Reversal of realized investment losses..................... 14
Reversal of trading gains.................................. (1)
------
Taxable adjustments.......................................... 8
Tax effect on above adjustments.............................. (3)
Amortization of goodwill..................................... (7)
------
Equity in earnings of WNC.......................... 27
American General tax on undistributed earnings*.............. 8
------
Net aftertax equity in earnings of WNC............. $ 19
======
</TABLE>
*Reflects dividends received deduction.
Dividends received from WNC, at an assumed annual rate of $.16/share or $1
million per quarter, reduce American General's investment in WNC and have no
impact on the pro forma consolidated statement of income, except for the
dividends received deduction.
S-56
<PAGE> 59
DESCRIPTION OF THE SERIES A PREFERRED SECURITIES
GENERAL
The following summary of certain terms and provisions of the Series A
Preferred Securities supplements the description of the terms and provisions of
the Preferred Securities set forth in the accompanying Prospectus under the
heading "Description of the Preferred Securities," to which description
reference is hereby made. Capitalized terms used and not defined in this
Prospectus Supplement have the meanings ascribed to them in the accompanying
Prospectus. The Series A Preferred Securities constitute a series of Preferred
Securities of American General Delaware having such dividend terms, liquidation
preferences per share, voting rights, redemption provisions, conversion or
exchange rights and other rights, preferences, privileges, limitations and
restrictions as are set forth in the LLC Agreement, the Delaware Limited
Liability Company Act (the "LLC Act") and the written action taken or to be
taken pursuant to the LLC Agreement by the Manager relating to the Series A
Preferred Securities (the "Series A Declaration"). The summary of certain terms
and provisions of the Series A Preferred Securities set forth below does not
purport to be complete and is subject to, and qualified in its entirety by
reference to, the LLC Agreement and the Series A Declaration. The LLC Agreement
and the form of the Series A Declaration have been filed as exhibits to the
Registration Statement of which this Prospectus Supplement and accompanying
Prospectus is a part.
DIVIDENDS
General. Holders of the Series A Preferred Securities will be entitled to
receive cumulative cash dividends from American General Delaware, accruing from
the date of original issuance and payable monthly in arrears on the last day of
each calendar month of each year, commencing June 30, 1995, except as otherwise
described below. The dividends payable on each Series A Preferred Security will
be fixed at the annual rate of $ , or % of the liquidation
preference of $50 per Series A Preferred Security. The amount of dividends
payable for any full monthly dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months, and for any period shorter than
a full monthly dividend period, will be computed on the basis of the actual
number of days elapsed in such period. Payment of dividends is limited to the
funds held by American General Delaware and legally available for distribution
to holders of Series A Preferred Securities. See "Description of the Series A
Junior Subordinated Debentures -- Interest."
Dividends on the Series A Preferred Securities must be declared monthly and
paid on the last day of each calendar month to the extent that American General
Delaware has funds legally available for the payment of such dividends and cash
on hand sufficient to make such payments. It is anticipated that the funds of
American General Delaware will be limited principally to payments received from
American General under the Series A Junior Subordinated Debentures. If American
General fails to make interest payments on the Series A Junior Subordinated
Debentures, American General Delaware will not have sufficient funds to pay
dividends on the Series A Preferred Securities. The payment of dividends (but
only if and to the extent declared from funds of American General Delaware
legally available therefor) will be guaranteed by American General as and to the
extent set forth herein and under "Description of the Guarantees" in the
accompanying Prospectus.
American General has the right under the Series A Junior Subordinated
Debentures to extend, from time to time, the interest payment period on the
Series A Junior Subordinated Debentures for up to 60 consecutive months on one
or more occasions, but not beyond the stated maturity date or date of redemption
thereof. Monthly dividends on the Series A Preferred Securities would be
deferred (but would continue to accumulate monthly and Additional Dividends,
intended to provide monthly compounding on dividend arrearages, would also
accumulate) by American General Delaware during any such extension of the
interest payment period. American General Delaware will give written notice of
American General's extension of the interest payment period to the holders of
the Series A Preferred Securities no later than the last date on which it would
be required to notify
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the NYSE of the record or payment date of the related dividend, which is
currently 10 days prior to such record or payment date. See "-- Additional
Dividends" and "Description of the Series A Junior Subordinated
Debentures -- Option to Extend Interest Payment Period." Any failure by American
General to make interest payments on the Series A Junior Subordinated Debentures
within 10 days of the relevant payment dates in the absence of an extension of
an interest payment period would constitute an Event of Default (as defined
under "Description of the Junior Subordinated Debentures -- Events of Default"
in the accompanying Prospectus) under the Junior Subordinated Indenture with
respect to the Series A Junior Subordinated Debentures. American General has
agreed, among other things, not to declare or pay any dividend on any of its
capital stock at any time that American General has exercised its option to
extend an interest payment period on the Series A Junior Subordinated Debentures
and such extension is continuing or any Event of Default under the Junior
Subordinated Indenture with respect to the Series A Junior Subordinated
Debentures shall have occurred and be continuing. See "Description of the
Guarantees -- Certain Covenants of American General" in the accompanying
Prospectus.
Dividends declared on the Series A Preferred Securities will be payable to
the holders thereof as they appear on the books and records of American General
Delaware on the relevant record dates, which, if and so long as the Series A
Preferred Securities are in book-entry form, will be one Business Day (as
defined below) prior to the related payment dates. Subject to any applicable
laws and regulations and the LLC Agreement and the Series A Declaration, each
such payment will be made as described under "Description of the Preferred
Securities -- Book-Entry-Only Issuance -- The Depository Trust Company" in the
accompanying Prospectus. In the event that the Series A Preferred Securities
shall not continue to remain in book-entry form, the Manager shall have the
right to select relevant record dates that are more than one Business Day prior
to the related payment dates. If any date on which dividends are payable on the
Series A Preferred Securities is not a Business Day, then payment of the
dividend payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that if such Business Day is in the next succeeding calendar
year, such payment will be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. A "Business
Day" means any day other than a Saturday, Sunday or other day on which banking
institutions in The City of New York are authorized or obligated by law or
executive order to close.
The failure of holders of the Series A Preferred Securities to receive
dividends thereon in full (including arrearages and any Additional Dividends
thereon) for 15 consecutive months (including any such failure caused by an
extension of an interest payment period on the Series A Junior Subordinated
Debentures) would trigger the right of holders of a majority of the aggregate
liquidation preference of the Series A Preferred Securities then outstanding,
voting at a special meeting called for such purpose or by written consent, to
direct Chemical Mellon Shareholder Services, LLC, as the conversion and exchange
agent for the Series A Preferred Securities (the "Conversion Agent"), to
exchange all (but not less than all) of the Series A Preferred Securities then
outstanding for Series A Junior Subordinated Debentures and, immediately
thereafter, to exchange such Series A Junior Subordinated Debentures, on behalf
of such holders, for shares of American General Series A Preferred Stock, at the
Exchange Price. "Exchange Price" means one share of American General Series A
Preferred Stock for each $50 principal amount of Series A Junior Subordinated
Debentures (which rate of exchange is equivalent to one share of American
General Series A Preferred Stock for each Series A Preferred Security). See
"-- Optional Exchange for American General Series A Preferred Stock."
Additional Dividends. Upon any dividend arrearages in respect of the Series
A Preferred Securities, American General Delaware will be required to declare
and pay additional dividends on the Series A Preferred Securities in order to
provide, in effect, monthly compounding on such dividend arrearages. The amounts
payable to effect such monthly compounding on dividend
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<PAGE> 61
arrearages in respect of the Series A Preferred Securities are referred to
herein as "Additional Dividends."
Certain Restrictions on American General Delaware. If accumulated dividends
(including Additional Dividends) have not been paid in full on the Series A
Preferred Securities, American General Delaware may not:
(i) pay, or declare and set aside for payment, any dividends on the
Preferred Securities of any other series or any other limited liability
company interests in American General Delaware ranking pari passu with the
Series A Preferred Securities as to the payment of dividends ("Dividend
Parity Securities"), unless the amount of any dividends declared on such
Dividend Parity Securities is paid on such Dividend Parity Securities and
the Series A Preferred Securities on a pro rata basis on the date such
dividends are paid on such Dividend Parity Securities, so that the ratio of
(x)(A) the aggregate amount paid as dividends on the Series A Preferred
Securities to (B)the aggregate amount paid as dividends on such Dividend
Parity Securities is the same as the ratio of (y)(A) the aggregate amount
of all accumulated arrears of unpaid dividends on the Series A Preferred
Securities to (B) the aggregate amount of all accumulated arrears of unpaid
dividends on such Dividend Parity Securities;
(ii) pay, or declare and set aside for payment, any dividends on any
limited liability company interests in American General Delaware ranking
junior to the Series A Preferred Securities as to the payment of dividends
("Dividend Junior Securities"); or
(iii) redeem, purchase, or otherwise acquire any Dividend Parity
Securities or Dividend Junior Securities (other than purchases or
acquisitions resulting from the reclassification of such securities or the
exchange or conversion of any Dividend Parity Security or Dividend Junior
Security pursuant to the terms thereof or the purchase of fractional
interests therein upon such conversion or exchange);
until, in each case, such time as all accumulated and unpaid dividends
(including Additional Dividends) on all of the Series A Preferred Securities
shall have been paid in full or have been irrevocably set aside for payment in
full for all dividend periods terminating on or prior to, in the case of clauses
(i) and (ii), the date of such payment, and in the case of clause (iii), the
date of such redemption, purchase, or other acquisition.
CONVERSION RIGHTS
General. The Series A Preferred Securities will be convertible at any time
prior to the Conversion Expiration Date, at the option of the holders thereof
and in the manner described below, into shares of American General Common Stock
at an initial conversion rate of shares of American General Common
Stock for each Series A Preferred Security (equivalent to a conversion price of
$ per share of American General Common Stock), subject to adjustment as
described under "-- Conversion Price Adjustments" below. Whenever American
General issues shares of American General Common Stock upon conversion of Series
A Preferred Securities, American General will issue, together with each such
share of American General Common Stock, one right entitling the holder thereof,
under certain circumstances, to purchase Series A Junior Participating Preferred
Stock of American General (or other securities in lieu thereof) pursuant to the
Rights Agreement, dated as of July 27, 1989, between the Company and First
Chicago Trust Company of New York, as amended, or any similar rights issued to
holders of American General Common Stock in addition thereto or in replacement
thereof (such rights, together with any additional or replacement rights, being
collectively referred to as the "Rights"), whether or not such Rights shall be
exercisable at such time, but only if such Rights are issued and outstanding and
held by other holders of American General Common Stock (or are evidenced by
outstanding share certificates representing American General Common Stock) at
such time and have not expired or been redeemed. See "Description of American
General Common Stock -- Preferred Share
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<PAGE> 62
Purchase Rights" in the accompanying Prospectus. The Series A Declaration
provides that a holder of a Series A Preferred Security wishing to exercise its
conversion right shall surrender such Series A Preferred Security, together with
an irrevocable conversion notice, to the Conversion Agent, which shall, on
behalf of such holder, exchange such Series A Preferred Security for $50
principal amount of the Series A Junior Subordinated Debentures and immediately
convert such Series A Junior Subordinated Debentures into American General
Common Stock. Holders may obtain copies of the required form of the conversion
notice from the Conversion Agent. So long as a book-entry system for the Series
A Preferred Securities is in effect, however, procedures for converting the
Series A Preferred Securities into shares of American General Common Stock will
differ, as described in the accompanying Prospectus under "Description of the
Preferred Securities -- Book-Entry-Only Issuance -- The Depository Trust
Company."
Holders of Series A Preferred Securities at the close of business on a
dividend record date will be entitled to receive any declared dividend on such
Series A Preferred Securities with respect to the corresponding dividend payment
date notwithstanding the conversion of such Series A Preferred Securities
following such dividend record date but prior to such dividend payment date.
Except as provided in the immediately preceding sentence, neither American
General Delaware nor American General will make, or be required to make, any
payment, allowance or adjustment for accumulated and unpaid dividends, whether
or not in arrears, on converted Series A Preferred Securities. American General
will make no payment or allowance for dividends on the shares of American
General Common Stock issued upon such conversion, except to the extent that such
shares of American General Common Stock are held of record on the record date
for any such dividends. Each conversion will be deemed to have been effected
immediately prior to the close of business on the day on which the related
conversion notice was received by the Conversion Agent.
No fractional shares of American General Common Stock will be issued as a
result of conversion, but in lieu thereof such fractional interest will be paid
by American General in cash based on the Current Market Price of the American
General Common Stock on the date such shares are surrendered for conversion.
Expiration of Conversion Rights. On and after May , , American
General Delaware may, at its option, cause the conversion rights of holders of
Series A Preferred Securities to expire if (i) American General Delaware has
paid in full all accumulated and unpaid dividends (whether or not earned or
declared), including Additional Dividends, on the Series A Preferred Securities
for all dividend periods terminating on or prior to such date and (ii) for 20
trading days within any period of 30 consecutive trading days, including the
last trading day of such period, the Current Market Price of American General
Common Stock shall have exceeded 120% of the conversion price, subject to
adjustment in certain circumstances. In order to exercise its conversion
expiration option, American General Delaware must issue a press release for
publication on the Dow Jones News Service prior to the opening of business on
the second trading day after a period in which the conditions in the preceding
sentence have been met, but in no event prior to May , . The press
release shall specify the Conversion Expiration Date (as determined in the
manner set forth below) and provide the conversion price and the Current Market
Price of American General Common Stock, in each case as of the close of business
on the trading day next preceding the date of the press release. American
General has the right to cause American General Delaware to exercise its
conversion expiration option.
Notice of the expiration of conversion rights will be given by first-class
mail to the holders of Series A Preferred Securities not more than four Business
Days after American General Delaware issues the press release. The "Conversion
Expiration Date" will be the close of business on a date selected by American
General Delaware which is not less than 30 nor more than 60 calendar days after
the date on which American General Delaware issues the press release announcing
its intention to terminate conversion rights of the holders of Series A
Preferred Securities; provided, however, that if American General Delaware has
not exercised its conversion expiration option, the Conversion Expiration Date
with respect to any Series A Preferred Securities which are called for
S-60
<PAGE> 63
redemption will be the close of business on the third Business Day prior to the
scheduled date for such redemption.
The term "Current Market Price" of American General Common Stock for any
day means the reported last sale price, regular way, on such day, or, if no sale
takes place on such day, the average of the reported closing bid and asked
prices on such day, regular way, in either case as reported on the NYSE
Composite Tape, or, if the American General Common Stock is not listed or
admitted to trading on the NYSE, on the principal national securities exchange
on which the American General Common Stock is listed or admitted to trading, or
if the American General Common Stock is not listed or admitted to trading on a
national securities exchange, on the National Market System of the National
Association of Securities Dealers, Inc., or, if the American General Common
Stock is not quoted or admitted to trading on such quotation system, on the
principal quotation system on which the American General Common Stock is listed
or admitted to trading or quoted, or, if not listed or admitted to trading or
quoted on any national securities exchange or quotation system, the average of
the closing bid and asked prices of the American General Common Stock in the
over-the-counter market on the day in question as reported by the National
Quotation Bureau Incorporated, or a similar generally accepted reporting
service, or, if not so available in such manner, as furnished by any NYSE member
firm selected from time to time by the Board of Directors of American General
for that purpose or, if not so available in such manner, as otherwise determined
in good faith by such Board of Directors.
Conversion Price Adjustments -- General. The conversion price will be
subject to adjustment in certain events including, without duplication: (i) the
payment of dividends (and other distributions) payable in American General
Common Stock on any class of capital stock of American General; (ii) the
issuance to all holders of American General Common Stock of rights (other than
Rights) or warrants entitling holders of such rights or warrants to subscribe
for or purchase American General Common Stock at less than the then Current
Price (as defined below); (iii) subdivisions and combinations of American
General Common Stock; (iv) the payment of dividends (and other distributions) to
all holders of American General Common Stock consisting of evidences of
indebtedness of American General, securities or capital stock, cash, or assets
(including securities, but excluding (x) those dividends, distributions, rights
and warrants referred to in clauses (i) and (ii) and Rights, (y) any regular
cash dividend that does not exceed the per share amount of the immediately
preceding regular cash dividend (as adjusted to reflect certain of the other
events referred to in this sentence) and (z) any other dividends or
distributions (cash or otherwise) if the per share amount thereof, when added to
the per share amount of other distributions made in the preceding 12 months
(other than those distributions that resulted in a conversion price adjustment
and certain other exceptions), does not exceed 15% of the Current Price per
share of American General Common Stock on the trading day immediately preceding
the date of declaration of such dividend); and (v) payment to holders of
American General Common Stock in respect of a tender or exchange offer (other
than an odd-lot offer) by American General or any majority owned subsidiary of
American General for American General Common Stock at a price in excess of 110%
of the Current Price per share of American General Common Stock on the trading
day next succeeding the last date tenders or exchanges may be made pursuant to
such tender or exchange offer. The "Current Price" per share of American General
Common Stock on any date means, subject to certain adjustments, the average of
the daily closing prices for the five consecutive trading days selected by
American General commencing not more than 20 trading days before such day or the
relevant "ex" date.
American General from time to time may reduce the conversion price of the
Series A Junior Subordinated Debentures (and thus the conversion price of the
Series A Preferred Securities) by any amount selected by American General for
any period of at least 20 days, in which case American General shall give at
least 15 days' notice of such reduction. American General may, at its option,
make such reductions in the conversion price, in addition to those set forth
above, as the Board of Directors deems advisable to avoid or diminish any income
tax to holders of American General
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<PAGE> 64
Common Stock (or holders of rights to acquire American General Common Stock or
securities convertible into American General Common Stock) resulting from any
dividend or distribution of stock (or rights to acquire stock) or from any event
treated as such for income tax purposes. See "Certain Federal Income Tax
Considerations -- Adjustment of Conversion Price."
No adjustment of the conversion price will be made upon the issuance of any
shares of American General Common Stock pursuant to any present or future plan
providing for the reinvestment of dividends or interest payable on securities of
American General and the investment of additional optional amounts in shares of
American General Common Stock under any such plan, or the issuance of any shares
of American General Common Stock or options or rights to purchase such shares
pursuant to any present or future employee, director, or consultant benefit
plan, program or agreement of American General or a subsidiary of American
General or pursuant to any option, warrant, right, or exercisable, exchangeable
or convertible security outstanding as of the date the terms of the Series A
Junior Subordinated Debentures were first established. The distribution or
exercise of Rights will not result in an adjustment of the conversion price.
There shall also be no adjustment of the conversion price in case of the
issuance of any American General capital stock (or securities convertible into
or exchangeable for American General capital stock), except as specifically
described above. If any action would require adjustment of the conversion price
pursuant to more than one of the anti-dilution provisions, only one adjustment
shall be made and such adjustment shall be the amount of adjustment that has the
highest absolute value to holders of the Series A Preferred Securities. No
adjustment in the conversion price will be required unless such adjustment would
require an increase or decrease of at least 1% of the conversion price, but any
adjustment that would otherwise be required to be made shall be carried forward
and taken into account in any subsequent adjustment.
Conversion Price Adjustments -- Merger, Consolidation or Sale of Assets of
American General. In the event that American General is a party to any
transaction (including, without limitation, a merger, consolidation, sale of all
or substantially all of the assets of American General, recapitalization or
reclassification of American General Common Stock or any compulsory share
exchange (each of the foregoing, and any other transaction, being referred to as
a "Transaction")), in each case, as a result of which shares of American General
Common Stock shall be converted into the right (i) in the case of any
Transaction other than a Transaction involving a Common Stock Fundamental Change
(as defined herein), to receive securities, cash or other property, each Series
A Preferred Security shall thereafter be convertible into the kind and amount of
securities, cash and other property receivable upon the consummation of such
Transaction by a holder of that number of shares of American General Common
Stock into which a Series A Preferred Security was convertible immediately prior
to such Transaction, or (ii) in the case of a Transaction involving a Common
Stock Fundamental Change, to receive common stock of the kind received by
holders of American General Common Stock (but in each case after giving effect
to any adjustment discussed below relating to a Fundamental Change if such
Transaction constitutes a Fundamental Change). The holders of Series A Preferred
Securities will have no voting rights with respect to any Transaction described
in this section.
If any Fundamental Change occurs, then the conversion price in effect will
be adjusted immediately after such Fundamental Change as described below. In
addition, in the event of a Common Stock Fundamental Change, each Series A
Preferred Security shall be convertible solely into common stock of the kind
received by holders of American General Common Stock as a result of such Common
Stock Fundamental Change.
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<PAGE> 65
The conversion price in the case of any Transaction involving a Fundamental
Change will be adjusted immediately after such Fundamental Change:
(i) in the case of a Non-Stock Fundamental Change (as defined herein),
the conversion price of the Series A Preferred Securities will thereupon
become the lower of (A) the conversion price in effect immediately prior to
such Non-Stock Fundamental Change, but after giving effect to any other
prior adjustments, and (B) the result obtained by multiplying the greater
of the Applicable Price (as defined herein) or the then applicable
Reference Market Price (as defined herein) by a fraction of which the
numerator will be $50.00 and the denominator will be the amount set forth
below (based on the date such Non-Stock Fundamental Change occurs):
<TABLE>
<CAPTION>
TWELVE
MONTHS
ENDING
MAY , DENOMINATOR
------- -----------
<S> <C>
1996................... $
1997...................
1998...................
1999...................
<CAPTION>
TWELVE
MONTHS
ENDING
MAY , DENOMINATOR
------- -----------
<S> <C>
2000................... $
2001...................
2002...................
2003 and thereafter.... 50.00
</TABLE>
; and
(ii) in the case of a Common Stock Fundamental Change, the conversion
price of the Series A Preferred Securities in effect immediately prior to
such Common Stock Fundamental Change, but after giving effect to any other
prior adjustments, will thereupon be adjusted by multiplying such
conversion price by a fraction of which the numerator will be the Purchaser
Stock Price (as defined herein) and the denominator will be the Applicable
Price; provided, however, that in the event of a Common Stock Fundamental
Change in which (A) 100% of the value of the consideration received by a
holder of American General Common Stock is common stock of the successor,
acquiror, or other third party (and cash, if any, is paid only with respect
to any fractional interests in such common stock resulting from such Common
Stock Fundamental Change) and (B) all of the American General Common Stock
will have been exchanged for, converted into, or acquired for common stock
(and cash with respect to fractional interests) of the successor, acquiror,
or other third party, the conversion price of the Series A Preferred
Securities in effect immediately prior to such Common Stock Fundamental
Change will thereupon be adjusted by multiplying such conversion price by a
fraction of which the numerator will be one and the denominator will be the
number of shares of common stock of the successor, acquiror, or other third
party received by a holder of one share of American General Common Stock as
a result of such Common Stock Fundamental Change.
In the absence of the Fundamental Change provisions, in the case of a
Transaction each Series A Preferred Security would become convertible into the
securities, cash, or property receivable by a holder of the number of shares of
American General Common Stock into which such Series A Preferred Security was
convertible immediately prior to such Transaction. Thus, in the absence of the
Fundamental Change provisions, a Transaction could substantially lessen or
eliminate the value of the conversion privilege associated with the Series A
Preferred Securities. For example, if American General were acquired in a cash
merger, each Series A Preferred Security would become convertible solely into
cash and would no longer be convertible into securities whose value would vary
depending on the future prospects of American General and other factors.
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<PAGE> 66
The foregoing conversion price adjustments are designed, in "Fundamental
Change" transactions where all or substantially all the American General Common
Stock is converted into securities, cash, or property and not more than 50% of
the value received by the holders of American General Common Stock consists of
stock listed or admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the National Market System of the National
Association of Securities Dealers, Inc. (a "Non-Stock Fundamental Change," as
defined herein), to increase the securities, cash, or property into which each
Series A Preferred Security is convertible.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of American General Common Stock (measured as described in
the definition of Applicable Price below) is lower than the then applicable
conversion price of the Series A Preferred Security but greater than or equal to
the Reference Market Price (as defined herein), the conversion price will be
adjusted as described above with the effect that each Series A Preferred
Security will be convertible into securities, cash or property of the same type
received by the holders of American General Common Stock in such transaction but
in an amount per Series A Preferred Security equal to the amount indicated as
the denominator as of the date of such transaction as set forth in clause (i)
above with respect to conversion prices for Non-Stock Fundamental Changes.
In a Non-Stock Fundamental Change transaction where the initial value
received per share of American General Common Stock (measured as described in
the definition of Applicable Price below) is lower than both the conversion
price of a Series A Preferred Security and the Reference Market Price, the
conversion price will be adjusted as described above but calculated as though
such initial value had been the Reference Market Price.
In a Fundamental Change transaction where all or substantially all the
American General Common Stock is converted into securities, cash, or property
and more than 50% of the value received by the holders of American General
Common Stock consists of listed or National Market System traded common stock (a
"Common Stock Fundamental Change," as defined herein), the foregoing adjustments
are designed to provide in effect that (a) where American General Common Stock
is converted partly into such common stock and partly into other securities,
cash, or property, each Series A Preferred Security will be convertible solely
into a number of shares of such common stock determined so that the initial
value of such shares (measured as described in the definition of Purchaser Stock
Price below) equals the value of the shares of American General Common Stock
into which such Series A Preferred Security was convertible immediately before
the transaction (measured as aforesaid) and (b) where American General Common
Stock is converted solely into such common stock, each Series A Preferred
Security will be convertible into the same number of shares of such common stock
receivable by a holder of the number of shares of American General Common Stock
into which such Series A Preferred Security was convertible immediately before
such transaction.
The term "Applicable Price" means (i) in the case of a Non-Stock
Fundamental Change in which the holders of the American General Common Stock
receive only cash, the amount of cash received by the holder of one share of
American General Common Stock and (ii) in the event of any other Non-Stock
Fundamental Change or any Common Stock Fundamental Change, the average of the
Closing Prices (as defined herein) for the American General Common Stock during
the ten consecutive trading days prior to and including the record date for the
determination of the holders of American General Common Stock entitled to
receive such securities, cash, or other property in connection with such
Non-Stock Fundamental Change or Common Stock Fundamental Change or, if there is
no such record date, the date upon which the holders of the American General
Common Stock shall have the right to receive such securities, cash, or other
property (such record date or distribution date being hereinafter referred to as
the "Entitlement Date"), in each case as adjusted in good faith by American
General to appropriately reflect any of the events referred to in clauses (i)
through (v) of the first paragraph under "-- Conversion Price
Adjustments -- General."
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The term "Closing Price" of any common stock on any day means the reported
last sale price, regular way, on such day, or, if no such sale takes place on
such day, the average of the reported closing bid and asked prices on such day
regular way, in either case as reported on the principal national securities
exchange on which such common stock is listed or admitted to trading, or if such
common stock is not listed or admitted to trading on a national securities
exchange, on the National Market System of the National Association of
Securities Dealers, Inc., or, if such common stock is not quoted or admitted to
trading on such quotation system, on the principal quotation system on which
such common stock is listed or admitted to trading or quoted, or, if not listed
or admitted to trading or quoted on any national securities exchange or
quotation system, the average of the closing bid and asked prices of such common
stock in the over-the-counter market on the day in question as reported by the
National Quotation Bureau Incorporated, or a similar generally accepted
reporting service, or, if not so available in such manner, as furnished by any
NYSE member firm selected from time to time by the Board of Directors of
American General for that purpose or, if not so available in such manner, as
otherwise determined in good faith by the Board of Directors of American
General.
The term "Common Stock Fundamental Change" means any Fundamental Change in
which more than 50% of the value (as determined in good faith by the Board of
Directors of American General) of the consideration received by holders of
American General Common Stock consists of common stock that for each of the ten
consecutive trading days prior to the Entitlement Date has been admitted for
listing or admitted for listing subject to notice of issuance on a national
securities exchange or quoted on the National Market System of the National
Association of Securities Dealers, Inc.; provided, however, that a Fundamental
Change shall not be a Common Stock Fundamental Change unless either (i) American
General continues to exist after the occurrence of such Fundamental Change and
the outstanding Series A Junior Subordinated Debentures continue to exist as
outstanding Series A Junior Subordinated Debentures, or (ii) not later than the
occurrence of such Fundamental Change, the outstanding Series A Junior
Subordinated Debentures are converted into or exchanged for convertible
subordinated debentures of the entity succeeding to the business of American
General, which convertible subordinated debentures have terms substantially
similar to those of the Series A Junior Subordinated Debentures.
The term "Fundamental Change" means the occurrence of any transaction or
event in connection with a plan pursuant to which all or substantially all of
the American General Common Stock shall be exchanged for, converted into,
acquired for or constitute solely the right to receive securities, cash or other
property (whether by means of an exchange offer, liquidation, tender offer,
consolidation, merger, combination, reclassification, recapitalization, or
otherwise), provided, however, that, in the case of a plan involving more than
one such transaction or event, for purposes of adjustment of the conversion
price, such Fundamental Change shall be deemed to have occurred when
substantially all of the American General Common Stock shall be exchanged for,
converted into, or acquired for or constitute solely the right to receive
securities, cash or other property, but the adjustment shall be based upon the
highest weighted average per share consideration that a holder of American
General Common Stock could have received in such transactions or events as a
result of which more than 50% of the American General Common Stock shall have
been exchanged for, converted into, or acquired for or constitute solely the
right to receive securities, cash or other property.
The term "Non-Stock Fundamental Change" means any Fundamental Change other
than a Common Stock Fundamental Change.
The term "Purchaser Stock Price" means, with respect to any Common Stock
Fundamental Change, the average of the Closing Prices for the common stock
received in such Common Stock Fundamental Change for the ten consecutive trading
days prior to and including the Entitlement Date, as adjusted in good faith by
the Board of Directors of American General to appropriately reflect any of the
events referred to in clauses (i) through (v) of the first paragraph under "--
Conversion Price Adjustments -- General."
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The term "Reference Market Price" shall initially mean $ (which is an
amount equal to 66 2/3% of the reported last sale price for American General
Common Stock on the NYSE Composite Tape on May , 1995) and in the event of any
adjustment to the conversion price other than as a result of a Non-Stock
Fundamental Change, the Reference Market Price shall also be adjusted so that
the ratio of the Reference Market Price to the conversion price after giving
effect to any such adjustment shall always be the same as the ratio of
$ to the initial conversion price.
SPECIAL EVENT EXCHANGE FOR SERIES A JUNIOR SUBORDINATED DEBENTURES
At any time after the occurrence of a Tax Event or an Investment Company
Event (each, a "Special Event"), American General Delaware (subject to the prior
consent of American General), upon not less than 30 nor more than 60 calendar
days' notice to American General and to the holders of Series A Preferred
Securities, may exchange, in whole but not in part, the Series A Preferred
Securities for Series A Junior Subordinated Debentures having an aggregate
principal amount and accrued and unpaid interest equal to the aggregate
liquidation preference and accumulated and unpaid dividends (whether or not
earned or declared), including Additional Dividends, to the date fixed for
exchange, respectively, of the Series A Preferred Securities (a "Special Event
Exchange"). In connection with any Special Event Exchange, American General
Delaware may be liquidated, dissolved or wound-up. Upon any Special Event
Exchange, American General will use its best efforts to have the Series A Junior
Subordinated Debentures listed on the NYSE or other exchange on which the Series
A Preferred Securities may then be listed. American General has the right to
cause American General Delaware to exercise its right to effect a Special Event
Exchange.
"Tax Event" means that a change in any applicable United States law or
regulation or in the interpretation thereof (including but not limited to the
enactment or imminent enactment of any legislation, the publication of any
judicial decisions, regulatory rulings, regulatory procedures, or notices or
announcements (including notices or announcements of intent to adopt such
procedures or regulations), or a change in the official position or the
interpretation of any law or regulation by any legislative body, court,
governmental authority or regulatory body, irrespective of the manner in which
such change is made known) shall have occurred after May , 1995, and that
American General Delaware or American General shall have received an opinion of
nationally recognized independent legal counsel experienced in such matters
that, as a result of such change, there exists more than an insubstantial risk
that (i) American General Delaware will be subject to federal income tax with
respect to the interest received on the Series A Junior Subordinated Debentures,
(ii) American General will be precluded from deducting the interest paid on the
Series A Junior Subordinated Debentures for federal income tax purposes or (iii)
American General Delaware will be subject to more than a de minimis amount of
other taxes, duties or other governmental charges.
"Investment Company Event" means that a change in any applicable United
States law or regulation or in the interpretation thereof (including but not
limited to the enactment or imminent enactment of any legislation, the
publication of any judicial decisions, regulatory rulings, regulatory
procedures, or notices or announcements (including notices or announcements of
intent to adopt such procedures or regulations), or a change in the official
position or the interpretation of any law or regulation by any legislative body,
court, governmental authority or regulatory body, irrespective of the manner in
which such change is made known) shall have occurred after May , 1995, and
that American General Delaware or American General shall have received an
opinion of nationally recognized independent legal counsel experienced in
practice under the Investment Company Act of 1940, as amended (the "1940 Act")
that, as a result of such change, there exists more than an insubstantial risk
that American General Delaware is or will be considered an "investment company"
which is required to be registered under the 1940 Act.
After the date fixed for any Special Event Exchange, (i) the Series A
Preferred Securities will no longer be deemed to be outstanding, (ii) any global
certificate or certificates representing Series A Preferred Securities held by
DTC or its nominee will be exchanged for a registered global certificate
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or certificates representing the Series A Junior Subordinated Debentures to be
delivered upon such exchange, (iii) any certificates representing Series A
Preferred Securities not held by DTC or its nominee and not surrendered for
exchange will be deemed to represent Series A Junior Subordinated Debentures
having a principal amount and accrued and unpaid interest equal to the
liquidation preference and accumulated and unpaid dividends (whether or not
earned or declared), including Additional Dividends, to the date fixed for
exchange, respectively, of such Series A Preferred Securities until such
certificates are surrendered to American General Delaware or its agent for
exchange (and until such certificates are so surrendered, no payments of
interest or principal will be made with respect to such Series A Junior
Subordinated Debentures) and (iv) all rights of the holders of the Series A
Preferred Securities will cease, except the right of such holders to receive the
Series A Junior Subordinated Debentures upon surrender of certificates
representing the Series A Preferred Securities.
OPTIONAL EXCHANGE FOR AMERICAN GENERAL SERIES A PREFERRED STOCK
Upon the occurrence of an Exchange Event (as defined herein), the holders
of a majority of the aggregate liquidation preference of the Series A Preferred
Securities then outstanding, voting at a meeting of the holders of the Series A
Preferred Securities called for such purpose or by written consent, may, at
their option, direct the Conversion Agent to exchange all (but not less than
all) of the Series A Preferred Securities for Series A Junior Subordinated
Debentures and to immediately exchange such Series A Junior Subordinated
Debentures, on behalf of such holders, for shares of American General Series A
Preferred Stock at the Exchange Price. If the Series A Preferred Securities are
so exchanged for American General Series A Preferred Stock, American General
will use its best efforts to have the American General Series A Preferred Stock
listed on the NYSE or other exchange on which the Series A Preferred Securities
may then be listed.
The American General Series A Preferred Stock issued upon any such exchange
will have dividend, optional redemption, liquidation and conversion provisions
and certain other terms substantially similar to the terms of the Series A
Preferred Securities, except that, among other things, the holders of American
General Series A Preferred Stock will be entitled (voting separately as a class
together with the holders of shares of any series of capital stock of American
General ranking pari passu with the American General Series A Preferred Stock as
to payment of dividends on which like voting rights have been conferred and are
exercisable) to elect two additional directors of American General if dividends
on such stock are in arrears for 18 or more consecutive months (including for
this purpose any arrearage with respect to the Series A Preferred Securities),
no interest will accumulate or be payable on any dividend arrearages on the
American General Series A Preferred Stock and the American General Series A
Preferred Stock will not be subject to mandatory redemption. See "Description of
American General Series A Preferred Stock." The terms of the American General
Series A Preferred Stock provide that all accumulated and unpaid dividends
(whether or not earned or declared), including any Additional Dividends, on the
Series A Preferred Securities that are not paid at the time of making an
Exchange Election (as defined herein) shall be treated as accumulated and unpaid
dividends on the American General Series A Preferred Stock. See "Description of
American General Series A Preferred Stock." For a discussion of the taxation of
such an exchange to holders, including the possibility that holders who exchange
their Series A Preferred Securities for American General Series A Preferred
Stock may be subject to additional income tax to the extent accrued but unpaid
interest on the Series A Junior Subordinated Debentures is converted into
accumulated and unpaid dividends on the American General Series A Preferred
Stock received in exchange for the Series A Preferred Securities, see "Certain
Federal Income Tax Considerations -- Exchange of Series A Preferred Securities
for American General Stock."
The failure of holders of Series A Preferred Securities to receive, for 15
consecutive months, the full amount of dividend payments (including arrearages
and any Additional Dividends thereon) on the Series A Preferred Securities will
constitute an "Exchange Event." As soon as practicable, but in
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no event later than 30 calendar days after the occurrence of an Exchange Event,
the Manager will, upon not less than 15 calendar days' written notice by
first-class mail to the holders of Series A Preferred Securities, convene a
meeting of such holders (an "Exchange Election Meeting") to determine whether to
cause the Conversion Agent to exchange all Series A Preferred Securities then
outstanding for shares of American General Series A Preferred Stock in the
manner described above. If the Manager fails to convene such Exchange Election
Meeting within such 30-day period, the holders of at least 10% of the aggregate
liquidation preference of the Series A Preferred Securities then outstanding
will be entitled to convene such Exchange Election Meeting. Upon the affirmative
vote of the holders of a majority of the aggregate liquidation preference of the
Series A Preferred Securities then outstanding at such Exchange Election Meeting
or, in the absence of such meeting, upon receipt by American General Delaware of
written consents signed by the holders of a majority of the aggregate
liquidation preference of the Series A Preferred Securities then outstanding, an
election to exchange all outstanding Series A Preferred Securities as described
above (an "Exchange Election") will be deemed to have been made.
Holders of Series A Preferred Securities, by purchasing such Series A
Preferred Securities, will be deemed to have agreed to be bound by these
optional exchange provisions in regard to the exchange of such Series A
Preferred Securities for American General Series A Preferred Stock on the terms
described above.
REDEMPTION
The Series A Preferred Securities will be redeemable at the option of
American General Delaware (subject to the prior consent of American General), in
whole or in part, from time to time, on or after May , 2003, at the Redemption
Price. In addition, if at any time following the Conversion Expiration Date,
less than 10% of the Series A Preferred Securities issued in the Offering
remains outstanding, the Series A Preferred Securities will be redeemable at the
option of American General Delaware (subject to the prior consent of American
General), in whole but not in part, at the Redemption Price. American General
Delaware may not redeem the Series A Preferred Securities in part unless all
accumulated and unpaid dividends (whether or not earned or declared), including
Additional Dividends, have been paid in full on all Series A Preferred
Securities for all monthly dividend periods terminating on or prior to the date
of redemption. American General has the right to cause American General Delaware
to exercise such redemption rights.
Upon repayment by American General of the principal of the Series A Junior
Subordinated Debentures at stated maturity, earlier redemption or otherwise,
including as a result of the acceleration of Series A Junior Subordinated
Debentures upon the occurrence of an Event of Default under the Junior
Subordinated Indenture with respect to the Series A Junior Subordinated
Debentures, the Series A Preferred Securities will be subject to mandatory
redemption, in whole but not in part, by American General Delaware and the
proceeds from such repayment will be applied to redeem the Series A Preferred
Securities at the Redemption Price (unless such proceeds are used to fund the
aggregate Liquidation Distributions (as defined herein) on the Series A
Preferred Securities in connection with the liquidation, dissolution or
winding-up of American General Delaware). In the case of such repayment, the
Series A Preferred Securities will only be redeemed when repayment of the Series
A Junior Subordinated Debentures has actually been received by American General
Delaware.
Subject to applicable law (including, without limitation, United States
federal securities laws), American General or its subsidiaries may at any time
and from time to time purchase outstanding Series A Preferred Securities by
tender, in the open market or otherwise.
Notice of any redemption (optional or mandatory) of Series A Preferred
Securities (which notice will be irrevocable) will be given by American General
Delaware to American General and each record holder of Series A Preferred
Securities that are being redeemed not fewer than 30 nor more than 60 calendar
days prior to the date fixed for redemption thereof. If American General
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Delaware gives a notice of redemption, then on the redemption date American
General Delaware will irrevocably deposit with DTC or the Paying Agent, as the
case may be, sufficient funds to pay the Redemption Price for the Series A
Preferred Securities to be redeemed and give DTC or the Paying Agent, as the
case may be, irrevocable instructions and authority to pay the Redemption Price
to the holders of the Series A Preferred Securities to be redeemed. See
"Description of the Preferred Securities -- Book-Entry-Only Issuance -- The
Depository Trust Company" in the accompanying Prospectus. If notice of
redemption has been given and funds irrevocably deposited with DTC or the Paying
Agent, as the case may be, as required, then immediately prior to the close of
business on the date of such deposit, all rights of holders of the Series A
Preferred Securities so called for redemption will cease, except the right of
such holders to receive the Redemption Price, but without additional interest
from and after such redemption date. In the event that any date fixed for
redemption is not a Business Day, then payment of the Redemption Price payable
on such date will be made the next succeeding day that is a Business Day (and
without any interest or other payment in respect of any such delay), except that
if such Business Day falls in the next calendar year, such payment will be made
on the immediately preceding Business Day. In the event that payment of the
Redemption Price is improperly withheld or refused and not paid by either
American General Delaware or American General (pursuant to the Guarantee),
dividends on the Series A Preferred Securities called for redemption (including
any Additional Dividends) will continue to accumulate at the then applicable
rate, from the original redemption date to the date that the Redemption Price is
actually paid and the holders of such Series A Preferred Securities may exercise
all of their rights as holders of Series A Preferred Securities.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of American General Delaware other than in connection with or after
the exchange of the Series A Preferred Securities for the American General
Series A Preferred Stock in the manner described under "-- Optional Exchange for
American General Series A Preferred Stock" or for Series A Junior Subordinated
Debentures in the manner described under "-- Special Event Exchange for Series A
Junior Subordinated Debentures," the holders of Series A Preferred Securities
then outstanding will be entitled to receive out of the assets of American
General Delaware legally available for distribution to the holders of limited
liability company interests, after satisfaction of liabilities to creditors as
required by the LLC Act but before any distribution of assets is made to holders
of any Common Securities or any other class of limited liability company
interests in American General Delaware ranking junior to the Series A Preferred
Securities as to the distribution of assets upon liquidation, dissolution or
winding-up of American General Delaware, but together with the holders of
Preferred Securities of any other series or any other limited liability company
interests in American General Delaware then outstanding ranking pari passu with
the Series A Preferred Securities as to the distribution of assets upon
liquidation, dissolution or winding-up of American General Delaware
("Liquidation Parity Securities"), an amount equal to the liquidation preference
of $50 per Series A Preferred Security plus all accumulated and unpaid dividends
(whether or not earned or declared), including any Additional Dividends, to the
date of payment (the "Liquidation Distribution").
If, upon any such liquidation, dissolution or winding-up, the Liquidation
Distributions can be paid only in part because American General Delaware has
insufficient assets available to pay in full the aggregate Liquidation
Distributions on the Series A Preferred Securities and the aggregate maximum
liquidation distributions on the Liquidation Parity Securities, then the amounts
payable directly by American General Delaware on the Series A Preferred
Securities and on such Liquidation Parity Securities shall be paid on a pro rata
basis, so that the ratio of (i)(A) the aggregate amount paid as Liquidation
Distributions on the Series A Preferred Securities to (B) the aggregate amount
paid as liquidation distributions on the Liquidation Parity Securities, is the
same as the ratio of (ii)(A) the aggregate Liquidation Distributions on the
Series A Preferred Securities to (B) the aggregate maximum liquidation
distributions on the Liquidation Parity Securities.
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If, upon any liquidation, dissolution or winding-up of American General
Delaware, the holders of Series A Preferred Securities are paid in full the
Liquidation Distributions to which they are entitled, then such holders will not
be entitled to receive or share in any other assets of American General Delaware
thereafter available for distribution to any other holders of limited liability
company interests in American General Delaware.
Pursuant to the LLC Agreement, American General Delaware shall be dissolved
and its affairs shall be wound up upon the earliest to occur of (i) December 31,
2050 (the expiration of the period fixed for the duration of American General
Delaware); (ii) the bankruptcy, insolvency, liquidation, dissolution or
winding-up of the Manager or American General (collectively, the "Common
Members") or the withdrawal, retirement, resignation or expulsion of either
Common Member from American General Delaware or the occurrence of any other
event that terminates the continued membership of either Common Member therein
under the LLC Act; (iii) the entry of a decree of a judicial dissolution of
American General Delaware under the LLC Act; (iv) the decision of the Manager to
dissolve American General Delaware (subject to the voting rights of the holders
of Series A Preferred Securities described under "Voting Rights" below and of
other holders of limited liability company interests in American General
Delaware); (v) the election of the Manager, in connection with or after the
exchange of all series of Preferred Securities outstanding (in accordance with
the written action establishing each such series of Preferred Securities) for
the related series of Junior Subordinated Debentures; or (vi) upon the written
consent thereto of all holders of outstanding Common Securities and Preferred
Securities of American General Delaware.
Any merger, consolidation, replacement, conveyance, transfer or lease
effected in accordance with the provisions described under "Merger,
Consolidation or Sale of Assets of American General Delaware" below shall not be
deemed a liquidation, dissolution or winding-up of American General Delaware for
the foregoing purposes.
VOTING RIGHTS
Except as provided below and under "Description of the
Guarantees -- Amendments and Assignment" and "Description of the Junior
Subordinated Debentures -- Modification of the Junior Subordinated Indenture" in
the accompanying Prospectus and as otherwise required by law and provided by the
LLC Agreement, the holders of the Series A Preferred Securities will have no
voting rights.
If (i) American General Delaware fails to pay dividends in full (including
any arrearages and Additional Dividends) on the Series A Preferred Securities
for 18 consecutive months; (ii) an Event of Default under the Junior
Subordinated Indenture with respect to the Series A Junior Subordinated
Debentures occurs and is continuing; or (iii) American General is in default
under any of its payment or other obligations under the Guarantee with respect
to the Series A Preferred Securities, then the holders of outstanding Series A
Preferred Securities will be entitled by the vote of a majority in aggregate
liquidation preference of such holders to appoint and authorize a special
trustee (a "Special Trustee") to enforce American General Delaware's rights
under the Series A Junior Subordinated Debentures against American General,
enforce the obligations undertaken with respect to the Series A Preferred
Securities by American General under the Guarantee and, to the extent permitted
by law, declare and pay dividends on the Series A Preferred Securities to the
extent funds of American General Delaware are legally available therefor (but
only in the event that American General Delaware's failure to pay dividends on
the Series A Preferred Securities is not a consequence of American General's
exercise of its right to extend the interest payment period on the Series A
Junior Subordinated Debentures). For purposes of determining whether American
General Delaware has failed to pay dividends in full for 18 consecutive months,
dividends shall be deemed to remain in arrears, notwithstanding any partial
payments in respect thereof, until all accumulated and unpaid dividends
(including any Additional Dividends) have been or contemporaneously are declared
and paid with respect to all monthly dividend periods terminating on or prior to
the date of payment of such full cumulative dividends. Not later than 30
calendar days after such
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right to appoint a Special Trustee arises and upon not less than 15 calendar
days' written notice by first-class mail to the holders of Series A Preferred
Securities, the Manager will convene a meeting to elect a Special Trustee. If
the Manager fails to convene such meeting within such 30-day period, the holders
of at least 10% of the aggregate liquidation preference of the Series A
Preferred Securities will be entitled to convene such meeting. In the event
that, at such meeting, holders of less than a majority in aggregate liquidation
preference of Series A Preferred Securities vote for such appointment, no
Special Trustee shall be appointed. Any Special Trustee shall vacate office
immediately if American General Delaware (or American General pursuant to the
Guarantee) shall have paid in full all accumulated and unpaid dividends
(including any Additional Dividends) on the Series A Preferred Securities or
such Event of Default under the Junior Subordinated Indenture or such default
under the Guarantee, as the case may be, shall have been cured. Notwithstanding
the appointment of any such Special Trustee, American General will retain all
rights, including the right to extend the interest payment period from time to
time as provided under "Description of the Series A Junior Subordinated
Debentures -- Option to Extend Interest Payment Period," and be subject to all
obligations under the Junior Subordinated Indenture and as obligor under the
Series A Junior Subordinated Debentures, and any such extension would not
constitute an Event of Default under the Junior Subordinated Indenture with
respect to the Series A Junior Subordinated Debentures or enable a holder of
Series A Preferred Securities to require the payment of a dividend that has not
theretofore been declared.
