<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
AHL FINANCING
(Exact Name of Registrants as Specified in their Charters)
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<S> <C>
FLORIDA 59-1219710
DELAWARE APPLIED FOR
(State or Other Jurisdiction of Incorporation or (I.R.S. Employer Identification No.)
Organization)
</TABLE>
1776 AMERICAN HERITAGE LIFE DRIVE, JACKSONVILLE, FLORIDA 32224, (904) 992-1776
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Registrants' Principal Executive Offices)
------------------------
W. MICHAEL HEEKIN, ESQ.
SENIOR VICE PRESIDENT AND CORPORATE SECRETARY
1776 AMERICAN HERITAGE LIFE DRIVE
JACKSONVILLE, FLORIDA 32224
(904) 992-1776
(Name, Address, Including Zip Code, and Telephone Number, Including Area Code,
of Agent for Service for Each Registrant)
Copies to:
<TABLE>
<C> <C>
JOHN R. BYERS, ESQ. JOHN W. OSBORN, ESQ.
LEBOEUF, LAMB, GREENE & MACRAE, L.L.P. SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
50 NORTH LAURA STREET, SUITE 2800 919 THIRD AVENUE
JACKSONVILLE, FLORIDA 32202 NEW YORK, NEW YORK 10022
(904) 354-8000 (212) 735-3000
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, 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, as amended (the "Securities Act"), other than securities offered only in
connection with dividend or interest reinvestment plans, check the following
box: []
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number or the earlier
effective registration statement of the same offering: []
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number or the earlier effective registration statement
for the same offering: []
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: []
CALCULATION OF REGISTRATION FEE
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PROPOSED
PROPOSED MAXIMUM
AMOUNT MAXIMUM AGGREGATE AMOUNT OF
TO BE OFFERING PRICE OFFERING REGISTRATION
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED(1) PER UNIT(1)(2)(3) PRICE(1)(2)(3) FEE
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FELINE PRIDES(4).................................. 1,725,000 $50.00 $86,250,000 $26,136.50
- ---------------------------------------------------------------------------------------------------------------------------
Common Stock, $1.00 par value, of AHLIC(5)........ $86,250,000 $26,136.50
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................... $172,500,000 $52,273.00
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</TABLE>
(1) Such indeterminate number of Trust Preferred Securities of AHL Financing and
such indeterminate principal amount of Purchase Contracts, and Common Stock
of American Heritage Life Investment Corporation, a Florida corporation
("AHLIC"), as may from time to time be issued at indeterminate prices. %
Junior Subordinated Debentures will be issued and sold by AHLIC to AHL
Financing, which may later be distributed to the holders of Trust Preferred
Securities upon a dissolution of AHL Financing and the distribution of the
assets thereof.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457.
(3) Exclusive of accrued interest and distributions, if any.
(4) Each FELINE PRIDES is a unit that consists initially of a Purchase Contract
and a Trust Preferred Security. Each Purchase Contract obligates AHLIC to
sell, and the registered owner thereof to purchase, on or before ,
2000 certain shares of Common Stock of AHLIC. AHLIC has issued a Guarantee
of the Trust Preferred Securities.
(5) Such indeterminate number of shares of Common Stock to be issued by AHLIC
upon settlement of the Purchase Contracts.
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT SHALL
BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION
8(A), MAY DETERMINE.
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<PAGE> 2
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 MARCH 28, 1997
PROSPECTUS
1,500,000 FELINE PRIDES(SM) [AHL LOGO]
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
AHL FINANCING
The securities offered hereby are 1,500,000 FELINE PRIDES(SM) (the
"Securities") of American Heritage Life Investment Corporation, a Florida
corporation ("AHLIC" or the "Company"), and AHL Financing, a Delaware statutory
business trust (the "Trust"). Each FELINE PRIDES offered hereby initially will
consist of a unit (referred to as an Income PRIDES(SM)) with a Stated Amount of
$50 (the "Stated Amount") comprised of (a) a stock purchase contract (the
"Purchase Contract") under which (i) the holder will purchase from the Company
on , 2000 (the "Purchase Contract Settlement Date"), for an amount
in cash equal to the Stated Amount, a number of shares of common stock, $1.00
par value, of the Company (the "Common Stock") equal to the Settlement Rate or
Cash Settlement Rate described herein, as applicable, and (ii) the Company will
pay the holder unsecured, subordinated contract adjustment payments ("Contract
Adjustment Payments"), and (b) beneficial ownership of a % Trust Originated
Preferred Security (a "Trust Preferred Security"), having a stated liquidation
per Trust Preferred Security equal to the Stated Amount, representing a
preferred undivided beneficial interest in the assets of the Trust. The Company
will, directly or indirectly, own all of the common securities (the "Common
Securities") representing undivided beneficial interests in the assets of the
Trust. The Trust exists for the sole purpose of issuing the Trust Preferred
Securities and Common Securities and investing the proceeds thereof in an
equivalent amount of % Junior Subordinated Debentures of the Company, due
, 2002 (the "Junior Subordinated Debentures"). As long as the FELINE
PRIDES are in the form of Income PRIDES, the Trust Preferred Securities will be
pledged to the Collateral Agent (as defined herein), to secure the holder's
obligation to purchase Common Stock under the Purchase Contract.
(Continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE SECURITIES, INCLUDING THE PERIOD AND CIRCUMSTANCES DURING
AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE SECURITIES MAY BE DEFERRED AND
THE RELATED UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF SUCH DEFERRAL.
------------------------
Prior to the offering made hereby there has been no public market for the
Securities. Application will be made to list the Income PRIDES on the New York
Stock Exchange ("NYSE") under the symbol "AHL prI." The Growth PRIDES (as
defined herein) and the Trust Preferred Securities will not be listed or traded
on any securities exchange. On March 27, 1997, the last reported sale price of
the Common Stock on the NYSE was $24 7/8 per share.
------------------------
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.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) COMMISSION(2) COMPANY(3)
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<S> <C> <C> <C>
Per Income PRIDES...................... $50.00 $ $
- ------------------------------------------------------------------------------------------------------------------
Total(4)............................... $75,000,000 $ $
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</TABLE>
(1) Plus accrued distributions on the Trust Preferred Securities and Contract
Adjustment Payments, if any, from , 1997.
(2) The Company and the Trust have agreed to indemnify the Underwriters against
certain liabilities under the Securities Act of 1933, as amended. See
"Underwriting."
(3) Before deducting estimated expenses payable by the Company estimated at
$ .
(4) The Company and the Trust have granted the Underwriters a 30-day option to
purchase up to an additional 225,000 Income PRIDES to cover over-allotments,
if any. If such option is exercised in full, the total Price to Public will
be $ , Underwriting Commission will be $ and Proceeds to the Company
will be $ . See "Underwriting."
------------------------
The Securities are offered by the several Underwriters, subject to prior
sale, when as and if issued to and accepted by them, and subject to approval of
certain legal matters by counsel for the Underwriters and certain other
conditions. The Underwriters reserve the right to withdraw, cancel or modify
such offer and to reject orders in whole or in part. It is expected that
delivery of the Securities offered hereby will be made in New York, New York on
or about , 1997.
------------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
THE ROBINSON-HUMPHREY COMPANY, INC.
------------------------
THE DATE OF THIS PROSPECTUS IS , 1997.
- ---------------
(SM) Service Mark of Merrill Lynch & Co. Inc.
<PAGE> 3
(Continued from previous page)
Payments of % of the Stated Amount per annum will be made or accrue on
each Income PRIDES quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing June 30, 1997, until the Purchase Contract
Settlement Date. These payments will consist of cumulative cash distributions on
the Trust Preferred Securities payable by the Trust at the rate of % of the
Stated Amount per annum, and Contract Adjustment Payments payable by the Company
at the rate of % of the Stated Amount per annum. The ability of the Trust to
make the quarterly distributions on the Trust Preferred Securities is solely
dependent upon the receipt of corresponding interest payments from the Company
on the Junior Subordinated Debentures. The Company has the right at any time,
and from time to time, limited to a period not extending beyond the maturity
date of the Junior Subordinated Debentures, to defer the interest payments due
on the Junior Subordinated Debentures and to defer Contract Adjustment Payments
until the Purchase Contract Settlement Date. As a consequence of such deferral,
quarterly distributions on the Income PRIDES would be deferred, but would
continue to accrue with interest compounded quarterly.
The payment of distributions out of moneys held by the Trust and payments
on liquidation of the Trust are guaranteed by the Company (the "Guarantee") to
the extent described herein and under "Description of the Guarantee." The
Guarantee covers payments of distributions and other payments on the Trust
Preferred Securities only if and to the extent the Trust has funds available
therefor, which will not be the case unless the Company has made a payment of
principal or interest on the Junior Subordinated Debentures held by the Trust as
its sole asset. The Guarantee, when taken together with the Company's
obligations under the Junior Subordinated Debentures, the Indenture (as defined
below) and the Company's obligations under the Declaration (as defined below),
provides a full and unconditional guarantee on a subordinated basis by the
Company of amounts due on the Trust Preferred Securities. The Guarantee is
subordinate and junior in right of payment to all other liabilities of the
Company and ranks pari passu with the most senior preferred stock, if any,
issued from time to time by the Company.
Each holder will have the right, at any time after issuance of the Income
PRIDES, to substitute for any Trust Preferred Securities held by the Collateral
Agent zero-coupon U.S. Treasury Securities (CUSIP No. ) which are
principal strips of the % U.S. Treasury Securities which mature on
, 2000 (the "Treasury Securities") in a principal amount per Purchase
Contract equal to the Stated Amount per Trust Preferred Security. Holders may
make such substitution only in integral multiples of 20 Income PRIDES.
Securities with respect to which Treasury Securities have been substituted for
Trust Preferred Securities as collateral to secure a holder's obligation under
the Purchase Contracts, are referred to herein as Growth PRIDES(SM). Each Growth
PRIDES will consist of a unit with a face amount of $1,000 comprised of (a) 20
Purchase Contracts under which for each Purchase Contract (i) the holder will
purchase from the Company on the Purchase Contract Settlement Date or earlier
for an amount of cash equal to the Stated Amount, a number of shares of Common
Stock of the Company equal to the Cash Settlement Rate described herein, and
(ii) the Company will pay the holder Contract Adjustment Payments, and (b)
beneficial ownership of a Treasury Security having a principal amount at
maturity equal to $1,000. Upon the substitution of Treasury Securities for Trust
Preferred Securities as collateral, such Trust Preferred Securities will be
released to the holder as described herein and thereafter will trade separately
from the resulting Growth PRIDES. Contract Adjustment Payments will be payable
by the Company on the Growth PRIDES on March 31, June 30, September 30 and
December 31 of each year. In addition, interest will accrete on the underlying
Treasury Securities. Distributions on any Trust Preferred Securities still
outstanding after the Purchase Contract Settlement Date or after a substitution
of collateral resulting in the creation of Growth PRIDES will continue to be
payable by the Trust at the rate of % of the Stated Amount per annum, subject
to the deferral right described above. A holder of Growth PRIDES will have the
right to subsequently recreate Income PRIDES by delivering a Growth PRIDES to
the Purchase Contract Agent plus 20 Trust Preferred Securities per Growth PRIDES
to the Collateral Agent in exchange for 20 Income PRIDES and the release of the
underlying Treasury Securities to such holder.
On the Purchase Contract Settlement Date, unless a holder of the Income
PRIDES (i) has settled the underlying Purchase Contract either through the early
delivery of cash to the Purchase Contract Agent in the manner described herein
or otherwise or (ii) has notified the Purchase Contract Agent of its intention
to settle
2
<PAGE> 4
(Continued from previous page)
the related Purchase Contract with separate cash on the Purchase Contract
Settlement Date and has so settled the related Purchase Contract, such holder
will be deemed to have requested the Trust to put the related Junior
Subordinated Debenture to the Company, and the principal amount of such Junior
Subordinated Debenture equal to the Stated Amount per Purchase Contract will
automatically be applied to satisfy in full such holder's obligation to purchase
Common Stock under the Purchase Contract. To the extent that holders of Income
PRIDES settle the related Contracts as described in (i) or (ii) above, the
related Trust Preferred Securities will not be redeemed on the Purchase Contract
Settlement Date as stated above and the holders of such Trust Preferred
Securities will have the right on the Contract Purchase Settlement Date and for
a period of ninety days thereafter to require the Trust to put to the Company,
and the Company to repurchase, the related Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures -- Put Option."
With respect to each Growth PRIDES outstanding on the Purchase Contract
Settlement Date, the principal amount of the Treasury Securities underlying each
Growth PRIDES, when paid at maturity, will be automatically applied to satisfy
in full the holder's obligation to purchase Common Stock under the 20 Purchase
Contracts per Growth PRIDES.
In the event that a holder of either an Income PRIDES or Growth PRIDES
effects the early settlement of a related Purchase Contract through the delivery
of cash or the holder of an Income PRIDES settles a Purchase Contract with cash
on the Purchase Contract Settlement Date, the underlying Trust Preferred
Securities or Treasury Securities, as the case may be, will be released to the
holder as described herein.
A holder of Income PRIDES whose Purchase Contract has been settled with
cash, or a holder of Growth PRIDES whose Purchase Contract has been settled
through application of the principal amount of the related Treasury Securities,
on the Purchase Contract Settlement Date, will receive 0.125% more shares of
Common Stock per Purchase Contract than will be received by a holder of Income
PRIDES whose Purchase Contracts are settled through the put of the related
Junior Subordinated Debentures to the Company, and the redemption of the related
Trust Preferred Securities, on the Purchase Contract Settlement Date. A holder
of FELINE PRIDES whose Purchase Contract has settled through Early Settlement
will receive 0.125% more shares of Common Stock per Purchase Contract than would
be received by a holder of Income PRIDES who receives the Settlement Rate on the
Purchase Contract Settlement Date if the Applicable Market Value was then equal
to or greater than the Threshold Appreciation Price.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE SECURITIES. SUCH
TRANSACTIONS MAY INCLUDE STABILIZING, THE PURCHASE OF SECURITIES TO COVER
SYNDICATE SHORT POSITIONS AND THE IMPOSITION OF PENALTY BIDS. FOR A DESCRIPTION
OF THESE ACTIVITIES, SEE "UNDERWRITING."
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA NOR
HAS THE COMMISSIONER OF INSURANCE RULED UPON THE ACCURACY OR THE ADEQUACY OF
THIS DOCUMENT.
THE STATES IN WHICH THE COMPANY'S INSURANCE SUBSIDIARIES ARE DOMICILED HAVE
ENACTED LEGISLATION OR ADOPTED ADMINISTRATIVE REGULATIONS AFFECTING THE
ACQUISITION OF CONTROL OF INSURANCE COMPANIES AS WELL AS TRANSACTIONS BETWEEN
INSURANCE COMPANIES AND PERSONS CONTROLLING THEM. MOST STATES REQUIRE
ADMINISTRATIVE APPROVAL OF THE ACQUISITION OF CONTROL OF AN INSURANCE COMPANY
INCORPORATED IN THE STATE OR THE ACQUISITION OF CONTROL OF AN INSURANCE HOLDING
COMPANY WHOSE INSURANCE SUBSIDIARY IS INCORPORATED IN THE STATE. IN FLORIDA, THE
ACQUISITION OF 5% AND IN TEXAS, THE ACQUISITION OF 10% OF SUCH SHARES IS
GENERALLY DEEMED TO BE THE ACQUISITION OF "CONTROL" FOR THE PURPOSE OF THE
HOLDING COMPANY STATUTES AND REQUIRES NOT ONLY FILING OF DETAILED INFORMATION
CONCERNING THE ACQUIRING PARTIES AND THE PLAN OF ACQUISITION, BUT ALSO
ADMINISTRATIVE APPROVAL PRIOR TO THE ACQUISITION. HOWEVER, WITH RESPECT TO
FLORIDA, IN LIEU OF OBTAINING SUCH APPROVAL, A PURCHASER HOLDING THE POWER TO
VOTE LESS THAN 10% OF THE OUTSTANDING
3
<PAGE> 5
(Continued from previous page)
SHARES OF COMMON STOCK MAY FILE A DISCLAIMER OF AFFILIATION AND CONTROL
WITH THE FLORIDA DEPARTMENT OF INSURANCE.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, ANY ACCOMPANYING
PROSPECTUS SUPPLEMENT OR THE DOCUMENTS INCORPORATED OR DEEMED INCORPORATED BY
REFERENCE HEREIN, AND ANY INFORMATION OR REPRESENTATIONS NOT CONTAINED HEREIN OR
THEREIN MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE
TRUST OR BY ANY AGENT, DEALER OR UNDERWRITER. THIS PROSPECTUS AND ANY
ACCOMPANYING PROSPECTUS SUPPLEMENT DO NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS OR ANY
PROSPECTUS SUPPLEMENT AT ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN OR
THEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
NO EMPLOYEE BENEFIT PLAN SUBJECT TO TITLE I OF THE EMPLOYEE RETIREMENT
INCOME SECURITY ACT OF 1974, AS AMENDED ("ERISA"), OR INDIVIDUAL RETIREMENT
ACCOUNT OR PLAN SUBJECT TO SECTION 4975 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED (THE "ARC") (EACH, A "PLAN"), NO ENTITY WHOSE UNDERLYING ASSETS INCLUDE
"PLAN ASSETS" BY REASON OF ANY PLAN'S INVESTMENT IN THE ENTITY (A "PLAN ASSET
ENTITY"), AND NO PERSON INVESTING "PLAN ASSETS" OF ANY PLAN, MAY ACQUIRE OR
SHOULD HOLD THE SECURITIES OR ANY INTEREST THEREIN, UNLESS SUCH PURCHASER OR
HOLDER IS ELIGIBLE FOR THE EXEMPTIVE RELIEF AVAILABLE UNDER U.S. DEPARTMENT OF
LABOR PROHIBITED TRANSACTION CLASS EXEMPTION ("PTCE") 96-23, 95-60, 91-38, 90-1
OR 84-14. ANY PURCHASER OR HOLDER OF THE SECURITIES OR ANY INTEREST THEREIN WILL
BE DEEMED TO HAVE REPRESENTED BY ITS PURCHASE AND HOLDING THEREOF THAT IT EITHER
(A) IS NOT A PLAN OR A PLAN ASSET ENTITY AND IS NOT PURCHASING SUCH SECURITIES
ON BEHALF OF OR WITH "PLAN ASSETS" OF ANY PLAN OR (B) IS ELIGIBLE FOR THE
EXEMPTIVE RELIEF AVAILABLE UNDER PTCE 96-23, 95-60, 91-38, 90-1 OR 84-14 WITH
RESPECT TO SUCH PURCHASE AND HOLDING. SEE "ERISA CONSIDERATIONS."
------------------------
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements within the meaning of
the Private Securities Litigation Reform Act of 1995 which are not historical
facts, and involve risks and uncertainties that could cause actual results to
differ materially from those expected, projected, estimated or budgeted. Such
risks and uncertainties include, but are not limited to, the following: (i)
heightened competition, including specifically the intensification of price
competition, the entry of new competitors and the formation of new products by
new and existing competitors, (ii) adverse state and federal legislation and
regulation, including limitations on premium levels, increases in minimum
capital and reserves, and other financial viability requirements, benefit
mandates, limitations on the ability to manage health care and utilization, and
tax treatment of insurance products, (iii) failure to obtain new customers or
retain existing customers, (iv) inability to carry out marketing and sales
plans, (v) loss of key executives, (vi) changes in interest rates causing a
reduction of investment income, (vii) general economic and business conditions
which are less favorable than expected, (viii) unanticipated changes in industry
trends, (ix) failure to maintain adequate reinsurance, (x) possible claims
relating to sales practices for insurance products and claim denials, (xi)
adverse changes in the ratings obtained by independent rating agencies, and
(xii) inaccuracies in assumptions regarding future morbidity, persistency,
mortality and interest rates used in calculating reserve amounts. In addition,
factors that could cause actual results of the Company to differ materially from
those contemplated by or projected, forecast, estimated or budgeted in forward
looking statements relating to the results of operations and business of the
Company following the acquisition of Columbia Universal Corporation and its
insurance subsidiary include the following possibilities: (i) the expected cost
savings to be realized are not made or unanticipated offsetting costs are
incurred, and (ii) costs or difficulties related to the integration of the
businesses of the Company and Columbia Universal Corporation are greater than
expected. Accordingly, there can be no assurance that the actual results will
conform to the forward-looking statements in this Prospectus.
------------------------
4
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AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act"), and in accordance therewith
files reports, proxy statements and other information with the Securities and
Exchange Commission (the "SEC"). Reports, proxy statements and other information
concerning the Company can be inspected and copied at the SEC's Public Reference
Room, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as
the following Regional Offices of the SEC: 7 World Trade Center, Suite 1300, New
York, New York 10048; and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661-2511. Copies of such material can be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, DC 20549, at prescribed rates. The SEC also
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the SEC.
The address of such site is http://www.sec.gov. Such reports, proxy statements
and other information may also be inspected at the offices of the NYSE, on which
the Company's Common Stock is traded, at 20 Broad Street, New York, New York
10005.
This Prospectus constitutes a part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") filed by the Company and the Trust with the SEC under the Securities
Act of 1933, as amended (the "Securities Act"), with respect to the Securities.
This Prospectus does not contain all of the information set forth in such
Registration Statement, certain parts of which are omitted in accordance with
the rules and regulations of the SEC. Reference is made to such Registration
Statement and to the exhibits relating thereto for further information with
respect to the Company, the Trust and the Securities. Any statements contained
herein concerning the provisions of any document filed as an exhibit to the
Registration Statement or otherwise filed with the SEC or incorporated by
reference herein are not necessarily complete, and in each instance reference is
made to the copy of such document so filed for a more complete description of
the matter involved. Each such statement is qualified in its entirety by such
reference.
No separate financial statements of the Trust have been included herein.
The Company does not consider that such financial statements would be material
to holders of the Securities because (i) all of the voting securities of the
Trust will be owned, directly or indirectly, by the Company, a reporting company
under the Exchange Act, (ii) the Trust has no independent operations but exists
for the sole purpose of issuing securities representing undivided beneficial
interests in the assets of such Trust and investing the proceeds thereof in %
Junior Subordinated Debentures issued by the Company, and (iii) the Company's
obligations described herein and in any accompanying prospectus supplement under
the Declaration of Trust, the Guarantee issued with respect to Trust Preferred
Securities issued by the Trust, the % Junior Subordinated Debentures
purchased by the Trust and the Indenture, taken together, constitute a full and
unconditional guarantee of payments due on the Trust's Securities. See
"Description of the % Junior Subordinated Debentures" and "Description of the
Guarantee."
The Trust is not currently subject to the information reporting
requirements of the 1934 Act. The Trust will become subject to such requirements
upon the effectiveness of the Registration Statement, although the Trust intends
to seek and expects to receive an exemption therefrom.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company (File No. 1-7255) with the SEC
pursuant to the 1934 Act are incorporated by reference herein and made a part
hereof:
1. Annual Report on Form 10-K for the year ended December 31, 1996.
2. Current Report on Form 8-K dated January 2, 1997.
3. Current Report on Form 8-K dated March 3, 1997 as amended by
Current Report on Form 8-K/A dated March 3, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the 1934 Act subsequent to the date hereof and prior to the termination
of the offering of the Securities pursuant hereto
5
<PAGE> 7
shall be deemed to be incorporated by reference in this Prospectus or in any
Prospectus Supplement and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference in this Prospectus or in any Prospectus
Supplement shall be deemed to be modified or superseded for purposes of this
Prospectus or any Prospectus Supplement to the extent that a statement contained
in this Prospectus or in any Prospectus Supplement or in any other subsequently
filed document which also is or is deemed to be incorporated by reference in
this Prospectus or in any Prospectus Supplement modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Prospectus or any
Prospectus Supplement.
The Company undertakes to provide without charge to each person to whom a
copy of this Prospectus has been delivered, upon the written or oral request of
any such person, a copy of any or all of the foregoing documents incorporated
herein by reference, other than exhibits to such documents (unless such exhibits
are specifically incorporated by reference into such documents). Such requests
should be directed to: Corporate Secretary, American Heritage Life Investment
Corporation, 1776 American Heritage Life Drive, Jacksonville, Florida 32224;
Telephone: (904) 992-1776.
6
<PAGE> 8
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information and financial statements appearing elsewhere in this
Prospectus or incorporated herein by reference. Except as otherwise noted, all
information in this Prospectus assumes no exercise of the Underwriters'
over-allotment option. Except as otherwise indicated, all financial information
regarding the Company and its insurance subsidiaries has been prepared in
accordance with generally accepted accounting principles rather than statutory
accounting principles.
THE COMPANY
American Heritage Life Investment Corporation is a holding company whose
principal subsidiary is American Heritage Life Insurance Company, a Florida life
insurance company ("AHL"). The Company was organized on September 11, 1956 and
is presently authorized to do business as a life insurance company in all
states, other than New York, and in the District of Columbia, U.S. Virgin
Islands and Puerto Rico. The Company is engaged in the business of underwriting
life and accident and health insurance on an individual, group and credit basis.
The Company is a leading marketer of life and supplemental health insurance
products through payroll allotment, a specialized distribution method on which
it has focused since its inception. Payroll allotment is an efficient way to
distribute most products to employees on the job by conveniently deducting the
premium from their paychecks.
The Company entered into an agreement in principle on December 10, 1996 to
acquire Columbia Universal Corporation and its principal subsidiary, Columbia
Universal Life Insurance Company (collectively, "Columbia Universal"), for a
purchase price of $44.0 million. The acquisition was closed on March 3, 1997.
The Company has reported increased operating earnings for 21 consecutive
years and has increased dividends to shareholders for 27 consecutive years. The
following chart presents the Company's consolidated operating earnings for the
last ten years. Operating earnings are defined as net earnings excluding
realized investment gains and losses, net of income taxes, and non-recurring
gains related to the sale of home office property.
OPERATING EARNINGS HISTORY(1)
<TABLE>
<CAPTION>
YEAR ENDED % INCREASE
DECEMBER 31 OPERATING EARNINGS FROM PRIOR YEAR
----------- ------------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
1987................................................... $ 9,637 6.5%
1988................................................... 10,649 10.5
1989................................................... 11,920 11.9
1990................................................... 13,409 12.5
1991................................................... 15,019 12.0
1992................................................... 16,739 11.5
1993................................................... 18,945 13.2
1994................................................... 22,334 17.9
1995................................................... 24,174 8.2
1996................................................... 26,759 10.7
</TABLE>
- ---------------
(1) Excluding investment income on the net proceeds of $33.5 million from a
secondary public stock offering in 1993, the percentage increase in
operating earnings was 11.9% and 11.4% for 1994 and 1993, respectively, and
the average annual percentage increase in earnings from operations for the
period 1987-1996 was 10.7%.
AHL is rated "A (Excellent)" by A. M. Best Company ("A. M. Best"), an
independent nationally recognized insurance publishing and rating service.
Standard & Poor's Insurance Rating Services ("S&P") has given AHL an insurer
claims-paying ability rating of "AA". At December 31, 1996, the Company had
7
<PAGE> 9
$1.4 billion of total assets, $228.9 million of stockholders' equity and more
than $20.5 billion of gross life insurance volume in force. On a pro forma
basis, including the acquisition of Columbia Universal at December 31, 1996, the
Company's total assets would have been $1.7 billion and gross life insurance
volume in force would have been $22.1 billion. Also, approximately 98% of the
$521.9 million of debt securities held by the Company had investment grade
ratings.
The Company operates in three marketing areas -- ordinary, group and
credit -- which accounted for 81%, 10% and 9%, respectively, of the Company's
pre-tax operating earnings for the year ended December 31, 1996.
ORDINARY OPERATIONS provide interest-sensitive products (universal life,
single and flexible premium deferred annuities and excess-interest whole life),
single premium immediate annuities, level and decreasing term products and
supplemental accident and health insurance products to individuals. The largest
portion (78.5% for the year ended December 31, 1996) of new annualized sales was
produced on a payroll allotment basis with the remainder produced by a variety
of direct billing methods through individual agents. The Company's strategy in
its ordinary operations is to offer a broader product mix than its competitors
in the payroll allotment area and to solicit all of the employee base by
targeting direct sales of insurance products to higher income employees in
addition to payroll allotment sales. Recent life insurance studies published by
LIMRA International, a prominent industry market research organization, indicate
that the Company is one of only four life insurance companies that sell in
excess of $40 million of voluntary payroll life and payroll health insurance
premiums per year. To describe the Company's differentiation in the marketplace,
the Company has coined the following descriptive phrase: "AHL -- The Workplace
Marketer(R) -- the Company that serves the life and supplemental health
insurance needs of the American worker -- from the lunchroom to the board room."
GROUP OPERATIONS distribute insurance products and related services to
large employers for their employee benefit plans. The Company provides life,
disability, medical and dental insurance programs, which constitute the
foundation of any employer's package of group benefits. The Company furnishes
all components necessary to effectively manage program costs for the client
companies including a provider network, managed care program and benefits
determination. Group products include group term life insurance, accidental
death and dismemberment, short-term disability, long-term disability, dental and
major medical coverage. In offering these product lines, the Company provides a
wide range of funding vehicles from fully insured to employer funded products,
which the Company tailors to the particular needs of its employer clients. The
Company's strategy in the group market is to focus on southeastern employers
with 500 to 5,000 employees.
CREDIT OPERATIONS consist of life and accident and health insurance
coverages offered to consumer debtors, chiefly through banks, automobile
dealers, finance companies and retailers. The Company currently offers credit
insurance products in 44 states and ranks among the top 15 credit life insurance
providers in the country. Typically, this insurance will pay outstanding loan
obligations in the event of an insured loss. This coverage is issued on either
the single-premium or outstanding loan balance basis. Credit life is sold on a
reducing or level-term basis. Credit accident and health insurance will normally
only be written in conjunction with credit life insurance. To complement credit
life and accident and health sales, First Colonial Insurance Company, a
subsidiary of the Company ("FCIC") and a Florida insurance company, offers
credit property insurance coverage.
BUSINESS STRATEGIES
The Company's objective is to continue its record of increased operating
earnings by following the strategies set forth below:
COMMITMENT TO CORE BUSINESSES. The Company's primary focus will
continue to be on its core businesses. Additionally, the Company will
continue to evaluate opportunities to grow from internal expansion as well
as by acquisitions of blocks of business and/or companies that are
compatible with the Company's core businesses.
8
<PAGE> 10
CONCENTRATION ON MARKET NICHE. The Company believes it has a
competitive advantage in the payroll allotment marketplace based upon its
commitment to provide quality service, its offering of an expanding
portfolio of products, and its development of processes and technology that
are unique to servicing and administering that marketplace.
SYNERGISTIC MARKETING AND STRATEGIC ALLIANCES. The Company's three
marketing areas -- ordinary, group and credit -- provide opportunities for
cross-selling the Company's products. The Company's group operations in
particular provide the Company's ordinary operations access to sell payroll
allotment products. The Company also has and is continuing to develop
strategic alliances with other insurers to cross-sell such entities'
products and to allow each entity access to the other's distribution
channels. The Company presently has strategic alliance partnerships in
various stages of development with several major life insurance companies
which are expected to provide access to significant distribution systems
during 1997.
FOCUS ON EXPENSE CONTROL. The Company believes that its record of
profitable growth has resulted from a combination of revenue growth and
focus on expense control. The Company's ratio of general insurance expenses
to total revenue (defined for this purpose as including premiums, premium
equivalents and investment income and excluding realized investment gains
and losses) has been recognized as being low as compared to industry norms.
General insurance expenses as a percentage of total revenues for the years
ended December 31, 1987 through 1996, ranged from a high of 6.2% to a
current low of 4.9% for the year ended December 31, 1996.
ACQUISITIONS
The Company entered into an agreement in principle on December 10, 1996 to
acquire Columbia Universal for a purchase price of $44.0 million. The
acquisition was closed on March 3, 1997. Columbia Universal markets individual
life, annuity and supplemental health products to selected markets. Columbia
Universal had premiums and premium equivalents of $36.4 million for the year
ended December 31, 1996, and total assets of $368.5 million at December 31,
1996. The acquisition will provide new distribution channels for the Company's
ordinary payroll products and sales opportunities for both the Company and
Columbia Universal and is projected to have a positive impact on the Company's
future operating earnings.
Effective December 31, 1996, the Company acquired a block of payroll
deduction interest-sensitive whole life business from Kentucky Home Mutual Life
Insurance Company. Additionally, during the past six years, the Company has
acquired three other blocks of business. In total these four acquisitions
aggregated $23.4 million in additional annualized premiums and $155.4 million in
total assets. These acquisitions have provided new distribution channels for the
Company's ordinary payroll products.
9
<PAGE> 11
SUMMARY FINANCIAL INFORMATION
The following summary consolidated financial data have been derived from
the Consolidated Financial Statements of the Company and should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto and "Management's Discussion and Analysis of Financial Condition
and Results of Operations" appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1996 1995 1994 1993 1992
---------- ---------- ---------- ---------- ----------
($ IN THOUSANDS, EXCEPT LIFE INSURANCE VOLUME IN FORCE AND PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Insurance revenues............. $ 258,519 $ 247,251 $ 230,589 $ 227,376 $ 212,062
Net investment income.......... 77,035 70,601 66,706 63,875 59,721
Realized investment gains
(losses).................... 420 6,003 2,011 1,184 237
---------- ---------- ---------- ---------- ----------
Total income........... $ 335,974 $ 323,855 $ 299,306 $ 292,435 $ 272,020
========== ========== ========== ========== ==========
Operating earnings............. $ 26,759 $ 24,174 $ 22,334 $ 18,945 $ 16,739
========== ========== ========== ========== ==========
Net earnings................... $ 27,032 $ 28,075 $ 23,641 $ 19,715 $ 16,896
========== ========== ========== ========== ==========
PER SHARE DATA:
Operating earnings............. $ 1.94 $ 1.74 $ 1.61 $ 1.53 $ 1.41
Net earnings................... 1.96 2.02 1.71 1.59 1.42
Cash dividends paid............ .74 .70 .64 .59 .56
SEGMENT DATA:
Insurance revenues and premium
equivalents(1):
Ordinary....................... $ 181,469 $ 167,328 $ 161,612 $ 149,106 $ 138,241
Group.......................... 214,933 206,354 167,520 158,188 163,701
Credit......................... 171,209 138,134 116,318 103,113 93,027
---------- ---------- ---------- ---------- ----------
Total.................. $ 567,611 $ 511,816 $ 445,450 $ 410,407 $ 394,969
========== ========== ========== ========== ==========
Pre-tax operating earnings:
Ordinary....................... $ 35,070 $ 28,935 $ 26,049 $ 21,798 $ 17,322
Group.......................... 4,513 7,470 7,323 6,042 5,269
Credit......................... 3,750 2,739 1,754 1,720 2,969
---------- ---------- ---------- ---------- ----------
Total.................. $ 43,333 $ 39,144 $ 35,126 $ 29,560 $ 25,560
========== ========== ========== ========== ==========
OTHER DATA:
Consolidated return on
stockholders' equity(2)..... 12.8% 12.4% 12.6% 13.8% 14.2%
Life insurance volume in force
(in millions)............... $ 20,523(3) $ 18,384 $ 16,816 $ 15,601 $ 15,468
BALANCE SHEET DATA:
Total investments.............. $1,011,449 $ 979,603 $ 845,729 $ 854,363 $ 766,871
Total assets................... 1,370,117(3) 1,317,896 1,179,257 1,138,578 1,016,984
Notes payable.................. 85,429 94,994 84,201 72,481 62,102
Stockholders' equity........... 228,943 219,329 173,360 183,930 147,965
</TABLE>
- ---------------
(1) For an explanation of insurance revenues and premium equivalents refer to
Footnote (1) on page 38.
(2) Based on operating earnings. Stockholders' equity, for this calculation,
excludes any unrealized investment gains (losses) for the periods presented.
(3) On a pro forma basis, including the acquisition of Columbia Universal at
December 31, 1996, total assets would have been $1,747,610 and life
insurance volume in force would have been $22,109.
10
<PAGE> 12
THE TRUST
AHL Financing is a statutory business trust formed under Delaware law
pursuant to (i) a declaration of trust, dated as of March 20, 1997, executed by
the Company, as sponsor (the "Sponsor"), and the trustees of the Trust (the "AHL
Trustees") and (ii) the filing of a certificate of trust with the Secretary of
State of the State of Delaware on March 20, 1997. Such declaration will be
amended and restated in its entirety (as so amended and restated, the
"Declaration") substantially in the form filed as an exhibit to the Registration
Statement of which this Prospectus forms a part. The Declaration will be
qualified as an indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Trust exists for the exclusive purposes of (i)
issuing the Trust Securities representing undivided beneficial interests in the
assets of the Trust, (ii) investing the gross proceeds of the Trust Securities
in the Junior Subordinated Debentures and (iii) engaging in only those other
activities necessary or incidental thereto. See "The Trust."
THE OFFERING
Securities Offered......... 1,500,000 Income PRIDES.
Issuers.................... American Heritage Life Investment Corporation
("AHLIC" or the "Company") and AHL Financing (the
"Trust").
Stated Amount.............. $50 per Income PRIDES.
Components of FELINE
PRIDES................... Each FELINE PRIDES offered hereby initially will
consist of a unit (referred to as an Income PRIDES)
comprised of (a) a stock purchase contract (the
"Purchase Contract") under which (i) the holder
will purchase from the Company on ,
2000 (the "Purchase Contract Settlement Date"), for
an amount equal to the Stated Amount, a number of
new shares of common stock, par value $1.00 per
share (the "Common Stock"), of the Company equal to
the Settlement Rate or the Cash Settlement Rate
(each as defined herein), as applicable, and (ii)
the Company will pay Contract Adjustment Payments
to the holder, and (b) beneficial ownership of a
% Trust Preferred Security, having a stated
liquidation amount equal to the Stated Amount,
representing a preferred, undivided beneficial
interest in the assets of the Trust.
The Company will, directly or indirectly, own all
of the Common Securities. The Trust exists for the
sole purpose of issuing the Trust Preferred
Securities and the Common Securities and investing
the proceeds thereof in an equivalent amount of
% Junior Subordinated Debentures of the
Company, due , 2002 (the "Junior
Subordinated Debentures"). Upon the occurrence of a
Tax Event or an Investment Company Event, as
described below, the Junior Subordinated Debentures
would be substituted for the Trust Preferred
Securities. References herein to Trust Preferred
Securities, unless the context otherwise requires,
mean the (i) Trust Preferred Securities or (ii) the
Junior Subordinated Debentures which have been
delivered to holders in the case of a Tax Event or
an Investment Company Event. The distribution rate
and the payment dates for the Trust Preferred
Securities will correspond to the interest rate and
the payment dates for the Junior Subordinated
Debentures, which will be the sole assets of the
Trust. As long as the FELINE PRIDES are in the form
of Income PRIDES, the Trust Preferred Securities
will be pledged with The Chase Manhattan Bank as
collateral agent for the Company (together with any
successor thereto in such capacity, the "Collateral
Agent"), to secure the holders'
11
<PAGE> 13
obligations to purchase Common Stock under the
Purchase Contracts. See "Risk Factors."
Purchase Contract
Agreement.................. The FELINE PRIDES will be issued under a Purchase
Contract Agreement, dated as of , 1997
(the "Purchase Contract Agreement"), between the
Company and The First National Bank of Chicago, as
agent for the holders of the FELINE PRIDES
(together with any successor thereto in such
capacity, the "Purchase Contract Agent").
Substitution of Pledged
Securities............... Each holder will have the right, at any time after
issuance of the Income PRIDES, to substitute for
any Trust Preferred Securities held by the
Collateral Agent zero-coupon U.S. Treasury
Securities (CUSIP No. ) which are principal
strips of the % U.S. Treasury Securities which
mature on , 2000 (the "Treasury
Securities") in a principal amount per Purchase
Contract equal to the Stated Amount per Trust
Preferred Security. Holders may make such
substitution only in integral multiples of 20
Income PRIDES. Securities with respect to which
Treasury Securities have been substituted for Trust
Preferred Securities as collateral to secure a
holder's obligation under the Purchase Contracts
will be referred to as Growth PRIDES(SM). Each
Growth PRIDES will consist of a unit with a face
amount of $1000 comprised of (a) 20 Purchase
Contracts under which for each Purchase Contract
(i) the holder will purchase from the Company on
the Purchase Contract Settlement Date or earlier
for an amount of cash equal to the Stated Amount, a
number of shares of Common Stock of the Company
equal to the Cash Settlement Rate described herein,
and (ii) the Company will pay the holder Contract
Adjustment Payments, and (b) beneficial ownership
of a Treasury Security having a principal amount at
maturity equal to $1,000. Upon the substitution of
Treasury Securities for Trust Preferred Securities
as collateral, such Trust Preferred Securities will
be released to the holder as described herein and
thereafter will trade separately from the resulting
Growth PRIDES. See "Description of the FELINE
PRIDES -- Substitution of Pledged Securities."
Holders who elect to substitute Pledged Securities
(as defined in "Description of the Purchase
Contracts -- Pledged Securities and Pledge
Agreement"), thereby creating Growth PRIDES or
recreating Income PRIDES (as discussed below), will
be responsible for any fees or expenses payable in
connection therewith. See "Certain Provisions of
the Purchase Contract Agreement and the Pledge
Agreement -- Miscellaneous."
Recreating Income PRIDES... A holder of Growth PRIDES will have the right to
subsequently recreate an Income PRIDES by
delivering a Growth PRIDES to the Purchase Contract
Agent plus 20 Trust Preferred Securities to the
Collateral Agent in exchange for 20 Income PRIDES
and the release of the underlying Treasury Security
to such holder. See "Description of the FELINE
PRIDES -- Recreating Income PRIDES."
Current Payments........... Holders of Income PRIDES are entitled to receive
cash distributions at a rate of % of the
Stated Amount per annum payable quarterly in
arrears. The quarterly payments will consist of
cumulative cash distribu-
12
<PAGE> 14
tions on the Trust Preferred Securities payable by
the Trust at the rate of % of the Stated
Amount per annum, and Contract Adjustment Payments,
payable by the Company, until the Purchase Contract
Settlement Date, at the rate of % of the
Stated Amount per annum. The ability of the Trust
to make the quarterly distributions on the Trust
Preferred Securities is solely dependent upon the
receipt of corresponding interest payments from the
Company on the Junior Subordinated Debentures. The
Company's obligations with respect to the Contract
Adjustment Payments are subordinate and junior in
right of payment to all liabilities of the Company
(other than the Company's guarantee of junior
subordinated debentures with which they rank pari
passu). See "Risk Factors -- Ranking of Contract
Adjustment Payments and Subordinate Obligations
Under the Guarantee and Junior Subordinated
Debentures."
Subject to the Company's rights of deferral
described herein, in the event holders of Income
PRIDES elect to substitute Treasury Securities for
the Trust Preferred Securities, holders of Growth
PRIDES would receive the quarterly distributions of
Contract Adjustment Payments and, to the extent
that they continue to hold any Trust Preferred
Securities, the quarterly distributions on the
Trust Preferred Securities. In addition, interest
would continue to accrete on the Treasury
Securities. See "Risk Factors -- Right to Defer
Current Payments."
Option to Extend
Distribution Payment
Periods.................. The Company has the right at any time, and from
time to time, limited to a period not extending
beyond the maturity date of the Junior Subordinated
Debentures, to defer the interest payments due on
the Junior Subordinated Debentures. As a
consequence of such deferral, quarterly
distributions to holders of Income PRIDES (or any
Trust Preferred Securities outstanding after the
Purchase Contract Settlement Date or after a
substitution of collateral resulting in the
creation of Growth PRIDES) would be deferred (but
despite such deferral, would continue to accumulate
quarterly and would accrue interest thereon
compounded quarterly at the same rate as interest
on the Junior Subordinated Debentures). The Company
also has the right to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until
no later than the Purchase Contract Settlement
Date; however, deferred Contract Adjustment
Payments will bear additional Contract Adjustment
Payments at the rate of % per annum (such
deferred installments of Contract Adjustment
Payments together with the additional Contract
Adjustment Payments shall be referred to as the
"Deferred Contract Adjustment Payments"). See
"Description of the Purchase Contracts -- Contract
Adjustment Payments." If interest payments on the
Junior Subordinated Debentures or the Contract
Adjustment Payments are deferred, the Company has
agreed, among other things, not to declare or pay
any dividend on or repurchase its capital stock
during the period of such deferral.
In the event that the Company elects to defer the
payment of Contract Adjustment Payments on the
Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Income PRIDES or
Growth PRIDES will receive on the Purchase Contract
Settlement Date, in lieu of a cash payment, a
number of shares of Common Stock (in addition to
13
<PAGE> 15
a number of shares of Common Stock equal to the
Settlement Rate) equal to (x) the aggregate amount
of Deferred Contract Adjustment Payments payable to
a holder of either Income PRIDES or Growth PRIDES
divided by (y) the Applicable Market Value. See
"Description of the Purchase Contracts -- Option to
Defer Contract Adjustment Payments."
Payment Dates.............. Subject to the distribution deferral provisions
described herein, the current payments described
above will be payable quarterly in arrears on March
31, June 30, September 30 and December 31 of each
year, commencing June 30, 1997, through and
including (i) in the case of the Contract
Adjustment Payments, the Purchase Contract
Settlement Date or the most recent such quarterly
date on or prior to the early settlement of the
Purchase Contracts and (ii) in the case of Trust
Preferred Securities, through and including the
most recent such quarterly date on or prior to the
date a Junior Subordinated Debenture represented by
a Trust Preferred Security is put to the Company,
as described under "Description of the Junior
Subordinated Debenture -- Put Option", or the date
the stated amount of a Trust Preferred Security,
together with all accrued and unpaid distributions
thereon, is paid in full (each, a "Payment Date").
Purchase Contract
Settlement Date.......... On the Purchase Contract Settlement Date, unless a
holder of the Income PRIDES (i) has settled the
underlying Purchase Contract either through the
early delivery of cash to the Purchase Contract
Agent in the manner described herein or otherwise,
or (ii) has notified the Purchase Contract Agent of
its intention to settle the related Purchase
Contract with separate cash on the Purchase
Contract Settlement Date and has so settled the
related Purchase Contract, or an event described
under "Description of the Purchase
Contracts -- Termination" occurs, such holder will
be deemed to have requested the Trust to put the
related Junior Subordinated Debenture to the
Company, and the principal amount of such Junior
Subordinated Debenture equal to the Stated Amount
per Purchase Contract will automatically be applied
to satisfy in full such holder's obligation to
purchase Common Stock under the Purchase Contract.
See "Description of the Junior Subordinated
Debentures -- Put Option."
With respect to each Growth PRIDES outstanding on
the Purchase Contract Settlement Date, the
principal amount of the Treasury Securities
underlying each Growth PRIDES, when paid at
maturity, will be automatically applied to satisfy
in full the holder's obligation to purchase Common
Stock under the 20 Purchase Contracts per Growth
PRIDES.
In the event that a holder of either an Income
PRIDES or Growth PRIDES effects the early
settlement of a related Purchase Contract through
the delivery of cash or settles a Purchase Contract
with cash on the Purchase Contract Settlement Date,
the underlying Trust Preferred Securities or
Treasury Securities, as the case may be, will be
released to the holder as described herein.
Settlement Rate and Cash
Settlement Rate.......... The number of new shares of Common Stock issuable
upon settlement of each Purchase Contract through
the put of the related Junior
14
<PAGE> 16
Subordinated Debentures to the Company, and the
redemption of the related Trust Preferred
Securities, on the Purchase Contract Settlement
Date (the "Settlement Rate") will be calculated as
follows (subject to adjustment under certain
circumstances): (a) if the Applicable Market Value
(as defined below) is equal to or greater than
$ (the "Threshold Appreciation Price"),
the Settlement Rate will be , (b) if the
Applicable Market Value is less than the Threshold
Appreciation Price, but greater than $ the
Settlement Rate will equal the Stated Amount
divided by the Applicable Market Value, and (c) if
the Applicable Market Value is less than or equal
to $ , the Settlement Rate will be
. "Applicable Market Value" means the
average of the Closing Price (as defined) per share
of Common Stock on each of the thirty consecutive
Trading Days (as defined) ending on the second
Trading Day immediately preceding the Purchase
Contract Settlement Date.
The number of new shares of Common Stock issuable
upon settlement of each Purchase Contract through
Early Settlement of FELINE PRIDES, cash settlement
of the Income Prides on the Purchase Contract
Settlement Date and settlement of Growth PRIDES
through application of the related Treasury
Securities on the Purchase Contract Settlement Date
(the "Cash Settlement Rate") will be calculated as
(a) shares, in the case of Early Settlement
[which is equivalent to the number of shares of
Common Stock that would be received upon Cash
Settlement of Income PRIDES on the Purchase
Contract Settlement Date where the Applicable
Market Value is equal to or greater than the
Threshold Appreciation Price], or (b) 1.00125 times
the Settlement Rate, in those other cases.
