<PAGE> 1
As filed with the Securities and Exchange Commission on October 28, 1996
Registration No. 333-12535
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AMERICAN ANNUITY GROUP, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 06-1356481
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
250 EAST FIFTH STREET
CINCINNATI, OHIO 45202
(513) 333-5300
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
AMERICAN ANNUITY GROUP CAPITAL TRUST I
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 31-6538556
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
250 EAST FIFTH STREET
CINCINNATI, OHIO 45202
(513) 333-5300
(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)
AAG HOLDING COMPANY, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 31-1475936
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
</TABLE>
250 EAST FIFTH STREET
CINCINNATI, OHIO 45202
(513) 333-5300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------
<TABLE>
<S> <C> <C>
with copies to: MARK F. MUETHING, ESQ. with copies to:
Gary P. Kreider, Esq. Senior Vice President, General Timothy E. Hoberg, Esq.
Keating, Muething & Klekamp, P.L.L. Counsel and Secretary Taft, Stettinius & Hollister
1800 Provident Tower American Annuity Group, Inc. 1800 Star Bank Center
One East Fourth Street 250 East Fifth Street 425 Walnut Street
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
(513) 579-6411 (513) 333-5515 (513) 381-2838
</TABLE>
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
------------------------
Approximate date of commencement of proposed sale to public: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
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<PAGE> 2
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 of the Securities Act of
1933, 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 of the earlier
effective registration statement for 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 of 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. [ ]
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS 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 OCTOBER 28, 1996
PROSPECTUS
3,000,000 PREFERRED SECURITIES
AMERICAN ANNUITY GROUP CAPITAL TRUST I
% TRUST ORIGINATED PREFERRED SECURITIESSM ("TOPRSSM")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
AMERICAN ANNUITY GROUP, INC.
------------------------
The % Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby (the "Offering") represent preferred undivided beneficial
interests in the assets of American Annuity Group Capital Trust I, a statutory
business trust formed under the laws of the State of Delaware (the "Trust").
American Annuity Group, Inc., a Delaware corporation ("AAG" or the "Company"),
will indirectly own all the common securities (the "Common Securities" and,
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED
SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF SUCH DEFERRAL.
The Preferred Securities have been approved for listing, subject to
official notice of issuance, on the New York Stock Exchange, Inc. ("NYSE").
Trading of the Preferred Securities on the NYSE is expected to commence within a
30-day period after the initial delivery of the Preferred Securities. See
"Underwriting."
------------------------
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.
<TABLE>
<CAPTION>
====================================================================================================================
INITIAL PUBLIC UNDERWRITING PROCEEDS
OFFERING PRICE(1) COMMISSIONS(2) TO TRUST(3)(4)
<S> <C> <C> <C>
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Per Preferred Security.................................. $25.00 (3) $25.00
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Total (5)............................................... $75,000,000 (3) $75,000,000
====================================================================================================================
</TABLE>
(1) Plus accrued distributions, if any, from , 1996.
(2) The Trust, the Company and AAG Holding have each agreed to indemnify the
several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933. See "Underwriting."
(3) Because the proceeds of the sale of the Preferred Securities will be
invested in Subordinated Debentures, AAG Holding will pay to the
Underwriters as compensation ("Underwriters' Compensation") for arranging
the investment therein of such proceeds, $
per Preferred Security (or $ in the aggregate); provided, that such
compensation for sales of 10,000 or more Preferred Securities to a single
purchaser will be $ per Preferred Security. Therefore, to the extent of
such sales, the actual amount of Underwriters' Compensation will be less
than the aggregate amount specified in the preceding sentence. See
"Underwriting."
(4) Expenses of the Offering, which are payable by AAG Holding, are estimated to
be $ .
(5) The Trust and the Company have granted to the Underwriters an option
exercisable for 30 days to purchase up to an additional 450,000 Preferred
Securities at the initial public offering price per Preferred Security
solely to cover over-allotments, if any. AAG Holding will pay to the
Underwriters, as Underwriters' Compensation, the commission set forth above
in footnote (3) with respect to such additional Preferred Securities. If
such option is exercised in full, the Initial Public Offering Price,
Underwriters' Compensation, and Proceeds to the Trust will be $86,250,000,
and $86,250,000, respectively. See "Underwriting."
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about
, 1996.
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
FURMAN SELZ INCORPORATED
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
------------------------
The date of this Prospectus is , 1996.
SM "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE> 4
(continued from previous page)
together with the Preferred Securities, the "Trust Securities") representing
undivided beneficial interests in the assets of the Trust. The Trust exists for
the sole purpose of issuing the Preferred Securities and Common Securities and
investing the proceeds thereof in an equivalent amount of % Subordinated
Debentures due , 2026 ("Subordinated Debentures") of AAG Holding
Company, Inc. ("AAG Holding"), an Ohio corporation and wholly-owned subsidiary
of the Company. The Subordinated Debentures are fully and unconditionally
guaranteed (the "Debt Guarantee") on a subordinated basis as to payment of
principal, premium, if any, and interest by the Company. Upon a Declaration
Event of Default (as defined herein), the holders of the Preferred Securities
will have a preference over the holders of the Common Securities with respect to
payments in respect of distributions and payments upon redemption, liquidation
and otherwise.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on January 15, April 15, July 15 and October 15 of each
year, commencing January 15, 1997 ("distributions"). The distribution rate and
the distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Subordinated Debentures, which, together with the Debt Guarantee and interest
and principal payments received on the Subordinated Debentures, will be the only
assets of the Trust. As a result, if principal or interest is not paid on the
Subordinated Debentures, no amounts will be paid on the Preferred Securities.
The payment of distributions out of moneys held by the Trust and payments on
liquidation of the Trust or the redemption of Preferred Securities, as set forth
below, are guaranteed by the Company (the "Trust Guarantee") if and to the
extent the Trust has funds available therefor. The Company's obligations under
the Trust Guarantee, taken together with its back-up undertakings, consisting of
obligations of AAG Holding as set forth in the Declaration of Trust (including
the obligation to pay expenses of the Trust), the Indenture and any applicable
supplemental indentures, and the Debt Guarantee, provide a full and
unconditional guarantee by the Company of payments due on the Preferred
Securities. See "Effect of Obligations Under the Subordinated Debentures, the
Debt Guarantee and the Trust Guarantee" herein and "Description of Trust
Guarantee." If AAG Holding does not make principal or interest payments on the
Subordinated Debentures, as a result of the election to extend the interest
payment period on the Subordinated Debentures as described below, or otherwise,
and the Company does not make such payments under the Debt Guarantee, the Trust
will not have sufficient funds to make distributions on the Preferred
Securities, in which event the Trust Guarantee will not apply to such
distributions until the Company or AAG Holding has made such principal or
interest payments. The obligations of AAG Holding under the Subordinated
Debentures are unsecured and will be subordinate and junior in right of payment,
to the extent set forth herein, to all existing and future Senior Indebtedness
(as defined herein) of AAG Holding and will be structurally subordinated to all
existing and future liabilities and obligations of AAG Holding's subsidiaries.
The obligations of the Company under the Debt Guarantee are subordinate and
junior in right of payment to all present and future Senior Indebtedness of the
Company. At June 30, 1996, the aggregate amount of Senior Indebtedness and
liabilities and obligations of AAG Holding's subsidiaries that would have
effectively ranked senior to the Subordinated Debentures was approximately $6.2
billion.
AAG Holding has the right to defer payments of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures from time to time for up to 20 consecutive quarters (each, an
"Extension Period") provided that no Extension Period may extend beyond the
Maturity Date (as defined herein). If interest payments are so deferred,
distributions on the Preferred Securities will also be deferred. During any
Extension Period, distributions will continue to accrue with interest thereon
(to the extent permitted by applicable law) at an annual rate of % per
annum compounded quarterly, and during any Extension Period, holders of
Preferred Securities will be required to include deferred interest income in
their gross income for United States federal income tax purposes in advance of
receipt of the cash distributions with respect to such deferred interest
payments. There could be multiple Extension Periods of varying lengths
throughout the term of the Subordinated Debentures. See "Risk Factors--Option to
Extend Interest Payment Period or Change Maturity Date," "Risk Factors--Tax
Consequences of Extension of Interest Payment Period," "Description of the
Subordinated Debentures and Debt Guarantee--Option to Extend Interest Payment
Period," and "United States Federal Income Taxation--Interest Income and
Original Issue Discount."
The Subordinated Debentures are redeemable prior to maturity at the option
of AAG Holding (i) in whole or in part, from time to time, on or after
, 2001, or (ii) at any time in whole (but not in part) upon the
occurrence and continuation of a Special Event (as defined herein). If AAG
Holding redeems Subordinated Debentures, the Trust must redeem Trust Securities
having an aggregate liquidation amount equal to the aggregate principal amount
of the
<PAGE> 5
Subordinated Debentures so redeemed at $25 per Preferred Security plus accrued
and unpaid distributions thereon to the date fixed for redemption (the
"Redemption Price"). See "Description of the Preferred Securities--Mandatory
Redemption." The outstanding Preferred Securities will be redeemed upon maturity
of the Subordinated Debentures. The Subordinated Debentures mature on
, 2026, which date may be extended at any time at the election of AAG Holding,
but in no event later than the earlier of (i) , 2045 or (ii) the
"Interest Deduction Date" (as hereinafter defined under "Description of the
Subordinated Debentures and Debt Guarantee--Option to Change Scheduled Maturity
Date"), provided certain financial conditions are met, and may be shortened to a
date not earlier than , 2001 if AAG Holding exercises its right to
liquidate the Trust and distribute the Subordinated Debentures. See "Description
of the Subordinated Debentures and Debt Guarantee--Option to Change Scheduled
Maturity Date."
At any time, AAG Holding will have the right to liquidate the Trust and
cause the Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust. If AAG Holding elects to liquidate the
Trust and thereby causes the Subordinated Debentures to be distributed to
holders of the Trust Securities in liquidation of the Trust, AAG Holding shall
have the right to shorten the maturity of such Subordinated Debentures, to a
date not earlier than , 2001, or extend the maturity of such
Subordinated Debentures to a date not later than the earlier of (i)
, 2045 or (ii) the Interest Deduction Date, provided that it can extend the
maturity only if certain conditions are met. If the Subordinated Debentures are
distributed to the holders of the Preferred Securities, AAG Holding will use its
best efforts to have the Subordinated Debentures listed on the NYSE or on such
other exchange as the Preferred Securities are then listed. See "Description of
the Preferred Securities--Distribution of the Subordinated Debentures."
In the event of the involuntary or voluntary liquidation, dissolution,
winding up or termination of the Trust, the holders of the Preferred Securities
will be entitled to receive for each Preferred Security a liquidation amount of
$25 plus accrued and unpaid distributions thereon (including interest thereon)
to the date of payment, unless, in connection with such dissolution, the
Subordinated Debentures are distributed to the holders of the Preferred
Securities. See "Description of the Preferred Securities--Liquidation
Distribution Upon Dissolution."
------------------------
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA
(THE "NORTH CAROLINA INSURANCE COMMISSIONER") NOR HAS THE NORTH CAROLINA
INSURANCE COMMISSIONER RULED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE> 6
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS 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, AAG HOLDING OR THE TRUST OR BY ANY AGENT,
DEALER OR UNDERWRITER. THIS PROSPECTUS DOES 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 DOES NOT
IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE OF SUCH INFORMATION.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
periodic reports, proxy and information statements and other information with
the Securities and Exchange Commission (the "Commission"). The Company, AAG
Holding and the Trust have filed a Registration Statement on Form S-3 (the
"Registration Statement") with the Commission under the Securities Act of 1933
(the "Securities Act") with respect to the Securities. This Prospectus does not
contain all the information, exhibits and undertakings contained in the
Registration Statement, to which reference is hereby made. Statements contained
in this Prospectus as to the terms of any contract or other document are not
necessarily complete with respect to each such contract or other document filed
as an exhibit to the Registration Statement. Reference is made to the exhibits
for a more complete description of the matter involved. Such reports, proxy and
information statements, the Registration Statement and other information filed
with the Commission by the Company may be inspected at and obtained from the
Commission at its public reference facilities at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Suite 1400, 500 West Madison Avenue, Chicago, Illinois, and at 7 World Trade
Center, 13th Floor, New York, New York. Copies of such material can also be
obtained, at prescribed rates, by mail from the Public Reference Section of the
Commission at its Washington, D.C. address set forth above. In addition,
material filed by the Company can be obtained and inspected at the offices of
the NYSE, 20 Broad Street, New York, New York 10005 on which AAG's Common Stock
is listed. Such material may also be accessed electronically by means of the
Commission's home page on the World Wide Web located at http://www.sec.gov.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company and AAG Holding do not believe
that such financial statements would be material to holders of the Preferred
Securities because (i) all of the voting securities of the Trust will be owned,
directly or indirectly, by AAG Holding, a wholly-owned subsidiary of the
Company, (ii) the Trust has no independent operations but exists for the sole
purpose of issuing securities representing undivided beneficial interests in its
assets and investing the proceeds thereof in Subordinated Debentures issued by
AAG Holding, and (iii) the obligations of the Trust under the Preferred
Securities are, to the extent that the Trust shall have funds available to meet
such obligations, fully and unconditionally guaranteed by AAG Holding. See
"Description of Preferred Securities."
No separate financial statements of AAG Holding have been included or
incorporated by reference herein. The Company does not believe that such
financial statements would be material to holders of the Preferred Securities
because (i) all of the common stock of AAG Holding will be owned, directly or
indirectly, by the Company, a reporting company under the Exchange Act and (ii)
the obligations of AAG Holding under the Subordinated Debentures are fully and
unconditionally guaranteed by the Company. See "Description of the Subordinated
Debentures and Debt Guarantee."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Prospectus incorporates by reference certain documents relating to the
Company which are not delivered herewith. These documents (other than the
exhibits to such documents, unless such exhibits are specifically incorporated
by reference into such documents) are available, without charge, on oral or
written request by any person to whom this Prospectus is delivered. Written or
telephone requests should be directed to Mark F. Muething, Senior Vice President
and General Counsel, 250 East Fifth Street, Cincinnati,
4
<PAGE> 7
Ohio 45202, telephone (513) 333-5515. The following documents, which have been
filed by the Company with the Commission, are hereby incorporated by reference
in this Prospectus:
American Annuity Group, Inc. (File No. 1-11632):
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1995; and
(ii) Quarterly Reports on Form 10-Q for the periods ended March 31, 1996
and June 30, 1996.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this Offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
5
<PAGE> 8
PROSPECTUS SUMMARY
This summary is qualified by the more detailed information and financial
statements appearing elsewhere, or incorporated by reference, in this
Prospectus. Unless otherwise noted, the material set forth herein does not give
effect to the exercise of the Underwriters' over-allotment option.
THE COMPANY
American Annuity Group, Inc. ("AAG" or the "Company") is a holding company
which, through its subsidiaries, is engaged in the life insurance business,
principally the sale of tax-deferred annuities and life and health insurance.
AAG's primary operating subsidiary is Great American Life Insurance Company
("GALIC"). GALIC sells annuities primarily to employees of qualified
not-for-profit organizations under Section 403(b) of the Internal Revenue Code.
AAG acquired GALIC in December 1992. At December 31, 1995, GALIC had statutory
assets in excess of $5.4 billion, representing a 30% compounded annual growth in
assets since 1976.