In furtherance of the foregoing, and without limiting the powers of any
Special Trustee so appointed and for the avoidance of any doubt concerning the
powers of the Special Trustee, any Special Trustee, in its own name and as
trustee of an express trust, may, subject to the applicable provisions of the
Junior Subordinated Indenture, institute a proceeding, including, without
limitation, any suit in equity, an action at law or other judicial or
administrative proceeding, to enforce American General Delaware's creditor
rights directly against American General to the same extent as American General
Delaware and on behalf of American General Delaware, and may prosecute such
proceeding to judgment or final decree, and enforce the same against American
General and, subject to any subordination provisions contained in the Junior
Subordinated Indenture, collect, out of the property, wherever situated, of
American General the monies adjudged or decreed to be payable in the manner and
to the extent provided by law.
If any proposed amendment to the LLC Agreement or the Series A Declaration
provides for, or the Manager otherwise proposes to effect, (i) any action that
would materially adversely affect the powers, preferences or special rights of
the Series A Preferred Securities, whether by way of amendment to the LLC
Agreement, the Series A Declaration or otherwise, including, without limitation,
the authorization or issuance of any limited liability company interests of
American General Delaware ranking, as to payment of dividends or distribution of
assets upon liquidation, dissolution or winding-up of American General Delaware,
senior to the Series A Preferred Securities, (ii) the liquidation, dissolution
or winding-up of American General Delaware (in any case other than in connection
with the exchange of Series A Preferred Securities for American General Series A
Preferred Stock upon the occurrence of an Exchange Event, upon the occurrence of
a Special Event Exchange, as described under "-- Merger, Consolidation or Sale
of Assets of American General Delaware" or as described in the proviso to the
next succeeding sentence), or (iii) the commencement of any voluntary
bankruptcy, insolvency, reorganization or other similar proceeding involving
American General Delaware, then the holders of outstanding Series A Preferred
Securities will be entitled to vote on such amendment or action of the Manager
(but not on any other amendment or action). In the case of an amendment or
action described in clause (i) which would materially adversely affect the
powers, preferences or special rights of any Dividend Parity Securities or any
Liquidation Parity Securities, the holders of such Dividend Parity Securities or
such Liquidation Parity Securities, as the case may be, or, in the case of an
amendment or action described in clause (ii) or (iii), the holders of all
Liquidation Parity Securities, will be entitled to vote with the holders of the
Series A Preferred Securities, together as a class, on such amendment or action
of the Manager and such amendment or action shall not be effective except with
the approval
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of the holders of at least 66 2/3% of the aggregate liquidation preference of
such outstanding securities; provided, however, that no such approval shall be
required if the liquidation, dissolution or winding-up of American General
Delaware is proposed or initiated upon the occurrence of certain of the events
specified in the LLC Agreement. See "-- Liquidation Rights."
The powers, preferences or special rights attached to the Series A
Preferred Securities will be deemed not to be adversely affected by the creation
or issuance of, and no vote will be required for the creation or issuance of,
any further limited liability company interests of American General Delaware
ranking junior to or pari passu with the Series A Preferred Securities with
respect to voting rights or rights to payment of dividends or distribution of
assets upon liquidation, dissolution or winding-up of American General Delaware.
So long as any Series A Junior Subordinated Debentures are held by American
General Delaware, the Manager shall not (i) at any time in which a Special
Trustee has been appointed, direct the time, method and place of conducting any
proceeding for any remedy available to the Special Trustee or the Junior
Subordinated Trustee, or the exercise of any trust or power conferred on the
Special Trustee or the Junior Subordinated Trustee with respect to the Series A
Junior Subordinated Debentures, (ii) waive compliance with, or any past default
under, the Series A Junior Subordinated Debentures or the Junior Subordinated
Indenture (to the extent that the holders of Series A Junior Subordinated
Debentures are entitled to the benefits of the covenant or condition waived or
breached), (iii) exercise any right to rescind or annul a declaration that the
principal of the Series A Junior Subordinated Debentures shall be due and
payable, (iv) consent to any amendment or modification of the Series A Junior
Subordinated Debentures or of the Junior Subordinated Indenture without, in each
case, obtaining the prior approval of the holders of at least 66 2/3% of the
aggregate liquidation preference of the Series A Preferred Securities then
outstanding; provided, however, that where a waiver or consent under the Series
A Junior Subordinated Debentures or the Indenture would require the waiver or
consent of each holder affected thereby, no such waiver or consent shall be
given by the Manager without the prior consent of each holder of the Series A
Preferred Securities. The Manager shall not revoke any action previously
authorized or approved by a vote of holders of the Series A Preferred
Securities, without the approval of holders of at least 66 2/3% of the aggregate
liquidation preference of the Series A Preferred Securities then outstanding
(or, if such action required the approval of each holder, then only with the
approval of each holder). The Manager shall notify all holders of the Series A
Preferred Securities of any notice of default received from the Junior
Subordinated Trustee under the Junior Subordinated Indenture with respect to the
Series A Junior Subordinated Debentures.
Any required approval of holders of the Series A Preferred Securities may
be given at a separate meeting of such holders convened for such purpose or at a
meeting of holders of limited liability company interests in American General
Delaware or pursuant to written consents. The Manager will cause a notice of any
meeting at which holders of the Series A Preferred Securities are entitled to
vote, or of any matter upon which action by written consent of such holders is
to be taken, to be mailed to each holder of the Series A Preferred Securities.
Each such notice will include a statement setting forth (i) the date of such
meeting or the date by which such action is to be taken, (ii) a description of
any matter on which such holders are entitled to vote or of such matter upon
which written consent is sought and (iii) instructions for the delivery of
proxies or consents.
Notwithstanding that holders of Series A Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Series A Preferred Securities and any other series of Preferred Securities that
are entitled to vote or consent with such Series A Preferred Securities as a
single class at such time that are owned by American General or by any entity
more than 50% of which is owned by American General, either directly or
indirectly, shall not be entitled to vote or consent and shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
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TRANSFER AGENT, REGISTRAR AND PAYING AGENT, AND CONVERSION AGENT
Chemical Mellon Shareholder Services, LLC will act as Transfer Agent,
Registrar and Paying Agent, and Conversion Agent for the Series A Preferred
Securities, but American General Delaware may designate an additional or
substitute Transfer Agent, Registrar and Paying Agent, or Conversion Agent. In
the event that the Series A Preferred Securities do not remain in
book-entry-only form, registration of transfers of Series A Preferred Securities
will be effected without charge by or on behalf of American General Delaware,
but upon payment in respect of any tax or other governmental charges which may
be imposed in connection therewith (and/or the giving of such indemnity as
American General Delaware or the Manager may require with respect thereto).
Exchanges of Series A Preferred Securities for Series A Junior Subordinated
Debentures will be effected without charge by or on behalf of American General
Delaware, but upon payment in respect of any tax or other governmental charges
which may be imposed (and/or the giving of such indemnity as American General
Delaware or the Manager may require with respect thereto) in connection with the
issuance of any Series A Junior Subordinated Debentures in the name of any
person other than the registered holder of the Series A Preferred Security for
which the Series A Junior Subordinated Debenture is being exchanged or for any
reason other than such exchange. American General Delaware will not be required
to register or cause to be registered the transfer of Series A Preferred
Securities after such Series A Preferred Securities have been called for
redemption or exchange.
MERGER, CONSOLIDATION OR SALE OF ASSETS OF AMERICAN GENERAL DELAWARE
American General Delaware may not consolidate with, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, any entity, except with the prior
approval of the holders of not less than 66 2/3% of the aggregate liquidation
preference of the Series A Preferred Securities or as described below. American
General Delaware may, without the consent of the holders of the Series A
Preferred Securities, consolidate with, merge with or into, or be replaced by,
or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to, a limited liability company, limited
partnership or trust organized as such under the laws of any state of the United
States of America or the District of Columbia, provided that (i) such successor
entity either (x) expressly assumes all of the obligations of American General
Delaware under the Series A Preferred Securities or (y) substitutes for the
Series A Preferred Securities other securities having substantially the same
terms as the Series A Preferred Securities (the "Successor Securities") so long
as the Successor Securities rank, with respect to participation in the profits
or assets of the successor entity, at least as high as the Series A Preferred
Securities rank with respect to payment of dividends and distribution of assets
upon the liquidation, dissolution or winding-up of American General Delaware,
(ii) American General expressly acknowledges such successor entity as the holder
of the Series A Junior Subordinated Debentures and its obligations under the
Guarantee with respect to the Successor Securities, (iii) such merger,
consolidation, replacement, conveyance, transfer or lease does not cause the
Series A Preferred Securities (or any Successor Securities) to be delisted (or,
in the case of any Successor Securities, to fail to be listed) by any national
securities exchange or other organization on which the Series A Preferred
Securities are then listed, (iv) such merger, consolidation, replacement,
conveyance, transfer or lease does not cause the Series A Preferred Securities
(or any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, replacement,
conveyance, transfer or lease does not adversely affect the powers, preferences
and other special rights of the holders of the Series A Preferred Securities (or
any Successor Securities) in any material respect (other than with respect to
any dilution of the holders' interest in the new entity), and (vi) prior to such
merger, consolidation, replacement, conveyance, transfer or lease, American
General has received an opinion of nationally recognized independent legal
counsel to American General Delaware experienced in such matters to the effect
that (x) such successor entity will be treated as a partnership or as a grantor
trust, as appropriate, for federal income tax purposes, (y) following such
merger,
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consolidation, replacement, conveyance, transfer or lease, American General and
such successor entity will be in compliance with the 1940 Act without
registering thereunder as an investment company and (z) such merger,
consolidation, replacement, conveyance, transfer or lease will not adversely
affect the limited liability of the holders of the Series A Preferred Securities
(or any Successor Securities) or result in federal income tax liability to such
holders other than with respect to any fractional share interests converted into
cash.
MISCELLANEOUS
The Manager is authorized and directed to conduct its affairs and to
operate American General Delaware in such a way that American General Delaware
will not be deemed to be an "investment company" required to be registered under
the 1940 Act or taxed as a corporation for federal income tax purposes and so
that the Series A Junior Subordinated Debentures will be treated as indebtedness
of American General for federal income tax purposes. In this connection, the
Manager is authorized to take any action not inconsistent with applicable law,
the LLC Agreement and the Series A Declaration that does not adversely affect
the interests of the holders of the Series A Preferred Securities and that the
Manager determines in its discretion to be necessary or desirable for such
purposes.
DESCRIPTION OF AMERICAN GENERAL SERIES A PREFERRED STOCK
As described under "Description of the Series A Preferred
Securities -- Optional Exchange for American General Series A Preferred Stock"
above, the Series A Preferred Securities may be exchanged in certain
circumstances by the holders thereof through the Conversion Agent for Series A
Junior Subordinated Debentures held by American General Delaware, which will
then be immediately converted into shares of American General Series A Preferred
Stock. The following summary of the terms and provisions of the American General
Series A Preferred Stock supplements the description of the terms of American
General Preferred Stock set forth in the accompanying Prospectus under the
heading "Description of American General Preferred Stock," to which description
reference is hereby made. The summary of certain terms and provisions of the
American General Series A Preferred Stock set forth below does not purport to be
complete and is subject to, and qualified in its entirety by reference to, the
Restated Articles of Incorporation, as amended (the "Articles"), of American
General and the Statement of Resolution Establishing Series A Cumulative
Convertible Preferred Stock (the "American General Series A Designation")
approved by the Board of Directors of American General, or an authorized
committee thereof. The Articles and the form of the American General Series A
Designation are filed as exhibits to the Registration Statement of which this
Prospectus Supplement is a part.
In connection with the offering of the Series A Preferred Securities, the
Board of Directors of American General, or an authorized committee thereof, will
designate, and American General will keep available, 4,500,000 shares (5,000,000
shares if the Underwriters' over-allotment option is exercised in full) of
American General Series A Preferred Stock for issuance upon exchange of the
Series A Preferred Securities as described under "Description of the Series A
Preferred Securities -- Optional Exchange for American General Series A
Preferred Stock." At the time the Series A Preferred Securities are issued, all
corporate action required to be taken by American General in connection with the
issuance of the American General Series A Preferred Stock upon the making of an
Exchange Election by the holders of the Series A Preferred Securities will have
been taken by American General. The terms of the American General Series A
Preferred Stock (including as to dividends, optional redemption, conversion and
liquidation preference) will be substantially similar to those of the Series A
Preferred Securities with the following principal exceptions:
(a) all accumulated and unpaid dividends (whether or not earned or
declared) (including any Additional Dividends), if any, on the Series A
Preferred Securities at the time of the making
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of an Exchange Election will become accumulated and unpaid dividends on the
American General Series A Preferred Stock;
(b) no interest will accumulate or be payable on any dividend
arrearages on the American General Series A Preferred Stock;
(c) If dividends are not paid on the American General Series A
Preferred Stock for 18 consecutive monthly dividend periods (including for
this purpose any arrearage with respect to the Series A Preferred
Securities), the number of directors of American General shall be increased
by two persons and the holders of American General Series A Preferred Stock
will be entitled (voting separately as a class together with the holders of
shares of any other series of capital stock of American General ranking
pari passu with the American General Series A Preferred Stock as to the
payment of dividends on which like voting rights have been conferred and
are exercisable) to elect such directors at any regular meeting of
shareholders or special meeting held in place thereof, or at a special
meeting of the holders of the American General Series A Preferred Stock.
Whenever all arrearages of dividends on the American General Series A
Preferred Stock then outstanding shall have been paid or declared and
irrevocably set apart for payment, then the right of the holders of the
American General Series A Preferred Stock to elect such additional two
directors shall cease (but subject always to the same provisions for the
vesting of such voting rights in the case of any similar future arrearages
in dividends) and the terms of office of the directors so elected shall
forthwith terminate. At any time after such voting power shall have been so
vested in the holders of shares of the American General Series A Preferred
Stock, the Secretary of American General may, and upon the written request
for a special meeting signed by the holders of least 10% of all outstanding
American General Series A Preferred Stock (addressed to the Secretary at
the principal office of American General) shall, call a special meeting of
the holders of the American General Series A Preferred Stock (and holders
of other capital stock of American General entitled to vote in the election
of such directors) for the election of the two directors to be elected by
them. The Secretary may decline to call such a meeting if the request for
such meeting is received less than 45 calendar days before the scheduled
date for the next ensuing annual meeting of shareholders. Subject to the
preceding sentence, if any such special meeting required to be called shall
not be called by the Secretary within 20 calendar days after receipt of any
such request, then any holder of American General Series A Preferred Stock
may call such meeting;
(d) dividends on the American General Series A Preferred Stock are not
subject to a deferral option; however, such dividends need not be declared
even if American General has funds legally available therefor and cash on
hand sufficient to pay dividends. In the event that American General fails
to declare full dividends on the American General Series A Preferred Stock,
no dividends will be payable on any other securities of American General
ranking pari passu with or junior to such American General Series A
Preferred Stock (other than dividends as a result of reclassifications,
dividends of share purchase rights issued by American General pursuant to
the Rights Agreement or the dividend of similar share purchase rights,
dividends payable in shares of American General Common Stock or another
class or series of capital stock of American General that is junior to the
American General Series A Preferred Stock as to the payment of dividends
and the distribution of assets upon liquidation, dissolution or winding-up,
and dividends which are paid pro rata to the holders of the American
General Series A Preferred Stock and other securities of American General
ranking pari passu with the American General Series A Preferred Stock as to
the payment of dividends (in proportion to the accumulated and unpaid
dividends thereon)); and
(e) the American General Series A Preferred Stock will not be subject
to mandatory redemption and, accordingly, may remain outstanding
indefinitely.
On and after May , , American General may, at its option, cause the
conversion rights of holders of American General Series A Preferred Stock to
expire if (i) American General is then
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current in the payment of dividends on the American General Series A Preferred
Stock and (ii) for 20 trading days within any period of 30 consecutive trading
days, including the last trading day of such period, the Current Market Price of
American General Common Stock has exceeded 120% of the conversion price of the
American General Series A Preferred Stock, subject to adjustment in certain
circumstances. In order to exercise its conversion expiration option, American
General must issue a press release announcing the Conversion Expiration Date of
the American General Series A Preferred Stock and give notice by first-class
mail to holders of the American General Series A Preferred Stock in the manner
provided for holders of Series A Preferred Securities under "Description of the
Series A Preferred Securities -- Conversion Rights -- Expiration of Conversion
Rights." The "Conversion Expiration Date of the American General Series A
Preferred Stock" will be the close of business on a date selected by American
General which is not less than 30 nor more than 60 calendar days after the date
on which American General issues the press release announcing its intention to
terminate conversion rights of the holders of American General Series A
Preferred Stock; provided, however, that if American General has not exercised
its conversion expiration option, the Conversion Expiration Date of the American
General Series A Preferred Stock with respect to any American General Series A
Preferred Stock which is called for redemption will be the close of business on
the third Business Day prior to the scheduled date for such redemption.
The American General Series A Preferred Stock will be redeemable, at the
option of American General, in whole or in part, from time to time, on not fewer
than 30 nor more than 60 calendar days' notice on or after May , 2003, at a
cash redemption price of $50 per share plus accumulated and unpaid dividends
(whether or not earned or declared). In addition, if at any time following the
Conversion Expiration Date of the American General Series A Preferred Stock,
less than 10% of the shares of American General Series A Preferred Stock
originally issued remains outstanding, the American General Series A Preferred
Stock will be redeemable at the option of American General, in whole but not in
part, at a cash redemption price of $50 per share plus accumulated and unpaid
dividends (whether or not earned or declared). American General may not redeem
the American General Series A Preferred Stock in part unless all accumulated and
unpaid dividends (whether or not earned or declared) have been paid in full on
all American General Series A Preferred Stock for all monthly dividend periods
terminating on or prior to the date of redemption.
The American General Series A Preferred Stock will rank senior to the
American General Common Stock with respect to the payment of dividends and
distribution of assets upon liquidation, dissolution or winding-up of American
General.
In the event of a voluntary or involuntary liquidation, dissolution or
winding-up of American General, the holders of the American General Series A
Preferred Stock will be entitled to receive out of the net assets of American
General, but before any distribution is made on any class of securities ranking
junior to the American General Series A Preferred Stock, $50 per share in cash
plus accumulated and unpaid dividends (whether or not earned or declared) to the
date of final distribution to such holders. After payment of the full amount of
the liquidation distribution to which they are entitled, the holders of shares
of the American General Series A Preferred Stock will not be entitled to any
further participation in any distribution of assets of American General. In the
event that the assets available for distribution are insufficient to pay in full
the liquidation preference to the holders of the American General Series A
Preferred Stock and any securities ranking pari passu with the American General
Series A Preferred Stock as to the distribution of assets upon liquidation,
dissolution or winding-up of American General, such holders will share in the
remaining assets based on the proportion of their respective liquidation
preferences to the aggregate amount of unpaid liquidation preferences.
So long as the Series A Preferred Securities are exchangeable for shares of
American General Series A Preferred Stock, American General may not authorize or
issue any other class or series of capital stock ranking senior to the American
General Series A Preferred Stock as to the payment of dividends or distribution
of assets upon liquidation, dissolution or winding-up of American General
without the approval of the holders of not less than 66 2/3% of the aggregate
liquidation preference of
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the Series A Preferred Securities then outstanding. However, no such vote will
be required for the issuance by American General of additional preferred stock
ranking pari passu with or junior to the American General Series A Preferred
Stock as to the payment of dividends and distribution of assets upon
liquidation, dissolution or winding-up of American General.
American General is a holding company and a substantial portion of its
revenues are derived from dividends and other payments from its subsidiaries.
For a description of certain restrictions on the ability of certain subsidiaries
of American General to pay dividends, and other consequences of the holding
company structure, see "Investment Considerations -- Subordinate Obligations
Under Guarantee and Series A Junior Subordinated Debentures."
DESCRIPTION OF THE SERIES A JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Series A
Junior Subordinated Debentures in which American General Delaware will invest
(i) the proceeds of the issuance and sale of the Series A Preferred Securities
and (ii) substantially all of the purchase price paid by American General and
the Manager for the Common Securities and any related capital contribution (the
"Common Securities Payment"). This description supplements the description of
the general terms and provisions of the Junior Subordinated Debentures set forth
in the accompanying Prospectus under the caption "Description of the Junior
Subordinated Debentures." The form of the resolutions of American General's
Board of Directors or a special committee thereof establishing the Series A
Junior Subordinated Debentures is filed as an exhibit to the Registration
Statement of which this Prospectus Supplement is a part.
GENERAL
The Series A Junior Subordinated Debentures will be limited in aggregate
principal amount to the sum of the aggregate amount of the proceeds received by
American General Delaware from the Offering and the Common Securities Payment
less 1% of such sum.
The entire principal amount of the Series A Junior Subordinated Debentures
will become due and payable, together with any accrued and unpaid interest
thereon, including Additional Interest, if any, on the earlier of (i) May ,
2025 or (ii) the date upon which American General Delaware is liquidated,
dissolved or wound-up; provided, however, that in the event that the Series A
Preferred Securities are exchanged for Series A Junior Subordinated Debentures
in the manner described under "Description of the Series A Preferred
Securities -- Special Event Exchange for Series A Junior Subordinated
Debentures," the Series A Junior Subordinated Debentures will mature on May ,
2025, notwithstanding that American General Delaware may have liquidated,
dissolved or wound-up in connection with or after such exchange.
The Series A Junior Subordinated Debentures are subordinate and junior in
right of payment to all Senior Indebtedness of American General in the manner
described under the caption "Description of Junior Subordinated
Debentures -- Subordination" in the accompanying Prospectus.
INTEREST
Each Series A Junior Subordinated Debenture will bear interest at the rate
of % per annum from the original date of issuance, payable monthly in
arrears on the last day of each calendar month of each year (each, an "Interest
Payment Date"), commencing June 30, 1995. Interest will compound monthly and
will accrue at the annual rate of % on any interest installment not paid
when due.
The amount of interest payable for any period will be computed on the basis
of a 360-day year consisting of twelve 30-day months and, for any period shorter
than a full month, will be computed on the basis of the actual number of days
elapsed in such period. In the event that any date on which principal or
interest is payable on the Series A Junior Subordinated Debentures is not a
Business
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Day, then the required payment to be made on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date. Interest payments on the Series A Junior Subordinated Debentures
will generally be payable to the holders thereof as they appear in the security
register maintained pursuant to the Junior Subordinated Indenture on the
relevant record dates, which will be one Business Day prior to the relevant
interest payment dates; provided, however, that if the Series A Junior
Subordinated Debentures are not in book-entry-only form during any period
following a Special Event Exchange, the relevant record date during such period
will be the fifteenth day of the month with respect to the interest payment that
is to be paid on the last day of such month.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
American General will have the right at any time and from time to time
during the term of the Series A Junior Subordinated Debentures to extend the
interest payment period to a period ending on an Interest Payment Date not
exceeding 60 consecutive months, but in no event beyond the stated maturity date
or date of redemption of the Series A Junior Subordinated Debentures. At the end
of any such Extension Period, American General shall pay all interest then
accrued and unpaid (together with any Additional Interest (as defined herein)
thereon to the extent permitted by applicable law). Prior to the termination of
any Extension Period of less than 60 consecutive months, American General may
further extend the interest payment period, provided that such Extension Period,
as further extended, does not exceed 60 consecutive months and does not extend
beyond the stated maturity date or date of redemption of the Series A Junior
Subordinated Debentures. Upon the termination of any Extension Period and the
payment of all amounts then due, American General may select a new Extension
Period, subject to the above requirements. No interest will be due during an
Extension Period until the Interest Payment Date that is the last day of such
Extension Period. During any Extension Period, American General has agreed not
to take, and to cause its majority-owned subsidiaries not to take, certain
actions as described under "Description of the Junior Subordinated
Debentures -- Certain Covenants of American General" in the accompanying
Prospectus. American General will give American General Delaware, as holder of
the Series A Junior Subordinated Debentures, notice of its selection of any
Extension Period one Business Day prior to the earlier of (i) the date the
dividends on the Series A Preferred Securities are payable or (ii) the date
American General Delaware is required to give notice to the NYSE or other
applicable self-regulatory organization or to holders of the Series A Preferred
Securities of the record date or the date such dividend is payable (which is
currently 10 days prior to such date), but in any event not less than one
Business Day prior to such record date. The Manager will cause American General
Delaware to give notice of American General's selection of such Extension Period
to the holders of the Series A Preferred Securities. If the Series A Preferred
Securities have been exchanged for the Series A Junior Subordinated Debentures
following the occurrence of a Special Event, American General will give the
holders of the Series A Junior Subordinated Debentures notice of its selection
of any Extension Period not less than two Business Days prior to the record date
related to the first interest payment date for which such Extension Period will
be effective. If American General selects an Extension Period and thereafter
elects to extend the Extension Period, then it is required to give a similar
notice prior to the then scheduled end of the Extension Period.
ADDITIONAL INTEREST
American General will be required to pay interest at the rate of % per
annum upon any interest that has not been paid on the Series A Junior
Subordinated Debentures during an Extension Period. Accordingly, in such
circumstances, American General will, to the fullest extent permitted by
applicable law, pay interest upon interest in order to provide for monthly
compounding on the Series A Junior Subordinated Debentures. The persons entitled
to receive such interest shall be the holders of the Series A Junior
Subordinated Debentures on the record date for the Interest Payment
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Date that is the last day of the Extension Period. In addition, if at any time
prior to an exchange of the Series A Preferred Securities for Series A Junior
Subordinated Debentures in connection with a Special Event, American General
Delaware shall be required to pay, with respect to its income derived from the
interest payments on the Series A Junior Subordinated Debentures, any amounts
for or on account of any taxes, duties, assessments or governmental charges of
whatever nature imposed by the United States (other than withholding taxes), or
any other taxing authority, then, in any such case, American General will pay,
to the fullest extent permitted by applicable law, as additional interest such
additional amounts ("Additional Amounts") as may be necessary in order that the
net amounts received and retained by American General Delaware after the payment
of such taxes, duties, assessments or governmental charges (including such
taxes, duties, assessments or governmental charges with respect to such
Additional Amounts) shall result in American General Delaware's having such
funds as it would have had in the absence of the payment of such taxes, duties,
assessments or governmental charges. The amounts of interest payable to effect
monthly compounding on the Series A Junior Subordinated Debentures, together
with any such Additional Amounts, are referred to herein as "Additional
Interest."
CONVERSION INTO AMERICAN GENERAL COMMON STOCK
The Series A Junior Subordinated Debentures will be convertible into
American General Common Stock at the option of the holders of the Series A
Junior Subordinated Debentures at any time on or before the earlier of the
Conversion Expiration Date or the Conversion Expiration Date of the Series A
Junior Subordinated Debentures (as defined herein) at the initial conversion
price of $ principal amount of Series A Junior Subordinated Debenture
per share of American General Common Stock, subject to the conversion price
adjustments described under "Description of the Series A Preferred
Securities -- Conversion Rights." Prior to a Special Event Exchange, the
procedures for conversion of the Series A Junior Subordinated Debentures for
American General Common Stock will be as described under "Description of the
Series A Preferred Securities -- Conversion Rights." After a Special Event
Exchange and prior to the Conversion Expiration Date of the Series A Junior
Subordinated Debentures, a holder of Series A Junior Subordinated Debentures may
surrender such Debentures, together with an irrevocable conversion notice, for
conversion to the Conversion Agent, which will then convert the surrendered
Series A Junior Subordinated Debentures, or the portion thereof to be converted,
into shares of American General Common Stock at the then applicable conversion
price. No fractional shares will be issued upon conversion. In lieu thereof,
cash will be paid by American General based upon the Current Market Price of
American General Common Stock on the date the conversion notice was received by
the Conversion Agent. Holders of Series A Junior Subordinated Debentures may
obtain copies of the required form of conversion notice from the Conversion
Agent. American General's delivery to the holders of the Series A Junior
Subordinated Debentures (through the Conversion Agent or otherwise) of the whole
number of shares of American General Common Stock into which the Series A Junior
Subordinated Debentures so delivered are convertible (together with the cash
payment, if any, in lieu of fractional shares) will be deemed to satisfy
American General's obligation to pay the principal amount of such Series A
Junior Subordinated Debentures, and the accrued and unpaid interest thereon,
including any Additional Interest (other than any Additional Amounts), and no
payment shall be made for accrued interest, whether or not in arrears. If,
however, any Series A Junior Subordinated Debenture is converted between a
record date for the payment of interest and the related interest payment date,
the interest payable on such succeeding interest payment date with respect to
such Series A Junior Subordinated Debenture shall be paid despite such
conversion. Each conversion will be deemed to have been effected immediately
prior to the close of business on the day on which the related conversion notice
was received by the Conversion Agent.
On and after May , (provided that a Special Event Exchange shall
have occurred), American General may, at its option, cause the conversion rights
of holders of the Series A Junior Subordinated Debentures to expire if (i)
American General is then current in the payment of interest (without regard to
any extension of the interest payment period) on the Series A Junior Subordi-
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nated Debentures and (ii) for 20 trading days within any period of 30
consecutive trading days, including the last trading day of such period, the
Current Market Price of American General Common Stock shall have exceeded 120%
of the then applicable conversion price of the Series A Junior Subordinated
Debentures. In order to exercise its conversion expiration option, American
General must issue a press release for publication on the Dow Jones News Service
or on a comparable news service announcing the Conversion Expiration Date of the
Series A Junior Subordinated Debentures. American General is also required to
give notice by first-class mail to holders of the Series A Junior Subordinated
Debentures in the manner provided for holders of Series A Preferred Securities
under "Description of the Series A Preferred Securities -- Conversion
Rights -- Expiration of Conversion Rights." The "Conversion Expiration Date of
the Series A Junior Subordinated Debentures" will be the close of business on a
date selected by American General which is not less than 30 nor more than 60
calendar days after the date on which such press release is issued; provided,
however, that if American General has not exercised its conversion expiration
option, the Conversion Expiration Date of the Series A Junior Subordinated
Debentures with respect to any principal amount of Series A Junior Subordinated
Debentures which is called for redemption will be the close of business on the
third Business Day prior to the scheduled date for such redemption and in any
other case will be the close of business on the third Business Day prior to the
stated maturity date of the Series A Junior Subordinated Debentures.
EXCHANGE OF THE SERIES A JUNIOR SUBORDINATED DEBENTURES
Prior to a Special Event Exchange, the Series A Junior Subordinated
Debentures will be exchanged for American General Series A Preferred Stock upon
an Exchange Election being made by holders of the Series A Preferred Securities
on or before the close of business on the stated maturity date of the Series A
Junior Subordinated Debentures at the rate of one share of American General
Series A Preferred Stock for each $50 principal amount of the Series A Junior
Subordinated Debentures (equivalent to an exchange rate of one share of American
General Series A Preferred Stock for each Series A Preferred Security).
Accumulated and unpaid dividends (whether or not earned or declared), including
Additional Dividends, on the Series A Preferred Securities will be treated as
accumulated and unpaid dividends on the American General Series A Preferred
Stock. Series A Junior Subordinated Debentures previously called for redemption
or surrendered for conversion into American General Common Stock may not be
exchanged for American General Series A Preferred Stock. See "Description of the
Series A Preferred Securities -- Optional Exchange for American General Series A
Preferred Stock."
OPTIONAL REDEMPTION
American General will have the right to redeem the Series A Junior
Subordinated Debentures, in whole or in part, at any time or from time to time
on or after May , 2003 at a cash redemption price equal to the unpaid
principal amount thereof, without premium or penalty (plus any accrued and
unpaid interest, including any Additional Interest, on the portion being
redeemed). In addition, if at any time following the Conversion Expiration Date
or the Conversion Expiration Date of the Series A Junior Subordinated
Debentures, less than 10% of the aggregate principal amount of the Series A
Junior Subordinated Debentures originally purchased by American General Delaware
with the proceeds from the Offering remains outstanding, the Series A Junior
Subordinated Debentures will be redeemable at the option of American General, in
whole but not in part, at a cash redemption price equal to the unpaid principal
amount thereof, without premium or penalty, plus any accrued and unpaid interest
(including any Additional Interest) thereon to the Redemption Date. If, prior to
a Special Event Exchange, American General or any of its subsidiaries purchases
Series A Preferred Securities by tender, in the open market, or otherwise,
American General may redeem the Series A Junior Subordinated Debentures in a
principal amount not to exceed the aggregate liquidation preference of the
Series A Preferred Securities so purchased, at a cash redemption price equal to
the unpaid principal amount thereof, without premium or penalty, plus any
accrued and unpaid interest (including any Additional Interest) thereon to the
Redemption Date. Notice of any such
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redemption occurring after a Special Event Exchange will be given by American
General to the holder or holders of the Series A Junior Subordinated Debentures
in a manner similar to that required to be given by American General Delaware
with respect to the redemption of the Series A Preferred Securities. See
"Description of the Series A Preferred Securities -- Redemption."
MANDATORY PREPAYMENT
If American General Delaware redeems the Series A Preferred Securities in
accordance with the terms thereof, the Series A Junior Subordinated Debentures
will become due and payable in a principal amount equal to the aggregate
liquidation preference of the Series A Preferred Securities so redeemed,
together with any accrued and unpaid interest, including any Additional Interest
thereon, to the Redemption Date. Any redemption pursuant to this provision shall
be made prior to 12:00 noon, New York time, on the date of such redemption or at
such other time on such earlier date as American General and American General
Delaware shall agree.
SET-OFF
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, American General shall have the right to set-off any payment with
respect to the Series A Junior Subordinated Debentures it is otherwise required
to make thereunder with and to the extent American General has theretofore made,
or is concurrently on the date of such payment making, a payment under the
Guarantee with respect to the Series A Preferred Securities.
ENFORCEMENT OF CERTAIN RIGHTS BY SPECIAL TRUSTEE
If, prior to a Special Event Exchange, (i) American General Delaware fails
to pay dividends in full (including any arrearages) on the Series A Preferred
Securities for 18 consecutive months; (ii) an Event of Default under the Junior
Subordinated Indenture with respect to the Series A Junior Subordinated
Debentures occurs and is continuing; or (iii) American General is in default
under any of its payment or other obligations under the Guarantee with respect
to the Series A Preferred Securities, then, under the terms of the Series A
Preferred Securities, the holders of outstanding Series A Preferred Securities
will have the rights referred to under "Description of the Series A Preferred
Securities -- Voting Rights," including the right to appoint a Special Trustee,
which Special Trustee would be authorized, subject to the applicable provisions
of the Junior Subordinated Indenture, to exercise American General Delaware's
right to accelerate the principal amount of the Series A Junior Subordinated
Debentures and to enforce American General Delaware's other creditor rights with
respect to the Series A Junior Subordinated Debentures. Notwithstanding the
appointment of any such Special Trustee, American General Delaware Management
Corporation would continue as Manager and American General would retain all
rights, including the right to extend the interest payment period from time to
time as described above under the caption "-- Option to Extend Interest Payment
Period," and be subject to all of the obligations under the Junior Subordinated
Indenture and as obligor under the Series A Junior Subordinated Debentures.
GLOBAL SECURITIES
If, immediately prior to any Special Event Exchange following the
occurrence of a Special Event, the Series A Preferred Securities are represented
by one or more global securities held by DTC, then the Series A Junior
Subordinated Debentures exchanged for the Series A Preferred Securities will be
represented by one or more global securities registered in the name of DTC or
its nominee and be deposited with DTC or its custodian. Unless and until it is
exchanged in whole or in part for the Series A Junior Subordinated Debentures in
definitive registered form, a global security may not be registered for transfer
or exchange except in limited circumstances.
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For a description of DTC and DTC's book-entry system, see "Description of
the Preferred Securities -- Book-Entry-Only Issuance -- The Depository Trust
Company" in the accompanying Prospectus. As of the date of this Prospectus
Supplement, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Series A Preferred Securities apply in all material respects to
any debt obligations represented by one or more global securities held by DTC.
MISCELLANEOUS
For restrictions on certain actions of American General with respect to the
Series A Junior Subordinated Debentures held by American General Delaware, see
"Description of the Series A Preferred Securities -- Voting Rights."
If Series A Junior Subordinated Debentures are outstanding and owned by any
entity other than American General or its affiliates (including American General
Delaware), then any Series A Junior Subordinated Debentures owned by American
General or its affiliates will not be entitled to vote or consent and will, for
purposes of any such vote or consent, be treated as if they were not
outstanding.
Chemical Bank will serve as the initial Paying Agent and registrar for the
Series A Junior Subordinated Debentures and Chemical Mellon Shareholder
Services, LLC will serve as the initial Conversion Agent for the Series A Junior
Subordinated Debentures.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material federal income tax
considerations relevant to the purchase, ownership and disposition of the Series
A Preferred Securities, which in the opinion of Vinson & Elkins L.L.P., counsel
to American General and American General Delaware, is accurate insofar as it
expresses conclusions of law. However, this summary does not address all federal
income tax aspects of the Series A Preferred Securities, or the tax
considerations relevant to certain types of holders subject to special treatment
under the federal income tax laws (for example, banks, life insurance companies,
securities or other dealers, or foreign persons and foreign entities).
This summary is based upon current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury Regulations promulgated
thereunder, judicial decisions and Internal Revenue Service ("IRS") rulings and
notices. All of these authorities, however, are subject to change; any such
change may cause the tax consequences to vary substantially from those described
below. Moreover, the transactions described in this Prospectus Supplement and
the accompanying Prospectus raise a number of novel tax issues which have not
been ruled on by the courts or the IRS in similar transactions. As a result,
there can be no assurance that the IRS will not audit these transactions and, if
it does so, that the IRS will agree with the conclusions set forth below or the
positions taken by American General and American General Delaware in conformity
therewith. See "-- American General Delaware Information Returns and Audit
Procedures" below.
Unless otherwise indicated, the information below is directed at Holders
(as defined below) who purchase Series A Preferred Securities on their original
issue at their initial offering price, and that hold such Series A Preferred
Securities as capital assets (generally property held for investment). For
purposes of this discussion, a "Holder" is a beneficial owner of a Series A
Preferred Security who or that is (i) a citizen or resident of the United
States, (ii) a domestic corporation, partnership, estate or trust, or (iii)
otherwise subject to United States federal income taxation on a net income basis
in respect of a Series A Preferred Security.
PROSPECTIVE PURCHASERS OF SERIES A PREFERRED SECURITIES ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES OR OTHER TAX CONSID-
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ERATIONS OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED
SECURITIES, INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN TAX LAWS.
TAX CLASSIFICATION
While the following matters are not free from doubt, Vinson & Elkins L.L.P.
is of the opinion that (i) American General Delaware will be classified as a
partnership for federal income tax purposes and not as an association taxable as
a corporation and (ii) the Series A Junior Subordinated Debentures will be
classified as indebtedness for federal income tax purposes. The following
discussion assumes such classifications.
INCOME FROM SERIES A PREFERRED SECURITIES
Each Holder of Series A Preferred Securities will be required to include in
gross income his distributive share of the net income of American General
Delaware, which net income generally will be equal to the amount of interest
received or accrued by American General Delaware on the Series A Junior
Subordinated Debentures. Such income will not exceed dividends received on a
Series A Preferred Security, except in limited circumstances. See "-- Original
Issue Discount" and "-- Adjustment of Conversion Price" below. Any amount so
included in a Holder's gross income will increase his tax basis in the Series A
Preferred Securities, and the amount of distributions of cash or other property
by American General Delaware to a Holder will reduce such Holder's tax basis in
the Series A Preferred Securities. No portion of the amounts received on the
Series A Preferred Securities will be eligible for the dividends received
deduction.
American General Delaware does not presently intend to make an election
under section 754 of the Code. Accordingly, a subsequent purchaser of Series A
Preferred Securities will not be permitted to adjust the tax basis in his
allocable share of American General Delaware's assets so as to reflect any
difference between his purchase price for the Series A Preferred Securities and
his share of American General Delaware's underlying tax basis in its assets. As
a result, a Holder of Series A Preferred Securities may be required to report a
larger or smaller amount of income from holding the Series A Preferred
Securities than would otherwise be appropriate based upon the Holder's purchase
price for the Series A Preferred Securities.
ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations, the stated interest payments on the Series A
Junior Subordinated Debentures will be treated as "original issue discount"
because of the option that American General has, under the terms of the Series A
Junior Subordinated Debentures, to extend interest payment periods for up to 60
consecutive months. Under the Code, a Holder of debt with original issue
discount must include that discount in income on an economic accrual basis and
before the receipt of cash attributable to the income regardless of his method
of tax accounting. The amount of original issue discount that accrues in any
month will approximately equal the amount of the interest that accrues in that
month at the stated interest rate. In the event that the interest payment period
is extended, however, American General Delaware will accrue additional original
issue discount approximately equal to the amount of the additional interest
payment due at the end of the extended interest payment period on an economic
accrual basis over the length of the extended interest period.
Accrued income in respect of deferred interest will be allocated, but the
corresponding cash will not be distributed, to Holders of record on the Business
Day preceding the last day of each calendar month. As a result, Holders of
record during an extended interest payment period will include interest in gross
income in advance of the receipt of cash, and any such Holder who disposes of
Series A Preferred Securities prior to the record date for the payment of
dividends following such extended interest payment period will have included
such Holder's allocable share of such interest in gross income but will not
receive any cash related thereto from American General Delaware. The
S-83
<PAGE> 86
tax basis of a Series A Preferred Security will be increased by the amount of
any interest that is included in income without a corresponding receipt of cash
and will be decreased when and if such cash is subsequently received from
American General Delaware.
DISPOSITION OF SERIES A PREFERRED SECURITIES
Generally, capital gain or loss will be recognized on a sale (including a
complete redemption for cash) of Series A Preferred Securities equal to the
difference between the amount realized and the Holder's tax basis in the Series
A Preferred Securities sold. Gain or loss recognized by a Holder on the sale or
exchange of a Series A Preferred Security held for more than one year generally
will be taxable as long-term capital gain or loss. The adjusted tax basis of the
Series A Preferred Securities sold generally will equal the amount paid for the
Series A Preferred Securities, increased by accrued but unpaid original issue
discount and other income, if any, as described herein allocated to such Holder,
and reduced by any cash or other property distributed to such Holder by American
General Delaware. A Holder who acquires Series A Preferred Securities at
different prices may be required to maintain a single aggregate adjusted tax
basis in all of his Series A Preferred Securities and, upon sale or other
disposition of some of such Series A Preferred Securities, to allocate a pro
rata portion of such aggregate tax basis to the Series A Preferred Securities
sold (rather than maintaining a separate tax basis in each Series A Preferred
Security for purposes of computing gain or loss on a sale of that Series A
Preferred Security).
EXCHANGE OF SERIES A PREFERRED SECURITIES OR SERIES A JUNIOR SUBORDINATED
DEBENTURES FOR AMERICAN GENERAL STOCK
A Holder should not recognize gain or loss (i) upon the exchange of Series
A Preferred Securities for a proportionate share of the Series A Junior
Subordinated Debentures held by American General Delaware, or (ii) except to the
extent attributable to accrued but unpaid interest on the Series A Junior
Subordinated Debentures or to the receipt of property other than American
General Stock, upon the conversion of such Series A Subordinated Debentures for
American General Common Stock or American General Series A Preferred Stock.
However, to the extent that accrued but unpaid interest on the Series A Junior
Subordinated Debentures is converted into accumulated and unpaid dividends on
the American General Series A Preferred Stock, receipt of cash from American
General in respect of such dividends will generally result in taxable income
whereas, had the exchange not been effected, receipt of cash in respect of the
corresponding accrued interest (having already been included in the Holder's
taxable income when accrued) would not have been taxable. Moreover, in the case
of a Holder's receipt of cash in lieu of a fractional share of either American
General Common Stock or American General Series A Preferred Stock, the Holder
will recognize taxable gain equal to the amount of cash received less the
Holder's tax basis in such fractional share.
A Holder's tax basis in the American General Common Stock or the American
General Series A Preferred Stock received upon exchange and conversion generally
should be equal to the Holder's tax basis in the Series A Preferred Securities
delivered to the Conversion Agent for exchange, plus any gain recognized on the
exchange, and less any cash received. In the case of an exchange for less than
all of a Holder's Series A Preferred Securities, the Holder's tax basis in the
shares of American General Common Stock received will be the lesser of the
Holder's tax basis in all of such Holder's Series A Preferred Securities
immediately before such exchange or American General Delaware's tax basis in the
portion of the Series A Junior Subordinated Debentures converted for those
shares of American General Common Stock, increased in either case by any gain
recognized on conversion in respect of any fractional share interest redeemed by
American General and decreased by any cash received in connection therewith. In
such case, the Holder's aggregate tax basis in his remaining Series A Preferred
Securities will be the aggregate tax basis in such Holder's Series A Preferred
Securities immediately before such exchange, reduced (but not below zero) by his
tax basis in the shares of American General Common Stock delivered in such
exchange,
S-84
<PAGE> 87
determined as described above, and the amount of cash paid to the Holder in lieu
of a fractional share interest, if any, and increased by any gain recognized
with respect to such fractional share interest. A Holder's holding period for
the American General Common Stock or the American General Series A Preferred
Stock received upon exchange and conversion should generally begin on the date
the Holder acquired the Series A Preferred Securities delivered to the
Conversion Agent for exchange.
ADJUSTMENT OF CONVERSION PRICE
Treasury Regulations promulgated under section 305 of the Code would treat
American General Delaware (and, thus, Holders of Series A Preferred Securities)
as having received a constructive distribution from American General in the
event the conversion ratio of the Series A Junior Subordinated Debentures were
adjusted if (i) as a result of such adjustment, the proportionate interest
(measured by the quantum of American General stock into or for which the Series
A Junior Subordinated Debentures are convertible or exchangeable) of American
General Delaware in the assets or earnings and profits of American General were
increased, and (ii) the adjustment was not made pursuant to a bona fide,
reasonable antidilution formula. An adjustment in the conversion ratio would not
be considered made pursuant to such a formula if the adjustment was made to
compensate for certain taxable distributions with respect to the stock into or
for which the Series A Junior Subordinated Debentures are convertible or
exchangeable. Thus, under certain circumstances, a reduction in the conversion
price for the Series A Junior Subordinated Debentures may result in deemed
dividend income to American General Delaware to the extent of the current or
accumulated earnings and profits of American General. Holders of the Series A
Preferred Securities would be required to include their allocable share of such
deemed dividend in gross income but will not receive any cash related thereto.
In addition, the failure to fully adjust the conversion price of the Series A
Junior Subordinated Debentures to reflect distributions of stock dividends with
respect to American General Common Stock may result in deemed dividend income to
Holders of American General Common Stock.
Similarly, under section 305 of the Code, adjustments to the conversion
price of the American General Series A Preferred Stock, which may occur under
certain circumstances, may result in deemed dividend income to Holders of the
American General Series A Preferred Stock if such adjustments are not made
pursuant to a bona fide, reasonable antidilution formula, and failure to make
such adjustments to the conversion price of the American General Series A
Preferred Stock may result in deemed dividend income to Holders of American
General Common Stock.
EXCHANGE OF SERIES A PREFERRED SECURITIES FOR SERIES A JUNIOR SUBORDINATED
DEBENTURES
The exchange of Series A Preferred Securities for Series A Junior
Subordinated Debentures after the occurrence of a Special Event generally would
be a nontaxable event to American General Delaware and the Holders. Each
Holder's aggregate tax basis for the Series A Junior Subordinated Debentures
received in the exchange would be the same as the Holder's aggregate tax basis
for his Series A Preferred Securities surrendered in the exchange, and the
holding period for the Series A Junior Subordinated Debentures would include his
holding period for his Series A Preferred Securities. However, if the relevant
Special Event is a Tax Event which results in American General Delaware's being
treated as an association taxable as a corporation, the exchange would be a
taxable event to the Holders in respect of which each Holder would recognize
gain or loss equal to the difference between the Holder's aggregate tax basis
for his Series A Preferred Securities surrendered in the exchange and the
aggregate fair market value of the Series A Junior Subordinated Debentures
received in the exchange.
AMERICAN GENERAL DELAWARE INFORMATION RETURNS AND AUDIT PROCEDURES
The Manager of American General Delaware will furnish each Holder with a
Schedule K-1 setting forth such Holder's allocable share of income for each
year, as soon as practicable following the end of the year but in any event
prior to March 15th of each succeeding year.