A holder of Income PRIDES whose Purchase Contract
has been settled with cash, or a holder of Growth
PRIDES whose Purchase Contract has been settled
through application of the principal amount of the
related Treasury Securities, on the Purchase
Contract Settlement Date, will receive 0.125% more
shares of Common Stock per Purchase Contract than
will be received by a holder of Income PRIDES whose
Purchase Contracts are settled through the put of
the related Junior Subordinated Debentures to the
Company, and the redemption of the related Trust
Preferred Securities, on the Purchase Contract
Settlement Date. A holder of FELINE PRIDES whose
Purchase Contract has settled through Early
Settlement will receive 0.125% more shares of
Common Stock per Purchase Contract than would be
received by a holder of Income PRIDES who receives
the Settlement Rate on the Purchase Contract
Settlement Date if the Applicable Market Value was
then equal to or greater than the Threshold
Appreciation Price.
Early Settlement........... A holder of Income PRIDES or Growth PRIDES may
settle (an "Early Settlement") the underlying
Purchase Contracts prior to the Purchase Contract
Settlement Date in the manner described herein, but
only in integral multiples of 20 Income PRIDES or
one Growth PRIDES. Upon such Early Settlement, (a)
the holder will pay to the Company through the
Purchase Contract Agent in immediately available
funds an amount equal to the Stated Amount per
Purchase Contract and deliver the Income PRIDES or
Growth PRIDES, as the case may be, to the Purchase
Contract Agent, (b) the Trust Preferred Securities
underlying such Income PRIDES or, if substituted,
the Treasury Securities under-
15
<PAGE> 17
lying such Growth PRIDES will, within three
Business Days of the date of Early Settlement, be
transferred to the holder free and clear of the
Company's security interest therein, and (c) the
Company will, within three Business Days of the
date of Early Settlement, deliver newly issued
shares of Common Stock to the holder under the
Purchase Contract Agreement. Upon Early Settlement,
(i) the holder's rights to receive Deferred
Contract Adjustment Payments, if any, on the
Purchase Contracts being settled will be forfeited,
and (ii) the holder's right to receive additional
Contract Adjustment Payments will terminate and,
except as contemplated by clause (c) above, no
adjustment will be made to or for the holder on
account of current or deferred amounts accrued in
respect thereof.
Termination................ The Purchase Contracts (including the right to
receive accrued or Deferred Contract Adjustment
Payments and the obligation to purchase Common
Stock) will automatically terminate upon the
occurrence of certain events of bankruptcy,
insolvency or reorganization with respect to the
Company. Upon such termination, the Collateral
Agent will release the Trust Preferred Securities,
or if substituted, the Treasury Securities, held by
it to the Purchase Contract Agent for distribution
to the holders, although there may be a limited
delay before such release and distribution.
Voting Rights.............. Holders of Trust Preferred Securities will not be
entitled to vote to appoint, remove or replace, or
to increase or decrease the number of Regular
Trustees and will generally have no voting rights
except in the limited circumstances described under
"Description of Trust Preferred
Securities -- Voting Rights." Holders of Purchase
Contracts forming part of the Income PRIDES or
Growth PRIDES will have no voting rights.
Listing of the Income
PRIDES................... Application will be made to list the Income PRIDES
on the New York Stock Exchange (the "NYSE" ) under
the symbol "AHL prI." The Growth PRIDES and the
Trust Preferred Securities will not be listed or
traded on any securities exchange.
NYSE Symbol of Common
Stock.................... "AHL"
TRUST PREFERRED SECURITIES
The Trust.................. AHL Financing, a Delaware business trust (the
"Trust"). The sole assets of the Trust will consist
of the Junior Subordinated Debentures of the
Company. The Company will directly or indirectly
own all of the Common Securities (the "Common
Securities" and, together with the Trust Preferred
Securities, the "Trust Securities") representing
undivided beneficial interests in the assets of the
Trust.
Trust Preferred
Securities................. 1,500,000 of % Trust Preferred Securities
(liquidation amount $50 per Trust Preferred
Security), representing preferred, undivided
beneficial interests in the assets of the Trust.
Distributions.............. Distributions on the Trust Preferred Securities,
which constitute a portion of the distributions on
the Income PRIDES, will be cumulative, will accrue
from the first date of issuance of the Trust
Preferred
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Securities and will be payable at the annual rate
of % of the liquidation amount of $50 per
Trust Preferred Security when, as and if funds are
available for payment. Subject to the distribution
deferral provisions, distributions will be payable
quarterly in arrears on each March 31, June 30,
September 30 and December 31, commencing June 30,
1997.
Distribution Deferral
Provisions................. The ability of the Trust to pay distributions on
the Trust Preferred Securities is solely dependent
on the receipt of interest payments from the
Company on the Junior Subordinated Debentures. The
Company has the right at any time, and from time to
time, to defer the interest payments due on the
Junior Subordinated Debentures for successive
extension periods (the "Extension Periods"),
limited, in the aggregate, to a period not
extending beyond the maturity date of the Junior
Subordinated Debentures. Quarterly distributions on
the Trust Preferred Securities would be deferred by
the Trust (but would continue to accumulate
quarterly and would accrue interest, compounded
quarterly, at the same rates as interest on the
Junior Subordinated Debentures) until the end of
any such Extension Period. If a deferral of an
interest payment occurs, the holders of the Trust
Preferred Securities will accrue interest income
for United States federal income tax purposes in
advance of the receipt of any corresponding cash
distribution with respect to such deferred interest
payments. See "Risk Factors -- Right to Defer
Current Payments," "Description of the Trust
Preferred Securities -- Distributions" and "Certain
Federal Income Tax Consequences -- Distributions on
Trust Preferred Securities."
Rights Upon Deferral of
Distribution............. During any period in which interest payments on the
Junior Subordinated Debentures are deferred,
interest will accrue on the Junior Subordinated
Debentures (compounded quarterly) and quarterly
distributions on the Trust Preferred Securities
will continue to accumulate with interest thereon
at the distribution rate, compounded quarterly.
Liquidation Preference..... In the event of any liquidation of the Trust,
holders will be entitled to receive Junior
Subordinated Debentures in an aggregate stated
principal amount equal to the aggregate stated
liquidation amount of the Trust Preferred
Securities.
Put Option................. On the Purchase Contract Settlement Date, each
holder of Income PRIDES that has neither previously
exercised its option of Early Settlement nor
settled its Purchase Contract with cash will be
deemed to have requested the Trust to put the
aggregate principal amount of its Junior
Subordinated Debentures to the Company in an amount
per Junior Subordinated Debenture equal to $50,
plus accumulated and unpaid distributions, if any
(a "Put Option"). Upon the repurchase of the Junior
Subordinated Debentures by the Company pursuant to
a Put Option, (i) the proceeds from such repurchase
shall simultaneously be applied to redeem Trust
Preferred Securities of such holder having an
aggregate Stated Amount equal to the aggregate
principal amount of the Junior Subordinated
Debentures so repurchased and will be applied to
satisfy in full such holder's obligation to
purchase Common Stock under the Purchase Contract
as described herein and (ii) any accumulated and
unpaid distributions with respect to the Junior
Subordinated Debentures so repurchased will be paid
to such holder in cash. To the extent that
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holders of Income PRIDES exercise their right of
Early Settlement or settle their Purchase Contracts
with cash on the Purchase Contract Settlement Date,
the related Trust Preferred Securities will not be
redeemed on the Purchase Contract Settlement Date
as stated above. All holders of Trust Preferred
Securities that are not redeemed on the Contract
Purchase Settlement Date will have the option on
the Purchase Contract Settlement Date and for a
period of ninety days thereafter to require the
Trust to put to the Company, and the Company to
repurchase, the related Junior Subordinated
Debentures for an amount equal to $50, plus
accumulated and unpaid distributions, if any.
Tax Event or Investment
Company Event
Distribution............. In certain circumstances involving a Tax Event
(which event will generally be triggered upon the
occurrence of certain adverse tax consequences or
the denial of an interest deduction to the Company
on the Junior Subordinated Debentures held by the
Trust) or an Investment Company Event (which event
will generally be triggered if the Trust is
considered an "investment company" under the
Investment Company Act of 1940, as amended), the
Trust would be dissolved, with the result that the
Junior Subordinated Debentures with an aggregate
principal amount equal to the aggregate stated
liquidation amount of the Trust Preferred
Securities, would be distributed to the holders of
the Trust Preferred Securities on a pro rata basis.
In such event, an Income PRIDES would thereafter
consist of a Junior Subordinated Debenture with a
principal amount equal to the Stated Amount and the
related Purchase Contract and a holder could, on
the Purchase Contract Settlement Date, cause the
Junior Subordinated Debenture to be repaid and the
proceeds thereof applied to satisfy in full such
holder's obligation to purchase Common Stock under
the Purchase Contract as described herein.
Redemption................. The Company will not have the ability to redeem the
Junior Subordinated Debentures prior to the stated
maturity date.
Guarantee.................. The Company will irrevocably and unconditionally
guarantee (the "Guarantee"), on a subordinated
basis and to the extent described herein, the
payment in full of (i) distributions on the Trust
Preferred Securities to the extent the Trust has
funds available therefor, and (ii) generally, the
liquidation amount of the Trust Preferred
Securities to the extent the Trust has assets
available for distribution to holders of Trust
Preferred Securities in the event of a dissolution,
winding up or termination of the Trust. The
Guarantee will be unsecured and will be subordinate
and junior in right of payment to all other
liabilities of the Company and will rank pari passu
in right of payment with the most senior preferred
stock issued, from time to time, if any, by the
Company and with any guarantee entered into by the
Company in respect of any preferred or preference
stock of any affiliate of the Company. See "Risk
Factors -- Ranking of Contact Adjustment Payments
and Subordinate Obligations Under the Guarantee and
Junior Subordinated Debentures."
Junior Subordinated
Debentures............... The Junior Subordinated Debentures will mature on
, 2002, and will bear interest at the
rate of % per annum, payable quarterly in
arrears on each March 31, June 30, September 30 and
December 31 commencing June 30, 1997. Interest
payments may be deferred from
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<PAGE> 20
time to time by the Company for successive
Extension Periods not extending, in the aggregate,
beyond the stated maturity date of the Junior
Subordinated Debentures. During any Extension
Period, interest would continue to accrue and
compound quarterly. Upon the termination of any
Extension Period and the payment of all amounts
then due, the Company may commence a new Extension
Period, provided such extended Extension Period
does not extend beyond the stated maturity date of
the Junior Subordinated Debentures. No interest
shall be due during an Extension Period until the
end of such period. During an Extension Period, the
Company will be prohibited from paying dividends on
or purchasing any of its capital stock and making
certain other restricted payments until quarterly
interest payments are resumed and all amounts due
on the Junior Subordinated Debentures are made
current. The Junior Subordinated Debentures will be
subordinate in right of payment of principal and
interest to all Senior Indebtedness (as defined
herein) of the Company and will rank pari passu in
right of payment with other subordinated debentures
issued by the Company and with all unsecured trade
creditors of the Company. See "Description of the
Junior Subordinated Debentures."
Federal Income Tax
Consequences............. Provided the Company does not exercise its right to
defer interest on the Junior Subordinated
Debentures, holders of Income PRIDES and Trust
Preferred Securities will include in income their
allocable share of interest with respect to the
Junior Subordinated Debentures when paid or
accrued, in accordance with their regular method of
accounting. The Company intends to report the
Contract Adjustment Payments as income to holders
of Income PRIDES and Growth PRIDES, but holders
should consult their tax advisors concerning the
possibility that the Contract Adjustment Payments
may be treated as loans, purchase price
adjustments, rebates or option premiums rather than
being includible in income on a current basis.
Holders of Growth PRIDES will continue to include
in income any original issue discount ("OID") or
market discount or amortize any bond premium
otherwise includible or deductible, respectively,
with respect to the Treasury Securities posted with
the Collateral Agent. See "Certain Federal Income
Tax Consequences."
Use of Proceeds............ All of the proceeds from the sale of the Income
PRIDES, of which the Trust Preferred Securities are
a component, will be invested by the Trust in
Junior Subordinated Debentures of the Company and
the net proceeds of approximately $72 million
ultimately will be used by the Company for the
repayment of bank debt and for general corporate
purposes. Repayment of bank debt will increase the
available funding under the Company's existing
lines of credit. Any additional amounts received by
the Company upon settlement of the Purchase
Contracts, whether on the Purchase Contract
Settlement Date or an Early Settlement Date, are
expected to be used for the repayment of bank debt
or general corporate purposes. See "Use of
Proceeds."
RISK FACTORS
Potential purchasers of the Securities offered hereby should carefully
consider the risk factors set forth herein under "Risk Factors" as well as other
information contained in this Prospectus.
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<PAGE> 21
RISK FACTORS
Prospective purchasers of Securities should consider, in addition to the
other information contained or incorporated by reference in this Prospectus, the
following information relating to the Securities and to the Company and the
industry in which it operates.
RISK FACTORS -- THE SECURITIES
LIMITATIONS ON OPPORTUNITY FOR EQUITY APPRECIATION; RISK OF DECLINE IN EQUITY
VALUE
The opportunity for equity appreciation afforded by an investment in the
FELINE PRIDES is less than the opportunity for equity appreciation afforded by a
direct investment in the Common Stock, because the value of Common Stock to be
received by a holder of Purchase Contracts on the Purchase Contract Settlement
Date will only exceed the Stated Amount if the Applicable Market Value of the
Common Stock exceeds the Threshold Appreciation Price (which represents an
appreciation of % over the closing price of the Common Stock on the date
hereof). If the Applicable Market Value of the Common Stock is less than the
closing price of the Common Stock on the date hereof, such value to be received
by the holder on the Purchase Contract Settlement Date will be less than the
Stated Amount paid for the Income PRIDES, in which case an investment in the
Income PRIDES will result in a loss. Accordingly, a holder of the Purchase
Contracts assumes the risk that the market value of the Common Stock may
decline, and that such decline could be substantial.
FACTORS AFFECTING TRADING PRICES
The trading prices of the Income PRIDES and the Growth PRIDES in the
secondary market will be directly affected by the trading prices of the Common
Stock in the secondary market, the general level of interest rates and the
credit quality of the Company. It is impossible to predict whether the price of
Common Stock or interest rates generally will rise or fall. Trading prices of
Common Stock will be influenced by the Company's operating results and prospects
and by economic, financial and other factors and market conditions that can
affect the capital markets generally, including the level of, and fluctuations
in, the trading prices of stocks generally and sales of substantial amounts of
Common Stock in the market subsequent to the offering of the Securities or the
perception that such sales could occur. Fluctuations in interest rates may give
rise to opportunities for arbitrage based upon changes in the relative value of
the Common Stock underlying the Purchase Contracts and of the other components
of the FELINE PRIDES. Any such arbitrage could, in turn, affect the trading
prices of the Income PRIDES, Growth PRIDES, Trust Preferred Securities and
Common Stock.
VOTING RIGHTS
Holders of Trust Preferred Securities will not be entitled to vote to
appoint, remove or replace, or to increase or decrease the number of Regular
Trustees and will generally have no voting rights except in the limited
circumstances described under "Description of Trust Preferred
Securities -- Voting Rights." Holders of Purchase Contracts underlying the
Income PRIDES or Growth PRIDES will have no voting rights.
DILUTION OF COMMON STOCK
The number of shares of Common Stock that holders of the FELINE PRIDES are
entitled to receive on the Purchase Contract Settlement Date is subject to
adjustment for certain events arising from stock splits and combinations, stock
dividends and certain other actions of the Company that modify its capital
structure. See "Description of the Purchase Contracts -- Anti-Dilution
Adjustments." Such number of shares of Common Stock to be received by such
holders on the Purchase Contract Settlement Date will not be adjusted for other
events, such as offerings of Common Stock for cash or in connection with
acquisitions. The Company is not restricted from issuing additional Common Stock
during the term of either the Purchase Contracts or the Trust Preferred
Securities. Additional issuances may materially and adversely affect the price
of the Common Stock and, because of the relationship of the number of shares to
be received on the Purchase Contract
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<PAGE> 22
Settlement Date to the price of the Common Stock, such other events may
adversely affect the trading price of the Income PRIDES or Growth PRIDES.
POSSIBLE ILLIQUIDITY OF THE SECONDARY MARKET
It is not possible to predict how the Income PRIDES, the Growth PRIDES or
the Trust Preferred Securities will trade in the secondary market or whether the
market for any such securities will be liquid or illiquid. The Income PRIDES and
the Growth PRIDES are novel securities and there is currently no secondary
market for either the Income PRIDES or Growth PRIDES. Application will be made
to list the Income PRIDES on the NYSE. The Growth PRIDES and the Trust Preferred
Securities will not be listed or traded on any securities exchange. The Company
and the Trust have been advised by the Underwriters that they presently intend
to make a market for the Growth PRIDES and the Trust Preferred Securities;
however, they are not obligated to do so and any market making may be
discontinued at any time. There can be no assurance as to the liquidity of any
such market that may develop for the Income PRIDES, the Growth PRIDES or the
Trust Preferred Securities, the ability of holders to sell such securities, the
price at which holders would be able to sell such securities or whether a
trading market, if it develops, will continue. In addition, in the event that
holders of Income PRIDES were to substitute Treasury Securities for the Trust
Preferred Securities, thereby converting their Income PRIDES to Growth PRIDES,
the liquidity of Income PRIDES could be adversely affected. There can be no
assurance that the Income PRIDES will be listed on the NYSE, or if listed, will
not be delisted from the NYSE or that trading in the Income PRIDES will not be
suspended as a result of the election by holders to create Growth PRIDES through
the substitution of collateral, which could cause the number of Income PRIDES to
fall below the minimum requirements for listing the securities on the NYSE.
PLEDGED SECURITIES ENCUMBERED
Although holders of FELINE PRIDES will be beneficial owners of the
underlying Trust Preferred Securities or the Treasury Securities (together, the
"Pledged Securities"), as the case may be, those Pledged Securities will be
pledged with the Collateral Agent to secure the obligations of the holders under
the Purchase Contracts. Thus, rights of the holders to their Pledged Securities
will be subject to the Company's security interest. Additionally,
notwithstanding the automatic termination of the Purchase Contracts, in the
event that the Company becomes the subject of a case under the United States
Bankruptcy Code (the "Bankruptcy Code"), the delivery of the Pledged Securities
to holders of the Securities may be delayed by the imposition of the automatic
stay of Section 362 of the Bankruptcy Code.
TAX EVENT OR INVESTMENT COMPANY EVENT DISTRIBUTION
Upon the occurrence of a Tax Event or an Investment Company Event, the
Trust will be dissolved (except in the limited circumstances described in the
following sentence) with the result that the Junior Subordinated Debentures with
an aggregate principal amount equal to the aggregate stated liquidation amount
of the Trust Preferred Securities would be distributed to the holders of the
Trust Preferred Securities on a pro rata basis. In the case of the occurrence of
a Tax Event, such dissolution and distribution shall be conditioned on the
Company being unable to avoid such Tax Event within a 90 day period by taking
some ministerial action or pursuing some other reasonable measure that will have
no adverse effect on the Trust, the Company or the holders of the Trust
Preferred Securities, and will involve no material cost. See "Description of the
Trust -- Trust Preferred Securities -- Special Event Distribution."
Under current United States federal income tax law, a distribution of
Junior Subordinated Debentures upon the dissolution of the Trust would not be a
taxable event to holders of the Trust Preferred Securities including the
Collateral Agent. See "Certain Federal Income Tax Consequences -- Receipt of
Junior Subordinated Debentures upon Liquidation of the Trust."
There can be no assurance as to the impact on the market prices for the
Income PRIDES of a distribution of the Junior Subordinated Debentures in
exchange for Trust Preferred Securities upon a dissolution or liquidation of the
Trust. Because the Income PRIDES will consist of Junior Subordinated
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<PAGE> 23
Debentures and related Purchase Contracts upon the occurrence of an Investment
Company Event, or, in certain circumstances, a Tax Event or liquidation of the
Trust, prospective purchasers of Income PRIDES are also making an investment
decision with regard to the Junior Subordinated Debentures and should carefully
review all the information regarding the Junior Subordinated Debentures
contained herein. See "Description of the Trust Preferred Securities -- Special
Event Distribution" and "Description of the Junior Subordinated
Debentures -- General."
RIGHT TO DEFER CURRENT PAYMENTS
The Company may, at its option, defer the payment of Contract Adjustment
Payments on the Purchase Contracts until the Purchase Contract Settlement Date.
However, deferred installments of Contract Adjustment Payments will bear
additional Contract Adjustment Payments at the rate of % per annum
(compounding on each succeeding Payment Date) until paid (such deferred
installments of Contract Adjustment Payments together with the additional
Contract Adjustment Payments shall be referred to herein as the "Deferred
Contract Adjustment Payments"). If the Purchase Contracts are settled early or
terminated (upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company), the right to receive Contract
Adjustment Payments, and Deferred Contract Adjustment Payments, will terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Purchase Contracts will receive on the Purchase
Contract Settlement Date, in lieu of a cash payment, a number of shares of
Common Stock (in addition to a number of shares of Common Stock equal to the
Settlement Rate) equal to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to a holder of Securities divided by (y) the
Applicable Market Value. See "Description of the Purchase Contracts -- Contract
Adjustment Payments."
The Company also has the right under the Indenture (as such term is defined
in "Description of Junior Subordinated Debentures" herein) to defer payments of
interest on the Junior Subordinated Debentures by extending the interest payment
period at any time, and from time to time, on the Junior Subordinated
Debentures. As a consequence of such an extension, quarterly distributions on
the Trust Preferred Securities, held either as a component of the Income PRIDES
or held separately, would be deferred (but despite such deferrals would accrue
interest compounded on a quarterly basis) by the Trust during any such extended
interest payment period. Such right to extend the interest payment period for
the Junior Subordinated Debentures is limited to a period, in the aggregate, not
extending beyond the maturity date of the Junior Subordinated Debentures. See
"Description of the Trust Preferred Securities -- Distributions" and
"Description of the Junior Subordinated Debentures -- Option to Extend Interest
Payment Period."
The Company believes that the likelihood that it will exercise its right to
defer payments of interest on the Junior Subordinated Debentures is remote and
that, therefore, the Junior Subordinated Debentures should not be considered to
be issued with OID unless it actually exercises such deferral right. There is no
assurance that the Internal Revenue Service (the "IRS") will agree with such
position. See "Certain Federal Income Tax Consequences -- Distributions on Trust
Preferred Securities."
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of Trust Preferred Securities
held either as a component of the Income PRIDES or held separately will accrue
income (as OID) in respect of the deferred interest allocable to its Trust
Preferred Securities for United States federal income tax purposes, which will
be allocated but not distributed to holders of record of Trust Preferred
Securities. As a result, each such holder of Trust Preferred Securities will
recognize income for United States federal income tax purposes in advance of the
receipt of cash and will not receive the cash from the Trust related to such
income if such holder disposes of its Trust Preferred Securities prior to the
record date for the date on which distributions of such amounts are made. The
Company has no current intention of exercising its right to defer payments of
interest by extending the interest payment period on the Junior Subordinated
Debentures. However, should the Company determine to exercise such right in the
future, the market price of the Trust Preferred Securities is likely to be
affected. A holder that disposes of
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its Trust Preferred Securities during an Extension Period, therefore, might not
receive the same return on its investment as a holder that continues to hold its
Trust Preferred Securities. In addition, as a result of the existence of the
Company's right to defer interest payments, the market price of the Trust
Preferred Securities (which represent an undivided beneficial interest in the
assets of the Trust) may be more volatile than the market price of other
securities that are not subject to such deferral. See "Certain Federal Income
Taxation -- Distributions on Trust Preferred Securities."
RANKING OF CONTRACT ADJUSTMENT PAYMENTS AND SUBORDINATE OBLIGATIONS UNDER THE
GUARANTEE AND JUNIOR SUBORDINATED DEBENTURES
The Company's obligations with respect to the Contract Adjustment Payments
and the Guarantee are subordinate and junior in right of payment to all
liabilities of the Company (other than the Company's guarantee of its other
subordinated debentures, if any, with which they rank pari passu). The
obligations of the Company under the Junior Subordinated Debentures are
subordinate and junior in right of payment to all present and future Senior
Indebtedness of the Company and pari passu with other subordinated debentures
issued by the Company and obligations to or rights of the Company's other
general unsecured creditors and other junior subordinated debentures issued
hereafter. No payment of principal of (including redemption payments, if any),
premium, if any, or interest on the Junior Subordinated Debentures may be made
if (i) any Senior Indebtedness of the Company is not paid when due and any
applicable grace period with respect to such default has ended with such default
not having been cured or waived or ceasing to exist, or (ii) the maturity of any
Senior Indebtedness has been accelerated because of a default. As of December
31, 1996, Senior Indebtedness aggregated approximately $85.5 million. There are
no terms in the Trust Preferred Securities, the Junior Subordinated Debentures
or the Guarantee that limit the Company's ability to incur additional
indebtedness, including indebtedness that ranks senior to the Contract
Adjustment Payments, the Junior Subordinated Debentures and the Guarantee. See
"Description of the Guarantee," "Description of the Purchase
Contracts -- Contract Adjustment Payments" and "Description of the Junior
Subordinated Debentures -- Subordination."
PURCHASE CONTRACT AGREEMENT NOT QUALIFIED UNDER TRUST INDENTURE ACT; LIMITED
OBLIGATIONS OF PURCHASE CONTRACT AGENT
Although the Trust Preferred Securities constituting a part of the Income
PRIDES will be issued pursuant to a Declaration (as defined herein) qualified
under the Trust Indenture Act, the Purchase Contract Agreement will not be
qualified as an indenture under the Trust Indenture Act, and the Purchase
Contract Agent will not be required to qualify as a trustee thereunder.
Accordingly, holders will not have the benefit of the protection of the Trust
Indenture Act. The protections generally afforded the holder of a security
issued under an indenture that has been qualified under the Trust Indenture Act
include disqualification of the indenture trustee for "conflicting interests" as
defined under the Trust Indenture Act, provisions preventing a trustee that is
also a creditor of the issuer from improving its own credit position at the
expense of the security holders immediately prior to or after a default under
the Indenture and the requirement that the indenture trustee deliver reports at
least annually with respect to certain matters concerning the indenture trustee
and the securities. Under the terms of the Purchase Contract Agreement, the
Purchase Contract Agent will not be required to resign as agent in the event of
a "conflicting interest," will not be obligated to establish a separate account
for the benefit of holders in the case of a credit relationship with the Company
at the time of a default under the Purchase Contract Agreement and will not be
required to furnish any annual reports. A holder of a Trust Preferred Security,
as a part of an Income PRIDES or otherwise, will have the protections of the
Declaration, which will be qualified under the Trust Indenture Act.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed a number of changes to federal income tax
laws. One proposal would treat as equity, for U.S. federal income tax purposes,
debt instruments with a maximum term of more than 15 years that are not shown as
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indebtedness on the issuer's consolidated balance sheet. Another proposal would
preclude the issuer from deducting interest on debt instruments payable in stock
of the issuer. A debt instrument would be treated as payable in stock of the
issuer if it were part of an arrangement designed to result in payment of debt
with such stock, such as certain issuances of a forward contract in connection
with the issuance of debt. Since generally for debt instruments the effective
date of the proposals is the date of first Congressional committee action, the
proposals as currently drafted would not apply to the FELINE PRIDES. There can
be no assurance, however, that legislation enacted after the date hereof will
not adversely affect the tax treatment of the Junior Subordinated Debentures or
cause a Tax Event, resulting in the distribution of the Junior Subordinated
Debentures to holders of Trust Preferred Securities. See "Description of the
Trust Preferred Securities -- Special Event Distribution."
RISK FACTORS -- THE INDUSTRY
RESERVES
The Company maintains reserves for future policy benefits and unpaid claims
expenses which include policy reserves and claims reserves established for its
insurance products. Policy reserves represent the portion of premiums received
which are reserved to provide for future claims. Claims reserves are established
for future payments not yet due on claims already incurred. Neither generally
accepted accounting principles nor statutory reserves represent an exact
calculation of future benefit liabilities but are instead estimates made by the
Company using actuarial and statistical procedures. However, there can be no
assurance that any such reserves would be sufficient to fund future liabilities
in all circumstances. Future loss development could require reserves for prior
periods to be increased, which would adversely affect earnings in future
periods. Adjustments to reserve amounts may be required in the event of changes
from the assumptions regarding future morbidity (the incidence of claims and the
rate of recovery, including the effects thereon of inflation, and other societal
and economic factors), persistency, mortality, and interest rates used in
calculating the reserve amounts.
COMPETITION
The Company's businesses are highly competitive. The Company's
profitability is affected by a number of factors, including rate competition,
mortality and morbidity experience, lapse rates, government regulation, interest
rates, and general business considerations. There are many insurance companies
which actively compete with the Company in its lines of businesses, some of
which are larger and have greater financial resources than the Company, and
there is no assurance that the Company will be able to compete effectively
against such companies in the future.
RATINGS
Claims-paying and financial strength ratings, such as those assigned by
A.M. Best, S&P and other independent insurance rating organizations, have become
an increasingly important factor in establishing the competitive position of
insurance companies. A.M. Best and S&P ratings are intended to provide an
independent opinion of an insurer's ability to meet its obligations to
policyholders and should not be considered an investment recommendation.
Management believes that such ratings held by the Company's insurance
subsidiaries are important credentials that allow and enhance marketing
opportunities. Lower ratings could adversely affect the ability of the insurance
subsidiaries to gain new business.
RELIANCE ON DIVIDENDS AND OTHER PAYMENTS FROM INSURANCE SUBSIDIARIES
The Company is a holding company with no independent business operations.
Consequently, the Company's primary sources of cash to meet its debt service and
other obligations and to pay dividends on its capital stock are dividends,
management fees, surplus debenture payments and tax sharing payments from its
various subsidiaries. The ability of the Company's insurance subsidiaries to pay
dividends and make other payments is limited by the insurance laws of their
respective states of domicile. There can be no assurance that the Company's
insurance subsidiaries will continue to be able to make sufficient funds
available to the
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Company without regulatory approval or that the Company will be able to obtain
any regulatory approvals that may be required from time to time.
REGULATION
Insurance companies are subject to governmental regulation in each of the
jurisdictions in which they conduct business. Insurance regulatory agencies have
broad administrative power with respect to all aspects of an insurance company's
business, including rates, policy forms, dividend payments, capital adequacy and
the amount and type of investments it may have. These regulations are intended
primarily to protect policyholders rather than security holders.
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THE TRUST
AHL Financing is a statutory business trust formed under Delaware law
pursuant to (i) the Declaration, executed by the Company, as Sponsor, and the
AHL Trustees and (ii) the filing of a certificate of trust with the Secretary of
State of the State of Delaware on March 20, 1997. The Declaration will be
qualified as an indenture under the Trust Indenture Act. Although upon issuance
of the Trust Preferred Securities, the holders of Income PRIDES will be
beneficial owners of the underlying Trust Preferred Securities, these Trust
Preferred Securities will be pledged with the Collateral Agent to secure the
obligations of the holders under the Purchase Contracts. See "Description of the
Purchase Contracts -- Pledged Securities and Pledge Agreement" and "Description
of the Trust Preferred Securities-Book-Entry Only Issuance -- The Depository
Trust Company." The Company will directly or indirectly acquire Common
Securities in an aggregate liquidation amount equal to 3% of the total capital
of the Trust. The Trust exists for the exclusive purposes of (i) issuing the
Trust Securities representing undivided beneficial interests in the assets of
the Trust, (ii) investing the gross proceeds of the Trust Securities in the
Junior Subordinated Debentures and (iii) engaging in only those other activities
necessary or incidental thereto. The Trust has a term of approximately seven
years, but may terminate earlier as provided in the Declaration.
Pursuant to the Declaration, the number of trustees will initially be
three. Two of the Trustees (the "Regular Trustees") will be persons who are
employees or officers of or who are affiliated with the Company. The third
trustee will be a financial institution that is unaffiliated with the Company
(the "Delaware Trustee"). Initially, The First National Bank of Chicago, a
national banking corporation, will serve as institutional trustee under the
Declaration and as Indenture Trustee for the purposes of compliance with the
provisions of the Trust Indenture Act (the "Institutional Trustee"). The First
National Bank of Chicago will be the Institutional Trustee until removed or
replaced by the holder of the Common Securities. For the purpose of compliance
with the provisions of the Trust Indenture Act, The First National Bank of
Chicago will also act as trustee (the "Guarantee Trustee") under the Guarantee
and an affiliate, First Chicago Delaware Inc., will act as Delaware Trustee for
the purposes of the Trust Act (as defined herein), until removed or replaced by
the holder of the Common Securities. See "Description of the Trust Preferred
Securities Guarantees" and "Description of the Trust Preferred
Securities -- Voting Rights."
The Institutional Trustee will hold title to the Junior Subordinated
Debentures for the benefit of the holders of the Trust Securities and the
Institutional Trustee will have the power to exercise all rights, powers and
privileges under the Indenture (as defined herein) as the holder of the Junior
Subordinated Debentures. In addition, the Institutional Trustee will maintain
exclusive control of a segregated non-interest bearing bank account (the
"Property Account") to hold all payments made in respect of the Junior
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Institutional Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Guarantee Trustee will hold the
Guarantee for the benefit of the holders of the Trust Preferred Securities. The
Company, as the direct or indirect holder of all the Common Securities, will
have the right to appoint, remove or replace any trustee and to increase or
decrease the number of trustees; provided, that the number of trustees shall be
at least three, a majority of which shall be Regular Trustees. The Company will
pay all fees and expenses related to the Trust and the offering of the Trust
Securities. See "Description of the Junior Subordinated
Debentures -- Miscellaneous."
The rights of the holders of the Trust Preferred Securities, including
economic rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act (the "Trust Act") and the Trust
Indenture Act. See "Description of the Trust Preferred Securities."
The trustee in the State of Delaware is First Chicago Delaware Inc. The
principal place of business of the Trust shall be c/o American Heritage Life
Investment Corporation, 1776 American Heritage Life Drive, Jacksonville, Florida
32224, and its telephone number is (904) 992-1776.
26
<PAGE> 28
PRICE RANGE OF COMMON STOCK AND DIVIDENDS
The high and low sales prices of the Common Stock of the Company, as
reported on the NYSE Composite Tape (ticker symbol: "AHL"), and the dividends
paid on the Common Stock during the fiscal years ended December 31, 1995 and
1996, and for the first quarter of fiscal 1997 are set out below:
<TABLE>
<CAPTION>
CASH DIVIDENDS
HIGH LOW PAID PER SHARE
------ ------ --------------
<S> <C> <C> <C>
1995:
First Quarter......................................... $19.75 $17.88 $.1650
Second Quarter........................................ 21.25 16.25 .1750
Third Quarter......................................... 21.50 18.88 .1800
Fourth Quarter........................................ 23.25 19.25 .1800
1996:
First Quarter......................................... $23.88 $20.50 $.1800
Second Quarter........................................ 24.25 19.88 .1800
Third Quarter......................................... 21.75 19.00 .1900
Fourth Quarter........................................ 27.75 19.75 .1900
1997:
First Quarter (through March 27, 1997)................ $27.00 $23.50 $.1900
</TABLE>
On March 27, 1997, the last reported sale price of the Common Stock on the
NYSE was $24 7/8 per share. As of February 28, 1997, the approximate number of
holders of record of Common Stock was 8,400.
The Company's Board of Directors currently intends to continue to declare a
quarterly cash dividend on each share. The amount of such dividend is intended
to be based on the Company's net income and cash flow. Each declaration of
dividends will be reviewed by the Board of Directors quarterly and will be
determined, at the discretion of the Board of Directors, in light of the
Company's results of operations, financial condition, capital requirements, and
other factors deemed relevant at that time by the Company's Board of Directors.
As an insurance holding company, the Company depends on dividends and other
permitted payments from its subsidiaries to pay cash dividends to shareholders.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources," "Business -- Government
Regulation," and "Business -- Dividend Regulation."
USE OF PROCEEDS
All of the proceeds from the sale of the Income PRIDES, of which the Trust
Preferred Securities are a component, will be invested by the Trust in Junior
Subordinated Debentures of the Company pursuant to the Indenture described
herein and the net proceeds of approximately $ million ultimately will be used
by the Company for the repayment of bank debt and for general corporate
purposes. Repayment of bank debt will increase the available funding under the
Company's existing lines of credit. Any additional amounts received by the
Company upon settlement of the Purchase Contracts, whether on the Purchase
Contract Settlement Date or Early Settlement Date, are expected to be used for
the repayment of bank debt or general corporate purposes. The Company's bank
debt consists of two components: (i) demand lines of credit and (ii) an
acquisition line of credit. The demand lines of credit have interest rates that
range primarily between LIBOR plus 50 basis points to LIBOR plus 55 basis
points. The acquisition line of credit has an interest rate of LIBOR plus 55
basis points. The acquisition line of credit is a revolving loan with a four
year maturity that converts to a two year term loan upon maturity. The
acquisition line of credit funded the acquisition of Columbia Universal.
27
<PAGE> 29
CAPITALIZATION
The following table sets forth the summary capitalization at December 31,
1996, of the Company and its consolidated subsidiaries on a historical basis and
on a pro forma basis after giving effect to the sale by the Company of the
FELINE PRIDES offered hereby and the application of the net proceeds therefrom.
See "Use of Proceeds." The table should be read in conjunction with the
Company's consolidated financial statements and notes thereto and other
financial data included elsewhere herein.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
----------------------------------------
PRO FORMA, AS
ACTUAL PRO FORMA(1) ADJUSTED(2)
--------- ------------ -------------
(AUDITED)
($ IN THOUSANDS EXCEPT SHARE AMOUNTS)
<S> <C> <C> <C>
Notes payable to banks............................ $ 85,459 $119,729 $
-------- -------- --------
AHLIC-obligated mandatorily redeemable preferred
securities of subsidiaries holding solely
subordinated debentures of AHLIC(3)............. -- --
-------- -------- --------
Stockholders' equity:
Common stock of $1.00 par value.
Authorized 35,000,000 shares; issued
13,967,253...................................... 13,967 13,967 13,967
Additional paid-in capital........................ 42,644 42,644 42,644
Retained earnings................................. 163,460 163,460 163,460
Net unrealized investment gains (losses).......... 12,158 12,158 12,158
Less: Cost of 153,728 common shares in treasury... (3,286) (3,286) (3,286)
-------- -------- --------
Total stockholders' equity.............. 228,943 228,943 228,943
-------- -------- --------
Total capitalization.................... $314,402 $348,672 $
======== ======== ========
Debt as a percentage of total
capitalization........................ 27.2% 34.3% %
======== ======== ========
</TABLE>
- ---------------
(1) Adjusted for $47.3 million of borrowing under the Company's acquisition line
of credit in connection with the Company's acquisition of Columbia
Universal, less the anticipated payoff of $20.0 million of bank debt prior
to the proposed financing. Includes approximately $7.0 million of bank debt
that was assumed in connection with the acquisition of Columbia Universal.
(2) Adjusted for the sale of Trust Preferred Securities, the application of the
estimated net proceeds to the purchase of the Junior Subordinated
Debentures and the application by the Company of all of the estimated net
proceeds of Junior Subordinated Debentures for the repayment of bank debt.
See "Use of Proceeds."
(3) The sole assets of the Trust are % subordinated debentures of the Company
due 2002 with a principal amount of approximately $ . Upon
redemption of such debt, the Trust Preferred Securities of such subsidiary
will be mandatorily redeemable.
ACCOUNTING TREATMENT
The financial statements of the Trust will be reflected in the Company's
consolidated financial statements with the $ Trust Preferred Securities
shown as AHLIC-obligated mandatorily redeemable preferred securities of
subsidiaries holding solely subordinated debentures of the Company. The Notes to
the Consolidated Financial Statement footnotes of the Company will reflect that
the sole asset of the Trust will be approximately $ principal amount of
% Junior Subordinated Debentures due , 2002 of the Company. See
"Capitalization." Under current generally accepted accounting principles, the
Purchase Contracts will not be recorded on the Company's consolidated balance
sheet but will be disclosed in the footnotes to the financial statements.
28
<PAGE> 30
SELECTED CONSOLIDATED FINANCIAL INFORMATION
The following summary data should be read in conjunction with the Company's
Consolidated Financial Statements and the notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations. The
annual income statement and balance sheet data set forth below for the years
1992 through 1996 have been derived from the Consolidated Financial Statements
audited by KPMG Peat Marwick LLP, independent accountants. The audited
consolidated balance sheets at December 31, 1995 and 1996 and the related
audited consolidated statements of earnings and of cash flows for the three
years ended December 31, 1996, notes thereto and related Auditor's Report appear
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF OR FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
----------- ----------- ----------- ----------- -----------
($ IN THOUSANDS, EXCEPT LIFE INSURANCE VOLUME IN FORCE AND PER
SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Income:
Insurance revenues...................... $ 258,519 $ 247,251 $ 230,589 $ 227,376 $ 212,062
Net investment income................... 77,035 70,601 66,706 63,875 59,721
Realized investment gains, net.......... 420 6,003 2,011 1,184 237
----------- ----------- ----------- ----------- -----------
Total income..................... 335,974 323,855 299,306 292,435 272,020
----------- ----------- ----------- ----------- -----------
Benefits, claims and expenses:
Benefits and claims..................... 148,887 148,581 146,146 159,335 155,722
Underwriting, acquisitions and insurance
expenses:
Taxes and commissions................. 85,690 77,697 67,164 54,657 42,969
General expenses...................... 31,724 28,702 28,162 27,641 28,043
Amortization of deferred acquisition
costs............................... 25,628 23,744 20,758 20,091 19,450
Other operating expenses................ 4,186 3,694 2,413 1,806 1,685
----------- ----------- ----------- ----------- -----------
Total benefits claims and
expenses....................... 296,115 282,418 264,643 263,530 247,869
----------- ----------- ----------- ----------- -----------
Earnings before income taxes.......... 39,859 41,437 34,663 28,905 24,151
Income taxes.............................. 12,827 13,362 11,022 9,190 7,255
----------- ----------- ----------- ----------- -----------
Net earnings........................ $ 27,032 $ 28,075 $ 23,641 $ 19,715 $ 16,896
=========== =========== =========== =========== ===========
Operating earnings(4)..................... $ 26,759 $ 24,174 $ 22,334 $ 18,945 $ 16,739
=========== =========== =========== =========== ===========
PER SHARE DATA:
Net earnings............................ $ 1.96 $ 2.02 $ 1.71 $ 1.59 $ 1.42
Operating earnings(4)................... 1.94 1.74 1.61 1.53 1.41
Cash dividends paid..................... .74 .70 .64 .59 .56
Weighted average number of shares
outstanding........................... 13,825,560 13,882,041 13,855,297 12,399,070 11,902,790
BALANCE SHEET DATA:
Total investments....................... $ 1,011,449 $ 979,603 $ 845,729 $ 854,363 $ 766,871
Total assets............................ 1,370,117(3) 1,317,869 1,179,257 1,138,578 1,016,984
Notes payable........................... 85,459 94,994 84,201 72,481 62,102
Stockholders' equity.................... 228,943 219,329 173,360 183,930 147,965
OTHER DATA:
Consolidated return on stockholders'
equity(1)............................. 12.8% 12.4% 12.6% 13.8% 14.2%
First year annualized, issued, delivered
and paid premiums on a weighted
basis................................. $ 290,173 $ 252,332 $ 221,502 $ 191,921 $ 160,892
Life insurance volume in force (in
millions)............................. 20,523(3) 18,384 16,816 15,601 15,468
Ratio of earnings to fixed charges(2)... 7.49x 7.38x 9.13x 8.76x 9.47x
</TABLE>
- ---------------
(1) Based on operating earnings. Stockholders' equity, for this calculation,
excludes any unrealized investment gains (losses) for the periods presented.
(2) For the purposes of the ratio of earnings to fixed charges, earnings were
calculated by adding interest expense to operating earnings before income
taxes and excluding any unrealized investment gains and losses. Fixed
charges consist of interest expense payable on bank debt and issuance of the
Junior Subordinated Debentures. The pro forma ratio of earnings to fixed
charges for the year ended December 31, 1996, giving pro forma effect to the
sale of the Income PRIDES as if such sale and issuance had occurred at
January 1, 1996, assuming repayment of bank indebtedness from the net
proceeds, is 6.78x.
(3) On a pro forma basis including the acquisition of Columbia Universal at
December 31, 1996, total assets would have been $1,747,610 and life
insurance volume in force would have been $22,109.
(4) The amounts exclude realized investment gains and losses.
29
<PAGE> 31
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
American Heritage Life Investment Corporation and its subsidiaries are
engaged primarily in the life and health insurance business. The Company's
consolidated earnings are primarily attributable to its principal subsidiary,
American Heritage Life Insurance Company ("AHL"). Following is a discussion of
the significant components of the consolidated results of operations for the
years ended December 31, 1996, 1995 and 1994.
INSURANCE OPERATIONS
Insurance revenues pursuant to generally accepted accounting principles
("GAAP") include only the mortality, expense and surrender charges for
interest-sensitive products. Insurance revenues do not include group and credit
premium equivalents and cash deposits from interest-sensitive products.
As a result of more of the ordinary life business being interest-sensitive,
the group business being on a self-funded or split funded basis and the credit
business being written on an administrative services only basis, in which only
the fees charged are included in insurance revenues for GAAP purposes, it is
necessary to evaluate insurance revenues including premium equivalents. For
1996, 1995 and 1994, insurance revenues were $258.5 million, $247.3 million and
$230.6 million, respectively, while total insurance revenues including premium
equivalents were $567.6 million, $511.8 million and $445.5 million,
respectively. Because so much of the Company's business is interest-sensitive
and administrative services only, insurance revenues including premium
equivalents are a better measure of sales and growth.
Ordinary insurance revenues amounted to $137.4 million, $123.7 million and
$114.0 million, in 1996, 1995 and 1994, respectively. Premiums including
equivalents were $181.5 million, $167.3 million and $161.6 million for the years
ended December 31, 1996, 1995 and 1994, respectively. The increases in revenues
and premiums and premium equivalents in 1996 over 1995 and 1995 over 1994 were
due primarily to increased policy charges on interest-sensitive products due to
increased sales, increased sales of individual accident and health plans, and
rate increases on certain cancer/dread disease plans. The increase in individual
accident and health sales in 1996 compared to 1995 included for the first time a
full year of long-term care product sales that increased revenues approximately
$5.7 million.
Group insurance revenues in 1996, 1995 and 1994 totaled $35.5 million,
$39.9 million and $43.2 million, respectively. Premiums and premium equivalents
were $214.9 million, $206.4 million and $167.5 million for 1996, 1995 and 1994,
respectively. These increases in premiums and premium equivalents included the
sales to larger group cases that were sold on a self-funded basis.
Credit insurance revenues for 1996, 1995 and 1994 were $85.6 million, $83.6
million and $73.4 million, respectively. Credit premiums and premium equivalents
amounted to $171.2 million, $138.1 million and $116.3 million for the years
ended December 31, 1996, 1995 and 1994, respectively. Credit insurance revenues
and premiums and premium equivalents increased during these periods as a result
of geographic expansion and increased sales of reinsured business, which
generally provides less risk to the Company at an acceptable profit margin. The
increase in 1996 over 1995 was also attributed to additional fee income
generated from administering the run-off of credit life and health insurance for
another insurance company, effective June 1996.
Ordinary benefits and claims in 1996, 1995 and 1994 were $111.0 million,
$103.2 million and $95.6 million, respectively. The increase each year was the
result of growth in first year and renewal business, increased interest credited
to policyholder account balances and some increase in mortality and morbidity
experience.
Group benefits and claims in 1996, 1995 and 1994 totaled $24.0 million,
$25.6 million and $29.1 million, respectively. Group benefits have been reduced
as a result of a managed care program, the AHL Select Provider Network, and new
cases written on a self-funded or split-funded basis where claims are not
included in the Company's benefits and claims expense for financial statement
purposes.
30
<PAGE> 32
Credit benefits and claims amounted to $13.9 million, $19.8 million and
$21.4 million in 1996, 1995 and 1994, respectively. These decreases were due, in
part, to a reduction in the change in unearned premiums which is included in
credit benefits and claims. These reductions were also the result of terminating
unprofitable accounts and certain previously retained business accounts
converting to reinsured accounts.
The Company's major operating costs consist of commissions, payroll,
premium taxes and administrative-related expenditures. General insurance
expenses as a percentage of total income, excluding realized investment gains
(losses) and including premium equivalents, remained constant at 4.9% for the
years ended December 31, 1996 and 1995 and down from 5.5% for the year ended
December 31, 1994. This demonstrates that the Company has been able to control
the level of general insurance expenses, which in turn has been a significant
factor in the Company's steady growth in operating earnings.
Ordinary taxes, commissions and general expenses were $33.1 million, $29.4
million and $29.0 million for 1996, 1995 and 1994, respectively. The increase
each year was primarily the result of growth in ordinary business. Group taxes,
commissions and general expenses were $12.3 million, $12.2 million and $12.5
million, respectively. These expenses have remained relatively flat due to a
decrease in taxes and commissions offset by an increase in general expenses. The
decrease in commissions and taxes was the result of reduced premiums. The
increases in general insurance expenses in 1996 and 1995 were due to growth in
business, administration of larger group cases and the implementation of a new
local area network group system. Credit taxes, commissions and general expenses
were $72.3 million, $65.1 million and $54.1 million in 1996, 1995 and 1994,
respectively. The increase each year was primarily due to an increase in
commissions earned as a result of increased insurance revenues and a higher
effective commission rate, due to increased contingent commissions as a result
of improved claims experience.