GALIC has several life insurance subsidiaries including (i) American
Memorial Life Insurance Company ("American Memorial"), which markets individual
life insurance and annuity policies with the sponsorship of state associations
of funeral directors as well as individual funeral directors across the country,
(ii) Annuity Investors Life Insurance Company ("AILIC"), which markets group and
individual variable annuities, and (iii) Loyal American Life Insurance Company
("Loyal"), which specializes in life and health insurance sold through payroll
deduction plans and credit unions.
American Financial Group, Inc. and its subsidiaries ("AFG") collectively
own approximately 81% of the Company's outstanding Common Stock.
AAG HOLDING COMPANY
AAG Holding Company, Inc. ("AAG Holding") is a wholly-owned subsidiary of
the Company that owns all of the stock of GALIC. AAG Holding will own, directly
or indirectly, all of the Common Securities and will issue the Subordinated
Debentures to the Trust.
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, as amended (the "Declaration"), executed by AAG
Holding as sponsor for such trust (the "Sponsor"), and the Trustees (as defined
herein) of such trust and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware on September 13, 1996. The Trust
exists for the exclusive purposes of (i) issuing and selling the Preferred
Securities and Common Securities, (ii) using the gross proceeds from the sale of
the Trust Securities to acquire the Subordinated Debentures and the Debt
Guarantee, and (iii) engaging in only those other activities necessary or
incidental thereto. All of the Common Securities will be directly or indirectly
owned by AAG Holding. The Common Securities will rank pari passu, and payments
will be made thereon pro rata, with the Preferred Securities, except that, if a
Declaration Event of Default (as defined herein) has occurred and is continuing,
the rights of the holders of the Common Securities to payment in respect of
distributions and payments upon liquidation, redemption and otherwise will be
subordinated to the rights of the holders of the Preferred Securities. AAG
Holding will directly or indirectly acquire Common Securities in an aggregate
liquidation amount equal to at least 3% of the total capital of the Trust.
The Trust's affairs will be conducted by the trustees (the "Trustees")
appointed by AAG Holding as the direct or indirect holder of all of the Common
Securities. The holder of the Common Securities will be entitled to appoint,
remove or replace any of, or increase or reduce the number of, the Trustees (as
defined herein). The duties and obligations of the Trustees shall be governed by
the Declaration. The Trust will initially have four Trustees. Two Trustees (the
"Regular Trustees") will be employees or officers of or otherwise affiliated
with AAG or AAG Holding. A third Trustee (the "Property Trustee") of the Trust
will be a financial institution that is not affiliated with AAG Holding and has
a minimum amount of combined capital
6
<PAGE> 9
and surplus of not less than $50,000,000, which shall act as property trustee
and as indenture trustee for the purposes of compliance with the provisions of
Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"). The fourth
Trustee of the Trust will be an entity having a principal place of business in,
or a natural person resident of, the State of Delaware (the "Delaware Trustee").
AAG Holding will pay all fees and expenses related to the Trust and the offering
of the Trust Securities.
The Property Trustee for the Trust is The Bank of New York and its
principal corporate trust office is at 101 Barclay Street, 21st Floor, New York,
New York 10286, Attention: Corporate Trust Trustee Administration. The Delaware
Trustee for the Trust is The Bank of New York (Delaware) and its address in the
State of Delaware is 23 White Clay Center, Route 273, Newark, Delaware 19711.
The Delaware Trustee is an affiliate of the Property Trustee. The address for
the Trust is c/o American Annuity Group, Inc., at the Company's corporate
headquarters located at 250 East Fifth Street, Cincinnati, Ohio 45202, telephone
(513) 333-5300.
THE OFFERING
Preferred Securities Offered. 3,000,000 % Trust Originated Preferred
Securities evidencing preferred undivided beneficial interests in the assets of
the Trust. Holders of the Preferred Securities will be entitled to receive
cumulative cash distributions at an annual rate of % of the liquidation
amount of $25 per Preferred Security, accruing from the date of original
issuance and payable quarterly in arrears on January 15, April 15, July 15 and
October 15 of each year commencing on January 15, 1997. The distribution rate
and the distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Subordinated Debentures, which, together with the Debt Guarantee and interest
and principal payments received on the Subordinated Debentures, will be the only
assets of the Trust. As a result, if principal or interest is not paid on the
Subordinated Debentures, no amounts will be paid on the Preferred Securities.
See "Risk Factors--Ranking of Subordinate Obligations Under the Trust Guarantee,
Debt Guarantee and Subordinated Debentures" and "Description of the Preferred
Securities."
Subordinated Debentures. The Trust will invest the proceeds from the
issuance of the Preferred Securities and Common Securities in an equivalent
amount of % Subordinated Debentures of AAG Holding. The Subordinated
Debentures will rank subordinate and junior in right of payment to all Senior
Indebtedness of AAG Holding. In addition, AAG Holding's obligations under the
Subordinated Debentures will be structurally subordinated to all existing and
future liabilities and preferred stock obligations of its subsidiaries. See
"Description of the Subordinated Debentures and Debt Guarantee--Subordination."
Debt Guarantee. The Subordinated Debentures are fully and unconditionally
guaranteed on a subordinated basis as to payment and interest by the Company.
See "Risk Factors--Holding Company Structure; Ranking of Subordinate Obligations
Under the Trust Guarantee, Subordinated Debenture Guarantee and Subordinated
Debentures" and "Description of Subordinated Debentures and Debt Guarantee."
Trust Guarantee. Payment of distributions out of moneys held by the Trust,
and payments on liquidation of the Trust or the redemption of Preferred
Securities, are guaranteed by the Company to the extent the Trust has funds
available therefor. If AAG Holding does not make principal or interest payments
on the Subordinated Debentures and AAG does not make payment under the Debt
Guarantee, the Trust will not have sufficient funds to make distributions on the
Preferred Securities, in which event the guarantee shall not apply to such
distribution until the Trust has sufficient funds available therefor. See
"Description of Trust Guarantee" and "Effect of Obligations Under the
Subordinated Debentures, the Debt Guarantee and the Trust Guarantee." The
obligations of AAG under the Guarantee are subordinate and junior in right of
payment to all other liabilities of AAG including the Debt Guarantee. See "Risk
Factors--Holding Company Structure; Ranking of Subordinate Obligations Under the
Trust Guarantee, Debt and Subordinated Debentures."
Right to Defer Interest. AAG Holding has the right to defer payments of
interest on the Subordinated Debentures by extending the interest payment period
on the Subordinated Debentures, from time to time, for up to 20 consecutive
quarters. If interest payments on the Subordinated Debentures are so deferred,
distributions on the Preferred Securities will also be deferred. During any
Extension Period, distributions will
7
<PAGE> 10
continue to accrue with interest thereon (to the extent permitted by the
applicable law) as described herein. There could be multiple Extension Periods
of varying lengths throughout the term of the Subordinated Debentures. During an
Extension Period, holders of Preferred Securities will be required to include
deferred interest income allocated to their Preferred Securities in their gross
income (as Original Issue Discount ("OID")) even though the cash payments
attributable thereto have not been made. See "Description of the Subordinated
Debentures--Option to Extend Interest Payment Period" and "United States Federal
Income Taxation--Interest Income and Original Issue Discount."
Redemption. The Subordinated Debentures are redeemable by AAG Holding (in
whole, or from time to time in part) on or after , 2001, or at any
time, in whole but not in part, upon the occurrence of a Special Event. If the
Subordinated Debentures are redeemed, the Trust must redeem Trust Securities
having an aggregate liquidation amount equal to the aggregate principal amount
of the Subordinated Debentures so redeemed. The Trust Securities will be
redeemed upon maturity of the Subordinated Debentures. See "Description of the
Preferred Securities--Mandatory Redemption" and "-- Special Event Redemption."
Option to Extend Maturity. The Subordinated Debentures mature on
, 2026, but the maturity may be extended once only for up to an
additional 19 years, provided certain financial covenants and conditions are
met. If the maturity of the Subordinated Debentures is extended, the Preferred
Securities will remain outstanding for the same time period. See "Description of
the Subordinated Debentures and Debt Guarantee--Option to Change Scheduled
Maturity Date."
Right to Liquidate Trust. At any time, AAG Holding will have the right to
liquidate the Trust and cause the Subordinated Debentures (including the Debt
Guarantee) to be distributed to the holders of the Trust Securities in
liquidation of the Trust. If AAG Holding elects to liquidate the Trust and
thereby causes the Subordinated Debentures to be distributed to holders of the
Trust Securities in liquidation of the Trust, AAG Holding shall have the right
to shorten the maturity of such Subordinated Debentures, to a date not earlier
than , 2001, or extend the maturity of such Subordinated Debentures
to a date not later than the earlier of (i) , 2045 or (ii) the
Interest Deduction Date, provided that it can extend the maturity only if
certain conditions are met. If the Subordinated Debentures (including the Debt
Guarantee) are distributed to the holders of the Preferred Securities, AAG
Holding will use its best efforts to have the Subordinated Debentures listed on
the NYSE or on such other exchange as the Preferred Securities are then listed.
See "Description of the Preferred Securities--Distribution of the Subordinated
Debentures."
Use Of Proceeds. The net proceeds from the sale of Preferred Securities by
the Trust will be invested in the Subordinated Debentures of AAG Holding. AAG
Holding expects to use the net proceeds from the sale of the Subordinated
Debentures to repay outstanding debt and for general corporate purposes. Until
the net proceeds are used for these purposes, AAG Holding will deposit them in
interest-bearing accounts or invest them in short-term marketable securities.
Ratings of Securities. The Preferred Securities have been assigned an
investment grade rating of "BBB-" by Standard & Poor's Ratings Group, a division
of McGraw-Hill ("S&P")and an investment grade rating of "BBB-" by Duff & Phelps
Credit Rating Co. ("Duff & Phelps"). Moody's Investors Service, Inc. ("Moody's")
has assigned the Preferred Securities a rating of "ba1."
An explanation of the significance of ratings may be obtained from S&P,
Duff & Phelps and Moody's. Generally, rating agencies base their ratings on such
material and information, and such of their own investigations, studies and
assumptions, as they deem appropriate. A credit rating of a security is not a
recommendation to buy, sell or hold securities. There is no assurance that any
rating will apply for any given period of time or that a rating may not be
adjusted or withdrawn.
8
<PAGE> 11
RECENT DEVELOPMENTS
On October 24, 1996, the Company reported its results for the third quarter
and the first nine months of 1996, together with the comparable amounts for the
prior year. The following table summarizes the reported results. Dollar amounts
are stated in millions, except for per share data.
<TABLE>
<CAPTION>
1996 1995
------------------ ------------------
THREE MONTHS ENDED SEPTEMBER 30 Total Per share Total Per share
- --------------------------------------------------------- ----- --------- ----- ---------
<S> <C> <C> <C> <C>
Earnings before realized gains and nonrecurring and
extraordinary items ("net operating earnings")......... $16.8 $ 0.38 $12.1 $0.30
Realized investment gains................................ 0.3 0.01 4.5 0.11
Extraordinary--loss on debt prepayment................... (1.7) (0.04) -- --
----- ------- ----- -------
Net income.......................................... $15.4 $ 0.35 $16.6 $0.41
===== ======= ===== =======
NINE MONTHS ENDED SEPTEMBER 30
- ---------------------------------------------------------
Earnings before realized gains and nonrecurring and
extraordinary items ("net operating earnings")......... $47.2 $ 1.07 $35.6 $0.90
Realized investment gains................................ 0.9 0.02 4.6 0.11
Extraordinary--loss on debt prepayment................... (6.0) (0.14) -- --
----- ------- ----- -------
Net income.......................................... $42.1 $ 0.95 $40.2 $1.01
===== ======= ===== =======
</TABLE>
The Company also announced that its annuity premiums increased 22% in 1996
compared to 1995 due to growth in annuity sales at GALIC, as well as from the
acquisition of American Memorial.
9
<PAGE> 12
SUMMARY FINANCIAL INFORMATION
The summary financial data for the six months ended June 30, 1996 and 1995
and three-year period ended December 31, 1995 are derived from the Company's
consolidated financial statements. The summary financial data should be read in
conjunction with the financial statements and notes thereto in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995 and the
Company's Quarterly Report on Form 10-Q for the six months ended June 30, 1996,
which are incorporated by reference herein. See "Incorporation of Certain
Documents by Reference.".
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Total revenues................................. $ 289.9 $ 199.8 $ 439.6 $ 372.7 $ 388.9
======== ======== ======== ======== ========
Income from continuing operations(1)........... $ 31.0 $ 23.6 $ 58.7 $ 40.9 $ 53.0
Loss from discontinued operations.............. -- -- (3.2) (2.6) (9.6)
Extraordinary items............................ (4.3) -- (0.2) (1.7) (3.4)
Change in accounting principle................. -- -- -- (0.5) --
-------- -------- -------- -------- --------
Net income..................................... $ 26.7 $ 23.6 $ 55.3 $ 36.1 $ 40.0
Earnings (loss) per common share:
Continuing operations(1)..................... $ 0.70 $ 0.60 $ 1.45 $ 1.05 $ 1.41
Discontinued operations...................... -- -- (0.08) (0.07) (0.27)
Extraordinary items.......................... (0.10) -- -- (0.05) (0.10)
Change in accounting principle............... -- -- -- (0.01) --
-------- -------- -------- -------- --------
Net income................................... $ 0.60 $ 0.60 $ 1.37 $ 0.92 $ 1.04
Cash dividends per common share................ -- -- $ 0.07 $ 0.06 $ 0.05
BALANCE SHEET DATA:
Total assets................................... $6,711.9 $5,393.2 $6,611.0 $5,089.9 $4,913.8
Notes payable.................................. 170.4 168.1 167.7 183.3 225.9
Net unrealized gains (losses) included in
stockholders' equity......................... 13.8 37.7 89.3 (29.0) 56.9
Total stockholders' equity..................... 380.3 294.7 429.3 204.4 250.3
</TABLE>
- ---------------
(1) Reported amounts include realized gains and losses on sales of investments
and, in 1993, certain non-recurring relocation expenses. Management believes
that reported results which include these items are not indicative of future
results of operations. Results excluding these items were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------------- ------------------------------
1996 1995 1995 1994 1993
-------- -------- -------- -------- --------
(UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Income from continuing operations.............. $ 30.4 $ 23.5 $ 48.5 $ 41.0 $ 35.1
Earnings per common share from continuing
operations................................... $ 0.69 $ 0.60 $ 1.20 $ 1.05 $ 0.90
</TABLE>
10
<PAGE> 13
RISK FACTORS
Prospective purchasers of Preferred Securities should consider carefully
all of the information contained in this Prospectus including the information in
the documents incorporated by reference and, in particular, should evaluate the
specific factors set forth below for risks involved with an investment of the
Preferred Securities.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE TRUST GUARANTEE, DEBT GUARANTEE AND
SUBORDINATED DEBENTURES
The Company's obligations under the Trust Guarantee are unsecured and will
rank (i) subordinate and junior in right of payment to all other liabilities of
the Company, including the Debt Guarantee, except those made pari passu or
subordinate by their terms, (ii) pari passu with the most senior preferred or
preference stock now or hereafter issued by the Company, and with any guarantee
now or hereafter issued by the Company in respect of any preferred stock or
preference stock of any affiliate of the Company, and (iii) senior to the
Company's common stock.