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<PAGE> 88
Any person who holds Series A Preferred Securities as nominee for another
person is required to furnish to American General Delaware a written statement
containing: (a) the name, address and taxpayer identification number of the
beneficial owner and of the nominee; (b) information as to whether the
beneficial owner is (i) a person that is not a United States person, (ii) a
foreign government, an international organization or any wholly-owned agency or
instrumentality of either, or (iii) a tax-exempt entity; and (c) a description
of the Series A Preferred Securities held, acquired or transferred for the
beneficial owner, including the dates of acquisitions and transfers, the methods
and costs of acquisitions, and the net proceeds from transfers. Brokers and
financial institutions are also required to furnish written statements
containing similar information with respect to Series A Preferred Securities
they hold for their own accounts. A penalty of $50 per failure (up to a maximum
of $100,000 per calendar year) is imposed by the Code for failure to report such
information to American General Delaware. The nominee is required to supply the
beneficial owners of the Series A Preferred Securities with the information
furnished to American General Delaware.
The Manager, as the tax matters partner, will be responsible for
representing American General Delaware (and, indirectly, the Holders) in any
dispute with the IRS involving the partnership information returns filed by
American General Delaware. The Code provides for administrative examination of
such returns as if American General Delaware (which is treated as a partnership)
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items reflected or required to be reflected on a partnership
information return does not expire until three years after the later of the
filing or the last date for filing of such return. Any adverse determination
following an audit of a return of American General Delaware by the appropriate
taxing authorities could result in an adjustment of the returns of the Holders,
and, under certain circumstances, a Holder may be precluded from separately
litigating a proposed adjustment to the items of American General Delaware. An
adjustment could also result in an audit of a Holder's return and adjustments of
items not related to the income and losses of American General Delaware.
FOREIGN HOLDERS
Ownership of Series A Preferred Securities by nonresident aliens, foreign
corporations and other foreign persons raises tax considerations unique to such
persons and may have substantially adverse tax consequences to them. Therefore,
prospective investors who are foreign persons or which are foreign entities are
urged to consult with their U.S. tax advisors as to whether an investment in
Series A Preferred Securities represents an appropriate investment in light of
those unique tax consequences and possible adverse tax consequences.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
dividends on, and payments of the proceeds of the sale of, Series A Preferred
Securities, American General Series A Preferred Stock or American General Common
Stock within the United States to noncorporate Holders, and "backup withholding"
at a rate of 31% will apply to such payments if such a Holder fails to provide
an accurate taxpayer identification number.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSIDERATIONS TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES
A PREFERRED SECURITIES, INCLUDING THE TAX CONSIDERATIONS UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
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<PAGE> 89
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, American
General Delaware has agreed to sell to each of the Underwriters named below, and
each of such Underwriters, for whom Goldman, Sachs & Co., J.P. Morgan Securities
Inc., CS First Boston Corporation, Merrill Lynch, Pierce, Fenner & Smith
Incorporated and Salomon Brothers Inc are acting as representatives, has
severally agreed to purchase from American General Delaware, the respective
number of Series A Preferred Securities set forth opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SERIES A
UNDERWRITER PREFERRED SECURITIES
------------------------------------------------------------------ --------------------
<S> <C>
Goldman, Sachs & Co. .............................................
J.P. Morgan Securities Inc. ......................................
CS First Boston Corporation.......................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated.........................................
Salomon Brothers Inc..............................................
---------------
Total................................................... 4,500,000
===============
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all such Series A Preferred
Securities offered hereby, if any are taken.
The Underwriters propose to offer the Series A Preferred Securities in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and in part to certain securities
dealers at such price less a concession of $ per Series A Preferred Security.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per Series A Preferred Security to certain brokers and dealers.
After the Series A Preferred Securities are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
representatives.
In view of the fact that the proceeds from the sale of the Series A
Preferred Securities will be used by American General Delaware to purchase the
Series A Junior Subordinated Debentures of American General, the Underwriting
Agreement provides that American General will pay, as compensation to the
Underwriters, a commission of $ per Series A Preferred Security.
American General Delaware and American General have granted the
Underwriters an option exercisable for 30 days after the date of this Prospectus
Supplement to purchase up to an aggregate of 500,000 additional Series A
Preferred Securities at the initial public offering price per Series A Preferred
Security solely to cover over-allotments, if any. If the Underwriters exercise
their over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of Series A Preferred
S-87
<PAGE> 90
Securities to be purchased by each of them, as shown in the foregoing table,
bears to the total Series A Preferred Securities offered.
American General and American General Delaware have agreed not to offer,
sell, contract to sell, or otherwise dispose of any shares of American General
Common Stock, any shares of American General Series A Preferred Stock, any other
capital stock of American General, or any other security convertible into or
exercisable or exchangeable for American General Common Stock, American General
Preferred Stock or any such other capital stock for a period of 90 days after
the date of this Prospectus Supplement without the prior consent of the
representatives, except for (i) the Series A Preferred Securities offered
hereby, (ii) the Series A Junior Subordinated Debentures, (iii) American General
Common Stock or American General Preferred Stock issued or delivered upon
conversion or exchange of the Series A Junior Subordinated Debentures, (iv)
securities issued or delivered upon conversion, exchange or exercise of any
other securities of American General outstanding on the date of this Prospectus
Supplement, (v) securities issued pursuant to American General's stock option or
other benefit or incentive plans maintained for its officers, directors or
employees, and (vi) securities issued by American General in connection with
mergers, acquisitions or similar transactions.
Certain of the Underwriters are customers of, or engage in transactions
with, and from time to time have performed services for, American General and
its subsidiaries and associated companies in the ordinary course of business.
Because the National Association of Securities Dealers, Inc. (the "NASD")
may view the Series A Preferred Securities offered hereby as interests in a
direct participation program, the Offering is being made in compliance with
Section 34 of the NASD's Rules of Fair Practice. The Underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority without the prior written approval of the transaction by the customer.
Prior to the Offering, there has been no public market for the Series A
Preferred Securities. The Series A Preferred Securities have been approved for
listing on the NYSE, subject to notice of issuance, under the symbol "AGC prC."
In order to meet one of the requirements for listing the Series A Preferred
Securities on the NYSE, the Underwriters have undertaken to sell lots of 100 or
more Series A Preferred Securities to a minimum of 400 beneficial holders.
American General and American General Delaware have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
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<PAGE> 91
INDEX OF CERTAIN DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------------------------------------------------------------------------- -----------
<S> <C>
Additional Amounts............................................................. S-79
Additional Dividends........................................................... S-59
Additional Interest............................................................ S-79
American General............................................................... S-1
American General Common Stock.................................................. S-2
American General Delaware...................................................... S-1
American General LLCs.......................................................... 1
American General Series A Designation.......................................... S-74
American General Series A Preferred Stock...................................... S-3
Applicable Price............................................................... S-64
Articles....................................................................... S-74
Beneficial Owner............................................................... 6
blockage period................................................................ 13
Business Day................................................................... S-58
Closing Price.................................................................. S-65
Code........................................................................... S-82
Commission..................................................................... 2
Common Members................................................................. S-70
Common Securities.............................................................. S-1
Common Securities Payment...................................................... S-77
Common Stock Fundamental Change................................................ S-65
Company........................................................................ S-1
Conversion Agent............................................................... S-58
Conversion Expiration Date..................................................... S-60
Conversion Expiration Date of the American General Series A Preferred Stock.... S-76
Conversion Expiration Date of the Series A Junior Subordinated Debentures...... S-80
Current Market Price........................................................... S-61
Current Price.................................................................. S-61
Direct Participants............................................................ 6
Dividend Junior Securities..................................................... S-59
Dividend Parity Securities..................................................... S-59
dividends...................................................................... S-2
DTC............................................................................ S-4
Entitlement Date............................................................... S-64
Event of Default............................................................... 18
Exchange Act................................................................... 2
Exchange Election.............................................................. S-68
Exchange Election Meeting...................................................... S-68
Exchange Event................................................................. S-67
Exchange Price................................................................. S-58
Extension Period............................................................... S-3
Fundamental Change............................................................. S-65
Guarantee...................................................................... S-3
Guarantee Payments............................................................. 8
Holder......................................................................... S-82
Indirect Participants.......................................................... 6
Interest Payment Date.......................................................... S-77
Investment Company Event....................................................... S-66
IRS............................................................................ S-82
</TABLE>
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<PAGE> 92
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------------------------------------------------------------------------- -----------
<S> <C>
</TABLE>
<TABLE>
<S> <C>
Junior Subordinated Debentures................................................. 1
Junior Subordinated Indenture.................................................. 11
Junior Subordinated Trustee.................................................... 11
Liquidation Distribution....................................................... S-69
Liquidation Parity Securities.................................................. S-69
LLC Act........................................................................ S-57
LLC Agreement.................................................................. S-19
Manager........................................................................ S-19
1940 Act....................................................................... S-66
Non-Stock Fundamental Change................................................... S-65
NYSE........................................................................... S-4
Offering....................................................................... S-11
Participants................................................................... 6
Preferred Securities........................................................... 1
Purchaser Stock Price.......................................................... S-65
Redemption Price............................................................... S-3
Reference Market Price......................................................... S-66
Registration Statement......................................................... 2
Rights......................................................................... S-59
Securities Act................................................................. 2
Senior Indebtedness............................................................ 14
Senior Nonmonetary Default..................................................... 13
Senior Payment Default......................................................... 13
Series A Declaration........................................................... S-57
Series A Junior Subordinated Debentures........................................ S-1
Series A Preferred Securities.................................................. S-1
Special Event.................................................................. S-66
Special Event Exchange......................................................... S-66
Special Trustee................................................................ S-70
Successor Securities........................................................... S-73
Supplemental Junior Subordinated Indenture..................................... 12
Tax Event...................................................................... S-66
Transaction.................................................................... S-62
Underwriters' Compensation..................................................... S-1
</TABLE>
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<PAGE> 93
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NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY AMERICAN GENERAL DELAWARE, L.L.C.,
AMERICAN GENERAL CORPORATION OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF AMERICAN GENERAL DELAWARE,
L.L.C. OR AMERICAN GENERAL CORPORATION SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PROSPECTUS SUPPLEMENT
Prospectus Supplement Summary.................... S-5
Investment Considerations........................ S-14
American General Corporation..................... S-17
American General Delaware, L.L.C. ............... S-19
Capitalization................................... S-20
Ratio of Earnings to Combined Fixed Charges and
Preferred Stock Dividends...................... S-21
Use of Proceeds.................................. S-21
Market Prices of American General Common Stock
and Dividends.................................. S-22
Selected Financial Information of American
General........................................ S-23
Management's Discussion and Analysis of American
General........................................ S-24
Pro Forma Financial Information of American
General........................................ S-46
Description of the Series A Preferred
Securities..................................... S-57
Description of American General Series A
Preferred Stock................................ S-74
Description of the Series A Junior Subordinated
Debentures..................................... S-77
Certain Federal Income Tax Considerations........ S-82
Underwriting..................................... S-87
Index of Certain Defined Terms................... S-89
PROSPECTUS
Available Information............................ 2
Incorporation of Certain Documents by
Reference...................................... 2
American General................................. 3
American General LLCs............................ 3
Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and
Preferred Stock Dividends...................... 4
Use of Proceeds.................................. 4
Description of the Preferred Securities.......... 4
Description of the Guarantees.................... 8
Description of the Junior Subordinated
Debentures..................................... 11
Description of American General Preferred
Stock.......................................... 22
Description of American General Common
Stock.......................................... 25
Plan of Distribution............................. 27
Legal Opinions................................... 28
Experts.......................................... 28
</TABLE>
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- --------------------------------------------------------------------------------
4,500,000
PREFERRED SECURITIES
AMERICAN GENERAL
DELAWARE, L.L.C.
% CONVERTIBLE MONTHLY INCOME
PREFERRED SECURITIES, SERIES A
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY, AND
CONVERTIBLE INTO
COMMON STOCK OF,
AMERICAN GENERAL CORPORATION
---------------------
(LOGO)
---------------------
GOLDMAN, SACHS & CO.
J.P. MORGAN SECURITIES INC.
CS FIRST BOSTON
MERRILL LYNCH & CO.
SALOMON BROTHERS INC
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 94
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus supplement shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sale
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such State.
SUBJECT TO COMPLETION, DATED MAY 17, 1995
PROSPECTUS SUPPLEMENT TO PROSPECTUS DATED MAY , 1995
(LOGO)
10,000,000 PREFERRED SECURITIES
AMERICAN GENERAL CAPITAL
% CUMULATIVE MONTHLY INCOME PREFERRED SECURITIES, SERIES A (MIPSSM*)
(LIQUIDATION PREFERENCE $25 PER SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
AMERICAN GENERAL CORPORATION
---------------------
The % Cumulative Monthly Income Preferred Securities, Series A (the
"Series A Preferred Securities"), representing the preferred limited liability
company interests offered hereby, are being issued by American General Capital,
L.L.C., a Delaware limited liability company ("American General Capital"). All
of the common limited liability company interests in American General Capital
(the "Common Securities") are owned directly or indirectly by American General
Corporation, a Texas corporation ("American General" or the "Company"). American
General Capital exists for the purpose of issuing limited liability company
interests and investing the proceeds thereof in debt securities of American
General. The proceeds from the offering of the Series A Preferred Securities
will be used by American General Capital to purchase from American General its
% Series A Junior Subordinated Debentures (the "Series A Junior Subordinated
Debentures") having the terms described herein and in the accompanying
Prospectus.
(continued on next page)
---------------------
SEE "INVESTMENT CONSIDERATIONS" FOR A DISCUSSION OF CERTAIN MATERIAL RISKS
TO BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES A PREFERRED
SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING AND UNDER WHICH
PAYMENTS ON THE SERIES A PREFERRED SECURITIES AND THE SERIES A JUNIOR
SUBORDINATED DEBENTURES MAY BE DEFERRED AND THE RELATED FEDERAL INCOME TAX
CONSIDERATIONS.
---------------------
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 SUPPLEMENT OR THE PROSPECTUS TO WHICH IT RELATES.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------------
<TABLE>
<CAPTION>
PROCEEDS TO
INITIAL PUBLIC UNDERWRITING AMERICAN GENERAL
OFFERING PRICE COMMISSION(1) CAPITAL(2)(3)
---------------------------------------------------------------
<S> <C> <C> <C>
Per Series A Preferred Security........ $25.00 (2) $25.00
Total(4)............................... $ (2) $
</TABLE>
(1) American General Capital and American General have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended. See "Underwriting".
(2) In view of the fact that the proceeds of the sale of the Series A Preferred
Securities will be used by American General Capital to purchase the Series A
Junior Subordinated Debentures of American General, the Underwriting
Agreement provides that American General will pay to the Underwriters, as
compensation ("Underwriters' Compensation"), $ per Series A Preferred
Security (or $ in the aggregate). See "Underwriting".
(3) Expenses of the offering, which are payable by American General, are
estimated to be $ .
(4) American General Capital and American General have granted the Underwriters
an option for 30 days to purchase up to an additional 1,500,000 Series A
Preferred Securities at the initial public offering price per Series A
Preferred Security solely to cover over-allotments, if any. American General
will pay to the Underwriters, as Underwriters' Compensation, $ per
Series A Preferred Security purchased pursuant to this option. If such
option is exercised in full, the total initial public offering price,
Underwriters' Compensation and proceeds to American General Capital will be
$ , $ and $ , respectively. See "Underwriting".
---------------------
The Series A Preferred Securities offered hereby are offered severally by
the Underwriters, as specified herein, subject to receipt and acceptance by them
and subject to their right to reject any order in whole or in part. It is
expected that delivery of the Series A Preferred Securities will be made only in
book-entry form through the facilities of The Depository Trust Company on or
about May , 1995.
- ---------------
* MIPS is a service mark of Goldman, Sachs & Co.
---------------------
GOLDMAN, SACHS & CO. MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
CS FIRST BOSTON
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
KEMPER SECURITIES, INC.
LEHMAN BROTHERS
PRUDENTIAL SECURITIES INCORPORATED
SALOMON BROTHERS INC
SMITH BARNEY INC.
---------------------
The date of this Prospectus Supplement is May , 1995.
<PAGE> 95
(continued from previous page)
The Series A Junior Subordinated Debentures are subordinated in right of
payment to all Senior Indebtedness (as defined under "Description of the Junior
Subordinated Debentures -- Subordination" in the accompanying Prospectus) of
American General. As of March 31, 1995, American General had approximately $2.8
billion of indebtedness constituting Senior Indebtedness.
Holders of the Series A Preferred Securities will be entitled to receive
cumulative cash distributions ("dividends") from American General Capital at the
annual rate of % of the liquidation preference of $25 per Series A
Preferred Security, accruing from the date of original issuance and payable
monthly in arrears on the last day of each calendar month of each year,
commencing June 30, 1995. See "Description of the Series A Preferred
Securities -- Dividends".
In the event of the liquidation, dissolution or winding-up of American
General Capital, holders of Series A Preferred Securities will be entitled to
receive for each Series A Preferred Security a liquidation preference of $25
plus an amount equal to any accumulated and unpaid dividends (whether or not
earned or declared), including any Additional Dividends (as defined herein), to
the date of payment, subject to certain limitations, unless such liquidation,
dissolution or winding-up is in connection with the exchange of the Series A
Preferred Securities for the Series A Junior Subordinated Debentures. See
"Description of the Series A Preferred Securities -- Liquidation Rights".
The Series A Preferred Securities will be redeemable at the option of
American General Capital (subject to the prior consent of American General), in
whole or in part, from time to time, on or after May , 2000 at a cash
redemption price equal to the liquidation preference for such Series A Preferred
Securities plus accumulated and unpaid dividends (whether or not earned or
declared), including any Additional Dividends, to the date fixed for redemption
(the "Redemption Price"). Furthermore, at any time after the occurrence of a
Special Event (as defined herein), American General Capital (subject to the
prior consent of American General) may either (i) redeem the Series A Preferred
Securities in whole, but not in part, at the Redemption Price, or (ii) exchange
in the manner described herein, in whole but not in part, the Series A Preferred
Securities for Series A Junior Subordinated Debentures. See "Description of the
Series A Preferred Securities -- Special Event Redemption or Exchange".
For a description of the terms relating to the mandatory redemption of the
Series A Preferred Securities and the circumstances under which the repayment
date of the Series A Preferred Securities may be extended, see "Description of
the Series A Preferred Securities -- Mandatory Redemption".
American General will irrevocably and unconditionally guarantee, on a
subordinated basis and to the extent set forth herein and in the accompanying
Prospectus, the payment of dividends by American General Capital on the Series A
Preferred Securities (but only if and to the extent declared from funds of
American General Capital legally available therefor), the Redemption Price
payable with respect to Series A Preferred Securities (but only to the extent
payable out of funds of American General Capital legally available therefor) and
payments on liquidation, dissolution or winding-up with respect to the Series A
Preferred Securities (but only to the extent that assets of American General
Capital are available for distribution to holders of the Series A Preferred
Securities) (the "Guarantee"). The Guarantee will be unsecured and will be
subordinate to all other liabilities of American General (other than certain
other guarantees) and will rank pari passu with the most senior preferred stock
issued by American General. See "Description of the Guarantees" in the
accompanying Prospectus.
The Series A Preferred Securities have been approved for listing on the New
York Stock Exchange ("NYSE"), subject to notice of issuance, under the symbol
"AGC prM".
---------------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES A
PREFERRED SECURITIES OFFERED HEREBY AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE
PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK
STOCK EXCHANGE, IN THE OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING,
IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
CS-2
<PAGE> 96
AMERICAN GENERAL CORPORATION
GENERAL
American General, with assets of $56 billion and shareholders' equity of
$4.4 billion as of March 31, 1995, is the parent company of one of the nation's
largest consumer financial services organizations. American General provides
financial services directly to consumers, emphasizing personal service and
frequent customer contact. American General's operating subsidiaries are leading
providers of retirement annuities, consumer loans and life insurance. American
General, headquartered in Houston, was incorporated as a general business
corporation in Texas in 1980 and is the successor to American General Insurance
Company, an insurance company incorporated in Texas in 1926. The principal
executive offices of American General are located at 2929 Allen Parkway,
Houston, Texas 77019-2155, and its telephone number is (713) 522-1111.
RETIREMENT ANNUITIES
Retirement Annuities represented 27% of the Company's segment earnings for
the year ended December 31, 1994 and 27% for the three months ended March 31,
1995. The Variable Annuity Life Insurance Company ("VALIC"), American General's
retirement annuity subsidiary with assets of $23 billion as of March 31, 1995,
is a leading provider of tax-deferred retirement plans and annuities to
employees of educational, health care and other not-for-profit organizations.
Based on assets of $22 billion as of December 31, 1994, VALIC ranks as the 18th
largest life insurance company in the United States.
VALIC markets products in 50 states and the District of Columbia to
approximately 840,000 customers through a national network of approximately 800
sales representatives. These sales representatives are highly trained retirement
specialists, providing personalized service to VALIC's customers.
VALIC currently holds among the strongest claims-paying ability ratings in
the life insurance industry. Management believes that these ratings provide
VALIC with a significant competitive advantage.
VALIC is committed to using advanced technologies to improve customer
service. VALIC recently introduced a new product, Portfolio DirectorSM, which
offers customers an array of 18 different investment options, as well as access
to professional investment managers, in order to have more flexibility in
creating a diversified retirement portfolio. VALIC has also introduced Portfolio
OptimizerSM, an innovative software program developed exclusively for VALIC
which helps customers allocate retirement funds among investment options.
VALIC's strategy for future growth is centered on increasing the size and
effectiveness of its sales force in order to enter new geographic territories
and further penetrate existing markets.
CONSUMER FINANCE
Consumer Finance represented 36% of the Company's segment earnings for the
year ended December 31, 1994 and 30% for the three months ended March 31, 1995.
American General Finance, Inc. and subsidiaries ("AGF"), with finance
receivables of $8.2 billion as of March 31, 1995, is a leading provider of
consumer and home equity loans, credit cards and credit-related insurance to
individuals. With more than three million customers and over 1,300 branch
offices, AGF ranks among the nation's largest consumer finance organizations.
AGF provides financing programs through approximately 20,000 retail merchants
and offers personalized service through over 9,000 employees in 41 states,
Puerto Rico and the U.S. Virgin Islands. AGF has traditionally focused on
marketing to creditworthy, middle-income families with annual household incomes
of $25,000 to $50,000 and with a head of household typically between the ages of
25 and 45.
Management believes that AGF's competitive advantages are its large branch
office network, improved technology, new market development and strong credit
ratings. AGF's branch office
CS-3
<PAGE> 97
network gives it a local presence in approximately 900 communities. AGF
continually seeks to develop local markets. For example, AGF provides retail
financing programs through approximately 20,000 merchants nationwide. This
growing merchant base provides a flow of new business and represents AGF's
largest source of new loan customers.
AGF's strategy for future growth is centered on growing the branch office
customer base, further developing the retail dealer network and providing a
wider array of financial products and services to its customers.
LIFE INSURANCE
Life Insurance represented 37% of the Company's segment earnings for the
year ended December 31, 1994 and 43% for the three months ended March 31, 1995.
American General's life insurance companies, with assets of $22 billion as of
March 31, 1995, provide traditional and interest-sensitive life insurance and
both fixed and variable annuity products to nearly five million households
throughout all 50 states, the District of Columbia and Canada. This large
customer base is served principally by American General Life and Accident
Insurance Company ("AGLA"), American General Life Insurance Company ("AGL"),
and, since January 1995, The Franklin Life Insurance Company ("Franklin Life")
(see "Recent Developments" below). The life insurance companies meet the
financial security needs of individual consumers, business owners and customers
of financial institutions, and offer personalized service through 14,000 sales
representatives and general agents.
Management believes that specialization is the key to success in the highly
competitive life insurance marketplace. Each of American General's life
insurance companies specializes in serving a different market segment. AGLA
concentrates on meeting the basic life insurance needs of families with incomes
of less than $50,000. AGL serves the estate planning needs of middle- and
upper-income households. Franklin Life provides individual life insurance to
middle-income households, primarily in the Midwest.
Management believes that the life insurance companies' competitive
advantages are a strong market presence, financial strength and a commitment to
personalized customer service. The life insurance companies' strategy for future
growth centers on growing internally by increasing the size and productivity of
the agency field force and externally by pursuing selective acquisitions.
RECENT DEVELOPMENTS
As of November 29, 1994, the Company signed a definitive agreement to
acquire American Franklin Company ("AFC"), the holding company of Franklin Life,
for $1.17 billion. The transaction closed on January 31, 1995. The purchase
price consisted of $920 million in cash paid at closing and a $250 million
dividend paid by AFC to its former parent prior to closing. This acquisition was
accounted for using the purchase method. Beginning with the first quarter of
1995, Franklin Life was reported as part of the Life Insurance segment,
increasing that segment's assets and life insurance in force by approximately
45% and 35%, respectively. Franklin Life was acquired to complement American
General's existing life insurance distribution systems and further strengthen
the Company's position in middle-income households, particularly in the Midwest.
On December 23, 1994, the Company acquired a 40% interest in Western
National Corporation ("WNC") through the acquisition of 24,947,500 shares of
WNC's common stock for $274 million in cash. The acquisition was reflected in
the Company's 1994 consolidated financial statements using the equity method of
accounting. The Company's equity in the operating results of WNC for the period
from to the acquisition date to December 31, 1994 did not have a material impact
on the Company's 1994 consolidated results of operations. The shares of WNC were
acquired for investment purposes.
CS-4
<PAGE> 98
AMERICAN GENERAL CAPITAL, L.L.C.
American General Capital, L.L.C. is a limited liability company formed in
March 1995 under the laws of the State of Delaware. American General and
American General Delaware Management Corporation, a wholly-owned subsidiary of
American General, own all of the common limited liability company interests (the
"Common Securities") of American General Capital, which securities are
nontransferable. American General Capital is managed by American General
Delaware Management Corporation, as manager (the "Manager"), in accordance with
the Amended and Restated Limited Liability Company Agreement of American General
Capital (the "LLC Agreement"). American General Capital exists solely for the
purpose of issuing Preferred Securities and Common Securities and investing 99%
of the proceeds thereof in Junior Subordinated Debentures. The remaining 1% of
such proceeds will be invested in Eligible Investments (as defined in the LLC
Agreement). See "Use of Proceeds." American General Capital's principal
executive offices are located c/o American General Delaware Management
Corporation at 2099 South Dupont Avenue, Dover, Delaware 19901, and its
telephone number at such address is (302) 697-1912.
INVESTMENT CONSIDERATIONS
Prospective purchasers of Series A Preferred Securities should carefully
review the information contained elsewhere in this Prospectus Supplement and the
accompanying Prospectus and should particularly consider the following matters:
SUBORDINATE OBLIGATIONS UNDER GUARANTEE AND SERIES A JUNIOR SUBORDINATED
DEBENTURES
American General Capital's ability to pay amounts due on the Series A
Preferred Securities is solely dependent upon its receipt of payments from
American General on the Series A Junior Subordinated Debentures as and when
required. American General's obligations under the Series A Junior Subordinated
Debentures are subordinate and junior in right of payment to all Senior
Indebtedness of American General. American General's obligations under the
Guarantee are subordinate to all other liabilities of American General except
for certain other guarantees executed by American General. The Guarantee will
rank pari passu with the most senior preferred stock issued by American General.
As of March 31, 1995, American General had approximately $2.8 billion of Senior
Indebtedness outstanding. There are no terms in the Series A Preferred
Securities, the Series A Junior Subordinated Debentures, the Junior Subordinated
Indenture (as defined herein) or the Guarantee that limit American General's
ability to incur additional indebtedness, including indebtedness that ranks
senior to the Series A Junior Subordinated Debentures and the Guarantee, or the
ability of its subsidiaries to incur additional indebtedness. In addition,
because American General is a holding company, rights to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise (and thus the ability of holders of Series A Junior Subordinated
Debentures and, to the extent of the Guarantee, the holders of Series A
Preferred Securities, to benefit indirectly from such distribution) are subject
to the prior claims of creditors of that subsidiary, except to the extent that
American General may itself be a creditor of that subsidiary. Claims on American
General's subsidiaries by other creditors include substantial claims for policy
benefits and debt obligations, as well as other liabilities incurred in the
ordinary course of business. In addition, since many of American General's
subsidiaries are insurance companies subject to regulatory control by various
state insurance departments, the ability of such subsidiaries to pay dividends
to American General without prior regulatory approval is limited by applicable
laws and regulations. Further, certain non-insurance subsidiaries are restricted
in their ability to make dividend payments by long-term debt agreements. At
December 31, 1994, the amount available to American General for dividends from
subsidiaries not limited by such restrictions was $1.1 billion.
The Guarantee guarantees payment to the holders of the Series A Preferred
Securities of accumulated and unpaid monthly dividends (but only if and to the
extent declared by American General Capital), amounts payable on redemption and
amounts payable upon the liquidation,
CS-5
<PAGE> 99
dissolution or winding-up of American General Capital. In each case, however,
such amount is guaranteed only to the extent that American General Capital has
funds on hand legally available therefor and payment thereof does not otherwise
violate applicable law. If American General were to default on its obligation to
pay interest or amounts payable on redemption or maturity of the Series A Junior
Subordinated Debentures, American General Capital would lack legally available
funds for the payment of dividends or amounts payable on redemption of the
Series A Preferred Securities, and in such event holders of the Series A
Preferred Securities would not be able to rely upon the Guarantee for payment of
such amounts. Upon the liquidation, dissolution or winding-up of American
General, its obligations under the Guarantee would rank junior to all of its
other liabilities (other than certain other guarantees) and, therefore, funds
may not be available for payment under the Guarantee. See "Description of the
Guarantees" and "Description of the Junior Subordinated
Debentures -- Subordination" in the accompanying Prospectus.
OPTION TO EXTEND INTEREST PAYMENT PERIOD (DEFERRAL OF DIVIDENDS ON SERIES A
PREFERRED SECURITIES)
American General has the right to extend the interest payment period on the
Series A Junior Subordinated Debentures from time to time to a period not
exceeding 60 consecutive months (an "Extension Period"), in which event monthly
dividend payments on the Series A Preferred Securities by American General
Capital would be deferred but would continue to accumulate monthly and
Additional Dividends, intended to provide monthly compounding on dividend
arrearages, would also accumulate. Prior to the termination of any Extension
Period of less than 60 consecutive months, American General may further extend
the interest payment period as long as such Extension Period, as further
extended, does not exceed 60 consecutive months and does not extend beyond the
stated maturity date or date of redemption of the Series A Junior Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
accrued and unpaid interest (including compounded interest), American General
may select a new Extension Period, subject to the preceding sentence. No
interest will be due during an extended interest payment period until the end of
such period. During any Extension Period, American General may not declare or
pay any dividend on, and, subject to certain exceptions, American General may
not, and American General may not permit any of its majority-owned subsidiaries
to, redeem, purchase, acquire or make a liquidation payment with respect to, any
of American General's capital stock or make any guarantee payments with respect
to the foregoing. See "Description of the Series A Junior Subordinated
Debentures -- Option to Extend Interest Payment Period."
TAX CONSIDERATIONS OF EXTENDED INTEREST PAYMENT PERIOD (DEFERRAL OF DIVIDENDS ON
SERIES A PREFERRED SECURITIES)
If an extension of an interest payment period occurs, American General
Capital, except in very limited circumstances, would continue to accrue income
for United States federal income tax purposes, which would be allocated, but no
corresponding amount of cash would be distributed, to holders of record of
Series A Preferred Securities. As a result, such holders would be required to
include such interest in gross income for United States federal income tax
purposes in advance of the receipt of cash and would not receive the cash
dividend related to such income from American General Capital if such a holder
disposed of its Series A Preferred Securities prior to the record date for
payment of dividends. See "Certain Federal Income Tax Considerations -- Original
Issue Discount."
SPECIAL EVENT REDEMPTION OR EXCHANGE
At any time after the occurrence of a Special Event, American General
Capital (subject to the prior consent of American General) may elect to either
(i) redeem the Series A Preferred Securities, in whole but not in part, or (ii)
exchange, in whole but not in part, the Series A Preferred Securities for Series
A Junior Subordinated Debentures having an aggregate principal amount and
CS-6
<PAGE> 100
accrued and unpaid interest equal to the aggregate liquidation preference and
accumulated and unpaid dividends (including Additional Dividends), respectively,
of the Series A Preferred Securities. Under current United States federal income
tax law, such an exchange would not be a taxable event to holders of Series A
Preferred Securities unless the relevant Special Event is a Tax Event (as
defined herein) which causes American General Capital to be treated as an
association taxable as a corporation. In such case, an exchange of Series A
Preferred Securities for Series A Junior Subordinated Debentures may be a
taxable event to holders of the Series A Preferred Securities. See "Description
of the Series A Preferred Securities -- Special Event Redemption or Exchange for
Series A Junior Subordinated Debentures" and "Certain Federal Income Tax
Considerations -- Exchange of Series A Preferred Securities for Series A Junior
Subordinated Debentures."
CS-7
<PAGE> 101
CAPITALIZATION
The following table sets forth the consolidated short-term debt and
capitalization of American General as of March 31, 1995, as adjusted to reflect
the proposed permanent financing of the AFC acquisition which, for pro forma
purposes, was assumed to be partially financed with the estimated net proceeds
from the sale of the Series A Preferred Securities (assuming the Underwriters'
over-allotment option is not exercised). See "Use of Proceeds".
<TABLE>
<CAPTION>
(UNAUDITED) MARCH 31, 1995
(IN MILLIONS) ------------------------------
PRO
FORMA,
REFLECTING
AFC
HISTORICAL FINANCING(A)
---------- ------------
<S> <C> <C>
Short-term debt
Corporate.................................................... $ 1,375 $ 685
Real Estate.................................................. 349 349
Consumer Finance............................................. 2,498 2,498
-------- --------
Total short-term debt................................ $ 4,222 $ 3,532
======== ========
Long-term debt
Corporate.................................................... $ 984 $ 1,432
Consumer Finance............................................. 4,763 4,763
-------- --------
Total long-term debt................................. 5,747 6,195
-------- --------
Company-obligated mandatorily redeemable preferred securities
of American General Capital, L.L.C.(b)....................... - 242
Common stock subject to put contracts.......................... 47 47
Shareholders' equity
Common stock................................................. 365 365
Net unrealized gains (losses) on securities(c)............... (84) (84)
Retained earnings............................................ 4,606 4,606
Cost of treasury stock....................................... (465) (465)
-------- --------
Total shareholders' equity........................... 4,422 4,422
-------- --------
Total capitalization (excluding short-term debt)..... $ 10,216 $ 10,906
======== ========
</TABLE>
- ---------------
(a) Reflects the proposed permanent financing of the AFC acquisition, which
includes the Offering (as defined herein), as though it occurred on March
31, 1995. See American General's Current Report on Form 8-K dated May 9,
1995 incorporated herein by reference. Does not include an offering of
4,500,000 % Convertible Monthly Income Preferred Securities, Series A
(liquidation preference $50 per security) of American General Delaware,
L.L.C. (excluding any underwriters' over-allotment option), which is
expected to be made at or about the same time as the Offering made hereby.
The closing of the Offering is not contingent on the closing of such
offering by American General Delaware, L.L.C.
(b) American General Capital will own approximately $313 million in principal
amount of Series A Junior Subordinated Debentures if the Underwriters'
over-allotment option is not exercised, or approximately $360 million in
principal amount of Series A Junior Subordinated Debentures if the
Underwriters' over-allotment option is exercised in full, which in each case
will constitute approximately 99% of the assets of American General Capital.
(c) Includes a $106 million unrealized loss at March 31, 1995, due to the effect
of SFAS 115. See "Management's Discussion and Analysis" within American
General's Quarterly Report on Form 10-Q for the quarterly period ended March
31, 1995 incorporated herein by reference.
CS-8
<PAGE> 102
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The following table sets forth the historical and pro forma ratios of
earnings to combined fixed charges and preferred stock dividends for the periods
indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH YEAR ENDED
31, DECEMBER 31,
-------------- --------------
PRO PRO
FORMA FORMA
1995(A) 1995 1994(B) 1994
--- --- --- ---
<S> <C> <C> <C> <C>
Ratio of earnings to combined fixed charges and
preferred stock dividends:
Consolidated operations............................. 2.5 2.5 2.4 2.4
Consolidated operations, corporate (parent company)
fixed charges and preferred stock dividends
only............................................. 6.4 7.6 5.6 7.6
</TABLE>
- ---------------
(a) Assuming the AFC acquisition and proposed permanent financing, including
this Offering, had been effective as of January 1, 1994.
(b) Assuming the AFC and WNC acquisitions and the AFC proposed permanent
financing, including this Offering, had been effective as of January 1,
1994. See American General's Current Report on Form 8-K dated May 9, 1995
incorporated herein by reference.
USE OF PROCEEDS
American General Capital will invest the proceeds received from the sale of
the Series A Preferred Securities in the Series A Junior Subordinated Debentures
of American General. After paying the Underwriters' Compensation and other
expenses associated with the offering made hereby (the "Offering"), American
General will use the net proceeds of approximately $ (approximately
$ if the Underwriters' over-allotment option is exercised in full) to
repay short-term notes issued in connection with the acquisition of AFC. See
"American General Corporation -- Recent Developments." At May , 1995, the
blended interest rate on such short-term notes was % per annum.
CS-9
<PAGE> 103
SUMMARY FINANCIAL INFORMATION OF AMERICAN GENERAL
The following table presents summary consolidated financial information
derived from American General's audited financial statements as of and for the
five years ended December 31, 1994. The financial data as of and for the three
months ended March 31, 1995 and 1994 has been derived from American General's
unaudited quarterly financial statements, which, in the opinion of management,
include all adjustments (consisting of normal recurring accruals) necessary for
a fair presentation of the Company's results of operations and financial
position. The results of operations for the three months ended March 31, 1995
are not necessarily indicative of results to be anticipated for the entire year.
The table should be read in conjunction with "Management's Discussion and
Analysis of American General" and the consolidated financial statements and the
related notes incorporated herein by reference.
(IN MILLIONS, EXCEPT PER SHARE DATA)
Operating Results and Per Share Data
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31, YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................... $ 1,518 $ 1,214 $ 4,841 $ 4,829 $ 4,602 $ 4,395 $ 4,434
======== ======== ======== ======== ======== ======== ========
Business segment earnings
Retirement Annuities................. $ 54 $ 53 $ 187 $ 162 $ 130 $ 110 $ 99
Consumer Finance..................... 60 53 245 206 161 136 125
Life Insurance....................... 84(a) 64 257 (9)(b) 323 326 303
-------- -------- -------- -------- -------- -------- --------
Total business segments........ 198 170 689 359 614 572 527
-------- -------- -------- -------- -------- -------- --------
Corporate operations
Net interest on corporate debt....... (27) (19) (76) (81) (85) (87) (119)
Expenses not allocated to segments... (9) (6) (29) (25) (28) (37) (52)
Earnings on corporate assets......... 6 15 43 21 23 31 69
Net equity in WNC.................... 6 - - - - - -
Net realized investment gains
(losses)........................... 1 1 (114)(c) 6 9 1 137(d)
-------- -------- -------- -------- -------- -------- --------
Total corporate operations..... (23) (9) (176) (79) (81) (92) 35
-------- -------- -------- -------- -------- -------- --------
Income before cumulative effect and tax
rate related adjustment.............. 175 161 513 280 533 480 562
Tax rate related adjustment............ - - - (30) - - -
Cumulative effect of accounting
changes.............................. - - - (46) - - -
-------- -------- -------- -------- -------- -------- --------
Net income..................... $ 175 $ 161 $ 513 $ 204 $ 533 $ 480 $ 562
======== ======== ======== ======== ======== ======== ========
Net income per share................... $ .85 $ .75 $ 2.45 $ .94(b) $ 2.45 $ 2.13 $ 2.35
======== ======== ======== ======== ======== ======== ========
Dividends per share.................... $ .31 $ .29 $ 1.16 $ 1.10 $ 1.04 $ 1.00 $ .79(e)
======== ======== ======== ======== ======== ======== ========
Average shares outstanding............. 205.2 213.3 209.4 216.6 217.7 225.4 238.6
======== ======== ======== ======== ======== ======== ========
</TABLE>
Financial Position and Book Value Per Share
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
-------------------- --------------------------------------------------------
1995 1994 1994 1993 1992 1991 1990
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Assets.................................. $ 55,667(f) $ 44,281(f) $ 46,295(g) $ 43,982(g) $ 39,742 $ 36,105 $ 33,808
Debt (including short-term)
Corporate............................. 2,359 1,354 1,475 1,257 1,371 1,391 1,555
Real Estate........................... 349 412 361 429 616 590 498
Consumer Finance...................... 7,261 5,947 7,090 5,843 5,484 5,243 5,096
Redeemable equity....................... 47 - 47 - - - 296
Shareholders' equity.................... 4,422(f) 4,593(f) 3,457(g) 5,137(g) 4,616 4,329 4,138
Book value per share.................... 21.77(f) 21.74(f) 17.05(g) 23.96(g) 21.33 19.86 18.57
</TABLE>
- ------------
(a) Includes two months of operations for AFC, which was acquired January 31,
1995.
(b) Includes $300 million write-down of goodwill. See "Significant
Events -- 1993 Significant Events" within Item 7 and Note 1.7 within Item 8
of American General's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 incorporated herein by reference.
(c) Results primarily from the capital gains offset program. See "Significant
Events -- Capital Gains Offset Program" within Item 7 of American General's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994
incorporated herein by reference.
(d) Results primarily from the sale of substantially all of the common stock
portfolio.
(e) Excludes special dividends of $.61 per share.
(f) Includes $172 million, $106 million, and $.52 decrease in assets,
shareholders' equity, and book value per share, respectively, at March 31,
1995, and $195 million, $126 million, and $.59 increase in assets,
shareholders' equity, and book value per share respectively, at March 31,
1994, due to the effect of SFAS 115. See "Management's Discussion and
Analysis" within American General's Quarterly Report on Form 10-Q for the
quarterly period ended March 31, 1995 incorporated herein by reference.
(g) Includes $986 million, $950 million, and $4.65 decrease in assets,
shareholders' equity, and book value per share, respectively, at December
31, 1994, and $1.0 billion, $676 million, and $3.14 increase in assets,
shareholders' equity, and book value per share, respectively, at December
31, 1993, due to the effect of SFAS 115. See "Significant Events -- Effect
of SFAS 115" within Item 7 and Note 1.2 within Item 8 of American General's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994
incorporated herein by reference.
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DESCRIPTION OF THE SERIES A PREFERRED SECURITIES
GENERAL
The following summary of certain terms and provisions of the Series A
Preferred Securities supplements the description of the terms and provisions of
the Preferred Securities set forth in the accompanying Prospectus under the
heading "Description of the Preferred Securities," to which description
reference is hereby made. Capitalized terms used and not defined in this
Prospectus Supplement have the meanings ascribed to them in the accompanying
Prospectus. The Series A Preferred Securities constitute a series of Preferred
Securities of American General Capital having such dividend terms, liquidation
preferences per share, voting rights, redemption provisions and other rights,
preferences, privileges, limitations and restrictions as are set forth in the
LLC Agreement, the Delaware Limited Liability Company Act (the "LLC Act") and
the written action taken or to be taken pursuant to the LLC Agreement by the
Manager relating to the Series A Preferred Securities (the "Series A
Declaration"). The summary of certain terms and provisions of the Series A
Preferred Securities set forth below does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the LLC Agreement and
the Series A Declaration. The LLC Agreement and the form of the Series A
Declaration have been filed as exhibits to the Registration Statement of which
this Prospectus Supplement and accompanying Prospectus is a part.
DIVIDENDS
General. Holders of the Series A Preferred Securities will be entitled to
receive cumulative cash dividends from American General Capital, accruing from
the date of original issuance and payable monthly in arrears on the last day of
each calendar month of each year, commencing June 30, 1995, except as otherwise
described below. The dividends payable on each Series A Preferred Security will
be fixed at the annual rate of $ , or % of the liquidation
preference of $25 per Series A Preferred Security. The amount of dividends
payable for any full monthly dividend period will be computed on the basis of a
360-day year consisting of twelve 30-day months, and for any period shorter than
a full monthly dividend period, will be computed on the basis of the actual
number of days elapsed in such period. Payment of dividends is limited to the
funds held by American General Capital and legally available for distribution to
holders of Series A Preferred Securities. See "Description of the Series A
Junior Subordinated Debentures -- Interest."
Dividends on the Series A Preferred Securities must be declared monthly and
paid on the last day of each calendar month to the extent that American General
Capital has funds legally available for the payment of such dividends and cash
on hand sufficient to make such payments. It is anticipated that the funds of
American General Capital will be limited principally to payments received from
American General under the Series A Junior Subordinated Debentures. If American
General fails to make interest payments on the Series A Junior Subordinated
Debentures, American General Capital will not have sufficient funds to pay
dividends on the Series A Preferred Securities. The payment of dividends (but
only if and to the extent declared from funds of American General Capital
legally available therefor) will be guaranteed by American General as and to the
extent set forth herein and under "Description of the Guarantees" in the
accompanying Prospectus.
American General has the right under the Series A Junior Subordinated
Debentures to extend, from time to time, the interest payment period on the
Series A Junior Subordinated Debentures for up to 60 consecutive months on one
or more occasions, but not beyond the stated maturity date or date of redemption
thereof. Monthly dividends on the Series A Preferred Securities would be
deferred (but would continue to accumulate monthly and Additional Dividends,
intended to provide monthly compounding on dividend arrearages, would also
accumulate) by American General Capital during any such extension of the
interest payment period. American General Capital will give written notice of
American General's extension of the interest payment period to the holders of
the Series A Preferred Securities no later than the last date on which it would
be required to notify the
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<PAGE> 105
NYSE of the record or payment date of the related dividend, which is currently
10 days prior to such record or payment date. See "-- Additional Dividends" and
"Description of the Series A Junior Subordinated Debentures -- Option to Extend
Interest Payment Period." Any failure by American General to make interest
payments on the Series A Junior Subordinated Debentures within 10 days of the
relevant payment dates in the absence of an extension of an interest payment
period would constitute an Event of Default (as defined under "Description of
the Junior Subordinated Debentures -- Events of Default" in the accompanying
Prospectus) under the Junior Subordinated Indenture with respect to the Series A
Junior Subordinated Debentures. American General has agreed, among other things,
not to declare or pay any dividend on any of its capital stock at any time that
American General has exercised its option to extend an interest payment period
on the Series A Junior Subordinated Debentures and such extension is continuing
or any Event of Default under the Junior Subordinated Indenture with respect to
the Series A Junior Subordinated Debentures shall have occurred and be
continuing. See "Description of the Guarantees -- Certain Covenants of American
General" in the accompanying Prospectus.
Dividends declared on the Series A Preferred Securities will be payable to
the holders thereof as they appear on the books and records of American General
Capital on the relevant record dates, which, if and so long as the Series A
Preferred Securities are in book-entry form, will be one Business Day (as
defined below) prior to the related payment dates. Subject to any applicable
laws and regulations and the LLC Agreement and the Series A Declaration, each
such payment will be made as described under "Description of the Preferred
Securities -- Book-Entry-Only Issuance -- The Depository Trust Company" in the
accompanying Prospectus. In the event that the Series A Preferred Securities
shall not continue to remain in book-entry form, the Manager shall have the
right to select relevant record dates that are more than one Business Day prior
to the related payment dates. If any date on which dividends are payable on the
Series A Preferred Securities is not a Business Day, then payment of the
dividend payable on such date will be made on the next succeeding day that is a
Business Day (and without any interest or other payment in respect of any such
delay), except that if such Business Day is in the next succeeding calendar
year, such payment will be made on the immediately preceding Business Day, in
each case with the same force and effect as if made on such date. A "Business
Day" means any day other than a Saturday, Sunday or other day on which banking
institutions in The City of New York are authorized or obligated by law or
executive order to close.
Additional Dividends. Upon any dividend arrearages in respect of the Series
A Preferred Securities, American General Capital will be required to declare and
pay additional dividends on the Series A Preferred Securities in order to
provide, in effect, monthly compounding on such dividend arrearages. The amounts
payable to effect such monthly compounding on dividend arrearages in respect of
the Series A Preferred Securities are referred to herein as "Additional
Dividends."