Amortization of deferred acquisition costs was $25.6 million in 1996, $23.7
million in 1995 and $20.8 million in 1994. These increases were primarily due to
growth in business in force and an increase in lapses of individual health
business resulting from the implementation of rate increases, which increase the
write-off of the policies' deferred acquisition costs.
Non-segmented operating expenses in 1996, 1995 and 1994 were $3.9 million,
$3.4 million and $2.2 million, respectively. These expenses primarily relate to
non-life insurance operations, including interest expense. Interest expense is a
function of the average debt outstanding and interest rate charged. Interest
expense included in non-segmented operating expenses was $3.7 million, $3.3
million and $2.0 million for 1996, 1995 and 1994, respectively. These increases
were due primarily to additional bank debt outstanding in 1996 and 1995 and an
increase in interest rates in 1995 from 1994.
INCOME TAXES
Income tax expense was down in 1996 compared to 1995 due to a decrease in
pre-tax earnings and up in 1995 compared to 1994 due to increased pre-tax
earnings. The effective tax rates on net earnings were 32.2% in 1996 and 1995
and 31.8% in 1994.
NET INVESTMENT INCOME
Net investment income was $77.0 million, $70.6 million and $66.7 million
for the years ended December 31, 1996, 1995 and 1994, respectively. These
increases were due primarily to an increase in invested assets and changes made
in the investment portfolio to improve the yield. The effective yield on
invested assets for the year ended December 31, 1996 was 7.72% compared to 7.64%
for the year ended December 31, 1995 and 7.87% for the year ended December 31,
1994. The increase in yield from 1995 to 1996 was due to changes made in the
investment portfolio including a reduction in lower yielding equity securities
and an increase in higher yielding corporate bonds and mortgage loans. The
reduction in yield from 1994 to 1995 was primarily the result of declining
interest rates during 1995.
31
<PAGE> 33
PRE-TAX OPERATING EARNINGS
Ordinary pre-tax operating earnings were $35.1 million, $28.9 million and
$26.0 million in 1996, 1995 and 1994, respectively. The increase each year was
primarily due to growth in insurance revenues and investment income, less normal
growth in benefits and claims, and expenses.
Group pre-tax operating earnings were $4.5 million, $7.5 million and $7.3
million in 1996, 1995 and 1994, respectively. The decrease in group pre-tax
operating earnings from 1995 to 1996 was a result of reduced margins on certain
cases due to the competitive pricing in the group marketplace on both
administrative services only and insured business and increased health claims on
insured cases. The increase in group pre-tax operating earnings from 1994 to
1995 was the result of necessary rate actions on certain cases, the terminations
of certain unprofitable cases.
Credit pre-tax operating earnings were $3.8 million, $2.7 million and $1.8
million in 1996, 1995 and 1994, respectively. The increase in credit pre-tax
operating earnings in 1996 over 1995 and 1995 over 1994 was the result of
terminating certain unprofitable accounts and reducing the commissions paid on
accounts with unsatisfactory margins which negatively impacted operations in
1994. Additionally, the Company is administering the run-off of the credit life
and health insurance business for another insurance company, effective June
1996, which will increase fee income over a four-year period. The Company is
only responsible for administration of the run-off and has no insurance risk.
OTHER ITEMS
Management is not aware of any pending regulation from the various state
insurance departments that would have a significant impact on the Company's
operations.
The Company's legal department includes a compliance area headed by an
officer who is a lawyer with regulatory experience. The compliance area reviews
and approves marketing material, policy filings and other areas which are the
subject of market conduct compliance requirements of the various state insurance
departments.
REALIZED INVESTMENT GAINS
Realized investment gains, net were $419,511 for the year ended December
31, 1996 compared to $6.0 million for the year ended December 31, 1995 and $2.0
million for the year ended December 31, 1994. The realized investment gains for
the respective periods were primarily the result of adjustments made in the
investment portfolio to increase the yield on invested assets less recognizing
any decline in value other than temporary in the value of certain investments.
The 1995 realized investment gains also included realized gains on real estate.
LIQUIDITY AND CAPITAL RESOURCES
The Company is engaged primarily in the life and health insurance business.
The Company's insurance subsidiaries generate major sources of cash flow from
premiums collected for traditional insurance products, deposits and policy
charges for interest-sensitive products, and investment income attributable to
its life insurance operations and associated investment portfolio. This results
in a significant portion of the Company's assets being liquid.
As insurers, the Company's subsidiaries are required to maintain
substantial liabilities for future policy benefits and policyholders' account
balances. Since premiums and deposits received in anticipation of such benefits
are investable funds, it is expected that the Company's insurance subsidiaries
will continue to increase their investment portfolios using cash flow from
operations.
OPERATING ACTIVITIES
The net cash provided by operating activities for the years ended December
31, 1996, 1995 and 1994 aggregated $66.5 million, $75.8 million and $48.5
million, respectively. The decrease in 1996 from 1995 was
32
<PAGE> 34
due primarily to (i) the funding of surrenders and maturities of certain
ordinary life policies in 1996 and (ii) an increase in reinsurance receivables
primarily from the increased sales from credit reinsured accounts. The increase
in 1995 from 1994 was due primarily to (i) the funding in 1994 of the
termination of certain premium deposit accounts amounting to $16.4 million with
no comparable reductions in 1995 and (ii) an increase in accrued investment
income and a related decrease in unearned investment income due to changing
policy loan interest on certain plans from in advance to in arrears during 1994
discussed in the following paragraph.
The Company's policy loans are a higher percentage of invested and total
assets than industry norm as a result of a significant block of Management
Security Plan ("MSP") business. The MSP product is an interest-sensitive,
deferred compensation/executive benefit-type product with the policy loan
feature being an integral part of the product. A market rate of interest is
charged on the policy loans and a predetermined built-in spread is achieved
between the interest rate charged on the policy loans and the interest rate
credited on the loaned funds. Accordingly, all MSP policy loans are completely
collateralized by the underlying policyholders' account balances. All policy
loans are funded out of cash provided by operating activities and do not
represent a significant restriction on the Company's liquidity. During 1994, the
Company changed the payment method of interest on these loans from in advance to
in arrears, which decreased unearned investment income and increased accrued
investment income.
INVESTMENTS
The Company's balance sheet contains a high ratio of liquid assets. Such
assets are made up of cash, short-term investments and readily marketable
securities.
At December 31, 1996, U. S. Treasury obligations and GNMA's at market value
aggregated $156.6 million, or 32.2% of the total bond portfolio of $486.9
million.
The amortized cost of high yield bonds at December 31, 1996 aggregated
$14.8 million with a market value of $15.0 million. At December 31, 1996 these
investments represented only 1.1% of total assets or 1.5% of invested assets.
Financial Accounting Standard No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," requires that securities classified as
available-for-sale be reported at fair value and the related unrealized gain or
loss net of deferred income taxes be reported as a separate component of
stockholders' equity. Additionally, pursuant to GAAP, deferred acquisition costs
for interest-sensitive products, decreased $3.4 million at December 31, 1996 and
decreased $7.3 million at December 31, 1995 for the effect that would have been
recognized had the unrealized gain/loss at December 31, 1996 and 1995 on debt
securities actually been realized.
During 1996 and 1995, consistent with the Company's investment strategy,
certain changes were made in the investment portfolio to improve the overall
investment results. Changes to the investment portfolio in 1996 included sales
of GNMA's and purchases of corporate bonds and mortgage loans. During 1995, the
Company sold certain parcels of real estate, reduced common stock and GNMA
holdings, and increased investments in bonds and mortgage loans. The current
investment strategy includes increasing investments in corporate bonds and
mortgage loans while decreasing investments in GNMA's as they pay down.
The mortgage loan portfolio at December 31, 1996, which aggregated $53.7
million, consisted of residential mortgages of $1.2 million and commercial
mortgages of $52.5 million (with no concentration in any particular industry),
all of which were first mortgages on properties. There were no non-performing
mortgage loans in the portfolio at December 31, 1996.
Policy loans totaled $399.6 million at December 31, 1996, or 39.5% of total
invested assets. The significant amount of policy loans was attributable to the
policy loans associated with the MSP executive deferred compensation plan
offered by the Company which aggregated $370.7 million at December 31, 1996. As
discussed earlier, the policy loan feature is an integral part of the product.
MSP policy loans increased by approximately $22.1 million in 1996 over 1995.
33
<PAGE> 35
The Company's investment strategy is to earn a favorable return on its
investments in excess of rates for which the Company is contractually obligated
to its policyholders. To achieve this policy, the Company maintains an
asset/liability matching program, monitoring the investment spread achieved on
each product. Targeted investment spreads have been maintained for all products
despite fluctuations in interest rates and an overall compression of market
rates.
NOTES PAYABLE TO BANKS
Notes payable to banks at December 31, 1996 were $85.5 million compared to
a balance of $95.0 million at December 31, 1995. The decrease in bank debt at
December 31, 1996 compared to the amount at December 31, 1995 reflected the 1996
payoff of a $20.0 million loan related to investment purchases. Partially
offsetting this reduction was an increase in bank debt for cash needs of the
Company including stockholder dividends, interest expense on outstanding debt
and federal income taxes during 1996.
Notes payable to banks at December 31, 1996 included $20.0 million related
to a $20.0 million investment purchase where the Company is earning a positive
spread on the invested assets acquired less the interest paid on the bank debt.
This loan matures in June, 1997. The Company may choose to pay off or renew the
debt obligation at the Company's option, depending upon economic conditions at
the maturity date. The weighted average interest rate on the remaining $65.5
million of bank debt at December 31, 1996 was 6.12%. Also, the Company has a
bank commitment for an acquisition line of credit of up to $100 million to be
used to fund acquisitions of blocks of business or other life and health
insurance companies. The Company will borrow on this acquisition line to fund
the acquisition of Columbia Universal.
ACQUISITIONS
On December 10, 1996, the Company announced it had entered into an
agreement in principle to acquire Columbia Universal for $44 million in cash.
This acquisition closed on March 3, 1997. Columbia Universal had premiums and
premium equivalents of $36.4 million for the year ended December 31, 1996 and
assets of $368.5 million at December 31, 1996. This acquisition will be
reflected in the Company's financial statements in 1997. Effective December 31,
1996, the Company acquired a block of business from Kentucky Home Mutual Life
Insurance Company with approximately $1.8 million of premiums and premium
equivalents and $3.3 million of assets.
OTHER
The Company is a holding company and its liquidity is largely dependent on
the ability of its subsidiaries, primarily AHL, to pay dividends and on external
financing. In addition, the Company charges its subsidiaries a management fee to
cover its basic operating expenses.
The amount of dividends that AHL can pay to the Company is limited by
regulatory restriction to an annual amount equal to the greater of 10% of AHL's
statutory surplus, or its prior year's statutory gain from operations plus net
realized capital gains on a noncumulative basis if AHL will have surplus as to
policyholders equal to or exceeding 115% of the minimum required statutory
surplus as to policyholders after the dividend is paid. AHL chose not to pay any
dividends to the Company during 1996 and 1994. A dividend of approximately $13.2
million, related to AHL's earnings in 1994, was paid to the Company in 1995.
Approximately $20.8 million, related to 1996 earnings, is available to dividend
to the Company during 1997 without regulatory approval. The outstanding bank
debt of the Company is serviced through either dividends from AHL in excess of
the amount used to pay stockholder dividends or by replacement borrowing.
34
<PAGE> 36
In the fourth quarter of 1995, the Company's Board of Directors authorized
management to repurchase from time to time up to 300,000 shares of the Company's
common stock. At December 31, 1996, 101,700 shares had been acquired and funded
by borrowings of $2.2 million.
The Risk-Based Capital for Life and/or Health Insurers Model Act was
adopted by the National Association of Insurance Commissioners ("NAIC") in 1992.
A similar act was adopted for property and casualty insurance companies in 1994.
The main purpose of these model acts was to provide a tool for insurance
regulators to evaluate the capital of insurers. Based on calculations using the
appropriate NAIC formula, AHL and FCIC exceeded the Risk-Based Capital
requirements at December 31, 1996 and 1995.
35
<PAGE> 37
BUSINESS
The Company is a holding company whose principal subsidiary is AHL, a
Florida life insurance company. The Company was organized on September 11, 1956
and is presently authorized to do business as a life insurance company in all
states, other than New York, and in the District of Columbia, U.S. Virgin
Islands and Puerto Rico. The Company is engaged in the business of underwriting
life and accident and health insurance on an individual, group and credit basis.
The Company is a leading marketer of life and supplemental health insurance
products through payroll allotment, a specialized distribution method on which
it has focused since its inception. Payroll allotment is an efficient way to
distribute most products to employees on the job by conveniently deducting the
premium from their paychecks.
The Company has reported increased operating earnings for 21 consecutive
years and has increased dividends to shareholders for 27 consecutive years. The
following chart presents the Company's consolidated operating earnings for the
last ten years. Operating earnings are defined as net earnings excluding
realized investment gains and losses, net of income taxes, and non-recurring
gains related to the sale of home office property.
OPERATING EARNINGS HISTORY(1)
<TABLE>
<CAPTION>
YEAR ENDED % INCREASE
DECEMBER 31 OPERATING EARNINGS FROM PRIOR YEAR
----------- ------------------ ---------------
(IN THOUSANDS)
<S> <C> <C>
1987...................................................... $ 9,637 6.5%
1988...................................................... 10,649 10.5
1989...................................................... 11,920 11.9
1990...................................................... 13,409 12.5
1991...................................................... 15,019 12.0
1992...................................................... 16,739 11.5
1993...................................................... 18,945 13.2
1994...................................................... 22,334 17.9
1995...................................................... 24,174 8.2
1996...................................................... 26,759 10.7
</TABLE>
- ---------------
(1) Excluding investment income on the net proceeds of $33.5 million from a
secondary public stock offering in 1993, the percentage increase in
operating earnings was 11.9% and 11.4% for 1994 and 1993, respectively, and
the average annual percentage increase in earnings from operations for the
period 1987-1996 was 10.7%.
The Company's principal subsidiary, AHL, is rated "A (Excellent)" by A. M.
Best, an independent nationally recognized insurance publishing and rating
service and has an insurer claims paying ability rating of "AA" from S&P. A.M.
Best ratings for solvent insurance companies range from "A++ (Superior)" to "D
(Very Vulnerable)." An A.M. Best rating is intended to provide an independent
opinion of an insurer's ability to meet its obligations to policyholders and
should not be considered an investment recommendation. A Standard & Poor's
insurance claims paying ability rating is an assessment of an operating
insurance company's financial capacity to meet obligations under an insurance
policy in accordance with its terms. Standard & Poor's ratings ranges from "AAA
(Extremely strong capacity to meet contractual policy obligations)" to "D
(Default, terms of the obligation will not be met)". AHL's AA rating, the second
highest major rating category, indicates a very strong capacity to meet
contractual policy obligations. At December 31, 1996, the Company had $1.4
billion of total assets, $228.9 million of stockholders' equity, and more than
$20.5 billion of gross life insurance volume in force. On a pro forma basis at
December 31, 1996, including the acquisition of Columbia Universal, total assets
would have been $1.7 billion and life insurance volume in force would have been
$22.1 billion. Also, approximately 98% of the $521.9 million of debt securities
held by the Company had investment grade ratings.
The executive offices of the Company and its subsidiaries, other than
Columbia Universal, are located at the American Heritage Life Building, 1776
American Heritage Life Drive, Jacksonville, Florida 32224 and
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<PAGE> 38
the Company's telephone number is (904) 992-1776. The executive offices of
Columbia Universal are located at 11044 Research Boulevard, Building A, 5th
Floor, Austin, Texas 78759 and its telephone number is (512) 345-3200.
BUSINESS STRATEGIES
The Company's objective is to continue its record of increased operating
earnings by following the strategies set forth below:
COMMITMENT TO CORE BUSINESSES. The Company's primary focus will
continue to be on its core businesses. Additionally, the Company will
continue to evaluate opportunities to grow from internal expansion as well
as by acquisitions of blocks of business and/or companies that are
compatible with the Company's core businesses.
CONCENTRATION ON MARKET NICHE. The Company believes it has a
competitive advantage in the payroll allotment marketplace based upon its
commitment to provide quality service, its offering of an expanding
portfolio of products, and its development of processes and technology that
are unique to servicing and administering that marketplace.
SYNERGISTIC MARKETING AND STRATEGIC ALLIANCES. The Company's three
marketing areas -- ordinary, group and credit -- provide opportunities for
cross-selling the Company's products. The Company's group operations in
particular provide the Company's ordinary operations access to sell payroll
allotment products. The Company also has and is continuing to develop
strategic alliances with other insurers to cross-sell such entities'
products and to allow each entity access to the other's distribution
channels.
FOCUS ON EXPENSE CONTROL. The Company believes that its record of
profitable growth has resulted from a combination of revenue growth and
focus on expense control. The Company's ratio of general insurance expenses
to total revenue (defined for this purpose as including premiums, premium
equivalents and investment income and excluding realized investment gains
and losses) has been recognized as being low as compared to industry norms.
General insurance expenses as a percentage of total revenues for the years
ended December 31, 1987 through 1996, ranged from a high of 6.2% to a
current low of 4.9% for the year ended December 31, 1996.
ACQUISITIONS
The Company entered into an agreement in principle on December 10, 1996 to
acquire Columbia Universal for a purchase price of $44.0 million. This
transaction closed on March 3, 1997. Columbia Universal markets individual life,
annuity and supplemental health products to selected markets. Columbia Universal
had premiums and premium equivalents of $36.4 million for the year ended
December 31, 1996, and total assets of $368.5 million at December 31, 1996. The
acquisition will provide new distribution channels for the Company's ordinary
payroll products and sales opportunities for both companies and is projected to
have a positive impact on the Company's future operating earnings.
Effective December 31, 1996, the Company acquired a block of payroll
deduction interest-sensitive whole life business from Kentucky Home Mutual Life
Insurance Company. Additionally, during the past six years, the Company has
acquired three other blocks of business. In total these four blocks of business
aggregated $23.4 million in additional annualized premiums and $155.4 million in
assets. These acquisitions have provided new distribution channels for the
Company's ordinary payroll products.
The financial information included in this prospectus includes the balance
sheet information on the acquisition of Kentucky Home Mutual Life Insurance
Company acquisition as of December 31, 1996, the effective date for the
acquisition. Amounts for Columbia Universal are not reflected in the Company's
December 31, 1996 financial statements.
37
<PAGE> 39
MARKETING AREAS
The Company has three primary marketing areas: ordinary, group and credit.
The following table sets forth the insurance revenues and pre-tax operating
earnings of the three marketing areas for each of the years in the five year
period ended December 31, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
INSURANCE REVENUES(1):
Ordinary
Life................................... $ 42,998 $ 40,173 $ 38,405 $ 37,000 $ 35,753
Accident and health.................... 94,423 83,545 75,588 71,975 65,464
-------- -------- -------- -------- --------
Total ordinary.................... $137,421 $123,718 $113,993 $108,975 $101,217
-------- -------- -------- -------- --------
Group
Life................................... $ 10,482 $ 8,604 $ 7,719 $ 10,350 $ 10,832
Accident and health.................... 24,998 31,321 35,503 42,473 48,325
-------- -------- -------- -------- --------
Total group....................... $ 35,480 $ 39,925 $ 43,222 $ 52,823 $ 59,157
-------- -------- -------- -------- --------
Credit
Life................................... $ 36,650 $ 35,380 $ 29,516 $ 29,183 $ 25,053
Accident and health.................... 48,968 48,228 43,858 36,395 26,635
-------- -------- -------- -------- --------
Total credit...................... $ 85,618 $ 83,608 $ 73,374 $ 65,578 $ 51,688
-------- -------- -------- -------- --------
Total............................. $258,519 $247,251 $230,589 $227,376 $212,062
======== ======== ======== ======== ========
INSURANCE REVENUES AND PREMIUM
EQUIVALENTS(1):
Ordinary.................................. $181,469 $167,328 $161,612 $149,106 $138,241
Group..................................... 214,933 206,354 167,520 158,188 163,701
Credit.................................... 171,209 138,134 116,318 103,113 93,027
-------- -------- -------- -------- --------
Total............................. $567,611 $511,816 $445,450 $410,407 $394,969
======== ======== ======== ======== ========
PRE-TAX OPERATING EARNINGS(2):
Ordinary.................................. $ 35,070 $ 28,935 $ 26,049 $ 21,798 $ 17,322
Group..................................... 4,513 7,470 7,323 6,042 5,269
Credit.................................... 3,750 2,739 1,754 1,720 2,969
-------- -------- -------- -------- --------
Total............................. $ 43,333 $ 39,144 $ 35,126 $ 29,560 $ 25,560
======== ======== ======== ======== ========
</TABLE>
- ---------------
(1) Pursuant to generally accepted accounting principles, insurance revenues
include only the fees charged for interest-sensitive and administrative
services only business and do not include group and credit premium
equivalents and cash deposits from interest-sensitive products. Thus it is
necessary to evaluate insurance revenues including premium equivalents.
Ordinary insurance revenues for reporting purposes pursuant to generally
accepted accounting principles include only the cost of insurance, expense
and surrender charges for interest-sensitive products. Insurance revenues do
not include cash deposits from interest-sensitive products. Group and credit
insurance revenues do not include premium equivalents for the periods
presented. Group premium equivalents represent the claim costs paid for
split funded or self funded type plans which are paid with policyholder
funds as opposed to being paid by the Company. Under indemnity type plans
offered by the Company, claims are considered in determining the premiums to
be paid by the policyholder. For split funded or self funded type plans, the
Company pays the claim costs with policyholder funds and such amounts are
not included in the premiums paid to the Company. Credit premium equivalents
represent reinsured premiums and earned premium equivalents related to
administrative services only business.
(2) Pre-tax operating earnings represent the pre-tax operating earnings of the
respective marketing areas excluding non-insurance related income and
expense and realized investment gains and losses.
38
<PAGE> 40
ORDINARY DEPARTMENT
GENERAL. Ordinary operations provide interest-sensitive products
(universal life, single and flexible premium deferred annuities and
excess-interest whole life), single premium immediate annuities, level and
decreasing term products and supplemental accident and health insurance products
to individuals. The largest portion (78.5% for the year ended December 31, 1996)
of new annualized sales was produced on a payroll allotment basis with the
remainder produced by a variety of direct billing methods through individual
agents. The Company's strategy in its ordinary operations is to offer a broader
product mix than its competitors in the payroll allotment area and to solicit
all of the employee base by targeting direct sales of insurance products to
higher income employees in addition to payroll allotment sales. Recent life
insurance studies published by LIMRA International, a prominent industry market
research organization, indicate that the Company is one of only four life
insurance companies that sell in excess of $40 million of voluntary payroll life
and payroll health insurance premiums per year. To describe the Company's
differentiation in the marketplace, the Company has coined the following
descriptive phrase: "AHL -- The Workplace Marketer(R) -- the Company that serves
the life and supplemental health insurance needs of the American worker -- from
the lunchroom to the board room."
Distribution by payroll allotment requires a sophisticated data processing
capability which the Company has developed over the years. The Company believes
it has sufficient data processing capacity to accommodate future growth for the
foreseeable future without any significant additional capital expenditures.
The Ordinary Department has been a key component of the strategy and
profit-making ability of the Company since its founding. For the year ended
December 31, 1996, the Ordinary Department accounted for approximately 81% of
the Company's pre-tax operating earnings, which excludes non-operating items not
allocated to the marketing areas.
Initially, ordinary operations consisted only of life insurance products.
In the mid-1970's, ordinary health insurance products were introduced into the
product portfolio in response to the Company's increasing sales opportunities
and successes in the payroll allotment market niche.
More recently, the Company has begun to recognize an adjunct market that is
available and very synergistic to the payroll deduction marketing
efforts -- that being the corporate life insurance needs of the payroll
deduction client companies and the personal life insurance needs of the owners,
executives and managers of those client companies. As a result, the strategic
marketing mission has been expanded to include this adjunct market niche in
addition to the more traditional rank and file worker market addressed by other
payroll deduction marketing life insurance companies.
MARKETS. Many ordinary life insurance companies focus on the upscale
market consisting of those individuals earning $80,000 or more. However, this
target market constitutes a small percentage of the buyer population. By
targeting the entire workplace, including the lower income worker earning under
$40,000 per year and the middle income worker earning $40,000-$80,000 per year,
the Company has increased its market to a majority of the buyer population.
Furthermore, the Company offers a multiple product line of life and supplemental
health products, rather than the more narrow product mix offered by some other
companies, thereby increasing its marketing opportunities.
The Company believes that by targeting a much larger market and offering
the workplace market a full range of life and supplemental health products
results in a stronger marketing strategy.
TECHNOLOGY. The Company is introducing new state-of-the-art technology for
its agents during the first part of 1997. This new comprehensive system consists
of three components:
- An integrated software package that provides sales presentations,
proposal illustrations and computer enrollment capabilities of its entire
portfolio of life, health and annuity products.
- An "on-line" access that provides its agents 24 hours a day, seven days a
week access via modem to their in-force and pending policyholder data and
production information.
39
<PAGE> 41
- An agent management software package specifically designed for the
payroll deduction marketplace that assists the Company's agents in
managing their business.
The Company believes that the new technology will allow its agency force to
operate more effectively and allow the Company to process new business more
efficiently.
PRODUCTS. The Company's strategy is to price its products at levels
competitive with those of comparable products in the market, so long as they
will provide an acceptable profit margin. Set forth below are the primary
products offered:
<TABLE>
<CAPTION>
PAYROLL ALLOTMENT PRODUCTS: UPSCALE PRODUCTS:
- --------------------------- -----------------
<S> <C>
Universal Life Universal Life
Term Life Term Life
Annuities Annuities
Cancer/Dread Disease Long Term Care
Accident Home Health Care
Disability Income
Hospital Indemnity
Long Term Care
</TABLE>
It is the general policy of the Company to declare the interest rate to be
credited on funds received from interest-sensitive products monthly with such
rates being guaranteed for one year for both first year and renewal funds during
a particular month. All interest-sensitive products are subject to surrender
charge provisions which vary depending upon the particular type of policy. For
universal life-type policies, the surrender charges generally range over a
period of 10-20 years at varying rates, depending upon the plan of insurance.
For annuities, the surrender charges generally range over a period of 7-10 years
with charges varying from 1% to 10% of the accumulated fund value over the
surrender charge period.
All ordinary accident and health products are guaranteed renewable, with
periodic rate increases permitted due to adverse claims experience with the
approval of the respective state insurance departments. Major health products
include cancer/dread disease, accident, disability income, long-term care, home
health care and hospital income. Premiums on ordinary policies are payable on a
monthly, quarterly, semi-annual, annual, single or flexible premium basis.
The Company's current practice dictates that unless the need for a medical
examination is indicated by the age and amount applied for or by an
investigation, the majority of ordinary life insurance is written without
requiring a medical examination in amounts up to $250,000 on applicants aged
0-35; up to $150,000 on applicants aged 36-40; up to $99,999 on applicants aged
41-50; up to $49,999 on applicants up to age 60. Somewhat higher limits are
permitted for certain agents with home office approval. A blood chemistry
profile is generally required for insurance amounts of $100,000 and greater.
DISTRIBUTION SYSTEM/STRATEGIC ALLIANCES. The Company's products are
marketed through the personal producing general agent ("PPGA") system in 49
states. The Company has found the PPGA system to be an efficient distribution
system. These agents are not exclusively AHL producers but may write business
for several insurance companies. Each PPGA's compensation is based only upon
production. Additionally, in 1996 AHL launched a strategic alliance initiative
by seeking targeted life insurance companies to offer AHL's workplace marketing
products through their existing distribution systems. The interest level
expressed by the targeted companies was high due to several factors, including
the promising potential of workplace marketing, the targeted companies' lack of
one or more of the major components necessary for success in workplace
marketing, and the targeted companies' recognition of AHL as a successful,
quality company dedicated and committed to workplace marketing. The Company
presently has strategic alliance partnerships in various stages of development
with several major life insurance companies which are expected to provide access
to significant distribution systems during 1997.
The Ordinary Department distribution system operates with the efficiency
and effectiveness that are consistent with the Company's philosophy as a service
oriented, results driven organization. In addition to the
40
<PAGE> 42
Home Office, the Company maintains regional offices located throughout the
United States. The Company has implemented plans to expand its national presence
in 1997 by establishing additional regional offices in Lacrosse, Wisconsin;
Denver, Colorado; and a site to be determined in New England. The decision to
expand the number of regional offices was influenced by the Company's desire to
fully support the evolving opportunities developing with strategic alliances and
national accounts.
GROUP DEPARTMENT
GENERAL. Group operations distribute insurance products and related
services to large employers for their employee benefit plans. The Company
provides life, disability, medical and dental insurance programs, which are the
foundation of any employer's package of group benefits. The Company furnishes
all components necessary to effectively manage program costs for the client
companies including a provider network, managed care program and benefits
determination. Group products include group term life insurance, accidental
death and dismemberment, short-term disability, long-term disability, dental and
major medical coverage. In offering these product lines, the Company provides a
wide range of funding vehicles from fully insured to employer funded products,
which the Company tailors to the particular needs of its employer clients.
MARKETS. Although the Company's Group Department focuses its efforts in
the southeastern United States, it has clients of national scope. The Company's
primary market for group life and health insurance is corporate employers that
have more than 100 employees located in the southeast. Employer groups range in
size from 100 to over 40,000 employees. The Company has focused on an integrated
approach to manage benefits. With health care being a locally delivered product,
it is important to establish close relations with providers and client
companies.
The Company's target market will continue to be corporate employers with
100 or more lives. Particular emphasis has been placed on direct marketing to
those employers having a home office or regional presence within the
southeastern United States employing between 500 and 5,000 employees. The
products offered by the Company's Group Department complement the individual
life and health products sold on a payroll deduction basis and provide the
Company's agents and brokers and the Company's client companies with a complete
portfolio of products and services.
PRODUCTS. The Company's group products include group term life insurance,
accidental death and dismemberment, short-term disability, long-term disability,
dental, and major medical coverage. A wide range of funding vehicles, including
fully insured, split funding and self-funded products, are sold within these
product lines. For the years ended December 31, 1996 and 1995, approximately 83%
and 81%, respectively, of group business (based on premiums and premiums
equivalents) was written on a self-funded or split funded basis.
The Company's group business has responded to the market by offering more
products which allow employers to share more of the risk for the financing of
their health benefit programs. There has been a shift in the Company's block of
business from traditionally funded products to split funded products and
administrative services only products which may be purchased with or without
specific and aggregate stop-loss coverage. The impact of this in the financial
statement presentation has been a reduction in traditional premium levels offset
by an increase in premium equivalents.
The Company has developed innovative new products and approaches to
controlling and reducing health care costs for its client companies.
Specifically, two areas that continue to enhance the products and services
offered by the Group Department are the AHL Select Provider Network and its
managed care activities. Through the AHL Select Provider Network, AHL's
customers receive preferential pricing from hospitals, physicians, and other
providers of medical services and supplies. At year end 1996, there were 2,011
hospitals and 123,897 physicians included in the AHL Select Provider Network.
The Company's managed care activities, which utilize a professional staff with
diverse medical and clinical backgrounds to assist the Company's insureds in
obtaining quality medical care, include preadmission certification, prenatal,
cancer, psychiatric, substance abuse, and large case management programs.
41
<PAGE> 43
The Company will continue to develop products and services to meet
employer/employee needs. As managed care has gained growing acceptance within
the Company's market, the Company has decided to complement its product line
with the introduction of health maintenance organization ("HMO") products. The
creation of a new HMO subsidiary and filing with Florida regulatory agencies
took place during 1996. Initial product offerings will be within the North
Florida area with expansion to other Florida metropolitan areas.
DISTRIBUTION SYSTEM. The Company's group life and health products are
distributed through its regional group managers working with agents,
consultants, brokers and directly with policyholders.
The Company's strategy of focusing its marketing efforts on the brokerage
and consulting community has resulted in a significant portion of sales coming
from this important business segment. The Company has been successful in
demonstrating the value of its products and services to leading brokerage firms.
CREDIT DEPARTMENT
GENERAL. Credit operations consist of life and accident and health
insurance coverages offered to consumer debtors, primarily through banks,
automobiles dealers, finance companies and retailers. The Company currently
offers credit insurance products in 44 states and ranks among the top 15 credit
life insurance providers in the country. Typically, credit insurance will pay
outstanding loan obligations in the event of an insured loss. This coverage is
issued on either the single-premium or outstanding loan balance basis. Credit
life is sold on a reducing or level-term basis. Credit accident and health
insurance will normally only be written in conjunction with credit life
insurance.
MARKETS AND PRODUCTS. AHL is a full service credit insurance operation
(credit life, credit accident and health insurance) providing direct and
reinsured programs to a broad spectrum of the marketplace. In addition, credit
related property insurance coverage through its wholly-owned subsidiary, First
Colonial Insurance Company ("FCIC"), is offered.
The Credit Department tailors programs to meet specific consumer and
lending requirements. The Company's ability to offer property products, as well
as life and disability products, has contributed to its current growth and
should continue to enhance future growth as FCIC expands into new markets and
develops new products. FCIC is currently licensed in 12 states.
Credit operations consist of life, accident and health and property
insurance coverages offered to consumer debtors, primarily through banks,
automobiles dealers, finance companies and retailers. Typically, this insurance
will pay outstanding loan obligations in the event of an insured loss. This
coverage is issued on either a single-premium or outstanding loan balance basis.
Credit life is sold on a reducing or level-term basis and is available on a
single-life or, if permitted by state law, on a joint-life basis where the
related loan is co-signed.
FCIC's products are designed to address the additional needs of the clients
of the Credit Department. Collateral protection coverage is marketed to
financial institutions and installment floater and vendor's single interest
coverage are marketed to consumer finance companies and retail dealers. In
addition, unemployment insurance is offered where permitted. All of the
foregoing terms and limits are subject to statutory requirements which may vary
in individual states from those specified above.
COMPETITION. The credit insurance industry is well established and is
closely controlled by state regulation. Competition is still very strong even
though there has been some retrenchment in the industry. Several companies have
restricted their marketing and several major providers have withdrawn completely
from the marketplace, which management believes has provided significant
opportunities for both new account sales and the administration of runoff
business for companies that have ceased writing credit insurance.
The Company has successfully administered the run-off business of two
companies that had terminated their credit operations and is currently
administering the business of a large automobile credit insurance company that
ceased writing new business in 1995. The Company also has increased its writings
of reinsured
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<PAGE> 44
business which currently accounts for 68% of total credit business and which
generally provides less risk to the Company than fully insured programs. At
December 31, 1996, the Company administered 134 reinsurance companies compared
to 10 in 1990 which with tight expense control allows the Company to be very
competitive in this market.
DISTRIBUTION SYSTEM. The distribution channels used by AHL and FCIC
include direct marketing by regional sales managers, home office-based marketing
staff and the general agency system. The credit marketing employees' primary
responsibilities are to attract new business, service accounts and support the
general agents. AHL and FCIC do not use direct mail or other mass
solicitation-type marketing.
INVESTMENTS
The Company's investment objective is to earn a favorable return on
invested assets in excess of contractual obligations through a diversified
portfolio of high-quality, income-producing assets including primarily bonds,
preferred stocks, common stocks and mortgages (residential and commercial). The
Company's current investment strategy includes increasing its investments in
corporate bonds and mortgage loans while decreasing its investments in GNMA's as
they pay down. The Company carefully matches the investment portfolio's assets
with its policy liabilities. A positive investment spread has been attained for
all products. The maturity of the investment portfolio is monitored so that the
Company will be able to fund its future expected cash obligations.
At December 31, 1996 and December 31, 1995, the Company had consolidated
invested assets of $1,011.4 million and $979.6 million, respectively. The
following tabulation sets forth the categories, amounts and percentages of these
investments.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1996 % OF TOTAL 1995 % OF TOTAL
------------ ---------- ------------ ----------
($ IN THOUSANDS)
<S> <C> <C> <C> <C>
Debt securities available-for-sale............. $ 521,916 51.6% $515,429 52.6%
Equity securities available-for-sale........... 34,520 3.4 34,735 3.6
Mortgage loans on real estate.................. 53,736 5.3 29,506 3.0
Investment real estate......................... 453 -- 375 --
Policy loans................................... 399,608 39.5 376,672 38.5
Short-term investments......................... 1,216 .2 22,886 2.3
---------- ----- -------- -----
Total................................ $1,011,449 100.0% $979,603 100.0%
========== ===== ======== =====
</TABLE>
At December 31, 1996, the Company had consolidated debt securities
available-for-sale at an amortized cost of $512.9 million and a fair value of
$521.9 million. The following tabulation sets forth these investments by
Standard and Poor's rating categories.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1996
RATING AMORTIZED COST FAIR VALUE
------ ----------------- -----------------
($ IN THOUSANDS)
<S> <C> <C>
AAA........................................................ $178,373 $176,455
AA......................................................... 23,683 23,900
A,A-....................................................... 106,533 110,092
BBB+, BBB, BBB-............................................ 147,750 152,010
BB+ and lower.............................................. 14,834 14,964
Non-rated.................................................. 345 365
Private placements......................................... 5,860 9,105
-------- --------
Total bonds................................................ 477,378 486,891
Redeemable preferred stocks................................ 35,522 35,025
-------- --------
Total debt securities available-for-sale......... $512,900 $521,916
======== ========
</TABLE>
43
<PAGE> 45
The amortized cost and estimated fair value of debt securities at December
31, 1996, by contractual maturity, were as follows. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or repay obligations with or without penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-------------------------------------
AMORTIZED COST ESTIMATED FAIR VALUE
-------------- --------------------
($ IN THOUSANDS)
<S> <C> <C>
Due in one year or less..................................... $ 1,092 $ 1,104
Due after one year through five years....................... 23,497 25,071
Due after five years through ten years...................... 127,467 133,828
Due after ten years......................................... 172,526 176,671
Mortgage backed securities.................................. 152,796 150,217
Redeemable preferred stocks................................. 35,522 35,025
-------- --------
Total............................................. $512,900 $521,916
======== ========
</TABLE>
The following tabulation provides information with respect to the
investment results of the Company for the years ended December 31, 1996, 1995
and 1994:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Average invested assets, weighted(1)................... $997,599 $923,946 $848,012
Net investment income.................................. 77,035 70,601 66,706
Realized investment gains.............................. 420 6,003 2,011
Change in unrealized investment gains (losses) on
equity and debt securities(2)........................ (4,614) 27,664 (24,919)
Ratio of net investment income to weighted average
invested assets(3)................................... 7.72% 7.64% 7.87%
</TABLE>
- ---------------
(1) Average invested assets are calculated using fair values for all securities
as required by Financial Accounting Standard No. 115 (FAS 115), "Accounting
for Certain Investments in Debt and Equity Securities."
(2) Unrealized gains and losses are calculated on both equity and debt
securities as prescribed by FAS 115.
(3) Since all securities are carried at fair values for all years presented, all
increases (decreases) in fair value result in a reduction (increase) of the
ratio calculated above.
At December 31, 1996, U.S. Treasury obligations and GNMA's, both of which
are secured by the full faith and credit of the United States Government,
aggregated at fair value $156.6 million or 32.2% of the total bond portfolio of
$486.9 million. The amortized cost of non-investment grade bonds (rated below
BBB- by Standard & Poor's Corporation and excluding private placements and
non-rated securities) at December 31, 1996 was $14.8 million with a fair value
of $15.0 million. At fair value, these investments represented 1.1% of total
consolidated assets, or 1.5% of invested assets. The Company's holdings of
non-investment grade paper has been limited and will continue to be minimal in
the future.
The Company's mortgage loan portfolio aggregated $53.7 million at December
31, 1996. There were no non-performing mortgage loans at December 31, 1996.
44
<PAGE> 46
ADDITIONAL INFORMATION REGARDING INSURANCE OPERATIONS
The following table sets forth the cash premiums and deposits received by
geographic region in the United States for the Company's insurance subsidiaries
for the three years ended December 31, 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
($ IN THOUSANDS)
<S> <C> <C> <C>
Southeast............................................ $265,784 $258,408 $252,531
Southwest............................................ 45,307 43,804 41,863
Midwest.............................................. 16,204 14,185 13,007
Northeast............................................ 12,920 8,220 6,934
Northwest............................................ 14,699 12,523 8,586
-------- -------- --------
Total...................................... $354,914 $337,140 $322,921
======== ======== ========
</TABLE>
The following tabulation sets forth the amount of gross life insurance
volume in force by industry segment at December 31, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
AT DECEMBER 31,
---------------------------
1996 1995 1994
------- ------- -------
($ IN MILLIONS)
<S> <C> <C> <C>
Type of Insurance:
Ordinary................................................ $ 9,759 $ 9,167 $ 8,282
Credit.................................................. 4,590 4,138 3,578
Group................................................... 6,174 5,079 4,956
------- ------- -------
Total........................................... $20,523 $18,384 $16,816
======= ======= =======
</TABLE>
REINSURANCE
It is the general practice of the life insurance industry to reinsure
portions of life and accident and health insurance risks with other companies.
The maximum amount of ordinary insurance that AHL generally retains on any one
life currently insured under ordinary policies is $100,000 for policies issued
prior to July 1, 1994 and $200,000 for policies issued subsequent to July 1,
1994, with reductions for certain substandard, military and older age risks. The
major portion of reinsurance ceded on a GAAP basis is under agreements with
American United Life Insurance Company, Barnett Banks Insurance, Inc., General
Financial Life Insurance Company, Lincoln National Life Insurance Company,
Optimum Reassurance Life Insurance Company, RGA Reinsurance Company,
Southwestern Dealers Insurance Company, and Transamerica Occidental Life
Insurance Company. At December 31, 1996, the aggregate amount of life insurance
volume in force ceded under reinsurance agreements totaled $4.6 billion (22.4%
of the total in force at that date). For the year ended December 31, 1996, $50.1
million, or 22.9% of the total accident and health insurance premiums written,
were reinsured.
Pursuant to GAAP and the terms and conditions of the reinsurance agreements
with the reinsurers, the Company has taken credit in its consolidated financial
statements for the portion ceded to the respective reinsurer.
Management reviews the financial condition of its reinsurers and monitors
concentrations of credit risk arising from similar geographic regions,
activities or economic characteristics of the reinsurers to minimize its
exposure to significant losses from reinsurer insolvencies. All receivables due
from the reinsurers have been settled in a timely manner.
GOVERNMENT REGULATION
The Company and its insurance subsidiaries are subject to regulation and
supervision by the states in which the insurance subsidiaries transact business.
The laws of the various states establish regulatory agencies with broad
administrative powers to grant and revoke licenses to transact business,
regulate rates on certain
45
<PAGE> 47
business prior to use, establish reserve requirements, determine the form and
content of required statutory financial statements, determine the reasonableness
and adequacy of statutory capital and surplus and prescribe the types of
permitted investments and the maximum concentrations of certain classes of
investments. As part of their routine regulatory oversight process,
approximately once every three years state insurance departments conduct
periodic detailed examinations of the books, records and accounts of insurance
companies domiciled in their states. Further, insurance companies are subject to
market conduct examinations by state insurance regulators. Such examinations are
not conducted according to any fixed schedule.
Insurance companies are required to file detailed annual and quarterly
statements with the state insurance regulators in each of the states in which
they do business, and their business and accounts are subject to examination by
such agencies at any time. State insurance receivership laws, rather than
federal bankruptcy laws, govern the liquidation or rehabilitation of insurance
companies.
This insurance regulation and supervision is designed primarily to ensure
the financial stability of insurance companies and to protect policyholders
rather than shareholders or general creditors.
FINANCIAL REGULATION
The Risk-Based Capital for Life and/or Health Insurers Model Act (the
"Model Act") was adopted by the National Association of Insurance Commissioners
("NAIC") in 1992. A similar model act was adopted for property and casualty
insurance companies in 1994. The main purpose of these model acts was to provide
a tool for insurance regulators to evaluate the capital of insurers with respect
to the risks assumed by them and determine whether there is a need for possible
corrective action.
These model acts provide for four different levels of regulatory action,
each of which may be triggered if an insurer's Total Adjusted Capital is less
than a corresponding "level" of Risk Based Capital ("RBC"). A modified phase-in
test is triggered if an insurer's Total Adjusted Capital is less than 200% of
its "Authorized Control Level RBC" (as defined in the Model Act), or less than
250% of its Authorized Control Level RBC and the insurer has a negative trend
("the Company Action Level"). At the Company Action Level, the insurer must
submit a comprehensive plan to the regulatory authority which discusses proposed
corrective actions to improve its capital position. The "Regulatory Action
Level" is triggered if an insurer's Total Adjusted Capital is less than 150% of
its Authorized Control Level RBC. At the Regulatory Action Level, the regulatory
authority will perform a special examination of the insurer and issue an order
specifying corrective actions that must be followed. The "Authorized Control
Level" is triggered if an insurer's Total Adjusted Capital is less than 100% of
its Authorized Control Level RBC, and at that level the regulatory authority is
authorized (although not mandated) to take regulatory control of the insurer.
The "Mandatory Control Level" is triggered if an insurer's Total Adjusted
Capital is less than 70% of its Authorized Control Level RBC, and at that level
the regulatory authority must take regulatory control of the insurer. Regulatory
control may lead to rehabilitation or liquidation of an insurer.
Based on calculations using the NAIC formula as of December 31, 1996, all
of the Company's insurance subsidiaries exceeded the required level for RBC at
such time.
DIVIDEND REGULATION
The Company is a legal entity separate and distinct from its subsidiaries.
As a holding company with no other significant business operations, its primary
sources of cash to meet its obligations are borrowings, dividends and other
payments from its insurance subsidiaries.
The Company's insurance subsidiaries are subject to various regulatory
restrictions on the maximum amount of payments, including dividends and other
distributions, that they may make to the Company without obtaining prior
regulatory approval. As a Florida domiciled insurance company, AHL is subject to
Florida law, to the effect that life and health insurance company dividends may
be made without prior approval of the Florida Insurance Commissioner if the
dividend is equal to or less than the greater of: (a) 10% of AHL's surplus as to
policyholders derived from realized net operating profits on its business and
net realized capital gains; or (b) AHL's entire net operating profits and
realized net capital gains derived during the immediately
46
<PAGE> 48
preceding calendar year, if AHL will have surplus as to policyholders equal to
or exceeding 115% of the minimum required statutory surplus as to policyholders
after the dividend is paid.
If insurance regulators determine that payment of a dividend or any other
payment to an affiliate (such as a payment under a tax allocation agreement or
for employee or other services or pursuant to a surplus debenture) would,
because of the financial condition of the paying insurance company or otherwise,
be hazardous to such insurance company's policyholders or creditors or to
certain other parties, the regulators may block payment of such dividends or
such other payment to the affiliates that would otherwise be permitted without
prior approval.
CHANGE OF CONTROL REGULATION
The states in which the Company's insurance subsidiaries are domiciled have
enacted legislation or adopted administrative regulations affecting the
acquisition of control of insurance companies as well as transactions between
insurance companies and persons controlling them. Most states require
administrative approval of the acquisition of control of an insurance company
incorporated in the state or the acquisition of control of an insurance holding
company whose insurance subsidiary is incorporated in the state. In Florida, the
acquisition of 5% of such shares is generally deemed to be the acquisition of
"control" for the purpose of the holding company statutes and requires not only
filing of detailed information concerning the acquiring parties and the plan of
acquisition, but also administrative approval prior to the acquisition.
LITIGATION
The Company's insurance subsidiaries, like other insurance companies, are
currently defendants in lawsuits that involve claims for punitive, exemplary or
other extracontractual damages, which are for amounts substantially in excess of
the actual damages sought. Management considers such litigation regrettably to
be of the type to which insurance companies are usually and customarily
subjected in the ordinary course of business and to date the settlements of such
claims of this nature have not been material to the financial position of the
Company. In the opinion of management, based on the currently ascertained facts
of the pending litigation, which the Company intends to vigorously defend, the
ultimate resolution of such litigation should not be material to the financial
position of the Company.
COMPETITION
The life insurance industry is highly competitive. The competitors of the
Company consist of both stock and mutual companies, and in many instances they
have been in business for longer periods of time and may have greater financial
resources than the Company. However, management of the Company believes that its
policies are generally competitive with similar types of policies being offered
by other insurers doing business in the jurisdictions in which they operate.
In addition to life and health insurance companies which are competitors of
the Company, there are banks and other financial institutions that could be
permitted to sell life insurance products directly, thereby increasing
competition even more. However, there are a number of unresolved regulatory
issues related to the authority of banks located in the Company's major
marketing areas to compete directly with the Company in the sale of life
insurance products, including interest-sensitive products.
OTHER BUSINESS
The non-life insurance operations, excluding AHL and FCIC, consisted
primarily of intercompany operations which were eliminated in consolidation and
accordingly did not contribute materially to consolidated operating earnings.
47
<PAGE> 49
MANAGEMENT
The following tabulation is a list of the names and ages as well as the
position held for the past five years by each executive officer and director of
the Company and certain executive officers of AHL, none of whom is related to
each other either by blood or marriage, except W. Ashley Verlander and Chris A.
Verlander, who are father and son, respectively, and A. Dano Davis and Robert D.