The obligations of AAG Holding under the Subordinated Debentures are
unsecured and will rank subordinate and junior in right of payment, to the
extent set forth herein, to all present and future Senior Indebtedness of AAG
Holding and will be structurally subordinated to all existing and future
liabilities and obligations of AAG Holding's subsidiaries.
The obligations of the Company under the Debt Guarantee are subordinate and
junior in right of payment to all present and future Senior Indebtedness of the
Company but will at all times be senior to common and preferred equity of the
Company. At June 30, 1996, the aggregate amount of Senior Indebtedness and
liabilities and obligations of AAG Holding's subsidiaries that would have
structurally ranked senior to the Subordinated Debentures was approximately $6.2
billion. There are no terms in the Preferred Securities, the Subordinated
Debentures, the Debt Guarantee or the Trust Guarantee that limit the ability of
the Company, AAG Holding or any of their subsidiaries to incur additional
indebtedness, liabilities or obligations, including indebtedness, liabilities or
obligations that rank senior to the Subordinated Debentures, the Debt Guarantee
and the Trust Guarantee. See "Description of Trust Guarantee--Status of the
Trust Guarantee" and "Description of the Subordinated Debentures and Debt
Guarantee--Subordination."
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the
Subordinated Debentures and Debt Guarantee against AAG Holding and the Company.
The holders of a majority in liquidation amount of the Preferred Securities will
have the right to direct the time, method and place of conducting any proceeding
for any remedy available to the Property Trustee or to direct the exercise of
any trust or power conferred upon the Property Trustee under the Declaration,
including the right to direct the Property Trustee to exercise the remedies
available to it as a holder of the Subordinated Debentures and the Debt
Guarantee. If the Property Trustee fails to enforce its rights with respect to
the Subordinated Debentures or under the Debt Guarantee, any record holder of
Preferred Securities may institute legal proceedings directly against AAG
Holding to enforce the Property Trustee's rights under such Subordinated
Debentures or against the Company under the Debt Guarantee without first
instituting any legal proceedings against such Property Trustee or any other
person or entity, including, in the case of the Debt Guarantee, against the
Company. In addition, if a Declaration Event of Default has occurred and is
continuing and such event is attributable to the failure of AAG Holding to pay
interest, principal or other required payments on the Subordinated Debentures
issued to the Trust on the date such interest, principal or other payments are
otherwise payable, then a record holder of Preferred Securities may institute a
proceeding directly against AAG Holding for enforcement of payment on the
Subordinated Debentures having a principal amount equal to the aggregate
liquidation amount of the Preferred Securities held by such holder (a "Direct
Action") on or after the respective due dates specified in the Subordinated
Debentures. In connection with such Direct Action, the Company will be
subrogated to the rights of such record holder of Preferred Securities to the
extent of any payment made by the Company to such record holder of Preferred
Securities pursuant to the
11
<PAGE> 14
Debt Guarantee. The record holder in the case of the issuance of one or more
global Preferred Securities certificates will be The Depository Trust Company
acting at the direction of the beneficial owners of the Preferred Securities.
The holders of Preferred Securities will not be able to exercise directly any
other remedy available to the holders of the Subordinated Debentures unless the
Property Trustee fails to do so. See "Description of the Preferred
Securities--Declaration Events of Default" and "Description of the Subordinated
Debentures and Debt Guarantee--Indenture Events of Default."
TRUST DISTRIBUTIONS DEPENDENT ON AAG HOLDING'S PAYMENTS ON SUBORDINATED
DEBENTURES
The Trust's ability to make distributions and other payments on the
Preferred Securities is dependent upon AAG Holding making interest and other
payments on the Subordinated Debentures or upon the Company making such payments
pursuant to the Debt Guarantee. If AAG Holding were not to make payments on the
Subordinated Debentures for any reason, including as a result of AAG Holding's
election to defer the payment of interest on the Subordinated Debentures by
extending the interest payment period on the Subordinated Debentures and the
Company does not make such payments under the Debt Guarantee, the Trust will not
make payments on the Trust Securities. In such an event, holders of the
Preferred Securities would not be able to rely on the Trust Guarantee because
distributions and other payments on the Preferred Securities are subject to such
Trust Guarantee only if and to the extent that the Trust has funds available
therefor. See "Description of Trust Guarantee--General" and "Effect of
Obligations Under the Subordinated Debentures, the Debt Guarantee and the Trust
Guarantee."
OPTION TO EXTEND INTEREST PAYMENT PERIOD OR CHANGE MATURITY DATE
AAG Holding has the right under the Indenture to (a) defer payments of
interest on the Subordinated Debentures by extending the interest payment period
at any time, and from time to time, on the Subordinated Debentures or (b) extend
or shorten the maturity date of the Subordinated Debentures. See "Description of
the Subordinated Debentures and Debt Guarantee--Option to Change Scheduled
Maturity Date" and "Description of the Subordinated Debentures and Debt
Guarantee--Option to Extend Interest Payment Period." As a consequence of an
extension of the interest payment period, quarterly distributions on the
Preferred Securities would be deferred (but despite such deferral, to the extent
permitted by law, would continue to accrue with interest thereon compounded
quarterly) by the Trust during any such Extension Period. AAG Holding has the
right to defer payments of interest on the Subordinated Debentures, from time to
time, for up to 20 consecutive quarters, provided that no Extension Period may
extend beyond the Maturity Date (as defined herein) of the Subordinated
Debentures. There could be multiple Extension Periods of varying lengths
throughout the term of the Subordinated Debentures. In the event that AAG
Holding exercises this right to defer interest payments, then, prior to the
payment of all accrued interest on outstanding Subordinated Debentures, (a) the
Company and AAG Holding shall not declare or pay dividends on, or make a
distribution with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock and (b) the
Company and AAG Holding shall not, directly or indirectly, and will not allow
any of their subsidiaries to, make any payment of interest, principal or
premium, if any, on, or repay, repurchase or redeem any debt securities issued
by the Company or AAG Holding that rank pari passu with or junior to the
Subordinated Debentures; provided, however, that the restriction in clause (a)
above does not apply (i) to repurchases or acquisitions of shares of the common
stock of the Company or AAG Holding as contemplated by any employment
arrangement, benefit plan or other similar contract with or for the benefit of
employees, officers or directors entered into in the ordinary course of
business, (ii) as a result of an exchange or conversion of any class or series
of the Company's or AAG Holding's capital stock for common stock, (iii) to the
purchase of fractional interests in shares of the Company's or AAG Holding's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged or (iv) to the payment of any
stock dividend by the Company or AAG Holding payable in common stock of such
company. AAG Holding may further extend the interest payment period; provided
that each Extension Period, if any, may not exceed 20 consecutive quarters and
may not extend beyond the Maturity Date of the Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due, AAG
Holding may commence a new Extension Period, subject to the above requirements.
Consequently, there could be multiple Extension Periods of varying lengths prior
to the Maturity Date of the Subordinated Debentures. AAG Holding has no current
intention of exercising its right to defer payments of interest by
12
<PAGE> 15
extending the interest payment period on the Subordinated Debentures. However,
should AAG Holding determine to exercise such right in the future, the market
price of the Preferred Securities is likely to be adversely affected. See
"Description of the Preferred Securities--Distributions" and "Description of the
Subordinated Debentures and Debt Guarantee--Option to Extend Interest Payment
Period."
TAX CONSEQUENCES OF EXTENSION OF INTEREST PAYMENT PERIOD
Should AAG Holding exercise its right to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities will
accrue income (as original issue discount ("OID")) in respect of the deferred
interest allocable to its Preferred Securities for United States federal income
tax purposes. Such income will be allocated but not distributed to holders of
the Preferred Securities. As a result, each such holder of the 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 Preferred Securities prior
to the record date for the date on which distributions of such amounts are made.
A holder that disposes of its Preferred Securities during an Extension Period,
therefore, might not receive the same return on its investment as a holder that
continues to hold its Preferred Securities. In addition, as a result of the
existence of AAG Holding's right to defer interest payments, the market price of
the Preferred Securities (which represent an undivided beneficial interest in
the Subordinated Debentures) may be more volatile than other securities that do
not have such feature. See "United States Federal Income Taxation--Interest
Income and Original Issue Discount."
SPECIAL EVENT REDEMPTION
Upon the occurrence of a Special Event, AAG Holding will have the right to
redeem the Subordinated Debentures, in whole (but not in part), in which event
the Trust will redeem all outstanding Trust Securities. See "Description of the
Preferred Securities--Special Event Redemption."
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, AAG Holding will have the right to terminate the Trust and,
after satisfaction of the liabilities to creditors of the Trust as provided by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Preferred Securities in liquidation of the Trust. Under current
United States federal income tax law and interpretation and assuming, as
expected, the Trust is treated as a grantor trust, a distribution of the
Subordinated Debentures should not be a taxable event to holders of the
Preferred Securities. Should there be a change in law, a change in legal
interpretation, a Special Event or other circumstances, however, the
distribution could be a taxable event to the holders of the Preferred
Securities. In addition, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation--Receipt of Subordinated Debentures or
Cash Upon Liquidation of the Trust."
If AAG Holding elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, AAG Holding shall have the right to shorten the
maturity of such Subordinated Debentures to a date not earlier than
, 2001 or extend the maturity of such Subordinated Debentures to a date which
is not later than the earlier of (i) , 2045 or (ii) the Interest
Deduction Date, provided that it can extend the maturity only if certain
conditions are met. See "Description of the Subordinated Debentures and Debt
Guarantee--Option to Change Scheduled Maturity Date."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution or liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that a holder of Preferred Securities may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby. In
addition, because AAG Holding has the right to shorten or extend the maturity of
the Subordinated Debentures upon the termination of the Trust and the
distribution of the Subordinated Debentures to the holders of the Preferred
Securities, there can be no assurance that AAG Holding will not exercise its
option to change the maturity of the Subordinated Debentures upon such an event.
Because holders of Preferred Securities may receive Subordinated Deben-
13
<PAGE> 16
tures upon any election by AAG Holding to liquidate the Trust and cause the
Subordinated Debentures to be distributed to the holders of the Preferred
Securities, prospective purchasers of Preferred Securities are also making an
investment decision with regard to the Subordinated Debentures and should review
carefully all the information regarding the Subordinated Debentures, the Company
and AAG Holding contained herein. See "Description of the Preferred
Securities--Distribution of the Subordinated Debentures" and "Description of the
Subordinated Debentures and Debt Guarantee."
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's fiscal 1997 budget proposal, was
released. The Bill would, among other things, generally deny interest deductions
for interest or OID on an instrument issued by a corporation that has a maximum
weighted average maturity of more than 40 years. The Bill would also treat as
equity instruments issued by a corporation that have a maximum term of more than
20 years and that are not shown as indebtedness on the consolidated balance
sheet of the issuer. For purposes of determining the weighted average maturity
or the term of an instrument, any right to extend would be treated as exercised.
The above-described provisions of the Bill were proposed to be effective
generally for instruments issued on or after December 7, 1995. However, on March
29, 1996, the Chairmen of the Senate Finance and House Ways and Means Committees
issued a joint statement (the "Joint Statement") to the effect that it was their
intention that the effective date of the President's legislative proposals, if
adopted, would be no earlier than the date of appropriate Congressional action.
In addition, subsequent to the publication of the Joint Statement, Senator
Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel
wrote letters to the Treasury Department officials concurring with the views
expressed in the Joint Statement. Under current law, it is likely that the
Subordinated Debentures will be treated as indebtedness of AAG Holding, and AAG
Holding will be able to deduct interest on the Subordinated Debentures
beneficially held by the holders of the Preferred Securities. The terms of the
Subordinated Debentures limit AAG Holding's right to extend the maturity of the
Subordinated Debentures to a date which is six months shorter than any
legislative limit on the length of debt securities for which interest is
deductible. Based on the advice of tax counsel, the Company believes this will
allow AAG Holding an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, AAG Holding will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals, adverse judicial decisions, final
legislation or official administrative pronouncements will not affect the
ability of AAG Holding to deduct interest on the Subordinated Debentures, giving
rise to a Tax Event (as defined below) which would permit AAG Holding to cause
the redemption of the Preferred Securities prior to , 2001 (the
first date on which AAG Holding would otherwise be able to cause a redemption of
the Preferred Securities). See "Description of the Preferred Securities--Special
Event Redemption" and "United States Federal Income Taxation."
PREPAYMENT CONSIDERATIONS; OPTION TO CHANGE SCHEDULED MATURITY DATE
At the option of AAG Holding, the Subordinated Debentures may be redeemed,
in whole or in part, at any time on or after , 2001, at a redemption
price equal to 100% of the principal amount to be redeemed plus any accrued and
unpaid interest to the redemption date. See "Description of the Subordinated
Debentures and Debt Guarantee--Optional Redemption." Investors in the Preferred
Securities should assume that AAG Holding will exercise its redemption option if
AAG Holding is able to refinance at a lower interest rate or it is otherwise in
the interest of the Company or AAG Holding to redeem the Subordinated
Debentures. If Subordinated Debentures are redeemed, the Trust must redeem Trust
Securities having an aggregate liquidation amount equal to the aggregate
principal amount of Subordinated Debentures so redeemed. See "Description of the
Preferred Securities--Mandatory Redemption."
AAG Holding also has the option to extend the maturity date of the
Subordinated Debentures for one or more periods, but in no event to a date later
than the earlier of (i) , 2045 or (ii) the Interest Deduction Date,
provided certain financial conditions are met. See "Description of the
Subordinated Debentures and Debt Guarantee--Option to Change Scheduled Maturity
Date." Investors in the Preferred Securities should assume that AAG Holding will
exercise its option to extend the term if AAG Holding is
14
<PAGE> 17
unable to refinance at a lower interest rate or it is otherwise in the interest
of AAG Holding to defer the maturity of the Subordinated Debentures. The
Preferred Securities will not be redeemed until the Subordinated Debentures have
been repaid or redeemed. See "Description of the Preferred Securities--Mandatory
Redemption."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have only limited voting rights,
primarily in connection with directing the activities of the Property Trustee as
the holder of the Subordinated Debentures. Such holders will not be entitled to
vote to appoint, remove or replace, or to increase or decrease the number of,
the Trustees (as defined herein). Voting rights with respect to Trustee matters
are vested exclusively in the holder of the Common Securities. See "Description
of the Preferred Securities--Voting Rights."
TRADING PRICE
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. If AAG Holding exercises its right to defer payments of
interest, a holder who disposes of Preferred Securities between record dates for
payments of distributions thereon will be required to include as ordinary income
OID on the Subordinated Debentures accrued through the date of disposition, and
to add such amount to its adjusted tax basis in its pro rata share of the
underlying Subordinated Debentures deemed disposed of. To the extent the selling
price is less than the holder's adjusted tax basis (which will include, in the
form of OID, all accrued but unpaid interest), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. Accrual
basis taxpayers would be subjected to similar treatment without regard to AAG
Holding's election to defer. See "United States Federal Income
Taxation--Interest Income and Original Issue Discount" and "United States
Federal Income Taxation-- Sales of Preferred Securities."