Certain Restrictions on American General Capital. If accumulated dividends
(including Additional Dividends) have not been paid in full on the Series A
Preferred Securities, American General Capital may not:
(i) pay, or declare and set aside for payment, any dividends on the
Preferred Securities of any other series or any other limited liability
company interests in American General Capital ranking pari passu with the
Series A Preferred Securities as to the payment of dividends ("Dividend
Parity Securities"), unless the amount of any dividends declared on such
Dividend Parity Securities is paid on such Dividend Parity Securities and
the Series A Preferred Securities on a pro rata basis on the date such
dividends are paid on such Dividend Parity Securities, so that the ratio of
(x)(A) the aggregate amount paid as dividends on the Series A Preferred
Securities to (B)the aggregate amount paid as dividends on such Dividend
Parity Securities is the same as the ratio of (y)(A) the aggregate amount
of all accumulated arrears of unpaid dividends on the Series A Preferred
Securities to (B) the aggregate amount of all accumulated arrears of unpaid
dividends on such Dividend Parity Securities;
CS-12
<PAGE> 106
(ii) pay, or declare and set aside for payment, any dividends on any
limited liability company interests in American General Capital ranking
junior to the Series A Preferred Securities as to the payment of dividends
("Dividend Junior Securities"); or
(iii) redeem, purchase, or otherwise acquire any Dividend Parity
Securities or Dividend Junior Securities (other than purchases or
acquisitions resulting from the reclassification of such securities or the
exchange or conversion of any Dividend Parity Security or Dividend Junior
Security pursuant to the terms thereof or the purchase of fractional
interests therein upon such conversion or exchange);
until, in each case, such time as all accumulated and unpaid dividends
(including Additional Dividends) on all of the Series A Preferred Securities
shall have been paid in full or have been irrevocably set aside for payment in
full for all dividend periods terminating on or prior to, in the case of clauses
(i) and (ii), the date of such payment, and in the case of clause (iii), the
date of such redemption, purchase, or other acquisition.
OPTIONAL REDEMPTION
On or after May , 2000, the Series A Preferred Securities will be
redeemable at the option of American General Capital (subject to the prior
consent of American General), in whole or in part, from time to time, at the
Redemption Price. American General Capital may not redeem the Series A Preferred
Securities in part unless all accumulated and unpaid dividends (whether or not
earned or declared), including Additional Dividends, have been paid in full on
all Series A Preferred Securities for all monthly dividend periods terminating
on or prior to the date of redemption.
American General has the right to cause American General Capital to
exercise such optional redemption rights. In addition, subject to applicable law
(including, without limitation, United States federal securities laws), American
General or its subsidiaries may at any time and from time to time purchase
outstanding Series A Preferred Securities by tender, in the open market or
otherwise.
SPECIAL EVENT REDEMPTION OR EXCHANGE
At any time after the occurrence of a Tax Event or an Investment Company
Event (each, a "Special Event"), American General Capital (subject to the prior
consent of American General) may, upon not less than 30 nor more than 60
calendar days' notice to the holders of Series A Preferred Securities, either
(i) redeem the Series A Preferred Securities in whole but not in part, at the
Redemption Price, or (ii) exchange, in whole but not in part, the Series A
Preferred Securities for Series A Junior Subordinated Debentures having an
aggregate principal amount and accrued and unpaid interest equal to the
aggregate liquidation preference and accumulated and unpaid dividends (whether
or not earned or declared), including Additional Dividends, to the date fixed
for exchange, respectively, of the Series A Preferred Securities (a "Special
Event Exchange"). In connection with any Special Event Exchange, American
General Capital may be liquidated, dissolved or wound-up. Upon any Special Event
Exchange, American General will use its best efforts to have the Series A Junior
Subordinated Debentures listed on the NYSE or other exchange on which the Series
A Preferred Securities may then be listed. American General has the right to
cause American General Capital to exercise its right to effect a Special Event
Exchange.
"Tax Event" means that a change in any applicable United States law or
regulation or in the interpretation thereof (including but not limited to the
enactment or imminent enactment of any legislation, the publication of any
judicial decisions, regulatory rulings, regulatory procedures, or notices or
announcements (including notices or announcements of intent to adopt such
procedures or regulations), or a change in the official position or the
interpretation of any law or regulation by any legislative body, court,
governmental authority or regulatory body, irrespective of the manner in which
such change is made known) shall have occurred after May , 1995, and that
American General Capital or American General shall have received an opinion of
nationally recognized
CS-13
<PAGE> 107
independent legal counsel experienced in such matters that, as a result of such
change, there exists more than an insubstantial risk that (i) American General
Capital will be subject to federal income tax with respect to the interest
received on the Series A Junior Subordinated Debentures, (ii) American General
will be precluded from deducting the interest paid on the Series A Junior
Subordinated Debentures for federal income tax purposes or (iii) American
General Capital will be subject to more than a de minimis amount of other taxes,
duties or other governmental charges.
"Investment Company Event" means that a change in any applicable United
States law or regulation or in the interpretation thereof (including but not
limited to the enactment or imminent enactment of any legislation, the
publication of any judicial decisions, regulatory rulings, regulatory
procedures, or notices or announcements (including notices or announcements of
intent to adopt such procedures or regulations), or a change in the official
position or the interpretation of any law or regulation by any legislative body,
court, governmental authority or regulatory body, irrespective of the manner in
which such change is made known) shall have occurred after May , 1995, and
that American General Capital or American General shall have received an opinion
of nationally recognized independent legal counsel experienced in practice under
the Investment Company Act of 1940, as amended (the "1940 Act") that, as a
result of such change, there exists more than an insubstantial risk that
American General Capital is or will be considered an "investment company" which
is required to be registered under the 1940 Act.
After the date fixed for any Special Event Exchange, (i) the Series A
Preferred Securities will no longer be deemed to be outstanding, (ii) any global
certificate or certificates representing Series A Preferred Securities held by
DTC or its nominee will be exchanged for a registered global certificate or
certificates representing the Series A Junior Subordinated Debentures to be
delivered upon such exchange, (iii) any certificates representing Series A
Preferred Securities not held by DTC or its nominee and not surrendered for
exchange will be deemed to represent Series A Junior Subordinated Debentures
having a principal amount and accrued and unpaid interest equal to the
liquidation preference and accumulated and unpaid dividends (whether or not
earned or declared), including Additional Dividends, to the date fixed for
exchange, respectively, of such Series A Preferred Securities until such
certificates are surrendered to American General Capital or its agent for
exchange (and until such certificates are so surrendered, no payments of
interest or principal will be made with respect to such Series A Junior
Subordinated Debentures) and (iv) all rights of the holders of the Series A
Preferred Securities will cease, except the right of such holders to receive the
Series A Junior Subordinated Debentures upon surrender of certificates
representing the Series A Preferred Securities.
MANDATORY REDEMPTION
Upon repayment by American General of the principal of the Series A Junior
Subordinated Debentures at stated maturity, earlier redemption or otherwise,
including as a result of the acceleration of Series A Junior Subordinated
Debentures upon the occurrence of an Event of Default under the Junior
Subordinated Indenture with respect to the Series A Junior Subordinated
Debentures, the Series A Preferred Securities will be subject to mandatory
redemption, in whole but not in part, by American General Capital and the
proceeds from such repayment will be applied to redeem the Series A Preferred
Securities at the Redemption Price (unless such proceeds are used to fund the
aggregate Liquidation Distributions (as defined herein) on the Series A
Preferred Securities in connection with the liquidation, dissolution or
winding-up of American General Capital). In the case of such repayment, the
Series A Preferred Securities will only be redeemed when repayment of the Series
A Junior Subordinated Debentures has actually been received by American General
Capital. Notwithstanding the foregoing, the Series A Preferred Securities will
not be so redeemed if (i) in lieu of repaying the Series A Junior Subordinated
Debentures at stated maturity or date of earlier redemption, American General is
permitted by American General Capital to exchange the Series A Junior
Subordinated Debentures for new Junior Subordinated Debentures or (ii) American
General repays the Series A Junior Subordinated Debentures at stated maturity or
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<PAGE> 108
date of earlier redemption but is permitted by American General Capital to
reborrow the proceeds from such repayment which reborrowing will be evidenced by
new Junior Subordinated Debentures issued under the Indenture; provided,
however, that American General Capital may only permit American General to so
exchange the Series A Junior Subordinated Debentures for new Junior Subordinated
Debentures or reborrow the proceeds from the repayment thereof if American
General Capital owns all of the Series A Junior Subordinated Debentures and the
following conditions are satisfied (which satisfaction, in the case of clauses
(f) through (j), shall be determined in the judgment of the Manager and American
General Capital's financial advisor (which will be selected by the Manager and
must be unaffiliated with American General and be among the 30 largest
investment banking firms, measured by total capital, in the United States at the
time of the proposed issuance of the new Junior Subordinated Debentures that
would evidence the new loan to be made in connection with such exchange or
reborrowing)): (a) American General is not bankrupt, insolvent or in
liquidation, (b) American General is not in default in the payment of any
interest (including Additional Interest, as defined herein) or principal in
respect of any Junior Subordinated Debentures, (c) American General has made
timely payments on the Series A Junior Subordinated Debentures for the
immediately preceding 24 months (and has not elected to extend any interest
payment period of the Series A Junior Subordinated Debentures during such 24
month period), (d) such new Junior Subordinated Debentures will mature no later
than the earlier of (1) the 49th anniversary of the date of the initial issuance
of the Series A Junior Subordinated Debentures and (2) the 30th anniversary of
the date such new Junior Subordinated Debentures are issued, (e) American
General Capital is not in arrears in the payment of any dividends (including
Additional Dividends) on the Series A Preferred Securities, (f) American General
is expected to be able to make timely payment of principal of and interest on
such new Junior Subordinated Debentures, (g) the issuance of such new Junior
Subordinated Debentures is being made on terms, and under circumstances, that
are consistent with those which a lender would then require for a loan to an
unrelated party, (h) the interest rate on such new Junior Subordinated
Debentures is sufficient to provide payments equal to or greater than the amount
of dividend payments required under the Series A Preferred Securities, (i) the
terms of such new Junior Subordinated Debentures are consistent with market
circumstances and American General's financial condition and (j) immediately
prior to the issuance of such new Junior Subordinated Debentures, the senior
unsecured long-term debt of American General is (or, if no such debt is
outstanding, would be) rated not less than BBB (or the equivalent) by Standard &
Poor's Corporation and Baa2 (or the equivalent) by Moody's Investors Service,
Inc. and the subordinated unsecured long-term debt of American General (or, if
more than one issue of such subordinated debt is outstanding, the most junior of
such issues) is (or, if no such debt is outstanding, would be) rated not less
than BBB- (or the equivalent) by Standard & Poor's Corporation and Baa3 by
Moody's Investors Service, Inc. (or, if either of such rating organizations is
not then rating American General's senior or subordinated unsecured long-term
debt, as the case may be, the equivalent of such ratings by any other
"nationally recognized statistical rating organization," as that term is defined
by the Securities and Exchange Commission for purposes of Rule 436(g)(2) under
the Securities Act of 1933, as amended). As a result of the foregoing
conditions, such new Junior Subordinated Debentures will bear interest at a rate
sufficient to provide payments equal to or greater than the amount of dividend
payments required under the Series A Preferred Securities but, pursuant to
clauses (g) and (i) above, may have other terms which vary from the terms of the
Series A Junior Subordinated Debentures.
REDEMPTION PROCEDURES
Notice of any redemption (optional or mandatory) of Series A Preferred
Securities (which notice will be irrevocable) will be given by American General
Capital to American General and each record holder of Series A Preferred
Securities that are being redeemed not fewer than 30 nor more than 60 calendar
days prior to the date fixed for redemption thereof. If American General Capital
gives a notice of redemption, then on the redemption date American General
Capital will irrevocably
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<PAGE> 109
deposit with DTC or the Paying Agent, as the case may be, sufficient funds to
pay the Redemption Price for the Series A Preferred Securities to be redeemed
and give DTC or the Paying Agent, as the case may be, irrevocable instructions
and authority to pay the Redemption Price to the holders of the Series A
Preferred Securities to be redeemed. See "Description of the Preferred
Securities -- Book-Entry-Only Issuance -- The Depository Trust Company" in the
accompanying Prospectus. If notice of redemption has been given and funds
irrevocably deposited with DTC or the Paying Agent, as the case may be, as
required, then immediately prior to the close of business on the date of such
deposit, all rights of holders of the Series A Preferred Securities so called
for redemption will cease, except the right of such holders to receive the
Redemption Price, but without additional interest from and after such redemption
date. In the event that any date fixed for redemption is not a Business Day,
then payment of the Redemption Price payable on such date will be made the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay), except that if such Business Day falls in the
next calendar year, such payment will be made on the immediately preceding
Business Day. In the event that payment of the Redemption Price is improperly
withheld or refused and not paid by either American General Capital or American
General (pursuant to the Guarantee), dividends on the Series A Preferred
Securities called for redemption (including any Additional Dividends thereon)
will continue to accumulate at the then applicable rate, from the original
redemption date to the date that the Redemption Price is actually paid and the
holders of such Series A Preferred Securities may exercise all of their rights
as holders of Series A Preferred Securities.
LIQUIDATION RIGHTS
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of American General Capital other than in connection with or after
the exchange of the Series A Preferred Securities for the Series A Junior
Subordinated Debentures in the manner described under "-- Special Event
Redemption or Exchange" above, the holders of Series A Preferred Securities then
outstanding will be entitled to receive out of the assets of American General
Capital legally available for distribution to the holders of limited liability
company interests, after satisfaction of liabilities to creditors as required by
the LLC Act but before any distribution of assets is made to holders of any
Common Securities or any other class of limited liability company interests in
American General Capital ranking junior to the Series A Preferred Securities as
to the distribution of assets upon liquidation, dissolution or winding-up of
American General Capital, but together with the holders of Preferred Securities
of any other series or any other limited liability company interests in American
General Capital then outstanding ranking pari passu with the Series A Preferred
Securities as to the distribution of assets upon liquidation, dissolution or
winding-up ("Liquidation Parity Securities"), an amount equal to the liquidation
preference of $25 per Series A Preferred Security plus all accumulated and
unpaid dividends (whether or not earned or declared), including any Additional
Dividends, to the date of payment (the "Liquidation Distribution").
If, upon any such liquidation, dissolution or winding-up, the Liquidation
Distributions can be paid only in part because American General Capital has
insufficient assets available to pay in full the aggregate Liquidation
Distributions on the Series A Preferred Securities and the aggregate maximum
liquidation distributions on the Liquidation Parity Securities, then the amounts
payable directly by American General Capital on the Series A Preferred
Securities and on such Liquidation Parity Securities shall be paid on a pro rata
basis, so that the ratio of (i)(A) the aggregate amount paid as Liquidation
Distributions on the Series A Preferred Securities to (B) the aggregate amount
paid as liquidation distributions on the Liquidation Parity Securities is the
same as the ratio of (ii)(A) the aggregate Liquidation Distributions on the
Series A Preferred Securities to (B) the aggregate maximum liquidation
distributions on the Liquidation Parity Securities.
If, upon any liquidation, dissolution or winding-up of American General
Capital, the holders of Series A Preferred Securities are paid in full the
Liquidation Distributions to which they are entitled, then such holders will not
be entitled to receive or share in any other assets of American General
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<PAGE> 110
Capital thereafter available for distribution to any other holders of limited
liability company interests in American General Capital.
Pursuant to the LLC Agreement, American General Capital shall be dissolved
and its affairs shall be wound up upon the earliest to occur of (i) December 31,
2050 (the expiration of the period fixed for the duration of American General
Capital); (ii) the bankruptcy, insolvency, liquidation, dissolution or
winding-up of the Manager or American General (collectively, the "Common
Members") or the withdrawal, retirement, resignation or expulsion of either
Common Member from American General Capital or the occurrence of any other event
that terminates the continued membership of either Common Member therein under
the LLC Act; (iii) the entry of a decree of a judicial dissolution of American
General Capital under the LLC Act; (iv) the decision of the Manager to dissolve
American General Capital (subject to the voting rights of the holders of Series
A Preferred Securities described under "Voting Rights" below and of other
holders of limited liability company interests in American General Capital); (v)
the election of the Manager, in connection with or after the exchange of all
series of Preferred Securities outstanding (in accordance with the written
action establishing each such series of Preferred Securities) for the related
series of Junior Subordinated Debentures; or (vi) upon the written consent
thereto of all holders of outstanding Common Securities and Preferred Securities
of American General Capital.
Any merger, consolidation, replacement, conveyance, transfer or lease
effected in accordance with the provisions described under "Merger,
Consolidation or Sale of Assets of American General Capital" below shall not be
deemed a liquidation, dissolution or winding-up of American General Capital for
the foregoing purposes.
VOTING RIGHTS
Except as provided below and under "Description of the
Guarantees -- Amendments and Assignment" and "Description of the Junior
Subordinated Debentures -- Modification of the Junior Subordinated Indenture" in
the accompanying Prospectus and as otherwise required by law and provided by the
LLC Agreement, the holders of the Series A Preferred Securities will have no
voting rights.
If (i) American General Capital fails to pay dividends in full (including
any arrearages and Additional Dividends) on the Series A Preferred Securities
for 18 consecutive months; (ii) an Event of Default under the Junior
Subordinated Indenture with respect to the Series A Junior Subordinated
Debentures occurs and is continuing; or (iii) American General is in default
under any of its payment or other obligations under the Guarantee with respect
to the Series A Preferred Securities, then the holders of outstanding Series A
Preferred Securities will be entitled by the vote of a majority in aggregate
liquidation preference of such holders to appoint and authorize a special
trustee (a "Special Trustee") to enforce American General Capital's rights under
the Series A Junior Subordinated Debentures against American General, enforce
the obligations undertaken with respect to the Series A Preferred Securities by
American General under the Guarantee and, to the extent permitted by law,
declare and pay dividends on the Series A Preferred Securities to the extent
funds of American General Capital are legally available therefor (but only in
the event that American General Capital's failure to pay dividends on the Series
A Preferred Securities is not a consequence of American General's exercise of
its right to extend the interest payment period on the Series A Junior
Subordinated Debentures). For purposes of determining whether American General
Capital has failed to pay dividends in full for 18 consecutive months, dividends
shall be deemed to remain in arrears, notwithstanding any partial payments in
respect thereof, until all accumulated and unpaid dividends (including any
Additional Dividends) have been or contemporaneously are declared and paid with
respect to all monthly dividend periods terminating on or prior to the date of
payment of such full cumulative dividends. Not later than 30 calendar days after
such right to appoint a Special Trustee arises and upon not less than 15
calendar days' written notice by first-class mail to the holders of Series A
Preferred Securities, the Manager will convene a meeting to elect a Special
Trustee. If the Manager fails to convene such meeting within such 30-day period,
the holders of at
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least 10% of the aggregate liquidation preference of the Series A Preferred
Securities will be entitled to convene such meeting. In the event that, at such
meeting, holders of less than a majority in aggregate liquidation preference of
Series A Preferred Securities vote for such appointment, no Special Trustee
shall be appointed. Any Special Trustee shall vacate office immediately if
American General Capital (or American General pursuant to the Guarantee) shall
have paid in full all accumulated and unpaid dividends (including any Additional
Dividends) on the Series A Preferred Securities or such Event of Default under
the Junior Subordinated Indenture or such default under the Guarantee, as the
case may be, shall have been cured. Notwithstanding the appointment of any such
Special Trustee, American General will retain all rights, including the right to
extend the interest payment period from time to time as provided under
"Description of the Series A Junior Subordinated Debentures -- Option to Extend
Interest Payment Period," and be subject to all obligations under the Junior
Subordinated Indenture and as obligor under the Series A Junior Subordinated
Debentures, and any such extension would not constitute an Event of Default
under the Junior Subordinated Indenture with respect to the Series A Junior
Subordinated Debentures or enable a holder of Series A Preferred Securities to
require the payment of a dividend that has not theretofore been declared.
In furtherance of the foregoing, and without limiting the powers of any
Special Trustee so appointed and for the avoidance of any doubt concerning the
powers of the Special Trustee, any Special Trustee, in its own name and as
trustee of an express trust, may, subject to the applicable provisions of the
Junior Subordinated Indenture, institute a proceeding, including, without
limitation, any suit in equity, an action at law or other judicial or
administrative proceeding, to enforce American General Capital's creditor rights
directly against American General to the same extent as American General Capital
and on behalf of American General Capital, and may prosecute such proceeding to
judgment or final decree, and enforce the same against American General and,
subject to the subordination provisions contained in the Junior Subordinated
Indenture, collect, out of the property, wherever situated, of American General
the monies adjudged or decreed to be payable in the manner and to the extent
provided by law.
If any proposed amendment to the LLC Agreement or the Series A Declaration
provides for, or the Manager otherwise proposes to effect, (i) any action that
would materially adversely affect the powers, preferences or special rights of
the Series A Preferred Securities, whether by way of amendment to the LLC
Agreement, the Series A Declaration or otherwise, including, without limitation,
the authorization or issuance of any limited liability company interests of
American General Capital ranking, as to payment of dividends or distribution of
assets upon liquidation, dissolution or winding-up of American General Capital,
senior to the Series A Preferred Securities, (ii) the liquidation, dissolution
or winding-up of American General Capital (in any case other than upon the
occurrence of a Special Event Exchange, as described under "-- Merger,
Consolidation or Sale of Assets of American General Capital" or as described in
the proviso to the next succeeding sentence), or (iii) the commencement of any
voluntary bankruptcy, insolvency, reorganization or other similar proceeding
involving American General Capital, then the holders of outstanding Series A
Preferred Securities will be entitled to vote on such amendment or action of the
Manager (but not on any other amendment or action). In the case of an amendment
or action described in clause (i) which would materially adversely affect the
powers, preferences or special rights of any Dividend Parity Securities or any
Liquidation Parity Securities, the holders of such Dividend Parity Securities or
Liquidation Parity Securities, as the case may be, or, in the case of an
amendment or action described in clause (ii) or (iii), the holders of all
Liquidation Parity Securities, will be entitled to vote with the holders of the
Series A Preferred Securities, together as a class, on such amendment or action
of the Manager and such amendment or action shall not be effective except with
the approval of the holders of at least 66 2/3% of the aggregate liquidation
preference of such outstanding securities; provided, however, that no such
approval shall be required if the liquidation, dissolution or winding-up of
American General Capital is proposed or initiated upon the occurrence of certain
of the events specified in the LLC Agreement. See "-- Liquidation Rights."
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The powers, preferences or special rights attached to the Series A
Preferred Securities will be deemed not to be adversely affected by the creation
or issuance of, and no vote will be required for the creation or issuance of,
any further limited liability company interests of American General Capital
ranking junior to or pari passu with the Series A Preferred Securities with
respect to voting rights or rights to payment of dividends or distribution of
assets upon liquidation, dissolution or winding-up of American General Capital.
So long as any Series A Junior Subordinated Debentures are held by American
General Capital, the Manager shall not (i) at any time in which a Special
Trustee has been appointed, direct the time, method and place of conducting any
proceeding for any remedy available to the Special Trustee or the Junior
Subordinated Trustee, or the exercise of any trust or power conferred on the
Special Trustee or the Junior Subordinated Trustee with respect to the Series A
Junior Subordinated Debentures, (ii) waive compliance with, or any past default
under, the Series A Junior Subordinated Debentures or the Junior Subordinated
Indenture (to the extent that holders of Series A Junior Subordinated Debentures
are entitled to the benefits of the covenant or condition waived or breached),
(iii) exercise any right to rescind or annul a declaration that the principal of
the Series A Junior Subordinated Debentures shall be due and payable, (iv)
consent to any amendment or modification of the Series A Junior Subordinated
Debentures or of the Junior Subordinated Indenture without, in each case,
obtaining the prior approval of the holders of at least 66 2/3% of the aggregate
liquidation preference of the Series A Preferred Securities then outstanding;
provided, however, that where a waiver or consent under the Series A Junior
Subordinated Debentures would require the waiver or consent of each holder
affected thereby, no such waiver or consent shall be given by the Manager
without the prior consent of each holder of the Series A Preferred Securities.
The Manager shall not revoke any action previously authorized or approved by a
vote of holders of the Series A Preferred Securities, without the approval of
holders of at least 66 2/3% of the aggregate liquidation preference of the
Series A Preferred Securities then outstanding (or, if such action required the
approval of each holder, then only with the approval of each holder). The
Manager shall notify all holders of the Series A Preferred Securities of any
notice of default received from the Junior Subordinated Trustee under the Junior
Subordinated Indenture with respect to the Series A Junior Subordinated
Debentures.
Any required approval of holders of the Series A Preferred Securities may
be given at a separate meeting of such holders convened for such purpose or at a
meeting of holders of limited liability company interests in American General
Capital or pursuant to written consents. The Manager will cause a notice of any
meeting at which holders of the Series A Preferred Securities are entitled to
vote, or of any matter upon which action by written consent of such holders is
to be taken, to be mailed to each holder of the Series A Preferred Securities.
Each such notice will include a statement setting forth (i) the date of such
meeting or the date by which such action is to be taken, (ii) a description of
any matter on which such holders are entitled to vote or of such matter upon
which written consent is sought and (iii) instructions for the delivery of
proxies or consents.
Notwithstanding that holders of Series A Preferred Securities are entitled
to vote or consent under any of the circumstances described above, any of the
Series A Preferred Securities and any other series of Preferred Securities that
are entitled to vote or consent with such Series A Preferred Securities as a
single class at such time that are owned by American General or by any entity
more than 50% of which is owned by American General, either directly or
indirectly, shall not be entitled to vote or consent and shall, for purposes of
such vote or consent, be treated as if they were not outstanding.
TRANSFER AGENT, REGISTRAR AND PAYING AGENT
Chemical Mellon Shareholder Services, LLC will act as Transfer Agent,
Registrar and Paying Agent for the Series A Preferred Securities, but American
General Capital may designate an additional or substitute Transfer Agent,
Registrar or Paying Agent. In the event that the Series A Preferred Securities
do not remain in book-entry-only form, registration of transfers of Series A
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Preferred Securities will be effected without charge by or on behalf of American
General Capital, but upon payment in respect of any tax or other governmental
charges which may be imposed in connection therewith (and/or the giving of such
indemnity as American General Capital or the Manager may require with respect
thereto). Exchanges of Series A Preferred Securities for Series A Junior
Subordinated Debentures will be effected without charge by or on behalf of
American General Capital, but upon payment in respect of any tax or other
governmental charges which may be imposed (and/or the giving of such indemnity
as American General Capital or the Manager may require with respect thereto) in
connection with the issuance of any Series A Junior Subordinated Debentures in
the name of any person other than the registered holder of the Series A
Preferred Security for which the Series A Junior Subordinated Debenture is being
exchanged or for any reason other than such exchange. American General Capital
will not be required to register or cause to be registered the transfer of
Series A Preferred Securities after such Series A Preferred Securities have been
called for redemption or exchange.
MERGER, CONSOLIDATION OR SALE OF ASSETS OF AMERICAN GENERAL CAPITAL
American General Capital may not consolidate with, merge with or into, or
be replaced by, or convey, transfer or lease its properties and assets as an
entirety or substantially as an entirety to, any entity, except with the prior
approval of the holders of not less than 66 2/3% of the aggregate liquidation
preference of the Series A Preferred Securities or as described below. American
General Capital may, without the consent of the holders of the Series A
Preferred Securities, consolidate with, merge with or into, or be replaced by,
or convey, transfer or lease its properties and assets as an entirety or
substantially as an entirety to, a limited liability company, limited
partnership or trust organized as such under the laws of any state of the United
States of America or the District of Columbia, provided that (i) such successor
entity either (x) expressly assumes all of the obligations of American General
Capital under the Series A Preferred Securities or (y) substitutes for the
Series A Preferred Securities other securities having substantially the same
terms as the Series A Preferred Securities (the "Successor Securities") so long
as the Successor Securities rank, with respect to participation in the profits
or assets of the successor entity, at least as high as the Series A Preferred
Securities rank with respect to payment of dividends and distribution of assets
upon the liquidation, dissolution or winding-up of American General Capital,
(ii) American General expressly acknowledges such successor entity as the holder
of the Series A Junior Subordinated Debentures and its obligations under the
Guarantee with respect to the Successor Securities, (iii) such merger,
consolidation, replacement, conveyance, transfer or lease does not cause the
Series A Preferred Securities (or any Successor Securities) to be delisted (or,
in the case of any Successor Securities, to fail to be listed) by any national
securities exchange or other organization on which the Series A Preferred
Securities are then listed, (iv) such merger, consolidation, replacement,
conveyance, transfer or lease does not cause the Series A Preferred Securities
(or any Successor Securities) to be downgraded by any nationally recognized
statistical rating organization, (v) such merger, consolidation, replacement,
conveyance, transfer or lease does not adversely affect the powers, preferences
and other special rights of the holders of the Series A Preferred Securities (or
any Successor Securities) in any material respect (other than with respect to
any dilution of the holders' interest in the new entity), and (vi) prior to such
merger, consolidation, replacement, conveyance, transfer or lease, American
General has received an opinion of nationally recognized independent legal
counsel to American General Capital experienced in such matters to the effect
that (x) such successor entity will be treated as a partnership or as a grantor
trust, as appropriate, for federal income tax purposes, (y) following such
merger, consolidation, replacement, conveyance, transfer or lease, American
General and such successor entity will be in compliance with the 1940 Act
without registering thereunder as an investment company and (z) such merger,
consolidation, replacement, conveyance, transfer or lease will not adversely
affect the limited liability of the holders of the Series A Preferred Securities
(or any Successor Securities) or result in federal income tax liability to such
holders other than with respect to any fractional share interests converted into
cash.
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MISCELLANEOUS
The Manager is authorized and directed to conduct its affairs and to
operate American General Capital in such a way that American General Capital
will not be deemed to be an "investment company" required to be registered under
the 1940 Act or taxed as a corporation for federal income tax purposes and so
that the Series A Junior Subordinated Debentures will be treated as indebtedness
of American General for federal income tax purposes. In this connection, the
Manager is authorized to take any action not inconsistent with applicable law,
the LLC Agreement and the Series A Declaration that does not adversely affect
the interests of the holders of the Series A Preferred Securities and that the
Manager determines in its discretion to be necessary or desirable for such
purposes.
DESCRIPTION OF THE SERIES A JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Series A
Junior Subordinated Debentures in which American General Capital will invest (i)
the proceeds of the issuance and sale of the Series A Preferred Securities and
(ii) substantially all of the purchase price paid by American General and the
Manager for the Common Securities and any related capital contribution (the
"Common Securities Payment"). This description supplements the description of
the general terms and provisions of the Junior Subordinated Debentures set forth
in the accompanying Prospectus under the caption "Description of the Junior
Subordinated Debentures." The form of the resolutions of American General's
Board of Directors or a special committee thereof establishing the Series A
Junior Subordinated Debentures is filed as an exhibit to the Registration
Statement of which this Prospectus Supplement is a part.
GENERAL
The Series A Junior Subordinated Debentures will be limited in aggregate
principal amount to the sum of the aggregate amount of the proceeds received by
American General Capital from the Offering and the Common Securities Payment,
less 1% of such sum.
The entire principal amount of the Series A Junior Subordinated Debentures
will become due and payable, together with any accrued and unpaid interest
thereon, including Additional Interest, if any, on the earlier of (i) May ,
2025 (subject to American General's right to exchange the Series A Junior
Subordinated Debentures for new Junior Subordinated Debentures or to redeem or
repay the Series A Junior Subordinated Debentures and reborrow the proceeds from
such redemption or repayment of the Series A Junior Subordinated Debentures upon
the terms and subject to the conditions set forth under "Description of the
Series A Preferred Securities -- Mandatory Redemption") or (ii) the date upon
which American General Capital is liquidated, dissolved or wound-up; provided,
however, that in the event that the Series A Preferred Securities are exchanged
for Series A Junior Subordinated Debentures in the manner described under
"Description of the Series A Preferred Securities -- Special Event Redemption or
Exchange," (x) the Series A Junior Subordinated Debentures will mature on May
, 2025, notwithstanding that American General Capital may have liquidated,
dissolved or wound-up in connection with or after such exchange and (y) the
Series A Junior Subordinated Debentures will not thereafter be subject to an
election by American General to exchange the Series A Junior Subordinated
Debentures for new Junior Subordinated Debentures or to redeem or repay the
Series A Junior Subordinated Debentures and reborrow the proceeds from such
redemption or repayment.
The Series A Junior Subordinated Debentures are subordinate and junior in
right of payment to all Senior Indebtedness of American General in the manner
described under the caption "Description of Junior Subordinated
Debentures -- Subordination" in the accompanying Prospectus.
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INTEREST
Each Series A Junior Subordinated Debenture will bear interest at the rate
of % per annum from the original date of issuance, payable monthly in
arrears on the last day of each calendar month of each year (each, an "Interest
Payment Date"), commencing June 30, 1995. Interest will compound monthly and
will accrue at the annual rate of % on any interest installment not paid
when due.
The amount of interest payable for any period will be computed on the basis
of a 360-day year consisting of twelve 30-day months and, for any period shorter
than a full month, will be computed on the basis of the actual number of days
elapsed in such period. In the event that any date on which principal or
interest is payable on the Series A Junior Subordinated Debentures is not a
Business Day, then the required payment to be made on such date will be made on
the next succeeding day which is a Business Day (and without any interest or
other payment in respect of any such delay), except that if such Business Day is
in the next succeeding calendar year, such payment shall be made on the
immediately preceding Business Day, in each case with the same force and effect
as if made on such date. Interest payments on the Series A Junior Subordinated
Debentures will generally be payable to the holders thereof as they appear in
the security register maintained pursuant to the Junior Subordinated Indenture
on the relevant record dates, which will be one Business Day prior to the
relevant interest payment dates; provided, however, that if the Series A Junior
Subordinated Debentures are not in book-entry-only form during any period
following a Special Event Exchange, the relevant record date during such period
will be the fifteenth day of the month with respect to the interest payment that
is to be paid on the last day of such month.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
American General will have the right at any time and from time to time
during the term of the Series A Junior Subordinated Debentures to extend the
interest payment period to a period ending on an Interest Payment Date not
exceeding 60 consecutive months, but in no event beyond the stated maturity date
or date of redemption of the Series A Junior Subordinated Debentures. At the end
of any such Extension Period, American General shall pay all interest then
accrued and unpaid (together with any Additional Interest to the extent
permitted by applicable law). Prior to the termination of any Extension Period
of less than 60 consecutive months, American General may further extend the
interest payment period, provided that such Extension Period, as further
extended, does not exceed 60 consecutive months and does not extend beyond the
stated maturity date or date of redemption of the Series A Junior Subordinated
Debentures. Upon the termination of any Extension Period and the payment of all
amounts then due, American General may select a new Extension Period, subject to
the above requirements. No interest will be due during an Extension Period until
the Interest Payment Date that is the last day of such Extension Period. During
any Extension Period, American General has agreed not to take, and to cause its
majority-owned subsidiaries not to take, certain actions as described under
"Description of the Junior Subordinated Debentures -- Certain Covenants of
American General" in the accompanying Prospectus. American General will give
American General Capital, as holder of the Series A Junior Subordinated
Debentures, notice of its selection of any Extension Period one Business Day
prior to the earlier of (i) the date the dividends on the Series A Preferred
Securities are payable or (ii) the date American General Capital is required to
give notice to the NYSE or other applicable self-regulatory organization or to
holders of the Series A Preferred Securities of the record date or the date such
dividend is payable (which is currently 10 days prior to such date), but in any
event not less than one Business Day prior to such record date. The Manager will
cause American General Capital to give notice of American General's selection of
such Extension Period to the holders of the Series A Preferred Securities. If
the Series A Preferred Securities have been exchanged for the Series A Junior
Subordinated Debentures following the occurrence of a Special Event, American
General will give the holders of the Series A Junior Subordinated Debentures
notice of its selection of any Extension Period not less than two Business Days
prior to the record date related to the first interest payment
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date for which such Extension Period will be effective. If American General
selects an Extension Period and thereafter elects to extend the Extension
Period, then it is required to give a similar notice prior to the then scheduled
end of the Extension Period.
ADDITIONAL INTEREST
American General will be required to pay interest at the rate of % per
annum upon any interest that has not been paid on the Series A Junior
Subordinated Debentures during an Extension Period. Accordingly, in such
circumstances, American General will, to the fullest extent permitted by
applicable law, pay interest upon interest in order to provide for monthly
compounding on the Series A Junior Subordinated Debentures. The persons entitled
to receive such interest shall be the holders of the Series A Junior
Subordinated Debentures on the record date for the Interest Payment Date that is
the last day of the Extension Period. In addition, if at any time prior to an
exchange of the Series A Preferred Securities for Series A Junior Subordinated
Debentures in connection with a Special Event, American General Capital shall be
required to pay, with respect to its income derived from the interest payments
on the Series A Junior Subordinated Debentures, any amounts for or on account of
any taxes, duties, assessments or governmental charges of whatever nature
imposed by the United States (other than withholding taxes), or any other taxing
authority, then, in any such case, American General will, to the fullest extent
permitted by applicable law, pay as additional interest such additional amounts
("Additional Amounts") as may be necessary in order that the net amounts
received and retained by American General Capital after the payment of such
taxes, duties, assessments or governmental charges (including such taxes,
duties, assessments or governmental charges with respect to such Additional
Amounts) shall result in American General Capital's having such funds as it
would have had in the absence of the payment of such taxes, duties, assessments
or governmental charges. The amounts of interest payable to effect monthly
compounding on the Series A Junior Subordinated Debentures, together with any
such Additional Amounts, are referred to herein as "Additional Interest."
OPTIONAL REDEMPTION
American General will have the right to redeem the Series A Junior
Subordinated Debentures, in whole or in part, at any time or from time to time
on or after May , 2000 at a cash redemption price equal to the unpaid
principal amount thereof, without premium or penalty, plus any accrued and
unpaid interest, including any Additional Interest, on the portion being
redeemed. At any time after the occurrence of a Special Event and prior to a
Special Event Exchange, American General will also have the right to redeem the
Series A Junior Subordinated Debentures, in whole but not in part, at a cash
redemption price equal to the unpaid principal amount thereof, without premium
or penalty, plus any accrued and unpaid interest, including any Additional
Interest, thereon to the Redemption Date.
In addition, if at any time prior to a Special Event Exchange American
General is, or in the opinion of nationally recognized independent legal counsel
would be, required to pay Additional Amounts, American General will have the
right to redeem the Series A Junior Subordinated Debentures, in whole but not in
part, at a cash redemption price equal to the unpaid principal amount thereof,
without premium or penalty, plus any accrued and unpaid interest, including any
Additional Interest, thereon to the Redemption Date.
If, prior to a Special Event Exchange, American General or any of its
subsidiaries purchases any Series A Preferred Securities by tender, in the open
market, or otherwise, American General may redeem the Series A Junior
Subordinated Debentures in a principal amount not to exceed the aggregate
liquidation preference of the Series A Preferred Securities so purchased, at a
cash redemption price equal to the unpaid principal amount thereof, without
premium or penalty, plus any accrued and unpaid interest, including any
Additional Interest, thereon to the Redemption Date.
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Notice of any such redemption occurring after a Special Event Exchange will
be given by American General to the holder or holders of the Series A Junior
Subordinated Debentures in a manner similar to that required to be given by
American General Capital with respect to the redemption of the Series A
Preferred Securities. See "Description of the Series A Preferred
Securities -- Redemption Procedures."
MANDATORY PREPAYMENT
If American General Capital redeems the Series A Preferred Securities in
accordance with the terms thereof, the Series A Junior Subordinated Debentures
will become due and payable in a principal amount equal to the aggregate
liquidation preference of the Series A Preferred Securities so redeemed,
together with any accrued and unpaid interest, including any Additional
Interest, thereon to the Redemption Date. Any redemption pursuant to this
provision shall be made prior to 12:00 noon, New York time, on the date of such
redemption or at such other time on such earlier date as American General and
American General Capital shall agree.
SET-OFF
Notwithstanding anything to the contrary in the Junior Subordinated
Indenture, American General shall have the right to set-off any payment with
respect to the Series A Junior Subordinated Debentures it is otherwise required
to make thereunder with and to the extent American General has theretofore made,
or is concurrently on the date of such payment making, a payment under the
Guarantee with respect to the Series A Preferred Securities.
ENFORCEMENT OF CERTAIN RIGHTS BY SPECIAL TRUSTEE
If, prior to a Special Event Exchange, (i) American General Capital fails
to pay dividends in full (including any arrearages) on the Series A Preferred
Securities for 18 consecutive months; (ii) an Event of Default under the Junior
Subordinated Indenture with respect to the Series A Junior Subordinated
Debentures occurs and is continuing; or (iii) American General is in default
under any of its payment or other obligations under the Guarantee with respect
to the Series A Preferred Securities, then, under the terms of the Series A
Preferred Securities, the holders of outstanding Series A Preferred Securities
will have the rights referred to under "Description of the Series A Preferred
Securities -- Voting Rights," including the right to appoint a Special Trustee,
which Special Trustee would be authorized, subject to the applicable provisions
of the Junior Subordinated Indenture, to exercise American General Capital's
right to accelerate the principal amount of the Series A Junior Subordinated
Debentures and to enforce American General Capital's other creditor rights with
respect to the Series A Junior Subordinated Debentures. Notwithstanding the
appointment of any such Special Trustee, American General Delaware Management
Corporation would continue as Manager and American General would retain all
rights, including the right to extend the interest payment period from time to
time as described above under the caption "-- Option to Extend Interest Payment
Period," and be subject to all of the obligations under the Junior Subordinated
Indenture and as obligor under the Series A Junior Subordinated Debentures.
GLOBAL SECURITIES
If, immediately prior to any Special Event Exchange following the
occurrence of a Special Event, the Series A Preferred Securities are represented
by one or more global securities held by DTC, then the Series A Junior
Subordinated Debentures exchanged for the Series A Preferred Securities will be
represented by one or more global securities registered in the name of DTC or
its nominee and be deposited with DTC or its custodian. Unless and until it is
exchanged in whole or in part for the Series A Junior Subordinated Debentures in
definitive registered form, a global security may not be registered for transfer
or exchange except in limited circumstances.
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For a description of DTC and DTC's book-entry system, see "Description of
the Preferred Securities -- Book-Entry-Only Issuance -- The Depository Trust
Company" in the accompanying Prospectus. As of the date of this Prospectus
Supplement, the description therein of DTC's book-entry system and DTC's
practices as they relate to purchases, transfers, notices and payments with
respect to the Series A Preferred Securities apply in all material respects to
any debt obligations represented by one or more global securities held by DTC.
MISCELLANEOUS
For restrictions on certain actions of American General with respect to the
Series A Junior Subordinated Debentures held by American General Capital, see
"Description of the Series A Preferred Securities -- Voting Rights."
If Series A Junior Subordinated Debentures are outstanding and owned by any
entity other than American General, or its affiliates (including American
General Capital), then any Series A Junior Subordinated Debentures owned by
American General or its affiliates will not be entitled to vote or consent and
will, for purposes of any such vote or consent, be treated as if they were not
outstanding.
Chemical Bank will serve as the initial Paying Agent and registrar for the
Series A Junior Subordinated Debentures.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the material federal income tax
considerations relevant to the purchase, ownership and disposition of the Series
A Preferred Securities, which in the opinion of Vinson & Elkins L.L.P., counsel
to American General and American General Capital, is accurate insofar as it
expresses conclusions of law. However, this summary does not address all federal
income tax aspects of the Series A Preferred Securities, or the tax
considerations relevant to certain types of holders subject to special treatment
under the federal income tax laws (for example, banks, life insurance companies,
securities or other dealers, or foreign persons and foreign entities).
This summary is based upon current provisions of the Internal Revenue Code
of 1986, as amended (the "Code"), the Treasury Regulations promulgated
thereunder, judicial decisions and Internal Revenue Service ("IRS") rulings and
notices. All of these authorities, however, are subject to change; any such
change may cause the tax consequences to vary substantially from those described
below. Moreover, the transactions described in this Prospectus Supplement and
the accompanying Prospectus raise a number of novel tax issues which have not
been ruled on by the courts or the IRS in similar transactions. As a result,
there can be no assurance that the IRS will not audit these transactions and, if
it does so, that the IRS will agree with the conclusions set forth below or the
positions taken by American General and American General Capital in conformity
therewith. See "-- American General Capital Information Returns and Audit
Procedures" below.
Unless otherwise indicated, the information below is directed at Holders
(as defined below) who purchase Series A Preferred Securities on their original
issue at their initial offering price, and that hold such Series A Preferred
Securities as capital assets (generally property held for investment). For
purposes of this discussion, a "Holder" is a beneficial owner of a Series A
Preferred Security who or that is (i) a citizen or resident of the United
States, (ii) a domestic corporation, partnership, estate or trust, or (iii)
otherwise subject to United States federal income taxation on a net income basis
in respect of a Series A Preferred Security.
PROSPECTIVE PURCHASERS OF SERIES A PREFERRED SECURITIES ARE ADVISED TO
CONSULT THEIR OWN TAX ADVISORS AS TO THE UNITED STATES OR OTHER TAX
CONSIDERATIONS OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF SERIES A PREFERRED
SECURITIES, INCLUDING THE EFFECTS OF STATE, LOCAL AND FOREIGN TAX LAWS.
TAX CLASSIFICATION
While the following matters are not free from doubt, Vinson & Elkins L.L.P.
is of the opinion that (i) American General Capital will be classified as a
partnership for federal income tax purposes and not as an association taxable as
a corporation and (ii) the Series A Junior Subordinated Debentures will be
classified as indebtedness for federal income tax purposes. The following
discussion assumes such classifications.
INCOME FROM SERIES A PREFERRED SECURITIES
Each Holder of Series A Preferred Securities will be required to include in
gross income his distributive share of the net income of American General
Capital, which net income generally will be equal to the amount of interest
received or accrued by American General Capital on the Series A Junior
Subordinated Debentures. Such income will not exceed dividends received on a
Series A Preferred Security, except in limited circumstances. See "-- Original
Issue Discount." Any amount so included in a Holder's gross income will increase
his tax basis in the Series A Preferred Securities, and the amount of
distributions of cash or other property by American General Capital to a Holder
will reduce such Holder's tax basis in the Series A Preferred Securities. No
portion of the amounts received on the Series A Preferred Securities will be
eligible for the dividends received deduction.
CS-26
<PAGE> 120
American General Capital does not presently intend to make an election
under section 754 of the Code. Accordingly, a subsequent purchaser of Series A
Preferred Securities will not be permitted to adjust the tax basis in his
allocable share of American General Capital's assets so as to reflect any
difference between his purchase price for the Series A Preferred Securities and
his share of American General Capital's underlying tax basis in its assets. As a
result, a Holder of Series A Preferred Securities may be required to report a
larger or smaller amount of income from holding the Series A Preferred
Securities than would otherwise be appropriate based upon the Holder's purchase
price for the Series A Preferred Securities.
ORIGINAL ISSUE DISCOUNT
Under Treasury Regulations, the stated interest payments on the Series A
Junior Subordinated Debentures will be treated as "original issue discount"
because of the option that American General has, under the terms of the Series A
Junior Subordinated Debentures, to extend interest payment periods for up to 60
consecutive months. Under the Code, a Holder of debt with original issue
discount must include that discount in income on an economic accrual basis and
before the receipt of cash attributable to the income regardless of his method
of tax accounting. The amount of original issue discount that accrues in any
month will approximately equal the amount of the interest that accrues in that
month at the stated interest rate. In the event that the interest payment period
is extended, however, American General Capital will accrue additional original
issue discount approximately equal to the amount of the additional interest
payment due at the end of the extended interest payment period on an economic
accrual basis over the length of the extended interest period.
Accrued income in respect of deferred interest will be allocated, but the
corresponding cash will not be distributed, to Holders of record on the Business
Day preceding the last day of each calendar month. As a result, Holders of
record during an extended interest payment period will include interest in gross
income in advance of the receipt of cash, and any such Holder who disposes of
Series A Preferred Securities prior to the record date for the payment of
dividends following such extended interest payment period will have included
such Holder's allocable share of such interest in gross income but will not
receive any cash related thereto from American General Capital. The tax basis of
a Series A Preferred Security will be increased by the amount of any interest
that is included in income without a corresponding receipt of cash and will be
decreased when and if such cash is subsequently received from American General
Capital.
DISPOSITION OF SERIES A PREFERRED SECURITIES
Generally, capital gain or loss will be recognized on a sale (including a
complete redemption for cash) of Series A Preferred Securities equal to the
difference between the amount realized and the Holder's tax basis in the Series
A Preferred Securities sold. Gain or loss recognized by a Holder on the sale or
exchange of a Series A Preferred Security held for more than one year generally
will be taxable as long-term capital gain or loss. The adjusted tax basis of the
Series A Preferred Securities sold generally will equal the amount paid for the
Series A Preferred Securities, increased by accrued but unpaid original issue
discount and other income, if any, as described herein allocated to such Holder,
and reduced by any cash or other property distributed to such Holder by American
General Capital. A Holder who acquires Series A Preferred Securities at
different prices may be required to maintain a single aggregate adjusted tax
basis in all of his Series A Preferred Securities and, upon sale or other
disposition of some of such Series A Preferred Securities, to allocate a pro
rata portion of such aggregate tax basis to the Series A Preferred Securities
sold (rather than maintaining a separate tax basis in each Series A Preferred
Security for purposes of computing gain or loss on a sale of that Series A
Preferred Security).