Davis, who are first cousins.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
T. O'Neal Douglas......................... 61 AHL and AHLIC -- Chairman of the Board and Chief
Executive Officer, Director
Chris A. Verlander........................ 49 AHL and AHLIC -- President and Chief Operating
Officer
C. Richard Morehead....................... 50 AHL and AHLIC -- Executive Vice-President, Treasurer
and Chief Financial Officer
Charles C. Baggs.......................... 46 AHL -- Senior Vice-President, Administration
James H. Baum............................. 45 AHL -- Senior Vice-President Group Department
David A. Bird............................. 40 AHL -- Senior Vice-President Agency Department
W. Michael Heekin......................... 44 AHLIC -- Senior Vice-President and Corporate
Secretary; AHL -- Senior Vice-President, General
Counsel and Corporate Secretary
Elizabeth A. Mahin........................ 36 AHL -- Senior Vice-President and Chief Accounting
Officer
William J Thomas.......................... 52 AHL -- Senior Vice-President Credit Department
Curtiss S. Sheldon........................ 55 AHL -- Senior Vice-President and Chief Actuary
Edward L. Baker........................... 61 Director
A. Dano Davis............................. 51 Director
Robert D. Davis........................... 65 Director
H. Corbin Day............................. 59 Director
Radford D. Lovett......................... 63 Director
W. Ashley Verlander....................... 77 Director
</TABLE>
T. O'NEAL DOUGLAS' principal positions are those of: Chairman of the Board
of Directors of the Company, a position he has held since April, 1994; Chief
Executive Officer of the Company, a position he has held since February, 1990;
Director of the Company, a position he has held since July, 1987; Director of
AHL, a position he has held since January, 1984; Chief Executive Officer of AHL,
a position he has held since February, 1990; and Chairman of AHL, a position he
has held since April, 1994. From February, 1990 to April, 1996 he was President
of the Company. From July, 1986 to April, 1994 he was President of AHL. Mr.
Douglas is also a director of Physicians Sales and Service, Inc.
CHRIS A. VERLANDER'S principal positions are those of: President and Chief
Operating Officer of the Company, which he has held since April, 1996; Director
of the Company, a position he has held since July, 1987; Director of AHL which
he has held since April, 1985, Chief Operating Officer of the Company, which he
has held since April, 1996, and President of AHL, which he has held since April,
1994. Prior to April, 1996, and since April, 1990, he was Executive Vice
President of the Company. Prior to April, 1994 and since April, 1990, he was
Executive Vice President of AHL. Prior to April, 1994 and since September, 1985,
he was Corporate Secretary of the Company and AHL.
C. RICHARD MOREHEAD'S principal positions are those of Executive Vice
President of the Company and AHL, which he has held since April, 1994, Treasurer
and Chief Financial Officer and Chief Accounting Officer of the Company and
Chief Financial Officer of AHL, which he has held since July, 1986 and Director
48
<PAGE> 50
of AHL, which he has held since July, 1990. Prior to April, 1994 and since July,
1986, he was Senior Vice President and Chief Financial Officer of the Company
and AHL. Prior to July, 1986 and since 1983, he was a partner in the accounting
firm of Peat, Marwick, Mitchell & Co. (now KPMG Peat Marwick LLP) and had been
affiliated with that firm since 1976.
CHARLES C. BAGG'S principal position is that of Senior Vice President of
AHL, a position he has held since December, 1990. Prior to December, 1990 and
since November, 1988 he was Vice President of AHL.
JAMES H. BAUM'S principal position is that of Senior Vice President, Group
Department, of AHL, a position he has held since September, 1987.
DAVID A. BIRD'S principal position is that of Senior Vice President, Agency
Department of AHL, which he has held since May, 1994. Prior to May, 1994 and
since January, 1994 he was Vice-President of AHL. Prior to 1994 and since 1987,
he was a Regional Director of AHL.
W. MICHAEL HEEKIN'S principal positions are those of Senior Vice President
and Corporate Secretary of the Company, which he has held since April, 1994;
Senior Vice President and General Counsel of AHL, which he has held since March,
1993; and Corporate Secretary of AHL, which he has held since April, 1994. Prior
to March, 1993 and since July, 1991, he was engaged by the Florida State
Insurance Department as the Deputy Receiver of Guarantee Security Life Insurance
Company in Receivership in Jacksonville, Florida. Prior to July 1991 and since
October, 1988, Mr. Heekin was Associate Dean of Florida State University College
of Law in Tallahassee, Florida.
ELIZABETH A. MAHIN'S principal position is that of Senior Vice President
and Chief Accounting Officer of AHL, which she has held since April, 1994. Prior
to April, 1994 and since August, 1990 she was Vice President and Controller of
AHL.
WILLIAM J THOMAS' principal position is that of Senior Vice President of
AHL, a position he has held since July, 1995. Prior to July, 1995 and since
April, 1990, he was Vice President of AHL.
CURTISS S. SHELDON'S principal position is that of Senior Vice President
and Chief Actuary of AHL, which he has held since August, 1993. Prior to August,
1993 and since June, 1978, he was with Southern Farm Bureau Life Insurance
Company, serving as vice president and chief actuary since February, 1987.
EDWARD L. BAKER has served as a Director since 1994. Mr. Baker has been
Chairman of the Board of Florida Rock Industries, Inc., a construction products
company since February, 1989. Mr. Baker is also a director of FRP Properties,
Inc., Flowers Industries, Inc. and Regency Realty.
A. DANO DAVIS has served as a Director since June, 1993. Mr. Davis has been
Chairman of the Board and Principal Executive Officer of Winn-Dixie Stores,
Inc., a retail grocery chain, since 1988.
ROBERT D. DAVIS has served as a Director since 1968. Mr. Davis has been
Chairman of the Board of D.D.I., Inc., a private investment company, since 1984.
Prior to June, 1990 and since 1988 he was Vice Chairman of the Board of
Winn-Dixie Stores, Inc. Mr. Davis is also a director of Winn-Dixie Stores, Inc.,
and First Union Corporation, a bank holding company.
H. CORBIN DAY has served as a Director since June, 1993 and has served on
the board of AHL since 1989. Mr. Day has been Chairman of the Board of Jemison
Investment Co., Inc., an investment banking firm since May, 1988. Mr. Day is
also a director of Blount International, Inc., a construction and manufacturing
company and a limited partner of Goldman, Sachs & Co., one of the Underwriters.
RADFORD D. LOVETT has served as a Director since 1989. Mr. Lovett has been
Chairman of the Board of Commodores Point Terminal Corp., which operates a
marine terminal, since 1982. Mr. Lovett is also a director of First Union
Corporation, Winn-Dixie Stores, Inc., Florida Rock Industries, Inc., a
construction products company and FRP Properties, Inc., a trucking and real
estate company.
W. ASHLEY VERLANDER has served as a Director of the Company since its
organization in 1968. He served as Chairman of the Board of the Company from
February, 1990 to April, 1994. He was Chairman of the Board of AHL from July,
1986 to April, 1994.
49
<PAGE> 51
DIRECTORS OF AHL
The following are the members of the Board of Directors of AHL, the
Company's principal subsidiary.
F. DUANE ACKERMAN, President and Chief Executive Officer of BellSouth
Corporation, Atlanta, Georgia (Telecommunications).
EDWARD L. BAKER, Chairman of the Board of Florida Rock Industries, Inc.,
Jacksonville, Florida (Construction Products Company).
I. JON BRUMLEY, Chairman of the Board and Chief Executive Officer of Mesa,
Inc., Irving, Texas (Oil and Gas Production Company).
JOHN ELLIS "JEB" BUSH, President of Codina Group, Inc., Coral Gables,
Florida (Real Estate).
ALVIN R. "PETE" Carpenter, President and Chief Executive Officer of CSX
Transportation, Inc., Jacksonville, Florida (Transportation).
A. DANO DAVIS, Chairman of the Board and Principal Executive Officer of
Winn-Dixie Stores, Inc., Jacksonville, Florida (Retail Grocery Chain).
ROBERT D. DAVIS, Chairman of the Board of D.D.I., Inc., Jacksonville,
Florida (Investments).
H. CORBIN DAY, Chairman of the Board of Jemison Investment Co., Inc.,
Birmingham, Alabama (Investment Banker).
T. O'NEAL DOUGLAS, Chairman of the Board and Chief Executive Officer of the
Company and AHL.
LANGDON S. FLOWERS, Retired Chairman of the Board of Flowers Industries,
Inc., Thomasville, Georgia (Food Manufacturing and Distribution).
RADFORD D. LOVETT, Chairman of the Board of Commodores Point Terminal
Corp., Jacksonville, Florida (Marine Terminal).
CLARENCE V. MCKEE, Chairman of the Board, Chief Executive Officer and
President, McKee Communications, Inc., Tampa, Florida (Broadcasting).
PATRICIA G. MORAN, President and Chief Executive Officer of JM Family
Enterprises, Inc., Deerfield Beach, Florida (Automobile Distribution).
C. RICHARD MOREHEAD, Executive Vice President, Treasurer and Chief
Financial Officer of the Company and AHL.
HERBERT H. PEYTON, President of Gate Petroleum Company, Jacksonville,
Florida (Petroleum Products Retailing).
FREDERICK H. SCHULTZ, Private Investor, Jacksonville, Florida. Former Vice
Chairman of the Board of Governors of the Federal Reserve System, Washington,
D.C.
JAY STEIN, Chairman of the Board and Chief Executive Officer of Stein Mart,
Inc., Jacksonville, Florida (Retail Department Store Chain).
ROLF H. TOWE, Senior Partner of The Clipper Group, L.P., New York, New York
(Investments).
CHRIS A. VERLANDER, President and Chief Operating Officer of the Company
and AHL.
W. ASHLEY VERLANDER, Retired Chairman of the Board of the Company and AHL.
50
<PAGE> 52
DESCRIPTION OF THE FELINE PRIDES
The summaries of certain provisions of documents described below do not
purport to be complete and are subject to, and are qualified in their entirety
by reference to, all of the provisions of such documents (including the
definitions therein of certain terms), forms of which are on file with the
Commission. Wherever particular sections of, or terms defined in, such documents
are referred to herein, such sections or defined terms are incorporated by
reference herein.
Each FELINE PRIDES will be issued under a Purchase Contract Agreement
between the Company and the Purchase Contract Agent. Each FELINE PRIDES offered
hereby initially will consist of a unit (referred to as an Income PRIDE) with a
Stated Amount of $50 comprised of (a) a Purchase Contract under which (i) the
holder will purchase from the Company on the Purchase Contract Settlement Date
of , 2000, for an amount equal to the Stated Amount, a number of new
shares of Common Stock equal to the Settlement Rate or the Cash Settlement Rate,
as applicable, described below under "Description of the Purchase
Contracts-General," and (ii) the Company will pay Contract Adjustment Payments
to the holder, and (b) (i) beneficial ownership of a % Trust Preferred
Security, having a stated liquidation amount per Trust Preferred Security equal
to the Stated Amount, representing a preferred, undivided beneficial interest in
the assets of the Trust, which will consist solely of the Junior Subordinated
Debentures, or (ii) in the case of a Tax Event or an Investment Company Event,
as described below, Junior Subordinated Debentures of the Company having a
principal amount equal to the Stated Amount. As long as the FELINE PRIDES are in
the form of Income PRIDES, the Trust Preferred Securities will be pledged to the
Collateral Agent, to secure the holder's obligation to purchase Common Stock
under the Purchase Contract.
SUBSTITUTION OF PLEDGED SECURITIES
Each holder will have the right, at any time after issuance of the Income
PRIDES, to substitute for any Trust Preferred Securities held by the Collateral
Agent Treasury Securities, in a principal amount per Purchase Contract equal to
the Stated Amount per Trust Preferred Security. Holders may make such
substitution only in integral multiples of 20 Income PRIDES. Securities with
respect to which Treasury Securities have been substituted for Trust Preferred
Securities as collateral to secure a holder's obligation under the Purchase
Contracts will be referred to as Growth PRIDES(SM). To create each Growth
PRIDES, the Income PRIDES holder will (a) deposit with the Collateral Agent a
Treasury Security and (b) transfer 20 Income PRIDES to the Purchase Contract
Agent accompanied by a notice stating that the Income PRIDES holder has
deposited a Treasury Security with the Collateral Agent and requesting that the
Purchase Contract Agent instruct the Collateral Agent to release to such holder
the 20 Trust Preferred Securities underlying such Income PRIDES. Upon such
deposit and receipt of an instruction from the Purchase Contract Agent, the
Collateral Agent will effect the release of the 20 Trust Preferred Securities
from the pledge under the Pledge Agreement free and clear of the Company's
security interest therein to the Purchase Contract Agent, which will (i) cancel
the 20 Income PRIDES, (ii) transfer the 20 Trust Preferred Securities to such
holder and (iii) deliver one Growth PRIDES to the holder. Each Growth PRIDES
will therefore consist of a unit with a face amount of $1,000 comprised of (a)
20 Purchase Contracts with respect to which (i) the holder will purchase from
the Company on the Purchase Contract Settlement Date or earlier for an amount of
cash equal to the Stated Amount, a number of shares of Common Stock of the
Company equal to the Cash Settlement Rate described herein, and (ii) the Company
will pay the holder Contract Adjustment Payments, and (b) beneficial ownership
of a Treasury Security having a principal amount at maturity equal to $1,000.
The Trust Preferred Securities released to the holder thereafter will trade
separately from the resulting Growth PRIDES. Contract Adjustment Payments will
be payable by the Company on the Growth PRIDES on March 31, June 30, September
30 and December 31 of each year from the time each Growth PRIDES was created. In
addition, interest would accrete on the underlying Treasury Securities.
Distributions on any Trust Preferred Securities still outstanding after the
Purchase Contract Settlement Date or after a substitution of collateral
resulting in the creation of Growth PRIDES will continue to be payable by the
Trust at the rate of % of the Stated Amount per annum, subject to the
Company's deferral rights described in "-- Current Payments."
51
<PAGE> 53
Holders who elect to substitute Pledged Securities, thereby creating Growth
PRIDES or recreating Income PRIDES (as discussed below), shall be responsible
for any fees or expenses payable in connection therewith. See "Certain
Provisions of the Purchase Contract Agreement and the Pledge Agreement --
Miscellaneous."
RECREATING INCOME PRIDES
A holder of each Growth PRIDES may recreate 20 Income PRIDES by (a)
depositing with the Collateral Agent 20 Trust Preferred Securities and (b)
transferring a Growth PRIDES to the Purchase Contract Agent accompanied by a
notice stating that the Growth PRIDES holder has deposited 20 Trust Preferred
Securities with the Collateral Agent and requesting that the Purchase Contract
Agent instruct the Collateral Agent to release to such holder the Treasury
Security related to such Growth PRIDES. Upon such deposit and receipt of
instructions from the Purchase Contract Agent, the Collateral Agent will effect
the release of the Treasury Security from the pledge of the Pledge Agreement
free and clear of the Company's security interest therein to the Purchase
Contract Agent which will (i) cancel the Growth PRIDES, (ii) transfer the
Treasury Security to such holder and (iii) deliver 20 Income PRIDES to the
holder.
CURRENT PAYMENTS
Holders of Income PRIDES are entitled to receive cash distributions at a
rate of % of the Stated Amount per annum, payable quarterly in arrears. The
quarterly payments on the Income PRIDES set forth on the cover page of this
Prospectus will consist of (i) cumulative cash distributions on the Trust
Preferred Securities payable by the Trust at the rate of % of the Stated
Amount per annum and (ii) Contract Adjustment Payments, payable by the Company,
until the Purchase Contract Settlement Date, at the rate of % of the Stated
Amount per annum.
The ability of the Trust to make the quarterly distributions on the Trust
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from the Company on the Junior Subordinated Debentures. The
Company has the right at any time, and from time to time, limited to a period
not extending beyond the maturity of the Junior Subordinated Debentures, to
defer the interest payments on the Junior Subordinated Debentures. As a
consequence of such deferral, quarterly distributions to holders of Income
PRIDES (or any Trust Preferred Securities outstanding after the Purchase
Contract Settlement Date or after a substitution of collateral resulting in the
creation of Growth PRIDES) would be deferred (but despite such deferral, would
continue to accumulate quarterly and would accrue interest thereon compounded
quarterly at the same rate as interest on the Junior Subordinated Debentures).
The Company also has the right to defer the payment of Contract Adjustment
Payments on the Purchase Contracts until the Purchase Contract Settlement Date;
however, deferred Contract Adjustment Payments will bear additional Contract
Adjustment Payments at the rate of % per annum (such deferred installments of
Contract Adjustment Payments together with the additional Contract Adjustment
Payments shall be referred to as the "Deferred Contract Adjustment Payments").
See "Description of the Purchase Contracts-Contract Adjustment Payments" and
"Description of the Trust Preferred Securities -- Distributions."
Subject to the Company's rights of deferral, in the event a holder of
Income PRIDES substituted Treasury Securities for the Trust Preferred
Securities, such holder would still receive quarterly Contract Adjustment
Payments. In addition, interest would accrete on the underlying Treasury
Securities.
VOTING RIGHTS
Holders of Trust Preferred Securities will not be entitled to vote, to
appoint, remove or replace, or to increase or decrease the number of Regular
Trustees and will generally have no voting rights except in the limited
circumstances described under "Description of Trust Preferred
Securities -- Voting Rights." Holders of Purchase Contracts underlying the
Income PRIDES or Growth PRIDES will have no voting rights.
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LISTING OF THE SECURITIES
Application will be made to list the Income PRIDES on the NYSE under the
symbol "AHL prI." The Growth PRIDES and the Trust Preferred Securities will not
be listed or traded on any securities exchange.
NYSE SYMBOL OF COMMON STOCK
The Common Stock of the Company is listed on the NYSE under the symbol
"AHL."
DESCRIPTION OF THE PURCHASE CONTRACTS
GENERAL
Each Purchase Contract underlying a FELINE PRIDES (unless earlier
terminated, or earlier settled at the holder's option) will obligate the holder
of such Purchase Contract to purchase, and the Company to sell, on the Purchase
Contract Settlement Date, for an amount in cash equal to the Stated Amount, a
number of new shares of Common Stock, in the case of Income PRIDES, equal to the
Settlement Rate or Cash Settlement Rate, as applicable, or in the case of Growth
PRIDES, equal to the Cash Settlement Rate. The Settlement Rate will be
calculated as follows (subject to adjustment under certain circumstances): (a)
if the Applicable Market Value is equal to or greater than the Threshold
Appreciation Price, the Settlement Rate will be , (b) if the
Applicable Market Value is less than the Threshold Appreciation Price but
greater than $ , the Settlement Rate will equal the Stated Amount
divided by the Applicable Market Value, and (c) if the Applicable Market Value
is less than or equal to $ , the Settlement Rate will be
. "Applicable Market Value" means the average of the Closing
Prices (as defined) per share of Common Stock on each of the thirty consecutive
Trading Days (as defined) ending on the second Trading Day immediately preceding
the Purchase Contract Settlement Date.
The number of new shares of Common Stock issuable upon settlement of each
Purchase Contract through Early Settlement of FELINE PRIDES, cash settlement of
the Income PRIDES on the Purchase Contract Settlement Date and settlement of the
Growth PRIDES through application of the related Treasury Securities on the
Purchase Contract Settlement Date (the "Cash Settlement Rate") will be
calculated as (a) shares, in the case of Early Settlement [which is
equivalent to the number of shares that would be received upon Cash Settlement
of Income PRIDES on the Purchase Contract Settlement Date where the Applicable
Market Value is equal to or greater than the Threshold Appreciation Price], or
(b) 1.00125 times the Settlement Rate, in those other cases.
A holder of Income PRIDES whose Purchase Contract has been settled with
cash, or a holder of Growth PRIDES whose Purchase Contract has been settled
through application of the principal amount of the related Treasury Securities,
on the Purchase Contract Settlement Date, will receive 0.125% more shares of
Common Stock per Purchase Contract than will be received by a holder of Income
PRIDES whose Purchase Contracts are settled through the put of the related
Junior Subordinated Debentures to the Company, and the redemption of the related
Trust Preferred Securities, on the Purchase Contract Settlement Date. A holder
of FELINE PRIDES whose Purchase Contract has settled through Early Settlement
will receive 0.125% more shares of Common Stock per Purchase Contract than would
be received by a holder of Income PRIDES who receives the Settlement Rate on the
Purchase Contract Settlement Date if the Applicable Market Value was then equal
to or greater than the Threshold Appreciation Price.
No fractional shares of Common Stock will be issued by the Company pursuant
to the Purchase Contracts. In lieu of fractional shares otherwise issuable in
respect of Purchase Contracts being settled by a holder of Income PRIDES or
Growth PRIDES the holder will be entitled to receive an amount of cash equal to
such fraction of a share times the Applicable Market Value.
On the Purchase Contract Settlement Date, unless a holder of Income PRIDES
(i) has settled the underlying Purchase Contracts prior to the Purchase Contract
Settlement Date through the early delivery of cash to the Purchase Contract
Agent or (ii) has notified the Purchase Contract Agent of its intention to
settle the related Purchase Contract with separate cash on the Purchase Contract
Settlement Date in the manner described under "-- Early Settlement" and under
"-- Notice to Settle with Cash," respectively, and has so settled the Purchase
Contract or an event described under "-- Termination" below occurs, such holder
will be deemed to have requested the Trust to put the aggregate principal amount
of its Junior Subordinated
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Debenture to the Company, in return for an amount per Junior Subordinated
Debenture equal to $50, plus accumulated and unpaid distributions, if any. Upon
the repurchase of the Junior Subordinated Debentures by the Company pursuant to
a Put Option (as defined herein), (i) the proceeds from such repurchase shall
simultaneously be applied to redeem Trust Preferred Securities of such holder
having an aggregate Stated Amount equal to the aggregate principal amount of the
Junior Subordinated Debentures so repurchased and will be automatically applied
to satisfy in full such holder's obligation to purchase Common Stock under the
Purchase Contract and (ii) any accumulated and unpaid distributions with respect
to Junior Subordinated Debentures so repurchased will be paid to such holder in
cash. See "Description of the Junior Subordinated Debentures -- Put Option."
With respect to each Growth PRIDES outstanding on the Purchase Contract
Settlement Date, the principal amount of the Treasury Securities underlying each
Growth PRIDES, when paid at maturity, will be automatically transferred to the
Company to satisfy in full the holder's obligation to purchase Common Stock
under the 20 Purchase Contracts per Growth PRIDES. Such Common Stock will then
be issued and delivered to such holder or such holder's designee, upon
presentation and surrender of the certificate evidencing such FELINE PRIDES (a
"FELINE PRIDES Certificate") and payment by the holder of any transfer or
similar taxes payable in connection with the issuance of the Common Stock to any
person other than such holder. In the event that a holder of either an Income
PRIDES or Growth PRIDES effects the early settlement of a Purchase Contract
through the delivery of cash or a holder of Income PRIDES settles a Purchase
Contract with cash on the Purchase Contract Settlement Date, the underlying
Trust Preferred Securities or Treasury Securities, as the case may be, will be
released to the holder as described herein.
Prior to the date on which shares of Common Stock are issued in settlement
of Purchase Contracts, the Common Stock underlying the related Purchase
Contracts will not be deemed to be outstanding for any purpose and the holder
thereof will generally not have any voting rights, rights to dividends or other
distributions or other rights or privileges of a stockholder by virtue of
holding such Purchase Contracts. See "Description of Trust Preferred
Securities -- Voting Rights."
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Purchase Contracts be
deemed to have (a) irrevocably agreed to be bound by the terms of the Purchase
Contracts and the Pledge Agreement for so long as such holder remains a holder
of such FELINE PRIDES and (b) duly appointed the Purchase Contract Agent as such
holder's attorney-in-fact to enter into and perform the related Purchase
Contracts on behalf of and in the name of such holder.
EARLY SETTLEMENT
A holder of Income PRIDES or Growth PRIDES may settle the underlying
Purchase Contracts prior to the Purchase Contract Settlement Date by presenting
and surrendering the FELINE PRIDES certificate evidencing such Income PRIDES or
Growth PRIDES at the offices of the Purchase Contract Agent with the form of
"Election to Settle Early" on the reverse side of the certificate completed and
executed as indicated, accompanied by payment (in the form of a certified or
cashier's check payable to the order of the Company) of an amount equal to the
Stated Amount times the number of Purchase Contracts being settled. So long as
the FELINE PRIDES are evidenced by one or more global security certificates
deposited with the Depositary (as defined below), procedures for early
settlement will also be governed by standing arrangements between the Depositary
and the Purchase Contract Agent. HOLDERS MAY SETTLE SECURITIES EARLY ONLY IN
INTEGRAL MULTIPLES OF 20 Income PRIDES or one Growth PRIDES.
Upon Early Settlement of Purchase Contracts underlying any Income PRIDES or
Growth PRIDES, (a) the holder will receive shares of Common Stock per
Income PRIDES having a Stated Amount of $50 or shares of Common Stock per Growth
PRIDES having a face amount of $1,000 (regardless of the market price of the
Common Stock on the date of purchase), subject to adjustment under certain
circumstances, (b) the Trust Preferred Securities underlying such Income PRIDES
or, if substituted, the Treasury Securities underlying such Growth PRIDES, will
thereupon be transferred to the holder free and clear of the Company's security
interest therein, (c) the holder's right to receive Deferred Contract Adjustment
Payments (as defined below), if any, on the Purchase Contracts being settled
will be forfeited and (d) the holder's right to receive future Contract
Adjustment Payments will terminate and, except as
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contemplated by clause (a) above, no adjustment will be made to or for the
holder on account of current or deferred amounts accrued in respect thereof.
If the Purchase Contract Agent receives the FELINE PRIDES Certificate,
accompanied by the completed "Election to Settle Early" and requisite check,
from a holder of Securities by 5:00 p.m., New York City time, on a Business Day,
that day will be considered the settlement date. If the Purchase Contract Agent
receives the foregoing after 5:00 p.m., New York City time, on a Business Day or
at any time on a day that is not a Business Day, the next Business Day will be
considered the settlement date.
Upon Early Settlement of Purchase Contracts in the manner described above,
presentation and surrender of the FELINE PRIDES Certificate evidencing the
related Income PRIDES or Growth PRIDES and payment of any transfer or similar
taxes payable by the holder in connection with the issuance of the Common Stock
to any person other than the holder of such Income PRIDES or Growth PRIDES, the
Company will cause the shares of Common Stock being purchased to be issued, and
the Trust Preferred Securities or, if substituted, the Treasury Securities
securing such Purchase Contracts, to be released from the pledge under the
Pledge Agreement (described in "-- Pledged Securities and Pledge Agreement") and
transferred, within three Business Days following the settlement date, to the
purchasing holder or such holder's designee.
NOTICE TO SETTLE WITH CASH
A holder of an Income PRIDES wishing to settle the related Purchase
Contract with separate cash on the Purchase Contract Settlement Date must notify
the Purchase Contract Agent by presenting and surrendering the FELINE PRIDES
Certificate evidencing such Income PRIDES at the offices of the Purchase
Contract Agent with the form of "Notice to Settle by Separate Cash" on the
reverse side of the certificate completed and executed as indicated on or prior
to 5:00 p.m., New York city time, on the second Business Day immediately
preceding the Purchase Contract Settlement Date. Such form must be accompanied
by payment (in the form of a certified or cashier's check payable to the order
of the Company) of an amount equal to the Stated Amount times the number of
Purchase Contracts being settled.
CONTRACT ADJUSTMENT PAYMENTS
Contract Adjustment Payments will be fixed at a rate per annum of % of
the Stated Amount per Purchase Contract. Contract Adjustment Payments in arrears
for more than one quarter will bear interest thereon at the rate per annum of
% thereof compounded quarterly. Contract Adjustment Payments payable for
any period will be computed on the basis of a 360-day year of twelve 30
day-months. Contract Adjustment Payments will accrue from , 1997 and
will be payable quarterly in arrears on March 31, June 30, September 30 and
December 31 of each year, commencing June 30, 1997.
Contract Adjustment Payments will be payable to the holders thereof as they
appear on the books and records of the Purchase Contract Agent on the relevant
record dates, which, as long as the Income PRIDES or Growth PRIDES remain in
book-entry only form, will be one Business Day prior to the relevant payment
dates. Such distributions will be paid through the Purchase Contract Agent who
will hold amounts received in respect of the Contract Adjustment Payments for
the benefit of the holders of the Purchase Contracts underlying the Income
PRIDES or Growth PRIDES. Subject to any applicable laws and regulations, each
such payment will be made as described under "Book-Entry System" below. In the
event that the Income PRIDES or Growth PRIDES do not continue to remain in
book-entry only form, the Company shall have the right to select relevant record
dates, which shall be more than one Business Day but less than 60 Business Days
prior to the relevant payment dates. In the event that any date on which
Contract Adjustment Payments are to be made on the Purchase Contracts underlying
the Income PRIDES or Growth PRIDES is not a Business Day, then payment of the
Contract Adjustment Payments payable 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 payment date. A "Business Day" shall mean any day other than Saturday,
Sunday or any other day on which banking institutions in New York City (in the
State of New York) are permitted or required by any applicable law to close.
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The Company's obligations with respect to Contract Adjustment Payments are
subordinate and junior in right of payment to all liabilities of the Company
(other than the Company's guarantee of junior subordinated debentures, if any,
issued by the Company, with which they rank pari passu). See "Risk
Factors -- Ranking of Contract Adjustment Payments and Subordinated Obligations
Under the Guarantee and Junior Subordinated Debentures."
OPTION TO DEFER CONTRACT ADJUSTMENT PAYMENTS
The Company may, at its option and upon prior written notice to the holders
of the Income PRIDES or Growth PRIDES and the Purchase Contract Agent, defer the
payment of Contract Adjustment Payments on the Purchase Contracts until no later
than the Purchase Contract Settlement Date. However, Deferred Contract
Adjustment Payments will bear additional Contract Adjustment Payments at the
rate of % per annum (compounding on each succeeding Payment Date) until
paid. If the Purchase Contracts are terminated (upon the occurrence of certain
events of bankruptcy, insolvency or reorganization with respect to the Company),
the right to receive Contract Adjustment Payments and Deferred Contract
Adjustment Payments will terminate.
In the event that the Company elects to defer the payment of Contract
Adjustment Payments on the Purchase Contracts until the Purchase Contract
Settlement Date, each holder of Income PRIDES or Growth PRIDES will receive on
the Purchase Contract Settlement Date, in lieu of a cash payment, a number of
shares of Common Stock (in addition to a number of shares of Common Stock equal
to the Settlement Rate) equal to (x) the aggregate amount of Deferred Contract
Adjustment Payments payable to a holder of either Income PRIDES or Growth PRIDES
divided by (y) the Applicable Market Value.
No fractional shares of Common Stock will be issued by the Company with
respect to the payment of Deferred Contract Adjustment Payments on the Purchase
Contract Settlement Date. In lieu of fractional shares otherwise issuable with
respect to such payment of Deferred Contract Adjustment Payments, the holder
will be entitled to receive an amount in cash equal to such fraction of a share
times the Applicable Market Value.
In the event the Company exercises its option to defer the payment of
Contract Adjustment Payments, then, until the Deferred Contract Adjustment
Payments have been paid, the Company shall not declare or pay dividends on, make
distributions with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock (other than (i)
purchases or acquisitions of shares of Common Stock in connection with the
satisfaction by the Company of its obligations under any employee benefit plans
or the satisfaction by the Company of its obligations pursuant to any contract
or security outstanding on the date of such event requiring the Company to
purchase shares of Common Stock, (ii) as a result of a reclassification of the
Company's capital stock or the exchange or conversion of one class or series of
the Company's capital stock for another class or series of the Company's capital
stock or (iii) the purchase of fractional interests in shares of the Company's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged) or make any guarantee
payments with respect to the foregoing.
ANTI-DILUTION ADJUSTMENTS
The formula for determining the Settlement Rate will be subject to
adjustment upon the occurrence of certain events, including: (a) the payment of
dividends (and other distributions) of Common Stock on Common Stock; (b) the
issuance to all holders of Common Stock of rights, warrants or options entitling
them, for a period of up to 45 days, to subscribe for or purchase Common Stock
at less than the Current Market Price (as defined) thereof; (c) subdivisions,
splits and combinations of Common Stock; (d) distributions to all holders of
Common Stock of evidences of indebtedness of the Company, shares of capital
stock, securities, cash or property (excluding any dividend or distribution
covered by clause (a) or (b) above and any dividend or distribution paid
exclusively in cash); (e) distributions consisting exclusively of cash to all
holders of Common Stock in an aggregate amount that, together with (i) other
all-cash distributions made within the preceding 12 months and (ii) any cash and
the fair market value, as of the expiration of the tender or
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exchange offer referred to below, of consideration payable in respect of any
tender or exchange offer by the Company or a subsidiary for the Common Stock
concluded within the preceding 12 months, exceeds 15% of the Company's aggregate
market capitalization (such aggregate market capitalization being the product of
the Current Market Price (as defined) of the Common Stock multiplied by the
number of shares of Common Stock then outstanding) on the date of such
distribution; and (f) the successful completion of a tender or exchange offer
made by the Company or any subsidiary for the Common Stock which involves an
aggregate consideration that, together with (i) any cash and the fair market
value of other consideration payable in respect of any tender or exchange offer
by the Company or a subsidiary for the Common Stock concluded within the
preceding 12 months and (ii) the aggregate amount of any all-cash distributions
to all holders of the Company's Common Stock made within the preceding 12
months, exceeds 15% of the Company's aggregate market capitalization on the
expiration of such tender or exchange offer.
In the case of certain reclassifications, consolidations, mergers, sales or
transfers of assets or other transactions pursuant to which the Common Stock is
converted into the right to receive other securities, cash or property, each
Purchase Contract then outstanding would, without the consent of the holders of
Income PRIDES or Growth PRIDES as the case may be, become a contract to purchase
only the kind and amount of securities, cash and other property receivable upon
consummation of the transaction by a holder of the number of shares of Common
Stock which would have been received by the holder of the related Income PRIDES
or Growth PRIDES immediately prior to the date of consummation of such
transaction if such holder had then settled such Purchase Contract.
If at any time the Company makes a distribution of property to its
stockholders which would be taxable to such stockholders as a dividend for
federal income tax purposes (i.e., distributions of evidences of indebtedness or
assets of the Company, but generally not stock dividends or rights to subscribe
to capital stock) and, pursuant to the Settlement Rate adjustment provisions of
the Purchase Contract Agreement, the Settlement Rate is increased, such increase
may be deemed to be the receipt of taxable income to holders of Securities. See
"Certain Federal Income Tax Consequences -- Adjustment of Settlement Rate."
In addition, the Company may make such increases in the Settlement Rate as
the Board of Directors of the Company deems advisable to avoid or diminish any
income tax to holders of shares of 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 or for any other reasons.
Adjustments to the Settlement Rate will be calculated to the nearest
1/10,000th of a share. No adjustment in the Settlement Rate shall be required
unless such adjustment would require an increase or decrease of at least one
percent in the Settlement Rate; provided, however, that any adjustments which by
reason of the foregoing are not required to be made shall be carried forward and
taken into account in any subsequent adjustment.
The Company will be required, within ten Business Days following the
occurrence of an event that requires or permits an adjustment in the Settlement
Rate, to provide written notice to the Purchase Contract Agent of the occurrence
of such event and a statement in reasonable detail setting forth the method by
which the adjustment to the Settlement Rate was determined and setting forth the
revised Settlement Rate.
Each adjustment to the Settlement Rate will result in a corresponding
adjustment to the number of shares of Common Stock issuable upon early
settlement of a Purchase Contract.
TERMINATION
The Purchase Contracts, and the rights and obligations of the Company and
of the holders of the FELINE PRIDES thereunder (including the right to receive
accrued Contract Adjustment Payments or Deferred Contract Adjustment Payments
and the right and obligation to purchase Common Stock), will automatically
terminate upon the occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company. Upon such termination, the
Collateral Agent will release the Trust Preferred Securities or, if substituted,
the Treasury Securities held by it to the Purchase Contract Agent for
distribution to the holders. Upon such termination, however, such release and
termination may be subject to a limited
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delay. In the event that the Company becomes the subject of a case under the
Bankruptcy Code, such delay may occur as a result of the automatic stay under
the Bankruptcy Code and continue until such automatic stay has been lifted.
PLEDGED SECURITIES AND PLEDGE AGREEMENT
The Trust Preferred Securities underlying the Income PRIDES or, if
substituted, the Treasury Securities underlying the Growth PRIDES (together, the
"Pledged Securities") will be pledged to the Collateral Agent, for the benefit
of the Company, pursuant to a pledge agreement, to be dated as of ,
1997 (the "Pledge Agreement"), to secure the obligations of the holders to
purchase Common Stock under the Purchase Contracts. The rights of holders of
Income PRIDES or Growth PRIDES to the underlying Pledged Securities will be
subject to the Company's security interest therein created by the Pledge
Agreement. No holder of Income PRIDES or Growth PRIDES will be permitted to
withdraw the Pledged Securities underlying such Income PRIDES or Growth PRIDES
from the pledge arrangement except (i) to substitute Treasury Securities for
Trust Preferred Securities, (ii) to substitute Trust Preferred Securities for
Treasury Securities (for both (i) and (ii), as provided for under "Description
of the FELINE PRIDES -- Substitution of Pledged Securities") or (iii) upon the
termination or Early Settlement of the related Purchase Contracts. Subject to
such security interest and the terms of the Purchase Contract Agreement and the
Pledge Agreement, each holder of an Income PRIDES will be entitled through the
Purchase Contract Agent and the Collateral Agent to all of the proportional
rights and preferences of a Trust Preferred Security (including distribution,
voting, redemption, repayment and liquidation rights) and each holder of a
Growth PRIDES will retain beneficial ownership of the Treasury Securities
pledged in respect of such Purchase Contracts. The Company will have no interest
in the Pledged Securities other than its security interest.
The Collateral Agent will, upon receipt of distributions on the Pledged
Securities, distribute such payments to the Purchase Contract Agent, which will
in turn distribute those payments, together with Contract Adjustment Payments
received from the Company, to the persons in whose names the related Income
PRIDES or Growth PRIDES are registered at the close of business on the Record
Date immediately preceding the date of such distribution.
The quarterly payments on the Income PRIDES set forth on the cover page of
this Prospectus will consist of (i) cumulative cash distributions on the Trust
Preferred Securities payable by the Trust at the rate of % of the Stated
Amount per annum, and (ii) Contract Adjustment Payments, payable by the Company,
at the rate of % per annum.
The ability of the Trust to make quarterly distributions on the Trust
Preferred Securities is solely dependent upon the receipt of corresponding
interest payments from the Company on the Junior Subordinated Debentures. The
Company has the right at any time, and from time to time, limited to a period
not extending beyond the maturity of the Junior Subordinated Debentures, to
defer the interest payments on the Junior Subordinated Debentures and to defer
Contract Adjustment Payments. As a consequence of such deferral, quarterly
distributions to holders would be deferred (but despite such deferral, would
continue to accrue with interest thereon compounded quarterly at the same rate
as interest on the Junior Subordinated Debentures). See "Description of the
Purchase Contract -- Contract Adjustment Payments" and "Description of the Trust
Preferred Securities -- Distributions."
Subject to the Company's rights of deferral, in the event a holder of
Income PRIDES substituted Treasury Securities for the Trust Preferred
Securities, such holder would still receive quarterly Contract Adjustment
Payments. In addition, interest would acrete on the underlying Treasury
Securities.
BOOK-ENTRY SYSTEM
The Depository Trust Company (the "Depositary") will act as securities
depositary for the FELINE PRIDES. The FELINE PRIDES will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global security certificates
("Global Security Certificates"), representing the total aggregate number of
FELINE PRIDES, will be issued and will
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be deposited with the Depositary and will bear a legend regarding the
restrictions on exchanges and registration of transfer thereof referred to
below.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the FELINE PRIDES so
long as such FELINE PRIDES are represented by Global Security Certificates.
The Depositary 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 Securities
Exchange Act of 1934, as amended (the "Exchange Act"). The Depositary holds
securities that its participants ("Participants") deposit with the Depositary.
The Depositary 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").
The Depositary is owned by a number of its Direct Participants and by the NYSE,
the American Stock Exchange, Inc., and the National Association of Securities
Dealers, Inc. Access to the Depositary system is also available to others, such
as securities brokers and dealers, banks and trust companies that clear
transactions through or maintain a direct or indirect custodial relationship
with a Direct Participant either directly or indirectly ("Indirect
Participants"). The rules applicable to the Depositary and its Participants are
on file with the Commission.
No FELINE PRIDES represented by Global Security Certificates may be
exchanged in whole or in part for FELINE PRIDES registered, and no transfer of
Global Security Certificates in whole or in part may be registered, in the name
of any person other than the Depositary or any nominee of the Depositary unless
the Depositary has notified the Company that it is unwilling or unable to
continue as depositary for such Global Security Certificates or has ceased to be
qualified to act as such as required by the Purchase Contract Agreement or there
shall have occurred and be continuing a default by the Company in respect of its
obligations under one or more Purchase Contracts. All FELINE PRIDES represented
by one or more Global Security Certificates or any portion thereof will be
registered in such names as the Depositary may direct.
As long as the Depositary or its nominee is the registered owner of the
Global Security Certificates, such Depositary or such nominee, as the case may
be, will be considered the sole owner and holder of the Global Security
Certificates and all FELINE PRIDES represented thereby for all purposes under
the FELINE PRIDES and the Purchase Contract Agreement. Except in the limited
circumstances referred to above, owners of beneficial interests in Global
Security Certificates will not be entitled to have such Global Security
Certificates or the FELINE PRIDES represented thereby registered in their names,
will not receive or be entitled to receive physical delivery of FELINE PRIDES
Certificates in exchange therefor and will not be considered to be owners or
holders of such Global Security Certificates or any FELINE PRIDES represented
thereby for any purpose under the FELINE PRIDES or the Purchase Contract
Agreement. All payments on the FELINE PRIDES represented by the Global Security
Certificates and all transfers and deliveries of Trust Preferred Securities,
Treasury Securities and Common Stock with respect thereto will be made to the
Depositary or its nominee, as the case may be, as the holder thereof.
Ownership of beneficial interests in the Global Security Certificates will
be limited to Participants or persons that may hold beneficial interests through
institutions that have accounts with the Depositary or its nominee. Ownership of
beneficial interests in Global Security Certificates will be shown only on, and
the transfer of those ownership interests will be effected only through, records
maintained by the Depositary or its nominee (with respect to Participants'
interests) or any such Participant (with respect to interests of persons held by
such Participants on their behalf). Procedures for settlement of Purchase
Contracts on the Purchase Contract Settlement Date or upon Early Settlement will
be governed by arrangements among the Depositary. Participants and persons that
may hold beneficial interests through Participants designed to permit such
settlement without the physical movement of certificates. Payments, transfers,
deliveries, exchanges and other matters relating to beneficial interests in
Global Security Certificates may be subject to various policies and
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procedures adopted by the Depositary from time to time. None of the Company, the
Purchase Contract Agent or any agent of the Company or the Purchase Contract
Agent will have any responsibility or liability for any aspect of the
Depositary's or any Participant's records relating to, or for payments made on
account of, beneficial interests in Global Security Certificates, or for
maintaining, supervising or reviewing any of the Depositary's records or any
Participant's records relating to such beneficial ownership interests.
DESCRIPTION OF THE COMMON STOCK
The shares of the Company's Common Stock presently outstanding, including
those to be ultimately purchased in this offering, will be, legally issued,
fully paid and non-assessable. The shareholders are entitled to receive ratably
such dividends as may from time to time be declared by the Board of Directors.
Upon liquidation, the holders of the shares are entitled to share ratably in the
net assets of the Company. All voting rights are vested exclusively in the
holders of the shares and each shareholder is entitled to one vote for each
share held. The holders of the shares have no cumulative voting or preemptive
rights.
Under Florida law, the Company may pay dividends only out of net income,
retained earnings, and capital and surplus.
Article VI of the Articles of Incorporation of the Company provides for the
division of the Board of Directors of the Company as equally as possible into
three classes whose terms are staggered and each class is elected for a term of
three years. The By-Laws of the Company provide that its Board consist of eight
Directors as follows: three directors in Class I; two directors in Class II; and
three directors in Class III. Article VI also provides that (1) no class of
directors shall be subject to election by shareholders until all classes holding
office for terms of longer duration without being subject to election shall be
so subject and directors have been elected with respect thereto, and (2) no one
meeting of shareholders can consider or act upon the election of more than one
class of directors, except that shareholders can fill vacancies occurring in any
class as may be provided for in the By-laws. This Article also provides that no
amendment to the By-laws of the Company decreasing the number of directors shall
have the effect of shortening the term of any incumbent director and no action
shall be taken by the directors to increase the number of directors as provided
in the By-Laws unless at least 75% of the directors then in office concur. The
affirmative vote of the holders of at least 75% of the outstanding shares is
required to (a) amend Article VI, (b) remove a director with or without cause,
or (c) increase the number of directors as provided in the By-Laws of the
Company.
Article XI of the Articles of Incorporation of the Company provides that
the affirmative vote of at least 80% of the outstanding shares is required to
approve any merger or consolidation of the Company into another corporation or
other entity or any sale, lease, or exchange of all or substantially all of the
assets of the Company to or with another corporation, person, or any other
entity if such other corporation, person, or entity is the beneficial owner of
10% or more of the outstanding shares.
The Company is subject to several anti-takeover provisions under Florida
law. These provisions permit a corporation to elect to opt out of such provision
in its articles of incorporation or (depending on the provision in question) its
bylaws. The Company has not elected to opt out of these provisions. The Florida
Business Corporation Act (the "Florida Act") contains a provision that prohibits
the voting of shares in a publicly-held Florida corporation which are acquired
in a "control share acquisition" unless the holders of a majority of the
corporation's voting shares (exclusive of shares held by officers of the
corporation, inside directors or the acquiring party) approve the granting of
voting rights as to the shares acquired in the control share acquisition. A
control share acquisition is defined as an acquisition that immediately
thereafter entitles the acquiring party to vote in the election of directors
within each of the following ranges of voting power: (i) one-fifth or more but
less than one-third of such voting power, (ii) one-third or more but less than a
majority of such voting power and (iii) a majority or more of such voting power.
The Florida Act also contains an "affiliated transaction" provision that
prohibits a publicly-held Florida corporation from engaging in a broad range of
business combinations or other extraordinary corporate transactions with an
"interested shareholder" unless (i) the transaction is approved by a majority of
disinterested directors before the person becomes an interested shareholder,
(ii) the interested shareholder has
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owned at least 80% of the corporation's outstanding voting shares for at least
five years, or (iii) the interested shareholder is the beneficial owner of at
least 90% of the outstanding voting shares of the Company, exclusive of shares
acquired directly from the Company in a transaction not approved by a majority
of the disinterested directors. An interested shareholder is defined as a person
who together with affiliates and associates beneficially owns more than 10% of
the corporation's outstanding voting shares.
SunTrust Bank, Atlanta, Georgia, is transfer agent and registrar of the
shares of the Company's Common Stock.
The Company sends to its shareholders annual reports including financial
statements audited by independent public accountants and quarterly unaudited
interim financial reports.
CERTAIN PROVISIONS OF THE PURCHASE CONTRACT
AGREEMENT AND THE PLEDGE AGREEMENT
GENERAL
Distributions on the FELINE PRIDES will be payable, Purchase Contracts (and
documents related thereto) will be settled and transfers of the FELINE PRIDES
will be registrable at the office of the Purchase Contract Agent in the Borough
of Manhattan, The City of New York. In addition, in the event that the FELINE
PRIDES do not remain in book-entry form, payment of distributions on the FELINE
PRIDES may be made, at the option of the Company, by check mailed to the address
of the person entitled thereto as shown on the Security Register.
On the Purchase Contract Settlement Date, shares of Common Stock will be
delivered, or, if the Purchase Contracts have terminated, Pledged Securities
will be delivered potentially after a limited delay (see "Description of the
Purchase Contracts -- Termination") in each case upon presentation and surrender
of the FELINE PRIDES Certificate at the office of the Purchase Contract Agent.
If a holder of outstanding Income PRIDES or Growth PRIDES fails to present
and surrender the FELINE PRIDES Certificate evidencing such Income PRIDES or
Growth PRIDES to the Purchase Contract Agent on the Purchase Contract Settlement
Date, the shares of Common Stock issuable in settlement of the applicable
Purchase Contract and in payment of any Deferred Contract Adjustment Payments
will be registered in the name of the Purchase Contract Agent and, together with
any distributions thereon, shall be held by the Purchase Contract Agent as agent
for the benefit of such holder, until such FELINE PRIDES Certificate is
presented and surrendered or the holder provides satisfactory evidence that such
certificate has been destroyed, lost or stolen, together with any indemnity that
may be required by the Purchase Contract Agent and the Company.
If the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, the Pledged Securities have been transferred to the Purchase
Contract Agent for distribution to the holders entitled thereto and a holder
fails to present and surrender the FELINE PRIDES Certificate evidencing such
holder's Income PRIDES or Growth PRIDES to the Purchase Contract Agent, the
Pledged Securities delivered to the Purchase Contract Agent and payments thereon
shall be held by the Purchase Contract Agent as agent for the benefit of such
holder, until such FELINE PRIDES Certificate is presented or the holder provides
the evidence and indemnity described above.