ABSENCE OF PUBLIC MARKET FOR SECURITIES
Since the Preferred Securities will be newly issued, there is no current
market for them. The Preferred Securities have been approved for listing,
subject to official notice of issuance, on the NYSE. There can be no assurance
that there will be an active trading market for the Preferred Securities.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
The Company and AAG Holding are insurance holding companies whose
operations are conducted through GALIC, their principal subsidiary. AAG
Holding's cash flow is derived principally from dividends on the capital stock
of GALIC and tax allocation payments by GALIC. Accordingly, the ability of the
Company and AAG Holding to generate cash flow is dependent primarily on such tax
allocation payments and, subject to regulation and limitations by the insurance
laws and insurance departments of Ohio and California, dividends from GALIC.
Claims of creditors of GALIC and the other subsidiaries of AAG Holding,
including policyholders, will have priority with respect to the assets and
earnings of such subsidiaries over the claims of creditors of AAG Holding, even
though such subsidiary obligations do not constitute Senior Indebtedness. In
addition, in the event of a default on AAG Holding's debt or an insolvency,
liquidation or other reorganization of AAG Holding, the creditors and
stockholders of AAG Holding will have no right to proceed against the assets of
GALIC or to cause it to be liquidated, rehabilitated or placed in receivership
or conservatorship. If GALIC were to be liquidated, such liquidation would be
conducted by or under the supervision of the Ohio Insurance Commissioner as the
receiver with respect to GALIC's property and business.
REGULATION
The life insurance business is subject to extensive regulation and
supervision by state insurance departments. Such regulation is primarily for the
benefit and protection of policyholders and not investors. Such regulations,
among other things, limit the amount of dividends and other payments that can be
made by insurance companies without prior regulatory approval and impose
restrictions on the amount and type of investments that such companies may have.
In addition, AAG and AAG Holding may be regulated in various states as insurance
holding companies. Generally, under insurance holding company statutes, a state
insurance
15
<PAGE> 18
authority must approve in advance the direct or indirect acquisition of 10% or
more of the voting securities of an insurance company or its parent domiciled in
its state.
The National Association of Insurance Commissioners has adopted the Risk
Based Capital ("RBC") For Insurers Model Act which applies to both life and
property and casualty companies. The Model Act provides for increasing levels of
regulatory intervention as the ratio of an insurer's total adjusted capital and
surplus decreases relative to risk-based capital, culminating with mandatory
control of the operations of the insurer by the domiciliary insurance department
at the so-called "mandatory control level."
It is not possible to predict the future impact of any of these regulations
on the operations of AAG's insurance subsidiaries.
Recently, several legislative proposals and administrative actions have
been advanced which, if adopted, would result in substantial relaxation of the
restrictions which have limited the affiliation between, and activities of,
banks and insurance companies. It is impossible to predict whether any of these
proposals will be adopted. It is also impossible to predict the impact of the
adoption of any of these proposals on the insurance industry in general or
individual insurance companies.
CERTAIN FACTORS AFFECTING THE INSURANCE BUSINESS
The operating results of companies in the insurance industry have
historically been subject to significant fluctuations due to competition,
economic conditions, interest rates, maintenance of insurance ratings and other
factors. GALIC competes with other annuity companies in the sale of tax-deferred
annuities based on a number of factors, including the ratings assigned by A.M.
Best Company, Inc. ("A.M. Best") and other independent insurance industry rating
organizations. A.M. Best's ratings range from "A++" (Superior) to "F" (In
Liquidation) and some companies are not rated. GALIC is rated "A" (Excellent).
Management of GALIC believes that a rating in the "A" category is necessary to
successfully market tax-deferred annuities to public education employees and
other not-for-profit groups, the markets in which GALIC competes. Although
management of AAG does not believe that GALIC's rating will be downgraded by
A.M. Best, that company's operations could be materially adversely affected by
such downgrading.
American Memorial and Loyal compete in markets other than the sale of
tax-deferred annuities. Loyal markets various forms of life, accident and health
insurance and annuities, principally with the sponsorship of credit unions and
banks that endorse Loyal's products to their members and customers. It also
writes life and health insurance through independent brokers. American Memorial
markets individual life insurance and annuity policies with the sponsorship of
state associations of funeral directors as well as individual funeral directors
across the country. American Memorial and Loyal are rated "B+" (Very Good) and
"A-" (Excellent) by A.M. Best, respectively. While ratings are an important
factor in competition between insurers in American Memorial's and Loyal's
markets, management believes that insurers can successfully compete in these
markets with ratings of "B+" (Very Good) or better. Although management of AAG
does not believe the American Memorial's or Loyal's ratings will be downgraded
by A.M. Best, AAG's business could be materially adversely affected by any such
downgrading.
AILIC is rated "A" (Excellent). Management believes that the rating of the
issuing company is not as important a factor in the variable annuity market as
in the fixed annuity market.
COMPETITION
The various markets in which life insurance companies compete are highly
competitive. GALIC, American Memorial, AILIC and Loyal compete with individual
insurers and insurance groups and other financial institutions of varying size,
many of which possess financial resources in excess of those available to these
companies.
AAG believes the ability to compete with other insurance companies is
dependent in part upon its ability to attract and retain agents to market its
products and its ability to develop competitive and profitable products. In
addition, in connection with the development and sale of its products, GALIC
encounters significant competition from other insurance companies, as well as
from other investment alternatives available to its customers.
16
<PAGE> 19
AAG'S INVESTMENT PORTFOLIO
AAG's investment portfolio consists primarily of fixed income securities
such as investment grade, publicly traded debt securities and mortgage-backed
securities ("MBSs"). At June 30, 1996, fixed income securities (including policy
loans, mortgage loans and short-term investments) comprised over 98% of AAG's
investment portfolio. Approximately 32% was invested in MBSs. Certain risks are
inherent in connection with fixed income securities, including loss upon default
and price volatility in reaction to changes in interest rates and general market
factors. Certain additional risks are inherent in connection with MBSs,
including the risks associated with reinvestment of proceeds due to prepayment
of such obligations. AAG has sought to reduce the risks associated with MBSs by
investing in tranches of collateralized mortgage obligations which have a
reduced risk of prepayment. AAG's investment portfolio also contains certain
non-investment grade bonds, real estate and mortgage loans, with an aggregate
carrying value of approximately $447 million as of June 30, 1996, representing
less than 8% of its investment portfolio.
SIGNIFICANT STOCKHOLDER; TRADING MARKET RISKS
As the beneficial owner of approximately 81% of the outstanding AAG Common
Stock, AFG is a "controlling person" of AAG and has the ability to approve any
corporate action requiring stockholder approval, including the election of the
entire Board of Directors of AAG, amendments to the Certificate of Incorporation
and extraordinary corporate transactions such as mergers, consolidations and
sale of all or substantially all of AAG's assets. Accordingly, AFG controls
AAG's policy decisions.
FEDERAL INCOME TAX TREATMENT OF ANNUITY PRODUCTS
Current federal income tax law generally permits the tax deferred
accumulation of earnings on the premiums paid by an annuitant. Taxes, if any,
are payable by the annuitant on the accumulated tax-deferred earnings when these
earnings are paid to the annuitant. From time to time, there have been proposed
changes to the federal income tax laws that would eliminate this tax deferral
for certain types of annuity products, although historically such proposals have
not included the annuity products marketed by GALIC. In the event that the
federal income tax laws are changed such that accumulated earnings on annuity
products sold by GALIC no longer enjoy the tax-deferral described above, demand
for the affected annuity products could decline substantially or be eliminated.
The operations and business prospects of GALIC would be materially and adversely
affected by any material decrease in the demand for its annuity products. No
assurance can be given that such a tax law change will not occur in the future.
RECENT TAX LAW CHANGES
In August 1996, a new federal law was enacted which will expand the ability
of not-for-profit organizations to offer deferred compensation plans to their
employees. The full impact of this change is impossible to predict. However, if
the increased availability of these plans reduces the demand for annuities
qualified under Section 403(b) of the Internal Revenue Code of 1986, as amended
(the "Code"), the Company's business could be adversely affected.
ENVIRONMENTAL MATTERS INVOLVING AAG
AAG has certain continuing obligations with respect to the investigation
and cleanup of hazardous substances resulting from former electronic component
manufacturing facilities still owned by AAG and facilities transferred in
connection with sales of certain operations, as well as at disposal sites
operated by third parties. In addition, AAG has indemnified certain purchasers
of its former operations for the cost of such activities. Based on the annual
costs incurred by AAG over the past several years and discussions with its
independent environmental consultants, management believes that reserves for
such cleanup activities are sufficient in all material respects to satisfy
anticipated liabilities.
LIABILITIES RELATED TO FORMER OPERATIONS
In 1991, AAG identified possible deficiencies in procedures for reporting
quality assurance information to the Defense Electronics Supply Center ("DESC")
with respect to AAG's former manufacturing operations. Over the last several
years, AAG has been engaged in negotiations with the United States Government
with
17
<PAGE> 20
respect to settlement of claims the Government might have arising out of the
reporting deficiencies. Based on these negotiations, AAG believed it has
sufficient reserves to cover the estimated settlement amount. In March 1995, AAG
received notification from the Government indicating additional reporting
deficiencies. AAG believes that it has sufficient reserves to cover the
estimated settlement amounts.
18
<PAGE> 21
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, as amended, executed by AAG Holding, as sponsor
(the "Sponsor"), and the trustees of the Trust (the "Trustees"), (the
"Declaration") and (ii) the filing of a certificate of trust with the Secretary
of State of Delaware on September 13, 1996. The Declaration will be qualified as
an indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Upon issuance of the Preferred Securities, AAG Holding will
directly or indirectly acquire all of the issued and outstanding Common
Securities of the Trust which will represent at least 3% of the total capital of
the Trust. The Trust exists for the exclusive purposes of (i) issuing and
selling the Trust Securities, (ii) using the gross proceeds from the sale of the
Trust Securities to acquire the Subordinated Debentures and the Debt Guarantee
and (iii) engaging in only those other activities necessary or incidental
thereto.
Pursuant to the Declaration, the number of the Trustees will initially be
four. Two of the Trustees (the "Regular Trustees") will be persons who are
employees or officers of, or who are affiliated with, AAG Holding. The third
trustee will be a financial institution that is not affiliated with AAG Holding
that will serve as property trustee under the Declaration and as indenture
trustee for the purposes of the Trust Indenture Act (the "Property Trustee").
The fourth trustee will be a natural person who is a resident of the State of
Delaware or a legal entity which maintains its principal place of business in
the State of Delaware (the "Delaware Trustee"). The Bank of New York will act as
the Property Trustee and The Bank of New York (Delaware), an affiliate of the
Property Trustee, will act as the Delaware Trustee, in each case until removed
or replaced by the holder of the Common Securities. The Bank of New York will
also act as indenture trustee under the Trust Guarantee (the "Preferred
Securities Guarantee Trustee"). See "Description of Trust Guarantee."
The Property Trustee will hold title to the Subordinated Debentures and the
Debt Guarantee for the benefit of the Trust and the holders of the Trust
Securities and, so long as the Subordinated Debentures and Debt Guarantee are
held by the Trust, the Property Trustee will have the power to exercise all
rights, powers, and privileges of a holder of Subordinated Debentures under the
Indenture (as defined in "Description of the Subordinated Debentures and Debt
Guarantee" herein) and Debt Guarantee. In addition, the Property 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
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Property 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 Preferred Securities Guarantee Trustee
will hold the Trust Guarantee for the benefit of the holders of the Preferred
Securities.
AAG Holding, as the direct or indirect holder of all the Common Securities,
will have the right to appoint, remove or replace any Trustee (subject to the
limitations set forth in the Declaration) and to increase or decrease the number
of the Trustees. AAG Holding will pay all fees, expenses, debts and obligations
(other than with respect to the Trust Securities) related to the Trust and the
offering of the Trust Securities. See "Description of the Preferred Securities."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act"), the
Indenture and the Trust Indenture Act. See "Description of the Preferred
Securities."
THE COMPANY
OVERVIEW
American Annuity Group, Inc. ("AAG" or the "Company") and AAG Holding
Company, Inc. ("AAG Holding") are holding companies which, through their
subsidiaries, are engaged in the life insurance business, principally the sale
of tax-deferred annuities and life and health insurance. AAG's primary operating
subsidiary is Great American Life Insurance Company ("GALIC"). GALIC sells
annuities primarily to employees of qualified not-for-profit organizations under
Section 403(b) of the Internal Revenue Code. At
19
<PAGE> 22
December 31, 1995, GALIC had statutory assets of approximately $5.4 billion,
representing a 30% compounded annual growth in assets since 1976. AAG acquired
GALIC in December 1992.
GALIC has several direct and indirect life insurance subsidiaries including
(i) American Memorial Life Insurance Company ("American Memorial"), which
markets individual life insurance and annuity policies with the sponsorship of
state associations of funeral directors as well as individual funeral directors
across the country, (ii) Annuity Investors Life Insurance Company ("AILIC"),
which markets group and individual variable annuities, and (iii) Loyal American
Life Insurance Company, which specializes in life and health insurance sold
through payroll deduction plans and credit unions.
AAG Holding is a wholly-owned subsidiary of the Company which owns all of
the stock of GALIC. AAG Holding will own, directly or indirectly, all of the
Common Securities and will issue the Subordinated Debentures to the Trust.
American Financial Group, Inc. and its subsidiaries ("AFG"), collectively
own approximately 81% of the Company's outstanding common stock.
GREAT AMERICAN LIFE INSURANCE COMPANY
GALIC, located in Cincinnati, Ohio, entered the tax-deferred annuity
business in 1976; prior to that time, it wrote primarily whole-life, term-life,
and accident and health insurance policies. GALIC is currently rated "A"
(Excellent) by A.M. Best.
Annuities are long-term retirement savings plans that benefit from interest
accruing on a tax-deferred basis. The issuer of the annuity collects premiums,
credits interest on the policy and pays out a benefit upon death, surrender or
annuitization.
Annuity contracts are generally classified as either fixed rate or
variable. With a fixed rate annuity, the interest crediting rate is initially
set by the issuer and thereafter may be changed from time to time by the issuer
based on market conditions, subject to any guaranteed interest crediting rates
in the policy. With a variable annuity, the value of the policy is tied to an
underlying securities portfolio. All annuities issued by GALIC itself have been
fixed rate annuities. A GALIC subsidiary began marketing variable annuities in
the fourth quarter of 1995. See "--Annuity Investors Life Insurance Company."
Employees of qualified not-for-profit organizations are eligible to save
for retirement through contributions made on a before-tax basis. Contributions
are made at the discretion of the participants through payroll deductions or
through tax-free "rollovers" of funds. Federal income taxes are not payable on
contributions or earnings until amounts are withdrawn.
20
<PAGE> 23
The following table (in millions) presents information concerning GALIC.