EXCHANGE OF SERIES A PREFERRED SECURITIES FOR SERIES A JUNIOR SUBORDINATED
DEBENTURES
The exchange of Series A Preferred Securities for Series A Junior
Subordinated Debentures after the occurrence of a Special Event generally would
be a nontaxable event to American General
CS-27
<PAGE> 121
Capital and the Holders. Each Holder's aggregate tax basis for the Series A
Junior Subordinated Debentures received in the exchange would be the same as the
Holder's aggregate tax basis for his Series A Preferred Securities surrendered
in the exchange, and the holding period for the Series A Junior Subordinated
Debentures would include his holding period for his Series A Preferred
Securities. However, if the relevant Special Event is a Tax Event which results
in American General Capital's being treated as an association taxable as a
corporation, the exchange would be a taxable event to the Holders in respect of
which each Holder would recognize gain or loss equal to the difference between
the Holder's aggregate tax basis for his Series A Preferred Securities
surrendered in the exchange and the aggregate fair market value of the Series A
Junior Subordinated Debentures received in the exchange.
AMERICAN GENERAL CAPITAL INFORMATION RETURNS AND AUDIT PROCEDURES
The Manager of American General Capital will furnish each Holder with a
Schedule K-1 setting forth such Holder's allocable share of income for each
year, as soon as practicable following the end of the year but in any event
prior to March 15th of each succeeding year.
Any person who holds Series A Preferred Securities as nominee for another
person is required to furnish to American General Capital a written statement
containing: (a) the name, address and taxpayer identification number of the
beneficial owner and of the nominee; (b) information as to whether the
beneficial owner is (i) a person that is not a United States person, (ii) a
foreign government, an international organization or any wholly-owned agency or
instrumentality of either, or (iii) a tax-exempt entity; and (c) a description
of the Series A Preferred Securities held, acquired or transferred for the
beneficial owner, including the dates of acquisitions and transfers, the methods
and costs of acquisitions, and the net proceeds from transfers. Brokers and
financial institutions are also required to furnish written statements
containing similar information with respect to Series A Preferred Securities
they hold for their own accounts. A penalty of $50 per failure (up to a maximum
of $100,000 per calendar year) is imposed by the Code for failure to report such
information to American General Capital. The nominee is required to supply the
beneficial owners of the Series A Preferred Securities with the information
furnished to American General Capital.
The Manager, as the tax matters partner, will be responsible for
representing American General Capital (and, indirectly, the Holders) in any
dispute with the IRS involving the partnership information returns filed by
American General Capital. The Code provides for administrative examination of
such returns as if American General Capital (which is treated as a partnership)
were a separate and distinct taxpayer. Generally, the statute of limitations for
partnership items reflected or required to be reflected on a partnership
information return does not expire until three years after the later of the
filing or the last date for filing of such return. Any adverse determination
following an audit of a return of American General Capital by the appropriate
taxing authorities could result in an adjustment of the returns of the Holders,
and, under certain circumstances, a Holder may be precluded from separately
litigating a proposed adjustment to the items of American General Capital. An
adjustment could also result in an audit of a Holder's return and adjustments of
items not related to the income and losses of American General Capital.
UNITED STATES ALIEN HOLDERS
For purposes of this discussion, a "United States Alien Holder" is any
holder that is, as to the United States for federal income tax purposes, a
non-resident alien individual, a foreign corporation, a foreign partnership or a
foreign estate or trust not subject to United States federal income tax on a net
income basis with respect to a Series A Preferred Security or a Series A Junior
Subordinated Debenture.
CS-28
<PAGE> 122
Under present United States federal income tax law:
(i) payments by American General Capital or any of its paying agents
to any United States Alien Holder of a Series A Preferred Security and
payments of principal or interest by American General on the Series A
Junior Subordinated Debentures to any United States Alien Holder of a
Series A Junior Subordinated Debenture will not be subject to United States
federal withholding tax; provided that (a) the beneficial owner of the
Series A Preferred Security or Series A Junior Subordinated Debenture, as
the case may be, does not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of American General
entitled to vote, (b) the beneficial owner of the Series A Preferred
Security or Series A Junior Subordinated Debenture, as the case may be, is
not a controlled foreign corporation that is related to American General
through stock ownership, and (c) either (A) the beneficial owner of the
Series A Preferred Security or Series A Junior Subordinated Debenture
certifies to American General Capital or its agent, under penalties of
perjury, that it is a United States Alien Holder and provides its name and
address or (B) a securities clearing organization, bank or other financial
institution that holds customers' securities in the ordinary course of its
trade or business (a "Financial Institution") and holds the Series A
Preferred Security or Series A Junior Subordinated Debenture certifies to
American General Capital or its agent under penalties of perjury that such
statement has been received from the beneficial owner by it or by a
Financial Institution between it and the beneficial owner and furnishes
American General Capital or its agent with a copy thereof; and
(ii) a United States Alien Holder of a Series A Preferred Security or
Series A Junior Subordinated Debenture will not be subject to United States
federal income tax on any gain realized upon the sale or other disposition
of a Series A Preferred Security or Series A Junior Subordinated Debenture,
provided such United States Alien Holder is not present in the United
States for 183 days or more during the taxable year.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to payments of
dividends on, and payments of the proceeds of the sale of, Series A Preferred
Securities within the United States to noncorporate Holders, and "backup
withholding" at a rate of 31% will apply to such payments if such a Holder fails
to provide an accurate taxpayer identification number.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL
INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S PARTICULAR
SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO THE TAX
CONSIDERATIONS TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE SERIES
A PREFERRED SECURITIES, INCLUDING THE TAX CONSIDERATIONS UNDER STATE, LOCAL,
FOREIGN AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL OR
OTHER TAX LAWS.
CS-29
<PAGE> 123
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, American
General Capital has agreed to sell to each of the Underwriters named below, and
each of such Underwriters, for whom Goldman, Sachs & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Alex. Brown & Sons Incorporated, CS First Boston
Corporation, Dean Witter Reynolds Inc., Donaldson, Lufkin & Jenrette Securities
Corporation, Kemper Securities, Inc., Lehman Brothers Inc., Prudential
Securities Incorporated, Salomon Brothers Inc and Smith Barney Inc. are acting
as representatives, has severally agreed to purchase from American General
Capital, the respective number of Series A Preferred Securities set forth
opposite its name below:
<TABLE>
<CAPTION>
NUMBER OF
SERIES A
PREFERRED
UNDERWRITER SECURITIES
------------------------------------------------------------------------ -----------
<S> <C>
Goldman, Sachs & Co.....................................................
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...............................................
Alex. Brown & Sons Incorporated.........................................
CS First Boston Corporation.............................................
Dean Witter Reynolds Inc. ..............................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
Kemper Securities, Inc. ................................................
Lehman Brothers Inc. ...................................................
Prudential Securities Incorporated......................................
Salomon Brothers Inc ...................................................
Smith Barney Inc. ......................................................
-----------
Total......................................................... 10,000,000
==========
</TABLE>
Under the terms and conditions of the Underwriting Agreement, the
Underwriters are committed to take and pay for all such Series A Preferred
Securities offered hereby, if any are taken.
The Underwriters propose to offer the Series A Preferred Securities in part
directly to the public at the initial public offering price set forth on the
cover page of this Prospectus Supplement, and in part to certain securities
dealers at such price less a concession of $ per Series A Preferred Security.
The Underwriters may allow, and such dealers may reallow, a concession not in
excess of $ per Series A Preferred Security to certain brokers and dealers.
After the Series A Preferred Securities are released for sale to the public, the
offering price and other selling terms may from time to time be varied by the
representatives.
In view of the fact that the proceeds from the sale of the Series A
Preferred Securities will be used by American General Capital to purchase the
Series A Junior Subordinated Debentures of American General, the Underwriting
Agreement provides that American General will pay, as compensation to the
Underwriters, a commission of $ per Series A Preferred Security.
American General Capital and American General have granted the Underwriters
an option exercisable for 30 days after the date of this Prospectus Supplement
to purchase up to an aggregate of 1,500,000 additional Series A Preferred
Securities at the initial public offering price per Series A Preferred Security
solely to cover over-allotments, if any. If the Underwriters exercise their
CS-30
<PAGE> 124
over-allotment option, the Underwriters have severally agreed, subject to
certain conditions, to purchase approximately the same percentage thereof that
the number of Series A Preferred Securities to be purchased by each of them, as
shown in the foregoing table, bears to the total Series A Preferred Securities
offered.
Certain of the Underwriters are customers of, or engage in transactions
with, and from time to time have performed services for, American General and
its subsidiaries and associated companies in the ordinary course of business.
Because the National Association of Securities Dealers, Inc. (the "NASD")
may view the Series A Preferred Securities offered hereby as interests in a
direct participation program, the Offering is being made in compliance with
Section 34 of the NASD's Rules of Fair Practice. The Underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority without the prior written approval of the transaction by the customer.
Prior to the Offering, there has been no public market for the Series A
Preferred Securities. The Series A Preferred Securities have been approved for
listing on the NYSE, subject to notice of issuance, under the symbol "AGC prM."
In order to meet one of the requirements for listing the Series A Preferred
Securities on the NYSE, the Underwriters have undertaken to sell lots of 100 or
more Series A Preferred Securities to a minimum of 400 beneficial holders.
Trading of the Series A Preferred Securities on the NYSE is expected to commence
within a seven-day period after the initial delivery of the Series A Preferred
Securities. The representatives have advised American General and American
General Capital that they intend to make a market in the Series A Preferred
Securities prior to the commencement of trading on the NYSE, but are not
obligated to do so and may discontinue any such market making at any time
without notice.
American General and American General Capital have agreed to indemnify the
several Underwriters against certain liabilities, including liabilities under
the Securities Act of 1933, as amended.
CS-31
<PAGE> 125
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS SUPPLEMENT OR THE ACCOMPANYING
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY AMERICAN GENERAL CAPITAL, L.L.C.,
AMERICAN GENERAL CORPORATION OR THE UNDERWRITERS. THIS PROSPECTUS SUPPLEMENT AND
THE PROSPECTUS DO NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE
DELIVERY OF THIS PROSPECTUS SUPPLEMENT OR THE PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF OR
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF AMERICAN GENERAL CAPITAL, L.L.C.
OR AMERICAN GENERAL CORPORATION SINCE SUCH DATE.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C>
PROSPECTUS SUPPLEMENT
American General Corporation......... S-3
American General Capital, L.L.C...... S-5
Investment Considerations............ S-5
Capitalization....................... S-8
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends.......................... S-9
Use of Proceeds...................... S-9
Summary Financial Information of
American General................... S-10
Description of the Series A Preferred
Securities......................... S-11
Description of the Series A Junior
Subordinated Debentures............ S-21
Certain Federal Income Tax
Considerations..................... S-26
Underwriting......................... S-30
PROSPECTUS
Available Information................ 2
Incorporation of Certain Documents by
Reference.......................... 2
American General..................... 3
American General LLCs................ 3
Ratio of Earnings to Fixed Charges
and Ratio of Earnings to Combined
Fixed Charges and Preferred Stock
Dividends.......................... 4
Use of Proceeds...................... 4
Description of the Preferred
Securities......................... 4
Description of the Guarantees........ 8
Description of the Junior
Subordinated Debentures............ 11
Description of American General
Preferred
Stock.............................. 22
Description of American General
Common
Stock.............................. 25
Plan of Distribution................. 27
Legal Opinions....................... 28
Experts.............................. 28
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
10,000,000
PREFERRED SECURITIES
AMERICAN GENERAL
CAPITAL
% CUMULATIVE MONTHLY INCOME
PREFERRED SECURITIES, SERIES A
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
AMERICAN GENERAL CORPORATION
---------------------
(AMERICAN CAPITAL LOGO)
---------------------
GOLDMAN, SACHS & CO.
MERRILL LYNCH & CO.
ALEX. BROWN & SONS
INCORPORATED
CS FIRST BOSTON
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
KEMPER SECURITIES, INC.
LEHMAN BROTHERS
PRUDENTIAL SECURITIES INCORPORATED
SALOMON BROTHERS INC
SMITH BARNEY INC.
REPRESENTATIVES OF THE UNDERWRITERS
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 126
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED MAY 17, 1995
PROSPECTUS
(AMERICAN GENERAL LOGO)
$1,250,000,000
AMERICAN GENERAL CORPORATION
DEBT SECURITIES AND WARRANTS TO PURCHASE DEBT SECURITIES
PREFERRED STOCK AND PREFERRED STOCK WARRANTS
COMMON STOCK AND COMMON STOCK WARRANTS
------------------------
American General Corporation ("American General" or the "Company") may issue
from time to time hereunder, together or separately, (i) one or more series of
its unsecured debt securities ("Debt Securities") which may be either senior
(the "Senior Securities") or senior subordinated (the "Subordinated Securities")
in priority of payment, both of which may be convertible or exchangeable into
common stock, par value $.50 per share, of the Company ("Common Stock"),
preferred stock, par value $1.50 per share, of the Company ("Preferred Stock"),
other Debt Securities, Debt Warrants, Common Stock Warrants or Preferred Stock
Warrants (each as herein defined); (ii) warrants to purchase Debt Securities
("Debt Warrants"); (iii) shares of Preferred Stock, which may be convertible
into shares of Common Stock or exchangeable for Debt Securities; (iv) warrants
to purchase Preferred Stock ("Preferred Stock Warrants"); (v) shares of Common
Stock and (vi) warrants to purchase Common Stock ("Common Stock Warrants"), in
amounts, at prices and on terms to be determined at the time of the offering.
The Debt Securities, Debt Warrants, Preferred Stock, Preferred Stock Warrants,
Common Stock and Common Stock Warrants are collectively referred to herein as
the "Securities."
The Senior Securities will rank equally with all other unsubordinated and
unsecured indebtedness of the Company. The Subordinated Securities will be
unsecured and subordinated as described under "Description of Debt
Securities -- Subordination."
When a particular series of Securities is offered, a supplement to this
Prospectus (a "Prospectus Supplement") setting forth certain terms of the
offered Securities will be delivered together with this Prospectus. The
applicable Prospectus Supplement, among other things and where applicable, will
include: (i) with regard to Debt Securities, the specific designation, priority,
aggregate principal amount, rate (which may be fixed or variable) and time of
payment of any interest, authorized denominations, maturity, offering price,
place or places of payment, redemption terms at the option of the Company, terms
of any repayment at the option of the holder, terms for sinking fund payments,
terms for conversion or exchange into other securities, provisions regarding
original issue discount securities, any listing on a securities exchange and
other terms of such Debt Securities; (ii) with regard to Preferred Stock, the
specific designation, number of shares, title, stated value and liquidation
preference of each share, issuance price, dividend rate or method of
calculation, dividend periods, dividend payment dates, any redemption or sinking
fund provisions, any conversion or exchange provisions, any voting rights, any
listing on a securities exchange and other specific terms thereof; (iii) with
respect to Common Stock, the number of shares, issuance price and other terms
thereof; and (iv) with regard to Debt Warrants, Preferred Stock Warrants and
Common Stock Warrants, where applicable, the duration, amount, offering price,
exercise price, terms of the securities for which they are exercisable, any
voting rights, any listing on a securities exchange, detachability and other
terms thereof. The applicable Prospectus Supplement may also contain applicable
information about certain federal income tax, accounting and other
considerations relating to the Securities covered by such Prospectus Supplement.
The aggregate initial public offering price of all Securities which may be
sold under this Prospectus shall not exceed $1,250,000,000, less the aggregate
initial public offering price of any securities of certain American General
funding entities which are sold under a separate prospectus which also
constitutes a part of the Registration Statement of which this Prospectus
constitutes a part. See "Available Information."
The Company may sell the Securities directly, through agents, underwriters
or dealers as designated from time to time, or through a combination of such
methods. If any such agents, underwriters or dealers are involved in the sale of
the Securities in respect of which this Prospectus is being delivered, the names
of such agents, underwriters or dealers and any applicable agent's commission,
underwriter's discount or dealer's purchase price and the net proceeds to the
Company from such sale will be set forth in, or may be calculated on the basis
set forth in, the applicable Prospectus Supplement. See "Plan of Distribution"
for possible indemnification arrangements for any such agents, underwriters and
dealers.
This Prospectus may not be used to consummate sales of the 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 May , 1995.
<PAGE> 127
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE OF THE STATE OF NORTH CAROLINA NOR HAS THE COMMISSIONER OF
INSURANCE PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Reports, proxy statements
and other information filed by the Company may be inspected and copied at the
public reference facilities maintained by the Commission at 450 Fifth Street,
N.W., Washington, D.C. 20549, and at the Commission's Regional Offices at 500
West Madison Street, Chicago, Illinois 60661 and Seven World Trade Center, Suite
1300, New York, New York 10048. Copies of such materials may be obtained from
the Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. In addition, such material may also
be inspected and copied at the offices of The New York Stock Exchange, Inc., 20
Broad Street, New York, New York 10005 and The Pacific Stock Exchange,
Incorporated, 301 Pine Street, San Francisco, California 94104.
The Company, American General Delaware, L.L.C. and American General
Capital, L.L.C. have filed with the Commission a registration statement on Form
S-3 (herein, together with all amendments and exhibits, referred to as the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Securities Act"). This Prospectus, which constitutes part of the Registration
Statement, does not contain all of the information set forth in the Registration
Statement, certain parts of which are omitted in accordance with the rules and
regulations of the Commission. For further information, reference is hereby made
to the Registration Statement.
In addition to this Prospectus, the Registration Statement contains another
prospectus which relates to the offer and sale from time to time of "Preferred
Securities" (as defined therein) of American General Delaware, L.L.C. and
American General Capital, L.L.C. Certain payment obligations of such companies
under any such Preferred Securities would be guaranteed by the Company to the
extent set forth in such prospectus and any applicable prospectus supplement
thereto. The $1,250,000,000 aggregate maximum initial public offering price of
Securities which may be sold under this Prospectus will be reduced by the amount
of the aggregate initial public offering price of any Preferred Securities sold
under such other prospectus.
Statements contained herein concerning the provisions of any document filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by the Company with the
Commission pursuant to the Exchange Act (File No. 1-7981), are incorporated
herein by reference:
- the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
- the Company's Quarterly Report on Form 10-Q for the quarterly period
ended March 31, 1995; and
- the Company's Current Reports on Form 8-K dated February 14, 1995,
March 22, 1995, April 14, 1995 and May 9, 1995.
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Each document filed by the Company pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date of this Prospectus and prior to
the termination of the offering of the Securities made hereby shall be deemed to
be incorporated by reference into this Prospectus and to be a part hereof from
the date of filing of such document.
Any statement contained herein, in a Prospectus Supplement or in a document
incorporated or deemed to be incorporated by reference herein, shall be deemed
to be modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained herein, in a Prospectus
Supplement or in any subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement or
this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
which are incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests should be directed to the Company, 2929 Allen Parkway,
Houston, Texas 77019-2155, Attention: Treasury Department, telephone (713)
831-1949.
THE COMPANY
American General is the parent company of one of the nation's largest
consumer financial services organizations. The Company is headquartered in
Houston, Texas and operates through its subsidiaries in all 50 states, the
District of Columbia, Canada, Puerto Rico, and the U.S. Virgin Islands. The
Company was incorporated as a general business corporation in Texas in 1980 and
is the successor to American General Insurance Company, incorporated in Texas in
1926.
American General's operations are classified into three business segments:
Retirement Annuities, which specializes in providing tax-deferred retirement
plans and annuities to employees of educational, health care and other
not-for-profit organizations; Consumer Finance, which offers consumer and home
equity loans, credit cards, and credit-related insurance to individuals through
more than 1,300 branch offices; and Life Insurance, which provides traditional
and interest-sensitive life insurance and both fixed and variable annuity
products through 14,000 sales representatives and general agents.
Since American General is a holding company, rights to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise (and thus the ability of holders of Securities to benefit
indirectly from such distribution) are subject to the prior claims of creditors
of that subsidiary, except to the extent that American General may itself be a
creditor of that subsidiary. Claims on American General's subsidiaries by other
creditors include substantial claims for policy benefits and debt obligations,
as well as other liabilities incurred in the ordinary course of business. In
addition, since many of American General's subsidiaries are insurance companies
subject to regulatory control by various state insurance departments, the
ability of such subsidiaries to pay dividends to American General without prior
regulatory approval is limited by applicable laws and regulations. Further,
certain non-insurance subsidiaries are similarly restricted in their ability to
make dividend payments by long-term debt agreements. At December 31, 1994, the
amount available to the Company for dividends from subsidiaries not limited by
such restrictions was $1.1 billion.
The principal executive offices of American General are located at 2929
Allen Parkway, Houston, Texas 77019-2155, and its telephone number is (713)
522-1111.
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USE OF PROCEEDS
Except as may otherwise be set forth in a Prospectus Supplement, the net
proceeds from the sale or sales of the Securities offered hereby will be added
to American General's general corporate funds and may be used for repayment of
long- or short-term indebtedness or for general corporate purposes.
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to fixed charges is calculated by dividing total
fixed charges into earnings available for the payment of fixed charges. Earnings
available for the payment of fixed charges is the sum of fixed charges deducted
from income and income before tax expense, accounting changes, and preferred
stock dividends. Total fixed charges consist of interest expense, capitalized
interest, a portion of rental expense, and preferred stock dividends of
majority-owned subsidiaries.
The following table sets forth the ratio of earnings to fixed charges for
the periods indicated.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH
31, YEARS ENDED DECEMBER 31,
------------ ------------------------------------
1995 1994 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
Consolidated operations..................... 2.5 3.0 2.4 2.1 2.4 2.1 2.2
Consolidated operations, corporate (parent
company) fixed charges only.............. 7.6 9.3 7.6 6.0 7.2 5.8 5.3
</TABLE>
Because no preferred stock dividends were paid in the periods reported
above (other than preferred stock dividends paid by a subsidiary in 1990), the
ratio of earnings to combined fixed charges and preferred stock dividends for
such periods is the same as the ratio of earnings to fixed charges.
DESCRIPTION OF DEBT SECURITIES
The Senior Securities are to be issued under a Senior Indenture dated as of
May 15, 1995 (the "Senior Indenture") between the Company and Chemical Bank, as
trustee, and the Subordinated Securities are to be issued under a Senior
Subordinated Indenture dated as of May 15, 1995 (the "Subordinated Indenture")
between the Company and Chemical Bank, as trustee. Chemical Bank, in its
capacity as trustee under the Senior Indenture and the Subordinated Indenture,
is referred to herein as the "Trustee."
The forms of the Senior Indenture and the Subordinated Indenture (being
sometimes referred to herein collectively as the "Indentures" and each
individually as an "Indenture") are filed as exhibits to the Registration
Statement of which this Prospectus is a part. The statements and descriptions in
this Prospectus or in any Prospectus Supplement regarding provisions of the Debt
Securities and the Indentures are summaries thereof, do not purport to be
complete and are subject to, and are qualified in their entirety by reference
to, all of the provisions of the Indentures and the Debt Securities, including
the definitions therein of certain terms. Certain capitalized terms used herein
are defined in the Indentures. Wherever particular sections of the Indentures or
terms that are defined in the Indentures are referred to herein or in a
Prospectus Supplement, it is intended that such sections or defined terms shall
be incorporated by reference herein or therein, as the case may be.
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The Indentures allow for the issuance of Debt Securities denominated in
foreign currencies and/or in bearer form. The Company does not intend to issue
any such Debt Securities pursuant to this Prospectus. Accordingly, certain
provisions of the Indentures relating to such Debt Securities are not described
herein.
GENERAL
The Debt Securities will be direct, unsecured obligations of the Company.
The indebtedness represented by the Subordinated Securities will be subordinated
in right of payment to the prior payment in full of the Superior Indebtedness of
the Company as described under "-- Subordination."
The Debt Securities may be issued in one or more series. The particular
terms of each series of Debt Securities, as well as any modifications or
additions to the general terms of the Debt Securities as described herein which
may be applicable in the case of a particular series of Debt Securities, are
described in the Prospectus Supplement relating to such series of Debt
Securities. Accordingly, for a description of the terms of a particular series
of Debt Securities, reference must be made to both the Prospectus Supplement
relating thereto and to the description of Debt Securities set forth in this
Prospectus.
Reference is made to the Prospectus Supplement for the terms of the
particular series of Debt Securities being offered thereby, including but not
limited to the following: (1) the title of such Debt Securities and the series
in which such Debt Securities shall be included; (2) any limit on the aggregate
principal amount of such Debt Securities; (3) the percentage of their principal
amount at which such Debt Securities will be issued and, in the case of Original
Issue Discount Securities, the principal amount thereof payable upon
acceleration of the maturity thereof; (4) the date or dates on which the
principal of such Debt Securities is payable or the manner in which such dates
are determined and the terms, if any, upon which the Company may reborrow the
proceeds from such payment or exchange other securities for such Debt Securities
when a principal payment is due; (5) the rate or rates per annum (which may be
fixed or variable) at which such Debt Securities will bear interest, if any, or
the method of determining such rate or rates; (6) the date from which such
interest, if any, on such Debt Securities will accrue, the dates on which such
interest, if any, will be payable, the date on which payment of such interest,
if any, will commence and the record dates for such interest payment dates, if
any; (7) the right, if any, of the Company to extend an interest payment period;
(8) the place of payment (if other than New York City) and the place where such
Debt Securities may be surrendered for registration of transfer or exchange or
for conversion; (9) the terms of any mandatory or optional redemption (including
any sinking fund provisions or any provisions for repayment at the option of a
Holder or upon the occurrence of a specified event); (10) whether such Debt
Securities shall be convertible or exchangeable for other securities and, if so,
the terms of any such conversion or exchange and the terms of such other
securities; (11) whether such Debt Securities are to be issued initially or
permanently in the form of a global Debt Security and, if so, the identity of
the Depository (hereinafter defined) for such global Debt Security; (12) any
deletions from, modification of or additions to the Events of Default or
covenants of the Company with respect to such Debt Securities and any change in
the rights of the Trustee or the Holders to accelerate the maturity of such Debt
Securities; and (13) any other terms of such Debt Securities. Debt Securities
may also be issued under the Indentures upon the exercise of Debt Warrants. See
"Description of Warrants -- Debt Warrants."
The Indentures do not limit the aggregate principal amount of Debt
Securities that may be issued thereunder or of any particular series of such
Debt Securities and provide that the Debt Securities may be issued thereunder
from time to time in one or more series up to the aggregate principal amount
which may be authorized from time to time by the Company. (Section 301 of each
Indenture) All Debt Securities issued under an Indenture will rank equally and
ratably with any additional Debt Securities issued thereunder.
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Unless the Prospectus Supplement relating to a particular issuance of Debt
Securities specifies otherwise, Debt Securities will be issued in denominations
of $1,000 and integral multiples thereof. No service charge will be made for any
transfer or exchange of Debt Securities, but the Company may require payment of
a sum sufficient to cover any tax or other governmental charge payable in
connection therewith. (Sections 302 and 305 of each Indenture)
Some of the Debt Securities may be issued under the Indentures as Original
Issue Discount Securities (bearing no interest or interest at a rate which at
the time of issuance is below market rates) to be sold at a discount below their
stated principal amount. Federal income tax consequences and other special
considerations applicable to any such Original Issue Discount Securities will be
described in the Prospectus Supplement relating thereto.
Unless otherwise indicated in the Prospectus Supplement relating to a
particular series of Debt Securities, the principal of and any premium or
interest on Debt Securities issued in certificated form will be payable, and,
subject to certain limitations, the transfer of Debt Securities will be
registrable, at the office of the Trustee designated for that purpose in New
York City, provided that, at the option of the Company, interest may be paid by
check, wire transfer or any other means permitted in the form of such Debt
Securities. Unless otherwise indicated in an applicable Prospectus Supplement,
payment of any installment of interest on a Debt Security will be made to the
person in whose name such Debt Security is registered at the close of business
on the record date for such interest. In the case of global Debt Securities
(which will be registered in the name of the Depository or its nominee), payment
will be made to the Depository or its nominee in accordance with the then-
existing arrangements between the paying agent(s) for such global Debt
Securities and the Depository. See "-- Global Debt Securities." (Sections 305,
307 and 1002 of each Indenture)
The Indentures do not contain any provision that limits the ability of the
Company to incur indebtedness (either directly or through merger or
consolidation) or that would afford Holders of Debt Securities protection in the
event of a highly leveraged or similar transaction involving the Company, except
as described herein under "-- Limitations on Liens" and "-- Merger and
Consolidation." Reference is made to the Prospectus Supplement relating to the
series of Debt Securities offered thereby for information with respect to any
deletions from, modifications of, or additions to, the Events of Default or
covenants that may be included in the terms of such series of Debt Securities,
including any addition of a covenant or other provision providing event risk or
similar protection.
Under the Indentures, the Company will have the ability, in addition to the
ability to issue Debt Securities with terms different from those of Debt
Securities previously issued, to "reopen" a previous issue of a series of Debt
Securities and issue additional Debt Securities of such series.
LIMITATIONS ON LIENS
The Senior Indenture provides that, unless otherwise specified in a
Prospectus Supplement relating to a particular Series of Debt Securities, the
Company will not, and will not permit any Designated Subsidiary (as defined
below) to, directly or indirectly, create, issue, assume, incur or guarantee any
indebtedness for money borrowed which is secured by a mortgage, pledge, lien,
security interest or other encumbrance of any nature on any of the present or
future common stock of a Designated Subsidiary, unless the Senior Securities
and, if the Company so elects, any other indebtedness of the Company ranking at
least pari passu with the Senior Securities, shall be secured equally and
ratably with (or prior to) such other secured indebtedness for money borrowed so
long as it is outstanding and is so secured. (Section 1007 of the Senior
Indenture) The Subordinated Indenture does not contain a comparable provision.
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The term "Designated Subsidiary" means any present or future consolidated
Subsidiary of the Company the consolidated assets of which constitute 15 percent
or more of the consolidated assets of the Company. As of December 31, 1994, the
Company's Designated Subsidiaries were AGC Life Insurance Company, American
General Finance, Inc., American General Finance Corporation, American General
Life and Accident Insurance Company, American General Life Insurance Company and
The Variable Annuity Life Insurance Company.
EVENTS OF DEFAULT, NOTICE AND WAIVER
If an Event of Default with respect to any Debt Securities of any series
Outstanding under either of the Indentures shall occur and be continuing, the
Trustee under such Indenture or the Holders of at least 25% in principal amount
of the Debt Securities of that series Outstanding may declare, by notice as
provided in the applicable Indenture, the principal amount (or such lesser
amount as may be provided for in the Debt Securities of that series) of all the
Debt Securities of that series Outstanding to be due and payable immediately;
provided, that in the case of an Event of Default involving certain events in
bankruptcy, insolvency or reorganization, acceleration is automatic; and,
provided further, that if all Events of Default with respect to Debt Securities
of that series shall have been cured, or waived as hereinafter provided, and all
amounts due otherwise than on account of such acceleration shall have been paid
or deposited with the Trustee, the Holders of a majority in aggregate principal
amount of the Debt Securities of that series then Outstanding may rescind and
annul such acceleration and its consequences. (Section 502 of each Indenture)
Upon acceleration of the Maturity of Original Issue Discount Securities, an
amount less than the principal amount thereof will become due and payable.
Reference is made to the Prospectus Supplement relating to any Original Issue
Discount Securities for the particular provisions relating to acceleration of
the Maturity thereof. Any past default under either Indenture with respect to
Debt Securities of any series, and any Event of Default arising therefrom, may
be waived by the Holders of a majority in principal amount of all Debt
Securities of such series Outstanding under such Indenture, except in the case
of (i) default in the payment of the principal of or any premium or interest on
any Debt Securities of such series or (ii) default in respect of a covenant or
provision which may not be amended or modified without the consent of the Holder
of each Outstanding Debt Security of such series affected. (Section 513 of each
Indenture)
Unless the Prospectus Supplement relating to a particular issuance of Debt
Securities specifies otherwise, each of the following constitutes an Event of
Default with respect to each series of Debt Securities under each Indenture: (a)
default in the payment of any interest upon any Debt Security of such series
when such interest becomes due and payable, and continuance of such default for
a period of 30 days; (b) default in the payment of the principal of and any
premium on any Debt Security of such series when it becomes due and payable,
whether at the Stated Maturity, upon redemption or repayment, by declaration or
otherwise; (c) default in the making of any sinking fund payment on any Debt
Security of such series; (d) default in the performance or breach of any
covenant or warranty of the Company contained in the applicable Indenture for
the benefit of such series or in the Debt Securities of such series, and the
continuance of such default or breach for 90 days after written notice has been
given as provided in such Indenture; (e) acceleration of the maturity of any
indebtedness for money borrowed of the Company in a principal amount in excess
of $25,000,000 if such acceleration is not annulled or such indebtedness is not
discharged within 15 days after written notice as provided in such Indenture;
(f) certain events in bankruptcy, insolvency or reorganization; and (g) any
other Event of Default provided with respect to the Debt Securities of such
series. (Section 501 of each Indenture)
The Trustee is required, within 90 days after the occurrence of a default
with respect to the Debt Securities of any series which is known to the Trustee
and is continuing (without regard to any grace period or notice requirements),
to give to the Holders of the Debt Securities of such series notice of such
default; provided, however, that, except in the case of a default in the payment
of the principal of or any premium or interest on any Debt Securities of such
series or in the payment of
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any sinking fund installment with respect to the Debt Securities of such series,
the Trustee shall be protected in withholding such notice if it in good faith
determines that the withholding of such notice is in the interests of the
Holders of the Debt Securities of such series; and provided further that, in the
case of any default referred to in clause (d) of the preceding paragraph with
respect to the Debt Securities of such series, no such notice to Holders shall
be given until at least 30 days after the occurrence thereof. (Section 602 of
each Indenture)
The Trustee, subject to its duties during default to act with the required
standard of care, may require indemnification by the Holders of the Debt
Securities of any series with respect to which a default has occurred before
proceeding to exercise any right or power under the Indentures at the request of
the Holders of the Debt Securities of such series. (Sections 601 and 603 of each
Indenture) Subject to such right of indemnification and to certain other
limitations, the Holders of a majority in principal amount of the Outstanding
Debt Securities of any series under either Indenture may direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee,
or exercising any trust or power conferred on the Trustee with respect to the
Debt Securities of such series. (Section 512 of each Indenture)
No Holder of a Debt Security of any series may institute any action against
the Company under either of the Indentures (except actions for payment of
overdue principal of, premium, if any, or interest on such Debt Security or for
the conversion or exchange of such Debt Security in accordance with its terms)
unless the Holders of at least 25% in principal amount of the Debt Securities of
that series then Outstanding under such Indenture shall have requested the
Trustee to institute such action and offered to the Trustee reasonable indemnity
against the costs, expenses and liabilities to be incurred in compliance with
such request and the Trustee shall not have instituted such action within 60
days of such request. (Sections 507 and 508 of each Indenture)
The Company is required to furnish annually to the Trustee statements as to
the Company's compliance with all conditions and covenants under each Indenture.
(Section 1005 of each Indenture)
MERGER AND CONSOLIDATION
The Company may consolidate or merge with or into any other corporation,
and the Company may sell or convey all or substantially all of its assets to
another corporation, provided that (a) (i) in the case of a merger, the Company
is the surviving company in the merger, or (ii) the corporation surviving the
merger, formed by such consolidation or which acquires such assets shall be a
corporation organized and existing under the laws of The United States of
America or a state thereof and shall expressly assume payment of the principal
of and any premium and interest on the Debt Securities and the performance and
observance of all of the covenants and conditions of the Indentures to be
performed or observed by the Company and (b) the Company or such successor
corporation, as the case may be, shall not immediately thereafter be in default
in the performance of any such covenant or condition. The Senior Indenture also
provides an additional condition that the Company or such successor corporation
shall not immediately after such consolidation, merger or sale have outstanding
(or otherwise be liable for) any indebtedness for money borrowed secured by a
mortgage, pledge, lien, security interest or other encumbrance prohibited by the
provisions of the Senior Indenture relating to limitations on liens or shall
have secured the Outstanding Senior Securities equally and ratably with (or
prior to) such other secured indebtedness for money borrowed so long as it is
outstanding and is so secured. (Section 801 of each Indenture)
MODIFICATION AND WAIVER
Modification and amendment of each of the Indentures may be made by the
Company and the Trustee with the consent of the Holders of a majority in
aggregate principal amount of the Outstanding Debt Securities of each series
affected thereby, provided that no such modification or amendment may, without
the consent of the Holder of each Outstanding Debt Security affected
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thereby, (a) change the Stated Maturity of the principal of, or any installment
of principal of or interest on, any Debt Security; (b) reduce the principal
amount of or the amount of interest on or any premium payable with respect to
any Debt Security; (c) reduce the amount of principal of an Original Issue
Discount Security that would be due and payable upon acceleration of the
Maturity thereof or that would be provable in bankruptcy; (d) adversely affect
any right of repayment at the option of the Holder of any Debt Security; (e)
change the place or currency of payment of the principal of or any premium or
interest on any Debt Security; (f) impair the right to institute suit for the
enforcement of any such payment on or after the Stated Maturity, or any date of
redemption or repayment, thereof; (g) adversely affect any right to convert or
exchange any Debt Security or, in the case of the Subordinated Indenture, modify
the subordination provisions in a manner adverse to the Holders of the
Subordinated Securities; (h) reduce the above-stated percentage in aggregate
principal amount of Outstanding Debt Securities of any series necessary to
modify or amend the Indentures with respect to any such series or reduce the
percentage of Outstanding Debt Securities of any series necessary to waive any
past default or compliance with certain restrictive provisions to less than a
majority in aggregate principal amount of such series, or reduce certain
requirements of the Indentures for quorum or voting; or (i) modify the
provisions of the Indentures described in this paragraph or those regarding
waiver of compliance with certain provisions of, or certain defaults and their
consequences under, the Indentures, except to increase the percentage of
Outstanding Debt Securities necessary to modify and amend each Indenture or to
give any such waiver, and except to provide that certain other provisions of
each Indenture cannot be modified or waived without the consent of the Holder of
each Outstanding Debt Security affected thereby. The Holders of at least a
majority in aggregate principal amount of the Outstanding Debt Securities of any
series may waive compliance by the Company with certain restrictive provisions
applicable to such series. (Sections 902 and 1008 of the Senior Indenture and
Sections 902 and 1007 of the Subordinated Indenture)
Modification and amendment of each of the Indentures may be made by the
Company and the Trustee without the consent of any Holder of Outstanding Debt
Securities, for any of the following purposes: (a) to evidence the succession of
another corporation to the Company and the assumption of the covenants of the
Company; (b) to add to the covenants of the Company for the benefit of the
Holders of all or any series of Debt Securities or to surrender any right or
power conferred upon the Company; (c) to add any additional Events of Default
with respect to all or any series of Debt Securities; (d) to change or eliminate
any restrictions on the payment of the principal of or any premium or interest
on Debt Securities, to modify the provisions relating to global Debt Securities,
or to permit the issuance of Debt Securities in uncertificated form, provided
any such action does not adversely affect the interests of the Holders of the
Debt Securities of any series in any material respect; (e) to add to, change or
eliminate any provision of the Indentures, provided that such amendment shall
become effective only if there is no Outstanding Debt Security of any series
then entitled to the benefit of such provision or such amendment does not apply
to any then Outstanding Debt Security; (f) to secure the Debt Securities
pursuant to the requirements of certain sections of the Indentures or otherwise;
(g) to establish the form or terms of the Debt Securities of any series; (h) to
provide for the acceptance of appointment by a successor Trustee with respect to
the Debt Securities of one or more series and to add to or change any of the
provisions as shall be necessary to provide for or facilitate the administration
of the trusts under the Indentures by more than one Trustee; (i) to provide for
the discharge of the Indenture with respect to the Debt Securities of any series
by the deposit of monies or Government Obligations in trust, (j) to change the
conditions, limitations and restrictions on the authorized amount, terms or
provisions of issuance, authentication and delivery of the Debt Securities as
set forth in the Indentures, the Debt Securities and the Prospectus Supplement
relating thereto; (k) to provide for conversion or exchange rights of any series
of Debt Securities pursuant to the requirements of the instrument authorizing
such series, (l) in the case of the Subordinated Indenture, to limit or
terminate the benefits to the holders of Superior Indebtedness of the
subordination provisions contained in the Subordinated Indenture, or (m) to cure
any ambiguity, defect or inconsistency in the Indentures or
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to make any other provisions with respect to matters or questions arising under
the Indentures, provided such action does not adversely affect the interests of
the Holders of the Debt Securities of any series in any material respect.
(Section 901 of each Indenture)
DEFEASANCE AND DISCHARGE
Unless the Prospectus Supplement relating to a particular issuance of Debt
Securities specifies otherwise, the Company and the Trustee, without the consent
of any Holder of Outstanding Debt Securities, may execute a supplemental
indenture to provide that the Company will be discharged from any and all
obligations in respect of the Debt Securities of any series (except for certain
obligations to register the transfer or exchange of Debt Securities, to convert
convertible Debt Securities, to replace stolen, lost or mutilated Debt
Securities, to maintain paying agencies and hold moneys for payment in trust)
upon the irrevocable deposit with the Trustee under the applicable Indenture, in
trust, of money or Government Obligations, or a combination thereof, which
through the payment of interest and principal thereof in accordance with their
terms will provide money in an amount sufficient to pay the principal of, any
premium and interest on, and any mandatory sinking fund payments in respect of,
the Debt Securities of such series on the Stated Maturity or Redemption Date of
such payments in accordance with the terms of the applicable Indenture and such
Debt Securities. Such a supplemental indenture may only be executed if certain
conditions have been satisfied, including that the Company has received from, or
there has been published by, the United States Internal Revenue Service a
ruling, or if there has been a change in the applicable federal income tax law,
in either case, to the effect that such a discharge will not cause the Holders
of the Debt Securities of such series to recognize income, gain or loss for
federal income tax purposes; and the provisions of such a supplemental indenture
shall not be applicable to any series of Debt Securities then listed on the New
York Stock Exchange if the provisions would cause the Outstanding Debt
Securities of such series to be delisted. (Section 901 of each Indenture)
Each of the Indentures provides that, when the conditions set forth in
Section 401 thereof have been satisfied with respect to a series of Debt
Securities, upon the request of the Company, such Indenture will cease to be of
further effect with respect to such series (except as to any surviving right of
registration of transfer or exchange of Debt Securities expressly provided for
therein). Such conditions include that (i) all Debt Securities of such series
issued under such Indenture either shall have been delivered to the Trustee for
cancellation or shall be due, or are to be called for redemption, within one
year and (ii) with respect to all Debt Securities of such series issued under
such Indenture but not previously delivered to the Trustee for cancellation,
there shall have been delivered to the Trustee, in trust, money or Government
Obligations, or a combination thereof, which through the payment of interest and
principal thereof in accordance with their terms will provide money in an amount
sufficient to pay the principal of, and any premium and interest on, all such
Debt Securities on the Stated Maturity or maturity of such payments in
accordance with such Indenture. (Section 401 of each Indenture)
DEFEASANCE OF CERTAIN COVENANTS
Unless otherwise provided in the Prospectus Supplement relating to a series
of Debt Securities, the terms of the Debt Securities of each series will provide
the Company with the option to omit to comply with the covenants described under
"-- Limitations on Liens" above, if applicable, and any additional covenants not
included in the original applicable Indenture that may be specified as
applicable to such series in the Prospectus Supplement with respect thereto. The
Company, in order to exercise such option, will be required to irrevocably
deposit with the Trustee under the applicable Indenture, in trust, money or
Government Obligations, or a combination thereof, which through the payment of
interest and principal thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, any premium and interest on,
and any mandatory sinking fund payments in respect of, the Debt Securities of
such series on the Stated Maturity or maturity of such payments in accordance
with the terms of the applicable Indenture and
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such Debt Securities. The Company will also be required to deliver to the
Trustee under the applicable Indenture an Opinion of Counsel to the effect that
the deposit and related covenant defeasance will not cause the Holders of the
Debt Securities of such series to recognize income, gain or loss for federal
income tax purposes. Such covenant defeasance would not be available in certain
circumstances, including, with respect to any series of Debt Securities then
listed on the New York Stock Exchange, if such defeasance would cause the
Outstanding Debt Securities of such series to be delisted. (Section 1009 of the
Senior Indenture and Section 1008 of the Subordinated Indenture) The Prospectus
Supplement relating to a particular issuance of Debt Securities may describe
further provisions, if any, permitting such an omission to comply.
GLOBAL DEBT SECURITIES
The Debt Securities of a series may be issued in whole or in part in the
form of one or more global Debt Securities that will be deposited with, or on
behalf of, a depositary (the "Depository") identified in the Prospectus
Supplement relating to such series. Unless and until it is exchanged in whole or
in part for the individual Debt Securities represented thereby, a global Debt
Security may not be transferred except as a whole among the Depository, any
successor Depository and their respective nominees.
The specific terms of the depository arrangement with respect to a series
of Debt Securities will be described in the Prospectus Supplement relating to
such series. Unless otherwise indicated in the applicable Prospectus Supplement,
the following provisions will apply to all depository arrangements.
Upon the issuance of a global Debt Security, the Depository for such global
Debt Security or its nominee will credit, on its book-entry registration and
transfer system, the respective principal amounts of the individual Debt
Securities represented by such global Debt Security to the accounts of persons
that have accounts with such Depository ("Participants"). Such accounts will be
designated by the underwriters or agents with respect to such Debt Securities or
by the Company if such Debt Securities are offered and sold directly by the
Company. Ownership of beneficial interests in a global Debt Security will be
limited to Participants or persons that may hold interests through Participants.
Ownership of beneficial interests in such global Debt Security will be shown on,
and the transfer of that ownership will be effected only through, records
maintained by the applicable Depository or its nominee (with respect to
interests of Participants) and the records of Participants (with respect to
interests of persons other than Participants). The laws of some states may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limitation and such laws may impair the
ability to transfer beneficial interests in a global Debt Security.
So long as the Depository for a global Debt Security, or its nominee, is
the registered owner of such global Debt Security, such Depository or such
nominee, as the case may be, will be considered the sole owner or Holder of the
Debt Securities represented by such global Debt Security for all purposes under
the applicable Indenture. Except as provided below, owners of beneficial
interests in a global Debt Security will not be entitled to have any of the
individual Debt Securities of the series represented by such global Debt
Security registered in their names, will not receive or be entitled to receive
physical delivery of such Debt Securities in definitive form, and will not be
considered the owners or Holders thereof under the applicable Indenture.
Payments of principal of, premium, if any, and interest, if any, on
individual Debt Securities represented by a global Debt Security registered in
the name of a Depository or its nominee will be made to the Depository or its
nominee, as the case may be, as the registered owner of the global Debt Security
representing such Debt Securities. Neither the Company, the Trustee, any Paying
Agent, nor the Security Registrar for such Debt Securities will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests of the global Debt
Security for such Debt Securities or for maintaining, supervising or reviewing
any records relating to such beneficial ownership interests.
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The Company expects that the Depository for a series of Debt Securities, or
its nominee, upon receipt of any payment of principal, premium or interest in
respect of a global Debt Security representing any of such Debt Securities, will
immediately credit Participants' accounts with payments in amounts proportionate
to their respective beneficial interests in the principal amount of such global
Debt Security for such Debt Securities as shown on the records of such
Depository or its nominee. The Company also expects that payments by
Participants to owners of beneficial interests in such global Debt Security held
through such Participants will be governed by standing instructions and
customary practices, as is now the case with securities registered in "street
name." Such payments will be the responsibility of such Participants.