The Purchase Contract Agent will have no obligation to invest or to pay
interest on any amounts held by the Purchase Contract Agent pending
distribution, as described above.
No service charge will be made for any registration of transfer or exchange
of the FELINE PRIDES, except for any tax or other governmental charge that may
be imposed in connection therewith.
MODIFICATION
The Purchase Contract Agreement and the Pledge Agreement will contain
provisions permitting the Company and the Purchase Contract Agent or Collateral
Agent, as the case may be, with the consent of the
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holders of not less than 66 2/3% of the Purchase Contracts at the time
outstanding, to modify the terms of the Purchase Contracts, the Purchase
Contract Agreement and the Pledge Agreement, except that no such modification
may, without the consent of the holder of each outstanding Purchase Contract
affected thereby, (a) change any Payment Date, (b) change the amount or type of
Pledged Securities underlying the Purchase Contract, impair the Right of the
holder of any Pledged Securities to receive distributions on the underlying
Pledged Securities (except for the rights of holders of Income PRIDES to
substitute the Treasury Securities for the Trust Preferred Securities or the
rights of holders of Growth PRIDES to substitute Trust Preferred Securities for
the Treasury Securities) or otherwise adversely affect the holder's rights in or
to such Pledged Securities, (c) change the place or currency of payment or
reduce any Contract Adjustment Payments or any Deferred Contract Adjustment
Payments, (d) impair the right to institute suit for the enforcement of any
Purchase Contract, (e) reduce the amount of Common Stock purchasable under any
Purchase Contract, increase the price to purchase Common Stock on settlement of
any Purchase Contract, change the Purchase Contract Settlement Date or otherwise
adversely affect the holder's rights under any Purchase Contract or (f) reduce
the above-stated percentage of outstanding Purchase Contracts the consent of
whose holders is required for the modification or amendment of the provisions of
the Purchase Contracts, the Purchase Contract Agreement or the Pledge Agreement;
provided, that if any amendment or proposal referred to above would adversely
affect only the Income PRIDES or the Growth PRIDES, then only the affected class
of holder will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the consent of the
holders of not less than 66 2/3% of such class.
NO CONSENT TO ASSUMPTION
Each holder of Income PRIDES or Growth PRIDES, by acceptance thereof, will
under the terms of the Purchase Contract Agreement and the Income PRIDES or
Growth PRIDES, be deemed expressly to have withheld any consent to the
assumption (i.e., affirmance) of the Purchase Contracts by the Company or its
trustee in the event that the Company becomes the subject of a case under the
Bankruptcy Code.
CONSOLIDATION, MERGER, SALE OR CONVEYANCE
The Company will covenant in the Purchase Contract Agreement that it will
not merge or consolidate with any other entity or sell, assign, transfer, lease
or convey all or substantially all of its properties and assets to any person,
firm or corporation unless the Company is the continuing corporation or the
successor corporation is a corporation organized under the laws of the United
States of America or a state thereof and such corporation expressly assumes the
obligations of the Company under the Purchase Contracts, the Junior Subordinated
Debentures, the Purchase Contract Agreement and the Pledge Agreement, and the
Company or such successor corporation is not, immediately after such merger,
consolidation, sale, assignment, transfer, lease or conveyance, in default in
the performance of any of its obligations thereunder.
TITLE
The Company, the Purchase Contract Agent and the Collateral Agent may treat
the registered owner of any FELINE PRIDES as the absolute owner thereof for the
purpose of making payment and settling the Purchase Contracts and for all other
purposes.
REPLACEMENT OF FELINE PRIDES CERTIFICATES
In the event that physical certificates have been issued, any mutilated
FELINE PRIDES Certificate will be replaced by the Company at the expense of the
holder upon surrender of such certificate to the Purchase Contract Agent. FELINE
PRIDES Certificates that become destroyed, lost or stolen will be replaced by
the Company at the expense of the holder upon delivery to the Company and the
Purchase Contract Agent of evidence of the destruction, loss or theft thereof
satisfactory to the Company and the Purchase Contract Agent. In the case of a
destroyed, lost or stolen FELINE PRIDES Certificate, an indemnity satisfactory
the Purchase Contract Agent and the Company may be required at the expense of
the holder of the FELINE PRIDES evidenced by such certificate before a
replacement will be issued.
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Notwithstanding the foregoing, the Company will not be obligated to issue
any Income PRIDES or Growth PRIDES on or after the Purchase Contract Settlement
Date or after the Purchase Contracts have terminated. The Purchase Contract
Agreement will provide that in lieu of the delivery of a replacement FELINE
PRIDES Certificate following the Purchase Contract Settlement Date, the Purchase
Contract Agent, upon delivery of the evidence and indemnity described above,
will deliver the Common Stock issuable pursuant to the Purchase Contracts
included in the Income PRIDES or Growth PRIDES evidenced by such certificate,
or, if the Purchase Contracts have terminated prior to the Purchase Contract
Settlement Date, transfer the principal amount of the Pledged Securities
included in the Income PRIDES or Growth PRIDES evidenced by such certificate.
GOVERNING LAW
The Purchase Contract Agreement, the Pledge Agreement and the Purchase
Contracts will be governed by, and construed in accordance with, the laws of the
State of New York.
INFORMATION CONCERNING THE PURCHASE CONTRACT AGENT
The First National Bank of Chicago will be the Purchase Contract Agent. The
Purchase Contract Agent will act as the agent for the holders of Income PRIDES
and Growth PRIDES from time to time. The Purchase Contract Agreement will not
obligate the Purchase Contract Agent to exercise any discretionary actions in
connection with a default under the terms of the Income PRIDES and Growth PRIDES
or the Purchase Contract Agreement.
The Purchase Contract will contain provisions limiting the liability of the
Purchase Contract Agent. The Purchase Contract Agreement will contain provisions
under which the Purchase Contract Agent may resign or be replaced. Such
resignation or replacement would be effective upon the appointment of a
successor.
INFORMATION CONCERNING THE COLLATERAL AGENT
The Chase Manhattan Bank will be the Collateral Agent. The Collateral Agent
will act solely as the agent of the Company and will not assume any obligation
or relationship of agency or trust for or with any of the holders of the Income
PRIDES and Growth PRIDES except for the obligations owed by a pledgee of
property to the owner thereof under the Pledge Agreement and applicable law.
The Pledge Agreement will contain provisions limiting the liability of the
Collateral Agent. The Pledge Agreement will contain provisions under which the
Collateral Agent may resign or be replaced. Such resignation or replacement
would be effective upon the appointment of a successor.
MISCELLANEOUS
The Purchase Contract Agreement will provide that the Company will pay all
fees and expenses related to (i) the offering of the FELINE PRIDES, (ii) the
retention of the Collateral Agent and (iii) the enforcement by the Purchase
Contract Agent of the rights of the holders; provided, however, that holders who
elect to substitute Pledged Securities, thereby creating Growth PRIDES or
recreating Income PRIDES, shall be responsible for any fees or expenses payable
to the Collateral Agent in connection therewith, as well as any commissions,
fees or other expenses incurred in acquiring the Pledged Securities to be
substituted, and the Company shall not be responsible for any such fees or
expenses.
DESCRIPTION OF THE TRUST PREFERRED SECURITIES
The Trust Preferred Securities, which form a component of the Income
PRIDES, and which, under certain circumstances, will trade separately, will be
issued pursuant to the terms of the Declaration. See "Description of the FELINE
PRIDES -- Substitution of Pledged Securities." The Declaration will be qualified
as an indenture under the Trust Indenture Act. The Institutional Trustee, The
First National Bank of Chicago, an independent trustee, will act as indenture
trustee for the Trust Preferred Securities under the Declaration for purposes of
compliance with the provisions of the Trust Indenture Act. The terms of the
Trust Preferred
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Securities will include those stated in the Declaration and those made part of
the Declaration by the Trust Indenture Act. The following summary of the
material terms and provisions of the Trust Preferred Securities does not purport
to be complete and is subject to, and qualified in its entirety by reference to
the Declaration, a copy of which is filed as an exhibit to the Registration
Statement of which this Prospectus is a part, the Trust Act and the Trust
Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue on behalf of the
Trust the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities will be owned, directly or
indirectly by the Company. The Common Securities rank pari passu, and payments
will be made thereon on a pro rata basis, with the Trust Preferred Securities,
except that upon the occurrence and during the continuance of a Declaration
Event of Default, the rights of the holders of the Common Securities to receive
payment of periodic distributions and payments upon liquidation, redemption and
otherwise will be subordinated to the rights of the holders of the Trust
Preferred Securities. The Declaration does not permit the issuance by the Trust
of any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Institutional
Trustee will own the Junior Subordinated Debentures purchased by the Trust for
the benefit of the holders of the Trust Securities. The payment of distributions
out of money held by the Trust, and payments upon redemption of the Trust
Preferred Securities or liquidation of the Trust, are guaranteed by the Company
to the extent described under "Description of the Guarantee." The Guarantee,
when taken together with the Company's obligations under the Junior Subordinated
Debentures and the Indenture and its obligations under the Declaration,
including the obligations to pay costs, expenses, debts and liabilities of the
Trust (other than with respect to the Trust Preferred Securities), provides a
full and unconditional guarantee of amounts due on the Trust Preferred
Securities. The Guarantee will be held by The First National Bank of Chicago,
the Guarantee Trustee, for the benefit of the holders of the Trust Preferred
Securities. The Guarantee does not cover payment of distributions when the Trust
does not have sufficient available funds to pay such distributions. In such
event, the remedy of a holder of Trust Preferred Securities is to vote to direct
the Institutional Trustee to enforce the Institutional Trustee's rights under
the Junior-Subordinated Debentures (except in the limited circumstances in which
the holder may take direct action). See "-- Declaration Events of Default" and
"-- Voting Rights."
DISTRIBUTIONS
Distributions on the Trust Preferred Securities will be fixed at a rate per
annum of % of the stated liquidation amount of $50 per Trust Preferred
Security. Distributions in arrears for more than one quarter will bear interest
thereon at the rate per annum of % thereof compounded quarterly. The term
"distribution" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months.
Distributions on the Trust Preferred Securities will be cumulative and will
accrue from 1997 and will be payable quarterly in arrears
on March 31, June 30, September 30 and December 31 of each year, commencing June
30, 1997, when, as and if funds are available for payment. Distributions will be
made by the Institutional Trustee, except as otherwise described below.
The Company has the right under the Indenture to defer payments of interest
on the Junior Subordinated Debentures by extending the interest payment period
from time to time on the Junior Subordinated Debentures, which right, if
exercised, would defer quarterly distributions on the Trust Preferred Securities
(though such distributions would continue to accrue with interest since interest
would continue to accrue on the Junior Subordinated Debentures) during any such
extended interest payment period. Such right to extend the interest payment
period for the Junior Subordinated Debentures is limited to a period, in the
aggregate, not extending beyond the maturity date of the Junior Subordinated
Debentures. In the event that the Company exercises this right, then (a) the
Company shall not declare or pay dividends on, make distributions with respect
to, or redeem, purchase or acquire, or make a liquidation payment with respect
to, any of its capital stock (other than (i) purchases or acquisitions of shares
of the Company's Common Stock in connection with the satisfaction by the Company
of its obligations under any employee benefit plans or the
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satisfaction by the Company of its obligations pursuant to any contract or
security outstanding on the date of such event requiring the Company to purchase
shares of the Company's Common Stock, (ii) as a result of a reclassification of
the Company's capital stock or the exchange or conversion of one class or series
of the Company's capital stock for another class or series of the Company's
capital stock or (iii) the purchase of fractional interests in shares of the
Company's capital stock pursuant to the conversion or exchange provisions of
such Company capital stock or the security being converted or exchanged) or make
any guarantee payments with respect to the foregoing, (b) the Company shall not
make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities (including guarantees) issued by the
Company that rank pari passu with or junior to such Junior Subordinated
Debentures, and (c) the Company shall not make any guarantee payments with
respect to the foregoing (other than pursuant to the Trust Preferred Securities
Guarantee). Prior to the termination of any such Extension Period, the Company
may further extend the interest payment period; provided, that such Extension
Period, together with all such previous and further extensions thereof, may not
extend beyond the maturity date of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may select a new Extension Period, subject to the above requirements.
See "Description of the Junior Subordinated Debentures -- Interest" and
"-- Option to Extend Interest Payment Period." If distributions are deferred,
the deferred distributions and accrued interest thereon shall be paid to holders
of record of the Trust Preferred Securities as they appear on the books and
records of the Trust on the record date next following the termination of such
deferral period.
Distributions on the Trust Preferred Securities must be paid on the dates
payable to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Trust Preferred Securities will be limited to
payments received from the Company on the Junior Subordinated Debentures. See
"Description of the Junior Subordinated Debentures." The payment of
distributions out of moneys held by the Trust is guaranteed by the Company to
the extent set forth under "Description of the Guarantee."
Distributions on the Trust Preferred Securities will be payable to the
holders thereof, including the Collateral Agent, as they appear on the books and
records of the Trust on the relevant record dates, which, as long as the Trust
Preferred Securities remain in book-entry only form, will be one Business Day
prior to the relevant payment dates. Such distributions will be paid through the
Institutional Trustee which will hold amounts received in respect of the Junior
Subordinated Debentures in the Property Account for the benefit of the holders
of the Trust Preferred Securities. Subject to any applicable laws and
regulations and the provisions of the Declaration, each such payment will be
made as described under "Book-Entry Only Issuance-The Depository Trust Company"
below. In the event that the Trust Preferred Securities do not continue to
remain in book-entry form, the Regular Trustees shall have the right to select
relevant record dates, which shall be more than one Business Day but less than
60 Business Days prior to the relevant payment dates. In the event that any date
on which distributions are to be made on the Trust Preferred Securities is not a
Business Day, then payment of the distributions payable 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 record date.
MATURITY
Subject to the holder's right to require the Trust to put the Junior
Subordinated Debentures to the Company on the Purchase Contract Settlement Date,
the Junior Subordinated Debentures will mature on , 2002. Upon the
repayment of the Junior Subordinated Debentures at maturity, the proceeds from
such repayment or payment shall simultaneously be applied to redeem Trust
Preferred Securities having an aggregate liquidation amount equal to the
aggregate principal amount of the Junior Subordinated Debentures so repaid. See
"Description of the Junior Subordinated Debentures."
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SPECIAL EVENT DISTRIBUTION
"Tax Event" means the Regular Trustees shall have received an opinion of a
nationally recognized independent tax counsel experienced in such matters (a
"Dissolution Tax Opinion") to the effect that, as a result of (a) any amendment
to, or change (including any announced prospective change) in the laws (or any
regulations thereunder) of the United States or any political subdivision or
taxing authority thereof or therein or (b) any amendment to or change in an
interpretation or application of such laws or regulations by any legislative
body, court, governmental agency or regulatory authority (including the
enactment of any legislation and the publication of any judicial decision or
regulatory determination on or after such date), which change or amendment, in
the ease of (a) or (b), becomes effective on or after the date of this
Prospectus, there is more than an insubstantial risk that (i) the Trust would be
subject to federal income tax with respect to income accrued or received on the
Junior Subordinated Debentures, (ii) interest payable to the Trust on the Junior
Subordinated Debentures would not be deductible by the Company for federal
income tax purposes or (iii) the Trust would be subject to more than a de
minimis amount of other taxes, duties or other governmental charges.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion from independent counsel experienced in practice under the
1940 Act (as defined below) to the effect that, as a result of the occurrence of
a change in law or regulation or a written change in interpretation or
application of law or regulation by any legislative body, court, governmental
agency or regulatory authority (a "Change in 1940 Act Law"), which Change in
1940 Act Law becomes effective on or after the date of this Prospectus, there is
more than an insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the Investment
Company Act of 1940, as amended (the "1940 Act") .
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Trust
shall, except in the limited circumstances described below, be dissolved, with
the result that the Junior Subordinated Debentures with an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, the Trust Securities, would be
distributed to the holders of the Trust Securities in liquidation of such
holders' interests in the Trust on a pro rata basis within 90 days following the
occurrence, of such Special Event; provided however, that in the case of the
occurrence of a Tax Event, such dissolution and distribution shall be
conditioned on the Company being unable to avoid such Tax Event within such 90
day period by taking some ministerial action or pursuing some other reasonable
measure that will have no adverse effect on the Trust, the Company or the
holders of the Trust Securities and will involve no material cost. If a Special
Event occurs, Junior Subordinated Debentures distributed to the Collateral Agent
in liquidation of such holder's interest in the Trust would continue to be
pledged to secure Income PRIDES holders' obligations to purchase Common Stock
under the Purchase Contracts.
After the date for any distribution of Junior Subordinated Debentures upon
dissolution of the Trust, (i) the Trust Preferred Securities will no longer be
deemed to be outstanding, (ii) the Depositary or its nominee, as the record
holder of the Trust Preferred Securities, will receive a registered global
certificate or certificates representing the Junior Subordinated Debentures to
be delivered upon such distribution, and (iii) any certificates representing
Trust Preferred Securities not held by the Depositary or its nominee will be
deemed to represent Junior Subordinated Debentures having an aggregate principal
amount equal to the aggregate stated liquidation amount of, with an interest
rate identical to the distribution rate of, and accrued and unpaid interest
equal to accrued and unpaid distributions on, such Trust Preferred Securities
until such certificates are presented to the Company or its agent for transfer
or reissuance.
There can be no assurance as to the market prices for either the Trust
Preferred Securities or the Junior Subordinated Debentures that may be
distributed in exchange for the Trust Preferred Securities if a dissolution and
liquidation of the Trust were to occur. Accordingly, the Trust Preferred
Securities or the Junior Subordinated Debentures that an investor may receive if
a dissolution and liquidation of the Trust were to occur may trade at a discount
to the price that the investor paid to purchase the Trust Preferred Securities
forming a part of the Income PRIDES offered hereby.
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Subject to applicable law (including, without limitation, United States
federal securities laws), the Company or its subsidiaries may at any time, and
from time to time, purchase outstanding Trust Preferred Securities by tender, in
the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Trust Preferred Securities will be entitled to receive out of the assets
of the Trust, after satisfaction of liabilities to creditors, Junior
Subordinated Debentures in an aggregate stated principal amount equal to the
aggregate stated liquidation amount of, with an interest rate identical to the
distribution rate of, and accrued and unpaid interest equal to accrued and
unpaid distributions on, the Trust Preferred Securities on a pro rata basis to
the holders of the Trust Preferred Securities in exchange for such Trust
Preferred Securities (the "Liquidation Distribution").
The holders of the Common Securities will be entitled to receive
distributions upon any such dissolution pro rata with the holders of the Trust
Preferred Securities, except that if a Declaration Event of Default has occurred
and is continuing, the Trust Preferred Securities shall have a preference over
the Trust Common Securities with regard to such distributions.
Pursuant to the Declaration, the Trust shall terminate (i) on March 20,
2004, the expiration of the term of the Trust, (ii) upon the bankruptcy of the
Company or the holder of the Common Securities, (iii) upon the filing of a
certificate of dissolution or its equivalent with respect to the Company, the
filing of a certificate of cancellation with respect to the Trust after
obtaining the consent of the holders of at least a majority in liquidation
amount of the Trust Securities effected thereby voting together as a single
class to file such certificate of cancellation, or the revocation of the charter
of the Company and the expiration of 90 days after the date of revocation
without a reinstatement thereof, (iv) upon the distribution of Junior
Subordinated Debentures upon the occurrence of an Investment Company Event or a
Tax Event or (v) upon the entry of a decree of a judicial dissolution of the
holder of the Trust Common Securities, the Company or the Trust.
DECLARATION EVENTS OF DEFAULT
An event of default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"); provided, that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Trust Preferred Securities
have been cured, waived or otherwise eliminated. Until such Declaration Events
of Default with respect to the Trust Preferred Securities have been so cured,
waived or otherwise eliminated, the Institutional Trustee will be deemed to be
acting solely on behalf of the holders of the Trust Preferred Securities and
only the holders of the Trust Preferred Securities will have the right to direct
the Institutional Trustee with respect to certain matters under the Declaration
and, therefore, the Indenture. If a Declaration Event of Default with respect to
the Trust Preferred Securities is waived by holders of Trust Preferred
Securities, such waiver will also constitute the waiver of such Declaration
Event of Default with respect to the Common Securities without any further act,
vote or consent of the holders of the Common Securities. If the Institutional
Trustee fails to enforce its rights under the Junior Subordinated Debentures,
any holder of Trust Preferred Securities may institute a legal proceeding
against the Company to enforce the Institutional Trustee's rights under the
Junior Subordinated Debentures without first proceeding against the
Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures, on the date such interest or
principal is otherwise payable, then a holder of Trust Preferred Securities may
directly institute a proceeding for enforcement of payment (a "Direct Action")
to such holder directly of the principal of or interest on the Junior
Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Trust Preferred Securities of such holder on or after
the respective due date specified in the Junior Subordinated Debentures. In
connection with such Direct Action, the Company will be subrogated to the rights
of such holder of Trust Preferred Securities under the Declaration to the extent
of any payment made by
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the Company to such holder of Trust Preferred Securities in such Direct Action.
The holders of Trust Preferred Securities will not be able to exercise directly
any other remedy available to the holders of the Junior Subordinated Debentures.
See "Effect of Obligations under the Junior Subordinated Debentures and the
Guarantee."
Upon the occurrence of a Declaration Event of Default, the Institutional
Trustee as the sole holder of the Junior Subordinated Debentures will have the
Right under the Indenture to declare the principal of and interest on the Junior
Subordinated Debentures to be immediately due and payable. The Company and the
Trust are each required to file annually with the Institutional Trustee an
officer's certificate as to its compliance with all conditions and covenants
under the Declaration.
VOTING RIGHTS
Except as described herein, under the Trust Act and the Trust Indenture Act
and under "Description of the Trust Preferred Securities
Guarantees -- Modification of the Trust Preferred Securities Guarantees;
Assignment", and as otherwise required by law and the Declarations the holders
of the Trust Preferred Securities will have no voting rights.
Subject to the requirement of the Institutional Trustee obtaining a tax
opinion in certain circumstances set forth in the last sentence of this
paragraph, the holders of a majority in aggregate liquidation amount of the
Trust Preferred Securities have the right to direct the time, method and place
of conducting any proceeding for any remedy available to the Institutional
Trustee, or direct the exercise of any trust or power conferred upon the
Institutional Trustee under the Declaration including the right to direct the
Institutional Trustee, as holder of the Junior Subordinated Debentures, to (i)
exercise the remedies available under the Indenture with respect to the Junior
Subordinated Debentures, (ii) waive any past Indenture Event of Default that is
available under Section 513 of the Indenture (as defined herein), (iii) exercise
any right to rescind or annul a declaration that the principal of all the Junior
Subordinated Debentures shall be due and payable or (iv) consent to any
amendment, modification or termination of the Indenture or the Junior
Subordinated Debentures where such consent shall be required; provided, however,
that, where a consent or action under the Indenture would require the consent or
act of holders of more than a majority in principal amount of the Junior
Subordinated Debentures (a "Super-Majority") affected thereby, only the holders
of at least such Super-Majority in aggregate liquidation amount of the Trust
Preferred Securities may direct the Institutional Trustee to give such consent
or take such action. If the Institutional Trustee fails to enforce its rights
under the Junior Subordinated Debentures or the Declaration, a record holder of
Trust Preferred Securities may after such holder's written request to the
Institutional Trustee to enforce such rights, institute a legal proceeding
directly against the Company to enforce the Institutional Trustee's rights under
the Junior Subordinated Debentures or the Declaration without first instituting
any legal proceeding against the Institutional Trustee or any other person or
entity. The Institutional Trustee shall notify all holders of the Trust
Preferred Securities of any notice of default received from the Debt Trustee (as
defined below) with respect to the Junior Subordinated Debentures. Such notice
shall state that such Indenture Event of Default also constitutes a Declaration
Event of Default. Except with respect to directing the time, method and place of
conducting a proceeding for a remedy, the Institutional Trustee shall not take
any of the actions described in clauses (i), (ii) or (iii) above unless the
Institutional Trustee has obtained an opinion of tax counsel to the effect that,
as a result of such action, the Trust will not fail to be classified as a
grantor trust for federal income tax purposes.
In the event the consent of the Institutional Trustee, as the holder of the
Junior Subordinated Debentures, is required under the Indenture with respect to
any amendment, modification or termination of the Indenture, the Institutional
Trustee shall request the direction of the holders of the Trust Preferred
Securities and the Common Securities with respect to such amendment,
modification or termination and shall vote with respect to such amendment,
modification or termination as directed by a majority in liquidation amount of
the Trust Preferred Securities and the Common Securities voting together as a
single class; provided, however, that where a consent under the Indenture would
require the consent of a Super-Majority, the Institutional Trustee may only give
such consent at the direction of the holders of at least the proportion in
liquidation amount of the Trust Preferred Securities and the Trust Common
Securities which the relevant
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Super-Majority represents of the aggregate principal amount of the Junior
Subordinated Debentures outstanding. The Institutional Trustee shall be under no
obligation to take any such action in accordance with the directions of the
holders of the Trust Preferred Securities and the Trust Common Securities unless
the Institutional Trustee has obtained an opinion of tax counsel to the effect
that for the purposes of federal income tax, the Trust will not be classified as
other than a grantor trust.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Trust Preferred Securities
may be given at a separate meeting of holders of Trust Preferred Securities
convened for such purpose, at a meeting of all of the holders of Trust
Securities or pursuant to written consent. The Regular Trustees will cause a
notice of any meeting at which holders of Trust 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 record of Trust Preferred
Securities. Each such notice will include a statement setting forth the
following information: (i) the date of such meeting or the date by which such
action is to be taken; (ii) a description of any resolution proposed for
adoption at such meeting 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. No vote or consent of the holders of Trust
Preferred Securities will be required for the Trust to redeem and cancel Trust
Preferred Securities or distribute Junior Subordinated Debentures in accordance
with the Declaration.
Notwithstanding that holders of Trust Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the Trust
Preferred Securities that are owned at such time by the Company or any entity
directly or indirectly controlling or controlled by, or under direct or indirect
common control with, the Company, shall not be entitled to vote or consent and
shall, for purposes of such vote or consent, be treated as if such Trust
Preferred Securities were not outstanding.
The procedures by which holders of Trust Preferred Securities may exercise
their voting rights are described below. See "-- Book-Entry Only Issuance The
Depository Trust Company" below.
Holders of the Trust Preferred Securities will have no rights to appoint or
remove the Company Trustees, who may be appointed, removed or replaced solely by
the Company as the indirect or direct holder of all of the Trust Common
Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by the Regular
Trustees (and in certain circumstances the Institutional Trustee or the Delaware
Trustee), provided, that if any proposed amendment provides for, or the Regular
Trustees otherwise propose to effect, (i) any action that would adversely affect
the powers, preferences or special rights of the Trust Securities, whether by
way of amendment to the Declaration or otherwise or (ii) the dissolution,
winding-up or termination of the Trust other than pursuant to the terms of the
Declaration, then the holders of the Trust Securities voting together as a
single class will be entitled to vote on such amendment or proposal and such
amendment or proposal shall not be effective except with the approval of at
least a majority in liquidation amount of the Trust Securities affected thereby;
provided, that if any amendment or proposal referred to in clause (i) above
would adversely effect only the Trust Preferred Securities or the Trust Common
Securities, then only the affected class will be entitled to vote on such
amendment or proposal and such amendment or proposal shall not be effective
except with the approval of a majority in liquidation amount of such class of
securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified for purposes of United States federal income taxation as other
than a grantor trust, (ii) reduce or otherwise adversely affect the powers of
the Institutional Trustee or (iii) cause the Trust to be deemed an "investment
company" which is required to be registered under the 1940 Act.
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MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into, or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. The Trust may, with the consent of the Regular Trustees and
without the consent of the holders of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by a trust organized as such
under the laws of any State; provided, that (i) such successor entity either (x)
expressly assumes all of the obligations of the Trust under the Trust Preferred
Securities or (y) substitutes for the Trust Preferred Securities other
securities having substantially the same terms as the Trust Securities (the
"Successor Securities"), so long as the Successor Securities rank the same as
the Trust Securities with respect to distributions and payments upon
liquidation, redemption and otherwise, (ii) the Company expressly acknowledges a
trustee of such successor entity possessing the same powers and duties as the
Institutional Trustee as the holder of the Junior Subordinated Debentures, (iii)
if the Trust Preferred Securities are listed any Successor Securities will be
listed upon notification of issuance, on any national securities exchange or
with another organization on which the Trust Preferred Securities are then
listed or quoted, (iv) such merger, consolidation, amalgamation or replacement
does not cause the Trust Preferred Securities (including any Successor
Securities) to be downgraded by any nationally recognized statistical rating
organization, (v) such merger, consolidation, amalgamation or replacement does
not adversely effect the rights, preferences and privileges of the holders of
the Trust Securities (including any Successor Securities) in any material
respect (other than with respect to any dilution of the holders' interest in the
new entity), (vi) such successor entity has a purpose identical to that of the
Trust, (vii) prior to such merger, consolidation, amalgamation or replacement,
the Company has received an opinion of a nationally recognized independent
counsel to the Trust experienced in such matters to the effect that, (A) such
merger, consolidation, amalgamation or replacement does not adversely effect the
rights, preferences and privileges of the holders of the Trust Securities
(including any Successor Securities) in any material respect (other than with
respect to any dilution of the holders' interest in the new entity), (B)
following such merger, consolidation, amalgamation or replacement, neither the
Trust nor such successor entity will be required to register as an investment
company under the 1940 Act and (C) following such merger, consolidation,
amalgamation or replacement, the Trust (or the successor entity) will continue
to be classified as a grantor trust for federal income tax purposes, and (viii)
the Company guarantees the obligations of such successor entity under the
Successor Securities at least to the extent provided by the Guarantee and the
Common Securities Guarantee (as described in the accompanying Prospectus).
Notwithstanding the foregoing the Trust shall not, except with the consent of
holders of 100% in liquidation amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or replace it, if
such consolidation, amalgamation, merger or replacement would cause the Trust or
the successor entity to be classified as other than a grantor trust for federal
income tax purposes.
BOOK-ENTRY ONLY ISSUANCE THE DEPOSITORY TRUST COMPANY
The Depositary will act as securities depositary for the Trust Preferred
Securities. The Trust Preferred Securities will be issued only as
fully-registered securities registered in the name of Cede & Co. (the
Depositary's nominee). One or more fully-registered global Trust Preferred
Securities certificates, representing the total aggregate number of Trust
Preferred Securities, will be issued and will be deposited with the Depositary.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Trust
Preferred Securities as represented by a global certificate.
Purchases of Trust Preferred Securities within the Depositary's system must
be made by or through Direct Participants, which will receive a credit for the
Trust Preferred Securities on the Depositary's records. The ownership interest
of each actual purchaser of each Trust Preferred Security (a "Beneficial Owner")
is in turn to be recorded on the Direct and Indirect Participants' records.
Beneficial Owners will not receive written confirmation from the Depositary of
their purchases, but Beneficial Owners are expected to receive written
confirmations providing details of the transaction, as well as periodic
statements of their holdings, from the
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Direct or Indirect Participants through which the Beneficial Owners purchased
Trust Preferred Securities. Transfers of ownership interests in the Trust
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 the Trust
Preferred Securities, except in the event that use of the book-entry system for
the Trust Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Trust Preferred Securities
deposited by Participants with the Depositary are registered in the name of the
Depositary's nominee, Cede & Co. The deposit of Trust Preferred Securities with
the Depositary and their registration in the name of Cede & Co. effect no change
in beneficial ownership. The Depositary has no knowledge of the actual
Beneficial Owners of the Trust Preferred Securities. The Depositary's records
reflect only the identity of the Direct Participants to whose accounts such
Trust 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.
So long as the Depositary or its nominee is the registered owner or holder
of a Global Certificate, the Depositary or such nominee, as the case may be,
will be considered the sole owner or holder of the Trust Preferred Securities
represented thereby for all purposes under the Declaration and the Trust
Preferred Securities. No beneficial owner of an interest in a Global Certificate
will be able to transfer that interest except in accordance with the Depositary
applicable procedures, in addition to those provided for under the Declaration.
The Depositary has advised the Company that it will take any action
permitted to be taken by a holder of Trust Preferred Securities (including the
presentation of Trust Preferred Securities for exchange as described below) only
at the direction of one or more Participants to whose account the Depositary's
interests in the Global Certificates are credited and only in respect of such
portion of the aggregate liquidation amount of Trust Preferred Securities as to
which such Participant or Participants has or have given such directions.
However, if there is an Event of Default under the Trust Preferred Securities,
the Depositary will exchange the Global Certificates for Certificated
Securities, which it will distribute to its Participants.
Conveyance of notices and other communications by the Depositary to Direct
Participants and Indirect Participants and by Direct Participants and Indirect
Participants to Beneficial Owners will be governed by arrangements among them,
subject to any statutory or regulatory requirements that may be in effect from
time to time.
Although voting with respect to the Trust Preferred Securities is limited,
in those cases where a vote is required, neither the Depositary nor Cede & Co.
will itself consent or vote with respect to Trust Preferred Securities. Under
its usual procedures, the Depositary would mail an Omnibus Proxy to the Trust as
soon as possible after the record date. The Omnibus Proxy assigns Cede & Co.
consenting or voting rights to those Direct Participants to whose accounts the
Trust Preferred Securities are credited on the record date (identified in a
listing attached to the Omnibus Proxy). The Company and the Trust believe that
the arrangements among the Depositary, Direct and Indirect Participants, and
Beneficial Owners will enable the Beneficial Owners to exercise rights
equivalent in substance to the rights that can be directly exercised by a record
holder of a beneficial interest in the Trust.
Distribution payments on the Trust Preferred Securities will be made to the
Depositary in immediately available funds. The Depositary's practice is to
credit Direct Participants' accounts on the relevant payment date in accordance
with their respective holdings shown on the Depositary's records unless the
Depositary 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, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Participant and not of the
Depositary, the Trust or the Company, subject to any statutory or regulatory
requirements to the contrary that may be in effect from time to time. Payment of
distributions to the Depositary is the responsibility of the Trust, disbursement
of such payments to Direct Participants is the responsibility of the Depositary,
and disbursement of such payments to the Beneficial Owners is the responsibility
of Direct and Indirect Participants.
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Except as provided herein, a Beneficial Owner in a global Trust Preferred
Security certificate will not be entitled to receive physical delivery of Trust
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of the Depositary to exercise any rights under the Trust Preferred
Securities.
Although the Depositary has agreed to the foregoing procedure in order to
facilitate transfer of interest in the Global Certificates among Participants of
the Depositary, the Depositary is under no obligation to perform or continue to
perform such procedures and such procedures may be discontinued at any time.
None of the Company, the Trust or any Trustee will have any responsibility for
the performance by the Depositary or its Participants or Indirect Participants
under the rules and procedures governing the Depositary. The Depositary may
discontinue providing its services as securities depositary with respect to the
Trust Preferred Securities at any time by giving reasonable notice to the Trust.
Under such circumstances, in the event that a successor securities depositary is
not obtained, Trust Preferred Securities certificates are required to be printed
and delivered to holders. Additionally, the Regular Trustees (with the consent
of the Company) may decide to discontinue use of the system of book-entry
transfers through the Depositary (or any successor depositary) with respect to
the Trust Preferred Securities. In that event, certificates for the Trust
Preferred Securities will be printed and delivered to holders. In each of the
above circumstances, the Company will, appoint a paying agent with respect to
the Trust Preferred Securities.
The information in this section concerning the Depositary and the
Depositary's book-entry system has been obtained from sources that the Company
and the Trust believe to be reliable, but neither the Company nor the Trust
takes responsibility for the accuracy hereof.
REGISTRAR, TRANSFER AGENT AND PAYING AGENT
Payments in respect of the Trust Preferred Securities represented by the
Global Certificates shall be made to the Depositary, which shall credit the
relevant accounts at the Depositary on the applicable distribution dates or, in
the case of Certificated Securities, such payments shall be made by check mailed
to the address of the holder entitled thereto as such address shall appear on
the Register. The Paying Agent shall be permitted to resign as Paying Agent upon
30 days' written notice to the Regular Trustees. In the event that The First
National Bank of Chicago shall no longer be the Paying Agent, the Trustee shall
appoint a successor to act as Paying Agent (which shall be a bank or trust
company).
The Institutional Trustee will act as registrar, transfer agent and paying
agent for the Trust Preferred Securities.
Registration of transfers of Trust Preferred Securities will be effected
without charge by or on behalf of the Trust, but upon payment (the giving of
such indemnity as the Trust or the Company may require) in respect of any tax or
other government charge which may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Trust Preferred Securities after such Trust Preferred Securities
have been called for redemption.
INFORMATION CONCERNING THE INSTITUTIONAL TRUSTEE
The Institutional Trustee prior to the occurrence of a default with respect
to the Trust Securities and after the curing of any defaults that may have
occurred, undertakes to perform only such duties as are specifically set forth
in the Declaration and, after default, shall exercise the same degree of care as
a prudent individual would exercise in the conduct of his or her own affairs.
Subject to such provisions, the Institutional Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Trust Preferred Securities, unless offered reasonable indemnity by
such holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Trust Preferred Securities will not be required to offer
such indemnity in the event such holders, by exercising their voting rights,
direct the Institutional Trustee to take any action it is empowered to take
under the Declaration following a Declaration Event of Default. The
Institutional Trustee also serves as trustee under the Guarantee.
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GOVERNING LAW
The Declaration and the Trust Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or characterized as other than a grantor trust for
federal income tax purposes. The Company is authorized and directed to conduct
its affairs so that the Junior Subordinated Debentures will be treated as
indebtedness of the Company for federal income tax purposes. In this connection,
the Company and the Regular Trustees are authorized to take any action not
inconsistent with applicable law, the certificate of trust of the Trust or the
certificate of incorporation of the Company, that each of the Company and the
Regular Trustees determines in its discretion to be necessary or desirable to
achieve such end, as long as such action does not adversely affect the interests
of the holders of the Trust Preferred Securities or vary the terms thereof.
Holders of the Trust Preferred Securities have no preemptive rights.
DESCRIPTION OF THE GUARANTEE
Pursuant to the Guarantee, the Company will irrevocably and unconditionally
agree, to the extent set forth therein, to pay in full, to the holders of the
Trust Preferred Securities issued by the Trust, the Guarantee Payments (as
defined in the accompanying Prospectus) (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The Company's obligation to
make a Guarantee Payment may be satisfied by direct payment of the required
amounts by the Company to the holders of Trust Preferred Securities or by
causing the Trust to pay such amounts to such holders. The Guarantee will be
qualified as an indenture under the Trust Indenture Act. The First National Bank
of Chicago will act as indenture trustee under the Guarantee. The terms of the
Guarantee will be those set forth in such Guarantee and those made part of such
Guarantee by the Trust Indenture Act. The Guarantee will be held by the
Guarantee Trustee for the benefit of the holders of the Trust Preferred
Securities. Notwithstanding the foregoing, if the Company has failed to make a
payment under the Guarantee, any holder of Trust Preferred Securities may
institute a legal proceeding directly against the Company to enforce its rights
under the Guarantee without first instituting a legal proceeding directly
against the Trust, the Guarantee Trustee or any other person or entity. The
Guarantee will constitute an unsecured obligation of the Company and will rank
(i) subordinate and junior in right of payment to all other liabilities of the
Company, (ii) pari passu with the most senior preferred or preference stock now
or hereafter issued by the Company and with any guarantee now or hereafter
entered into by the Company in respect of any preferred or preference stock of
any affiliate of the Company; and (iii) senior to the Company's common stock.
The terms of the Trust Preferred Securities provide that each holder of Trust
Preferred Securities issued by the Trust by acceptance thereof agrees to the
subordination provisions and other terms of the Guarantee relating thereto.
The Guarantee will constitute a guarantee of payment and not of collection
(that is, the guaranteed party may institute a legal proceeding directly against
the guarantor to enforce its rights under the guarantee without instituting a
legal proceeding against any other person or entity).
DESCRIPTION OF THE JUNIOR SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Junior
Subordinated Debentures in which the Trust will invest the proceeds from the
issuance and sale of the Trust Securities. The following description does not
purport to be complete and is subject to, and is qualified in its entirety by
reference to, the Subordinated Debt Securities Indenture, dated as of
, 1997 between the Company and The First National Bank of Chicago, as Trustee
(the "Debt Trustee"). Certain capitalized terms used herein are defined in the
Indenture.
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Under certain circumstances involving the dissolution of the Trust
following the occurrence of a Special Event, Junior Subordinated Debentures may
be distributed to the holders of the Trust Securities in liquidation of the
Trust. See "Description of the Trust Preferred Securities -- Special Event
Distribution."
GENERAL
The Junior Subordinated Debentures will be issued as unsecured debt under
the Indenture. The Junior Subordinated Debentures will be limited in aggregate
principal amount to $ , such amount being the sum of the aggregate
stated liquidation of the Trust Preferred Securities and the capital contributed
by the Company in exchange for the Common Securities (the "Company Payment").
The Junior Subordinated Debentures are not subject to a sinking fund
provision. The entire principal amount of the Junior Subordinated Debentures
will mature and become due and payable, together with any accrued and unpaid
interest thereon including Compound Interest (as defined herein) and Additional
Interest (as defined herein), if any, on , 2002.
If Junior Subordinated Debentures are distributed to holders of Trust
Preferred Securities in liquidation of such holders' interests in the Trust,
such Junior Subordinated Debentures will initially be issued as a Global
Security (as defined herein). As described herein, under certain limited
circumstances, Junior Subordinated Debentures may be issued in certificated form
in exchange for a Global Security. See "--Book-Entry and Settlement" below. In
the event that Junior Subordinated Debentures are issued in certificated form,
such Junior Subordinated Debentures will be in denominations of $50 and integral
multiples thereof and may be transferred or exchanged at the offices described
below. Payments on Junior Subordinated Debentures issued as a Global Security
will be made to the Depositary, a successor depositary or, in the event that no
depositary is used, to a Paying Agent for the Junior Subordinated Debentures. In
the event Junior Subordinated Debentures are issued in certificated form,
principal and interest will be payable, the transfer of the Junior Subordinated
Debentures will be registrable and Junior Subordinated Debentures will be
exchangeable for Junior Subordinated Debentures of other denominations of a like
aggregate principal amount at the corporate trust office of the Institutional
Trustee in Chicago, Illinois; provided, that at the option of the Company,
payment of interest may be made by check mailed to the address of the holder
entitled thereto or by wire transfer to an account appropriately designated by
the holder entitled thereto. Notwithstanding the foregoing, so long as the
holder of any Junior Subordinated Debentures is the Institutional Trustee, the
payment of principal and interest on the Junior Subordinated Debentures held by
the Institutional Trustee will be made at such place and to such account as may
be designated by the Institutional Trustee.
The Indenture does not contain provisions that afford holders of the Junior
Subordinated Debentures protection in the event of a highly leveraged
transaction involving the Company.
SUBORDINATION
The Indenture provides that the Junior Subordinated Debentures are
subordinated and junior in right of payment to all Senior Indebtedness of the
Company and pari passu with Company trade creditors and other junior
subordinated debentures issued by the Company. No payment of principal, premium,
if any, or interest on the Junior Subordinated Debentures may be made if (i) any
Senior Indebtedness of the Company is not paid when due, (ii) any applicable
grace period with respect to such default has ended and such default has not
been cured or waived or ceased to exist, or (iii) the maturity of any Senior
Indebtedness of the Company has been accelerated because of a default. Upon any
distribution of assets of the Company to creditors upon any dissolution,
winding-up, liquidation or reorganization, whether voluntary or involuntary, or
in bankruptcy, insolvency, receivership or other proceedings, all principal,
premium, if any, and interest due or to become due on all Senior Indebtedness of
the Company must be paid in full before the holders of Junior Subordinated
Debentures are entitled to receive or retain any payment. Upon satisfaction of
all claims of all Senior Indebtedness then outstanding, the rights of the
holders of the Junior Subordinated Debentures will be subrogated to the rights
of the holders of Indebtedness of the Company to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Junior Subordinated Debentures are paid in full.
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The term "Senior Indebtedness" means the principal of and premium, if any,
and interest on the following, whether outstanding on the date of execution of
the Subordinated Debt Securities Indenture or thereafter incurred or created:
(i) indebtedness of the Company for money borrowed by the Company (including
purchase money obligations with an original maturity in excess of one year) or
evidenced by debentures (other than the Subordinated Debt Securities), notes,
bankers' acceptances or other corporate debt securities or similar instruments
issued by the Company; (ii) obligations with respect to letters of credit; (iii)
indebtedness of the Company constituting a guarantee of indebtedness of others
of the type referred to in the preceding clauses (i) and (ii); or (iv) renewals,
extensions or refunding of any of the indebtedness referred to in the preceding
clauses (i), (ii) and (iii) unless, in the case of any particular indebtedness,
renewal, extension or refunding, under the express provisions of the instrument
creating or evidencing the same, or pursuant to which the same is outstanding,
such indebtedness or such renewal extension or refunding thereof is not superior
in right of payment to the Subordinated Debt Securities.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company. As of December 31, 1996, Senior Indebtedness
of the Company aggregated approximately $85.5 million.
INTEREST
Each Junior Subordinated Debenture shall bear interest at the rate of
% per annum from the original date of issuance, payable quarterly in
arrears on March 31, June 30, September 30 and December 31 of each year (each an
"Interest Payment Date"), commencing June 30, 1997, to the person in whose name
such Junior Subordinated Debenture is registered, subject to certain exceptions,
at the close of business on the Business Day next preceding such Interest
Payment Date. In the event the Junior Subordinated Debentures shall not continue
to remain in book-entry only form, the Company shall have the right to select
record dates, which shall be more than one Business Day but less than 60
Business Days prior to the Interest Payment Date.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed,
will be computed on the basis of the actual number of days elapsed per 30-day
month. In the event that any date on which interest is payable on the Junior
Subordinated Debentures is not a Business Day, then payment of the interest
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, then
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.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed a number of changes to federal income tax
laws. One proposal would treat as equity, for U.S. federal income tax purposes,
debt instruments with a maximum term of more than 15 years that are not shown as
indebtedness on the issuer's consolidated balance sheet. Another proposal would
preclude the issuer from deducting interest on debt instruments payable in stock
of the issuer. A debt instrument would be treated as payable in stock of the
issuer if it were part of an arrangement designed to result in payment of debt
with such stock, such as certain issuances of a forward contract in connection
with the issuance of debt. Since generally for debt instruments the effective
date of the proposals is the date of first Congressional committee action, the
proposals as currently drafted would not apply to the FELINE PRIDES. There can
be no assurance, however, that legislation enacted after the date hereof will
not adversely affect the tax treatment of the Junior Subordinated Debentures or
cause a Tax Event, resulting in the distribution of the Junior Subordinated
Debentures to holders of Trust Preferred Securities. See "Description of the
Trust Preferred Securities -- Special Event Distribution."
REDEMPTION
The Company will not have the ability to redeem the Junior Subordinated
Debentures prior to the stated maturity date.
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PUT OPTION
In accordance with the terms of the Junior Subordinated Debentures, holders
have the right to require the Company to repurchase, on the Purchase Contract
Settlement Date and for a period of ninety days thereafter, either in whole or
in part, the Junior Subordinated Debentures at an amount per Junior Subordinated
Debenture equal to $50, plus accumulated and unpaid distributions, if any (the
"Put Option"). See "Description of Purchase Contracts -- General." Upon the
repurchase of the Junior Subordinated Debentures by the Company pursuant to a
Put Option, (i) the proceeds from such repurchase shall simultaneously be
applied to redeem Trust Preferred Securities of such holder having an aggregate
Stated Amount equal to the aggregate principal amount of the Junior Subordinated
Debentures so repurchased and will be applied to satisfy in full such holder's
obligation to purchase Common Stock under the Purchase Contract and (ii) any
accumulated and unpaid distributions with respect to the Junior Subordinated
Debentures so repurchased will be paid to such holder in cash. See "Description
of Purchase Contracts -- General."