STATUTORY ACCOUNTING PRINCIPLES BASIS
<TABLE>
<CAPTION>
JUNE 30
---------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets (a)........................ $5,590 $5,234 $5,414 $5,057 $4,758 $4,377 $4,541
Insurance Reserves:
Annuities............................. $5,134 $4,812 $4,974 $4,655 $4,299 $4,011 $3,756
Life.................................. 21 22 22 21 22 23 21
Accident and Health................... 1 1 -- 1 1 1 1
------ ------ ------ ------ ------ ------ ------
$5,156 $4,835 $4,996 $4,677 $4,322 $4,035 $3,778
====== ====== ====== ====== ====== ====== ======
Capital and Surplus..................... $ 279 $ 264 $ 273 $ 256 $ 251 $ 216 $ 219
Asset Valuation Reserve (b)(c).......... 88 81 90 80 70 71 112
Interest Maintenance Reserve (c)........ 28 24 32 28 36 17 --
Annuity Receipts:
Flexible Premium:
First Year......................... $ 19 $ 24 $ 42 $ 39 $ 47 $ 48 $ 67
Renewal............................ 101 108 196 208 223 232 240
------ ------ ------ ------ ------ ------ ------
120 132 238 247 270 280 307
Single Premium........................ 142 113 219 196 130 80 153
------ ------ ------ ------ ------ ------ ------
Total Annuity Receipts............. $ 262 245 $ 457 $ 443 $ 400 $ 360 $ 460
====== ====== ====== ====== ====== ====== ======
</TABLE>
GENERALLY ACCEPTED ACCOUNTING PRINCIPLES BASIS
<TABLE>
<CAPTION>
JUNE 30
---------------
1996 1995 1995 1994 1993 1992 1991
------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets (a)................... $5,688 $5,351 $5,631 $5,044 $4,883 $4,436 $4,686
Annuity Benefits Accumulated....... 5,065 4,767 4,917 4,596 4,257 3,974 3,727
Net Unrealized Gains (Losses)
Included in Stockholder's
Equity........................... 14 38 89 (28) 57 28 (6)
Stockholder's Equity............... 566 533 645 449 520 418 358
</TABLE>
- ------------------
(a) Includes $557 million for securities purchased in December 1991 and paid for
in 1992.
(b) For 1991, amount represents the Mandatory Securities Valuation Reserve.
(c) Allocation of surplus.
Tax-qualified premiums represented the majority of GALIC's total premiums
in 1995. Over the last several years, sales of non-qualified annuities have
represented an increasing percentage of premiums as GALIC has developed products
and distribution channels targeted to non-qualified markets. Single premium
annuity receipts have increased each year since 1992 due primarily to sales of
newly introduced products and, in 1995, the development of new distribution
channels.
At December 31, 1995, approximately 95% of GALIC's annuity policyholder
benefit reserves were attributable to fixed rate annuities which provided a
minimum interest rate guarantee of 4%. The balance of the annuities had a
minimum guaranteed rate of 3%. All of GALIC's annuity policies permit GALIC to
change the crediting rate at any time (subject to the minimum guaranteed
interest rate). In determining the frequency and extent of changes in the
crediting rate, GALIC takes into account the profitability of its annuity
business and the relative competitive position of its products.
GALIC seeks to maintain a desired spread between the yield on its
investment portfolio and the rate it credits to its policies. GALIC accomplishes
this by (i) offering crediting rates which it has the option to change, (ii)
designing annuity products that encourage persistency and (iii) maintaining an
appropriate
21
<PAGE> 24
matching of assets and liabilities. Tax-qualified annuity policyholders maintain
access to their funds without incurring penalties through provisions in the
contracts which allow policy loans.
In addition to its use of two-tier structures explained below, GALIC
imposes certain surrender charges and front-end fees during the first five to
ten years after issuance of a policy to discourage policyholders from
surrendering or withdrawing funds in those early years. Partly due to these
features, GALIC's annuity surrenders have averaged approximately 8% of statutory
reserves over the past five years.
Management believes that the favorable persistency rate has been enhanced
by GALIC's interest crediting policy and the high level of service offered to
agents and policyholders. GALIC's persistency rates, as well as the
policyholders' higher accumulation value, have been helped by the two-tier
design of many of GALIC's products. Two account values are maintained for
two-tier annuities--the annuitization (or upper-tier) value and the surrender
(or lower-tier) value.
GALIC's two-tier annuities are particularly attractive to policyholders who
intend to accumulate funds to provide retirement income since the annuitization
value is accumulated at a competitive long-term interest rate.
GALIC also offers single-tier products. After the initial surrender charges
have been reduced to zero, single-tier annuities have only one value which is
available whether the policy is surrendered or annuitized. In 1995, nearly 70%
of first year FPDA premiums and SPDA premiums received were on single-tier
policies compared to 7% in 1991.
Sales of annuities are affected by many factors, including (i) competitive
rates and products, (ii) the general level of interest rates, (iii) the
favorable tax treatment of annuities, (iv) commissions paid to agents, (v)
services offered, (vi) ratings from independent insurance rating agencies, (vii)
alternative investment products and (viii) general economic conditions.
GALIC markets its tax-deferred annuities principally to employees of
educational institutions in the kindergarten through high school ("K-12")
segment. Written premiums from the K-12 segment represented approximately
three-fourths of GALIC's total tax-qualified premiums in 1995. Management
believes that the K-12 segment is attractive because of its size and growth
potential, and the persistency rate it has demonstrated.
GALIC distributes its annuity products through over 80 managing general
agents ("MGAs") who, in turn, direct approximately 1,000 actively producing
independent agents. GALIC has developed its business on the basis of its
relationships with MGAs and independent agents primarily through a consistent
marketing approach and responsive service.
AMERICAN MEMORIAL LIFE INSURANCE COMPANY
American Memorial, located in Rapid City, South Dakota, offers a variety of
life insurance and annuity products to finance pre-arranged funerals. In a
typical arrangement, a consumer pays in advance for certain goods and services
to be provided by a funeral director. These payments must be used to purchase a
life insurance or annuity contract or to invest in a trust fund. Approximately
half of the premiums received by American Memorial are from single payment
funding and half are from payment plans of three to ten years. Policy values
increase at a rate geared to offset effects of inflation and thus provide for
funeral costs at time of death.
22
<PAGE> 25
The following table (in millions) presents information concerning American
Memorial in accordance with statutory accounting principles.
<TABLE>
<CAPTION>
JUNE 30,
-----------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets....................................... $395 $346 $359 $325 $305 $293 $285
Insurance Reserves:
Life............................................. $264 $240 $248 $228 $211 $201 $193
Annuities........................................ 81 63 72 58 55 57 56
---- ---- ---- ---- ---- ---- ----
$345 $303 $320 $286 $266 $258 $249
==== ==== ==== ==== ==== ==== ====
Capital and Surplus (a)............................ $ 26 $ 24 $ 24 $ 24 $ 23 $ 22 $ 21
Asset Valuation Reserve (b)(c)..................... 3 3 3 2 3 2 3
Interest Maintenance Reserve (c)................... 3 3 3 2 2 1 --
Premiums Written:
Life............................................. $ 32 $ 26 $ 52 $ 40 $ 35 $ 32 $ 32
Annuities........................................ 19 12 28 13 9 11 10
---- ---- ---- ---- ---- ---- ----
Total Premiums................................ $ 51 $ 38 $ 80 $ 53 $ 44 $ 43 $ 42
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ------------------
(a) Represents capital and surplus of consolidated American Memorial group of
companies.
(b) For 1991, amount represents the Mandatory Securities Valuation Reserve.
(c) Allocation of surplus.
At December 31, 1995, American Memorial and its subsidiaries had
approximately $800 million of life insurance in force.
American Memorial has approximately 875 actively producing agents and
relationships with approximately 2,000 funeral homes nationwide. More than
two-thirds of American Memorial's new sales of life insurance and annuities in
1995 came from sales resulting from large corporate accounts. As the funeral
home industry continues to consolidate reliance on these corporate accounts will
likely increase.
ANNUITY INVESTORS LIFE INSURANCE COMPANY
AILIC, located in Cincinnati, Ohio, was acquired by the Company in 1994 to
facilitate its entrance into the variable annuity market. Industry sales of
variable annuities have increased substantially over the last ten years as
investors have sought to obtain the returns available in the tax-deferred status
of annuities. With a variable annuity, the earnings credited to the policy
varies based on the investment results of the underlying investment options
chosen by the policyholder. Policyholders may also choose to direct all or a
portion of their premiums to various fixed rate options. Premiums directed to
the variable options in policies issued by AILIC are invested in funds managed
by independent investment managers, including Dreyfus, Janus and Merrill Lynch.
Variable annuities can be either tax-qualified or non-qualified and be funded
with a single premium payment or flexible premiums.
In December 1995, AILIC obtained all approvals necessary to begin offering
a group variable annuity. This product is designed for sale to employees of
school districts, hospitals and other not-for-profit organizations. In August
1996, AILIC received the necessary approvals to begin marketing qualified and
non-qualified individual variable annuities.
Under federal law and the laws of many states, variable annuities are
considered securities. As a result, variable annuities can be sold only by
agents who possess the requisite securities licenses and are affiliated with a
broker-dealer. Accordingly, not all agents who market fixed annuities also
market variable annuities. AILIC markets its products through those members of
the GALIC agency force who possess the requisite licenses as well as through new
agents not currently licensed with GALIC. AILIC also intends to market its
products through other distribution channels including broker-dealers and
financial institutions.
23
<PAGE> 26
LOYAL AMERICAN LIFE INSURANCE COMPANY
Loyal, located in Mobile, Alabama, offers a variety of life and
supplemental health insurance products that are normally sold on a fixed dollar
amount per pay period program. For products sold through payroll deduction
plans, the premiums are deducted from the individual's paycheck and remitted to
Loyal on a monthly basis. For products sold through credit unions, the premiums
are normally paid on a monthly or quarterly basis through deductions from the
member's credit union account. The products currently being offered include
traditional whole life, universal life, term life, hospital indemnity, cancer
and short-term disability.
The following table (in millions) presents information concerning Loyal in
accordance with statutory accounting principles.
<TABLE>
<CAPTION>
JUNE 30
-----------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Total Assets....................................... $255 $255 $252 $250 $244 $238 $188
Insurance Reserves:
Life............................................. $168 $166 $166 $163 $158 $154 $113
Accident and Health.............................. 29 28 28 28 29 29 28
Annuities........................................ 6 7 7 8 8 9 7
---- ---- ---- ---- ---- ---- ----
$203 $201 $201 $199 $195 $192 $148
==== ==== ==== ==== ==== ==== ====
Capital and Surplus................................ $ 36 $ 35 $ 35 $ 34 $ 32 $ 29 $ 27
Asset and Valuation Reserve (a)(b)................. 3 2 3 2 3 3 3
Interest Maintenance Reserve (b)................... 1 1 1 1 1 -- --
Premiums Written:
Life............................................. $ 11 $ 11 $ 21 $ 23 $ 24 $ 23 $ 22
Accident and Health.............................. 10 10 20 19 19 17 16
Annuities........................................ -- -- -- 1 -- -- --
---- ---- ---- ---- ---- ---- ----
Total Premiums................................ $ 21 $ 21 $ 41 $ 43 $ 43 $ 40 $ 38
==== ==== ==== ==== ==== ==== ====
</TABLE>
- ------------------
(a) For 1991, amount represents the Mandatory Securities Valuation Reserve.
(b) Allocation of surplus.
At December 31, 1995, Loyal had approximately $2.1 billion of life
insurance in force.
Loyal's marketing strategy emphasizes third party sponsorship to assist in
its selling process. In the payroll deduction market, with the approval of the
employer, Loyal's products are presented to the employees at the work place and
premiums are paid by payroll deduction with billings sent directly to the
employees for processing and remittance.
With credit unions, the products are offered with the endorsement of the
credit union management. The products are presented to the membership through
in-home sales, job-site or lobby enrollments and direct mail solicitation.
The distribution channel for payroll deduction plans is comprised of
selective relationships with marketing companies who provide job-site product
presentations. The distribution channels for credit unions are comprised of
independent agents and marketing companies who provide personnel for lobby sales
and job-site enrollments.
INVESTMENTS
Investments comprise approximately 90% of the Company's assets and are the
principal source of income. Fixed income securities (including policy loans,
mortgage loans and short-term investments) comprise over 98% of the Company's
investment portfolio.
24
<PAGE> 27
The Company's investment strategy emphasizes high quality fixed income
securities which management believes should produce a relatively consistent and
predictable level of investment income.
The National Association of Insurance Commissioners ("NAIC") assigns
quality ratings to publicly traded as well as privately placed securities. These
ratings range from Class 1 (highest quality) to Class 6 (lowest quality). The
following table shows the company's fixed maturity portfolio at market value by
NAIC designation (and comparable Standard & Poor's Corporation rating) at June
30, 1996:
<TABLE>
<CAPTION>
NAIC % OF TOTAL
RATING COMPARABLE S & P RATING MARKET VALUE
------ -------------------------------------------------- ------------
<C> <S> <C>
1 AAA, AA, A........................................ 66%
2 BBB............................................... 28
---
Total investment grade............................ 94
---
3 BB................................................ 3
4 B................................................. 3
5 CCC, CC, C........................................ *
6 D................................................. *
---
Total non-investment grade........................ 6
---
Total fixed maturities............................ 100%
===
</TABLE>
- ------------------
* less than 1%
AAG's primary investment objective in selecting securities for its fixed
maturity portfolio is to optimize interest yields while maintaining an
appropriate relationship of maturities between assets and expected liabilities.
The Company invests in bonds that have primarily intermediate-term maturities.
This practice provides flexibility to respond to fluctuations in the
marketplace.
At June 30, 1996, the average maturity of AAG's fixed maturity investments
was approximately 7 years (including mortgage-backed securities, which had an
estimated average life of approximately 8 1/2 years). The table below sets forth
the maturities of the Company's fixed maturity investments at June 30, 1996
based on their carrying value.
<TABLE>
<CAPTION>
MATURITY
----------------------------------------------------------------------
<S> <C>
One year or less...................................................... 1%
After one year through five years..................................... 17
After five years through ten years.................................... 38
After ten years....................................................... 12
---
68
Mortgage-backed securities............................................ 32
---
100%
===
</TABLE>
The following table shows the performance of AAG's investment portfolio,
excluding equity investments in affiliates (dollars in millions):
<TABLE>
<CAPTION>
JUNE 30,
---------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Average cash and investments at cost.................. $5,936 $5,040 $5,220 $4,750 $4,455
Gross investment income............................... 231 197 411 377 358
Realized gains........................................ 1 -- 16 -- 35
Percentage earned:
Excluding realized gains............................ 7.8% 7.8% 7.9% 7.9% 8.0%
Including realized gains............................ 7.8% 7.8% 8.2% 7.9% 8.8%
</TABLE>
25
<PAGE> 28
CAPITALIZATION
The following table sets forth the historical capitalization of the Company
at June 30, 1996, as adjusted to give the effect to the third quarter
transactions discussed below and as further adjusted to give pro forma effect to
the sale of the Preferred Securities.
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------------------------------
HISTORICAL
HISTORICAL ADJUSTED (A) PRO FORMA
---------- ------------ --------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
Notes payable................................................ $ 170.4 $ 159.9 $ 109.9(b)
Preferred Securities of Trust................................ -- -- 75.0
Stockholders' equity:
Series B Preferred Stock (at redemption value)............. 17.0 17.0 17.0
Common Stock, $1.00 par value.............................. 43.1 43.1 43.1
Capital surplus............................................ 360.9 360.9 360.9
Accumulated deficit at December 31, 1992................... (212.6) (212.6) (212.6)
Retained earnings since January 1, 1993.................... 158.1 158.1 158.1
Unrealized gain on marketable securities, net of deferred
income taxes and insurance adjustments................... 13.8 13.8 13.8
-------- -------- --------
Total stockholders' equity............................... 380.3 380.3 380.3
-------- -------- --------
Total capitalization......................................... $ 550.7 $ 540.2 $ 565.2
======== ======== ========
Notes payable as a percentage of total capitalization........ 30.9% 29.6% 19.4%
</TABLE>
- ------------------
(a) Adjusted to reflect the repurchase of $17.4 million in debt through
September 1, 1996 and additional bank line borrowings of $7 million through
September 1, 1996.