If the Depository for a series of Debt Securities is at any time unwilling,
unable or ineligible to continue as depositary and a successor depositary is not
appointed by the Company within 90 days or if the Company executes and delivers
to the Trustee a Company Order to the effect that a global Debt Security shall
be exchangeable for certificated Debt Securities or if an Event of Default has
occurred and is continuing with respect to a series of Debt Securities, the
Company will issue individual certificated Debt Securities of such series in
definitive form in exchange for the global Debt Security or Debt Securities
representing such series of Debt Securities. Accordingly, the Company may at any
time and in its sole discretion, subject to any limitations described in the
Prospectus Supplement relating to such Debt Securities, determine not to have
any Debt Securities of a series represented by one or more global Debt
Securities and, in such event, will issue individual certificated Debt
Securities of such series in definitive form in exchange for the global Debt
Security or Debt Securities representing such series of Debt Securities. In any
such instance, the individual certificated Debt Securities of such series issued
by the Company will be issued to Participants, as directed by the Depository or
its nominee, or to the beneficial owners holding Debt Securities of such series
through such Participants, as directed by such Participants, all in accordance
with standing instructions and customary practices, as is now the case with
securities registered in "street name." Certificated Debt Securities of such
series so issued in definitive form will be issued in denominations, unless
otherwise specified by the Company, of $1,000 and integral multiples thereof.
SUBORDINATION OF SUBORDINATED SECURITIES
In the event of any distribution, division or application of all or any
part of the assets of the Company, or the proceeds thereof, occurring by reason
of the liquidation, dissolution or other winding up of the Company, or by reason
of any execution, sale, receivership, insolvency or bankruptcy proceedings, or
proceedings for reorganization, or readjustment of the Company or its
properties, payment or distribution of any kind upon the Subordinated Securities
of each series Outstanding (other than from the defeasance funds referred to
below) will be subordinated to the prior payment in full of all Superior
Indebtedness (including the payment of any interest accruing thereon after the
commencement of any such proceedings). (Sections 1501 and 1502 of the
Subordinated Indenture) The Subordinated Indenture also provides that in the
event of the acceleration of the principal amount of the Subordinated Securities
of any series (or, in the case of Original Issue Discount Securities, such
portion of the principal amount thereof as may be specified in the terms
thereof) as a result of the occurrence of an Event of Default with respect to
such series under the Subordinated Indenture, the holders of Superior
Indebtedness will be entitled to declare such Superior Indebtedness due and
payable and in such event to receive payment in full of all principal, premium
and interest on all Superior Indebtedness before the Holders of the Subordinated
Securities of such series are entitled to receive any payment. The Subordinated
Indenture further provides that in the event of a default in the payment of the
principal of or any premium or interest on any Superior Indebtedness, so long as
such payment shall not have been made or provided for, or in the event of the
acceleration of the maturity of any Superior Indebtedness which has not been
rescinded and annulled, no payment of principal or any premium or interest will
be made on the Subordinated Securities (other than, if applicable, payment from
funds which were deposited to defease the Subordinated Securities). (Sections
1502 of the Subordinated Indenture) The Holders
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of the Subordinated Securities of each series will be subrogated to the rights
of the holders of the Superior Indebtedness to the extent of payments made to
the holders of Superior Indebtedness upon any distribution of assets in any such
proceedings out of the distributive share of the Subordinated Securities.
(Section 1503 of the Subordinated Indenture) As a result of such subordination,
upon the distribution of assets upon insolvency, certain general creditors of
the Company may recover more, ratably, than Holders of the Subordinated
Securities.
Superior Indebtedness is defined in the Subordinated Indenture as the
principal of, and premium, if any, and interest on, and any other payment due
pursuant to, any of the following, whether outstanding at the date of execution
of the Subordinated Indenture or thereafter incurred, created or assumed:
(a) all obligations of the Company for money borrowed;
(b) all obligations of the Company evidenced by notes, debentures,
bonds or other securities, including obligations incurred, created or
assumed in connection with the acquisition of property, assets or
businesses;
(c) all Capitalized Lease Obligations of the Company;
(d) all reimbursement obligations of the Company with respect to
letters of credit, bankers acceptance or similar facilities issued for the
account of the Company;
(e) all obligations of the Company issued or assumed as the deferred
purchase price of property or services (but excluding trade accounts
payable or accrued liabilities arising in the ordinary course of business);
(f) all payment obligations of the Company under any interest rate,
currency or commodity swap agreement, option agreement, hedge agreement,
forward contract, or similar agreement designed to protect the Company or
another person against fluctuations in interest rates, exchange rates or
commodity prices;
(g) all obligations of the type referred to in clauses (a) through (f)
above of another person and all dividends of another person, the payment of
which, in either case, the Company has assumed or guaranteed, or for which
the Company is responsible or liable, directly or indirectly, jointly or
severally, as obligor, guarantor or otherwise; and
(h) all amendments, modifications, renewals, extensions, refinancings,
replacements and refundings by the Company of any such indebtedness
referred to in clauses (a) through (g) above (and of any such amended,
modified, renewed, extended, refinanced, refunded or replaced indebtedness
or obligations);
other than (i) any indebtedness, renewal, extension, refinancing, replacement,
refunding, assumption, guarantee or other obligation that expressly provides, or
in the instrument creating or evidencing the same or the assumption or guarantee
of the same it is expressly provided, that such indebtedness, renewal,
extension, refinancing, replacement, refunding, assumption, guarantee or other
refinancing is junior in right of payment to or is pari passu with the
Subordinated Securities; (ii) any guarantee of the payment obligations of
American General Delaware, L.L.C. or American General Capital, L.L.C. with
respect to their preferred securities, (iii) any junior subordinated debentures
of the Company issued under the Indenture dated as of May , 1995 between
the Company and Chemical Bank, as trustee, and (iv) the 13 1/2% Restricted
Subordinated Notes Due 2002 of the Company, which shall rank pari passu to the
Subordinated Securities. (Section 101 of the Subordinated Indenture)
As of March 31, 1995, an aggregate of $2.8 billion of Superior Indebtedness
was outstanding. The Subordinated Indenture does not limit the amount of
Superior Indebtedness that may be incurred by the Company in the future.
The subordination provisions of the Subordinated Indenture may be modified
or amended as provided under "-- Modification and Waiver," provided that no such
modification or amendment
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may adversely affect the rights of any holder of Superior Indebtedness without
the consent of such holder. (Section 907 of the Subordinated Indenture)
CONVERSION
Certain Debt Securities may be convertible into other securities (the
"Convertible Debt Securities"). The Holders of such Convertible Debt Securities
of a specified series may be entitled (subject to prior redemption, repayment or
repurchase, if applicable), if so provided in the applicable Prospectus
Supplement, to convert any Convertible Debt Securities of such series (in
denominations set forth in the applicable Prospectus Supplement) into another
series of Debt Securities, Debt Warrants, Preferred Stock, Preferred Stock
Warrants, Common Stock, Common Stock Warrants or other securities, as the case
may be, at the conversion price set forth in the applicable Prospectus
Supplement, subject to adjustment as described in such Prospectus Supplement.
The relevant provisions for each series of Convertible Debt Securities will be
set forth in the applicable Prospectus Supplement. (Sections 301 and 1502)
TRUSTEE UNDER THE INDENTURES
The Company and certain of its affiliates maintain banking and borrowing
relations with Chemical Bank and certain of its affiliates. Chemical Bank and
one of its affiliates also serve as trustees under other indentures maintained
by the Company.
The Indentures provide that an alternative Trustee may be appointed by the
Company with respect to any particular series of Debt Securities. Any such
appointment will be described in the Prospectus Supplement relating to such
series of Debt Securities.
The Trustee, prior to default, undertakes to perform only such duties as
are specifically set forth in the Indentures and, after default, is required to
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 Trustee is
under no obligation to exercise any of the powers vested in it by an Indenture
at the request of any Holder of Debt Securities, unless offered reasonable
indemnity by such Holder against the costs, expenses and liabilities which might
be incurred thereby. The Trustee is not required to expend or risk its own funds
or otherwise incur personal financial liability in the performance of its duties
if the Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. Each Indenture contains other provisions limiting the
responsibilities and liabilities of the Trustee.
DESCRIPTION OF THE PREFERRED STOCK
The following description of the terms of the Preferred Stock sets forth
certain general terms and provisions of the Preferred Stock to which an
applicable Prospectus Supplement may relate. Certain other terms of any series
of Preferred Stock offered by an applicable Prospectus Supplement will be
specified in such Prospectus Supplement. If so specified in the applicable
Prospectus Supplement, the terms of any series of Preferred Stock may differ
from the terms set forth below. The description of the terms of the Preferred
Stock set forth below and in an applicable Prospectus Supplement does not
purport to be complete and is subject to and qualified in its entirety by
reference to the Certificate of Designation relating to the applicable series of
Preferred Stock, which will be filed as an exhibit to, or incorporated by
reference in, the Registration Statement of which this Prospectus forms a part.
GENERAL
Pursuant to the Restated Articles of Incorporation of the Company, as
amended (the "Articles"), the Bylaws of the Company, and applicable Texas law,
the Board of Directors of the Company, or an authorized committee thereof, has
the authority, without further shareholder action,
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to issue up to 60,000,000 shares of Preferred Stock, $1.50 par value, in one or
more series and in such amounts and for such consideration, as may be determined
from time to time by resolution of the Board of Directors of the Company, or an
authorized committee thereof, and to fix before the issuance of any shares of
Preferred Stock of a particular series, the number of shares constituting that
series and the distinctive designation of that series; the dividend rate (or
method of determining the same); the voting rights; conversion privileges;
redemption rights; repurchase obligations; sinking fund availability; rights
upon liquidation, dissolution or winding up and the priority thereof;
restrictions upon the Company with respect to the creation of debt or the
issuance of additional Preferred Stock or other stock ranking prior to or on a
parity therewith with respect to dividends or upon liquidation; restrictions on
the Company with respect to the issuance of, payment of dividends upon, or the
making of other distributions with respect to, or the acquisition or redemption
of, shares ranking junior to the Preferred Stock; the priority of each series of
Preferred Stock in relation to other series of Preferred Stock; and any other
designations, powers, preferences and rights, including, without limitation, any
qualifications, limitations or restrictions thereof. The holders of any series
of Preferred Stock shall not have any preemptive rights to acquire any shares or
securities of any class which may at any time be issued, sold or offered for
sale by the Company.
As of the date of this Prospectus, the Company had no Preferred Stock
outstanding. As of such date, the Company did have Preferred Share Purchase
Rights outstanding. A description of these rights is provided under "Description
of Common Stock -- Preferred Share Purchase Rights."
DIVIDENDS
The holders of the Preferred Stock of each series will be entitled to
receive, when, as and if declared by the Board of Directors of the Company, out
of funds legally available therefor, dividends at such rates and on such dates
as will be specified in the applicable Prospectus Supplement. Such rates may be
fixed or variable or both. If variable, the formula used for determining the
dividend rate for each dividend period will be specified in the applicable
Prospectus Supplement. Dividends will be payable to the holders of record as
they appear on the stock books of the Company on such record dates as will be
fixed by the Board of Directors of the Company.
Unless otherwise indicated in an applicable Prospectus Supplement, all
series of Preferred Stock will be senior in right as to dividends and in
liquidation to the Common Stock and any other class of stock of the Company
ranking junior to the Preferred Stock.
VOTING RIGHTS
Except as indicated in the applicable Prospectus Supplement or as expressly
required by applicable law, the holders of the Preferred Stock will not be
entitled to vote. In the event the Company issues a series of Preferred Stock
with voting rights, unless otherwise specified in the Prospectus Supplement
relating to such series, each such share will be entitled to one vote on matters
on which holders of such series of the Preferred Stock are entitled to vote.
Since each full share of any series of Preferred Stock of the Company shall be
entitled to one vote, the voting power of such series, on matters on which
holders of such series and holders of other series of Preferred Stock are
entitled to vote as a single class, shall depend on the number of shares in such
series, not the aggregate stated value, liquidation preference or initial
offering price of the shares of such series of Preferred Stock.
CONVERSION AND EXCHANGE
The Prospectus Supplement relating to a series of the Preferred Stock will
set forth the conditions or terms, if any, upon which any such series will be
convertible or exchangeable, and the terms of the securities into which such
series will be convertible or exchangeable.
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REDEMPTION RIGHTS
A series of the Preferred Stock may be redeemable, in whole or in part, at
the option of the Company or any holder thereof, and may be subject to mandatory
redemption pursuant to a sinking fund or otherwise, in each case upon terms, at
the times and at the redemption prices specified in the applicable Prospectus
Supplement and subject to the rights of holders of other securities of the
Company. Preferred Stock redeemed by the Company will be restored to the status
of authorized but unissued preferred shares.
REPURCHASE OBLIGATION
The Prospectus Supplement relating to a series of the Preferred Stock will
state the conditions and terms, if any, upon which such series shall be subject
to repurchase by the Company.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding up of the Company, the holders of each series of Preferred Stock shall
be entitled to receive out of the assets of the Company available for
distribution to shareholders, before any distribution of assets is made to
holders of Common Stock or any other class or series of shares ranking junior to
such Preferred Stock upon liquidation, a liquidating distribution in the amount
per share as set forth in the Prospectus Supplement relating to such series of
Preferred Stock plus accrued and unpaid dividends. If, upon any voluntary or
involuntary liquidation, dissolution or winding up of the Company the amounts
payable with respect to Preferred Stock of any series and any other shares of
the Company ranking as to any such distribution on a parity with such Preferred
Stock of such series are not paid in full, the holders of such Preferred Stock
of such series and of such other shares will share ratably in any such
distribution of assets of the Company in proportion to the full respective
preferential amounts to which they are entitled. Neither the sale of all or
substantially all of the property or business of the Company nor the merger or
consolidation of the Company into or with any other corporation shall be deemed
to be a dissolution, liquidation or winding up, voluntary or involuntary, of the
Company. Except as indicated in the applicable Prospectus Supplement, after
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of Preferred Stock of any series will not be entitled to
any further participation in any distribution of assets by the Company.
CONDITIONS AND RESTRICTIONS UPON THE COMPANY
The Prospectus Supplement relating to a series of the Preferred Stock will
describe any conditions or restrictions upon the Company which are for the
benefit of such series, including restrictions upon the creation of debt or
other series of Preferred Stock; payment of dividends; or distributions,
acquisitions or redemptions of shares ranking junior to such series.
DESCRIPTION OF COMMON STOCK
GENERAL
The Company is authorized to issue 300,000,000 shares of Common Stock, par
value $.50 per share. As of March 31, 1995, there were outstanding 204,820,775
shares of the Company's Common Stock.
Holders of the Company's Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors of the Company out of any
funds legally available therefor, and are entitled upon liquidation, after
claims of creditors and preferences of any series of the Company's Preferred
Stock, to receive pro rata the net assets of the Company.
The holders of the Common Stock are entitled to one vote for each share
held and are vested with all of the voting power, except as the Board of
Directors of the Company or an authorized
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committee thereof may provide in the future with respect to any series of
Preferred Stock. Directors of the Company are elected for a one-year term
expiring upon the annual meeting of stockholders of the Company. The holders of
the Common Stock do not have cumulative voting rights.
The holders of Common Stock do not have any preemptive rights to acquire
any shares or other securities of any class which may at any time be issued,
sold or offered for sale by the Company. The holders of Common Stock have no
conversion rights and the Common Stock is not subject to redemption by either
the Company or a stockholder.
The Company's Common Stock is listed on the New York, Pacific, London and
Swiss Stock Exchanges. First Chicago Trust Company of New York is the transfer
agent, registrar and dividend disbursing agent for the Common Stock.
PREFERRED SHARE PURCHASE RIGHTS
On July 27, 1989, the Board of Directors of the Company authorized the
issuance of one preferred share purchase right (a "Right") for each share of
Common Stock outstanding on August 7, 1989 and for each share of Common Stock
issued thereafter but prior to the earlier of the Distribution Date and the
Termination Date (as each such term is defined below). A Right is attached to
each share of Common Stock and entitles the registered holder to purchase from
the Company one one-hundredth of a share of Series A Junior Participating
Preferred Stock, par value $1.50 per share, of the Company (the "Junior
Preferred Shares"), at a price of $120 per one one-hundredth of a Junior
Preferred Share, subject to certain adjustments.
The Rights will expire on August 7, 1999, unless the expiration date is
extended or the Rights are redeemed earlier (any such date being the
"Termination Date"). The Rights are not exercisable or transferable separately
from the shares of Common Stock until the "Distribution Date" which will occur
on the earlier of (i) 10 business days following the first public announcement
that a person or group of affiliated or associated persons (an "Acquiring
Person") has acquired beneficial ownership of 15% or more of the outstanding
Common Stock and any other shares of capital stock of the Company entitled to
vote generally in the election of directors or entitled to vote in respect of
any merger, consolidation, sale of all or substantially all of the Company's
assets, liquidation, dissolution or winding up of the Company (the "Voting
Stock") or (ii) 10 business days following the commencement of, or the first
public announcement of an intention to commence, a tender or exchange offer the
consummation of which would result in the beneficial ownership by a person or
group of affiliated or associated persons of 25% or more of the then outstanding
Voting Stock.
In the event the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earnings
power should be sold or otherwise transferred, each holder of a Right will have
the right to receive, upon payment of the Right's then current exercise price,
common stock of the acquiring company which has a market value of two times the
exercise price of the Right. In the event that any person becomes an Acquiring
Person, each holder of a Right will thereafter have the right to receive upon
exercise thereof that number of shares of Common Stock (or under certain
circumstances, Common Stock-equivalent Junior Preferred Shares) having a market
value of two times the exercise price of the Rights.
At any time 10 business days after a person or group of affiliated or
associated persons has become an Acquiring Person and prior to the acquisition
by any person or group of 50% or more of the outstanding Voting Stock, the Board
of Directors of the Company may exchange the Rights (other than Rights acquired
or beneficially owned by such Acquiring Person, which Rights held by such
Acquiring Person shall then be null and void), in whole or in part, at an
exchange ratio of one share of Common Stock (or one one-hundredth of a share of
Junior Preferred Stock), appropriately adjusted to reflect any stock split,
stock dividend or similar transaction, for each two shares of Common Stock for
which the Right is then exercisable.
At any time prior to the close of business on the tenth day following the
first public announcement that a person or group of affiliated or associated
persons has become an Acquiring Person,
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the Board of Directors of the Company may redeem the then outstanding Rights in
whole, but not in part, at a price of $.01 per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction (the "Rights
Redemption Price"). Any such redemption of the Rights may be made effective at
such time, on such basis and with such conditions as the Board of Directors of
the Company in its sole discretion may establish.
The purchase price payable, and the number of Junior Preferred Shares or
other securities or property issuable, upon exercise of the Rights are subject
to adjustment from time to time to prevent dilution in the event of a stock
dividend on, or a subdivision, combination or reclassification of, the Junior
Preferred Shares.
The number of outstanding Rights and the number of one one-hundredths of a
Junior Preferred Share issuable upon exercise of each Right are also subject to
adjustment in the event of reclassification of securities, or recapitalization
or reorganization of the Company or other transaction involving the Company
which has the effect, directly or indirectly, of increasing by more than one
percent the proportionate share of the outstanding shares of any class of equity
securities of the Company or any of its subsidiaries beneficially owned by any
Acquiring Person, in any such case, prior to an exchange by the Company as
described above.
The terms of the Rights may be amended, including extending the expiration
date, by the Board of Directors of the Company without the consent of the
holders of the Rights, except in certain circumstances.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors of the Company. The Rights
should not interfere with any merger or other business combination approved by
the Board of Directors of the Company since the Rights may be redeemed by the
Company at the Rights Redemption Price prior to the time that a person or group
has acquired beneficial ownership of 50% or more of the Voting Stock.
The Junior Preferred Shares will be non-redeemable and rank junior to all
other series of the Company's Preferred Stock. Each whole Junior Preferred Share
will be entitled to receive a quarterly preferential dividend in an amount equal
to the greater of (i) $0.25 or (ii) subject to certain adjustments, 100 times
the dividend declared on each share of Common Stock. In the event of the
liquidation, dissolution or winding up of the Company, each whole Junior
Preferred Share will be entitled to receive a preferential liquidation payment
in an amount equal to the greater of (i) $1.50, or (ii) 100 times the aggregate
amount to be distributed per share to holders of Common Stock, plus, in either
case, an amount equal to all accrued and unpaid dividends thereon. In the event
of any merger, consolidation or other transaction in which Common Stock is
exchanged for or changed into other stock or securities, cash or other property,
each whole Junior Preferred Share will be entitled to receive 100 times the
amount received per each share of Common Stock. Each whole Junior Preferred
Share will be entitled to 100 votes on all matters submitted to a vote of the
shareholders of the Company, and Junior Preferred Shares will generally vote
together as one class with the Common Stock and any other voting capital stock
of the Company on all matters submitted to a vote of shareholders of the
Company.
If such registration is then required by applicable law, the Company will
use its best efforts to cause the offer and sale of Junior Preferred Shares
issuable upon exercise of the Rights to be registered pursuant to the Securities
Act at any such time as the Rights become exercisable.
The foregoing description of the Rights and the Junior Preferred Shares
does not purport to be complete and is qualified in its entirety by reference to
the Rights Agreement, as amended, which is an exhibit to the Registration
Statement of which this Prospectus forms a part, and the Statement of Resolution
Establishing Series of Shares of the Junior Preferred Shares.
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DESCRIPTION OF WARRANTS
The Company may issue Debt Warrants, Preferred Stock Warrants, and Common
Stock Warrants (collectively, the "Warrants"). Each Debt Warrant will entitle
the holder thereof to purchase a series of Debt Securities at such exercise
price as shall be set forth in, or be determinable as set forth in, the
Prospectus Supplement relating to the Debt Warrants offered thereby. Similarly,
each Preferred Stock Warrant and Common Stock Warrant (collectively, the "Stock
Warrants") will entitle the holder thereof to purchase such number of shares of
Preferred Stock of a particular series or of Common Stock, as the case may be,
and at such exercise price, as shall be set forth in, or calculable from, the
applicable Prospectus Supplement. Warrants may be issued independently or
together with other Securities offered by a Prospectus Supplement and may be
attached to or separate from such other Securities. Each series of Warrants may
be issued under a separate warrant agreement (each a "Warrant Agreement") to be
entered into between the Company and such bank or trust company as shall be
designated in the applicable Prospectus Supplement as warrant agent (the
"Warrant Agent"). Each Warrant Agent will act solely as the agent of the Company
in connection with the applicable Warrants and will not assume any obligation or
relationship of agency or trust for or with holders or beneficial owners of such
Warrants.
The following describes the type of information that will be set forth in a
Prospectus Supplement relating to a series of Warrants.
DEBT WARRANTS
If Debt Warrants are offered, the applicable Prospectus Supplement will
describe the terms of such Debt Warrants, the Warrant Agreement relating to such
Debt Warrants and the certificates, if any, representing such Debt Warrants,
including the following, where applicable: (1) the specific designation and
number of such Debt Warrants; (2) the offering price, if any, of such Debt
Warrants; (3) the designation, aggregate principal amount, denominations and
terms of the series of Debt Securities purchasable upon exercise of such Debt
Warrants and the procedures and conditions relating to the exercise of such Debt
Warrants; (4) the designation and terms of any related series of Securities with
which such Debt Warrants are issued and the number of such Debt Warrants issued
with each such Security; (5) the date, if any, on and after which such Debt
Warrants and the related Securities will be separately transferable; (6) the
principal amount of the series of Debt Securities purchasable upon exercise of
each such Debt Warrant and the price at which such principal amount of Debt
Securities may be purchased upon such exercise and whether such Debt Securities
may be purchased for consideration other than cash; (7) the date on which the
right to exercise such Debt Warrants shall commence and the date on which such
right shall expire; (8) any anti-dilution provisions of such Debt Warrants; (9)
any redemption or call provisions applicable to such Debt Warrants; (10) if the
series of Debt Securities purchasable upon exercise of such Debt Warrants are
Original Issue Discount Securities, a discussion of certain Federal income tax
considerations applicable thereto; (11) where the certificates, if any,
representing such Debt Warrants may be transferred and registered; (12)
information with respect to any book-entry procedures, if any; and (13) any
other terms of such Debt Warrants.
STOCK WARRANTS
If Stock Warrants are offered, the applicable Prospectus Supplement will
describe the terms of such Stock Warrants, the Warrant Agreement relating to
such Stock Warrants and the certificates, if any, representing such Stock
Warrants, including the following, where applicable: (1) the designation and
aggregate number of such Stock Warrants; (2) the offering price, if any, of such
Stock Warrants; (3) in the case of Preferred Stock Warrants, the designation and
terms of the series of Preferred Stock purchasable upon exercise of such
Preferred Stock Warrants and whether such series of Preferred Stock is
convertible or exchangeable for other Securities; (4) the aggregate number of
shares of Common Stock or such series of Preferred Stock purchasable upon
exercise of such Stock Warrants and the minimum number of Stock Warrants that
are exercisable; (5) the
B-19
<PAGE> 145
terms of the Securities with which such Stock Warrants are being offered and the
number of such Stock Warrants being offered with each such Security; (6) the
date on and after which such Stock Warrants and the related Security will be
transferable separately; (7) the number of shares of Common Stock or Preferred
Stock purchasable upon exercise of each such Stock Warrant and the price at
which such number of shares of Common Stock or Preferred Stock may be purchased
upon such exercise; (8) the date on which the right to exercise such Stock
Warrants shall commence and the date on which such right shall expire; (9) any
anti-dilution provisions of such Stock Warrants; (10) any redemption or call
provisions applicable to such Stock Warrants; (11) where the certificates, if
any, representing such Stock Warrants may be transferred and registered; (12)
whether the Stock Warrants represented by the warrant certificates will be
issued in registered or bearer form; (13) information with respect to book-entry
procedures, if any; and (14) any other terms of such Stock Warrants.
PLAN OF DISTRIBUTION
GENERAL
The Company may sell Securities to or through underwriters or dealers;
directly to other purchasers; through agents; or through a combination of any
such methods of sale. Any such underwriter, dealer or agent involved in the
offer and sale of the offered Securities will be named in an applicable
Prospectus Supplement or Prospectus Supplements (including any Pricing
Supplement or Pricing Supplements).
The distribution of the Securities may be effected from time to time in one
or more transactions at a fixed price or prices, which may be changed, or at
market prices prevailing at the time of sale, at prices related to such
prevailing market prices or at negotiated prices.
In connection with the sale of Securities, underwriters may receive
compensation from the Company or from purchasers of Securities for whom they may
act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Securities to or through dealers, and such dealers may
receive compensation in the form of discounts, concessions or commissions from
the underwriters and/or commissions from the purchasers for whom they may act as
agent. Underwriters, dealers and agents that participate in the distribution of
Securities may be deemed to be underwriters, and any discounts or commissions
received by them from the Company and any profit on the resale of Securities by
them may be deemed to be underwriting discounts and commissions, under the
Securities Act. Any compensation paid by the Company to underwriters, dealers or
agents in connection with the offering of the Securities, and any discounts,
concessions or commissions allowed by underwriters to participating dealers,
will be described in an applicable Prospectus Supplement or Pricing Supplement.
Under agreements which may be entered into by the Company, underwriters,
dealers and agents who participate in the distribution of Securities may be
entitled to indemnification by the Company against and/or contribution by the
Company toward certain liabilities, including liabilities under the Securities
Act and to reimbursement for certain expenses.
Certain of the underwriters, dealers or agents and their associates may be
customers of, engage in transactions with and perform services for the Company
or one or more of its affiliates in the ordinary course of business.
The specific terms and manner of sale, including the place and time of
delivery, of the Securities in respect of which this Prospectus is being
delivered will be set forth or summarized in the applicable Prospectus
Supplement.
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<PAGE> 146
DELAYED DELIVERY ARRANGEMENTS
If so indicated in the Prospectus Supplement, the Company will authorize
underwriters, dealers or other persons acting as the Company's agents to solicit
offers by certain institutions to purchase Securities from the Company pursuant
to contracts providing for payment and delivery on a future date. Institutions
with which such contracts may be made include commercial and savings banks,
insurance companies, pension funds, investment companies, educational and
charitable institutions and others, but in all cases purchases by such
institutions must be approved by the Company. The obligations of any purchaser
under any such contract will be subject to the condition that the purchase of
the Securities shall not at the time of delivery be prohibited under the laws of
the jurisdiction to which such purchaser is subject. The underwriters and such
other agents will not have any responsibility in respect of the validity or
performance of such contracts.
LEGAL OPINIONS
Unless otherwise indicated in a Prospectus Supplement, the validity of each
issue of the Securities will be passed upon for the Company by Vinson & Elkins
L.L.P., Houston, Texas, and certain legal matters relating to the Securities
offered hereby will be passed upon for any underwriters, dealers or agents of a
particular issue of Securities by Brown & Wood, New York, New York. Brown & Wood
may rely as to matters of Texas law on the opinion of Vinson & Elkins L.L.P. J.
Evans Attwell, a partner in the firm of Vinson & Elkins L.L.P., is a director of
the Company.
EXPERTS
The consolidated financial statements and schedules of the Company and its
subsidiaries appearing in or incorporated by reference in the Company's Annual
Report on Form 10-K for the year ended December 31, 1994 have been audited by
Ernst & Young LLP, independent auditors, as set forth in their reports thereon
included therein and incorporated herein by reference. See "Incorporation of
Certain Documents by Reference." Such financial statements and schedules are,
and audited financial statements and schedules to be included in subsequently
filed documents will be, incorporated herein by reference in reliance upon the
reports of Ernst & Young LLP pertaining to such financial statements (to the
extent covered by consents filed with the Commission) given upon the authority
of such firm as experts in accounting and auditing.
The consolidated financial statements of American Franklin Company and
Subsidiaries as of December 31, 1993, and for the year then ended, appearing in
American General's Current Report on Form 8-K dated February 14, 1995, and the
consolidated financial statements of American Franklin Company and Subsidiaries
as of December 31, 1994 and 1993, and for the years ended December 31, 1994 and
1993, appearing in American General's Current Report on Form 8-K dated April 14,
1995, have been audited by Coopers & Lybrand L.L.P., independent accountants, as
set forth in their reports thereon included therein and incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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<PAGE> 147
***************************************************************************
* *
* INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A *
* REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED *
* WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT *
* BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE *
* REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT *
* CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY *
* NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH *
* SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO *
* REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH *
* STATE. *
* *
***************************************************************************
SUBJECT TO COMPLETION, DATED MAY 17, 1995
PROSPECTUS
(AMERICAN CAPITAL LOGO)
$1,250,000,000
AMERICAN GENERAL DELAWARE, L.L.C.
AMERICAN GENERAL CAPITAL, L.L.C.
PREFERRED SECURITIES
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
AMERICAN GENERAL CORPORATION
------------------------
American General Delaware, L.L.C. and American General Capital, L.L.C., each
a Delaware limited liability company (each, an "American General LLC" and,
together, the "American General LLCs"), may separately offer from time to time,
in one or more series, their preferred limited liability company interests (the
"Preferred Securities"). The payment of periodic cash distributions
("dividends") with respect to Preferred Securities of each of the American
General LLCs, and payments on redemption and liquidation with respect to such
Preferred Securities will be guaranteed by American General Corporation, a Texas
corporation ("American General" or the "Company"), to the extent described
herein (each, a "Guarantee"). See "Description of the Guarantees." American
General's obligations under the Guarantees will be subordinate and junior in
right of payment to all other liabilities of American General and pari passu
with the most senior preferred stock issued by American General. Concurrently
with the issuance of each series of Preferred Securities, the American General
LLC issuing such Preferred Securities will invest the proceeds thereof in a
series of American General's junior subordinated debentures (the "Junior
Subordinated Debentures"), which will bear interest at the same rate as the
dividend rate on such Preferred Securities. If and to the extent set forth in
the Prospectus Supplement pertaining to the particular series of Preferred
Securities in respect of which this Prospectus is being delivered (the
"Prospectus Supplement"), such Junior Subordinated Debentures subsequently may
be distributed to holders of such series of Preferred Securities upon the
occurrence of certain events. The Junior Subordinated Debentures will be
unsecured and subordinate and junior in right of payment to Senior Indebtedness
(as defined herein) of American General. See "Description of the Junior
Subordinated Debentures."
The specific terms of the Preferred Securities of any particular series in
respect of which this Prospectus is being delivered will be set forth in the
Prospectus Supplement which will describe, without limitation and to the extent
applicable, the following: the specific designation, number of Preferred
Securities, dividend rate (or the method of determining such rate), dates on
which dividends will be payable, liquidation preference, any voting rights, any
redemption provisions, terms for any conversion or exchange into Common Stock,
par value $.50 per share, of American General ("American General Common Stock"),
Preferred Stock, par value $1.50 per share, of American General ("American
General Preferred Stock") or other securities, the initial public offering
price, any listing on a securities exchange, and any other rights, preferences,
privileges, limitations and restrictions thereof. The specific terms of the
related series of Junior Subordinated Debentures will also be described in such
Prospectus Supplement.
The Preferred Securities may be offered in amounts, at prices and on terms
to be determined at the time of offering; provided, however, that the aggregate
initial public offering price of all Preferred Securities sold hereunder may not
exceed $1,250,000,000, less the aggregate initial public offering price of all
securities of American General which are sold under a separate prospectus which
also constitutes a part of the Registration Statement of which this Prospectus
constitutes a part. See "Available Information."
The Prospectus Supplement relating to any series of Preferred Securities
will contain information concerning certain United States federal income tax
considerations applicable to such Preferred Securities and the related series of
Junior Subordinated Debentures.
The Preferred Securities may be sold directly, through agents, underwriters
or dealers as designated from time to time, or through a combination of such
methods. If any such agents, underwriters or dealers are involved in the sale of
the Preferred Securities in respect of which this Prospectus is being delivered,
the names of such agents, underwriters or dealers and any applicable agent's
commission, underwriter's discount or dealer's purchase price and the net
proceeds to the applicable American General LLC from such sale will be set forth
in, or may be calculated on the basis set forth in, the applicable Prospectus
Supplement. See "Plan of Distribution" for possible indemnification arrangements
for any such agents, underwriters and dealers.
This Prospectus may not be used to consummate sales of the Preferred
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 May , 1995.
<PAGE> 148
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE COMMISSIONER
OF INSURANCE OF THE STATE OF NORTH CAROLINA, NOR HAS THE COMMISSIONER OF
INSURANCE PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT.
AVAILABLE INFORMATION
American General is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith files reports, proxy statements and other information with
the Securities and Exchange Commission (the "Commission"). Reports, proxy
statements and other information filed by American General may be inspected and
copied at the public reference facilities maintained by the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's Regional
Offices at 500 West Madison Street, Chicago, Illinois 60661 and Seven World
Trade Center, Suite 1300, New York, New York 10048. Copies of such materials may
be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition, such
material may also be inspected and copied at the offices of The New York Stock
Exchange, Inc., 20 Broad Street, New York, New York 10005 and The Pacific Stock
Exchange, Incorporated, 301 Pine Street, San Francisco, California 94104.
The American General LLCs and American General have filed with the
Commission a registration statement on Form S-3 (herein, together with all
amendments and exhibits, referred to as the "Registration Statement") under the
Securities Act of 1933, as amended (the "Securities Act"). This Prospectus,
which constitutes part of the Registration Statement, does not contain all of
the information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the Commission. For
further information, reference is hereby made to the Registration Statement.
In addition to this Prospectus, the Registration Statement contains another
prospectus which relates to the offer and sale from time to time of various
securities of American General. The $1,250,000,000 aggregate maximum initial
public offering price of Preferred Securities which may be sold under this
Prospectus will be reduced by the amount of the aggregate initial public
offering price of any securities sold under such other prospectus.
Statements contained herein concerning the provisions of any document filed
as an exhibit to the Registration Statement or otherwise filed with the
Commission are not necessarily complete, and in each instance reference is made
to the copy of such document so filed. Each such statement is qualified in its
entirety by such reference.
No separate financial statements of either of the American General LLCs have
been included herein. American General and the American General LLCs do not
consider that such financial statements would be material to holders of the
Preferred Securities because each American General LLC is a newly formed special
purpose entity, has no operating history, has no independent operations and is
not engaged in, and does not propose to engage in, any activity other than as
set forth below, and because American General will guarantee the obligations of
each American General LLC under the terms of the Preferred Securities to the
extent set forth herein and in the applicable Prospectus Supplement. See
"American General LLCs" and "Description of the Guarantees."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, which have been filed by American General with the
Commission pursuant to the Exchange Act (File No. 1-7981), are incorporated
herein by reference:
- American General's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994;
- American General's Quarterly Report on Form 10-Q for the quarterly
period ended March 31, 1995; and
- American General's Current Reports on Form 8-K dated February 14, 1995,
March 22, 1995, April 14, 1995 and May 9, 1995.
Each document filed by American General pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date of this Prospectus and prior
to the termination of the offering of Preferred Securities made hereby shall be
deemed to be incorporated by reference into this Prospectus and to be a part
hereof from the date of filing of such document.
Any statement contained herein, in a Prospectus Supplement or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of the Registration Statement and this
Prospectus to the extent that a statement contained herein, in a Prospectus
Supplement or in any subsequently filed document which also is or is deemed to
be incorporated by reference herein modifies or supersedes such statement. Any
such statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of the Registration Statement or
this Prospectus.
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<PAGE> 149
American General will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of any or all of the documents
which are incorporated herein by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Requests should be directed to American General, 2929 Allen
Parkway, Houston, Texas 77019-2155, Attention: Treasury Department, telephone
(713) 831-1949.
AMERICAN GENERAL
American General is the parent company of one of the nation's largest
consumer financial services organizations. American General is headquartered in
Houston, Texas and operates through its subsidiaries in all 50 states, the
District of Columbia, Canada, Puerto Rico, and the U.S. Virgin Islands. American
General was incorporated as a general business corporation in Texas in 1980 and
is the successor to American General Insurance Company, incorporated in Texas in
1926.
American General's operations are classified into three business segments:
Retirement Annuities, which specializes in providing tax-deferred retirement
plans and annuities to employees of educational, health care and other
not-for-profit organizations; Consumer Finance, which offers consumer and home
equity loans, credit cards, and credit-related insurance to individuals through
more than 1,300 branch offices; and Life Insurance, which provides traditional
and interest-sensitive life insurance and both fixed and variable annuity
products through 14,000 sales representatives and general agents.
Since American General is a holding company, rights to participate in any
distribution of assets of any subsidiary upon its liquidation or reorganization
or otherwise (and thus the ability of holders of securities or guarantees issued
by American General to benefit indirectly from such distribution) are subject to
the prior claims of creditors of that subsidiary, except to the extent that
American General may itself be a creditor of that subsidiary. Claims on American
General's subsidiaries by other creditors include substantial claims for policy
benefits and debt obligations, as well as other liabilities incurred in the
ordinary course of business. In addition, since many of American General's
subsidiaries are insurance companies subject to regulatory control by various
state insurance departments, the ability of such subsidiaries to pay dividends
to American General without prior regulatory approval is limited by applicable
laws and regulations. Further, certain non-insurance subsidiaries are similarly
restricted in their ability to make dividend payments by long-term debt
agreements. At December 31, 1994, the amount available to American General for
dividends from subsidiaries not limited by such restrictions was $1.1 billion.
The principal executive offices of American General are located at 2929
Allen Parkway, Houston, Texas 77019-2155, and its telephone number is (713)
522-1111.
AMERICAN GENERAL LLCS
American General Delaware, L.L.C. and American General Capital, L.L.C. are
each a limited liability company formed in March 1995 under the laws of the
State of Delaware. American General owns directly or indirectly all of the
common limited liability interests (the "Common Securities") of each American
General LLC, which securities are nontransferable. Each of the American General
LLCs will be managed by American General Delaware Management Corporation, a
wholly-owned subsidiary of American General, as manager (the "Manager"), in
accordance with its respective Limited Liability Company Agreement, as amended
(each, an "LLC Agreement"). Each American General LLC exists solely for the
purpose of issuing Preferred Securities and Common Securities and investing 99%
of the proceeds thereof in Junior Subordinated Debentures. The remaining 1% of
such proceeds will be invested by the applicable American General LLC in
Eligible Investments (as defined in the applicable LLC Agreement). See "Use of
Proceeds." The principal executive offices of each of the American General LLCs
are located c/o the Manager at 2099 South Dupont Avenue, Dover, Delaware 19901.
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<PAGE> 150
Pursuant to each LLC Agreement, the members of an American General LLC that
own Common Securities have unlimited liabilities for the debts, obligations and
liabilities of such American General LLC in the same manner as a general partner
of a Delaware limited partnership (which do not include obligations to holders
of Preferred Securities in their capacity as such), to the extent not fully
satisfied and discharged by such American General LLC. That liability on the
part of such members is for the benefit of, and is enforceable by, the
liquidating trustee of such American General LLC in the event of its dissolution
and is for the benefit of third parties to whom such American General LLC owes
such debts, obligations and liabilities. The holders of Preferred Securities, in
their capacity as members of an American General LLC, will not be liable for the
debts, obligations or liabilities of such American General LLC (subject to their
obligation to repay any funds wrongfully distributed to them).
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
The ratio of earnings to fixed charges is calculated by dividing total
fixed charges into earnings available for the payment of fixed charges. Earnings
available for the payment of fixed charges is the sum of fixed charges deducted
from income and income before tax expense, accounting changes, and preferred
stock dividends. Total fixed charges consist of interest expense, capitalized
interest, a portion of rental expense, and preferred stock dividends of
majority-owned subsidiaries.
The following table sets forth the ratio of earnings to fixed charges for
the periods indicated.
<TABLE>
<CAPTION>
THREE
MONTHS
ENDED MARCH
31, YEARS ENDED DECEMBER 31,
----------- -----------------------------------
1995 1994 1994 1993 1992 1991 1990
--- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges:
Consolidated operations................... 2.5 3.0 2.4 2.1 2.4 2.1 2.2
Consolidated operations, corporate (parent
company) fixed charges only............ 7.6 9.3 7.6 6.0 7.2 5.8 5.3
</TABLE>
Because no preferred stock dividends were paid in the periods reported
above (other than preferred stock dividends paid by a subsidiary in 1990), the
ratio of earnings to combined fixed charges and preferred stock dividends for
such periods is the same as the ratio of earnings to fixed charges.
USE OF PROCEEDS
Each of the American General LLCs will invest the proceeds received from
any sale by it of Preferred Securities in Junior Subordinated Debentures of
American General. Unless otherwise specified in the applicable Prospectus
Supplement, the net proceeds to be received by American General from the sale of
Junior Subordinated Debentures will be added to American General's general
corporate funds and may be used for repayment of long- or short-term
indebtedness or for general corporate purposes.
DESCRIPTION OF THE PREFERRED SECURITIES
The following is a summary of certain terms and provisions of the Preferred
Securities. Reference is made to the amended LLC Agreement of the applicable
American General LLC and the written action taken or to be taken pursuant to
such LLC Agreement establishing the rights, preferences, privileges, limitations
and restrictions relating to the Preferred Securities of each series (each, a
"Declaration"). The summaries set forth below and in the applicable Prospectus
Supplement address the material terms of the Preferred Securities of any
particular series but do not purport to be complete and are subject to, and
qualified in their entirety by reference to, the
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<PAGE> 151
applicable LLC Agreement and Declaration. Capitalized terms used in the
summaries below and not otherwise defined herein have the respective meanings
set forth in the applicable LLC Agreement and Declaration.
GENERAL
Each American General LLC is authorized to issue, from time to time, Common
Securities and Preferred Securities, in one or more series, with such dividend
terms, liquidation preferences per share, voting rights, redemption provisions,
conversion or exchange rights and other rights, preferences, privileges,
limitations and restrictions as are set forth in its LLC Agreement, the Delaware
Limited Liability Company Act (the "LLC Act") and the Declaration adopted or to
be adopted with respect to each such series. All of the Preferred Securities
which may be issued in one or more series by either American General LLC will
rank pari passu with each other series issued by such American General LLC with
respect to the payment of dividends and distribution of assets upon liquidation,
dissolution or winding-up. Holders of Preferred Securities will have no
preemptive rights and will not have the right to remove or replace the Manager
of either American General LLC. The holders of Preferred Securities, in their
capacity as members of an American General LLC, are not liable for the debts,
obligations or liabilities of such American General LLC (subject to their
obligation to repay any funds wrongfully distributed to them).
Reference is made to the Prospectus Supplement relating to the particular
series of Preferred Securities being offered thereby for the specific terms
thereof, including: (i) the particular American General LLC issuing such series
of Preferred Securities; (ii) the initial public offering price of such series
of Preferred Securities; (iii) the specific designation of such series of
Preferred Securities which shall distinguish it from other series; (iv) the
number of Preferred Securities included in such series, which number may be
increased or decreased from time to time unless otherwise provided by the
Manager in creating the series; (v) the annual dividend rate of Preferred
Securities of such series (or method of determining such rate) and when
dividends will accrue and be payable; (vi) whether dividends on Preferred
Securities of such series shall be cumulative, and, if so, the date or dates or
method of determining the date or dates from which dividends on Preferred
Securities of such series shall be cumulative; (vii) the amount or amounts which
shall be paid out of the assets of such American General LLC to the holders of
Preferred Securities of such series upon voluntary or involuntary liquidation,
dissolution or winding-up of such American General LLC; (viii) if applicable,
the price or prices at which, the date or dates on which, the period or periods
within which and the terms and conditions upon which Preferred Securities of
such series may be redeemed or purchased, in whole or in part, at the option of
such American General LLC or the Manager; (ix) the obligation, if any, of such
American General LLC to purchase or redeem Preferred Securities of such series
and the price or prices at which, the date or dates on which, the period or
periods within which and the terms and conditions upon which Preferred
Securities of such series shall be purchased or redeemed, in whole or in part,
pursuant to such obligation; (x) the voting rights, if any, of Preferred
Securities of such series in addition to those required by law, including the
number of votes per Preferred Security of such series and any requirement for
the approval by the holders of a certain specified percentage of Preferred
Securities of such series as a condition to specified action or amendments to
the LLC Agreement of such American General LLC or the applicable Declaration;
(xi) the terms and conditions, if any, under which Preferred Securities of such
series may be converted into shares of American General Common Stock, including
the conversion price per share and the circumstances, if any, under which any
such conversion right shall expire; (xii) the terms and conditions, if any,
under which Preferred Securities of such series may be exchanged for shares of a
series of American General Preferred Stock; (xiii) the terms and conditions, if
any, upon which the related series of Junior Subordinated Debentures may be
distributed to holders of Preferred Securities of such series; (xiv) if
applicable, any securities exchange upon which the Preferred Securities of such
series shall be listed; and (xv) any other rights, preferences, privileges,
limitations or restrictions of the Preferred Securities of such series (and such
Prospectus Supplement may state that any of the terms set forth herein are
inapplicable
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<PAGE> 152
to Preferred Securities of such series or are modified to the extent described
therein). All Preferred Securities offered hereby will be guaranteed by American
General to the extent set forth below under "Description of the Guarantees" and
in the applicable Prospectus Supplement. Certain federal income tax
considerations applicable to an investment in Preferred Securities will be
described in the Prospectus Supplement relating thereto.
BOOK-ENTRY-ONLY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depositary for
the Preferred Securities. Each series of Preferred Securities will be issued
only as fully-registered securities registered in the name of Cede & Co. (as
nominee for DTC). One or more fully-registered global Preferred Security
certificates will be issued by the applicable American General LLC, representing
in the aggregate the total number of Preferred Securities of a series, and will
be deposited with or on behalf of DTC.
DTC is a limited-purpose trust company organized under the New York Banking
Law, a "banking organization" within the meaning of the New York Banking Law, a
member of the Federal Reserve System, a "clearing corporation" within the
meaning of the New York Uniform Commercial Code and a "clearing agency"
registered pursuant to the provisions of Section 17A of the Exchange Act. DTC
holds securities that its participants ("Participants") deposit with DTC. DTC
also facilitates the settlement among Participants of securities transactions,
such as transfers and pledges, in deposited securities through electronic
computerized book-entry changes in Participants' accounts, thereby eliminating
the need for physical movement of securities certificates. Direct Participants
include securities brokers and dealers, banks, trust companies, clearing
corporations and certain other organizations ("Direct Participants"). DTC is
owned by a number of its Direct Participants and by the New York Stock Exchange,
Inc., the American Stock Exchange, Inc. and the National Association of
Securities Dealers, Inc. Access to the DTC system is also available to others
such as securities brokers and dealers, banks and trust companies that clear
through or maintain a custodial relationship with a Direct Participant, either
directly or indirectly ("Indirect Participants"). The rules applicable to DTC
and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
a Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct or Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased the Preferred
Securities. Transfers of ownership interests in Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners will not receive certificates representing
their ownership interests in a series of Preferred Securities, except upon a
resignation of DTC, upon the occurrence of an Event of Default (as defined
below) under the Junior Subordinated Indenture (as defined below) with respect
to the related series of Junior Subordinated Debentures or upon a decision by
the applicable American General LLC, approved by American General, to
discontinue the book-entry system for such series of Preferred Securities.