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company shall have the right at any time, and from time to time, during
the term of the Junior Subordinated Debentures, to defer payments of interest by
extending the interest payment period for a period not extending, in the
aggregate, beyond the maturity date of the Junior Subordinated Debentures. At
the end of any Extension Period, the Company shall pay all interest then accrued
and unpaid (including any Additional Interest, as herein defined) together with
interest thereon compounded quarterly at the rate specified for the Junior
Subordinated Debentures to the extent permitted by applicable law ("Compound
Interest"); provided, that during any such Extension Period, (a) the Company
shall not declare or pay dividends or make any distribution with respect to, or
redeem, purchase, acquire or make a liquidation payment with respect to any of
its capital stock (other than (i) purchases or acquisitions of shares of the
Company Common Stock in connection with the satisfaction by the Company of its
obligations under any employee benefit plans or the satisfaction by the Company
of its obligations pursuant to any contract or security outstanding on the date
of such event requiring the Company to purchase shares of AHL Common Stock, (ii)
as a result of a reclassification of the Company capital stock or the exchange
or conversion of one class or series of the Company's capital stock for another
class or series of the Company capital stock or (iii) the purchase of fractional
interests in shares of the Company's capital stock pursuant to the conversion or
exchange provisions of such Company capital stock (or the security being
converted or exchanged) or make any guarantee payments with respect to the
foregoing), (b) the Company shall not make any payment of interest, principal or
premium, if any, on or repay, repurchase or redeem any debt securities
(including guarantees) issued by the Company that rank pari passu with or junior
to the Junior Subordinated Debentures, and (c) the Company shall not make any
guarantee payments with respect to the foregoing (other than pursuant to the
Trust Preferred Securities Guarantee). Prior to the termination of any such
Extension Period, the Company may further defer payments of interest by
extending the interest payment period; provided, however, that such Extension
Period, including all such previous and further extensions, may not extend
beyond the maturity date of the Junior Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due, the
Company may commence a new Extension Period, subject to the terms set forth in
this section. No interest shall be due and payable during an Extension Period,
except at the end thereof. The Company has no present intention of exercising
its right to defer payments of interest by extending the interest payment period
on the Junior Subordinated Debentures. If the Institutional Trustee shall be the
sole holder of the Junior Subordinated Debentures, the Company shall give the
Regular Trustees and the Institutional Trustee notice of its selection of such
Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Trust Preferred Securities are payable or (ii) the date the
Regular Trustees are required to give notice, if applicable, to the New York
Stock Exchange (or other applicable self-regulatory organization) or to holders
of the Trust Preferred Securities of the record date or the date such
distribution is payable. The Regular Trustees shall give notice of the Company's
selection of such Extension Period to the holders of the Trust Preferred
Securities. If the Institutional Trustee shall not be the sole holder of the
Junior Subordinated Debentures, the Company shall give the holders of the Junior
Subordinated Debentures notice of its selection of such Extension Period ten
Business Days prior to the
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earlier of (i) the Interest Payment Date or (ii) the date upon which the Company
is required to give notice, if applicable, to the New York Stock Exchange (or
other applicable self-regulatory organization) or to holders of the Junior
Subordinated Debentures of the record or payment date of such related interest
payment.
ADDITIONAL INTEREST
If at any time the Trust shall be required to pay any taxes, duties,
assessments or governmental charges of whatever nature (other than withholding
taxes) imposed by the United States, or any other taxing authority, then, in any
such case, the Company will pay as additional interest ("Additional Interest")
on the Junior Subordinated Debentures such additional amounts as shall be
required so that the net amounts received and retained by the Trust after paying
any such taxes, duties, assessments or other governmental charges will be not
less than the amounts the Trust would have received had no such taxes, duties,
assessments or other governmental charges been imposed.
INDENTURE EVENTS OF DEFAULT
If any Indenture Event of Default shall occur and be continuing, the
Institutional Trustee, as the holder of the Junior Subordinated Debentures, will
have the right to declare the principal of and the interest on the Junior
Subordinated Debentures (including any Compound Interest and Additional
Interest, if any) and any other amounts payable under the Indenture to be
forthwith due and payable and to enforce its other rights as a creditor with
respect to the Junior Subordinated Debentures.
The following are Events of Default under the Indenture with respect to the
Junior Subordinated Debentures: (1) failure to pay interest on the Junior
Subordinated Debentures when due, continued for 30 days; however, if the Company
is permitted by the terms of the Junior Subordinated Debentures to defer the
payment in question, the date on which such payment is due and payable shall be
the date on which the Company is required to make payment following such
deferral, if such deferral has been elected pursuant to the terms of the Junior
Subordinated Debentures; (2) failure to pay the principal of (or premium, if
any, on) the Junior Subordinated Debentures when due and payable at Maturity,
upon redemption or otherwise; however, if the Company is permitted by the terms
of the Junior Subordinated Debentures to defer the payment in question, the date
on which such payment is due and payable shall be the date on which the Company
is required to make payment following such deferral, if such deferral has been
elected pursuant to the terms of the Junior Subordinated Debentures; (3) failure
to observe or perform any other covenant, warranty or agreement contained in the
Junior Subordinated Debentures or in the Indenture, continued for a period of 60
days after notice has been given to the Company by the Trustee or Holders of at
least 25% in aggregate principal amount of the Outstanding Junior Subordinated
Debentures; (4) failure to pay at final maturity, or acceleration of,
Indebtedness of the Company, having an aggregate principal amount of more than
1% of the Company's consolidated total assets (determined as of its most recent
fiscal year-end), unless cured within 10 days after notice has been given to the
Company by the Trustee or Holders of at least 10% in aggregate principal amount
of the Outstanding Junior Subordinated Debentures; and (5) certain events of
bankruptcy, insolvency or reorganization relating to the Company.
The Indenture provides that the Trustee shall, within 30 days after the
occurrence of any Default or Event of Default with respect to the Junior
Subordinated Debentures, give the Holders of the Junior Subordinated Debentures
notice of all uncured Defaults or Events of Default known to it (the term
"Default" includes any event which after notice or passage of time or both would
be an Event of Default); provided, however, that, except in the case of an Event
of Default or a Default in a payment on the Junior Subordinated Debentures, the
Trustee shall be protected in withholding such notice of and so long as the
board of directors, the executive committee or directors or responsible officers
of the Trustee in good faith determine that the withholding of such notice is in
the interest of the Holders of the Junior Subordinated Debentures.
If an Event of Default with respect to the Junior Subordinated Debentures
(other than due to events of bankruptcy, insolvency or reorganization) occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Outstanding Junior Subordinated Debentures, by notice in
writing to the Company (and to the Trustee if given by the Holders of at least
25% in aggregate principal amount of the
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Junior Subordinated Debentures), may declare the unpaid principal of and accrued
interest to the date of acceleration on all the Outstanding Junior Subordinated
Debentures to be due and payable immediately and, upon any such declaration, the
Junior Subordinated Debentures shall become immediately due and payable.
In addition, in the case of the Junior Subordinated Debentures held by the
Trust, if an Event of Default has occurred and is continuing and such event is
attributable to the failure of the Company to pay interest or principal, then a
holder of Preferred Trust Securities may directly institute a proceeding against
the Company for payment.
If an Event of Default occurs due to bankruptcy, insolvency or
reorganization, all unpaid principal of and accrued interest on the Outstanding
Junior Subordinated Debentures will become immediately due and payable without
any declaration or other act on the part of the Trustee or any Holder of the
Junior Subordinated Debentures.
Any such declaration with respect to the Junior Subordinated Debentures may
be annulled and past Events of Default and Defaults (except, unless theretofore
cured, an Event of Default or a Default in payment of principal of or interest
on the Junior Subordinated Debentures) may be waived by the Holders of a
majority of the principal amount of the Outstanding Junior Subordinated
Debentures, upon the conditions provided in the Indenture.
The Indenture provides that the Company shall periodically file statements
with the Trustee regarding compliance by the Company with certain of the
respective covenants thereof and shall specify any Event of Default or Defaults
with respect to the Junior Subordinated Debentures, in performing such
covenants, of which the signers may have knowledge.
An Indenture Event of Default also constitutes a Declaration Event of
Default. The holders of Trust Preferred Securities in certain circumstances have
the right to direct the Institutional Trustee to exercise its rights as the
holder of the Junior Subordinated Debentures. See "Description of the Trust
Preferred Securities -- Declaration Events of Default" and "-- Voting Rights."
Notwithstanding the foregoing, if an Event of Default has occurred and is
continuing and such event is attributable to the failure of the Company to pay
interest or principal on the Junior Subordinated Debentures on the date such
interest or principal is otherwise payable, the Company acknowledges that a
holder of Trust Preferred Securities may directly institute a proceeding for
enforcement of payment to such holder directly of the principal of and interest
on the Junior Subordinated Debentures having a principal amount equal to the
aggregate liquidation amount of the Trust Preferred Securities of such holder on
or after the respective due date specified in the Junior Subordinated
Debentures. Notwithstanding any payments made to such holder of Trust Preferred
Securities by the Company in connection with a Direct Action, the Company shall
remain obligated to pay the principal of or interest on the Junior Subordinated
Debt Securities held by the Trust or the Institutional Trustee of the Trust, and
the Company shall be subrogated to the rights of the holder of such Trust
Preferred Securities with respect to payments on the Trust Preferred Securities
to the extent of any payments made by the Company to such holder in any Direct
Action. The holders of Trust Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Junior Subordinated
Debentures.
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Trust Preferred Securities in connection with
the involuntary or voluntary dissolution, winding-up or liquidation of the Trust
as a result of the occurrence of a Special Event, the Junior Subordinated
Debentures will be issued in the form of one or more global certificates (each a
"Global Security") registered in the name of the Depositary or its nominee.
Except under the limited circumstances described below, Junior Subordinated
Debentures represented by the Global Security will not be exchangeable for, and
will not otherwise be issuable as, Junior Subordinated Debentures in definitive
form. The Global Securities described above may not be transferred except by the
Depositary to a nominee of the Depositary or by a nominee of the Depositary to
the Depositary or another nominee of the Depositary or to a successor depositary
or its nominee.
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The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Junior
Subordinated Debentures in definitive form and will not be considered the
holders (as defined in the Indenture) thereof for any purpose under the
Indenture, and no Global Security representing Junior Subordinated Debentures
shall be exchangeable, except for another Global Security of like denomination
and tenor to be registered in the name of the Depositary or its nominee or to a
successor Depositary or its nominee. Accordingly, each Beneficial Owner must
rely on the procedures of the Depositary or if such person is not a Participant,
on the procedures of the Participant through which such person owns its interest
to exercise any rights of a holder under the Indenture.
THE DEPOSITARY
If Junior Subordinated Debentures are distributed to holders of Trust
Preferred Securities in liquidation of such holders' interests in the Trust, the
Depositary will act as securities depositary for the Junior Subordinated
Debentures. For a description of the Depositary and the specific terms of the
depositary arrangements, see "Description of the Trust Preferred
Securities -- Book-Entry Only Issuance The Depository Trust Company." As of the
date of this Prospectus Supplement, the description therein of the Depositary's
book-entry system and the Depositary's practices as they relate to purchases,
transfers, notices and payments with respect to the Trust Preferred Securities
apply in all material respects to any debt obligations represented by one or
more Global Securities held by the Depositary. The Company may appoint a
successor to the Depositary or any successor depositary in the event the
Depositary or such successor depositary is unable or unwilling to continue as a
depositary for the Global Securities.
None of the Company, the Trust, the Institutional Trustee, any paying agent
and any other agent of the Company or the Debt Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for such Junior Subordinated Debentures or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests.
A Global Security shall be exchangeable for Junior Subordinated Debentures
registered in the names of persons other than the Depositary or its nominee only
if (i) the Depositary notifies the Company that it is unwilling or unable to
continue as a depositary for such Global Security and no successor depositary
shall have been appointed, (ii) the Depositary at any time, ceases to be a
clearing agency registered under the Exchange Act at which time the depositary
is required to be so registered to act as such depositary and no successor
depositary shall have been appointed, (iii) the Company, in its sole discretion,
determines that such Global Security shall be so exchangeable or (iv) there
shall have occurred an Event of Default with respect to such Junior Subordinated
Debentures. Any Global Security that is exchangeable pursuant to the preceding
sentence shall be exchangeable for Junior Subordinated Debentures registered in
such names as the Depositary shall direct. It is expected that such instructions
will be based upon directions received by the Depositary from its Participants
with respect to ownership of beneficial interests in such Global Security.
GOVERNING LAW
The Indenture and the Junior Subordinated Debentures will be governed by,
and construed in accordance with, the internal laws of the State of New York.
MISCELLANEOUS
The Company will pay all fees and expenses related to (i) the offering of
the Trust Securities and the Junior Subordinated Debentures, (ii) the
organization, maintenance and dissolution of the Trust, (iii) the retention of
the Company Trustees and (iv) the enforcement by the Institutional Trustee of
the rights of the holders of the Trust Preferred Securities. The payment of such
fees and expenses will be fully and unconditionally guaranteed by the Company.
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EFFECT OF OBLIGATIONS UNDER THE
JUNIOR SUBORDINATED DEBENTURES AND THE GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to issue
the Trust Securities evidencing undivided beneficial interests in the assets of
the Trust, and to invest the proceeds from such issuance and sale in the Junior
Subordinated Debentures and engage in only those other activities necessary or
incidental thereto.
As long as payments of interest and other payments are made when due on the
Junior Subordinated Debentures, such payments will be sufficient to cover
distributions and payments due on the Trust Securities because of the following
factors: (i) the aggregate principal amount of Junior Subordinated Debentures
will be equal to the sum of the aggregate stated liquidation amount of the Trust
Securities; (ii) the interest rate and the interest and other payment dates on
the Junior Subordinated Debentures will match the distribution rate and
distribution and other payment dates for the Trust Preferred Securities; (iii)
the Company shall pay, and the Trust shall not be obligated to pay, directly or
indirectly, all costs, expenses, debts, and obligations of the Trust (other than
with respect to the Trust Securities); and (iv) the Declaration further provides
that the Company trustees shall not take or cause or permit the Trust to, among
other things, engage in any activity that is not consistent with the purposes of
the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Trust Preferred Securities (to the extent funds
therefor are available) are guaranteed by the Company as and to the extent set
forth under "Description of the Guarantee." If the Company does not make
interest payments on the Junior Subordinated Debentures purchased by the Trust,
it is expected that the Trust will not have sufficient funds to pay
distributions on the Trust Preferred Securities. The Guarantee does not apply to
any payment of distributions unless and until the Trust has sufficient funds for
the payment of such distributions. The Guarantee covers the payment of
distributions and other payments on the Trust Preferred Securities only if and
to the extent that the Company has made a payment of interest or principal on
the Junior Subordinated Debentures held by the Trust as its sole asset.
If the Company fails to make interest or other payments on the Junior
Subordinated Debentures when due (taking account of any Extension Period), the
Declaration provides a mechanism whereby the holders of the Trust Preferred
Securities, using the procedures described in "Description of the Trust
Preferred Securities -- Book-Entry Only Issuance -- The Depository Trust
Company" and "-- Voting Rights," may direct the Institutional Trustee to enforce
its rights under the Junior Subordinated Debentures. If the Institutional
Trustee fails to enforce its rights under the Junior Subordinated Debentures, a
holder of Trust Preferred Securities may institute a legal proceeding against
the Company to enforce the Institutional Trustee's rights under the Junior
Subordinated Debentures without first instituting any legal proceeding against
the Institutional Trustee or any other person or entity. Notwithstanding the
foregoing, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of the Company to pay interest or
principal on the Junior Subordinated Debentures on the date such interest or
principal is otherwise payable, then a holder of Trust Preferred Securities may
directly institute a proceeding against the Company for payment. The Company,
under the Guarantee, acknowledges that the Guarantee Trustee shall enforce the
Guarantee on behalf of the holders of the Trust Preferred Securities. If the
Company fails to make payments under the Guarantee, the Guarantee provides a
mechanism whereby the holders of the Trust Preferred Securities may direct the
Guarantee Trustee to enforce its rights thereunder. Notwithstanding the
foregoing, if the Company has failed to make a payment under the Guarantee, any
holder of Trust Preferred Securities may institute a legal proceeding directly
against the Company to enforce its rights under the Guarantee without first
instituting a legal proceeding against the Trust, the Guarantee Trustee, or any
other person or entity.
The Guarantee, when taken together with the Company's obligations under the
Junior Subordinated Debentures and the Indenture and its obligations under the
Declaration, including its obligations to pay costs, expenses, debts and
liabilities of the Trust (other than with respect to the Trust Securities),
provide a full and unconditional guarantee of amounts due on the Trust Preferred
Securities. See "Description of Guarantee."
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CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of certain of the material United States
("U.S.") federal income tax consequences of the purchase, ownership and
disposition of Income PRIDES, Trust Preferred Securities and Growth PRIDES. The
summary represents the opinion of LeBoeuf, Lamb, Green & MacRae, L.L.P.
("Special Tax Counsel"), special tax counsel to the Company, insofar as it
relates to matters of law and legal conclusions. Unless otherwise stated, the
summary deals only with holders who purchase Income PRIDES upon their original
issuance for an amount equal to the Stated Amount of the Trust Preferred
Securities and who hold the Income PRIDES, or upon the substitution of Treasury
Securities, the Growth PRIDES and Trust Preferred Securities, as capital assets.
The summary does not address the federal income tax consequences of the
purchase, ownership or disposition of Treasury Securities. The summary deals
only with holders who are citizens or residents of the U.S., corporations,
partnerships or other entities organized in or under the laws of the U.S. or any
political subdivision thereof, or estates or trusts defined in Section
7701(a)(30) of the Internal Revenue Code of 1986, as amended (the "Code"). The
summary does not address the tax considerations applicable to investors that may
be subject to special U.S. federal income tax treatment, such as dealers in
securities, persons holding the Income PRIDES, Growth PRIDES or Trust Preferred
Securities as part of a "straddle" or a "conversion transaction" for U.S.
federal income tax purposes or as part of a synthetic security or other
integrated investment, or persons who have a functional currency other than the
U.S. dollar, and does not address the tax consequences under state, local or
foreign law. The summary is based upon the Code, Treasury regulations thereunder
and administrative and judicial interpretations thereof as of the date hereof,
all of which are subject to change, possibly on a retroactive basis.
No statutory, judicial or administrative authority directly addresses the
characterization of the FELINE PRIDES or instruments similar to the FELINE
PRIDES for U.S. federal income tax purposes. As a result no assurance can be
given that the IRS will agree with the tax consequences described herein.
ACCORDINGLY, A PROSPECTIVE INVESTOR (INCLUDING A TAX-EXEMPT INVESTOR) IN THE
FELINE PRIDES SHOULD CONSULT ITS TAX ADVISOR IN DETERMINING THE TAX CONSEQUENCES
OF AN INVESTMENT IN THE FELINE PRIDES, INCLUDING THE APPLICATION OF STATE,
LOCAL, FOREIGN OR OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN FEDERAL
OR OTHER TAX LAWS.
CLASSIFICATION OF THE TRUST
In connection with the issuance of the Trust Preferred Securities, Special
Tax Counsel will render an opinion generally to the effect that, under current
law and assuming full compliance with the terms of the Trust Agreement, the
Indenture, and certain other documents, and based upon certain facts and
assumptions contained in such opinion, the Trust will be classified, for U.S.
federal income tax purposes, as a grantor trust and not as an association
taxable as a corporation. Accordingly, for U.S. federal income tax purposes,
each holder of Trust Preferred Securities generally will be treated as the owner
of an undivided beneficial interest in the Junior Subordinated Debentures and as
further discussed below, will be required to include in ordinary income such
holder's allocable share of interest or OID paid or accrued on the Junior
Subordinated Debentures.
CLASSIFICATION OF THE JUNIOR SUBORDINATED DEBENTURES
In connection with the issuance of the Junior Subordinated Debentures,
Special Tax Counsel will render an opinion generally to the effect that, under
current law and assuming full compliance with the terms of the Indenture and
certain other documents, and based upon certain facts and assumptions contained
in such opinion, the Junior Subordinated Debentures to be held by the Trust will
be classified, for U.S. federal income tax purposes, as indebtedness of the
Company.
PROPOSED TAX LEGISLATION
On February 6, 1997, as part of the fiscal budget submitted to Congress,
the Clinton Administration proposed a number of changes to federal income tax
laws. One proposal would treat as equity, for U.S. federal
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income tax purposes, debt instruments with a maximum term of more than 15 years
that are not shown as indebtedness on the issuer's consolidated balance sheet.
Another proposal would preclude the issuer from deducting interest on debt
instruments payable in stock of the issuer. A debt instrument would be treated
as payable in stock of the issuer if it were part of an arrangement designed to
result in payment of debt with such stock such as certain issuances of a forward
contract in connection with the issuance of debt. Since generally for debt
instruments the effective date of the proposals is the date of first
Congressional committee action, the proposals as currently drafted would not
apply to the FELINE PRIDES. There can be no assurance, however, that legislation
enacted after the date hereof will not adversely affect the tax treatment of the
Junior Subordinated Debentures or cause a Tax Event, resulting in the
distribution of the Junior Subordinated Debentures to holders of Trust Preferred
Securities. See "Description of the Trust Preferred Securities -- Special Event
Distribution."
INITIAL TAX BASIS IN TRUST PREFERRED SECURITY AND PURCHASE CONTRACT
The purchase price of each Income PRIDES will be allocated between the
Trust Preferred Security and the Purchase Contract included in an Income PRIDES
in proportion to their respective fair market values at the time of purchase.
Such allocation will establish the Holder's initial tax basis in the Trust
Preferred Security and Purchase Contract.
The Company intends to take the position that, at the time of issuance of
the Income PRIDES, the fair market value of each Trust Preferred Security equals
its Stated Amount and the fair market value of each Purchase Contract equals
zero. As a result, a holder should allocate the entire purchase price for an
Income PRIDES (i.e., the Stated Amount of a Trust Preferred Security) to the
Trust Preferred Security and should not allocate any portion of the purchase
price to the Purchase Contract. The Company's position will be binding upon each
holder unless the holder explicitly discloses a contrary position on a statement
attached to the holder's timely filed U.S. federal income tax return for the
taxable year in which the Income PRIDES is acquired.
DISTRIBUTIONS ON TRUST PREFERRED SECURITIES
Under applicable Treasury regulations, a debt instrument will be issued
with OID if there is more than a remote contingency that periodic stated
interest payments due on the instrument will not be timely paid. Because the
exercise by the Company of its option to defer the payment of stated interest on
the Junior Subordinated Debentures would, among other things, prevent the
Company from declaring dividends on any of its capital stock, the Company
believes that the likelihood of its exercising the option is remote within the
meaning of such regulations. As a result, the Company intends to take the
position, based upon the advice of Special Tax Counsel, that the Junior
Subordinated Debentures will not be issued with OID. Accordingly, based upon
this position, a holder of Trust Preferred Securities will include stated
interest payments on the Junior Subordinated Debentures in ordinary income at
the time that such payments are paid or accrued, in accordance with such
holder's regular method of accounting. Because such regulations have not yet
been addressed in any published rulings or other published interpretations
issued by the IRS, it is possible that the IRS could take a position contrary to
the position taken by the Company.
If the Company were to exercise its option to defer the payment of stated
interest on the Junior Subordinated Debentures, the Junior Subordinated
Debentures would be treated, solely for purposes of the OID rules, as being
re-issued at such time with OID. Under these rules, a holder of Trust Preferred
Securities would be required to include OID in ordinary income, on a current
basis, over the period that the Trust Preferred Securities are held even though
the Company would not make actual cash payments during the extended interest
payment period. The amount of OID includible in the taxable income of a holder
of Trust Preferred Securities would be determined on the basis of a constant
yield method over the remaining term of the instrument, and the actual payment
of stated interest on the Junior Subordinated Debentures would not be separately
reported as taxable income. The amount of OID that would accrue, in the
aggregate, during an extended interest payment period would approximately equal
the amount of the cash payment due at the end of such period. Any OID included
in income would increase such holder's tax basis in the Trust Preferred Security
and actual payments of stated interest would reduce such tax basis.
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Because income on the Trust Preferred Securities will constitute interest
for U.S. federal income tax purposes, corporate holders of Trust Preferred
Securities will not be entitled to a dividends-received deduction in respect of
such income.
CONTRACT ADJUSTMENT PAYMENTS
There is no authority for the treatment of the Contract Adjustment Payments
under current law. For federal income tax information reporting purposes, the
Company intends to report the Contract Adjustment Payments and the Deferred
Contract Adjustment Payments (if any) to holders in the taxable year in which
they are paid. The Company intends to take the position that the Contract
Adjustment Payments constitute taxable income to holders when received or
accrued, in accordance with the holder's regular method of accounting. Holders
should consult their respective tax advisors concerning the treatment of the
Contract Adjustment Payments and Deferred Contract Adjustment Payments,
including the possibility that the receipt of a Contract Adjustment Payment may
be treated as a loan, purchase price adjustment, rebate or option premium rather
than being includible in income on a current basis. The Company does not intend
to deduct the Contract Adjustment Payments or Deferred Contract Adjustment
Payments because it views them as a cost of issuing the Common Stock. Contract
Adjustment Payments and Deferred Contract Adjustment Payments received by a
regulated investment company should be treated as income derived with respect to
such company's business of investing in stocks and securities.
RECEIPT OF JUNIOR SUBORDINATED DEBENTURES UPON LIQUIDATION OF THE TRUST
If the Company exercises its right to liquidate the Trust and cause the
Junior Subordinated Debentures to be distributed, on a pro rata basis, to
holders of Trust Preferred Securities (or to the Collateral Agent on behalf of
such holders), such distribution would not be taxable to such holders. In such
event, each holder of Trust Preferred Securities would have a tax basis in the
Junior Subordinated Debentures received in the liquidation equal to the tax
basis in the holder's Trust Preferred Securities surrendered therefor, and the
holding period of such Junior Subordinated Debentures would include the period
during which the holder had held the Trust Preferred Securities. If, however,
the Trust is classified, for U.S. federal income tax purposes, as an association
taxable as a corporation at the time of such liquidation, the distribution of
Junior Subordinated Debentures would constitute a taxable event to holders of
Trust Preferred Securities.
POSTING OF TREASURY SECURITIES TO CREATE GROWTH PRIDES
A holder of an Income PRIDES that chooses to substitute a Treasury Security
for Trust Preferred Securities held by the Collateral Agent generally will not
recognize taxable gain or loss upon release of the Trust Preferred Securities to
the holder, and the holder's tax basis in the Trust Preferred Securities and
Purchase Contract will remain unchanged. In general the substitution of the
Treasury Security should not constitute a taxable event (except with respect to
a holder who, because of the holder's particular tax status or the circumstances
under which the holder holds the Treasury Security, may be subject to tax, such
as a person who holds the Treasury Security as part of a "straddle" or a
"conversion transaction" for U.S. federal income tax purposes). Such holder will
continue to include in income any OID or market discount or amortize any bond
premium otherwise includible or deductible, respectively, by such holder with
respect to such Treasury Security. Holders should consult their respective tax
advisors concerning the tax consequences of purchasing, owning and disposing of
Treasury Securities.
POSTING OF TRUST PREFERRED SECURITIES TO RECREATE INCOME PRIDES
A holder of a Growth PRIDES that delivers Trust Preferred Securities to the
Collateral Agent generally will not recognize taxable gain or loss upon release
of the Treasury Security to the holder.
SALE OR DISPOSITION
A holder generally will recognize gain or loss upon the sale or other
disposition of an Income PRIDES, a Growth PRIDES or a Trust Preferred Security
(including a redemption of a Trust Preferred Security by the
83
<PAGE> 85
Trust). In the case of an Income PRIDES or a Growth PRIDES, such gain or loss
will be separately calculated with respect to the Trust Preferred Security or
Treasury Security, as the case may be, and the related Purchase Contract by
allocating the sum of any cash and the fair market value of any property
received upon the sale or other disposition between the two components in
proportion to their respective fair market values. The amount of gain or loss
with respect to each component generally should equal the difference between the
consideration so allocated to each component (reduced by any amount attributable
to accrued interest or Contract Adjustment Payments, which will be taxable as
described above) and the holder's tax basis in the respective components. In the
case of a Trust Preferred Security, the amount of gain or loss will equal the
difference between the sum of any cash and the fair market value of any property
received upon the sale or other disposition of such Trust Preferred Security
(reduced by any amount attributable to accrued interest or Contract Adjustment
Payments, which will be taxable as described above) and the holder's tax basis
in the Trust Preferred Security. Any such gain or loss generally will be capital
gain or loss and will be long-term capital gain or loss (determined separately
for each component of an Income PRIDES or a Growth PRIDES and for a Trust
Preferred Security) if the holder held the respective component of the Income
PRIDES or Growth PRIDES or the Trust Preferred Security, as the case may be, for
more than one year at the time of such sale or disposition.
PURCHASE OF COMMON STOCK UNDER PURCHASE CONTRACT
A holder of an Income PRIDES that directs the Trust to put its Junior
Subordinated Debenture to the Company on the Purchase Contract Settlement Date
will not recognize taxable gain or loss upon the exercise of such Put Option
because the holder's tax basis in its Trust Preferred Security should equal the
amount received (the Stated Amount) and be automatically applied to the holder's
purchase of the Common Stock. A holder of an Income PRIDES will not recognize
taxable gain or loss upon the tender of cash to settle the Purchase Contract and
the release of the Trust Preferred Security to such holder. A holder of a Growth
PRIDES will not recognize taxable gain or loss upon the tender of cash to settle
the Purchase Contract early and the release of the Treasury Securities to such
holder. A holder of a Growth PRIDES will recognize taxable gain or loss upon the
automatic application of the Treasury Security to settle the Purchase Contract
on the Purchase Contract Settlement Date equal to the difference, if any,
between the fair market value of the Treasury Security automatically applied to
purchase the Common Stock and the holder's tax basis in such Treasury Security.
A holder's tax basis in the Common Stock will equal the purchase price for
such Common Stock plus the holder's tax basis, if any, in the Purchase Contract.
The holding period for the Common Stock will begin on the day after the purchase
of such Common Stock.
OWNERSHIP OF COMMON STOCK ACQUIRED UNDER PURCHASE CONTRACT
Assuming that the Company has current or accumulated earnings and profits,
for U.S. federal income tax purposes, at least equal to the amount of any
dividend, a holder of Common Stock will include such a dividend in income when
paid, and the dividend will be eligible for the dividends-received deduction if
received by an otherwise qualifying corporate holder that meets the holding
period and other requirements for such deduction.
Upon the sale or other disposition of the Common Stock, a holder will
recognize gain or loss equal to the difference between the amount of cash and
fair market value of any property received and the holder's tax basis in such
Common Stock. Any such gain or loss generally will be capital gain or loss and
will be long-term capital gain or loss if the holder held the Common Stock for
more than one year at the time of such sale or disposition.
ADJUSTMENT OF SETTLEMENT RATE
Holders of Income PRIDES or Growth PRIDES might be treated as receiving a
constructive distribution from the Company if (i) the Settlement Rate is
adjusted and, as a result of such adjustment, the proportionate interest of such
holders in the assets or earnings and profits of the Company is increased, and
(ii) the
84
<PAGE> 86
adjustment is not made pursuant to a bona fide, reasonable antidilution formula.
An adjustment in the Settlement Rate would not be considered made pursuant to
such a formula if the adjustment were made to compensate for certain taxable
distributions with respect to the Common Stock. Thus, although not currently
anticipated, under certain circumstances, an increase in the Settlement Rate may
be taxable to holders of Income PRIDES and Growth PRIDES as a dividend to the
extent of the current accumulated earnings and profits of the Company. Each
Holder would be required to include its allocable share of such constructive
dividend in gross income but would not receive any cash related thereto.
ERISA CONSIDERATIONS
Generally, employee benefit plans that are subject to ERISA, plans and
individual retirement accounts that are subject to Section 4975 of the IRC and
entities whose assets are considered assets of such plans ("Plans"), may
purchase the Securities subject to the investing fiduciary's determination that
the investment in the Securities satisfies ERISA's fiduciary standards and other
requirements applicable to investments by Plans. Accordingly, among other
factors, the fiduciary should consider whether the investment would satisfy the
prudence and diversification requirements of ERISA and would be consistent with
the documents and instruments governing the Plans.
Under regulations issued by the U.S. Department of Labor (the "DOL"), a
Plan that owns the Securities may be deemed to own a portion of the assets held
in the Trust, including a portion of the Junior Subordinated Debentures held in
the Trust. In addition, the Company and its affiliates may be "parties in
interest" (within the meaning of ERISA) or "disqualified persons" (within the
meaning of Section 4975 of the IRC) with respect to certain Plans (generally,
Plans maintained or sponsored by, or contributed to by, any such persons or
Plans with respect to which any such persons are fiduciaries or service
providers). The acquisition and ownership of the Securities and a deemed
acquisition and ownership of an interest in the Junior Subordinated Debentures
by a Plan with respect to which the Company or any of its affiliates is
considered a party in interest or a disqualified person may constitute or result
in a prohibited transaction under ERISA or Section 4975 of the IRC, unless such
securities are acquired and are held pursuant to and in accordance with an
applicable exemption. In this regard, the DOL has issued PTCEs that may apply to
the acquisition and holding of the Securities. These class exemptions are PTCE
84-14 (respecting transactions determined by independent qualified professional
asset managers), PTCE 90-1 (respecting insurance company separate accounts),
PTCE 91-38 (respecting bank collective trust funds), PTCE 95-60 (respecting
insurance company general accounts) and PTCE 96-23 (respecting transactions
determined by in-house asset managers).
Any fiduciary proposing to acquire the Securities on behalf of a Plan
should consult with ERISA counsel for the Plan and should not acquire the
Securities unless it is determined that such acquisition and holding does not
and will not constitute a prohibited transaction and will satisfy the applicable
fiduciary requirements imposed under ERISA. Any such acquisition by a Plan shall
be deemed a representation by the Plan and the fiduciary effecting the
investment on behalf of the Plan that such acquisition and holding satisfies the
applicable fiduciary requirements of ERISA, and is entitled to exemptive relief
from the prohibited transaction provisions of ERISA and the IRC in accordance
with one or more of the foregoing PTCEs or another available prohibited
transaction exemption.
85
<PAGE> 87
UNDERWRITING
Subject to the terms and conditions set forth in an Underwriting Agreement
(the "Underwriting Agreement") among the Company, the Trust and Merrill Lynch,
Pierce, Fenner & Smith Incorporated, Goldman, Sachs & Co. and The
Robinson-Humphrey Company, Inc. (the "Underwriters"), the Company and the Trust
have agreed to sell to the Underwriters, and each of the Underwriters severally
has agreed to purchase from the Company and the Trust, the number of Income
PRIDES set forth opposite each Underwriter's name. In the Underwriting
Agreement, the several Underwriters severally have agreed, subject to the terms
and conditions set forth therein, to purchase all of the Income PRIDES offered
hereby if any of the Income PRIDES are purchased. In the event of default by an
Underwriter, the Underwriting Agreement provides that, in certain circumstances,
the purchase commitments of the nondefaulting Underwriters may be increased or
the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS INCOME PRIDES
------------ -------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Goldman, Sachs & Co. .......................................
The Robinson-Humphrey Company, Inc. ........................
---------
Total.......................................... 1,500,000
=========
</TABLE>
The Underwriters have advised the Company and the Trust that they propose
initially to offer the Income PRIDES to the public at the public offering price
set forth on the cover page of this Prospectus and to certain dealers at such
price less a concession not in excess of $ per Income PRIDES. The
Underwriters may allow, and such dealers may reallow, a discount not in excess
of $ per Income PRIDES on sales to certain other dealers. After the
initial public offering, the public offering price, concession and discount may
be changed.
Until the distribution of the Securities is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
any selling group members to bid for and purchase the Securities or shares of
Common Stock. As an exception to these rules, the Underwriters are permitted to
engage in certain transactions that stabilize the price of the Securities or the
Common Stock. Such transactions consist of bids or purchases for the purpose of
pegging, fixing or maintaining the price of the Securities or the Common Stock.
If the Underwriters create a short position in the Securities in connection
with the Offering, i.e., if they sell more Securities than are set forth on the
cover page of this Prospectus, the Underwriters may reduce that short position
by purchasing Securities in the open market. The Underwriters may also elect to
reduce any short position by exercising all or part of the over-allotment option
described below.
The Underwriters may also impose a penalty bid on certain Underwriters and
selling group members. This means that if the Underwriters purchase Securities
in the open market to reduce the Underwriters' short position or to stabilize
the price of the Securities, they may reclaim the amount of the selling
concession from any Underwriter and any selling group members who sold those
Securities as part of the Offering.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of a security to the extent that it were
to discourage resales of the security.
Neither the Company, the Trust nor any of the Underwriters makes any
representation or prediction as to the direction or magnitude of any effect that
the transactions described above may have on the price of the Securities or the
Common Stock. In addition, neither the Company, the Trust nor any of the
Underwriters makes any representation that the Underwriters will engage in such
transaction or that such transactions, once commenced, will not be discontinued
without notice.
The Company and the Trust have granted to the Underwriters an option,
exercisable for 30 days following the date of this Prospectus, to purchase up to
an aggregate of additional 225,000 Income PRIDES from the
86
<PAGE> 88
Company and the Trust, at the price to the public set forth on the cover page of
this Prospectus, less the underwriting discount. The Underwriters may exercise
this option only to cover over-allotments, if any, made on the sale of the
Income PRIDES offered hereby. If the Underwriters exercise their over-allotment
option, each of the Underwriters has severally agreed, subject to certain
conditions, to effect the foregoing transactions with respect to approximately
the same percentage of such Income PRIDES that the respective number of Income
PRIDES set forth opposite its name in the foregoing table bears to the Income
PRIDES offered hereby.
The Company and the Trust have agreed, for a period of 180 days after the
date of this Prospectus, to not, without the prior written consent of Merrill
Lynch, Pierce, Fenner and Smith Incorporated, directly or indirectly, sell,
offer to sell, grant any option for the sale of, or otherwise dispose of, or
enter into any agreement to sell, any Income PRIDES, Purchase Contracts, Trust
Originated Trust Preferred Securities or Common Stock, as the case may be, or
any securities of the Company similar to the Income PRIDES, Purchase Contracts,
Trust Originated Trust Preferred Securities or Common Stock or any security
convertible into or exchangeable or exercisable for Income PRIDES, Purchase
Contracts, Trust Originated Trust Preferred Securities or Common Stock other
than to the Underwriters pursuant to the Underwriting Agreement, other than
shares of Common Stock or options for shares of Common Stock issued pursuant to
or sold in connection with any employee benefit, dividend reinvestment and stock
option and stock purchase plans of the Company and its subsidiaries and other
than the Growth PRIDES or shares of Common Stock issuable upon early settlement
of the Income PRIDES or exercise of stock options.
Prior to this offering, there has been no public market for the Income
PRIDES. The public offering price for the Income PRIDES was determined in
negotiations between the Company, the Trust and the Underwriters. In determining
the terms of the Income PRIDES, including the public offering price, the
Company, the Trust and the Underwriters considered the market price of the
Company's Common Stock and also considered the Company's recent results of
operations, the future prospects of the Company and the industry in general,
market prices and terms of, and yields on, securities of other companies
considered to be comparable to the Company and prevailing conditions in the
securities markets. Application will be made to list the Income PRIDES on the
NYSE under the symbol "AHL prI." The Growth PRIDES and the Trust Preferred
Securities will not be listed or traded on any securities exchange. The Company
and the Trust have been advised by the Underwriters that they presently intend
to make a market for the Growth PRIDES and the Trust Preferred Securities;
however, they are not obligated to do so and any market making may be
discontinued at any time. There can be no assurance that an active trading
market will develop for the Income PRIDES, the Growth PRIDES or the Trust
Preferred Securities or that the Income PRIDES will trade in the public market
subsequent to the offering at or above the initial public offering price.
The Company and the Trust have agreed to indemnify the Underwriters
against, or to contribute to payments that the Underwriters may be required to
make in respect of, certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, the Company and its subsidiaries in the
ordinary course of business. H. Corbin Day, a director of the Company, is also a
limited partner of Goldman, Sachs & Co., one of the Underwriters of this
offering.
LEGAL MATTERS
The validity of the Purchase Contracts, the Common Stock issuable upon
settlement thereof, the Indenture, the Guarantee, the Junior Subordinated
Debentures and certain matters relating thereto will be passed upon for the
Company by . Certain matters will be passed upon for the Company
and the Trust by LeBoeuf, Lamb, Greene & MacRae, L.L.P., New York, New York,
which has also acted as special tax counsel for the Company in connection with
the Securities. Certain legal matters will be passed upon for the Underwriters
by Skadden, Arps, Slate, Meagher & Flom LLP, New York, New York.
is a full-time employee and officer of the Company and owned shares of
the Company Common Stock as of February 28, 1997. LeBoeuf, Lamb, Greene &
MacRae, L.L.P., from time to time renders legal services to the Company.
87
<PAGE> 89
EXPERTS
The consolidated financial statements and the financial statement schedules
of the Company and its subsidiaries as of December 31, 1996 and 1995, and for
each of the years in the three-year period ended December 31, 1996 included
herein and elsewhere in this Registration Statement have been included herein
and elsewhere in this Registration Statement in reliance on the report of KPMG
Peat Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
The consolidated financial statements of Columbia Universal and its
subsidiaries as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996 which report is included in the Company's
current report on Form 8-K dated March 3, 1997 and incorporated by reference
into this Registration Statement in reliance on the report of Coopers & Lybrand
L.L.P., independent certified public accountants, and upon the authority of said
firm as experts in accounting and auditing.
88
<PAGE> 90
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Accountant's Report............................. F-2
Consolidated Statements of Earnings for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-3
Consolidated Balance Sheets as of December 31, 1996 and
1995...................................................... F-4
Consolidated Statements of Stockholders' Equity for the
Years Ended December 31, 1996, 1995 and 1994.............. F-5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994.......................... F-6
Notes to Consolidated Financial Statements.................. F-7
Schedule I -- Summary of Investments........................ S-1
Schedule III -- Condensed Financial Information of
Registrant................................................ S-2
Schedule IV -- Reinsurance.................................. S-6
Schedule V -- Supplementary Insurance Information........... S-7
</TABLE>
F-1
<PAGE> 91
INDEPENDENT ACCOUNTANTS' REPORT
The Stockholders and Board of Directors
American Heritage Life Investment Corporation
We have audited the consolidated financial statements of American Heritage
Life Investment Corporation and subsidiaries as listed in the accompanying
index. In connection with our audits of the consolidated financial statements,
we have also audited the financial statement schedules as listed in the
accompanying index. These consolidated financial statements and financial
statement schedules are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of American
Heritage Life Investment Corporation and subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1996, in conformity with
generally accepted accounting principles. Also in our opinion, the related
financial statement schedules when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all
material respects, the information set forth therein.
KPMG Peat Marwick LLP
January 29, 1997
F-2
<PAGE> 92
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C> <C>
Income:
Insurance revenues........................................ $258,519 $247,251 $230,589
Net investment income..................................... 77,035 70,601 66,706
Realized investment gains, net............................ 420 6,003 2,011
-------- -------- --------
Total income...................................... 335,974 323,855 299,306
-------- -------- --------
Benefits, claims and expenses:
Benefits and claims....................................... 148,887 148,581 146,146
Underwriting, acquisition and insurance expenses:
Taxes, commissions and general expenses................ 117,414 106,399 95,326
Amortization of deferred acquisition costs............. 25,628 23,744 20,758
Other operating expenses.................................. 4,186 3,694 2,413
-------- -------- --------
Total benefits, claims and expenses............... 296,115 282,418 264,643
-------- -------- --------
Earnings before income taxes...................... 39,859 41,437 34,663
Income taxes................................................ 12,827 13,362 11,022
-------- -------- --------
Net earnings...................................... $ 27,032 $ 28,075 $ 23,641
-------- -------- --------
Net earnings per share of common stock...................... $ 1.96 $ 2.02 $ 1.71
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 93
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
1996 1995
---------- ----------
(IN THOUSANDS EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Investments:
Debt securities, available-for-sale, at fair value
(amortized cost of $512,900 in 1996 and $493,814 in
1995).................................................. $ 521,916 $ 515,429
Equity securities, available-for-sale, at fair value (cost
of $21,465 in 1996 and $23,209 in 1995)................ 34,520 34,735
Mortgage loans on real estate............................. 53,736 29,506
Investment real estate, at cost........................... 453 375
Policy loans.............................................. 399,608 376,672
Short-term investments.................................... 1,216 22,886
---------- ----------
Total investments................................. 1,011,449 979,603
---------- ----------
Cash........................................................ 21,672 20,682
Agents' balances and prepaid commissions.................... 35,730 39,077
Premiums receivable......................................... 40,989 41,816
Accrued investment income................................... 24,958 24,274
Deferred acquisition costs.................................. 173,699 158,250
Property and equipment, at cost, less accumulated
depreciation of $11,825 in 1996 and $10,337 in 1995....... 28,926 27,830
Reinsurance receivables..................................... 13,423 9,231
Other assets................................................ 19,271 17,133
---------- ----------
Total assets...................................... $1,370,117 $1,317,896
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities:
Future policy benefits.................................... $ 203,396 $ 205,088
Policyholders' account balances........................... 681,098 635,670
Unearned premiums......................................... 52,279 53,317
Policy and contract claims................................ 51,261 50,375
---------- ----------
Total policy liabilities.......................... 988,034 944,450
---------- ----------
Notes payable to banks...................................... 85,459 94,994
Deferred income taxes....................................... 32,344 28,882
Other liabilities........................................... 35,337 30,241
---------- ----------
Total liabilities................................. 1,141,174 1,098,567
---------- ----------
Stockholders' equity:
Common stock of $1.00 par value:
Authorized 35,000,000 shares in 1996 and 20,000,000
shares in 1995; issued 13,967,253 in 1996 and
13,933,206 in 1995.................................... 13,967 13,933
Preferred stock:
Convertible of $10.00 par value: Authorized 500,000
shares; none issued................................... -- --
Non-convertible of $10.00 par value: Authorized 500,000
shares; none issued................................... -- --
Additional paid-in capital................................ 42,644 42,215
Retained earnings......................................... 163,460 148,454
Net unrealized investment gains (losses).................. 12,158 16,772
---------- ----------
232,229 221,374
Less cost of 153,728 in 1996 and 97,277 in 1995 common
shares in treasury........................................ 3,286 2,045
---------- ----------
Total stockholders' equity........................ 228,943 219,329
---------- ----------
Total liabilities and stockholders' equity........ $1,370,117 $1,317,896
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 94
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1996 1995 1994
-------- -------- --------
(IN THOUSANDS EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Common stock:
Balance at beginning of year......................... $ 13,933 $ 13,906 $ 13,880
Add shares issued on exercise of stock options....... 20 5 2
Other shares issued (surrendered), net............... 14 22 24
-------- -------- --------
Balance at end of year............................... 13,967 13,933 13,906
-------- -------- --------
Additional paid-in capital:
Balance at beginning of year......................... 42,215 41,866 41,483
Addition (deduction) related to exercise of stock
options........................................... 112 (54) (22)
Excess over par value on other shares issued......... 317 403 405
-------- -------- --------
Balance at end of year............................... 42,644 42,215 41,866
-------- -------- --------
Retained earnings:
Balance at beginning of year......................... 148,454 129,406 115,465
Add net earnings..................................... 27,032 28,075 23,641
Deduct cash dividends declared on common stock ($.87
per share in 1996, $.65 per share in 1995 and $.70
per share in 1994)................................ (12,026) (9,027) (9,700)
-------- -------- --------
Balance at end of year............................... 163,460 148,454 129,406
-------- -------- --------
Net unrealized investment gains (losses):
Balance at beginning of year......................... 16,772 (10,892) 14,027
Unrealized gain upon adoption of FAS 115 at beginning
of year........................................... -- -- 3,855
Change during the year............................... (4,614) 27,664 (28,774)
-------- -------- --------
Balance at end of year............................... 12,158 16,772 (10,892)
-------- -------- --------
Treasury stock:
Balance at beginning of year......................... 2,045 926 925
Add treasury shares purchased (56,451 shares in 1996,
51,323 shares in 1995 and 127 shares in 1994)..... 1,241 1,119 1
-------- -------- --------
Balance at end of year............................... 3,286 2,045 926
-------- -------- --------
Total stockholders' equity................... $228,943 $219,329 $173,360
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 95
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1996 1995 1994
-------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating activities:
Net earnings............................................. $ 27,032 $ 28,075 $ 23,641
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Provision for depreciation and amortization........... 2,613 1,706 1,908
Amortization of deferred acquisition costs............ 25,628 23,744 20,758
Acquisition costs deferred............................ (36,018) (33,067) (27,154)
Change in agents' balances and prepaid commissions.... 3,346 70 (1,685)
Change in premiums receivable......................... 878 1,618 (1,119)
Change in accrued investment income................... (683) (8,072) (10,106)
Change in reinsurance receivables..................... (4,192) 2,500 (4,373)
Change in future policy benefits...................... (4,833) 12,576 8,168
Change in policyholders' account balances............. 45,410 49,147 45,244
Change in unearned premiums........................... (1,039) 1,713 4,726
Change in policy and contract claims liability........ 885 (3,433) (3,106)
Change in income taxes................................ 5,846 3,171 5,764
Change in unearned investment income.................. (301) (804) (16,237)
Other, net............................................ 1,974 (3,110) 2,080
-------- --------- ---------
Net cash provided by operating activities........ 66,546 75,834 48,509
-------- --------- ---------
Investing activities:
Sales of debt securities................................. 14,718 46,210 32,103
Maturities of debt securities............................ 46,109 32,026 65,019
Sales of equity securities............................... 5,968 13,951 2,577
Maturities of mortgage loans on real estate.............. 3,479 2,033 2,019
Policy loans paid........................................ 25,372 18,124 18,565
Sales of property and equipment and investment real
estate................................................ 17 1,296 13
Acquisition of block of business......................... 1,561 6,047 --
Purchases of debt securities............................. (80,010) (121,355) (104,742)
Purchases of equity securities........................... (5,239) (2,437) (5,818)
Origination of mortgage loans on real estate............. (27,709) (10,913) (4,727)
Sales (purchases) of short-term investments, net......... 21,669 (15,188) (5,039)
Policy loans made........................................ (48,129) (42,737) (35,055)
Purchases of property and equipment and investment real
estate................................................ (2,789) (2,030) (13,063)
Other, net............................................... (26) -- (3,116)
-------- --------- ---------
Net cash used by investing activities............ (45,009) (74,973) (51,264)
-------- --------- ---------
Financing activities:
Net proceeds (paydowns) on borrowings.................... (9,535) 10,793 11,720
Dividends to stockholders................................ (12,026) (9,027) (9,700)
Purchase of treasury stock............................... (1,241) (1,119) (1)
Other, net............................................... 2,255 (316) 1,241
-------- --------- ---------
Net cash provided (used) by financing
activities..................................... (20,547) 331 3,260
-------- --------- ---------
Increase in cash................................. 990 1,192 505
Cash at beginning of year.................................. 20,682 19,490 18,985
-------- --------- ---------
Cash at end of year........................................ $ 21,672 $ 20,682 $ 19,490
======== ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest................................................. $ 6,325 $ 5,721 $ 4,040
Federal income taxes..................................... 6,550 9,650 4,800
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Consolidation Policy
The accompanying consolidated financial statements include the accounts of
American Heritage Life Investment Corporation (AHLIC) and its subsidiaries. All
significant intercompany accounts have been eliminated in consolidation. The
term "Company" as used herein includes AHLIC and its subsidiaries.