(b) Assumes that $50 million of the proceeds of the Offering are used to reduce
the outstanding amount on the Bank Lines of Credit.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with the
Company's financial statements with the Preferred Securities accounted for and
captioned in the consolidated balance sheet directly above stockholders' equity.
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the Company and its subsidiaries. Fixed charges are computed on a
"total enterprise" basis. For purposes of calculating the ratios, earnings have
been computed by adding to pretax earnings (excluding discontinued operations)
the fixed charges and the minority interest in earnings of subsidiaries having
fixed charges and deducting (adding) the undistributed equity in earnings
(losses) of investees. Fixed charges include interest (excluding interest on
annuity benefits), amortization of debt issue expense, preferred dividend
requirements and a portion of rental expense deemed to be representative of the
interest factor.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
--------------- ------------------------
1996 1995 1995 1994 1993
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges (1)................ 5.7 4.6 6.0 4.0 3.8
</TABLE>
(1) On March 31, 1994, AAG issued approximately 3.2 million shares of Common
Stock in exchange for all of its outstanding Series A Preferred Stock. In
December 1995, AAG sold 170,000 shares of $8.50 Series B Preferred Stock for
$17 million.
26
<PAGE> 29
USE OF PROCEEDS
The net proceeds from the sale of Preferred Securities by the Trust will be
invested in the Subordinated Debentures of AAG Holding. AAG Holding expects to
use the net proceeds from the sale of the Subordinated Debentures to repay
outstanding debt and for general corporate purposes. Until the net proceeds are
used for these purposes, AAG Holding may deposit them in interest-bearing
accounts or invest them in short-term marketable securities.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, The Bank of New York, will act as the
indenture trustee for purposes of compliance with the provisions of the Trust
Indenture Act. The terms of the Preferred Securities will include those stated
in the Declaration, including those required to be made part of the Declaration
by the Trust Indenture Act. The following summary of the principal terms and
provisions of the 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 Preferred Securities, which represent undivided beneficial interests
in the assets of the Trust. All of the Common Securities will be owned by,
directly or indirectly, AAG Holding. The Common Securities will have equivalent
terms to and will rank pari passu, and payments will be made thereon on a pro
rata basis, with the Preferred Securities, except that upon the occurrence and
during the continuance of a Declaration Event of Default (as defined herein),
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 Preferred Securities.
In addition, holders of the Common Securities have the exclusive right (subject
to the terms of the Declaration) to appoint, replace or remove the Trustees and
to increase or decrease the number of the Trustees. 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 Property Trustee will hold the Subordinated Debentures and the
Debt Guarantee 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 Preferred Securities or liquidation of the Trust, are
guaranteed by the Company to the extent described under "Description of Trust
Guarantee." The Trust Guarantee, when taken together with the back-up
undertakings, consisting of obligations of AAG Holding as set forth in the
Declaration of Trust (including the obligation to pay expenses of the Trust),
the Indenture, the Subordinated Debentures and the Debt Guarantee issued to the
Trust, provide a full and unconditional guarantee by the Company of the
Preferred Securities. The Trust Guarantee will be held by The Bank of New York,
the Preferred Securities Guarantee Trustee, for the benefit of the holders of
the Preferred Securities. The Trust Guarantee only covers payment of
distributions when AAG Holding or the Company has made the corresponding payment
of interest or principal on the Subordinated Debentures or Debt Guarantee held
by the Trust. In the absence of such payment of interest or principal, the
remedy of a holder of Preferred Securities is to direct the Property Trustee to
enforce the Property Trustee's rights as the holder of the Subordinated
Debentures except in the limited circumstances where the holder may take direct
action against AAG Holding. See--"Declaration Events of Default."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will (to the extent permitted
by applicable law) bear interest thereon from and including the last day of such
quarter at the rate per annum of % thereof compounded quarterly. The term
"distributions" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period
27
<PAGE> 30
will be computed on the basis of a 360-day year of twelve 30-day months, and for
any period shorter than a full quarter, on the basis of the actual number of
days elapsed in such 90-day quarter.
Distributions on the Preferred Securities will be cumulative, will accrue
from , 1996 and will be payable quarterly in arrears on January 15,
April 15, July 15 and October 15 of each year, commencing January 15, 1997,
when, as and if available for payment by the Property Trustee, except as
otherwise described below.
AAG Holding has the right under the Indenture to defer payments of interest
on the Subordinated Debentures by extending the interest payment period from
time to time on the Subordinated Debentures, which right, if exercised, would
defer quarterly distributions on the Preferred Securities (although to the
extent permitted by law, such distributions would continue to accrue with
interest since interest would continue to accrue on the Subordinated Debentures)
during any such Extension Period. AAG Holding has the right to defer payments of
interest on the Subordinated Debentures, from time to time, for up to 20
consecutive quarters, provided that no Extension Period may extend beyond the
Maturity Date of the Subordinated Debentures. There could be multiple Extension
Periods of varying lengths throughout the term of the Subordinated Debentures.
In the event that AAG Holding exercises this right, then during any Extension
Period (a) the Company and AAG Holding 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 and (b) the
Company and AAG Holding shall not, directly or indirectly, and will not allow
any of their subsidiaries to, make any payment of interest, principal or
premium, if any, on, or repay, repurchase or redeem, any debt securities issued
by the Company or AAG Holding that rank pari passu with or junior to the
Subordinated Debentures; provided, however, that the restriction in clause (a)
above does not apply (i) to repurchases or acquisitions of shares of the common
stock of the Company or AAG Holding as contemplated by any employment
arrangement, benefit plan or other similar contract with or for the benefit of
employees, officers or directors entered into in the ordinary course of
business, (ii) as a result of an exchange or conversion of any class or series
of the Company's or AAG Holding's capital stock for common stock, (iii) to the
purchase of fractional interests in shares of the Company or AAG Holding's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged or (iv) to the payment of any
stock dividend by the Company or AAG Holding payable in common stock. AAG
Holding may further extend the interest payment period; provided that each
Extension Period, if any, may not exceed 20 consecutive quarters and may not
extend beyond the Maturity Date of the Subordinated Debentures. Upon the
termination of any Extension Period and the payment of all amounts then due, AAG
Holding may commence a new Extension Period, subject to the above requirements.
See "Description of the Subordinated Debentures and Debt Guarantee--Interest"
and "Description of the Subordinated Debentures and Debt Guarantee--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 Preferred Securities as they appear on the books and records of the Trust on
the record date for distributions due at the end of such deferral period.
Distributions on the 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 Preferred Securities will be limited to
payments received from AAG Holding under the Subordinated Debentures or from the
Company under the Debt Guarantee. See "Description of the Subordinated
Debentures and Debt Guarantee." The payment of distributions out of moneys held
by the Trust is guaranteed by the Company to the extent set forth under
"Description of Trust Guarantee." The Trust Guarantee, when taken together with
the back-up undertakings, consisting of obligations of AAG Holding as set forth
in the Declaration of Trust of the Trust (including the obligation to pay
expenses of the Trust), the Indenture, the Subordinated Debentures issued to the
Trust and the Subordinated Debt Guarantee, provides a full and unconditional
guarantee by the Company of the Preferred Securities.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in global form,
will be one Business Day (as defined below) prior to the relevant payment dates.
Such
28
<PAGE> 31
distributions will be paid through the Property Trustee, which will hold amounts
received in respect of the Subordinated Debentures and Debt Guarantee in the
Property Account for the benefit of the holders of the Trust 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 Issuance--The
Depository Trust Company" below. In the event that the Preferred Securities do
not continue to remain in global form, the relevant record dates for the
Preferred Securities shall conform to the rules of any securities exchange on
which the Preferred Securities are listed and, if none, shall be selected by the
Regular Trustees, which dates shall be at least one Business Day but less than
60 Business Days prior to the relevant payment dates. Distributions payable on
any Preferred Securities that are not punctually paid on any distribution
payment date will cease to be payable to the person in whose name such Preferred
Securities are registered on the relevant record date, and such defaulted
distribution will instead be payable to the person in whose name such Preferred
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture. In the event that any date on which
distributions are to be made on the 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. A "Business Day" shall mean any day other than a day on
which banking institutions in New York, New York are authorized or required by
law to close.
MANDATORY REDEMPTION
Upon the repayment of the Subordinated Debentures, whether at maturity or
upon redemption, the proceeds from such repayment or redemption shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Subordinated
Debentures so repaid or redeemed at the Redemption Price; provided that, holders
of Trust Securities shall be given not less than 30 nor more than 60 days notice
of such redemption. The Subordinated Debentures will mature on ,
2026 unless the maturity date is changed at the option of AAG Holding (provided
in the case of an extension of the maturity date that certain financial
conditions are met), and may be redeemed, in whole or in part, at any time on or
after , 2001 or at any time, in whole (but not in part), upon the
occurrence of a Special Event. See "Description of the Subordinated Debentures
and Debt Guarantee-- Optional Redemption." In the event that fewer than all of
the outstanding Trust Securities are to be redeemed, the Trust Securities will
be redeemed pro rata to each holder according to the aggregate liquidation
amount of Trust Securities held by the relevant holder in relation to the
aggregate liquidation amount of all Trust Securities outstanding. See
"--Book-Entry Issuance--The Depository Trust Company" below for a description of
DTC's (as hereinafter defined) procedures in the event of redemption.
SPECIAL EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of an independent tax counsel experienced in such matters 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 official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of original issuance
of the Preferred Securities, there is more than an insubstantial risk that (i)
the Trust is, or will be within 90 days after the date thereof, subject to
United States federal income tax with respect to interest accrued or received on
the Subordinated Debentures, (ii) the Trust is, or will be within 90 days after
the date thereof, subject to more than a de minimis amount of taxes, duties or
other governmental charges, or (iii) interest payable to the Trust on the
Subordinated Debentures is not, or within 90 days of the date thereof, will not
be deductible, in whole or in part, by AAG Holding for United States federal
income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of an independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "1940 Act"), to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
29
<PAGE> 32
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, AAG Holding
shall have the right, upon not less than 30 nor more than 60 days notice, to
redeem the Subordinated Debentures in whole (but not in part), for cash within
90 days following the occurrence of such Special Event, and, following such
redemption, all Trust Securities shall be redeemed by the Trust at the
Redemption Price.
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, AAG Holding will have the right to terminate the Trust and,
after satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Subordinated Debentures and Debt Guarantee to be
distributed to the holders of the Trust Securities in liquidation of the Trust.
Under current United States federal income tax law and interpretation and
assuming, as expected, the Trust is treated as a grantor trust, a distribution
of the Subordinated Debentures and Debt Guarantee should not be a taxable event
to holders of the Preferred Securities. Should there be a change in law, a
change in legal interpretation, a Special Event or other circumstances, however,
the distribution could be a taxable event to the holders of the Preferred
Securities. In addition, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation--Receipt of Subordinated Debentures or
Cash Upon Liquidation of the Trust."
If the Subordinated Debentures and Debt Guarantee are distributed to the
holders of the Preferred Securities, AAG Holding will use its best efforts to
cause the Subordinated Debentures to be listed on the NYSE or on such other
exchange as the Preferred Securities are then listed.
After the date for any distribution of Subordinated Debentures, together
with the Debt Guarantee, upon dissolution of the Trust, (i) the Preferred
Securities will no longer be deemed to be outstanding and (ii) the record
holders of the Preferred Securities will receive a registered global certificate
or certificates representing the Subordinated Debentures to be delivered upon
such distribution in exchange for the Preferred Securities held by such holders.
If AAG Holding elects to liquidate the Trust and thereby causes the
Subordinated Debentures and Debt Guarantee to be distributed to holders of the
Preferred Securities in liquidation of the Trust, AAG Holding shall have the
right to shorten the maturity of such Subordinated Debentures to a date not
earlier than , 2001 or extend the maturity of such Subordinated
Debentures to a date not later than the earlier of (a) , 2045 or
(b) the Interest Deduction Date (as defined herein), provided that it can extend
the maturity only if certain conditions are met. See "Description of the
Subordinated Debentures and Debt Guarantee--Option to Change Scheduled Maturity
Date."
There can be no assurance as to the market prices for either the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Preferred Securities if a dissolution and liquidation of the Trust were
to occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
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 Preferred Securities offered hereby.
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's fiscal 1997 budget proposal, was
released. The Bill would, among other things, generally deny interest deductions
for interest or OID on an instrument issued by a corporation that has a maximum
weighted average maturity of more than 40 years. The Bill would also treat as
equity instruments issued by a corporation that have a maximum term of more than
20 years and that are not shown as indebtedness on the consolidated balance
sheet of the issuer. For purposes of determining the weighted average maturity
or the term of an instrument, any right to extend would be treated as exercised.
The above-described provisions of the Bill were proposed to be effective
generally for instruments issued on or after December 7, 1995. However,
30
<PAGE> 33
on March 29, 1996, the Chairmen of the Senate Finance and House Ways and Means
Committees issued a joint statement (the "Joint Statement") to the effect that
it was their intention that the effective date of the President's legislative
proposals, if adopted, would be no earlier than the date of appropriate
Congressional action. In addition, subsequent to the publication of the Joint
Statement, Senator Daniel Patrick Moynihan and Representatives Sam M. Gibbons
and Charles B. Rangel wrote letters to Treasury Department officials concurring
with the views expressed in the Joint Statement. Under current law, it is likely
that the Subordinated Debentures will be treated as indebtedness of AAG Holding,
and AAG Holding will be able to deduct interest on the Subordinated Debentures
beneficially held by the holders of the Preferred Securities. The terms of the
Subordinated Debentures limit AAG Holding's right to extend the maturity of the
Subordinated Debentures to a date which is six months shorter than any
legislative limit on the length of debt securities for which interest is
deductible. Based on the advice of tax counsel, the Company believes this will
allow AAG Holding an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, AAG Holding will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals, adverse judicial decisions, final
legislation or official administrative pronouncements will not affect the
ability of AAG Holding to deduct interest on the Subordinated Debentures, giving
rise to a Tax Event (as defined below) which would permit AAG Holding to cause
the redemption of the Preferred Securities prior to , 2001 (the
first date on which AAG Holding would otherwise be able to cause a redemption of
the Preferred Securities). See "Description of the Preferred Securities--Special
Event Redemption" and "United States Federal Income Taxation."