The laws of some jurisdictions require that certain purchasers take
physical delivery of securities in definitive form. Such laws may impair the
ability to transfer beneficial interests in a global Preferred Security.
DTC has no knowledge of the actual Beneficial Owners of the Preferred
Securities; DTC's records reflect only the identity of the Direct Participants
to whose accounts such Preferred Securities are credited, which may or may not
be the Beneficial Owners. The Participants will remain responsible for keeping
account of their holdings on behalf of their customers.
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Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants, and by Direct and
Indirect Participants to Beneficial Owners will be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in
effect from time to time.
Redemption notices with respect to the Preferred Securities will be sent to
Cede & Co. If less than all of a series of Preferred Securities are being
redeemed, DTC's practice is to determine by lot the amount of the interest of
each Direct Participant in such series to be redeemed.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the applicable American General
LLC as soon as possible after the record date. The Omnibus Proxy assigns Cede &
Co.'s consenting or voting rights to those Direct Participants to whose accounts
the Preferred Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy).
Dividend payments on the Preferred Securities will be made to DTC. DTC's
practice is to credit Direct Participants' accounts on the relevant payment date
in accordance with their respective holdings shown on DTC's records unless DTC
has reason to believe that it will not receive payments on such payment date.
Payments by Participants to Beneficial Owners will be governed by standing
instructions and customary practices and will be the responsibility of each
Participant and not of DTC, the American General LLCs or American General,
subject to any statutory or regulatory requirements as may be in effect from
time to time. Payment of dividends to DTC is the responsibility of the
applicable American General LLC, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
In order to convert a Preferred Security represented by a global Preferred
Security certificate, the Beneficial Owner must give notice of its election to
convert such Preferred Security, through its Direct or Indirect Participant, to
the Conversion Agent, and must effect delivery thereof by causing the Direct
Participant to transfer its interest in the related global Preferred Security
certificate, on DTC's records, to the Conversion Agent.
Except as provided herein, a Beneficial Owner in a global Preferred
Security will not be entitled to receive physical delivery of Preferred
Securities. Accordingly, each Beneficial Owner must rely on the procedures of
DTC and the applicable Participants to exercise any rights under any series of
the Preferred Securities.
DTC may discontinue providing its services as securities depositary with
respect to the Preferred Securities or any series thereof at any time by giving
reasonable notice to each applicable American General LLC. Under such
circumstances, in the event that a successor depositary is not obtained,
certificates representing the applicable series of Preferred Securities will be
printed and delivered. If an Event of Default occurs under the Junior
Subordinated Indenture with respect to the related series of Junior Subordinated
Debentures or if an American General LLC (with the consent of American General)
decides to discontinue use of the system of book-entry transfers through DTC (or
a successor depositary), certificates representing the applicable series of
Preferred Securities will be printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that American General and the American General
LLCs believe to be reliable, but neither American General, either American
General LLC nor any agent, underwriter or dealer takes responsibility for the
accuracy thereof.
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DESCRIPTION OF THE GUARANTEES
Set forth below is a summary of information concerning the separate
Guarantees which will be executed and delivered by American General to each
American General LLC. Each such Guarantee delivered to an American General LLC
will be for the benefit of the holders from time to time of the Preferred
Securities issued by the applicable American General LLC. The summary does not
purport to be complete and is subject in all respects to the provisions of, and
is qualified in its entirety by reference to, each Guarantee, a form of which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part.
GENERAL
American General will execute separate Guarantees with respect to all
Preferred Securities, regardless of series, issued by each American General LLC.
Pursuant to each Guarantee, American General will irrevocably and
unconditionally agree, on a subordinated basis and to the extent set forth
therein, to pay in full to the holders of the Preferred Securities of each
series issued by the applicable American General LLC, the Guarantee Payments (as
defined below) (except to the extent previously paid by such American General
LLC), as and when due, regardless of any defense, right of set-off or
counterclaim that such American General LLC may have or assert. The following
payments with respect to any series of Preferred Securities issued by an
American General LLC, to the extent not paid by such American General LLC, are
the "Guarantee Payments": (a) any accumulated and unpaid dividends (whether or
not earned) (including any additional dividends intended to provide monthly
compounding on dividend arrearages) which are required to be paid on any such
Preferred Securities, but only if and to the extent that such dividends have
been declared from funds of such American General LLC legally available
therefor; (b) the redemption price, including all accumulated and unpaid
dividends (whether or not earned or declared and including any additional
dividends intended to provide monthly compounding of dividend arrearages)
payable with respect to any such Preferred Securities called for redemption (the
"Redemption Price"), but only to the extent payable out of funds of such
American General LLC legally available therefor, and (c) upon a voluntary or
involuntary liquidation, dissolution, or winding-up of such American General LLC
other than in connection with or after the exchange, if applicable, of any such
Preferred Securities for the related series of Junior Subordinated Debentures,
the lesser of (i) the aggregate of the liquidation preference and all
accumulated and unpaid dividends (whether or not earned or declared and
including any additional dividends intended to provide monthly compounding on
dividend arrearages) on any such Preferred Securities to the date of payment and
(ii) the amount of assets of such American General LLC available for
distribution to holders of any such Preferred Securities in liquidation,
dissolution or winding-up of such American General LLC. American General's
obligation to make a Guarantee Payment in respect of a series of Preferred
Securities may be satisfied by American General's direct payment of the required
amounts to the holders of such series of Preferred Securities or by causing the
applicable American General LLC to pay such amounts to such holders.
If American General fails to make interest or redemption payments on a
series of Junior Subordinated Debentures held by an American General LLC, such
American General LLC will have insufficient funds to pay dividends on, the
Redemption Price of, or the liquidation distribution with respect to, the
related series of Preferred Securities. Upon the bankruptcy, liquidation or
winding-up of American General, its obligations under the Junior Subordinated
Debentures will rank junior to all Senior Indebtedness (as defined below) of
American General and, therefore, funds may not be available for payment on such
series of Junior Subordinated Debentures. The Guarantees do not cover payment of
dividends, the Redemption Price or the liquidation distribution when the
applicable American General LLC does not have sufficient funds legally available
to make such payments. Furthermore, upon any such bankruptcy, liquidation or
winding-up of American General, its obligations under the Guarantees will rank
junior to all its other liabilities and, therefore, funds may not be available
for payment under the Guarantees.
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The Guarantees will constitute guarantees of payment and not of collection.
Each Guarantee will be deposited with the Manager of the applicable American
General LLC to be held for the benefit of the holders of Preferred Securities
issued by such American General LLC. In the event of the appointment by the
holders of a series of Preferred Securities of a special trustee (a "Special
Trustee"), the Special Trustee may enforce such Guarantee to the extent it
relates to such series. The Prospectus Supplement with respect to each series of
Preferred Securities will set forth the procedures for the appointment of any
such Special Trustee. If no Special Trustee has been appointed to enforce such
Guarantee, the Manager of such American General LLC shall have the right to
enforce such Guarantee on behalf of the holders of such series of Preferred
Securities. The holders of not less than 66 2/3% of the aggregate liquidation
preference of such series of Preferred Securities then outstanding shall have
the right to direct the time, method and place of conducting any proceeding for
any remedy available with respect to such series of Preferred Securities under
such Guarantee, including the giving of directions to such Manager or Special
Trustee, as the case may be; provided, however, that, notwithstanding the
foregoing, each holder of such series of Preferred Securities shall have the
right to institute a legal proceeding directly against American General to
enforce its rights under such Guarantee, and American General waives any right
or remedy to require that any action be first brought against the applicable
American General LLC or any other person or entity before proceeding directly
against American General.
American General and each American General LLC believe that the provisions
of the Guarantees, when taken together with the obligations of American General
under the LLC Agreements and the Junior Subordinated Indenture, constitute full
and unconditional guarantees by American General of dividend, redemption and
liquidation payments due on the Preferred Securities. Absent a default by
American General under any of these agreements, all dividend, redemption and
liquidation payments on the Preferred Securities will be made and American
General is fully and unconditionally responsible for causing such payments to be
made.
CERTAIN COVENANTS OF AMERICAN GENERAL
In each Guarantee, American General will covenant and agree that, so long
as any Preferred Securities subject to such Guarantee remain outstanding,
American General will not declare or pay any dividend on, and American General
will not, and American General will not permit any of its majority-owned
subsidiaries to, redeem, purchase, acquire or make a liquidation payment with
respect to, any of American General's capital stock (other than (i) purchases or
acquisitions of shares of American General Common Stock in connection with the
satisfaction by American General or any of its majority-owned subsidiaries of
its obligations under any employee benefit plans or the satisfaction by American
General of its obligations pursuant to any put contract requiring American
General to purchase shares of American General Common Stock, (ii) as a result of
a reclassification of American General's capital stock or the exchange or
conversion of one class or series of American General's capital stock for
another class or series of American General's capital stock, (iii) redemptions
or purchases of any share purchase rights issued by American General pursuant to
the Rights Agreement (see "Description of American General Common
Stock -- Preferred Share Purchase Rights") or the declaration and payment of a
dividend of similar share purchase rights in the future or (iv) the purchase of
fractional interests in shares of American General's capital stock pursuant to
the conversion or exchange provisions of such American General capital stock or
the security being converted or exchanged) or make any guarantee payments with
respect to the foregoing, if at such time American General has exercised its
option to extend an interest payment period on the series of Junior Subordinated
Debentures related to such Preferred Securities and such extension is
continuing, American General is in default with respect to its payment or other
obligations under such Guarantee or there has occurred and is continuing any
Event of Default under the Junior Subordinated Indenture with respect to the
series of Junior Subordinated Debentures related to such Preferred Securities.
American General will covenant to take all actions necessary to ensure the
compliance of its majority-owned subsidiaries with the above covenant.
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In each Guarantee, American General will also covenant that, so long as any
Preferred Securities subject to such Guarantee remain outstanding, it will (a)
not cause or permit any Common Securities to be transferred (other than, in the
case of American General, in connection with a merger or consolidation permitted
under the Junior Subordinated Indenture as described under "-- Consolidation,
Merger and Sale" or, in the case of the Manager, in connection with any merger
or consolidation involving the Manager), (b) maintain direct or indirect
ownership of all outstanding Common Securities and other limited liability
company interests in the applicable American General LLC other than any series
of Preferred Securities (except as permitted in the applicable LLC Agreement),
(c) cause at least 21% of all interests in the capital, income, gain, loss,
deduction and credit of such American General LLC to be represented by Common
Securities, (d) not voluntarily liquidate, dissolve or wind-up itself (other
than in connection with a merger or consolidation permitted under the Junior
Subordinated Indenture as described under "-- Consolidation, Merger and Sale"),
or permit the Manager (other than in connection with any merger or consolidation
involving the Manager) or such American General LLC (other than in connection
with or after an exchange of all outstanding series of Preferred Securities of
such American General LLC for the related series of Junior Subordinated
Debentures, if so provided in the applicable Declaration) to liquidate, dissolve
or wind-up, (e) cause American General Delaware Management Corporation or any
successor thereto by merger or consolidation to remain the Manager and to timely
perform all of its duties as Manager of such American General LLC (including the
duty to cause such American General LLC to declare and pay dividends on such
Preferred Securities to the extent set forth in the applicable LLC Agreement and
Declaration) and (f) subject to the terms of such Preferred Securities, use
reasonable efforts to cause such American General LLC to remain a Delaware
limited liability company and otherwise continue to be treated as a partnership
for United States federal income tax purposes.
In each Guarantee, American General will further agree to honor all its
obligations, if any, relating to the conversion or exchange of Preferred
Securities subject to such Guarantee into or for shares of American General
Common Stock or the related series of American General Preferred Stock. Such
obligations, if any, will be described in the applicable Prospectus Supplement.
STATUS OF THE GUARANTEES
The Guarantees will constitute unsecured obligations of American General
and will rank (i) subordinate and junior in right of payment to all other
liabilities of American General other than the guarantees referred to in clauses
(ii) and (iii) below, (ii) pari passu with the most senior preferred stock
issued by American General and with any other guarantee executed by American
General in respect of any preferred stock or interest of any affiliate of
American General that provides that such guarantee is pari passu in right of
payment with the Guarantees and (iii) senior to American General Common Stock,
any other class or series of capital stock issued by American General which by
its express terms ranks junior to the most senior preferred stock issued by
American General as to the payment of dividends and the distribution of assets
upon the liquidation, dissolution or winding-up of American General and any
guarantee executed by American General that provides that such guarantee is
junior in right of payment to the Guarantees. Upon the liquidation, dissolution
or winding-up of American General, its obligations under the Guarantees will
rank junior to all of its other liabilities (other than those guarantees
referred to in clauses (ii) and (iii) above) and, therefore, funds may not be
available for payment under the Guarantees. The LLC Agreement of each American
General LLC provides that each holder of Preferred Securities issued by such
American General LLC by acceptance thereof agrees to the subordination
provisions and other terms of the Guarantee relating thereto.
AMENDMENTS AND ASSIGNMENT
Except with respect to any changes which do not adversely affect the rights
of holders of Preferred Securities (in which case no vote will be required),
each Guarantee may be amended with
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respect to each series of Preferred Securities subject to such Guarantee and
affected by such amendment only with the prior approval of the holders of not
less than 66 2/3% of the aggregate liquidation preference of the outstanding
Preferred Securities of such series. The manner of obtaining any such approval
of holders of such Preferred Securities will be as set forth in the applicable
Prospectus Supplement. All provisions contained in a Guarantee will bind the
successors, assigns, receivers, trustees and representatives of American General
and will inure to the benefit of the holders of the Preferred Securities of the
applicable American General LLC then outstanding. Except in connection with any
merger or consolidation of American General into or with another entity as
permitted under "Description of the Junior Subordinated
Debentures -- Consolidation, Merger and Sale," American General may not assign
its rights or delegate its obligations under a Guarantee without the prior
approval of the holders of not less than 66 2/3% of the aggregate liquidation
preference of the outstanding Preferred Securities of all series subject to such
Guarantee voting as a single class.
TERMINATION
Each Guarantee will terminate as to the Preferred Securities of any
particular series subject thereto upon (a) full payment of the Redemption Price
of all outstanding Preferred Securities of such series, (b) if applicable, the
conversion of all outstanding Preferred Securities of such series into shares of
American General Common Stock or other property, (c) if applicable, the exchange
of all outstanding Preferred Securities of such series for shares of the related
series of American General Preferred Stock or (d) if applicable, the exchange of
all outstanding Preferred Securities of such series for the related series of
Junior Subordinated Debentures. In addition, each Guarantee will terminate
completely upon full payment of the amounts payable with respect to all
Preferred Securities subject to such Guarantee upon liquidation, dissolution or
winding-up of such American General LLC. Notwithstanding the foregoing, each
Guarantee will continue to be effective or (to the fullest extent permitted by
law) will be reinstated, as the case may be, with respect to the applicable
Preferred Securities of any holder who has been required to restore payment of
any sums received on account of, or to redeliver any securities received on
account of, such Preferred Securities or the Guarantee relating thereto.
GOVERNING LAW
The Guarantees will be governed by, and construed in accordance with, the
laws of the State of New York.
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a summary of information concerning the Junior
Subordinated Debentures which will be issued from time to time in one or more
series under an Indenture, dated as of May , 1995 (the "Junior Subordinated
Indenture"), between American General and Chemical Bank, as trustee (the "Junior
Subordinated Trustee"). Concurrently with the issuance of each series of
Preferred Securities, the American General LLC issuing such Preferred Securities
will invest the proceeds thereof, together with substantially all the proceeds
from any related issuance of Common Securities, in a series of the Junior
Subordinated Debentures. The following summary does not purport to be complete
and is subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the Junior Subordinated Indenture, a form of which is
filed as an exhibit to the Registration Statement of which this Prospectus forms
a part. Whenever particular provisions or defined terms in the Junior
Subordinated Indenture are referred to herein or in a Prospectus Supplement, it
is intended that such provisions or defined terms are incorporated by reference
herein or therein, as the case may be.
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GENERAL
The Junior Subordinated Debentures will be unsecured, subordinated
obligations of American General as hereinafter described. The Junior
Subordinated Indenture does not limit the aggregate principal amount of Junior
Subordinated Debentures which may be issued thereunder and provides that the
Junior Subordinated Debentures may be issued thereunder from time to time in one
or more series pursuant to an indenture supplemental to the Junior Subordinated
Indenture or a resolution of American General's Board of Directors or in a
manner specified in or authorized by a Board resolution (each, a "Supplemental
Junior Subordinated Indenture"). The aggregate principal amount of Junior
Subordinated Debentures relating to the Preferred Securities of any series will
be set forth in the Prospectus Supplement for such series of Preferred
Securities and will be equal to 99% of the sum of the aggregate liquidation
preference of the Preferred Securities for such series and the purchase price
paid by American General and its subsidiaries for Common Securities of the
applicable American General LLC, and any related capital contributions made, in
connection with the issuance of such series of Preferred Securities.
Reference is made to the Prospectus Supplement relating to the particular
series of Preferred Securities being offered thereby for the specific terms of
the series of Junior Subordinated Debentures relating to such series of
Preferred Securities, including: (i) the specific title of such Junior
Subordinated Debentures; (ii) any limit on the aggregate principal amount of
such Junior Subordinated Debentures; (iii) the date or dates on which the
principal of such Junior Subordinated Debentures is payable and the terms, if
any, on which American General may reborrow the proceeds of such payment or
exchange securities for such Junior Subordinated Debentures when a principal
payment is due; (iv) the rate or rates at which such Junior Subordinated
Debentures will bear interest or the method of determination of such rate or
rates; (v) the date or dates from which such interest shall accrue, the interest
payment dates on which such interest will be payable, or the manner of
determination of such interest payment dates, the record dates for the
determination of holders to whom interest is payable on any such interest
payment dates, and the basis on which interest will accrue if other than that of
a 360-day year of twelve 30-day months; (vi) the right, if any, of American
General to extend the interest payment periods of such Junior Subordinated
Debentures, the maximum duration of any such extension or extensions and the
additional interest, if any, payable on such Junior Subordinated Debentures if
an interest payment period is extended; (vii) the date or dates on which, the
period or periods within which, the price or prices at which and the terms and
conditions upon which, if any, such Junior Subordinated Debentures may be
redeemed, in whole or in part, at the option of American General; (viii) the
obligation, if any, of American General to redeem or repay such Junior
Subordinated Debentures pursuant to any sinking fund or analogous provisions or
at the option of the holder thereof or upon the occurrence of one or more
specified events and the date or dates on which, the period or periods within
which (or the event or events upon which), the price or prices at which and the
terms and conditions upon which, if any, such Junior Subordinated Debentures
shall be redeemed or repaid, in whole or part, pursuant to such obligation, and
any provisions for the remarketing of such Junior Subordinated Debentures so
redeemed or repaid; (ix) the terms and conditions, if any, upon which such
Junior Subordinated Debentures may be converted into shares of American General
Common Stock or exchanged for shares of a series of American General Preferred
Stock, including the conversion or exchange price and the circumstances under
which any such conversion or exchange right shall expire; (x) the form of such
Junior Subordinated Debentures, including whether such Junior Subordinated
Debentures are issuable as a global security, and in such case, the identity of
the depositary; (xi) the denominations in which such Junior Subordinated
Debentures shall be issuable if other than denominations of $25 and any integral
multiple thereof; (xii) any modifications to the Events of Default or covenants
of the Company with respect to such series of Junior Subordinated Debentures and
any change in rights to declare the principal of such series of Junior
Subordinated Debentures to be immediately due and payable; (xiii) the terms and
conditions, if any, under which the Junior Subordinated Indenture may be
defeased with respect to such Junior Subordinated Debentures; (xiv) whether and
under what circumstances additional amounts on such Junior
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Subordinated Debentures shall be payable, and, if so, whether American General
has the option to redeem such Junior Subordinated Debentures rather than pay
such additional amounts; (xv) any restrictions on the transferability of such
Junior Subordinated Debentures; and (xvi) any other terms of such Junior
Subordinated Debentures. (Section 301)
The Junior Subordinated Indenture does not contain any provisions that
limit American General's ability to incur indebtedness or impose liens on its
assets or that afford holders of Junior Subordinated Debentures protection in
the event of a highly leveraged or similar transaction involving American
General.
SUBORDINATION
The Junior Subordinated Indenture provides that the Junior Subordinated
Debentures are subordinate and junior in right of payment to all Senior
Indebtedness of American General in the manner described below. (Article
Thirteen)
Upon any payment or distribution of assets of American General to creditors
upon any liquidation, dissolution, winding-up, reorganization, assignment for
the benefit of creditors, marshalling of assets or liabilities or any
bankruptcy, insolvency or similar proceedings of American General, the holders
of Senior Indebtedness will be entitled to receive payment in full in cash of
all amounts due on or to become due on or in respect of all Senior Indebtedness
(including any interest accruing thereon after commencement of such
proceedings), before the holders of the Junior Subordinated Debentures will be
entitled to receive any payment (other than payment in shares of stock or other
subordinated securities issued in a reorganization proceeding or payments from
funds previously deposited in trust to defease one or more series of Junior
Subordinated Debentures under the Junior Subordinated Indenture) on account of
the principal of, premium, if any, or interest on the Junior Subordinated
Debentures or on account of any purchase, redemption or other acquisition of the
Junior Subordinated Debentures by American General. (Section 1302)
The holders of the Junior Subordinated Debentures of each series will be
subrogated to the rights of the holders of the Senior Indebtedness to the extent
of payments made to the holders of Senior Indebtedness out of the distributive
share of such series of Junior Subordinated Debentures. (Section 1305)
American General may not make any payments in respect of the Junior
Subordinated Debentures or on account of the purchase, redemption or other
acquisition of the Junior Subordinated Debentures (other than payment in shares
of stock or other subordinated securities issued in a reorganization proceeding
or payments from funds previously deposited in trust to defease one or more
series of Junior Subordinated Debentures under the Junior Subordinated
Indenture), if there has occurred and is continuing a default in the payment of
the principal of (or premium, if any) or interest on any Senior Indebtedness (a
"Senior Payment Default"). In addition, if any event of default (other than a
Senior Payment Default), or any event which after notice or lapse of time (or
both) would become an event of default, with respect to Senior Indebtedness,
permitting the holders thereof (or a trustee or agent on behalf of the holders
thereof) to accelerate the maturity thereof has occurred and is continuing (a
"Senior Nonmonetary Default"), and American General or the Junior Subordinated
Trustee have received written notice thereof from a holder of such Senior
Indebtedness or a trustee on behalf of a holder of such Senior Indebtedness,
then American General may not make any payments in respect of the Junior
Subordinated Debentures or on account of the purchase, redemption or other
acquisition of the Junior Subordinated Debentures (other than payment in shares
of stock or other subordinated securities issued in a reorganization proceeding
or payments from funds previously deposited in trust to defease one or more
series of Junior Subordinated Debentures under the Junior Subordinated
Indenture), for a period (a "blockage period") commencing on the date American
General or the Junior Subordinated Trustee receive such written notice and
ending on the earlier of (i) 179 days after such date and (ii) the date, if any,
on which the Senior Indebtedness to which such default relates is discharged or
such
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default is waived in writing or otherwise cured or ceases to exist and any
acceleration of Senior Indebtedness to which such Senior Nonmonetary Default
relates is rescinded or annulled.
In any event, not more than one blockage period may be commenced during any
period of 360 consecutive days, and there must be a period of at least 181
consecutive days in each period of 360 consecutive days when no blockage period
is in effect. Following the commencement of a blockage period, the holders of
Senior Indebtedness will be precluded from commencing a subsequent blockage
period until the conditions set forth in the preceding sentence are satisfied.
No Senior Nonmonetary Default that existed or was continuing on the date of
commencement of any blockage period with respect to the Senior Indebtedness
initiating such blockage period will be, or can be, made the basis for the
commencement of a subsequent blockage period, unless such default has been cured
for a period of not less than 90 consecutive days. (Section 1303)
The term "Senior Indebtedness" shall mean the principal of, and any premium
and interest on, and any other payment due pursuant to, any of the following,
whether outstanding at the date of execution of the Junior Subordinated
Indenture or thereafter incurred, created or assumed:
(a) all obligations of American General for money borrowed;
(b) all obligations of American General evidenced by notes,
debentures, bonds or other securities, including, without limitation,
American General's 13 1/2% Restricted Subordinated Notes Due 2002 and any
obligations incurred, created or assumed in connection with the acquisition
of property, assets or businesses;
(c) all Capitalized Lease Obligations of American General;
(d) all reimbursement obligations of American General with respect to
letters of credit, bankers acceptances or similar facilities issued for the
account of American General;
(e) all obligations of American General issued or assumed as the
deferred purchase price of property or services (but excluding trade
accounts payable or accrued liabilities arising in the ordinary course of
business);
(f) all payment obligations of American General under any interest
rate, currency or commodity swap agreement, option agreement, hedge
agreement, forward contract, or similar agreement designed to protect
American General or another person against fluctuations in interest rates,
exchange rates or commodity prices;
(g) all obligations of the type referred to in clauses (a) through (f)
above of another person and all dividends of another person, the payment of
which, in either case, American General has assumed or guaranteed, or for
which American General is responsible or liable, directly or indirectly,
jointly or severally, as obligor, guarantor or otherwise; and
(h) all amendments, modifications, renewals, extensions, refinancings,
replacements and refundings by American General of any such indebtedness
referred to in clauses (a) through (g) above (and of any such amended,
modified, renewed, extended, refinanced, replaced or refunded indebtedness
or obligations);
other than (i) any indebtedness, renewal, extension, refinancing, replacement,
refunding, assumption, guarantee or other obligation which expressly provides,
or in the instrument creating or evidencing the same or the assumption or
guarantee of the same it is expressly provided, that such indebtedness, renewal,
extension, refinancing, replacement, refunding, assumption, guarantee or other
obligation is junior in right of payment to or is pari passu with the Junior
Subordinated Debentures; and (ii) each Guarantee. Such Senior Indebtedness shall
continue to be Senior Indebtedness and entitled to the benefits of the
subordination provisions irrespective of any amendment, modification or waiver
of any term of such Senior Indebtedness.
By reason of such subordination, in the event of an insolvency, creditors
of American General who are holders of Senior Indebtedness, as well as certain
general creditors of American General,
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may recover more, ratably, than the holders of the Junior Subordinated
Debentures. Additionally, American General currently conducts substantially all
of its operations through subsidiaries, and the holders of Junior Subordinated
Debentures will be structurally subordinated to the creditors of American
General's subsidiaries. See "American General."
The Junior Subordinated Indenture does not limit the aggregate amount of
Senior Indebtedness which may be issued. As of March 31, 1995, Senior
Indebtedness of American General aggregated approximately $2.8 billion.
CERTAIN COVENANTS OF AMERICAN GENERAL
In the Junior Subordinated Indenture, American General will covenant for
the benefit of the holders of each series of Junior Subordinated Debentures that
American General shall not declare or pay any dividend on, and American General
shall not, and American General shall not permit any of its majority-owned
subsidiaries to, redeem, purchase, acquire or make a liquidation payment with
respect to, any of American General's capital stock (other than (i) acquisitions
of shares of American General Common Stock in connection with the satisfaction
by American General or any of its majority-owned subsidiaries of its obligations
under any employee benefit plans or the satisfaction by American General of its
obligations pursuant to any put contract requiring American General to purchase
shares of American General Common Stock, (ii) as a result of a reclassification
of capital stock or the exchange or conversion of one class or series of capital
stock for another class or series of capital stock, (iii) redemptions of any
share purchase rights issued by American General pursuant to the Rights
Agreement (see "Description of American General Common Stock -- Preferred Share
Purchase Rights") or the declaration and payment of a dividend of similar share
purchase rights in the future, or (iv) the purchase of fractional interests in
shares of capital stock pursuant to conversion or exchange provisions of such
capital stock or the security being converted or exchanged) or make any
guarantee payments with respect to the foregoing, if at such time American
General has exercised its option to extend the interest payment period on such
series of Junior Subordinated Debentures and such extension is continuing,
American General is in default with respect to its payment or other obligations
under the Guarantee with respect to any outstanding series of Preferred
Securities related to such series of Junior Subordinated Debentures or there has
occurred and is continuing any Event of Default under the Junior Subordinated
Indenture with respect to such series of Junior Subordinated Debentures.
American General is required to take all actions necessary to ensure the
compliance of its majority-owned subsidiaries with the above covenant. (Section
1006)
In the Junior Subordinated Indenture, American General also will covenant
for the benefit of the holders of each series of Junior Subordinated Debentures
that, so long as the related series of Preferred Securities remains outstanding,
it will (a) not cause or permit any Common Securities to be transferred (other
than, in the case of American General, in connection with a merger or
consolidation permitted under the Junior Subordinated Indenture as described
under "-- Consolidation, Merger and Sale" or, in the case of the Manager, in
connection with any merger or consolidation involving the Manager), (b) maintain
direct or indirect ownership of all outstanding Common Securities and other
limited liability company interests in the applicable American General LLC other
than any series of Preferred Securities (except as permitted in the applicable
LLC Agreement), (c) cause at least 21% of all interests in the capital, income,
gain, loss, deduction and credit of such American General LLC to be represented
by Common Securities, (d) not voluntarily liquidate, dissolve or wind-up itself
(other than in connection with a merger or consolidation permitted under the
Junior Subordinated Indenture as described under "-- Consolidation, Merger and
Sale"), or permit the Manager (other than in connection with any merger or
consolidation involving the Manager) or such American General LLC (other than in
connection with or after an exchange of all outstanding series of Preferred
Securities of such American General LLC for the related series of Junior
Subordinated Debentures, if so provided in the applicable Declaration), to
liquidate, dissolve or wind-up, (e) cause American General Delaware Management
Corporation or
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any successor thereto by merger or consolidation to remain the Manager and to
timely perform all of its duties as Manager of such American General LLC
(including the duty to cause such American General LLC to declare and pay
dividends on such Preferred Securities to the extent set forth in the applicable
LLC Agreement and Declaration) and (f) if so provided in the Prospectus
Supplement pertaining to such Preferred Securities, to deliver American General
Preferred Stock or American General Common Stock, as the case may be, upon an
election by the holders of such Preferred Securities to exchange or convert such
series of Junior Subordinated Debentures. (Section 1007)
Compliance by the Company with any of the covenants described above can be
waived by the holders of a majority of the aggregate principal amount of the
related series of Junior Subordinated Debentures then outstanding and, so long
as the Preferred Securities of the related series are outstanding, the consent
or approval of at least 66 2/3% of the aggregate liquidation preference of the
Preferred Securities of such series. (Section 1009)
FORM, EXCHANGE, REGISTRATION AND TRANSFER
Junior Subordinated Debentures of each series will be issued in registered
form and in either certificated form or will be represented by one or more
global securities. If any Junior Subordinated Debentures of a series are
represented by one or more global securities, the applicable Prospectus
Supplement will describe the circumstances, if any, under which beneficial
owners of interests in any such global securities may exchange such interests
for Junior Subordinated Debentures of such series in certificated form and of
like tenor and principal amount in any authorized denomination. Principal of and
any premium and interest on a global security will be payable in the manner
described in the Prospectus Supplement.
If not represented by one or more global securities, Junior Subordinated
Debentures may be presented for registration of transfer (with the form of
transfer endorsed thereon duly executed) or exchange, at the office of the
Debenture Registrar or at the office of any transfer agent designated by
American General for such purpose with respect to any series of Junior
Subordinated Debentures and referred to in the applicable Prospectus Supplement,
without service charge and upon payment of any taxes and other governmental
charges as described in the Junior Subordinated Indenture. Such transfer or
exchange will be effected upon the Debenture Registrar or such transfer agent,
as the case may be, being satisfied with the documents of title and identity of
the person making the request and subject to such reasonable regulations as
American General may prescribe. American General has appointed the Junior
Subordinated Trustee as Debenture Registrar with respect to the Junior
Subordinated Debentures. If a Prospectus Supplement refers to any transfer
agents (in addition to the Debenture Registrar) initially designated by American
General with respect to any series of Junior Subordinated Debentures, American
General 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,
except that American General will be required to maintain a transfer agent in
each Place of Payment for such series. American General may at any time
designate additional transfer agents with respect to any series of Junior
Subordinated Debentures. (Sections 305 and 1002)
In the event of any redemption of a series of Junior Subordinated
Debentures in part, American General shall not be required to (i) issue,
register the transfer of or exchange Junior Subordinated Debentures of any
series during a period beginning at the opening of business 15 days before any
selection for redemption of such Junior Subordinated Debentures of like tenor
and of the same series and ending at the close of business on the day of the
mailing of the relevant notice of redemption or (ii) register the transfer of or
exchange any such Junior Subordinated Debentures so selected for redemption, in
whole or in part, except the unredeemed portion of any such Junior Subordinated
Debentures being redeemed in part. Similarly, if a Junior Subordinated Debenture
is subject to repayment at the option of the holder, American General shall not
be required to register the transfer or exchange of any Junior Subordinated
Debenture so surrendered for repayment. (Section 305)
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PAYMENT AND PAYING AGENTS
Unless otherwise indicated in an applicable Prospectus Supplement, payment
of principal of and premium (if any) on any series of Junior Subordinated
Debentures will be made only against surrender to the Paying Agent of such
Junior Subordinated Debentures. Unless otherwise indicated in the applicable
Prospectus Supplement, principal of and any premium, if any, and interest on
Junior Subordinated Debentures will be payable, subject to any applicable laws
and regulations, at the office of such Paying Agent or Paying Agents as American
General may designate from time to time, except that at the option of American
General payment of any interest may be made by check mailed to the address of
the person entitled thereto as such address shall appear in the Debenture
Register with respect to such Junior Subordinated Debentures or by wire transfer
to an account maintained at a bank located in the United States or by any other
means described in the Prospectus Supplement. Unless otherwise indicated in the
applicable Prospectus Supplement, payment of interest on a Junior Subordinated
Debenture on any interest payment date will be made to the person in whose name
such Junior Subordinated Debenture (or Predecessor Security) is registered at
the close of business on the record date for such interest payment. (Section
307)
Unless otherwise specified in the applicable Prospectus Supplement, the
Junior Subordinated Trustee will act as Paying Agent with respect to the Junior
Subordinated Debentures. American General may at any time designate additional
Paying Agents or rescind the designation of any Paying Agents or approve a
change in the office through which any Paying Agent acts, except that American
General will be required to maintain a Paying Agent in each Place of Payment for
each series of Junior Subordinated Debentures. (Section 1002)
All monies paid by American General to a Paying Agent for the payment of
the principal of or any premium or interest on any Junior Subordinated Debenture
of any series which remain unclaimed at the end of two years after such
principal, premium or interest shall have become due and payable will be repaid
to American General and the holder of such Junior Subordinated Debenture will
thereafter look only to American General for payment thereof. (Section 1003)
MODIFICATION OF THE JUNIOR SUBORDINATED INDENTURE
The Junior Subordinated Indenture may be amended by American General and
the Junior Subordinated Trustee, with the consent of the holders of a majority
in aggregate principal amount of the Junior Subordinated Debentures of each
series affected thereby, to modify the Junior Subordinated Indenture or any
Supplemental Junior Subordinated Indenture affecting that series or the rights
of the holders of that series of Junior Subordinated Debentures; provided, that
no such modification or amendment may, without the consent of the holder of each
outstanding Junior Subordinated Debenture affected thereby, (a) change the
maturity of the principal of, or any installment of the principal of or interest
on, any Junior Subordinated Debenture or change any obligation of American
General to pay certain Additional Amounts described in a Prospectus Supplement,
(b) reduce the principal amount of, or any premium payable upon the redemption
of or the rate or amount of interest on, any Junior Subordinated Debenture, (c)
change the place (except as otherwise permitted when additional paying agents
are selected or removed) or currency of payment of principal of, or any premium
or interest on, any Junior Subordinated Debenture, (d) impair the right to
institute suit for the enforcement of any payment on or with respect to any
Junior Subordinated Debenture or for the conversion or exchange of any Junior
Subordinated Debenture in accordance with its terms, (e) adversely affect any
right to convert or exchange any Junior Subordinated Debenture, (f) modify the
subordination provisions in a manner adverse to the holder of any Junior
Subordinated Debenture, (g) reduce the above-stated percentage of outstanding
Junior Subordinated Debentures of a series necessary to modify or amend the
Junior Subordinated Indenture with respect to such series of Junior Subordinated
Debentures or (h) reduce the percentage of aggregate principal amount of
outstanding Junior Subordinated Debentures of a series necessary for waiver of
compliance with certain provisions of the Junior Subordinated Indenture
applicable to such series of Junior Subordinated Debentures or for waiver of
certain
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defaults with respect to such series of Junior Subordinated Debentures or reduce
certain requirements relating to quorums and voting at meetings. (Section 902)
So long as an American General LLC holds the Junior Subordinated Debentures
of any series, it may not waive compliance with the provisions of the Junior
Subordinated Indenture benefiting the related series of Preferred Securities or
modify or amend the Junior Subordinated Indenture without the approval of the
same percentage of the aggregate liquidation preference of the holders of
Preferred Securities of the related series as would be required if the holders
of such Preferred Securities then held such Junior Subordinated Debentures.
(Section 903)
In addition, American General and the Junior Subordinated Trustee may
execute, without the consent of any holder of Junior Subordinated Debentures,
any Supplemental Junior Subordinated Indenture (a) to evidence the succession of
another corporation to American General and the assumption of the covenants of
American General; (b) to add to the covenants of American General for the
benefit of the holders of all or any series of Junior Subordinated Debentures or
to surrender any right or power conferred upon American General; (c) to add any
additional Events of Default with respect to all or any series of Junior
Subordinated Debentures; (d) to change or eliminate any restrictions on the
payment of the principal of or any premium or interest on Junior Subordinated
Debentures, to modify the provisions relating to global Junior Subordinated
Debentures, or to permit the issuance of Junior Subordinated Debentures in
bearer or uncertificated form, provided any such action does not adversely
affect the interests of the holders of the Junior Subordinated Debentures of any
series in any material respect; (e) to add to, change or eliminate any provision
of the Junior Subordinated Indenture, provided that such Supplemental Junior
Subordinated Indenture shall become effective only if there is no outstanding
Junior Subordinated Debentures of any series then entitled to the benefit of
such provision or such amendment does not apply to any then Outstanding Junior
Subordinated Debentures; (f) to secure the Junior Subordinated Debentures; (g)
to establish the form or terms of the Junior Subordinated Debentures of any
series; (h) to provide for the acceptance of appointment by a successor Trustee
with respect to the Junior Subordinated Debentures of one or more series and to
add to or change any of the provisions as shall be necessary to provide for or
facilitate the administration of the trusts under the Junior Subordinated
Indenture by more than one Junior Subordinated Trustee; (i) to provide for the
discharge of the Junior Subordinated Indenture with respect to the Junior
Subordinated Debentures of any series by the deposit of monies or government
obligations in trust; (j) to change the conditions, limitations and restrictions
on the authorized amount, terms or provisions of issuance, authentication and
delivery of the Junior Subordinated Debentures as set forth in the Junior
Subordinated Indenture and the Prospectus Supplement relating thereto; (k) to
provide for conversion or exchange rights of any series of Junior Subordinated
Debentures pursuant to the requirements of the instrument authorizing such
series; (l) to limit or terminate the benefit to the holders of Senior
Indebtedness of the subordination provisions contained in the Junior
Subordinated Indenture; or (m) to cure any ambiguity, defect or inconsistency in
the Junior Subordinated Indenture, or to make other provisions with respect to
matters or questions arising under the Junior Subordinated Indenture, provided
such action does not adversely affect the interests of the holders of the Junior
Subordinated Debentures of any series in any material respect. (Section 901)
EVENTS OF DEFAULT
The Junior Subordinated Indenture provides that, unless a Prospectus
Supplement relating to a particular series of Junior Subordinated Debentures
provides otherwise, any one or more of the following events, which has occurred
and is continuing, constitutes an "Event of Default" with respect to any
particular series of Junior Subordinated Debentures:
(a) failure to pay any interest (including any Additional Interest (as
defined in the Junior Subordinated Indenture)) on the Junior Subordinated
Debentures of that series when due and such failure continues for a period
of 10 days; provided that (i) a valid extension of the interest payment
period by American General shall not constitute a default in the payment of
interest for
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this purpose, and (ii) no such default shall be deemed to exist if, on or
prior to the date on which such interest became due, American General shall
have made a payment, sufficient to pay such interest pursuant to the
Guarantee with respect to the series of Preferred Securities related to
such series of Junior Subordinated Debentures; or
(b) failure to pay principal of (or premium, if any, on) the Junior
Subordinated Debentures of that series when due, whether at maturity, upon
redemption, by declaration of acceleration or otherwise, or to make any
sinking fund payment with respect to that series; provided that (i) no such
default shall be deemed to exist if, on or prior to the date on which such
principal or premium, if any became due, American General shall have made a
payment, sufficient to pay such principal or premium, if any, pursuant to
the Guarantee related to such series of Junior Subordinated Debentures and
(ii) a valid exchange of a Junior Subordinated Debenture for a Junior
Subordinated Debenture of another series pursuant to the provisions
permitting such exchange shall not constitute a default in the payment of
the principal of the Junior Subordinated Debenture being exchanged; or
(c) if applicable, failure by American General to deliver shares of
the applicable series of American General Preferred Stock or American
General Common Stock upon an appropriate election by holders of the related
series of Preferred Securities to exchange or convert such Preferred
Securities; or
(d) failure by American General to observe or perform in any material
respect any other covenant (other than those specifically relating to
another series) contained in the Junior Subordinated Indenture or the
Junior Subordinated Debentures of that series continued for 90 days after
written notice to American General from the Junior Subordinated Trustee or
to American General and the Junior Subordinated Trustee from the holders of
at least 25% in aggregate outstanding principal amount of the Junior
Subordinated Debentures of such series or the holders of at least 25% in
aggregate liquidation preference of the Preferred Securities of the series
related to such series of Junior Subordinated Debentures; or
(e) the liquidation, dissolution or winding-up of the American General
LLC that holds such series of Junior Subordinated Debentures, except in
connection with or after the exchange of Preferred Securities for Junior
Subordinated Debentures or American General Preferred Stock or in
connection with certain mergers or consolidations permitted by the
applicable LLC Agreement; or
(f) certain events of bankruptcy, insolvency or reorganization of
American General; or
(g) any other Event of Default with respect to such series of Junior
Subordinated Debentures described in the applicable Prospectus Supplement.
If an Event of Default under the Junior Subordinated Indenture shall occur
and be continuing with respect to a particular series of Junior Subordinated
Debentures (other than an Event of Default described in clause (f) above, which
shall result in the immediate acceleration of the maturity of such series of
Junior Subordinated Debentures), then the Junior Subordinated Trustee or the
holders of not less than 25% in aggregate outstanding principal amount of such
series of Junior Subordinated Debentures may declare the principal thereof due
and payable immediately. The holders of a majority in aggregate outstanding
principal amount of such series (with the consent of the holders of at least
66 2/3% of the aggregate liquidation preference of the related series of
Preferred Securities if such series is then outstanding), however, may annul
such declaration if such Event of Default has been cured and a sum sufficient to
pay all matured principal, premium, if any, and interest has been deposited with
the Junior Subordinated Trustee. (Section 502)
The holders of a majority in aggregate outstanding principal amount of any
series of Junior Subordinated Debentures will have the right to direct the time,
method and place of conducting any proceeding for any remedy available to the
Junior Subordinated Trustee or the exercise of any trust
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or power conferred on the Junior Subordinated Trustee with respect to the Junior
Subordinated Debentures of such series. (Section 512)
The holders of a majority in aggregate outstanding principal amount of the
Junior Subordinated Debentures of any series may, on behalf of the holders of
all the Junior Subordinated Debentures of such series, waive any past default
with respect to such Junior Subordinated Debentures and its consequences, except
a default in the payment of principal, premium, if any, or interest. (Section
513) As long as the related series of Preferred Securities is outstanding, such
a waiver cannot be granted without the approval of 66 2/3% in aggregate
liquidation preference of such series of Preferred Securities. (Section 1007)
American General is required to file annually with the Junior Subordinated
Trustee a certificate as to whether or not American General is in compliance
with all the conditions and covenants under the Junior Subordinated Indenture.
(Section 1008)
No holder of a Junior Subordinated Debenture of any series may institute
any proceeding against American General under the Junior Subordinated Indenture
(except actions for payment of overdue principal of, or premium, if any, or
interest on, such Junior Subordinated Debenture or for the conversion of
exchange of any Junior Subordinated Debenture in accordance with its terms)
unless the holders of not less than 25% in aggregate principal amount of the
Junior Subordinated Debentures of that series then outstanding shall have
requested the Junior Subordinated Trustee to institute such proceeding and
offered to the Junior Subordinated Trustee reasonable indemnity against the
costs, expenses and liabilities to be incurred in compliance with such request
and the Junior Subordinated Trustee shall not have instituted such proceeding
within 60 calendar days of such request. (Sections 507 and 508)
To the extent described in the applicable Prospectus Supplement, upon the
occurrence and continuance of an Event of Default with respect to a series of
Junior Subordinated Debentures, the holders of the related series of Preferred
Securities will have the right to appoint a Special Trustee to exercise certain
of the rights the applicable American General LLC has as holder of such series
of Junior Subordinated Debentures. (Section 516)
CONSOLIDATION, MERGER AND SALE
American General, without the consent of the holder or holders of any
Junior Subordinated Debentures, may consolidate with or merge with or into, or,
if no Preferred Securities are then outstanding, convey, transfer or lease its
assets as an entirety or substantially as an entirety to, any corporation,
partnership, trust or other entity organized and validly existing under the laws
of the United States of America or a state thereof, provided that, in the case
of a merger, American General survives the merger or, in the case of a merger in
which American General is not the survivor and in the case of a consolidation or
conveyance, transfer or lease of assets, the successor assumes American
General's obligations under the Junior Subordinated Debentures, the Junior
Subordinated Indenture and the Guarantees and, in each case, that, after giving
effect to the transaction, no Event of Default, and no event which, after notice
or lapse of time, or both, would become an Event of Default, shall have occurred
and be continuing. (Section 801)
DEFEASANCE AND DISCHARGE
American General may discharge its indebtedness and its obligations under
the Junior Subordinated Indenture with respect to a series of Junior
Subordinated Debentures by depositing funds or obligations issued or guaranteed
by the United States of America if certain conditions are satisfied. Such
conditions include a condition that such funds or government obligations be
sufficient to pay and discharge the indebtedness evidenced by the Junior
Subordinated Debentures of such series and that all Junior Subordinated
Debentures of such series issued under the Junior Subordinated Indenture either
shall have been delivered to the Junior Subordinated Trustee for cancellation or
shall be due, or will be called for redemption, within one year. If American
General has any other right to defease the Junior Subordinated Indenture with
respect to a particular series of Junior
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Subordinated Debentures by depositing with the Junior Subordinated Trustee, in
trust, monies or government obligations in an amount sufficient to pay, when
due, the principal of, premium, if any, and interest on the Junior Subordinated
Debentures of that series, then the applicable Prospectus Supplement with
respect to the Preferred Securities relating to that series of Junior
Subordinated Debentures will describe such provisions. (Article Four)
MEETINGS
The Junior Subordinated Indenture contains provisions for convening
meetings of the holders of a series of Junior Subordinated Debentures which
would apply if the applicable Prospectus Supplement provides that the Junior
Subordinated Trustee shall call a meeting of such holders. A meeting may be
called by the Junior Subordinated Trustee for the purposes specified in such
Prospectus Supplement, and, upon the conditions described in such Prospectus
Supplement, by American General or the holders of at least 10% in aggregate
principal amount of the outstanding Junior Subordinated Debentures of such
series. Except for any consent which, under the Junior Subordinated Indenture,
must be given by the holder of each outstanding Junior Subordinated Debenture
affected thereby and any particular instance in which less than a majority vote
is required, any resolution presented at a meeting or adjourned meeting at which
a quorum is present may be adopted by the affirmative vote of the holders of a
majority in principal amount of the Junior Subordinated Debentures of that
series. Any resolution passed or decision taken at any meeting of holders of
Junior Subordinated Debentures of any series duly held in accordance with the
Junior Subordinated Indenture will be binding on all holders of Junior
Subordinated Debentures of that series. The quorum at any meeting, and at any
reconvened meeting, will be persons holding or representing a majority in
aggregate principal amount of the outstanding Junior Subordinated Debentures of
a series, unless a higher vote requirement is specified in the applicable
Prospectus Supplement. (Article Fourteen)
GOVERNING LAW
The Junior Subordinated Indenture and the Junior Subordinated Debentures
will be governed by, and construed in accordance with, the laws of the State of
New York. (Section 112)
INFORMATION CONCERNING THE JUNIOR SUBORDINATED TRUSTEE
The Junior Subordinated Trustee, prior to default, undertakes to perform
only such duties as are specifically set forth in the Junior Subordinated
Indenture and, after default, is required to 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 Junior Subordinated Trustee is under no
obligation to exercise any of the powers vested in it by the Junior Subordinated
Indenture at the request of any holder of Junior Subordinated Debentures, unless
offered reasonable indemnity by such holder against the costs, expenses and
liabilities which might be incurred thereby. The Junior Subordinated Trustee is
not required to expend or risk its own funds or otherwise incur personal
financial liability in the performance of its duties if the Junior Subordinated
Trustee reasonably believes that repayment or adequate indemnity is not
reasonably assured to it. The Junior Subordinated Indenture contains other
provisions limiting the responsibilities and liabilities of the Junior
Subordinated Trustee. The Junior Subordinated Trustee does not have any
fiduciary duty to the holders of the Preferred Securities. (Article Six)
American General may appoint a separate trustee for any series of Junior
Subordinated Debentures.