AHLIC is a holding company whose principal subsidiary is American Heritage
Life Insurance Company (AHL). AHL is licensed to do business as a life insurance
company in 49 states, Puerto Rico, the District of Columbia and the U.S. Virgin
Islands. It markets life and accident and health insurance on an individual,
group and credit basis through licensed agents and brokers. First Colonial
Insurance Company, a subsidiary of AHL, markets credit property insurance and is
currently licensed in twelve states.
(b) Basis of Presentation
The accompanying consolidated financial statements are presented on the
basis of generally accepted accounting principles (GAAP). The preparation of
financial statements in conformity with GAAP requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
Such principles differ in some respects from those followed in preparing
statutory reports filed with various insurance departments. Under GAAP:
(1) Insurance Revenue and Expense Recognition: For traditional
insurance products, premiums, benefits and expenses are reported in a
manner which results in the recognition of profits over the life of the
policies. For interest-sensitive products, premiums received are recognized
as deposits; revenues consist of surrender, mortality and expense charges;
and profits are recognized as earned.
(2) Investments: Bonds and redeemable preferred stocks, which are
classified as debt securities available-for-sale, are stated at fair value.
(3) Deferred Acquisition Costs: The costs (principally commissions)
of acquiring traditional life, interest-sensitive products and accident and
health contracts, certain expenses of the policy issue and underwriting
department, and certain agency expenses, all of which vary with and are
primarily related to the production of new business, have been deferred.
Deferred acquisition costs of traditional life and accident and health
contracts are being amortized over the premium payment period of the
related policies using the same assumptions as were used for computing
liabilities for future policy benefits, together with appropriate expense
assumptions. For interest-sensitive life products, deferred acquisition
costs are being amortized over the lives of the policies in relation to the
present value of estimated gross profits from surrender charges and
investment, mortality and expense margins. Assumptions used for estimating
the related gross profits are evaluated regularly (at least annually) and
amortization is appropriately modified.
(4) Insurance Liabilities: The liabilities for future policy benefits
(which represent the excess of the present value of future benefits to be
paid on behalf of or to policyholders over the present value of future net
premiums, except for interest-sensitive products) are computed by a net
level premium method using estimated future investment yields from 3.75% to
8.00%; withdrawals based on Company experience; mortality, and morbidity
from recognized morbidity and mortality tables modified for anticipated
company experience, with reasonable provisions for possible future adverse
experience deviations. Policyholders' account balances represent premiums
received plus interest credited during the contract accumulation period,
less contract charges for mortality and expenses. For the years ended
December 31, 1996 and 1995, the weighted average interest rates credited to
the policyholders' account balances were 5.37% and 6.28%, respectively; and
the related interest credited to the policyholders'
F-7
<PAGE> 97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
account balances was $36.9 million and $35.2 million. The surrender charge
provisions for interest-sensitive policies vary depending upon the type of
policy. For universal life-type policies, the surrender charges generally
range over a period of 10-20 years at varying rates depending upon the plan
of insurance. For annuities, the surrender charges generally range over a
period of 7-10 years with charges varying from 1% to 10% of the accumulated
fund value over the surrender charge period.
(c) Valuation of Certain Investments
Debt securities are investments which mature at a specified future date
more than one year after they were issued. Equity securities include common
stocks. During the year ended December 31, 1994, the Company adopted the
provisions of Financial Accounting Standard Board's Statement of the Financial
Accounting Standard No. 115, "Accounting for Investments in Certain Debt and
Equity Securities." Under these provisions, investments are required to be
categorized as (1) held to maturity, (2) available-for-sale, or (3) trading. All
debt and equity securities have been classified by the Company as
available-for-sale and are stated at fair value. Unrealized gains or losses on
debt and equity securities available-for-sale resulting from fluctuations in
fair values were recorded, net of deferred income taxes and adjustments to the
deferred acquisition costs for interest-sensitive insurance products, directly
to a separate component of stockholders' equity. Realized investment gains or
losses are calculated on the basis of specific identification and include
writedowns on those investments where the decline in value below its cost or
amortized cost is considered to be other than temporary.
Policy loans are carried at the actual amount loaned to the policyholder.
No policy loans are made for amounts in excess of the cash surrender value of
the related policy. Accordingly, in all instances, the policy loans are fully
collateralized by the related liability for future policy benefits for
traditional insurance policies and by the policyholders' account balance for
interest-sensitive policies.
Mortgage loans are reported at amortized cost, less an allowance for
possible losses.
(d) Property and Equipment
Depreciation of property and equipment is computed on the straight-line
method over the estimated useful lives of the respective assets.
(e) Policy and Contract Claims
Accruals are provided to cover the cost of reported claims not paid and for
claims incurred but not reported to the Company. The accruals are computed based
on historical claims experience modified for variations in expected future
benefits.
(f) Other Operating Expenses
Other operating expenses include primarily interest expense related to bank
borrowings and other general corporate expenses of AHLIC.
(g) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates is recognized in
income tax expense in the period that includes the enactment date.
F-8
<PAGE> 98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(h) Earnings Per Share
Earnings per share of common stock are based on the weighted average number
of shares outstanding during each year, excluding treasury shares. Options
outstanding to purchase common stock had no significant dilutive effect on
earnings per share.
(i) Reclassifications
Certain amounts for 1995 and 1994 have been reclassified to conform with
the presentation adopted in 1996.
(2) INCOME TAXES
The effective federal income tax rates on earnings before income taxes were
lower than the maximum statutory rates as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------- -------------- --------------
AMT.(*) % AMT.(*) % AMT.(*) %
------- --- ------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C>
Computed "expected" tax expense..... $13,951 35 $14,503 35 $12,132 35
Dividends received deduction........ (324) (1) (448) (1) (570) (2)
Tax exempt interest................. (5) -- (8) -- (13) --
Credits from oil and gas
investments....................... (788) (2) (677) (2) (523) (1)
Other, net.......................... (7) -- (8) -- (4) --
------- -- ------- -- ------- --
Effective income tax expense........ $12,827 32 $13,362 32 $11,022 32
======= == ======= == ======= ==
</TABLE>
- ---------------
* Presented in thousands.
Deferred income taxes reflect the impact of temporary differences between
the financial statement and tax basis carrying values of assets and liabilities.
The temporary differences that gave rise to significant portions of the deferred
tax liability and the effect on deferred income tax expense of changes in those
temporary differences (in thousands) for the years ended December 31, 1996, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Excess of GAAP earnings over statutory earnings of
life insurance operations........................... $ 4,726 $ 3,571 $ 6,248
Difference in tax and statutory policy liabilities.... (986) (450) (1,494)
Unearned investment income............................ 2 149 4,683
Deferred acquisition costs tax........................ (2,533) (2,573) (2,157)
Deferred gain on real estate.......................... -- 2,286 --
Miscellaneous items, net.............................. 1,795 252 (338)
------- ------- -------
Deferred income tax expense........................... $ 3,004 $ 3,235 $ 6,942
======= ======= =======
</TABLE>
The components of income tax expense (in thousands) for each of the three
years ended December 31 were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Current............................................... $ 9,823 $10,127 $ 4,080
Deferred.............................................. 3,004 3,235 6,942
------- ------- -------
Total....................................... $12,827 $13,362 $11,022
======= ======= =======
</TABLE>
F-9
<PAGE> 99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax liabilities and deferred tax assets at December 31,
1996 and December 31, 1995 (in thousands) were as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Deferred tax assets:
Insurance reserves........................................ $21,320 $23,081
Unearned investment income................................ 299 400
Other..................................................... -- 304
------- -------
Total deferred tax assets......................... 21,619 23,785
------- -------
Deferred tax liabilities:
Deferred acquisition costs................................ 44,412 41,350
Unrealized investment gains on securities
available-for-sale..................................... 6,546 9,031
Deferred gain on real estate.............................. 1,738 2,286
Other..................................................... 1,267 --
------- -------
Total deferred tax liabilities.................... 53,963 52,667
------- -------
Net deferred tax liability................................ 32,344 28,882
Current tax liability (asset)............................. 100 100
------- -------
Accrued and deferred income taxes................. $32,444 $28,982
======= =======
</TABLE>
No valuation allowance was recorded at December 31, 1996 or 1995.
Prior to 1985, certain life insurance company income was not subject to
federal income tax until distributed. For tax purposes such income was
accumulated in a memorandum "policyholders' surplus account" and taxed upon
distribution. At December 31, 1996, the policyholders' surplus account was $8.8
million.
(3) INVESTMENTS
For the years ended December 31, 1996, 1995 and 1994, net investment income
(in thousands) was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Investment income:
Debt securities....................................... $41,573 $38,676 $37,387
Equity securities..................................... 809 1,679 1,746
Mortgage loans on real estate......................... 3,657 2,290 1,921
Investment real estate................................ 54 43 52
Policy loans.......................................... 33,496 30,231 27,554
Short-term investments................................ 2,928 2,776 2,855
Other................................................. 4 4 8
------- ------- -------
Gross investment income....................... 82,521 75,699 71,523
Investment expenses..................................... 5,486 5,098 4,817
------- ------- -------
Net investment income......................... $77,035 $70,601 $66,706
======= ======= =======
</TABLE>
F-10
<PAGE> 100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Proceeds from sales and maturities of investments in debt securities during
1996, 1995 and 1994 were $59.1 million, $69.3 million and $97.2 million,
respectively. Gross gains and losses on those sales, and net gains and losses on
sales of other investments (in thousands), were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- -------- -------
<S> <C> <C> <C>
Debt securities -- gains............................... $ 794 $ 898 $ 2,578
Debt securities -- losses.............................. (2,683) (14,709) (2,305)
------- -------- -------
Debt securities, net................................... (1,889) (13,811) 273
Equity securities, net................................. 2,309 13,187 1,750
Real estate............................................ -- 7,127 (12)
Other, net............................................. -- (500) --
------- -------- -------
Realized investment gains, net............... $ 420 $ 6,003 $ 2,011
======= ======== =======
</TABLE>
Stockholders' equity included the following unrealized investment gains
(losses) (in thousands) at December 31:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- --------
<S> <C> <C> <C>
Equity securities available-for-sale:
Gross unrealized investment gains.................... $13,434 $12,068 $ 18,717
Gross unrealized investment losses................... (379) (542) (1,825)
------- ------- --------
13,055 11,526 16,892
------- ------- --------
Debt securities available-for-sale:
Gross unrealized investment gains.................... 12,583 23,966 2,034
Gross unrealized investment losses................... (3,567) (2,351) (39,957)
------- ------- --------
9,016 21,615 (37,923)
------- ------- --------
Gross unrealized investment gains (losses)... 22,071 33,141 (21,031)
Increase (decrease)in deferred acquisition costs for
interest-sensitive insurance products................ (3,367) (7,338) 10,139
Deferred federal income tax (benefit).................. (6,546) (9,031) --
------- ------- --------
Net unrealized investment gains (losses)..... $12,158 $16,772 $(10,892)
======= ======= ========
</TABLE>
F-11
<PAGE> 101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The amortized cost and fair values of debt securities available-for-sale by
category of securities (in thousands) were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAIN LOSS VALUE
--------- ---------- ---------- --------
<S> <C> <C> <C> <C>
December 31, 1996:
Obligations of U.S. government
corporations and agencies............. $ 17,339 $ 759 $ 80 $ 18,018
Obligations of state and local
governments........................... 345 20 -- 365
Public utilities......................... 53,344 392 285 53,451
Corporate securities..................... 289,076 10,944 155 299,865
Mortgage backed securities............... 152,796 468 3,047 150,217
-------- ------- ------ --------
Total............................ $512,900 $12,583 $3,567 $521,916
======== ======= ====== ========
December 31, 1995:
Obligations of U.S. government
corporations and agencies............. $ 13,932 $ 1,330 $ -- $ 15,262
Obligations of state and local
governments.............................. 345 28 -- 373
Public utilities......................... 35,189 963 75 36,077
Corporate securities..................... 247,857 20,142 638 267,361
Mortgage backed securities............... 196,491 1,503 1,638 196,356
-------- ------- ------ --------
Total............................ $493,814 $23,966 $2,351 $515,429
======== ======= ====== ========
</TABLE>
The amortized cost and fair value of debt securities available-for-sale (in
thousands) at December 31, 1996, by contractual maturity, were as follows.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or repay obligations with or without penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
---------------------
AMORTIZED FAIR
COST VALUE
--------- --------
<S> <C> <C>
Due in one year or less..................................... $ 1,092 $ 1,104
Due after one year through five years....................... 23,497 25,071
Due after five years through ten years...................... 127,467 133,828
Due after ten years......................................... 172,526 176,671
Mortgage backed securities.................................. 152,796 150,217
Redeemable preferred stocks................................. 35,522 35,025
-------- --------
Total............................................. $512,900 $521,916
======== ========
</TABLE>
The amortized cost of high yield bonds included in debt securities
available-for-sale was $14.8 million with a market value of $15.0 million, which
represented 1.5% of invested assets.
There were no individual investments at December 31, 1996, other than U.S.
government securities, which exceeded 10% of the Company's stockholders' equity.
F-12
<PAGE> 102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The estimated fair values (in thousands) of the Company's financial
instruments are summarized as follows:
<TABLE>
<CAPTION>
AT DECEMBER 31, 1996
------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Debt securities............................................. $ 521,916 $ 521,916
Equity securities........................................... 34,520 34,520
Mortgage loans on real estate............................... 53,736 58,786
Investment real estate...................................... 453 2,400
Policy loans................................................ 399,608 399,608
Cash and short-term investments............................. 22,888 22,888
---------- ----------
Total cash and investments........................ $1,033,121 $1,040,118
---------- ----------
Notes payable to banks...................................... $ 85,459 $ 85,459
========== ==========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1995
------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
---------- ----------
<S> <C> <C>
Debt securities............................................. $ 515,429 $ 515,429
Equity securities........................................... 34,735 34,735
Mortgage loans on real estate............................... 29,506 35,570
Investment real estate...................................... 375 2,400
Policy loans................................................ 376,672 376,672
Cash and short-term investments............................. 43,568 43,567
---------- ----------
Total cash and investments........................ $1,000,285 $1,008,373
---------- ----------
Notes payable to banks...................................... $ 94,994 $ 94,994
========== ==========
</TABLE>
These fair values were determined as follows:
Debt securities
The fair value and carrying value of debt securities were estimated based
on bid prices published in financial newspapers or bid quotations received from
securities dealers.
Equity securities
The fair value and carrying value of equity securities, other than private
placements, were based on bid prices published in financial newspapers. For
private placements, cost has been determined to approximate fair value.
Mortgage loans on real estate
For residential mortgage loans, fair value was estimated using quoted
market prices for securities backed by similar loans. The fair value of
commercial loans was estimated by discounting expected future cash flows using
current rates at which similar loans would be made to borrowers with similar
credit ratings and for the same remaining maturities. The outstanding principal
balance of adjustable-rate mortgage loans is assumed to approximate their fair
values.
Investment in real estate
The fair value of real estate was calculated using estimated market values.
F-13
<PAGE> 103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Policy loans
The fair value of policy loans approximates the book value, as interest
rates charged for a majority of the policy loans are updated to current market
rates on an annual basis.
Cash and short-term investments
The carrying amount approximates fair value because of the short maturity
of these instruments.
Notes payable to banks
The carrying amount estimates fair value because the interest rates charged
approximate current market rates.
(5) NOTES PAYABLE TO BANKS
At December 31, 1996, all of the notes payable to banks were short-term,
unsecured, and related to advances under $120.0 million lines of credit ($54.5
million available to be drawn at December 31, 1996) bearing interest at rates
ranging from 6.09% to 7.75%. The arrangements under the terms of the lines of
credit are reviewed annually for renewal. Debt of $20.0 million matures in 1997
and relates to the acquisition of $20.0 million of GNMA's, which were financed
at an interest rate of 6.10% and which provides a positive interest spread
between the rate earned on the GNMA's and the respective borrowing rate.
Interest expense for the years ended December 31, 1996, 1995 and 1994
totaled $6.1 million, $5.6 million and $4.0 million, respectively, of which $3.7
million, $3.3 million and $2.0 million, respectively, were included in other
operating expenses and $2.4 million, $2.2 million and $2.0 million,
respectively, related to the purchase of the GNMA's discussed above which
reduced net investment income.
(6) REINSURANCE
In the normal course of business, the Company seeks to limit its exposure
to loss on any single insured and to recover a portion of benefits paid by
ceding insurance to other insurance companies or reinsurers under excess
coverage and co-insurance contracts. The maximum risk generally retained on
AHL's ordinary life insurance on any one insured is $100,000 for policies issued
prior to July 1, 1994 and $200,000 on policies issued subsequent to July 1,
1994. The amount retained on group and credit life insurance is generally
$50,000. Generally, income from reinsurance arrangements is recognized in a
manner similar to the income recognition on the underlying policy contracts.
A contingent liability exists for that portion of the policies reinsured in
the event that the reinsuring companies are unable to pay their share of any
resulting claims as reinsurance contracts do not relieve the Company from its
obligations to its policyholders. The Company evaluates the financial condition
of its reinsurers and monitors concentrations of credit risk arising from
similar geographic regions, activities, or economic characteristics of the
reinsurers to minimize its exposure to significant losses from reinsurer
insolvencies.
The amount of insurance premiums assumed and ceded under reinsurance
agreements for the year ended December 31, 1996 was $5.8 million and $111.7
million, respectively. For the year ended December 31, 1995 the amount assumed
and ceded was $12.6 million and $97.8 million, respectively. The amounts of
recoveries for benefits paid under reinsurance agreements for the years ended
December 31, 1996 and 1995 were $104.0 million and $96.7 million, respectively.
(7) STOCK COMPENSATION PLANS
At December 31, 1996, the Company had six stock-based compensation plans,
which are described below. The Company applies Accounting Principles Board
Opinion No. 25 "Accounting for Stock issued to
F-14
<PAGE> 104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Employees" and related interpretations in accounting for its plans. Accordingly,
no compensation cost has been recognized for its fixed option plans. The
compensation that has been charged against income for the long-term incentive
plan stock, employee stock purchase and agents stock purchase plans (in
thousands) was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Long-term incentive plan stock.............................. $487 $379 $308
Employee stock purchase plan................................ 70 66 64
Agents stock investment plan................................ 13 9 10
</TABLE>
Compensation cost determined pursuant to Financial Accounting Standard No.
123 "Accounting for Stock-Based Compensation" would not have had a material
effect on the Company's net earnings and earnings per share for 1996 and 1995.
(A) FIXED STOCK OPTION PLANS
The Company has three fixed stock option plans primarily for its employees.
Under the 1980 Stock Option Plan, the Company may grant options to its employees
for up to 300,000 shares of common stock. Under the 1988 Stock Option Plan, the
Company may grant options to its employees for up to 266,666 shares of common
stock. Under the 1996 Stock Option Plan, the Company may grant options to its
employees for up to 350,000 shares of common stock. Under all plans, the
exercise price of each option equals the market price of the Company's stock on
the date of grant. The Company had a 1982 Stock Option Plan which expired in
1992 but options which were granted under that plan prior to its expiration
continue in effect. Under the 1980 and 1996 Plans, the option's maximum term is
ten years. Under the 1988 Plan, the option's maximum term is six years. Under
the 1980 Plan, options are granted in the first part of the year and vest in
increments of 33% per year beginning one year from date of grant and continuing
for two more years. Under the 1988 Plan, options are granted during the year and
vest in increments of 20% per year over a five year period beginning no less
than six months after the grant.
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: dividend yield of
3.1% and 3.6%; expected volatility of 20% for both years for the 1980 Plan
options. No options were granted under the 1982 or 1988 plans during the period.
F-15
<PAGE> 105
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of the Company's fixed stock option plans as of
December 31, 1996 and 1995, and changes during the years ended on those dates is
presented below:
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EXERCISE EXERCISE
FIXED STOCK OPTION PLANS SHARES PRICE SHARES PRICE
- ------------------------ ------- -------- ------- --------
<S> <C> <C> <C> <C>
1980 PLAN:
Outstanding at beginning of year................ 77,111 $19.21 44,391 $19.98
Granted......................................... 23,300 22.63 41,984 18.50
Exercised....................................... -- -- -- --
Forfeited....................................... -- -- (9,264) 19.66
------- ------ ------- ------
Outstanding at end of year...................... 100,411 20.00 77,111 19.21
------- ------ ------- ------
Options exercisable at year-end ................ 43,639 19.71 17,944 20.43
------- ------ ------- ------
Weighted-average fair value of options granted
during the year.............................. $ 6.51 -- $ 4.79 --
------- ------ ------- ------
1988 PLAN:
Outstanding at beginning of year................ 167,500 18.71 202,500 18.72
Granted......................................... -- -- -- --
Exercised....................................... -- -- -- --
Forfeited....................................... -- -- (35,000) 18.79
------- ------ ------- ------
Outstanding at end of year...................... 167,500 18.71 167,500 18.71
------- ------ ------- ------
Options exercisable at year-end ................ 94,000 19.22 60,500 19.51
------- ------ ------- ------
1982 PLAN:
Outstanding at beginning of year................ 27,336 11.13 44,670 11.13
Granted......................................... -- -- -- --
Exercised....................................... (27,336) 11.13 (17,334) 11.13
Forfeited....................................... -- -- -- --
------- ------ ------- ------
Outstanding at end of year...................... -- -- 27,336 11.13
------- ------ ------- ------
Options exercisable at year-end ................ -- -- 16,000 11.13
------- ------ ------- ------
ALL PLANS:
Outstanding at beginning of year................ 271,947 18.09 291,561 17.75
Granted......................................... 23,300 22.63 41,984 18.50
Exercised....................................... (27,336) 11.13 (17,334) 11.13
Forfeited....................................... -- -- (44,264) 18.97
------- ------ ------- ------
Outstanding at end of year...................... 267,911 19.19 271,947 18.09
------- ------ ------- ------
Options exercisable at year-end ................ 137,639 19.38 94,444 18.26
------- ------ ------- ------
Weighted-average fair value of options granted
during the year.............................. $ 6.51 -- $ 4.79 --
======= ====== ======= ======
</TABLE>
F-16
<PAGE> 106
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
-------------------------------------------------------- --------------------------
NUMBER WEIGHTED-AVG WEIGHTED-AVG NUMBER WEIGHTED-AVG
EXERCISE OUTSTANDING REMAINING EXERCISE EXERCISABLE EXERCISE
PRICES AT 12-31-96 CONTRACTUAL LIFE PRICE AT 12-31-96 PRICE
-------- ----------- ---------------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
1980 PLAN
$18.50 39,729 8.1years $18.50 13,230 $18.50
18.75 20,876 7.1 18.75 13,903 18.75
21.50 16,506 6.1 21.50 16,506 21.50
22.63 23,300 9.1 22.63 -- 22.63
----------- ------ ------ ------
100,411 $20.00 43,639 $19.71
----------- ------ ------ ------
1988 PLAN
17.50 100,000 2.9years 17.50 40,000 17.50
20.50 67,500 1.7 20.50 54,000 20.50
----------- ------ ------ ------
167,500 $18.71 94,000 $19.22
=========== ====== ====== ======
</TABLE>
(B) LONG-TERM INCENTIVE PLAN
Under the Company's Long-Term Incentive Plan, the restricted stock feature
provides for the grant of common stock to a participating employee. The number
of shares of restricted stock available to be issued in the name of each
participating employee is determined at the beginning of each fiscal year, and
is based on the prior year's operating results. Such shares are held by the
Company in the name of the participating employee, who has the right to vote and
to receive dividends paid on all such shares.
During the years ended December 31, 1996, 1995 and 1994, the Company
granted 10,970, 19,985 and 12,651 shares of restricted stock, respectively.
Under the Company's Long-Term Incentive Plan, the performance units feature
provides for the grant to a participating employee of shares of common stock
based on targeted award levels established for each participating employee at
the beginning of each fiscal year in accordance with a formula relating to
individual levels of performance.
During the years ended December 31, 1996 and 1995, the Company granted
4,214 and 5,383 shares of common stock related to the performance units feature.
No shares were granted in 1994.
(C) EMPLOYEE STOCK PURCHASE PLAN
The Company maintains a stock purchase plan under which its employees and
directors and those of its subsidiaries can purchase shares of its common stock
in the open market through an unaffiliated plan administrator. Pursuant to the
plan, 328,534 shares had been purchased as of December 31, 1996. During the
years ended December 31, 1996 and 1995, 29,331 shares and 29,512 shares,
respectively, were purchased pursuant to the plan. This plan provides for
monthly payroll and directors' fees purchases up to $1,500, with the employer
making a monthly percentage contribution for the account of each participant,
based upon their purchases, as follows: (a) 25% of amounts from $5 through $25,
(b) 20% of amounts in excess of $25 through $50, and (c) 15% of amounts in
excess of $50 through $1,500.
(D) AGENTS STOCK INVESTMENT PLAN
The Company maintains a stock purchase plan under which its agents can
purchase shares of its common stock in the open market through an unaffiliated
plan administrator. Pursuant to the plan, 33,558 shares had been purchased as of
December 31, 1996. During the years ended December 31, 1996 and 1995, 12,952
shares and 10,448 shares, respectively, were purchased pursuant to the plan. The
plan provides for monthly
F-17
<PAGE> 107
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
deductions from commissions payable by participating subsidiaries of the Company
to their participating agents with a minimum monthly deduction of $500 and
maximum of $2,000. The participating subsidiary contributes, at the time of each
purchase, an amount equal to five percent (5%) of its agent's deduction for
purchases from commissions payable.
(8) PROFIT SHARING PLAN
The Company has a trusteed profit sharing plan for the exclusive benefit of
eligible employees. The Company's annual contribution to the plan is equal to
the lesser of 10% of consolidated earnings as defined or 10% of qualifying
compensation paid to participants. The annual contributions amounted to $1.2
million in 1996 and 1995, and $1.1 million in 1994. The total return to
participants in 1996 was 7.74%. The average annual return to participants for
the last ten years was 8.55%.
(9) POLICY AND CONTRACT CLAIMS
Activity in the liability for policy and contract claims (in thousands) at
December 31, 1996, 1995 and 1994 is summarized as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year................... $ 50,375 $ 53,309 $ 56,415
Less reinsurance recoverables................ 3,592 3,142 2,096
-------- -------- --------
Net balance at beginning of year............... 46,783 50,167 54,319
-------- -------- --------
Incurred related to:
Current year................................. 144,248 126,874 118,065
Prior years.................................. (953) (383) (1,130)
-------- -------- --------
Total incurred....................... 143,295 126,491 116,935
-------- -------- --------
Paid related to:
Current year................................. 128,137 114,149 101,868
Prior years.................................. 16,166 15,726 19,219
-------- -------- --------
Total paid........................... 144,303 129,875 121,087
-------- -------- --------
Net balance at end of year..................... 45,775 46,783 50,167
Plus reinsurance recoverables................ 5,486 3,592 3,142
-------- -------- --------
Balance at end of year......................... $ 51,261 $ 50,375 $ 53,309
-------- -------- --------
</TABLE>
(10) INDUSTRY SEGMENT INFORMATION
Insurance revenues, total income, and pre-tax operating earnings,
reconciled to net earnings, for the three years ended December 31, 1996 for each
industry segment, Ordinary, Group and Credit, were as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
*Insurance revenues:
Ordinary..................................... $137,421 $123,718 $113,993
Group........................................ 35,480 39,925 43,222
Credit....................................... 85,618 83,608 73,374
-------- -------- --------
Total insurance revenues............. $258,519 $247,251 $230,589
-------- -------- --------
</TABLE>
F-18
<PAGE> 108
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
*Total income:
Ordinary..................................... $204,749 $185,277 $171,471
Group........................................ 40,801 45,281 48,879
Credit....................................... 89,983 87,619 77,221
Other non-segmented income less
eliminations.............................. 21 (325) (276)
Realized investment gains (losses)........... 420 6,003 2,011
-------- -------- --------
Total income......................... $335,974 $323,855 $299,306
-------- -------- --------
Operating earnings:
*Ordinary -- Total income.................... $204,749 $185,277 $171,471
Less deductions:
Benefits and claims....................... 110,959 103,184 95,637
Taxes, commissions and general expenses... 33,092 29,414 29,027
Amortization of deferred acquisition
costs................................... 25,628 23,744 20,758
-------- -------- --------
Pre-tax operating earnings................ 35,070 28,935 26,049
-------- -------- --------
*Group -- Total income....................... 40,801 45,281 48,879
Less deductions:
Benefits and claims..................... 24,013 25,595 29,094
Taxes, commissions and general
expenses............................. 12,275 12,216 12,462
-------- -------- --------
Pre-tax operating earnings.............. 4,513 7,470 7,323
-------- -------- --------
*Credit -- Total income...................... 89,983 87,619 77,221
Less deductions:
Benefits and claims..................... 13,901 19,802 21,415
Taxes, commissions and general
expenses............................. 72,332 65,078 54,052
-------- -------- --------
Pre-tax operating earnings................ 3,750 2,739 1,754
-------- -------- --------
Other -- Total income..................... 441 5,677 1,735
Less: Total expenses...................... 3,915 3,384 2,198
-------- -------- --------
Total other.......................... (3,474) 2,293 (463)
-------- -------- --------
Earnings before income taxes.............. 39,859 41,437 34,663
Income taxes................................. 12,827 13,362 11,022
-------- -------- --------
Net earnings.............................. $ 27,032 $ 28,075 $ 23,641
======== ======== ========
</TABLE>
- ---------------
* Total income, insurance revenues and operating profits are net of reinsurance.
Total income includes net investment income which is allocated to the
industry segments based on required liabilities for future policy benefits and
policyholders' account balances.
A majority of the Company's assets consists of investments and cash which
are not identified with a specific operation. Accordingly, it is not possible to
separate assets, capital expenditures, and depreciation by industry segment.
(11) STOCKHOLDERS' EQUITY AND NET EARNINGS
The payment of dividends to AHLIC by AHL is subject to the regulation of
the State of Florida Department of Insurance. A dividend may be made without
prior Florida Insurance Commissioner's approval if the dividend is equal to or
less than the greater of: (a) 10% of AHL's surplus as to policyholders derived
from realized net operating profits on its business and net realized capital
gains; or (b) AHL's entire net operating profits and realized net capital gains
derived during the immediately preceding calendar year, if
F-19
<PAGE> 109
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
AHL will have surplus as to policyholders equal to or exceeding 115% of the
minimum required statutory surplus as to policyholders after the dividend is
paid. As a result of such restrictions, the maximum dividend which could be paid
to AHLIC by its insurance subsidiaries during 1997 without prior approval is
$24.8 million.
AHLIC's insurance subsidiaries had statutory net operating earnings of
$20.6 million, $19.0 million and $13.5 million and statutory net earnings of
$22.1 million, $33.9 million and $14.1 million for the years ended December 31,
1996, 1995 and 1994, respectively. Statutory stockholders' equity of such
subsidiaries was $145.0 million at December 31, 1996 and $134.5 million at
December 31, 1995. At December 31, 1996, pursuant to the insurance laws of the
State of Florida, the minimum capital and surplus required to be maintained by
AHL was approximately $45.6 million.
(12) NEW PRONOUNCEMENTS BY THE FINANCIAL ACCOUNTING STANDARDS BOARD
No pronouncements which have been issued by the Financial Accounting
Standards Board have or will have a significant impact on the consolidated
financial statements of the Company.
(13) CONTINGENT LIABILITIES
The Company's insurance subsidiaries, like other insurance companies, are
currently defendants in lawsuits that involve claims for punitive, exemplary or
other extracontractual damages, which are for amounts substantially in excess of
the actual damages sought. Management considers such litigation regrettably to
be of the type to which insurance companies are usually and customarily
subjected in the ordinary course of business, and to date the settlements of
such claims of this nature have not been material to the financial position of
the Company. In the opinion of management, based on the currently ascertained
facts of the pending litigation, which the Company intends to vigorously defend,
the ultimate resolution of such litigation should not be material to the
financial position of the Company.
(14) ACQUISITION
On March 3, 1997, AHL acquired all the outstanding common stock of Columbia
Universal Corporation (Columbia Universal) whose primary operating subsidiary is
Columbia Universal Life Insurance Company for $44.0 million in cash. Columbia
Universal Life Insurance Company is a life insurance company which sells
annuity, supplemental health and individual life insurance products. The
acquisition will be accounted for using the purchase method. At December 31,
1996 Columbia Universal had consolidated assets of $368.5 million and for the
year ended December 31, 1996 premiums and premium equivalents of $36.4 million.
On a pro forma basis at December 31, 1996, including the acquisition of
Columbia Universal, total assets for the Company would have been $1.7 billion
and life insurance volume in force would have been $22.1 billion.
F-20
<PAGE> 110
SCHEDULE I
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
SUMMARY OF INVESTMENTS -- OTHER THAN INVESTMENTS IN RELATED PARTIES
DECEMBER 31, 1996
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
AMOUNT AT
WHICH SHOWN
FAIR IN THE
TYPE OF INVESTMENT COST VALUE BALANCE SHEET
------------------ -------- -------- -------------
<S> <C> <C> <C>
Debt securities available-for sale:
Bonds:
United States Government and government agencies and
authorities.......................................... $170,135 $168,234 $ 168,234
States, municipalities and political subdivisions...... 345 365 365
Public utilities....................................... 51,328 51,454 51,454
Convertibles and bonds with warrants attached.......... 1,295 1,472 1,472
All other corporate.................................... 254,275 265,366 265,366
Redeemable preferred stock................................ 35,522 35,025 35,025
-------- -------- ----------
Total debt securities............................. 512,900 521,916 521,916
-------- -------- ----------
Equity securities available-for-sale:
Common stocks:
Public utilities....................................... 490 989 989
Banks, trust and insurance companies................... 1,429 4,693 4,693
Industrial, miscellaneous and all other................ 19,546 28,838 28,838
-------- -------- ----------
Total equity securities........................... 21,465 $ 34,520 34,520
-------- ======== ----------
Mortgage loans on real estate............................... 53,736 53,736
Real estate................................................. 453 453
Policy loans................................................ 399,608 399,608
Short-term investments...................................... 1,216 1,216
-------- ----------
Total investments................................. $989,378 $1,011,449
======== ==========
</TABLE>
See Footnote 1(c) to the Consolidated Financial Statements on page F-8
which sets forth the accounting policies related to investments.
S-1
<PAGE> 111
SCHEDULE III
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
The following condensed balance sheets of American Heritage Life Investment
Corporation ("Registrant") as of December 31, 1996 and 1995 and its condensed
statements of earnings and cash flows for the years ended December 31, 1996,
1995 and 1994 should be read in conjunction with the notes to consolidated
financial statements included elsewhere in this report. Since the Registrant's
condensed statements of changes in stockholders' equity for the years ended
December 31, 1996, 1995 and 1994 are identical to the consolidated statements of
changes in stockholders' equity included elsewhere in this report, such
statements are not repeated in this schedule.
In the years 1996 and 1994, no dividend was paid to the Registrant by AHL.
On December 27, 1995, a dividend of $13,245,264 related to American Heritage
Life Insurance Company's (AHL's) earnings in 1994, was paid from AHL to the
Registrant.
S-2
<PAGE> 112
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Cash........................................................ $ 13,551 $ 46,174
Certificate of deposit...................................... 100,000 100,000
Investment in life insurance subsidiaries, at equity........ 274,516,430 249,370,749
Investment in non-life insurance subsidiaries, at equity.... 4,484,531 4,454,226
Accounts receivable......................................... 5,122,599 11,449,111
Intercompany accounts....................................... 1,752,116 756,600
Other assets................................................ 11,901,626 9,485,563
------------ ------------
$297,890,853 $275,662,423
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable to banks.................................... $ 65,459,000 $ 54,994,000
Other liabilities......................................... 3,488,935 1,339,193
------------ ------------
Total liabilities................................. 68,947,935 56,333,193
------------ ------------
Stockholders' equity:
Common stock of $1.00 par value. Authorized 20,000,000
shares in 1996 and 1995; issued 13,967,253 in 1996 and
13,933,206 in 1995..................................... 13,967,253 13,933,206
Preferred stock:
Convertible of $10.00 par value. Authorized 500,000
shares; none issued.................................. 0 0
Non-convertible of $10.00 par value. Authorized 500,000
shares; none issued.................................. 0 0
Additional paid-in capital................................ 42,644,212 42,214,787
Retained earnings......................................... 163,460,222 148,454,353
Unrealized investment gains (losses)...................... 12,157,809 16,772,078
------------ ------------
232,229,496 221,374,424
Less cost of 153,728 in 1996 and 97,277 in 1995 common
shares in treasury..................................... 3,286,578 2,045,194
------------ ------------
Total stockholders' equity........................ 228,942,918 219,329,230
------------ ------------
$297,890,853 $275,662,423
============ ============
</TABLE>
S-3
<PAGE> 113
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED STATEMENTS OF EARNINGS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Income:
Investment income................................. $ 363,993 $ 62,678 $ 14,120
Other income...................................... 304,200 304,200 307,111
----------- ----------- -----------
Total income.............................. 668,193 366,878 321,231
Operating expenses.................................. 4,225,930 3,719,580 2,429,137
----------- ----------- -----------
Loss before income tax benefits........... (3,557,737) (3,352,702) (2,107,906)
Income tax benefits................................. (1,260,200) (1,203,700) (780,500)
----------- ----------- -----------
Loss before equity in earnings (loss) of
subsidiaries............................ (2,297,537) (2,149,002) (1,327,406)
Equity in net earnings of life insurance
subsidiaries...................................... 29,669,949 30,565,760 25,320,502
Equity in net losses of non-life insurance
subsidiaries...................................... (340,806) (341,372) (352,194)
----------- ----------- -----------
Net earnings.............................. $27,031,606 $28,075,386 $23,640,902
=========== =========== ===========
</TABLE>
S-4
<PAGE> 114
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
(REGISTRANT)
CONDENSED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Operating activities:
Net earnings................................... $ 27,031,606 $ 28,075,386 $ 23,640,902
Adjustments to reconcile net earnings to net
cash provided by operating activities:
Change in accounts receivable............... 6,326,512 (10,988,112) (138,117)
Change in other assets...................... (2,416,063) 1,247,340 (1,270,691)
Change in other liabilities................. 2,149,742 (915,652) 1,082,606
Equity in net earnings of life insurance
subsidiaries.............................. (29,669,949) (30,565,760) (25,320,502)
Equity in net loss of non-life insurance
subsidiaries.............................. 340,806 341,372 352,194
------------ ------------ ------------
Net cash provided (used) from operating
activities........................... 3,762,654 (12,805,426) (1,653,608)
------------ ------------ ------------
Financing activities:
Dividends from subsidiaries.................... 0 13,245,264 0
Capital contribution to subsidiaries........... (99,000) (120,000) (240,000)
Increase (decrease) in notes payable to
banks....................................... 10,465,000 10,794,000 11,720,000
Change in intercompany accounts................ (995,516) (969,631) (170,635)
Dividends to stockholders...................... (12,387,849) (9,389,613) (10,061,465)
Purchase of treasury stock..................... (1,241,384) (1,118,462) (2,229)
Excess over par value on shares issued......... 317,029 402,718 405,830
Other, net..................................... 146,443 (26,896) 3,321
------------ ------------ ------------
Net cash provided (used) by financing
activities........................... (3,795,277) 12,817,380 1,654,822
------------ ------------ ------------
Increase (decrease) in cash............ (32,623) 11,954 1,214
Cash at beginning of year........................ 46,174 34,220 33,006
------------ ------------ ------------
Cash at end of year.............................. $ 13,551 $ 46,174 $ 34,200
============ ============ ============
</TABLE>
S-5
<PAGE> 115
SCHEDULE IV
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
REINSURANCE
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
CEDED TO ASSUMED PERCENTAGE
GROSS OTHER FROM OTHER NET OF AMOUNT
YEAR ENDED DECEMBER 31, 1996 AMOUNT COMPANIES COMPANIES AMOUNTS ASSUMED TO NET
- ---------------------------- ----------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C>
Life insurance volume in force... $16,798,842 $5,031,374 $5,310,210 $17,077,678 31.1%
=========== ========== ========== =========== ====
Insurance revenues(a):
Ordinary....................... $ 142,397 $ 6,963 $ 1,987 $ 137,421 1.4%
Group.......................... 38,294 6,583 3,769 35,480 10.6%
Credit......................... 183,787 98,169 0 85,618 --%
----------- ---------- ---------- ----------- ----
Total.................. $ 364,478 $ 111,715 $ 5,756 $ 258,519 2.2%
=========== ========== ========== =========== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
- ----------------------------
<S> <C> <C> <C> <C> <C>
Life insurance volume in force... $15,016,456 $3,836,741 $3,367,550 $14,547,265 23.1%
=========== ========== ========== =========== ====
Insurance revenues(a):
Ordinary....................... $ 119,182 $ 5,756 $ 10,292 $ 123,718 8.3%
Group.......................... 44,602 6,989 2,312 39,925 5.8%
Credit......................... 168,677 85,081 12 83,608 .1%
----------- ---------- ---------- ----------- ----
Total.................. $ 332,461 $ 97,826 $ 12,616 $ 247,251 5.1%
=========== ========== ========== =========== ====
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1994
- ----------------------------
<S> <C> <C> <C> <C> <C>
Life insurance volume in force... $13,818,345 $3,284,122 $2,977,321 $13,531,544 22.2%
=========== ========== ========== =========== ====
Insurance revenues(a):
Ordinary....................... $ 120,009 $ 6,016 $ 0 $ 113,993 --%
Group.......................... 51,534 8,502 190 43,222 .4%
Credit......................... 129,880 59,475 2,969 73,374 4.0%
----------- ---------- ---------- ----------- ----
Total.................. $ 301,423 $ 73,993 $ 3,159 $ 230,589 1.4%
=========== ========== ========== =========== ====
</TABLE>
- ---------------
(a) Includes both life and accident and health premiums and commission and
expense allowances on reinsurance ceded.
S-6
<PAGE> 116
SCHEDULE V
AMERICAN HERITAGE LIFE INVESTMENT CORPORATION
SUPPLEMENTARY INSURANCE INFORMATION
<TABLE>
<CAPTION>
DEFERRED FUTURE POLICYHOLDERS' POLICY AND NET
ACQUISITION POLICY ACCOUNT UNEARNED CONTRACT INSURANCE INVESTMENT
INDUSTRY SEGMENT COSTS BENEFITS BALANCES PREMIUMS CLAIMS REVENUES(C) INCOME(A)
- ---------------------- ------------ ----------- -------------- ------------ ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER
31, 1996
Ordinary............ $173,698,681 261,223,527 924,690,539 5,689,412 12,774,597 137,421,080 67,327,761
Group............... 0 6,501,968 4,354,512 0 29,229,231 35,479,632 5,320,531
Credit.............. 0 0 0 46,904,097 11,819,172 85,618,365 4,365,225
Other............... 0 0 0 0 0 0 21,459
------------ ----------- ----------- ------------ ---------- ----------- ------------
$173,698,681 267,725,495 929,045,051 52,593,509 53,823,000 258,519,077 77,034,976
============ =========== =========== ============ ========== =========== ============
YEAR ENDED DECEMBER
31, 1995
Ordinary............ $158,250,346 195,859,984 629,589,633 3,360,538 9,537,431 123,718,289 61,559,101
Group............... 0 9,227,751 6,080,433 0 31,380,088 39,924,809 5,356,427
Credit.............. 0 0 0 49,956,614 9,457,926 83,608,031 4,011,351
Other............... 0 0 0 0 0 0 (325,514)
------------ ----------- ----------- ------------ ---------- ----------- ------------
$158,250,346 205,087,735 635,670,066 53,317,152 50,375,445 247,251,129 70,601,365
============ =========== =========== ============ ========== =========== ============
YEAR ENDED DECEMBER
31, 1994
Ordinary............ $162,867,773 183,043,220 570,024,695 1,677,180 8,198,767 113,993,333 57,477,827
Group............... 0 9,468,534 6,511,065 0 36,376,975 43,221,583 5,657,542
Credit.............. 0 0 0 49,927,086 8,733,157 73,373,760 3,846,885
Other............... 0 0 0 0 0 0 (275,761)
------------ ----------- ----------- ------------ ---------- ----------- ------------
$162,867,773 192,511,754 576,535,760 51,604,266 53,308,899 230,588,676 66,706,493
============ =========== =========== ============ ========== =========== ============
<CAPTION>
AMORTIZATION TAXES,
BENEFITS OF DEFERRED COMMISSIONS
AND ACQUISITION AND GENERAL
INDUSTRY SEGMENT CLAIMS COSTS EXPENSES(B)
- ---------------------- ----------- ------------ ------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER
31, 1996
Ordinary............ 110,958,680 25,628,001 33,092,274
Group............... 24,013,352 0 12,275,230
Credit.............. 13,901,069 0 72,331,652
Other............... 14,183 0 (285,708)
----------- ---------- -----------
148,887,284 25,628,001 117,413,448
=========== ========== ===========
YEAR ENDED DECEMBER
31, 1995
Ordinary............ 103,183,528 23,744,359 29,414,331
Group............... 25,595,022 0 12,216,464
Credit.............. 19,801,846 0 65,077,894
Other............... 0 0 (309,722)
----------- ---------- -----------
148,580,296 23,744,359 106,398,967
=========== ========== ===========
YEAR ENDED DECEMBER
31, 1994
Ordinary............ 95,637,818 20,757,868 29,026.850
Group............... 29,093,520 0 12,462,165
Credit.............. 21,414,613 0 54,052,460
Other............... 0 0 (215,082)
----------- ---------- -----------
146,145,951 20,757,868 95,326,393
=========== ========== ===========
</TABLE>
- ---------------
(a) Allocated to the industry segment based on required liabilities for future
policy benefits.
(b) Allocated on functional cost basis unless specifically identifiable with
industry segment.
(c) Includes only cost of insurance, expense and surrender charges for
interest-sensitive products. Insurance revenues do not include group and
credit premium equivalents and cash deposits from interest-sensitive
products.
S-7
<PAGE> 117
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY AHLIC, AHL FINANCING OR THE
UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER AND THEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF AHLIC OR AHL FINANCING SINCE THE
DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY
ANYONE IN ANY STATE IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN
WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR
TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 5
Incorporation of Certain Documents by
Reference........................... 5
Prospectus Summary.................... 7
Risk Factors.......................... 20
The Trust............................. 26
Price Range of Common Stock and
Dividends........................... 27
Use of Proceeds....................... 27
Capitalization........................ 28
Accounting Treatment.................. 28
Selected Consolidated Financial
Information......................... 29
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 30
Business.............................. 36
Management............................ 48
Description of the FELINE PRIDES...... 51
Description of the Purchase
Contracts........................... 53
Description of the Common Stock....... 60
Certain Provisions of the Purchase
Contract Agreement and the Pledge
Agreement........................... 61
Description of the Trust Preferred
Securities.......................... 63
Description of the Guarantee.......... 73
Description of the Junior Subordinated
Debentures.......................... 73
Effect of Obligations Under the Junior
Subordinated Debentures and the
Guarantee........................... 80
Certain Federal Income Tax
Consequences........................ 81
ERISA Considerations.................. 85
Underwriting.......................... 86
Legal Matters......................... 87
Index to Consolidated Financial
Statements and Financial Statement
Schedules........................... F-1
</TABLE>
======================================================
======================================================
1,500,000 FELINE PRIDES(SM)
AHL LOGO
AMERICAN HERITAGE
LIFE INVESTMENT
CORPORATION
AHL FINANCING
---------------------
PROSPECTUS
---------------------
MERRILL LYNCH & CO.
GOLDMAN, SACHS & CO.
THE ROBINSON-HUMPHREY COMPANY, INC.
, 1997
(SM) Service Mark of Merrill Lynch & Co. Inc.