REDEMPTION PROCEDURES
The Trust may not redeem any of the outstanding Preferred Securities unless
all accrued and unpaid distributions have been paid on all Preferred Securities
for all quarterly distribution periods terminating on or prior to the date of
redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that AAG Holding has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Debentures, the Trust will
irrevocably deposit with the depository funds sufficient to pay the applicable
Redemption Price and will give the depository irrevocable instructions to pay
the Redemption Price to the holders of the Preferred Securities. If notice of
redemption shall have been given and funds deposited as required, then
immediately prior to the close of business on the date of such deposit,
distributions will cease to accrue and all rights of holders of such Preferred
Securities so called for redemption will cease, except the right of the holders
of such Preferred Securities to receive the Redemption Price, but without
interest on such Redemption Price. In the event that any date fixed for
redemption of Preferred Securities is not a Business Day, then payment of the
Redemption Price payable on such date will be made on the next succeeding day
that is a Business Day (without any interest or other payment in respect of any
such delay), except that, if such Business Day falls in the next calendar year,
such payment will be made on the immediately preceding Business Day. In the
event that AAG Holding fails to repay the Subordinated Debentures on maturity or
payment of the Redemption Price in respect of Preferred Securities is improperly
withheld or refused and not paid either by the Trust or by the Company pursuant
to the Trust Guarantee, distributions on such Preferred Securities will continue
to accrue at the then applicable rate from the original redemption date to the
actual date of payment, in which case the actual payment date will be considered
the date fixed for redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed as described below
under "--Book-Entry Issuance--The Depository Trust Company."
If a partial redemption of the Preferred Securities would result in the
delisting of the Preferred Securities by a national securities exchange or other
organization on which the Preferred Securities are then listed, AAG
31
<PAGE> 34
Holding, pursuant to the Indenture, will only redeem the Subordinated Debentures
in whole and, as a result, the Trust may only redeem the Preferred Securities in
whole.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company, AAG Holding or their
affiliates may at any time, and from time to time, purchase outstanding
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 holders of
the Preferred Securities will be entitled to receive on a pro rata basis, solely
out of the assets of the Trust, after satisfaction of liabilities to creditors,
distributions in an amount equal to the aggregate of the stated liquidation
amount of $25 per Preferred Security plus accrued and unpaid distributions
thereon to the date of payment (the "Liquidation Distribution"), unless, in
connection with such Liquidation, 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 Preferred Securities
have been distributed on a pro rata basis to the holders of the Preferred
Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
The Trust Guarantee, when taken together with the back-up undertakings,
consisting of obligations of AAG Holding as set forth in the Declaration
(including the obligation to pay expenses of the Trust), the Indenture, the
Subordinated Debentures issued to the Trust and the Subordinated Debenture
Guarantee, provide a full and unconditional guarantee by the Company of the
Preferred Securities.
TERMINATION
Pursuant to the Declaration, the Trust shall terminate upon the earliest of
(i) , 2051, (ii) the bankruptcy of the Company or AAG Holding, (iii)
the filing of a certificate of dissolution or its equivalent with respect to the
Company or AAG Holding, the consent of the holders of at least a majority in
liquidation amount of the Trust Securities and the filing of a certificate of
cancellation with respect to the Trust or the revocation of the charter of the
Company or AAG Holding and the expiration of 90 days after the date of
revocation without a reinstatement thereof, (iv) upon satisfaction of the
liabilities of creditors of the Trust as provided by applicable law, the
Subordinated Debentures shall have been distributed to holders of the Preferred
Securities in liquidation of the Trust, (v) the entry of a decree of a judicial
dissolution of the Company, AAG Holding or the Trust, or (vi) the redemption of
all the Trust Securities.
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 Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Event of Default
with respect to the Preferred Securities has been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture.
Upon the occurrence of a Declaration Event of Default, the Indenture
Trustee (as defined herein) or the Property Trustee as the holder of the
Subordinated Debentures will have the right under the Indenture to declare the
principal of and interest on the Subordinated Debentures to be immediately due
and payable. Each
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of AAG Holding and the Company is required to file annually with the Property
Trustee an officer's certificate as to its compliance with all conditions and
covenants under the Declaration.
If the Property Trustee fails to enforce its rights with respect to the
Subordinated Debentures or Debt Guarantee held by the Trust, any record holder
of Preferred Securities may institute legal proceedings directly against AAG
Holding or the Company to enforce the Property Trustee's rights under such
Subordinated Debentures or Debt Guarantee without first instituting any legal
proceedings against such Property Trustee or any other person or entity. In
addition, if a Declaration Event of Default has occurred and is continuing and
such event is attributable to the failure of AAG Holding to pay interest,
principal or other required payment on the Subordinated Debentures issued to the
Trust on the date such interest, principal or other payment is otherwise
payable, then a record holder of Preferred Securities may institute a proceeding
directly against AAG Holding for enforcement of payment on the Subordinated
Debentures on or after the respective due dates specified in the Subordinated
Debentures having a principal amount equal to the aggregate liquidation amount
of the Preferred Securities held by such holder. In connection with such Direct
Action, AAG Holding will be subrogated to the rights of such record holder of
Preferred Securities to the extent of any payment made by AAG Holding to such
record holder of Preferred Securities. The record holder in the case of the
issuance of one or more global Preferred Securities certificates will be The
Depository Trust Company acting at the direction of the beneficial owners of the
Preferred Securities.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of Trust Guarantee--Modification of the Trust Guarantee;
Assignment," and as otherwise required by law and the Declaration, the holders
of the Preferred Securities will have no voting rights.
Subject to the requirement of the Property 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 Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Subordinated Debentures and Debt Guarantee, to (i) exercise the remedies
available under the Indenture with respect to the Subordinated Debentures and
Debt Guarantee, (ii) waive any past Indenture Event of Default that is waivable
under the Indenture, or (iii) exercise any right to rescind or annul a
declaration that the principal of all the Subordinated Debentures shall be due
and payable, or consent to any amendment, modification or termination of the
Indenture or the Subordinated Debentures, where such consent should be required;
provided, however, that, where a consent or action under the Indenture would
require the consent or act of the holders of greater than a majority in
principal amount of Subordinated Debentures affected thereby (a
"Super-Majority"), the Property Trustee may only give such consent or take such
action at the written direction of the holders of at least the proportion in
liquidation amount of the Preferred Securities which the relevant Super-Majority
represents of the aggregate principal amount of the Subordinated Debentures
outstanding. The Property Trustee shall notify all holders of the Preferred
Securities of any notice of default received from the Indenture Trustee with
respect to the Subordinated Debentures. Except with respect to directing the
time, method and place of conducting a proceeding for a remedy, the Property
Trustee shall not take any of the actions described in clauses (i), (ii) or
(iii) above unless the Property Trustee has obtained an opinion of tax counsel
to the effect that, as a result of such action, the Trust will not be classified
as other than a grantor trust for United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debentures and Debt Guarantee, is required under the Indenture with
respect to any amendment, modification or termination of the Indenture or the
Subordinated Debentures, the Property Trustee shall request the direction of the
holders of the Trust 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
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
Property Trustee may only give such consent at the direction of the holders of
at least the proportion in liquidation amount of the Trust Securities which the
relevant Super-
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Majority represents of the aggregate principal amount of the Subordinated
Debentures outstanding. The Property Trustee shall not take any such action in
accordance with the directions of the holders of the Trust Securities unless the
Property Trustee has obtained an opinion of tax counsel to the effect that the
Trust will not be classified as other than a grantor trust for United States
federal income tax purposes on account of such action.
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 Preferred Securities may
be given at a separate meeting of holders of 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 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 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 Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Subordinated Debentures in
accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the 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 Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "--Book-Entry Issuance--The Depository
Trust Company" below.
Holders of the Preferred Securities will have no rights to appoint or
remove the Trustees, who may be appointed, removed or replaced solely by the
Company as the indirect or direct holder of all of the Common Securities.
MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by a majority of
the Regular Trustees (and in certain circumstances the Property 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 affect
only the Preferred Securities or the 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 Trust 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 as other than a grantor trust for United States federal income tax
purposes, (ii) reduce or otherwise adversely affect the powers of the Property
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 a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee, 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 Securities or (y) substitutes for the
Trust 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 rank with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) AAG
Holding expressly acknowledges a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Subordinated
Debentures and the Company expressly acknowledges such trustee of such successor
entity as the holder of the Debt Guarantee, (iii) the Preferred Securities or
any Successor Securities with respect to the Preferred Securities are listed, or
any such Successor Securities will be listed upon notification of issuance, on
any national securities exchange or with another organization on which the
Preferred Securities are then listed or quoted, (iv) such merger, consolidation,
amalgamation or replacement does not cause the Preferred Securities (including
any Successor Securities with respect to the Preferred Securities) to be
downgraded by any nationally recognized statistical rating organization, (v)
such merger, consolidation, amalgamation or replacement does not adversely
affect 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 an independent counsel to the Trust experienced in
such matters to the effect that, (A) such merger, consolidation, amalgamation or
replacement does not adversely affect 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) the
Trust 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
Trust Guarantee. 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 United States federal income tax purposes and each holder of the Trust
Securities not to be treated as owning an undivided interest in the Subordinated
Debentures.
EXPENSES AND TAXES
In the Indenture, AAG Holding has agreed to pay all debts and other
obligations (other than with respect to the Trust Securities) and all costs and
expenses of the Trust (including costs and expenses relating to the organization
of the Trust, the fees and expenses of the Trustees and the costs and expenses
relating to the operation of the Trust) and to pay any and all taxes and all
costs and expenses with respect thereto (other than United States withholding
taxes) to which the Trust might become subject. The foregoing obligations of AAG
Holding under the Indenture are for the benefit of, and shall be enforceable by,
any person to whom any such debts, obligations, costs, expenses and taxes are
owed (a "Creditor") whether or not such Creditor has received notice thereof.
Any such Creditor may enforce such obligations of AAG Holding directly against
AAG Holding, and AAG Holding has irrevocably waived any right or remedy to
require that any such Creditor take any action against the Trust or any other
person before proceeding against AAG Holding. AAG Holding has also agreed in the
Indenture to execute such additional agreements as may be necessary or desirable
to give full effect to the foregoing.
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BOOK-ENTRY ISSUANCE--THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository for
the Preferred Securities. The Preferred Securities initially will be issued only
as fully-registered securities registered in the name of Cede&Co. (DTC's
nominee). One or more fully-registered global Preferred Securities certificates,
representing the total aggregate number of Preferred Securities, will be issued
and will be delivered to DTC.
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 Preferred
Securities as represented by a global certificate.
DTC has advised the Company and the Trust that DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others, such as securities brokers and dealers, banks and
trust companies that clear transactions through or maintain a direct or indirect
custodial relationship with a Direct Participant ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the 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 Preferred Securities, except in the event that
use of the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of Beneficial Owners that are their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to 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.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in such Preferred Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The
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Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct
Participants to whose accounts the Preferred Securities are credited on the
record date (identified in a listing attached to the Omnibus Proxy). The Company
and the Trust believe that the arrangements among DTC, 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 holder of a beneficial interest in the Trust.
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, 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 DTC,
the Trust or the Company, subject to any statutory or regulatory requirements
that may be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC, and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Preferred Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with the consent of
the Company) may decide to discontinue use of the system of book-entry transfers
through DTC (or any successor depository) with respect to the Preferred
Securities. In that event, certificates for the Preferred Securities will be
printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but none of the Company, AAG Holding nor the Trust takes
responsibility for the accuracy thereof. Unless the context otherwise requires,
the term "holder of Preferred Securities" shall refer to Beneficial Owners
rather than to DTC.
INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration, in the terms of the Trust Securities or in the
Trust Indenture Act 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 Property Trustee is under no obligation to
exercise any of the powers vested in it by the Declaration at the request of any
holder of Preferred Securities, unless offered reasonable indemnity by such
holder against the costs, expenses and liabilities which might be incurred
thereby. The holders of Preferred Securities will not be required to offer such
indemnity in the event such holders, by exercising their voting rights, direct
the Property Trustee to take any action following a Declaration Event of
Default. The Property Trustee also serves as Preferred Securities Guarantee
Trustee.
PAYING AGENT
In the event that the Preferred Securities do not remain in book-entry
form, the following provisions would apply:
Securities Transfer Company , Cincinnati, Ohio, will act as the initial
paying agent. The Company may designate an additional or substitute paying agent
at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or AAG Holding may require) in respect of any tax or
other government charges that may be imposed in relation to it.
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The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
GOVERNING LAW
The Declaration and the 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 be characterized as other than a grantor trust
for United States federal income tax purposes. AAG Holding is authorized and
directed to conduct its affairs so that the Subordinated Debentures will be
treated as indebtedness of AAG Holding for United States federal income tax
purposes. In this connection, AAG Holding and the Regular Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the Articles of Incorporation of AAG
Holding, that each of AAG Holding and the Regular Trustees determines in their
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 Preferred
Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive rights.
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DESCRIPTION OF TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust Guarantee
that will be executed and delivered by the Company for the benefit of the
holders, from time to time, of Preferred Securities. The Trust Guarantee will be
qualified as an indenture under the Trust Indenture Act. The Bank of New York
will act as independent indenture trustee for Trust Indenture Act purposes under
the Trust Guarantee (the "Preferred Securities Guarantee Trustee"). The terms of
the Trust Guarantee will be those set forth in such Trust Guarantee and those
made part of such Trust Guarantee by the Trust Indenture Act. The summary of
certain provisions of the Trust Guarantee does not purport to be complete and is
subject to and qualified in its entirety by reference to the provisions of the
form of Trust Guarantee, a copy of which has been filed as an exhibit to the
Registration Statement of which this Prospectus is a part, and the Trust
Indenture Act. The Trust Guarantee will be held by the Preferred Securities
Guarantee Trustee for the benefit of the holders of the Preferred Securities of
the Trust.
GENERAL
Pursuant to the Trust Guarantee, the Company will agree, to the extent set
forth therein, to pay in full to the holders of the Preferred Securities, the
Trust Guarantee Payments (as defined below) (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The following payments or
distributions with respect to the Preferred Securities (the "Trust Guarantee
Payments"), to the extent not paid by the Trust, will be subject to the Trust
Guarantee (without duplication): (i) any accrued and unpaid distributions that
are required to be paid on such Preferred Securities, to the extent the Trust
shall have funds available therefor, (ii) the redemption price, including all
accrued and unpaid distributions to the date of redemption (the "Redemption
Price"), to the extent the Trust has funds available therefor, with respect to
any Preferred Securities called for redemption by the Trust and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Subordinated Debentures to
the holders of Preferred Securities or the redemption of all of the Preferred
Securities upon maturity or redemption of the Subordinated Debentures) the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on such Preferred Securities to the date of payment, to the extent
the Trust has funds available therefor or (b) the amount of assets of the Trust
remaining for distribution to holders of such Preferred Securities in
liquidation of the Trust. The Company's obligation to make a Trust Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of Preferred Securities or by causing the Trust to pay
such amounts to such holders.
The Trust Guarantee will not apply to any payment of distributions except
to the extent the Trust shall have funds available therefor. If AAG Holding does
not make interest or principal payments on the Subordinated Debentures purchased
by the Trust and the Company does not fulfill its obligations under the Debt
Guarantee, the Trust will not pay distributions on the Preferred Securities
issued by the Trust and will not have funds available therefor.