American General and certain of its affiliates from time to time borrow
money from, and maintain deposit accounts and conduct certain banking
transactions with, the Junior Subordinated Trustee in the ordinary course of
their business. The Junior Subordinated Trustee and one of its affiliates also
serve as trustees under other indentures maintained by American General.
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MISCELLANEOUS
American General will have the right at all times to assign any of its
rights or obligations under the Junior Subordinated Indenture to a direct or
indirect wholly-owned subsidiary of American General; provided, that, in the
event of any such assignment, American General will remain liable for all such
obligations. The Junior Subordinated Indenture may also be assigned in
connection with the merger, consolidation or transfer of all or substantially
all of the assets of American General, but is not otherwise assignable. Subject
to the foregoing, the Junior Subordinated Indenture will be binding upon and
inure to the benefit of the parties thereto and their respective successors and
assigns. The subordination provisions of the Junior Subordinated Indenture are
also for the benefit of the holders of Senior Indebtedness. A holder of a series
of Preferred Securities shall not have the right, as such a holder, to enforce
any provision of the Junior Subordinated Indenture except for the covenants
described above under the caption "-- Certain Covenants of American General" and
certain provisions of the Junior Subordinated Indenture requiring the approval
of the holders of a specified percentage of Preferred Securities in certain
events.
DESCRIPTION OF AMERICAN GENERAL PREFERRED STOCK
If so indicated in a Prospectus Supplement relating to a particular series
of Preferred Securities, such series may, in certain events, be exchangeable for
shares of a series of American General Preferred Stock. The following sets forth
certain general terms and provisions of the American General Preferred Stock.
Certain other terms of any series of American General Preferred Stock that may
be issued upon exchange of a series of Preferred Securities offered by a
Prospectus Supplement will be specified in such Prospectus Supplement. If so
specified in the applicable Prospectus Supplement, the terms of any series of
American General Preferred Stock may differ from the terms set forth below. The
description of the terms of the American General Preferred Stock set forth below
and in an applicable Prospectus Supplement does not purport to be complete and
is subject to and qualified in its entirety by reference to the Statement of
Resolution Establishing a Series of Shares relating to the applicable series of
American General Preferred Stock, which will be filed as an exhibit to, or
incorporated by reference in, the Registration Statement of which this
Prospectus forms a part.
GENERAL
Pursuant to the Restated Articles of Incorporation of American General, as
amended (the "Articles"), the Bylaws of American General, and applicable Texas
law, the Board of Directors of American General, or an authorized committee
thereof, has the authority, without further shareholder action, to issue up to
60,000,000 shares of American General Preferred Stock, par value $1.50 per
share, in one or more series and in such amounts and for such consideration, as
may be determined from time to time by resolution of the Board of Directors of
American General, or an authorized committee thereof, and to fix before the
issuance of any shares of American General Preferred Stock of a particular
series, the number of shares constituting that series and the distinctive
designation of that series; the dividend rate (or method of determining the
same); the voting rights; conversion or exchange provisions; redemption
provisions; repurchase obligations; sinking fund availability; rights upon
liquidation, dissolution or winding-up; restrictions upon American General with
respect to the creation of debt or the issuance of additional Preferred Stock or
other stock ranking senior with respect to the payment of dividends or the
distribution of assets upon liquidation, dissolution or winding-up; restrictions
on American General with respect to the issuance of, payment of dividends upon,
or the making of other distributions with respect to, or the acquisition or
redemption of, shares of stock ranking pari passu with or junior to such series
of American General Preferred Stock; the priority of such series of American
General Preferred Stock in relation to other series of American General
Preferred Stock; and any other designations, powers, preferences and rights,
including, without limitation, any qualifications, limitations or restrictions
thereof. The holders of any series of American General Preferred Stock shall not
have any
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preemptive rights to acquire any shares or securities of any class which may at
any time be issued, sold or offered for sale by American General.
As of May , 1995, American General had no Preferred Stock outstanding. As
of such date, the Company did have Preferred Share Purchase Rights outstanding.
A description of these rights is provided under "Description of American General
Common Stock -- Preferred Share Purchase Rights."
DIVIDENDS
The holders of American General Preferred Stock of each series will be
entitled to receive, when, as and if declared by the Board of Directors of
American General, out of funds legally available therefor, dividends at such
rates and on such dates as shall be specified in the applicable Prospectus
Supplement. Such rates may be fixed or variable or both. If variable, the
formula used for determining the dividend rate for each dividend period will be
specified in the applicable Prospectus Supplement. Dividends will be payable to
the holders of record as they appear on the stock books of American General on
such record dates as shall be fixed by the Board of Directors of American
General.
Unless otherwise indicated in an applicable Prospectus Supplement, all
series of American General Preferred Stock are senior in right as to the payment
of dividends and the distribution of assets upon liquidation, dissolution or
winding-up to the American General Common Stock and any other class of stock of
American General ranking junior to the American General Preferred Stock.
VOTING RIGHTS
Except as indicated in the applicable Prospectus Supplement or as expressly
required by applicable law, the holders of American General Preferred Stock will
not be entitled to vote. In the event American General issues a series of
American General Preferred Stock with voting rights, unless otherwise specified
in the applicable Prospectus Supplement, each such share will be entitled to one
vote on matters on which holders of such series of the American General
Preferred Stock are entitled to vote. Since each full share of any series of
American General Preferred Stock shall be entitled to one vote, the voting power
of such series, on matters on which holders of such series and holders of other
series of American General Preferred Stock are entitled to vote as a single
class, shall depend on the number of shares in such series, not the aggregate
stated value, liquidation preference or initial offering price of the shares of
such series of American General Preferred Stock.
CONVERSION AND EXCHANGE
The applicable Prospectus Supplement will set forth the conditions or
terms, if any, upon which the series of American General Preferred Stock
described in such Prospectus Supplement will be convertible or exchangeable, and
the terms of the securities into which such series will be convertible or
exchangeable.
REDEMPTION RIGHTS
A series of American General Preferred Stock may be redeemable, in whole or
in part, at the option of American General or any holder thereof, and may be
subject to mandatory redemption pursuant to a sinking fund or otherwise, in each
case upon terms, at the times and at the redemption prices specified in the
applicable Prospectus Supplement and subject to the rights of holders of other
securities of American General. American General Preferred Stock redeemed by
American General will be restored to the status of authorized but unissued
shares of Preferred Stock, without series designation.
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If less than all outstanding shares of a series of American General
Preferred Stock are to be redeemed, the shares to be redeemed will be selected
ratably or by lot in such manner as may be prescribed by resolution of the Board
of Directors of American General. The notice of redemption will set forth the
designation of the series or part of the series of shares to be redeemed, the
date fixed for redemption, the redemption price, the place at which the
shareholders may obtain payment of the redemption price upon surrender of their
respective share certificates, that dividends will cease to accrue on such
shares on the date fixed for redemption and a statement with respect to the
existence of any right of conversion with respect to the shares to be redeemed
and the period within which such right may be exercised. Such notice will be
given to each holder of shares being called, by first class mail, not less than
30 nor more than 60 calendar days before the date fixed for redemption. Such
notice will be deemed to be delivered when deposited in the United States mail
addressed to the shareholder at such shareholder's address as it appears on the
stock transfer book of American General, with postage thereon prepaid.
Unless otherwise indicated in the applicable Prospectus Supplement,
American General may, on or prior to the date fixed for redemption of a series
of American General Preferred Stock, deposit with any bank or trust company in
Texas, or any bank or trust company in the United States duly appointed and
acting as transfer agent for American General, as a trust fund, a sum sufficient
to redeem all of the shares called for redemption, with irrevocable instructions
and authority to such bank or trust company to give or complete the notice of
redemption thereof and to pay, on and after the date fixed for such redemption,
to the respective holders of shares, as evidenced by a list of holders of such
shares certified by an officer of American General, the redemption price upon
surrender of their respective share certificates. If notice of redemption is
duly given and funds irrevocably deposited as required, then from and after the
date fixed for redemption, such shares shall be deemed to be redeemed, dividends
thereon shall cease to accrue, such shares shall no longer be deemed to be
outstanding, and the holders thereof shall cease to be shareholders with respect
to such shares and shall have no rights with respect thereto except the right to
receive payment of the redemption price of such shares, without interest (and,
in the case of holders of certificated shares, upon the surrender of their
respective certificates therefor). In case the holders of such shares shall not,
within six years after such deposit, claim the amount deposited for redemption
thereof, such bank or trust company shall upon demand pay over to American
General the balance of such amount so deposited to be held in trust and such
bank or trust company shall thereupon be relieved of all responsibility to the
holders thereof.
REPURCHASE OBLIGATION
The applicable Prospectus Supplement will state the conditions and terms,
if any, upon which the series of American General Preferred Stock described in
the Prospectus Supplement shall be subject to repurchase by American General.
RIGHTS UPON LIQUIDATION
In the event of any voluntary or involuntary liquidation, dissolution or
winding-up of American General, the holders of each series of American General
Preferred Stock shall be entitled to receive out of the net assets of American
General legally available for distribution to shareholders, before any
distribution of assets is made to holders of American General Common Stock or
any other class or series of securities ranking junior to such American General
Preferred Stock upon liquidation, dissolution or winding-up, a liquidating
distribution in the amount per share as set forth in the applicable Prospectus
Supplement plus accumulated and unpaid dividends. If, upon any voluntary or
involuntary liquidation, dissolution or winding-up of American General, the
amounts payable with respect to American General Preferred Stock of any series
and any other securities of American General ranking as to any such distribution
pari passu with such American General Preferred Stock of such series are not
paid in full, the holders of such American General Preferred Stock of such
series and of such other securities will share ratably in any such distribution
of assets of American
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<PAGE> 171
General in proportion to the full respective preferential amounts to which they
are entitled. Neither the sale of all or substantially all of the property or
business of American General nor the merger or consolidation of American General
into or with any other corporation shall be deemed to be a liquidation,
dissolution or winding-up, voluntary or involuntary, of American General. After
payment of the full amount of the liquidating distribution to which they are
entitled, the holders of American General Preferred Stock of any series will not
be entitled to any further participation in any distribution of assets by
American General.
CONDITIONS AND RESTRICTIONS UPON AMERICAN GENERAL
The applicable Prospectus Supplement will describe any conditions or
restrictions upon American General which are for the benefit of the series of
American General Preferred Stock described in the Prospectus Supplement,
including any restrictions upon the creation of debt or other series of American
General Preferred Stock, the payment of dividends, or the distribution,
acquisition or redemption of shares ranking junior to such series.
DESCRIPTION OF AMERICAN GENERAL COMMON STOCK
GENERAL
American General is authorized to issue 300,000,000 shares of American
General Common Stock, par value $.50 per share. As of March 31, 1995, there were
outstanding 204,820,775 shares of American General Common Stock.
Holders of American General Common Stock are entitled to receive dividends
when, as and if declared by the Board of Directors of American General out of
any funds legally available therefor, and are entitled upon liquidation, after
claims of creditors and preferences of any series of American General Preferred
Stock, to receive pro rata the net assets of American General.
The holders of American General Common Stock are entitled to one vote for
each share held. Directors of American General are elected for a one-year term
expiring upon the annual meeting of stockholders of American General. The
holders of American General Common Stock do not have cumulative voting rights.
The holders of American General Common Stock do not have any preemptive
rights to acquire any shares or other securities of any class which may at any
time be issued, sold or offered for sale by American General. The holders of
American General Common Stock have no conversion rights and the American General
Common Stock is not subject to redemption by either American General or a
stockholder.
The American General Common Stock is listed on the New York, Pacific,
London and Swiss Stock Exchanges. First Chicago Trust Company of New York is the
transfer agent, registrar and dividend disbursing agent for the American General
Common Stock.
PREFERRED SHARE PURCHASE RIGHTS
On July 27, 1989, the Board of Directors of American General authorized the
issuance of one preferred share purchase right (a "Right") for each share of
American General Common Stock outstanding on August 7, 1989 and for each share
of American General Common Stock issued thereafter but prior to the earlier of
the Distribution Date and the Termination Date (as each such term is defined
below). A Right is attached to each share of American General Common Stock and
entitles the registered holder to purchase from American General one
one-hundredth of a share of Series A Junior Participating Preferred Stock, par
value $1.50 per share, of American General (the "American General Junior
Preferred Shares") at a price of $120 per one one-hundredth of an American
General Junior Preferred Share, subject to certain adjustments.
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The Rights will expire on August 7, 1999, unless the expiration date is
extended or the Rights are redeemed earlier (any such date being the
"Termination Date"). The Rights are not exercisable or transferable separately
from the shares of American General Common Stock until the "Distribution Date"
which will occur on the earlier of (i) 10 business days following the first
public announcement that a person or group of affiliated or associated persons
(an "Acquiring Person") has acquired beneficial ownership of 15% or more of the
outstanding American General Common Stock and any other shares of capital stock
of American General entitled to vote generally in the election of directors or
entitled to vote in respect of any merger, consolidation, sale of all or
substantially all of American General's assets, liquidation, dissolution or
winding up of American General (the "Voting Stock") or (ii) 10 business days
following the commencement of, or the first public announcement of an intention
to commence, a tender or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of affiliated or associated
persons of 25% or more of the then outstanding Voting Stock.
In the event American General is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earnings
power should be sold or otherwise transferred, each holder of a Right will have
the right to receive, upon payment of the Right's then current exercise price,
common stock of the acquiring company which has a market value of two times the
exercise price of the Right. In the event that any person becomes an Acquiring
Person, each holder of a Right will thereafter have the right to receive upon
exercise thereof that number of shares of American General Common Stock (or
under certain circumstances, Common Stock-equivalent American General Junior
Preferred Shares) having a market value of two times the exercise price of the
Rights.
At any time 10 business days after a person or group of affiliated or
associated persons has become an Acquiring Person and prior to the acquisition
by any person or group of 50% or more of the outstanding Voting Stock, the Board
of Directors of American General may exchange the Rights (other than Rights
acquired or beneficially owned by such Acquiring Person, which Rights held by
such Acquiring Person shall then be null and void), in whole or in part, at an
exchange ratio of one share of Common Stock (or one one-hundredth of a share of
American General Junior Preferred Stock), appropriately adjusted to reflect any
stock split, stock dividend or similar transaction, for each two shares of
Common Stock for which the Right is then exercisable.
At any time prior to the close of business on the tenth day following the
first public announcement that a person or group of affiliated or associated
persons has become an Acquiring Person, the Board of Directors of American
General may redeem the then outstanding Rights in whole, but not in part, at a
price of $.01 per Right, appropriately adjusted to reflect any stock split,
stock dividend or similar transaction (the "Rights Redemption Price"). Any such
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors of American General in its sole
discretion may establish.
The purchase price payable, and the number of American General Junior
Preferred Shares or other securities or property issuable, upon exercise of the
Rights are subject to adjustment from time to time to prevent dilution in the
event of a stock dividend on, or a subdivision, combination or reclassification
of, the American General Junior Preferred Shares.
The number of outstanding Rights and the number of one one-hundredths of an
American General Junior Preferred Share issuable upon exercise of each Right are
also subject to adjustment in the event of reclassification of securities, or
recapitalization or reorganization of American General or other transaction
involving American General which has the effect, directly or indirectly, of
increasing by more than one percent the proportionate share of the outstanding
shares of any class of equity securities of American General or any of its
subsidiaries beneficially owned by any Acquiring Person, in any such case, prior
to an exchange by American General as described above.
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The terms of the Rights may be amended, including extending the expiration
date, by the Board of Directors of American General without the consent of the
holders of the Rights, except in certain circumstances.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire American
General on terms not approved by the Board of Directors of American General. The
Rights should not interfere with any merger or other business combination
approved by the Board of Directors of American General since the Rights may be
redeemed by American General at the Rights Redemption Price prior to the time
that a person or group has acquired beneficial ownership of 50% or more of the
Voting Stock.
The American General Junior Preferred Shares will be non-redeemable and
rank junior to all other series of American General Preferred Stock. Each whole
American General Junior Preferred Share will be entitled to receive a quarterly
preferential dividend in an amount equal to the greater of (i) $0.25 or (ii)
subject to certain adjustments, 100 times the dividend declared on each share of
American General Common Stock. In the event of the liquidation, dissolution or
winding up of American General, each whole American General Junior Preferred
Share will be entitled to receive a preferential liquidation payment in an
amount equal to the greater of (i) $1.50, or (ii) 100 times the aggregate amount
to be distributed per share to holders of American General Common Stock, plus,
in either case, an amount equal to all accrued and unpaid dividends thereon. In
the event of any merger, consolidation or other transaction in which American
General Common Stock is exchanged for or changed into other stock or securities,
cash or other property, each whole American General Junior Preferred Share will
be entitled to receive 100 times the amount received per each share of American
General Common Stock. Each whole American General Junior Preferred Share will be
entitled to 100 votes on all matters submitted to a vote of the shareholders of
American General, and American General Junior Preferred Shares will generally
vote together as one class with the American General Common Stock and any other
voting capital stock of American General on all matters submitted to a vote of
shareholders of American General.
If such registration is then required by applicable law, American General
will use its best efforts to cause the offer and sale of American General Junior
Preferred Shares issuable upon exercise of the Rights to be registered pursuant
to the Securities Act at any such time as the Rights become exercisable.
The foregoing description of the Rights and the American General Junior
Preferred Shares does not purport to be complete and is qualified in its
entirety by reference to the Rights Agreement, as amended, which is an exhibit
to the Registration Statement of which this Prospectus forms a part, and the
Statement of Resolution Establishing Series of Shares of American General Junior
Preferred Shares.
PLAN OF DISTRIBUTION
The American General LLCs may sell Preferred Securities to or through
underwriters or dealers; directly to other purchasers; through agents; or
through a combination of any such methods of sale. Any such underwriter, dealer
or agent involved in the offer and sale of the offered Preferred Securities will
be named in an applicable Prospectus Supplement or Prospectus Supplements.
The distribution of the Preferred Securities may be effected from time to
time in one or more transactions at a fixed price or prices, which may be
changed, or at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices.
In connection with the sale of Preferred Securities, underwriters may
receive compensation from American General or the American General LLC issuing
the Preferred Securities or from purchasers of Preferred Securities for whom
they may act as agents, in the form of discounts, concessions or commissions.
Underwriters may sell Preferred Securities to or through dealers, and such
dealers may receive compensation in the form of discounts, concessions or
commissions from the underwriters and/or commissions from the purchasers for
whom they may act as agent. Underwriters, dealers and agents that participate in
the distribution of Preferred Securities may be
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deemed to be underwriters, and any discounts or commissions received by them
from American General or an American General LLC, and any profit on the resale
of Preferred Securities by them may be deemed to be underwriting discounts and
commissions, under the Securities Act. Any compensation paid by American General
or an American General LLC to underwriters, dealers or agents in connection with
the offering of the Preferred Securities, and any discounts, concessions or
commissions allowed by underwriters to participating dealers, will be described
in an applicable Prospectus Supplement.
Under agreements which may be entered into by American General and an
American General LLC, underwriters, dealers and agents who participate in the
distribution of Preferred Securities may be entitled to indemnification by
American General and such American General LLC against, and/or contribution by
American General and such American General LLC toward, certain liabilities,
including liabilities under the Securities Act, and to reimbursement for certain
expenses.
Certain of the underwriters, dealers or agents and their associates may be
customers of, engage in transactions with and perform services for American
General or one or more of its affiliates in the ordinary course of business.
The specific terms and manner of sale, including the place and time of
delivery, of the Preferred Securities in respect of which this Prospectus is
being delivered will be set forth or summarized in the applicable Prospectus
Supplement.
LEGAL OPINIONS
Unless otherwise indicated in a Prospectus Supplement, the validity of each
series of Preferred Securities, the related Guarantee and the related series of
Junior Subordinated Debentures, as well as the validity of any American General
Common Stock and American General Preferred Stock issuable upon conversion or
exchange of such Junior Subordinated Debentures, will be passed upon for
American General by Vinson & Elkins L.L.P., Houston, Texas. Unless otherwise
indicated in a Prospectus Supplement, certain legal matters relating to such
securities will be passed upon for any underwriters, dealers or agents by Brown
& Wood, New York, New York. Brown & Wood may rely as to matters of Texas law on
the opinion of Vinson & Elkins L.L.P. J. Evans Attwell, a partner in the firm of
Vinson & Elkins L.L.P., is a director of American General.
EXPERTS
The consolidated financial statements and schedules of American General and
its subsidiaries appearing in or incorporated by reference in American General's
Annual Report on Form 10-K for the year ended December 31, 1994 have been
audited by Ernst & Young LLP, independent auditors, as set forth in their
reports thereon included therein and incorporated herein by reference. See
"Incorporation of Certain Documents by Reference." Such financial statements and
schedules are, and audited financial statements and schedules to be included in
subsequently filed documents will be, incorporated herein by reference in
reliance upon the reports of Ernst & Young LLP pertaining to such financial
statements (to the extent covered by consents filed with the Commission) given
upon the authority of such firm as experts in accounting and auditing.
The consolidated financial statements of American Franklin Company and
Subsidiaries as of December 31, 1993, and for the year then ended, appearing in
American General's Current Report on Form 8-K dated February 14, 1995, and the
consolidated financial statements of American Franklin Company and Subsidiaries
as of December 31, 1994 and 1993, and for the years ended December 31, 1994 and
1993, appearing in American General's Current Report on Form 8-K dated April 14,
1995, have been audited by Coopers & Lybrand L.L.P., independent accountants, as
set forth in their reports thereon included therein and incorporated herein by
reference. See "Incorporation of Certain Documents by Reference." Such
consolidated financial statements are incorporated herein by reference in
reliance upon such reports given upon the authority of such firm as experts in
accounting and auditing.
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PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the estimated expenses to be incurred by the registrants
in connection with the offering described in this Registration Statement (other
than underwriting discount and commissions).
<TABLE>
<S> <C>
SEC registration fee.................................................... $ 431,038
NYSE Listing Fee........................................................ 115,000
Printing and engraving.................................................. 250,000
Legal fees and expenses................................................. 600,000
Blue Sky qualification fees and expenses................................ 80,000
Accounting fees and expenses............................................ 200,000
Fees and expenses of Trustee............................................ 150,000
Rating agency fees...................................................... 850,000
Miscellaneous........................................................... 23,962
-----------
Total............................................................ $ 2,700,000
===========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article 2.02-1 of the Texas Business Corporation Act contains detailed
provisions with respect to indemnification of directors and officers of a Texas
corporation against reasonable expenses actually incurred in connection with
certain legal proceedings.
In addition, Article VI of American General's Bylaws sets forth certain
rights of American General's officers and directors to indemnification. American
General's Bylaws, as in effect on the date hereof, are incorporated by reference
herein as Exhibit 4(f).
The agreements which may be entered into by American General, the American
General LLCs, underwriters, dealers and agents who participate in the
distribution of securities registered hereunder may provide for the
indemnification of American General, the American General LLCs, their respective
controlling persons and directors and certain of their respective officers by
any agents, dealers or underwriters, as the case may be, against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
American General has placed in effect insurance coverage which purports (a)
to insure it against certain costs of indemnification which may be incurred by
it pursuant to the aforementioned Bylaw provisions or otherwise, and (b) to
insure the officers and directors of American General and of its specified
subsidiaries against certain liabilities incurred by them in the discharge of
their functions as officers and directors except for liabilities arising from
their own malfeasance. See "Item 17. Undertakings" below for a description of
the position of the Securities and Exchange Commission with respect to such
indemnification provisions.
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ITEM 16. EXHIBITS
The following exhibits are filed as a part of this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
**1(a) -- Form of Underwriting Agreement (Debt Securities and Warrants to
purchase Debt Securities), including forms of Pricing Agreement and
Delayed Delivery Contract.
**1(b) -- Form of Underwriting Agreement (Common Stock and Warrants to Purchase
Common Stock), including forms of Pricing Agreement and Delayed
Delivery Contract.
**1(c) -- Form of Underwriting Agreement (Preferred Stock and Warrants to
Purchase Preferred Stock), including forms of Pricing Agreement and
Delayed Delivery Contract.
***1(d) -- Form of Underwriting Agreement (Convertible Preferred Securities).
***1(e) -- Form of Underwriting Agreement (Non-Convertible Preferred
Securities).
*4(a) -- Form of Senior Indenture, dated as of May 15, 1995, between the
Company and Chemical Bank, as Trustee. The form or forms of Senior
Securities with respect to each particular offering will be filed as
an exhibit to a Current Report on Form 8-K and incorporated herein by
reference.
*4(b) -- Form of Senior Subordinated Indenture, dated as of May 15, 1995,
between the Company and Chemical Bank, as Trustee. The form or forms
of Senior Subordinated Securities with respect to each particular
offering will be filed as an exhibit to a Current Report on Form 8-K
and incorporated herein by reference.
***4(c) -- Form of Junior Subordinated Indenture, dated as of May , 1995,
between the Company and Chemical Bank, as Trustee. Other than as set
forth in Exhibits 4(r) and 4(t) below, the form or forms of Junior
Subordinated Debentures with respect to each particular offering will
be filed as an exhibit to a Current Report on Form 8-K and
incorporated herein by reference.
4(d) -- Restated Articles of Incorporation of the Company (including
Statement of Resolution Establishing Series of Shares of Series A
Junior Participating Preferred Stock) (incorporated by reference to
Exhibit 4.1 to Registration Statement No. 33-33115 of the Company).
4(e) -- Rights Agreement dated as of July 27, 1989 between the Company and
Texas Commerce Bank National Association, as Rights Agent, and First
Amendment dated as of October 26, 1992 (incorporated by reference to
Exhibit 4 to the Company's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1989, and to Exhibit 19 to the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1992, respectively).
4(f) -- Bylaws of the Company (incorporated by reference to Exhibit 3.2 to
the Company's Annual Report on Form 10-K for the fiscal year ended
December 31, 1993).
**4(g) -- Form of Debt Warrant Agreement, including form of Debt Warrant
Certificates.
**4(h) -- Form of Preferred Stock Warrant Agreement, including form of
Preferred Stock Warrant Certificates.
**4(i) -- Form of Common Stock Warrant Agreement, including form of Common
Stock Warrant Certificates.
***4(j) -- Certificate of Formation of American General Delaware, L.L.C.
***4(k) -- Form of Amended and Restated Limited Liability Company Agreement of
American General Delaware, L.L.C.
</TABLE>
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<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
***4(l) -- Form of the Terms of the Preferred Securities, Series A of American
General Delaware, L.L.C.
***4(m) -- Certificate of Formation of American General Capital, L.L.C.
***4(n) -- Form of Amended and Restated Limited Liability Company Agreement of
American General Capital, L.L.C.
***4(o) -- Form of Statement of Resolution Establishing Series of Shares of
Series A Cumulative Convertible Preferred Stock of the Company.
***4(p) -- Form of Guarantee with respect to Preferred Securities of American
General Delaware, L.L.C.
***4(q) -- Form of Guarantee with respect to Preferred Securities of American
General Capital, L.L.C.
***4(r) -- Form of Resolutions Establishing the Convertible Junior Subordinated
Debentures, Series A of the Company.
***4(s) -- Form of the Terms of the Preferred Securities, Series A of American
General Capital, L.L.C.
***4(t) -- Form of Resolutions Establishing the Subordinated Debentures, Series
A of the Company.
***4(u) -- Form of Certificate Evidencing Preferred Securities, Series A of
American General Delaware, L.L.C.
***4(v) -- Form of Certificate Evidencing Preferred Securities, Series A of
American General Capital, L.L.C.
*5 -- Opinion and Consent of Vinson & Elkins L.L.P.
*8 -- Opinion and Consent of Vinson & Elkins L.L.P. with respect to certain
tax matters.
12 -- Computation of Ratio of Earnings to Fixed Charges and Ratio of
Earnings to Combined Fixed Charges and Preferred Stock Dividends.
*23(a) -- Consent of Vinson & Elkins L.L.P. (contained in their opinions in
Exhibits 5 and 8).
23(b) -- Consent of Ernst & Young LLP, Independent Auditor.
23(c) -- Consent of Coopers & Lybrand L.L.P., Independent Accountants.
***24 -- Powers of Attorney.
*25(a) -- Form T-1 Statement of Eligibility of Chemical Bank, as Trustee under
the Senior Indenture.
*25(b) -- Form T-1 Statement of Eligibility of Chemical Bank, as Trustee under
the Senior Subordinated Indenture.
*25(c) -- Form T-1 Statement of Eligibility of Chemical Bank, as Trustee under
the Junior Subordinated Indenture.
</TABLE>
- ---------------
* To be filed by Amendment.
** To be filed as an exhibit to a Current Report on Form 8-K and incorporated
herein by reference.
*** Previously filed.
ITEM 17. UNDERTAKINGS
The registrants hereby undertake:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
II-3
<PAGE> 178
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement; and
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the registration statement
or any material change to such information in the registration
statement;
provided, however, that the undertakings set forth in clauses (i) and (ii)
above do not apply if the information required to be included in a
post-effective amendment by those clauses is contained in periodic reports
filed with or furnished to the Securities and Exchange Commission by the
Company pursuant to section 13 or section 15(d) of the Securities Exchange
Act of 1934 that are incorporated by reference in the registration
statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the Company's annual report pursuant
to section 13(a) or section 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(5) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of a registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrants pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act of 1933 shall be deemed
to be part of this registration statement as of the time it was declared
effective.
(6) That, for purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions set forth in Item 15, or otherwise, the
registrants have been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrants of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of their counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 179
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AMERICAN
GENERAL CORPORATION CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT
MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT OR AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF HOUSTON, STATE OF TEXAS,
ON MAY 16, 1995.
AMERICAN GENERAL CORPORATION
(Registrant)
By: /s/ AUSTIN P. YOUNG
------------------------------------
Austin P. Young
Senior Vice President and
Chief Financial Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AMERICAN
GENERAL DELAWARE, L.L.C. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE
THAT IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED
THIS REGISTRATION STATEMENT OR AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NASHVILLE, STATE OF
TENNESSEE, ON MAY 16, 1995.
AMERICAN GENERAL DELAWARE, L.L.C.
(Registrant)
By: American General Delaware
Management Corporation, as Manager
By: /s/ KENT E. BARRETT
------------------------------------
Kent E. Barrett
Vice President and Treasurer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, AMERICAN
GENERAL CAPITAL, L.L.C. CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT
IT MEETS ALL OF THE REQUIREMENTS FOR FILING ON FORM S-3 AND HAS DULY CAUSED THIS
REGISTRATION STATEMENT OR AMENDMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF NASHVILLE, STATE OF
TENNESSEE, ON MAY 16, 1995.
AMERICAN GENERAL CAPITAL, L.L.C.
(Registrant)
By: American General Delaware
Management Corporation, as Manager
By: /s/ KENT E. BARRETT
------------------------------------
Kent E. Barrett
Vice President and Treasurer
II-5
<PAGE> 180
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES WITH AMERICAN GENERAL CORPORATION INDICATED ON MAY 16, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
HAROLD S. HOOK* Chairman of the Board, Chief Executive
----------------------------------------- Officer and Director (principal executive
(Harold S. Hook) officer)
/s/ AUSTIN P. YOUNG Senior Vice President and Chief Financial
----------------------------------------- Officer (principal financial officer)
(Austin P. Young)
/s/ PAMELA J. PENNY Vice President and Controller (principal
----------------------------------------- accounting officer)
(Pamela J. Penny)
J. EVANS ATTWELL* Director
-----------------------------------------
(J. Evans Attwell)
BRADY F. CARRUTH* Director
-----------------------------------------
(Brady F. Carruth)
W. LIPSCOMB DAVIS, JR.* Director
-----------------------------------------
(W. Lipscomb Davis, Jr.)
ROBERT M. DEVLIN* Director
-----------------------------------------
(Robert M. Devlin)
LARRY D. HORNER* Director
-----------------------------------------
(Larry D. Horner)
RICHARD J.V. JOHNSON* Director
-----------------------------------------
(Richard J.V. Johnson)
ROBERT E. SMITTCAMP* Director
-----------------------------------------
(Robert E. Smittcamp)
</TABLE>
II-6
<PAGE> 181
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JAMES R. TUERFF Director
- -------------------------------------------
(James R. Tuerff)
*By: /s/ JAMES R. TUERFF
- -------------------------------------------
(James R. Tuerff, Attorney-in-fact)
</TABLE>
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT OR AMENDMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN
THE CAPACITIES WITH AMERICAN GENERAL DELAWARE MANAGEMENT CORPORATION (AS THE
MANAGER OF EACH OF AMERICAN GENERAL DELAWARE, L.L.C. AND AMERICAN GENERAL
CAPITAL, L.L.C.) INDICATED ON MAY 16, 1995.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ JAMES S. D'AGOSTINO Chairman and Director (principal executive
- ------------------------------------------- officer)
(James S. D'Agostino)
/s/ LEO LEBOS, JR. President and Director
- -------------------------------------------
(Leo Lebos, Jr.)
/s/ KENT E. BARRETT Vice President, Treasurer and Director
- ------------------------------------------- (principal financial and accounting officer)
(Kent E. Barrett)
</TABLE>
II-7
<PAGE> 182
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
------- ----------- -----------
<S> <C> <C>
**1(a) -- Form of Underwriting Agreement (Debt Securities and
Warrants to purchase Debt Securities), including forms of
Pricing Agreement and Delayed Delivery Contract.
**1(b) -- Form of Underwriting Agreement (Common Stock and Warrants
to Purchase Common Stock), including forms of Pricing
Agreement and Delayed Delivery Contract.
**1(c) -- Form of Underwriting Agreement (Preferred Stock and
Warrants to Purchase Preferred Stock), including forms of
Pricing Agreement and Delayed Delivery Contract.
***1(d) -- Form of Underwriting Agreement (Convertible Preferred
Securities).
***1(e) -- Form of Underwriting Agreement (Non-Convertible Preferred
Securities).
*4(a) -- Form of Senior Indenture, dated as of May 15, 1995,
between the Company and Chemical Bank, as Trustee. The
form or forms of Senior Securities with respect to each
particular offering will be filed as an exhibit to a
Current Report on Form 8-K and incorporated herein by
reference.
*4(b) -- Form of Senior Subordinated Indenture, dated as of May
15, 1995, between the Company and Chemical Bank, as
Trustee. The form or forms of Senior Subordinated
Securities with respect to each particular offering will
be filed as an exhibit to a Current Report on Form 8-K
and incorporated herein by reference.
***4(c) -- Form of Junior Subordinated Indenture, dated as of May
, 1995, between the Company and Chemical Bank, as
Trustee. Other than as set forth in Exhibits 4(r) and
4(t) below, the form or forms of Junior Subordinated
Debentures with respect to each particular offering will
be filed as an exhibit to a Current Report on Form 8-K
and incorporated herein by reference.
4(d) -- Restated Articles of Incorporation of the Company
(including Statement of Resolution Establishing Series of
Shares of Series A Junior Participating Preferred Stock)
(incorporated by reference to Exhibit 4.1 to Registration
Statement No. 33-33115 of the Company).
4(e) -- Rights Agreement dated as of July 27, 1989 between the
Company and Texas Commerce Bank National Association, as
Rights Agent, and First Amendment dated as of October 26,
1992 (incorporated by reference to Exhibit 4 to the
Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 1989, and to Exhibit 19 to the Company's
Quarterly Report on Form 10-Q for the quarter ended
September 30, 1992, respectively).
4(f) -- Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993).
**4(g) -- Form of Debt Warrant Agreement, including form of Debt
Warrant Certificates.
**4(h) -- Form of Preferred Stock Warrant Agreement, including form
of Preferred Stock Warrant Certificates.
</TABLE>
<PAGE> 183
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
-------- ----------- -----------
<S> <C> <C>
**4(i) -- Form of Common Stock Warrant Agreement, including form of
Common Stock Warrant Certificates.
***4(j) -- Certificate of Formation of American General Delaware,
L.L.C.
***4(k) -- Form of Amended and Restated Limited Liability Company
Agreement of American General Delaware, L.L.C.
***4(l) -- Form of the Terms of the Preferred Securities, Series A
of American General Delaware, L.L.C.
***4(m) -- Certificate of Formation of American General Capital,
L.L.C.
***4(n) -- Form of Amended and Restated Limited Liability Company
Agreement of American General Capital, L.L.C.
***4(o) -- Form of Statement of Resolution Establishing Series of
Shares of Series A Cumulative Convertible Preferred Stock
of the Company.
***4(p) -- Form of Guarantee with respect to Preferred Securities of
American General Delaware, L.L.C.
***4(q) -- Form of Guarantee with respect to Preferred Securities of
American General Capital, L.L.C.
***4(r) -- Form of Resolutions Establishing the Convertible Junior
Subordinated Debentures, Series A of the Company.
***4(s) -- Form of the Terms of the Preferred Securities, Series A
of American General Capital, L.L.C.
***4(t) -- Form of Resolutions Establishing the Subordinated
Debentures, Series A of the Company.
***4(u) -- Form of Certificate Representing Preferred Securities,
Series A of American General Delaware, L.L.C.
***4(v) -- Form of Certificate Representing Preferred Securities,
Series A of American General Capital, L.L.C.
*5 -- Opinion and Consent of Vinson & Elkins L.L.P.
*8 -- Opinion and Consent of Vinson & Elkins L.L.P. with
respect to certain tax matters.
12 -- Computation of Ratio of Earnings to Fixed Charges and
Ratio of Earnings to Combined Fixed Charges and Preferred
Stock Dividends.
*23(a) -- Consent of Vinson & Elkins L.L.P. (contained in their
opinions in Exhibits 5 and 8).
23(b) -- Consent of Ernst & Young LLP, Independent Auditor.
23(c) -- Consent of Coopers & Lybrand L.L.P., Independent
Accountants.
***24 -- Powers of Attorney.
*25(a) -- Form T-1 Statement of Eligibility of Chemical Bank, as
Trustee under the Senior Indenture.
*25(b) -- Form T-1 Statement of Eligibility of Chemical Bank, as
Trustee under the Senior Subordinated Indenture.
*25(c) -- Form T-1 Statement of Eligibility of Chemical Bank, as
Trustee under the Junior Subordinated Indenture.
</TABLE>
- ---------------
* To be filed by Amendment.
** To be filed as an exhibit to a Current Report on Form 8-K and incorporated
herein by reference.
*** Previously filed.
<PAGE> 1
EXHIBIT 12
COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------
PRO
FORMA
(IN MILLIONS, EXCEPT RATIOS) 1994(A) 1994 1993 1992 1991 1990
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Consolidated operations:
Income before income tax expense, accounting changes, and
dividends on preferred securities............................ $ 940 $ 802(b) $ 602(c) $ 775 $ 678 $ 836
Fixed charges deducted from income
Interest expense
Consolidated............................................... 584 526 483 508 565 607
Relating to real estate operations......................... - - 5 8 3 1
Implicit interest in rents................................... 16 16 15 13 13 12
Preferred dividend of subsidiary............................. - - - - - 6
------- ------- ------- ------- ------- -------
Total fixed charges deducted from income................. 600 542 503 529 581 626
------- ------- ------- ------- ------- -------
Earnings available for fixed charges................... $ 1,540 $ 1,344 $ 1,105 $ 1,304 $ 1,259 $ 1,462
====== ====== ====== ====== ====== ======
Fixed charges per above........................................ $ 600 $ 542 $ 503 $ 529 $ 581 $ 626
Capitalized interest relating to real estate operations........ 18 18 15 21 31 39
------- ------- ------- ------- ------- -------
Total fixed charges.......................................... 618 560 518 550 612 665
Dividends on preferred securities............................ 22 - - - - -
------- ------- ------- ------- ------- -------
Total fixed charges and dividends on preferred
securities........................................... $ 640 $ 560 $ 518 $ 550 $ 612 $ 665
====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges..................... 2.5 2.4 2.1 2.4 2.1 2.2
====== ====== ====== ====== ====== ======
Ratio of earnings to combined fixed charges and
preferred stock dividends............................ 2.4 2.4 2.1 2.4 2.1 2.2
====== ====== ====== ====== ====== ======
Consolidated operations, corporate fixed charges and preferred
stock dividends only:
Income before income tax expense, accounting changes, and
dividends on preferred securities............................ $ 940 $ 802(b) $ 602(c) $ 775 $ 678 $ 836
Corporate fixed charges deducted from income
Corporate interest expense................................... 179 121 121 126 140 191
------- ------- ------- ------- ------- -------
Earnings available for fixed charges................... $ 1,119 $ 923 $ 723 $ 901 $ 818 $ 1,027
====== ====== ====== ====== ====== ======
Total corporate fixed charges per above........................ $ 179 $ 121 $ 121 $ 126 $ 140 $ 191
Dividends on preferred securities.............................. 22 - - - - -
------- ------- ------- ------- ------- -------
Total fixed charges and dividends on preferred
securities........................................... $ 201 $ 121 $ 121 $ 126 $ 140 $ 191
====== ====== ====== ====== ====== ======
Ratio of earnings to corporate fixed charges........... 6.2 7.6 6.0 7.2 5.8 5.3
====== ====== ====== ====== ====== ======
Ratio of earnings to combined corporate fixed charges
and preferred stock dividends........................ 5.6 7.6 6.0 7.2 5.8 5.3
====== ====== ====== ====== ====== ======
American General Finance, Inc.:
Income before income tax expense and accounting changes........ $ 392 $ 392 $ 337 $ 250 $ 208 $ 191
Fixed charges deducted from income
Interest expense............................................. 416 416 380 398 440 452
Implicit interest in rents................................... 11 11 10 9 9 9
Preferred dividend of subsidiary............................. - - - - - 6
------- ------- ------- ------- ------- -------
Total fixed charges...................................... 427 427 390 407 449 467
------- ------- ------- ------- ------- -------
Earnings available for fixed charges................... $ 819 $ 819 $ 727 $ 657 $ 657 $ 658
====== ====== ====== ====== ====== ======
Ratio of earnings to fixed charges..................... 1.9 1.9 1.9 1.6 1.5 1.4
====== ====== ====== ====== ====== ======
</TABLE>
- ---------------
(a) Assuming the American Franklin Company ("AFC") and Western National
Corporation acquisitions and the proposed AFC permanent financing had been
effective as of January 1, 1994. See American General's Current Report on
Form 8-K dated May 9, 1995 incorporated herein by reference.
(b) Includes net realized investment losses of $114 million primarily due to the
capital gains offset program. See "Significant Events -- Capital Gains
Offset Program" within Item 7 of American General's Annual Report on Form
10-K for the fiscal year ended December 31, 1994 incorporated herein by
reference.
(c) Includes $300 million write-down of goodwill. See "Significant
Events -- 1993 Significant Events" within Item 7 and Note 1.7 within Item 8
of American General's Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 incorporated herein by reference.
<PAGE> 2
EXHIBIT 12 (CONTINUED)
COMPUTATION OF
RATIO OF EARNINGS TO FIXED CHARGES AND
RATIO OF EARNINGS TO COMBINED FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31,
----------------------------
PRO
FORMA
(IN MILLIONS, EXCEPT RATIOS) 1995(A) 1995 1994
------- ---- ----
<S> <C> <C> <C>
Consolidated operations:
Income before income tax expense and dividends on preferred
securities................................................... $ 282 $ 272(b) $ 253
Fixed charges deducted from income
Interest expense
Consolidated............................................... 167 164 121
Relating to real estate operations......................... 1 1 (1)
Implicit interest in rents................................... 4 4 4
----- ----- -----
Total fixed charges deducted from income................ 172 169 124
----- ----- -----
Earnings available for fixed charges.................. $ 454 $ 441 $ 377
===== ===== =====
Fixed charges per above......................................... $ 172 $ 169 $ 124
Capitalized interest relating to real estate operations......... 5 5 4
----- ----- -----
Total fixed charges.......................................... 177 174 128
Dividends on preferred securities............................ 6 - -
----- ----- -----
Total fixed charges and dividends on preferred
securities........................................ $ 183 $ 174 $ 128
===== ===== =====
Ratio of earnings to fixed charges.................... 2.6 2.5 3.0
===== ===== =====
Ratio of earnings to combined fixed charges and
preferred stock dividends......................... 2.5 2.5 3.0
===== ===== =====
Consolidated operations, corporate fixed charges and preferred
stock dividends only:
Income before income tax expense and dividends on preferred
securities................................................... $ 282 $ 272(b) $ 253
Corporate fixed charges deducted from income
Corporate interest expense................................... 45 42 31
----- ----- -----
Earnings available for fixed charges.................. $ 327 $ 314 $ 284
===== ===== =====
Total corporate fixed charges per above......................... $ 45 $ 42 $ 31
Dividends on preferred securities............................... 6 - -
----- ----- -----
Total fixed charges and dividends on preferred
securities........................................ $ 51 $ 42 $ 31
===== ===== =====
Ratio of earnings to corporate fixed charges.......... 7.3 7.6 9.3
===== ===== =====
Ratio of earnings to combined corporate fixed charges
and preferred stock dividends..................... 6.4 7.6 9.3
===== ===== =====
American General Finance, Inc.:
Income before income tax expense................................ $ 96 $ 96 $ 86
Fixed charges deducted from income
Interest expense............................................. 125 125 93
Implicit interest in rents................................... 3 3 3
----- ----- -----
Total fixed charges..................................... 128 128 96
----- ----- -----
Earnings available for fixed charges.................. $ 224 $ 224 $ 182
===== ===== =====
Ratio of earnings to fixed charges.................... 1.8 1.8 1.9
===== ===== =====
</TABLE>
- ---------------
(a) Assuming the AFC acquisition and proposed permanent financing had been
effective as of January 1, 1994. See American General's Current Report on
Form 8-K dated May 9, 1995 incorporated herein by reference.
(b) Includes two months of operations for AFC, which was acquired January 31,
1995.
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF INDEPENDENT AUDITOR
We consent to the reference to our firm under the caption "Experts" in
Amendment No. 4 to the Registration Statement on Form S-3 (Registration Nos.
33-58317, 33-58317-01 and 33-58317-02) and related Prospectus and Prospectus
Supplements of American General Corporation, American General Delaware, L.L.C.
and American General Capital, L.L.C. for the registration of $1,250,000,000 of
securities and to the incorporation by reference therein of our reports dated
February 15, 1995, with respect to the consolidated financial statements and
schedules of American General Corporation included or incorporated by reference
in its Annual Report (Form 10-K) for the year ended December 31, 1994, filed
with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Houston, Texas
May 16, 1995
<PAGE> 1
EXHIBIT 23(C)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in Amendment No. 4 to the
Registration Statement on Form S-3 (Registration Nos. 33-58317, 33-58317-01 and
33-58317-02) (the "Registration Statement") of American General Corporation,
American General Delaware, L.L.C. and American General Capital, L.L.C. of our
report, which includes an explanatory paragraph for certain changes in
accounting principles, dated February 1, 1994, except for Note 13 as to which
the date is January 30, 1995, on our audit of the consolidated financial
statements of American Franklin Company and Subsidiaries as of December 31,
1993, and for the year then ended, which report is included in the Form 8-K of
American General Corporation dated February 14, 1995, and of our report, which
includes an explanatory paragraph for certain changes in accounting principles,
dated February 1, 1995, on our audits of the consolidated financial statements
of American Franklin Company and Subsidiaries as of December 31, 1994 and 1993,
and for the years ended December 31, 1994 and 1993, which report is included in
the Form 8-K of American General Corporation dated April 14, 1995. We also
consent to the references to our Firm under the caption "Experts" in the
Registration Statement.
COOPERS & LYBRAND L.L.P.
Chicago, Illinois
May 16, 1995