======================================================
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The expenses in connection with the issuance and distribution of the
securities being registered, other than underwriting compensation, are:
<TABLE>
<S> <C>
SEC Registration Fee $52,273.00
NASD Filing Fee............................................. 17,750.00
NYSE Listing Fee............................................ *
Printing and Engraving...................................... *
Rating Agency Fee........................................... *
Accounting Fees............................................. *
Legal Fees.................................................. *
Blue Sky Fees............................................... *
Transfer Agent's Fees....................................... *
Fees of Trustees, Purchase Contract Agent and Collateral
Agent..................................................... *
Miscellaneous............................................... *
----------
Total............................................. $ *
==========
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Subsection (1) of Section 607.0850 of the Florida Business Corporation Act
(the "FBCA") empowers a corporation to indemnify any person who was or is a
party to any proceeding (other than an action by or in the right of the
corporation) by reason of the fact that he or she is or was a director, officer,
employee or agent of the corporation or is or was serving at the request of the
corporation as a director, officer, employee or agent of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against liability incurred in connection with such proceeding
(including any appeal thereof) if he or she acted in good faith and in a manner
he or she reasonably believed to be in, or not opposed to, the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful.
Subsection (2) of Section 607.0850 of the FBCA empowers a corporation to
indemnify any person who was or is a party to any proceeding by or in the right
of the corporation to procure a judgment in its favor by reason of the fact that
such person acted in any of the capacities set forth in the preceding paragraph,
against expenses and amounts paid in settlement not exceeding, in the judgment
of the board of directors, the estimated expenses of litigating the proceeding
including appeals, provided that the person acted under the standards set forth
in the preceding paragraph. However, no indemnification may be made for any
claim, issue or matter as to which such person is adjudged to be liable unless,
and only to the extent that, the court in which such proceeding was brought, or
any other court of competent jurisdiction, determines upon application that,
despite the adjudication of liability but in view of all the circumstances of
the case, such person is fairly and reasonably entitled to indemnity for such
expenses that the court deems proper.
Section 607.0850(3) of the FBCA provides that to the extent a director,
officer, employee or agent of a corporation has been successful on the merits or
otherwise in the defense of any proceeding referred to in subsections (1) and
(2) of Section 607.0850 or in the defense of any claim, issue or matter therein,
he or she shall be indemnified against expenses actually and reasonably incurred
by him or her in connection therewith.
Subsection (4) provides that any indemnification under subsections (1) and
(2) of Section 607.0850, unless determined by a court, shall be made by the
corporation only as authorized in the specific case upon a determination that
indemnification of the director, officer, employee or agent is proper in the
circumstances
II-1
<PAGE> 119
because he or she has met the applicable standard of conduct set forth in
subsections (1) and (2) of Section 607.0850. Such determination shall be made:
(a) by the board of directors by a majority vote of a quorum
consisting of directors who were not parties to such proceeding;
(b) if such a quorum is not obtainable, or, even if obtainable, by a
majority vote of a committee duly designated by the board of directors (in
which directors who are parties may participate) consisting solely of two
or more directors not at the time parties to the proceeding;
(c) by independent legal counsel:
(1) selected by the board of directors as prescribed in paragraph
(a) or a committee selected as prescribed in paragraph (b); or
(2) if no quorum of directors can be obtained under paragraph (a),
and no committee can be designated under paragraph (b), by a majority
vote of the full board of directors (in which directors who are parties
may participate); or
(d) by the shareholders by a majority vote of a quorum of shareholders
who were not parties to such proceedings or if no quorum is obtainable, by
a majority vote of shareholders who were not parties to such proceeding.
Expenses incurred by a director or officer in defending a civil or criminal
proceeding may be paid by the corporation in advance of the final disposition
thereof upon receipt of an undertaking by or on behalf of such director or
officer to repay such amount if it is ultimately determined that such director
or officer is not entitled to indemnification under Section 607.0850.
Section 607.0850(7) of the FBCA states that indemnification and advancement
of expenses are not exclusive and empowers the corporation to make any other
further indemnification or advancement of expenses of it directors, officers,
employees or agents under any bylaw, agreement vote of shareholders or
disinterested directors or otherwise, for actions in an official capacity and in
other capacities while holding an office. However, a corporation cannot
indemnify or advance expenses if a judgment or other final adjudication
establishes that the actions of the director, officer, employee or agent (a)
violated criminal law, unless the director, officer, employee or agent had
reasonable cause to believe his or her conduct was lawful or had no reasonable
cause to believe his or her conduct was unlawful, (b) derived an improper
personal benefit from such transaction, (c) was or is a director in a
circumstance where the liability under Section 607.0834 of the FBCA (relating to
unlawful distributions) applies, or (d) engages in willful misconduct or
conscious disregard for the best interests of the corporation in a proceeding by
or in right of the corporation to procure a judgment in its favor or in a
proceeding by or in right of a shareholder.
Section 607.0850(9) of the FBCA permits any director, officer, employee or
agent who is or was a party to a proceeding to apply for indemnification or
advancement of expenses to any court of competent jurisdiction. Section
607.0850(12) of the FBCA permits a corporation to purchase and maintain
insurance for a director, officer, employee or agent against any liability
incurred in his or her official capacity or arising out of his or her status as
such regardless of the corporation's power to indemnify him or her against such
liability under this section.
The Company's Articles of Incorporation (the "Articles") provide that the
Company will indemnify the officers and directors of the Company against
expenses actually and necessarily incurred by such person in connection with the
defense of any action, suit or proceeding in which such person is made a party
by reason of being or having been an officer or director of the Company. The
Articles provide, however, that such indemnification provision does not apply in
relation to matters as to which such person shall be adjudged liable for
negligence or misconduct in the performance of duty. The Company's Articles also
provide that the Company may reimburse any officer or director for the
reasonable costs of settlement of any such action, suit, or proceeding if a
majority of a committee composed of the directors of the Company not involved in
the matter or controversy finds that it was in the interest of the Company that
such settlement be made and that such officer or director was not guilty of
negligence or misconduct.
II-2
<PAGE> 120
The Company's Bylaws provide specific provisions for indemnification of the
Company's officers and directors and provide further that, in addition to such
indemnification, the Company shall be obligated to indemnify the officers and
directors of the Company to the fullest extent as is provided and allowed
pursuant to the law of the State of Florida as it shall be enacted at the time
such indemnification is to be made.
The Company maintains directors' and officers' liability insurance which
covers certain liabilities arising from the performance of their
responsibilities as directors and officers.
The Declaration of Trust provides that no Institutional Trustee or any of
its Affiliates, Delaware Trustee or any of its Affiliates, or officer, director,
shareholder, member, partner, employee, representative or agent of the
Institutional Trustee or the Delaware Trustee (each a "Fiduciary Indemnified
Person"), and no Regular Trustee, Affiliate of any Regular Trustee, Affiliate of
any Regular Trustee, or any officer, director, shareholder, member, partner,
employee, representative or agent of any Regular Trustee, or any employee or
agent of the Trust or its Affiliates (each a "Company Indemnified Person") shall
be liable, responsible or accountable in damages or otherwise to such Trust or
any officer, director, shareholder, partner, member, representative, employee or
agent of the Trust or its Affiliates for any loss, damage or claim incurred by
reason of any act or omission performed or omitted by such Fiduciary Indemnified
Person or Company Indemnified Person in good faith on behalf of such Trust and
in a manner such Fiduciary Indemnified Person or Company Indemnified Person
reasonably believed to be within the scope of the authority conferred on such
Fiduciary Indemnified Person or Company Indemnified Person by such Declaration
or by law, except that a Fiduciary Indemnified Person or Company Indemnified
Person shall be liable for any such loss, damage or claim incurred by reason of
such Fiduciary Indemnified Person's or Company Indemnified Person's gross
negligence (or, in the case of a Fiduciary Indemnified Person, negligence) or
willful misconduct with respect to such acts or omissions.
The Declaration of Trust also provides that to the full extent permitted by
law, the Company shall indemnify any Company Indemnified Person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil criminal, administrative or
investigative (other than an action by or in the right of the Trust), by reason
of the fact that he is or was a Company Indemnified Person, against expenses
(including attorneys fees), judgments, fines and any amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Trust, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe his
conduct was unlawful. The Declaration of Trust also provides that to the full
extent permitted by law, the Company shall indemnify any Company Indemnified
person who was or is a party or is threatened to be made a party to any
threatened, pending or completed action or suit by or in the right of the Trust
to procure a judgment in its favor by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys fees) actually
and reasonably incurred by him in connection with the defense or settlement of
such action or suit if he acted in good faith and in a manner he reasonably
believed to be in or not opposed to the best interests of the Trust and except
that no such indemnification shall be made in respect of any claim issue or
matters to which such Company Indemnified Person shall have been adjudged to be
liable to the Trust unless and only to the extent that the Court of Chancery of
Delaware or the court in which such action or suit was brought shall determine
upon application that, despite the adjudication of liability but in view of all
the circumstances of the case, such person is fairly and reasonable entitled to
indemnity for such expenses which such Court of Chancery or such other court
shall deem proper. The Declaration of Trust further provides that expenses
(including attorneys fees) incurred by a Company Indemnified Person in defending
a civil, criminal, administrative or investigative action, suit or proceeding
referred to in the immediately preceding two sentences shall be paid by the
Company in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such Company Indemnified
Person to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Company as authorized in the Declaration. The
directors and officers of the Company and the Regular Trustees are covered by
insurance policies indemnifying them against certain liabilities, including
certain liabilities arising under the Securities Act of 1933, which might be
incurred by them in such capacities and against which they cannot be indemnified
by the Company or the Trust.
II-3
<PAGE> 121
ITEM 16. EXHIBITS
Exhibits identified in parentheses below are on file with the SEC and are
incorporated by reference to such previous filings.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S> <C>
1 -- Form of Underwriting Agreement with respect to the AHLIC
Income PRIDES.
3(a) -- Amended and Restated Articles of Incorporation of American
Heritage Life Investment Corporation dated April 25, 1996.
Incorporated by reference to Exhibit 3(a) of the Form 8-K,
dated May 8, 1996. (File No. 1-7255).
3(b) -- By-Laws of American Heritage Life Investment Corporation as
amended and restated, dated February 6, 1996. Incorporated
by reference to Exhibit 3 of the Form 8-K, dated February
15, 1996 (File No. 1-7255).
4(a) -- Common Stock Certificate of American Heritage Life
Investment Corporation. Incorporated by reference to Exhibit
4 of the Form 10-K filed by the Registrant for the period
ended December 31, 1994 (File No. 1-7255).
4(b) -- Subordinated Debt Securities Indenture between the Company
and The First National Bank of Chicago, as Trustee.
4(c) -- Form of Preferred Security.
4(d) -- Form of Junior Subordinated Debenture.
4(e) -- Form of Guarantee Agreement with respect to Trust Preferred
Securities.
4(f) -- Form of Purchase Contract Agreement, between the Company and
The First National Bank of Chicago, as Purchase Contract
Agent (including as Exhibit A the form of and
as Exhibit B the form of) .
4(g) -- Form of Pledge Agreement, among the Company, The Chase
Manhattan Bank, as Collateral Agent and The First National
Bank of Chicago, as Purchase Contract Agent.
4(h) -- Certificate of Trust of AHL Financing.
4(i) -- Declaration of Trust of AHL Financing.
4(j) -- Form of Supplemental Indenture to Subordinated Debt
Securities Indenture to be used in connection with issuance
of Junior Subordinated Debentures related to Income PRIDES.
5(a) -- Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. regarding
the validity of certain of the Securities.
5(b) -- Opinion of , Senior Vice President and
Corporate Secretary for the Company regarding the validity
of certain of the AHLIC Securities.
8 -- Tax Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.
12 -- Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Fixed Charges and Preferred Stock Dividends.
23(a) -- Consent of KPMG Peat Marwick LLP
23(b) -- Consent of Coopers & Lybrand L.L.P.
23(c) -- Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included
in Exhibits 5(a) and 8).
23(d) -- Consent of , Senior Vice President and
Corporate Secretary for the Company (included in Exhibit
5(b)).
25(a) -- Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The First National Bank of Chicago, as
Trustee under the Subordinated Debt Securities Indenture.
</TABLE>
II-4
<PAGE> 122
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S> <C>
25(b) -- Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of the First National Bank of Chicago, as
Trustee of the Trust Preferred Securities Guarantee of the
Company for the benefit of the holders of Trust Preferred
Securities of AHL Financing.
25(c) -- Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of the First National Bank of Chicago, as
Trustee under the Declaration of Trust of AHL Financing.
</TABLE>
- ---------------
References are to the Company (File No. 1-7255) for documents incorporated by
reference.
ITEM 17. UNDERTAKINGS
The undersigned 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 in Section 10(a)(3) of the
Securities Act of 1933;
(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;
(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 paragraphs (1)(i) and (1)(ii) do not apply if the
information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed 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 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; and
(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.
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 described under Item 15 above, 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 its 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.
The undersigned Registrants hereby undertake that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this 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 shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-5
<PAGE> 123
(2) For the 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.
II-6
<PAGE> 124
SIGNATURES
Pursuant to the requirements of the Securities Act of, 1933, the Trust
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3, and that it has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
to duly authorized, in the City of Jacksonville and State of Florida on March
19, 1997.
AHL FINANCING
By: /s/ T. O'NEAL DOUGLAS
------------------------------------
T. O'Neal Douglas
Trustee
By: /s/ C. RICHARD MOREHEAD
------------------------------------
C. Richard Morehead
Trustee
Pursuant to the requirements of the Securities Act of 1933, the Company
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 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Jacksonville, State of Florida, on March 19, 1997.
AMERICAN HERITAGE LIFE INVESTMENT
CORPORATION
By: /s/ T. O'NEAL DOUGLAS
------------------------------------
T. O'Neal Douglas
Chairman of the Board and
Chief Executive Officer
SPECIAL POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears on
the signature page to this Registration Statement constitutes and appoints T.
O'Neal Douglas, Chris A. Verlander, C. Richard Morehead and W. Michael Heekin,
and each or any of them, his or her true and lawful attorneys-in-fact and
agents, with full power of substitution and resubstitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments (including post-effective amendments) to this Registration
Statement and any and all Registration Statements filed pursuant to Rule 462(b)
under the Securities Act of 1933, and to file the same, with all exhibits and
other documents in connection therewith, with the Securities and Exchange
Commission, and grants unto said attorneys-in-fact and agents, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in and about the premises, as fully to all intents and purposes as he
or she might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or his or her substitute or substitutes may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities with American Heritage Life Investment Corporation and on the dates
indicated.
II-7
<PAGE> 125
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ T. O'NEAL DOUGLAS Chairman of the Board, Chief March 19, 1997
- ----------------------------------------------------- Executive Officer and
T. O'Neal Douglas Director (Principal Executive
Officer)
/s/ C. RICHARD MOREHEAD Executive Vice President, March 19, 1997
- ----------------------------------------------------- Treasurer and Chief Financial
C. Richard Morehead Officer (Principal Financial
Officer and Principal
Accounting Officer
/s/ EDWARD L. BAKER Director March 19, 1997
- -----------------------------------------------------
Edward L. Baker
/s/ A. DANO DAVIS Director March 19, 1997
- -----------------------------------------------------
A. Dano Davis
/s/ ROBERT D. DAVIS Director March 20, 1997
- -----------------------------------------------------
Robert H. Davis
/s/ H. CORBIN DAY Director March 19, 1997
- -----------------------------------------------------
H. Corbin Day
/s/ RADFORD D. LOVETT Director March 19, 1997
- -----------------------------------------------------
Radford D. Lovett
/s/ CHRIS A. VERLANDER President, Chief Operating March 19, 1997
- ----------------------------------------------------- Officer and Director
Chris A. Verlander
/s/ W. ASHLEY VERLANDER Director March 20, 1997
- -----------------------------------------------------
W. Ashley Verlander
</TABLE>
II-8
<PAGE> 126
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ------------
<C> <C> <S> <C>
1 -- Form of Underwriting Agreement with respect to the AHLIC
Income PRIDES.**
3(a) -- Amended and Restated Articles of Incorporation of American
Heritage Life Investment Corporation dated April 25, 1996.
Incorporated by reference to Exhibit 3(a) of the Form 8-K,
dated May 8, 1996. (File No. 1-7255).
3(b) -- By-Laws of American Heritage Life Investment Corporation as
amended and restated, dated February 6, 1996. Incorporated
by reference to Exhibit 3 of the Form 8-K, dated February
15, 1996 (File No. 1-7255).
4(a) -- Common Stock Certificate of American Heritage Life
Investment Corporation. Incorporated by reference to Exhibit
4 of the Form 10-K filed by the Registrant for the period
ended December 31, 1994 (File No. 1-7255).
4(b) -- Subordinated Debt Securities Indenture between the Company
and The First National Bank of Chicago, as Trustee.**
4(c) -- Form of Preferred Security.**
4(d) -- Form of Junior Subordinated Debenture.**
4(e) -- Form of Guarantee Agreement with respect to Trust Preferred
Securities.**
4(f) -- Form of Purchase Contract Agreement, between the Company and
The First National Bank of Chicago, as Purchase Contract
Agent (including as Exhibit A the form of and as
Exhibit B the form of) .**
4(g) -- Form of Pledge Agreement, among the Company, The Chase
Manhattan Bank, as Collateral Agent and The First National
Bank of Chicago, as Purchase Contract Agent.**
4(h) -- Certificate of Trust of AHL Financing.*
4(i) -- Declaration of Trust of AHL Financing.*
4(j) -- Form of Supplemental Indenture to Subordinated Debt
Securities Indenture to be used in connection with issuance
of Junior Subordinated Debentures related to Income
PRIDES.**
5(a) -- Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P. regarding
the validity of certain of the Securities.**
5(b) -- Opinion of , Senior Vice President and Corporate
Secretary for the Company regarding the validity of certain
of the AHLIC Securities.**
8 -- Tax Opinion of LeBoeuf, Lamb, Greene & MacRae, L.L.P.**
12 -- Computation of Ratio of Earnings to Fixed Charges and Ratio
of Earnings to Fixed Charges and Preferred Stock
Dividends.**
23(a) -- Consent of KPMG Peat Marwick LLP*
23(b) -- Consent of Coopers & Lybrand L.L.P.*
23(c) -- Consent of LeBoeuf, Lamb, Greene & MacRae, L.L.P. (included
in Exhibits 5(a) and 8).
23(d) -- Consent of , Senior Vice President and Corporate
Secretary for the Company (included in Exhibit 5(b)).
</TABLE>
II-9
<PAGE> 127
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION OF DOCUMENT PAGE
- ------- ----------------------- ------------
<C> <C> <S> <C>
25(a) -- Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The First National Bank of Chicago as
Trustee under the Subordinated Debt Securities Indenture.**
25(b) -- Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The First National Bank of Chicago as
Trustee of the Trust Preferred Securities Guarantee of the
Company for the benefit of the holders of Trust Preferred
Securities of AHL Financing.**
25(c) -- Statement of Eligibility under the Trust Indenture Act of
1939, as amended, of The First National Bank of Chicago as
Trustee under the Declaration of Trust of AHL Financing.**
</TABLE>
- ---------------
* Indicates document filed herewith.
** To be filed by amendment.
References are to the Company (File No. 1-7255) for documents incorporated
by reference. restructuring the investment portfolio consistent with the
Company's investment strategies.
II-10
<PAGE> 1
EXHIBIT 4(h)
CERTIFICATE OF TRUST
The undersigned, the trustees of AHL Financing, desiring to form a business
trust pursuant to Delaware Business Trust Act, 12 Del. C. ss. 3801 et seq.,
hereby certify as follows:
(a) The name of the business trust being formed hereby (the
"Trust") is "AHL Financing."
(b) The name and business address of the trustee of the Trust
that has its principal place of business in the State of Delaware is
as follows:
First Chicago Delaware Inc.
300 King Street
Wilmington, DE 19801
(c) This Certificate of Trust shall be effective as of the date
of filing.
Dated: March 20, 1997
--
/s/T. O'Neal Douglas
-----------------------------
Name: T. O'Neal Douglas
Title: Regular Trustee
/s/ C. Richard Morehead
-----------------------------
Name: C. Richard Morehead
Title: Regular Trustee
FIRST CHICAGO DELAWARE INC.,
as Trustee
By:/s/Richard D. Manella
-------------------------
Name: Richard D. Manella
Title: Vice President
<PAGE> 1
EXHIBIT 4(i)
DECLARATION OF TRUST
AHL FINANCING
DATED AS OF MARCH 20, 1997
<PAGE> 2
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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ARTICLE I
DEFINITIONS
<S> <C> <C>
SECTION 1.1 Definitions.................................................................................1
ARTICLE II
ORGANIZATION
SECTION 2.1 Name........................................................................................3
SECTION 2.2 Office .....................................................................................3
SECTION 2.3 Purpose.....................................................................................3
SECTION 2.4 Authority...................................................................................3
SECTION 2.5 Title to Property of the Trust .............................................................3
SECTION 2.6 Powers of the Trustees .....................................................................3
SECTION 2.7 Filing of Certificate of Trust .............................................................4
SECTION 2.8 Duration of Trust...........................................................................4
SECTION 2.9 Responsibilities of the Sponsor.............................................................4
SECTION 2.10 Declaration Binding on Securities Holders...................................................5
ARTICLE III
TRUSTEES
SECTION 3.1 Trustees....................................................................................5
SECTION 3.2 Regular Trustees............................................................................5
SECTION 3.3 Delaware Trustee............................................................................6
SECTION 3.4 Institutional Trustee.......................................................................6
SECTION 3.5 Not Responsible for Recitals or Sufficiency of Declaration..................................6
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 4.1 Exculpation.................................................................................6
SECTION 4.2 Fiduciary Duty..............................................................................7
SECTION 4.3 Indemnification.............................................................................7
SECTION 4.4 Outside Businesses..........................................................................9
</TABLE>
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<PAGE> 3
<TABLE>
<CAPTION>
Page
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ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
<S> <C> <C>
SECTION 5.1 Amendments.................................................................................10
SECTION 5.2 Termination of Trust.......................................................................10
SECTION 5.3 Governing Law..............................................................................10
SECTION 5.4 Headings...................................................................................10
SECTION 5.5 Successors and Assigns.....................................................................10
SECTION 5.6 Partial Enforceability.....................................................................10
SECTION 5.7 Counterparts...............................................................................11
</TABLE>
-ii-
<PAGE> 4
DECLARATION OF TRUST
OF
AHL FINANCING
March 20, 1997
DECLARATION OF TRUST ("Declaration") dated and effective as of March 20,
1997 by the undersigned Trustees (together with all other persons from time to
time duly appointed and serving as trustees in accordance with the provisions of
this Declaration, the "Trustees"), American Heritage Life Investment
Corporation, a Florida corporation, as trust sponsor (the "Sponsor"), and by the
holders, from time to time, of undivided beneficial interests in the Trust to be
issued pursuant to this Declaration;
WHEREAS, the Trustees and the Sponsor desire to establish a trust (the
"Trust") pursuant to the Delaware Business Trust Act for the sole purpose of
issuing and selling certain securities representing undivided beneficial
interests in the assets of the Trust and investing the proceeds thereof in
certain Debentures of the Debenture Issuer (as hereinafter defined);
NOW, THEREFORE, it being the intention of the parties hereto that the Trust
constitute a business trust under the Business Trust Act and that this
Declaration constitute the governing instrument of such business trust, the
Trustees declare that all assets contributed to the Trust will be held in trust
for the benefit of the holders, from time to time, of the securities
representing undivided beneficial interests in the assets of the Trust issued
hereunder, subject to the provisions of this Declaration.
ARTICLE I
DEFINITIONS
SECTION 1.1 Definitions.
Unless the context otherwise requires:
(a) Capitalized terms used in this Declaration but not defined in the
preamble above have the respective meanings assigned to them in this
Section 1.1;
(b) a term defined anywhere in this Declaration has the same meaning
throughout;
(c) all references to "the Declaration" or "this Declaration" are to this
Declaration of Trust as modified, supplemented or amended from time to
time;
(d) all references in this Declaration to Articles and Sections are to
Articles and Sections of this Declaration unless otherwise specified;
and
(e) a reference to the singular includes the plural and vice versa.
"Affiliate" has the same meaning as given to that term in Rule 405 of the
Securities Act or any successor rule thereunder.
"Business Day" means any day other than a day on which banking institutions
in New York, New York are authorized or required by law to close.
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<PAGE> 5
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code, 12
Del. Code ss.3801 et seq., as it may be amended from time to time, or any
successor legislation.
"Commission" means the Securities and Exchange Commission.
"Common Security" means a security representing a common undivided
beneficial interest in the assets of the Trust with such terms as may be set out
in any amendment to this Declaration.
"Company Indemnified Person" means (a) any Regular Trustee; (b) any
Affiliate of any Regular Trustee; (c) any officers, directors, shareholders,
members, partners, employees, representatives or agents of any Regular Trustee;
or (d) any employee or agent of the Trust or its Affiliates.
"Covered Person" means (a) any officer, director, shareholder, partner,
member, representative, employee or agent of (i) the Trust or (ii) the Trust's
Affiliates and (b) any holder of Securities.
"Debenture Issuer" means American Heritage Life Investment Corporation in
its capacity as the issuer of the Debentures under the Indenture.
"Debentures" means the series of Debentures to be issued by the Debenture
Issuer and acquired by the Trust.
"Debenture Trustee" means The First National Bank of Chicago, as trustee
under the Indenture until a successor is appointed thereunder, and thereafter
means such successor trustee.
"Delaware Trustee" has the meaning set forth in Section 3.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time, or any successor legislation.
"Fiduciary Indemnified Person" has the meaning set forth in Section 4.3(b).
"Holder" means the person in whose name a certificate representing a
Security is registered.
"Indemnified Person" means a Company Indemnified Person or a Fiduciary
Indemnified Person.
"Indenture" means the indenture between American Heritage Life Investment
Corporation and First National Bank of Chicago, as trustee, and any indenture
supplemental thereto pursuant to which the Debentures are to be issued.
"Person" means a legal person, including any individual, corporation,
estate, partnership, joint venture, association, joint stock company, limited
liability company, trust, unincorporated association, or government or any
agency or political subdivision thereof, or any other entity of whatever nature.
"Preferred Security" means a security representing an undivided beneficial
interest in the assets of the Trust with such terms as may be set out in any
amendment to this Declaration.
"Regular Trustee" has the meaning set forth in Section 3.1.
"Securities" means the Common Securities and the Preferred Securities.
"Securities Act" means the Securities Act of 1933, as amended from time to
time, or any successor legislation.
"Sponsor" means American Heritage Life Investment Corporation in its
capacity as sponsor of the Trust.
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<PAGE> 6
"Trustee" or "Trustees" means each Person who has signed this Declaration
as a trustee, so long as such Person shall continue in office in accordance with
the terms hereof, and all other Persons who may from time to time be duly
appointed, qualified and serving as Trustees in accordance with the provisions
hereof, and references herein to a Trustee or the Trustees shall refer to such
Person or Persons solely in their capacity as trustees hereunder.
ARTICLE II
ORGANIZATION
SECTION 2.1 Name.
The Trust created by this Declaration is named "AHL Financing." The Trust's
activities may be conducted under the name of the Trust or any other name deemed
advisable by the Regular Trustees.
SECTION 2.2 Office.
The address of the principal office of the Trust is c/o American Heritage
Life Investment Corporation, 1776 American Heritage Life Drive, Jacksonville,
Florida 32224. At any time, the Regular Trustees may designate another principal
office.
SECTION 2.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and sell
Securities and use the proceeds from such sale to acquire the Debentures, and
(b) except as otherwise limited herein, to engage in only those other activities
necessary, or incidental thereto. The Trust shall not borrow money, issue debt
or reinvest proceeds derived from investments, pledge any of its assets, or
otherwise undertake (or permit to be undertaken) any activity that would cause
the Trust not to be classified for United States federal income tax purposes as
a grantor trust.
SECTION 2.4 Authority.
Subject to the limitations provided in this Declaration, the Regular
Trustees shall have exclusive and complete authority to carry out the purposes
of the Trust. An action taken by the Regular Trustees in accordance with their
powers shall constitute the act of and serve to bind the Trust. In dealing with
the Regular Trustees acting on behalf of the Trust, no person shall be required
to inquire into the authority of the Regular Trustees to bind the Trust. Persons
dealing with the Trust are entitled to rely conclusively on the power and
authority of the Regular Trustees as set forth in this Declaration.
SECTION 2.5 Title to Property of the Trust.
Legal title to all assets of the Trust shall be vested in the Trust.
SECTION 2.6 Powers of the Trustees.
The Regular Trustees shall have the exclusive power and authority to cause
the Trust to engage in the following activities:
(a) to issue and sell the Preferred Securities and the Common Securities in
accordance with this Declaration; provided, however, that the Trust may issue no
more than one series of Preferred Securities and no more than one series of
Common Securities, and, provided further, that there shall be no interests in
the Trust other than the Securities and the issuance of the Securities shall be
limited to a one-time, simultaneous issuance of both Preferred Securities and
Common Securities;
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<PAGE> 7
(b) in connection with the issue and sale of the Preferred Securities, at
the direction of the Sponsor, to:
(i) execute and file with the Commission a registration statement
on Form S-3 prepared by the Sponsor, including any amendments thereto
in relation to the Preferred Securities;
(ii) execute and file any documents prepared by the Sponsor, or
take any acts as determined by the Sponsor to be necessary in order to
qualify or register all or part of the Preferred Securities in any
State in which the Sponsor has determined to qualify or register such
Preferred Securities for sale;
(iii) execute and file an application, prepared by the Sponsor,
to the New York Stock Exchange or any other national stock exchange or
the Nasdaq Stock Market's National Market for listing upon notice of
issuance of any Preferred Securities;
(iv) execute and file with the Commission a registration
statement on Form 8-A, including any amendments thereto, prepared by
the Sponsor relating to the registration of the Preferred Securities
under Section 12(b) of the Exchange Act; and
(v) execute and enter into an underwriting agreement and pricing
agreement providing for the sale of the Preferred Securities;
(c) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors, and
consultants and provide for reasonable compensation for such services;
(d) to incur expenses that are necessary or incidental to carry out any of
the purposes of this Declaration; and
(e) to execute all documents or instruments, perform all duties and powers,
and do all things for and on behalf of the Trust in all matters necessary or
incidental to the foregoing.
SECTION 2.7 Filing of Certificate of Trust.
On or after the date of execution of this Declaration, the Trustees shall
cause the filing of the Certificate of Trust for the Trust in the form attached
hereto as Exhibit A with the Secretary of State of the State of Delaware.
SECTION 2.8 Duration of Trust.
The Trust, absent termination pursuant to the provisions of Section 5.2,
shall have existence for seven (7) years from the date hereof.
SECTION 2.9 Responsibilities of the Sponsor.
In connection with the issue and sale of the Preferred Securities, the
Sponsor shall have the exclusive right and responsibility to engage in the
following activities:
(a) to prepare for filing by the Trust with the Commission a registration
statement on Form S-3 in relation to the Preferred Securities, including any
amendments thereto;
(b) to determine the States in which to take appropriate action to qualify
or register for sale all or part of the Preferred Securities and to do any and
all such acts, other than actions that must be taken by the Trust, and advise
the Trust of actions it must take, and prepare for execution and filing any
documents to be executed and filed by the Trust, as the Sponsor deems necessary
or advisable in order to comply with the applicable laws of any such States;
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<PAGE> 8
(c) to prepare for filing by the Trust an application to the New York Stock
Exchange or any other national stock exchange or the Nasdaq National Market for
listing upon notice of issuance of any Preferred Securities;
(d) to prepare for filing by the Trust with the Commission a registration
statement on Form 8-A relating to the registration of the class of Preferred
Securities under Section 12(b) of the Exchange Act, including any amendments
thereto; and (e) to negotiate the terms of an underwriting agreement and pricing
agreement providing for the sale of the Preferred Securities.
(e) to negotiate the terms of an underwriting agreement and pricing
agreement providing for the sale of the Preferred Securities.
SECTION 2.10 Declaration Binding on Securities Holders.
Every Person by virtue of having become a Holder of a Security or any
interest therein in accordance with the terms of this Declaration, shall be
deemed to have expressly assented and agreed to the terms of, and shall be bound
by, this Declaration.
ARTICLE III
TRUSTEES
SECTION 3.1 Trustees.
The number of Trustees initially shall be three (3), and thereafter the
number of Trustees shall be such number as shall be fixed from time to time by a
written instrument signed by the Sponsor. The Sponsor is entitled to appoint or
remove without cause any Trustee at any time; provided, however, that the number
of Trustees shall in no event be less than two (2); provided further that one
Trustee, in the case of a natural person, shall be a person who is a resident of
the State of Delaware or that, if not a natural person, is an entity that has
its principal place of business in the State of Delaware (the "Delaware
Trustee"); provided further that there shall be at least one trustee who is an
employee or officer of, or is affiliated with the Sponsor (a "Regular Trustee").
SECTION 3.2 Regular Trustees.
The initial Regular Trustees shall be:
T. O'Neal Douglas
C. Richard Morehead
(a) Except as expressly set forth in this Declaration, any power of the
Regular Trustees may be exercised by, or with the consent of, any one such
Regular Trustee.
(b) Unless otherwise determined by the Regular Trustees, and except as
otherwise required by the Business Trust Act, any Regular Trustee is authorized
to execute on behalf of the Trust any documents that the Regular Trustees have
the power and authority to cause the Trust to execute pursuant to Section 2.6
provided, that, the registration statement referred to in Section 2.6(b)(i),
including any amendments thereto, shall be signed by a majority of the Regular
Trustees; and (c) a Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any other natural person over the age of 21 his or
her power for the purposes of signing any documents that the Regular Trustees
have power and authority to cause the Trust to execute pursuant to Section 2.6.
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<PAGE> 9
SECTION 3.3 Delaware Trustee.
The initial Delaware Trustee shall be:
First Chicago Delaware Inc.
Notwithstanding any other provision of this Declaration, the Delaware
Trustee shall not be entitled to exercise any of the powers, nor shall the
Delaware Trustee have any of the duties and responsibilities of, the Trustees
described in this Declaration. The Delaware Trustee shall be a Trustee for the
sole and limited purpose of fulfilling the requirements of ss. 3807 of the
Business Trust Act. Notwithstanding anything herein to the contrary, the
Delaware Trustee shall not be liable for the acts or omissions to act of the
Trust, of the Sponsor or of the Regular Trustees except such acts as the
Delaware Trustee is expressly obligated or authorized to undertake under this
Declaration or the Business Trust Act and except for the gross negligence or
willful misconduct of the Delaware Trustee.
SECTION 3.4 Institutional Trustee.
Prior to the issuance of the Preferred Securities and Common Securities,
the Sponsor shall appoint a trustee (the "Institutional Trustee") meeting the
requirements of an eligible trustee of the Trust Indenture Act of 1939, as
amended, by the execution of an amendment to this Declaration executed by the
Regular Trustees, the Sponsor, the Institutional Trustee and the Delaware
Trustee.
SECTION 3.5 Not Responsible for Recitals or Sufficiency of Declaration.
The recitals contained in this Declaration shall be taken as the statements
of the Sponsor, and the Trustees do not assume any responsibility for their
correctness. The Trustees make no representations as to the value or condition
of the property of the Trust or any part thereof. The Trustees make no
representations as to the validity or sufficiency of this Declaration.
ARTICLE IV
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
SECTION 4.1 Exculpation.
(a) No Indemnified Person shall be liable, responsible or accountable in
damages or otherwise to the Trust or any Covered Person for any loss, damage or
claim incurred by reason of any act or omission performed or omitted by such
Indemnified Person in good faith on behalf of the Trust and in a manner such
Indemnified Person reasonably believed to be within the scope of the authority
conferred on such Indemnified Person by this Declaration or by law, except that
an Indemnified Person shall be liable for any such loss, damage or claim
incurred by reason of such Indemnified Person's gross negligence or willful
misconduct with respect to such acts or omissions; and
(b) an Indemnified Person shall be fully protected in relying in good faith
upon the records of the Trust and upon such information, opinions, reports or
statements presented to the Trust by any Person as to matters the Indemnified
Person reasonably believes are within such other Person's professional or expert
competence and who has been selected with reasonable care by or on behalf of the
Trust, including information, opinions, reports or statements as to the value
and amount of the assets, liabilities, profits, losses, or any other facts
pertinent to the existence and amount of assets from which distributions to
holders of Securities might properly be paid.
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<PAGE> 10
SECTION 4.2 Fiduciary Duty.
(a) To the extent that, at law or in equity, an Indemnified Person has
duties (including fiduciary duties) and liabilities relating thereto to the
Trust or to any other Covered Person, an Indemnified Person acting under this
Declaration shall not be liable to the Trust or to any other Covered Person for
its good faith reliance on the provisions of this Declaration. The provisions of
this Declaration, to the extent that they restrict the duties and liabilities of
an Indemnified Person otherwise existing at law or in equity, are agreed by the
parties hereto to replace such other duties and liabilities of such Indemnified
Person;
(b) unless otherwise expressly provided herein:
(i) whenever a conflict of interest exists or arises between
Covered Persons; or
(ii) whenever this Declaration or any other agreement
contemplated herein or therein provides that an Indemnified Person
shall act in a manner that is, or provides terms that are, fair and
reasonable to the Trust or any holder of Securities, the Indemnified
Person shall resolve such conflict of interest, take such action or
provide such terms, considering in each case the relative interest of
each party (including its own interest) to such conflict, agreement,
transaction or situation and the benefits and burdens relating to such
interests, any customary or accepted industry practices, and any
applicable generally accepted accounting practices or principles. In
the absence of bad faith by the Indemnified Person, the resolution,
action or term so made, taken or provided by the Indemnified Person
shall not constitute a breach of this Declaration or any other
agreement contemplated herein or of any duty or obligation of the
Indemnified Person at law or in equity or otherwise; and
(c) whenever in this Declaration an Indemnified Person is permitted or
required to make a decision:
(i) in its "discretion" or under a grant of similar authority,
the Indemnified Person shall be entitled to consider such interests
and factors as it desires, including its own interests, and shall have
no duty or obligation to give any consideration to any interest of or
factors affecting the Trust or any other Person; or
(ii) in its "good faith" or under another express standard, the
Indemnified Person shall act under such express standard and shall not
be subject to any other or different standard imposed by this
Declaration or by applicable law.
SECTION 4.3 Indemnification.
(a) (i) The Debenture Issuer shall indemnify, to the full extent permitted
by law, any Company Indemnified Person who was or is a party or is
threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Trust)
by reason of the fact that he is or was a Company Indemnified Person
against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him in
connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed
to the best interests of the Trust, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct
was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a
presumption that the Company Indemnified Person did not act in good
faith and in a manner that he reasonably believed to be in or not
opposed to the best interests of the Trust, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that
his conduct was unlawful.
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<PAGE> 11
(ii) The Debenture Issuer shall indemnify, to the full extent
permitted by law, any Company Indemnified Person who was or is a party
or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a
judgment in its favor by reason of the fact that he is or was a
Company Indemnified Person against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
best interests of the Trust and except that no such indemnification
shall be made in respect of any claim, issue or matter as to which
such Company Indemnified Person shall have been adjudged to be liable
to the Trust unless and only to the extent that the Court of Chancery
of Delaware or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such
expenses that such Court of Chancery or such other court shall deem
proper.
(iii) Any indemnification under paragraphs (i) and (ii) of this
Section 4.3(a) (unless ordered by a court) shall be made by the
Debenture Issuer only as authorized in the specific case upon a
determination that indemnification of the Company Indemnified Person
is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (i) and (ii). Such
determination shall be made (1) by the Regular Trustees by a majority
vote of a quorum consisting of such Regular Trustees who were not
parties to such action, suit or proceeding, (2) if such a quorum is
not obtainable, or, even if obtainable, if a quorum of disinterested
Regular Trustees so directs, by independent legal counsel in a written
opinion, or (3) by the Common Security Holder of the Trust.
(iv) Expenses (including attorneys' fees) incurred by a Company
Indemnified Person in defending a civil, criminal, administrative or
investigative action, suit or proceeding referred to in paragraphs (i)
and (ii) of this Section 4.3(a) shall be paid by the Debenture Issuer
in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such Company
Indemnified Person to repay such amount if it shall ultimately be
determined that he is not entitled to be indemnified by the Debenture
Issuer as authorized in this Section 4.3(a). Notwithstanding the
foregoing, no advance shall be made by the Debenture Issuer if a
determination is reasonably and promptly made (i) by the Regular
Trustees by a majority vote of a quorum of disinterested Regular
Trustees, (ii) if such a quorum is not obtainable, or, even if
obtainable, if a quorum of disinterested Regular Trustees so directs,
by independent legal counsel in a written opinion or (iii) the Common
Security Holder of the Trust, that, based upon the facts known to the
Regular Trustees, counsel or the Common Security Holder at the time
such determination is made, such Company Indemnified Person acted in
bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the Trust, or, with respect to
any criminal proceeding, that such Company Indemnified Person believed
or had reasonable cause to believe his conduct was unlawful. In no
event shall any advance be made in instances where the Regular
Trustees, independent legal counsel or Common Security Holder
reasonably determine that such person deliberately breached his duty
to the Trust or its Common or Preferred Security Holders.
(v) The indemnification and advancement of expenses provided by,
or granted pursuant to, the other paragraphs of this Section 4.3(a)
shall not be deemed exclusive of any other rights to which those
seeking indemnification and advancement of expenses may be entitled
under any agreement, vote of stockholders or disinterested directors
of the Debenture Issuer or Preferred Security Holders of the Trust or
otherwise, both as to action in his official capacity and as to action
in another capacity while holding such office. All rights to
indemnification under this Section 4.3(a) shall be deemed to be
provided by a contract between the Debenture Issuer and each Company
Indemnified Person who serves in such capacity at any time while this
Section 4.3(a) is in effect. Any repeal or modification of this
Section 4.3(a) shall not affect any rights or obligations then
existing.
(vi) The Debenture Issuer or the Trust may purchase and maintain
insurance on behalf of any person who is or was a Company Indemnified
Person against any liability asserted against him and incurred by
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<PAGE> 12
him in any such capacity, or arising out of his status as such,
whether or not the Debenture Issuer would have the power to indemnify
him against such liability under the provisions of this Section
4.3(a).
(vii) For purposes of this Section 4.3(a), references to "the
Trust" shall include, in addition to the resulting or surviving
entity, any constituent entity (including any constituent of a
constituent) absorbed in a consolidation or merger, so that any person
who is or was a director, trustee, officer or employee of such
constituent entity, or is or was serving at the request of such
constituent entity as a director, trustee, officer, employee or agent
of another entity, shall stand in the same position under the
provisions of this Section 4.3(a) with respect to the resulting or
surviving entity as he would have with respect to such constituent
entity if its separate existence had continued.
(viii) The indemnification and advancement of expenses provided
by, or granted pursuant to, this Section 4.3(a) shall, unless
otherwise provided when authorized or ratified, continue as to a
person who has ceased to be a Company Indemnified Person and shall
inure to the benefit of the heirs, executors and administrators of
such a person.
(b) The Debenture Issuer shall indemnify (i) the Delaware Trustee, (ii) any
Affiliate of the Delaware Trustee, and (iii) any officers, directors,
shareholders, members, partners, employees, representatives, nominees,
custodians or agents of the Delaware Trustee (each of the Persons in (i) through
(iii) being referred to as a "Fiduciary Indemnified Person") for, and to hold
each Fiduciary Indemnified Person harmless against, any loss, liability or
expense incurred without gross negligence or bad faith on its part, arising out
of or in connection with the acceptance or administration of the trust or trusts
hereunder, including the costs and expenses (including reasonable legal fees and
expenses) of defending itself against, or investigating, any claim or liability
in connection with the exercise or performance of any of its powers or duties
hereunder. The provisions of this Section 4.3(b) shall survive the termination
of this Declaration or the resignation or removal of the Delaware Trustee.
SECTION 4.4 Outside Businesses.
Any Covered Person, the Sponsor and the Delaware Trustee may engage in or
possess an interest in other business ventures of any nature or description,
independently or with others, similar or dissimilar to the business of the
Trust, and the Trust and the Holders of Securities shall have no rights by
virtue of this Declaration in and to such independent ventures or the income or
profits derived therefrom and the pursuit of any such venture, even if
competitive with the business of the Trust, shall not be deemed wrongful or
improper. No Covered Person, the Sponsor nor the Delaware Trustee shall be
obligated to present any particular investment or other opportunity to the Trust
even if such opportunity is of a character that, if presented to the Trust,
could be taken by the Trust, and each Covered Person, the Sponsor and the
Delaware Trustee shall have the right to take for its own account (individually
or as a partner or fiduciary) or to recommend to others any such particular
investment or other opportunity. Each Covered Person and the Delaware Trustee
may engage or be interested in any financial or other transaction with the
Sponsor or any Affiliate of the Sponsor, or may act as depositary for, trustee
or agent for or may act on any committee or body of holders of, securities or
other obligations of the Sponsor or its Affiliates.
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ARTICLE V
AMENDMENTS, TERMINATION, MISCELLANEOUS
SECTION 5.1 Amendments.
At any time before the issue of any Securities, this Declaration may be
amended by, and only by, a written instrument executed by all of the Regular
Trustees and the Sponsor; provided, however, if the amendment effects the
rights, powers, duties, obligations or immunities of the Delaware Trustee, the
amendment shall also be approved by the Delaware Trustee.
SECTION 5.2 Termination of Trust.
(a) The Trust shall terminate and be of no further force or effect:
(i) upon the bankruptcy of the Sponsor;
(ii) upon the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor or the revocation of the
Sponsor's charter or of the Trust's certificate of trust;
(iii) upon the entry of a decree of judicial dissolution of the
Sponsor or the Trust; and
(iv) before the issue of any Securities, with the consent of all
of the Regular Trustees and the Sponsor; and
(b) as soon as is practicable after the occurrence of an event referred to
in Section 5.2(a), the Trustees shall file a certificate of cancellation with
the Secretary of State of the State of Delaware.
SECTION 5.3 Governing Law.
This Declaration and the rights of the parties hereunder shall be governed
by and interpreted in accordance with the laws of the State of Delaware and all
rights and remedies shall be governed by such laws without regard to principles
of conflict of laws.
SECTION 5.4 Headings.
Headings contained in this Declaration are inserted for convenience of
reference only and do not affect the interpretation of this Declaration or any
provision hereof.
SECTION 5.5 Successors and Assigns.
Whenever in this Declaration any of the parties hereto is named or referred
to, the successors and assigns of such party shall be deemed to be included, and
all covenants and agreements in this Declaration by the Sponsor and the Trustees
shall bind and inure to the benefit of their respective successors and assigns,
whether so expressed.
SECTION 5.6 Partial Enforceability.
If any provision of this Declaration, or the application of such provision
to any Person or circumstance, shall be held invalid, the remainder of this
Declaration, or the application of such provision to persons or circumstances
other than those to which it is held invalid, shall not be affected thereby.
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<PAGE> 14
SECTION 5.7 Counterparts.
This Declaration may contain more than one counterpart of the signature
page and this Declaration may be executed by the affixing of the signature of
each of the Trustees to one of such counterpart signature pages. All of such
counterpart signature pages shall be read as though one, and they shall have the
same force and effect as though all of the signers had signed a single signature
page.
IN WITNESS WHEREOF, the undersigned have caused this Declaration of Trust
of AHL Financing to be executed as of the day and year first above written.
/s/ T. O'Neal Douglas
--------------------------------
Name: T. O'Neal Douglas
Title: Regular Trustee
/s/ C. Richard Morehead
--------------------------------
Name: C. Richard Morehead
Title: Regular Trustee
First Chicago Delaware Inc.
-------------------------------,
as Delaware Trustee
By:/s/ Richard D. Manella
-----------------------------
Name: Richard D. Manella
Title: Vice President
AMERICAN HERITAGE LIFE INVESTMENT
CORPORATION, as Sponsor
By:/s/T. O'Neal Douglas
------------------------------
Name: T. O'Neal Douglas
Title: Chief Executive Officer
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<PAGE> 15
EXHIBIT A
CERTIFICATE OF TRUST
The undersigned, the trustees of AHL Financing, desiring to form a business
trust pursuant to Delaware Business Trust Act, 12 Del. C. ss. 3801 et seq.,
hereby certify as follows:
(a) The name of the business trust being formed hereby (the "Trust")
is "AHL Financing."
(b) The name and business address of the trustee of the Trust that has
its principal place of business in the State of Delaware is as follows:
First Chicago Delaware Inc.
300 King Street
Wilmington, DE 19801
(c) This Certificate of Trust shall be effective as of the date of
filing.
Dated: March ___, 1997
------------------------------
Name: T. O'Neal Douglas
Title: Regular Trustee
------------------------------
Name: C. Richard Morehead
Title: Regular Trustee
FIRST CHICAGO DELAWARE INC.,
as Trustee
By:
----------------------------
Name:
Title:
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<PAGE> 1
EXHIBIT 23(A)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
American Heritage Life Investment Corporation
We consent to the use of our reports included herein and to the reference
to our firm under the heading "Experts" in the prospectus.
KPMG PEAT MARWICK LLP
Jacksonville, Florida
March 27, 1997
<PAGE> 1
EXHIBIT 23(B)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement
of American Heritage Life Investment Corporation on Form S-3 (File No. )
of our report dated February 18, 1997, on our audits of the consolidated
financial statements of Columbia Universal Corporation and subsidiaries as of
December 31, 1996 and 1995, and for each of the three years in the period ended
December 31, 1996, which report is included in the American Heritage Life
Investment Corporation Current Report on Form 8-K dated March 3, 1997 filed with
the Securities Exchange Commission. We also consent to the reference to our firm
under the caption "Experts."
Coopers & Lybrand L.L.P.
Austin, Texas
March 28, 1997