The Company has also agreed to guarantee the obligations of the Trust with
respect to the Common Securities (the "Trust Common Guarantee") to the same
extent as the Trust Guarantee, except that, if an Event of Default under the
Indenture has occurred and is continuing, holders of Preferred Securities under
the Trust Guarantee shall have priority over holders of the Common Securities
under the Trust Common Guarantee with respect to distributions and payments on
liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Trust Guarantee, the Company will covenant that, so long as any
Preferred Securities remain outstanding, if there shall have occurred any event
of default under the Trust Guarantee or a Declaration Event of Default under the
Declaration, then (a) the Company will not declare or pay any dividend on, make
any distributions with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to, any of its capital stock; (b) the Company
shall not make any payment of interest, principal or premium, if any, on or
repay, repurchase or redeem any debt securities (including guarantees) issued by
the Company which rank pari passu with or junior to the Trust Guarantee and (c)
the Company shall not make any guarantee
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payments with respect to the foregoing (other than pursuant to the Trust
Guarantee or the Debt Guarantee); provided, however, that the Company may
declare and pay a stock dividend where the dividend is paid in the form of the
same stock as that on which the dividend is being paid.
MODIFICATION OF THE TRUST GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), the Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities. The manner of obtaining any such approval of
holders of such Preferred Securities is set forth above under "Description of
the Preferred Securities--Voting Rights." All guarantees and agreements
contained in the Trust Guarantee shall bind the successors, assigns, receivers,
trustees and representatives of the Company and shall inure to the benefit of
the holders of the Preferred Securities then outstanding.
EVENTS OF DEFAULT
An event of default under the Trust Guarantee will occur upon the failure
of the Company to perform any of its payment or other obligations thereunder.
The holders of a majority in liquidation amount of the Preferred Securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Preferred Securities Guarantee Trustee in respect of
the Trust Guarantee or to direct the exercise of any trust or power conferred
upon the Preferred Securities Guarantee Trustee under the Trust Guarantee.
If the Preferred Securities Guarantee Trustee fails to enforce the Trust
Guarantee, any record holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce the Preferred Securities
Guarantee Trustee's rights under the Trust Guarantee without first instituting a
legal proceeding against the Trust, the Preferred Securities Guarantee Trustee
or any other person or entity. Notwithstanding the foregoing, if the Company has
failed to make a Trust Guarantee Payment, a record holder of Preferred
Securities may directly institute a proceeding against the Company for
enforcement of the Trust Guarantee for such payment to the record holder of the
Preferred Securities of the principal of or interest on the Subordinated
Debentures on or after the respective due dates specified in the Subordinated
Debentures, and the amount of the payment will be based on the holder's pro rata
share of the amount due and owing on all of the Preferred Securities. The
Company has waived any right or remedy to require that any action be brought
first against the Trust or any other person or entity before proceeding directly
against the Company. The record holder in the case of the issuance of one or
more global Preferred Securities certificates will be DTC acting at the
direction of its Direct Participants who in turn will be acting at the direction
of the Beneficial Owners of the Preferred Securities.
The Company will be required to provide annually to the Preferred
Securities Guarantee Trustee a statement as to the performance by the Company of
certain of its obligations under the Trust Guarantee and as to any default in
such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default, undertakes to perform only such duties as are specifically set forth in
the Trust Guarantee and, after default with respect to the Trust Guarantee,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provision, the Preferred
Securities Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Guarantee at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate as to the Preferred Securities upon full
payment of the Redemption Price of all Preferred Securities, upon distribution
of the Subordinated Debentures held by the Trust to the holders of all of the
Preferred Securities or upon full payment of the amounts payable in accordance
with the Declaration upon liquidation of the Trust. The Trust Guarantee will
continue to be effective or will be
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reinstated, as the case may be, if at any time any holder of Preferred
Securities must restore payment of any sums paid under such Preferred Securities
or the Trust Guarantee.
STATUS OF THE TRUST GUARANTEE
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company except those liabilities of the Company made pari
passu or subordinate by their terms, (ii) pari passu with the most senior
preferred or preference stock now or hereafter issued by the Company and with
any guarantee now or hereafter entered into by the Company in respect of any
preferred or preference stock of any affiliate of the Company and (iii) senior
to the Company's Common Stock. The terms of the Preferred Securities provide
that each holder of Preferred Securities by acceptance thereof agrees to the
subordination provisions and other terms of the Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Trust Guarantee will be governed by and construed in accordance with
the law of the State of New York.
DESCRIPTION OF THE SUBORDINATED DEBENTURES AND DEBT GUARANTEE
Set forth below is a description of the specific terms of the 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 description in the Indenture, dated as of September , 1996 (the
"Indenture"), among AAG Holding as issuer, AAG, as Guarantor, and The Bank of
New York, as Trustee (the "Indenture Trustee"), the form of which is filed as an
Exhibit to the Registration Statement of which this Prospectus is a part, and
the Trust Indenture Act. Certain capitalized terms used herein are defined in
the Indenture.
At any time, AAG Holding will have the right to liquidate the Trust and
cause the Subordinated Debentures and Debt Guarantee to be distributed to the
holders of the Preferred Securities in liquidation of the Trust. See
"Description of the Preferred Securities--Distribution of the Subordinated
Debentures."
If the Subordinated Debentures and the Debt Guarantee are distributed to
the holders of the Preferred Securities, the Company will use its best efforts
to have such securities listed on the NYSE or on such other exchange on which
the Preferred Securities are then listed.
GENERAL
The Subordinated Debentures will be issued as unsecured subordinated debt
securities under the Indenture. The Subordinated Debentures will be limited in
aggregate principal amount to approximately $ million, such amount being the
sum of the aggregate stated liquidation amount of the Preferred Securities and
the capital contributed by AAG Holding in exchange for the Common Securities
(the "AAG Holding Payment").
The Subordinated Debentures are not subject to a sinking fund provision.
The entire principal amount of the Subordinated Debentures will mature and
become due and payable, together with any accrued and unpaid interest thereon
including Compounded Interest (as hereinafter defined), if any, on ,
2026, subject to the election of AAG Holding to shorten or extend the scheduled
maturity date of the Subordinated Debentures, which election, in the case of an
extension of the scheduled maturity date, is subject to AAG Holding satisfying
certain financial conditions. See "--Option to Change Scheduled Maturity Date."
The Subordinated Debentures will be fully and unconditionally guaranteed on a
subordinated basis as to principal, premium, if any, and interest by the
Company.
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If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, it is
presently anticipated that such Subordinated Debentures will initially be issued
in the form of one or more Global Securities (as defined below). As described
herein, under certain limited circumstances, Subordinated Debentures may be
issued in definitive certificated form in exchange for a Global Security. See
"--Book-Entry and Settlement" below. In the event that Subordinated Debentures
are issued in definitive certificated form, such Subordinated Debentures will be
in denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Subordinated Debentures
issued as a Global Security will be made to DTC or its nominee, a successor
depository or its nominee. In the event Subordinated Debentures are issued in
definitive certificated form, principal and interest will be payable, the
transfer of the Subordinated Debentures will be registrable and Subordinated
Debentures will be exchangeable for Subordinated Debentures of other
denominations of a like aggregate principal amount at the principal corporate
trust office of the Indenture Trustee in New York, New York; provided that
payment of interest may be made at the option of AAG Holding by check mailed to
the address of the persons entitled thereto.
The Indenture does not contain provisions that afford the holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction involving the Company or AAG Holding or other similar transaction
that may adversely affect such holders.
DEBT GUARANTEE
The Indenture provides that the Company will fully and unconditionally
guarantee the due and punctual payment of the principal and interest on the
Subordinated Debentures when and as the same shall become due and payable,
whether at maturity, upon redemption or otherwise. Since AAG is a holding
company, the right of the Company and, hence, the right of creditors of the
Company (including the holders of the Subordinated Debentures) to participate in
any distribution of the assets of any subsidiaries of the Company, whether upon
liquidation, reorganization or otherwise, is subject to prior claims of
creditors of its subsidiaries, except to the extent that claims of the Company
itself as a creditor of a subsidiary may be recognized.
SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinated
and junior in right of payment to all Senior Indebtedness of AAG Holding and
that the Debt Guarantee is subordinated and junior in right of payment to all
Senior Indebtedness of the Company. No payment of principal of (including
redemption payments), premium, if any, or interest on, the Subordinated
Debentures and no payment under the Debt Guarantee may be made if any Senior
Indebtedness of AAG Holding or the Company, as the case may be, is not paid when
due, 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 if the maturity of
any Senior Indebtedness of AAG Holding or the Company, as the case may be, has
been accelerated because of a default. Upon any distribution of assets of AAG
Holding or 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 of,
premium, if any, and interest due or to become due on, all Senior Indebtedness
of AAG Holding or the Company, as the case may be, (including interest after the
commencement of any bankruptcy, insolvency, receivership or other proceedings at
the rate specified in the applicable Senior Indebtedness, whether or not such
interest is an allowable claim in any such proceeding) must be first paid in
full before the holders of Subordinated Debentures or the Debt Guarantee are
entitled to receive or retain any payment. The rights of the holders of the
Subordinated Debentures and the Debt Guarantee will be subrogated to the rights
of the holders of Senior Indebtedness of AAG Holding or the Company, as the case
may be, to receive payments or distributions applicable to Senior Indebtedness
until the principal of (and premium, if any) and interest on the Subordinated
Debentures or the Debt Guarantee, as the case may be, (including interest after
the commencement of any bankruptcy, insolvency, receivership or other
proceedings at the rate specified in the applicable Senior Indebtedness, whether
or not such interest is an allowable claim in any such proceeding) are paid in
full. In addition, the Subordinated Debentures and the Debt Guarantee will rank
at least pari passu with all other subordinated debt securities and debt
guarantees initially issued to other trusts, partnerships or
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other entities affiliated with the Company in connection with an issuance of
securities similar to the Preferred Securities.
The term "Senior Indebtedness" shall include (i) the principal, premium, if
any, and interest in respect of (A) indebtedness of such obligor for money
borrowed and (B) indebtedness evidenced by securities, debentures, bonds or
other similar instruments issued by such obligor ; (ii) all capital lease
obligations of such obligor; (iii) all obligations of such obligor issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of such obligor and all obligations of such obligor under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of such obligor for the
reimbursement on any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction; (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
such obligor is responsible or liable as obligor, guarantor or otherwise,
including under all support agreements or guarantees by such obligor of
debentures, notes and other securities issued by its subsidiaries; and (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of such obligor (whether or
not such obligation is assumed by such obligor); except in each case for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Debentures, and (2) any indebtedness in respect of debt securities
issued to any trust, or a trustee of such trust, partnership or other entity
affiliated with AAG Holding or the Company that is a financing entity for such
obligor (a "financing entity") in connection with the issuance by such financing
entity of securities that are similar to the Preferred Securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by AAG Holding or the Company.
OPTIONAL REDEMPTION
AAG Holding shall have the right to redeem the Subordinated Debentures, (i)
at any time, in whole or in part, from time to time, on or after ,
2001 or (ii) at any time in whole (but not in part) upon the occurrence of a
Special Event as described under "Description of the Preferred
Securities--Special Event Redemption," upon not less than 30 nor more than 60
days notice, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest to the redemption date. If a
partial redemption of the Preferred Securities resulting from a partial
redemption of the Subordinated Debentures would result in the delisting of the
Preferred Securities, AAG Holding may only redeem the Subordinated Debentures in
whole. AAG Holding may not redeem any Subordinated Debentures if there is
accrued and unpaid interest on the Subordinated Debentures as of the Interest
Payment Date (as defined below) next preceeding the redemption date.
INTEREST
Each Subordinated Debenture shall bear interest at the rate of % per
annum from the original date of issuance, or from the most recent interest
payment date to which interest has been paid or provided for, payable quarterly
in arrears on January 15, April 15, July 15 and October 15 of each year (each,
an "Interest Payment Date"), commencing January 15, 1997, to the person in whose
name such 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 Subordinated Debentures shall not continue to
remain in book-entry form, AAG Holding 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. Any installment of interest not punctually
paid will cease to be payable to the holders of the Subordinated Debentures on
the regular record date and may be paid to the person in whose name the
Subordinated Debentures are registered at the close of business on a special
record date to be fixed by the Indenture Trustee for the payment of such
defaulted interest, notice of which shall be given to the holders of the
Subordinated Debentures not less than 10 days prior to such special record date,
or may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange, interdealer quotation system or other
organization on which the Subordinated Debentures may be listed, and upon such
notice as may be required by such exchange, system or organization.
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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 in such 90
day quarter. In the event that any date on which interest is payable on the
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.
OPTION TO CHANGE SCHEDULED MATURITY DATE
The "Scheduled Maturity Date" of the Subordinated Debentures is
, 2026. AAG Holding, however, may, extend such maturity date ( ,
2026 or the maturity date then in effect, as the case may be, is hereinafter
referred to as the "Maturity Date") for one or more periods, but in no event
later than the earlier of (i) , 2045 or (ii) (the "Interest
Deduction Date"). The "Interest Deduction Date" shall mean the date which is six
months earlier than the ending date of the maximum term (beginning on the date
of issue of the Subordinated Debentures and including any extensions thereof),
as determined under any federal statute applicable by its terms to the
Subordinated Debentures which is enacted at any time after the issuance of the
Subordinated Debentures (including, but not limited to, at any time after an
extension of the Maturity Date), of a debt instrument for which interest is
deductible for federal income tax purposes. In no event shall the extended
Maturity Date be later than the Interest Deduction Date even if the Maturity
Date has previously been extended to a date beyond the Interest Deduction Date.
AAG Holding must exercise its right to extend the term at least 90 days prior to
the Maturity Date then in effect and must satisfy the following conditions on
the date AAG Holding exercises such right and on the Maturity Date then in
effect prior to such proposed extension: (a) AAG Holding is not in bankruptcy or
otherwise insolvent, (b) AAG Holding is not in default on any Subordinated
Debenture issued to the Trust or to any trustee of the Trust in connection with
an issuance of Trust Securities by the Trust, (c) AAG Holding has made timely
payments on the Subordinated Debentures for the immediately preceding six
quarters without deferrals, (d) the Trust is not in arrears on payments of
distributions on the Trust Securities, (e) the Subordinated Debentures or
Preferred Securities are rated investment grade by any one of Standard & Poor's
Corporation, Moody's Investors Service, Inc., Fitch Investor Services, Duff &
Phelps Credit Rating Company or any other nationally recognized statistical
rating organization, and (f) the final maturity of such Subordinated Debentures
is not later than the 49th anniversary of the issuance of the Preferred
Securities. Pursuant to the Declaration, the Regular Trustees are required to
give notice of AAG Holding's election to change the Maturity Date to the holders
of the Preferred Securities.
In addition, if AAG Holding exercises its right to liquidate the Trust and
distribute the Subordinated Debentures as discussed above under "Description of
the Preferred Securities--Distribution of the Subordinated Debentures,"
effective upon such exercise, the Maturity Date of the Subordinated Debentures
may be changed to (i) any date elected by AAG Holding that is no earlier than
, 2001 and (ii) any date elected by AAG Holding which is not later
than the earlier of (a) , 2045 or (b) the "Interest Deduction Date;"
provided that on the date AAG Holding exercises such right, and on the Maturity
Date in effect prior to such proposed extension, the conditions specified in the
previous paragraph are satisfied.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
AAG Holding has the right, from time to time, to defer payment of interest
on the Subordinated Debentures for up to 20 consecutive quarters, provided that
no Extension Period may extend beyond the Maturity Date of the Subordinated
Debentures. There could be multiple Extension Periods of varying lengths during
the term of the Subordinated Debentures. At the end of each Extension Period, if
any, AAG Holding shall pay all interest then accrued and unpaid, together with
interest thereon, compounded quarterly at the rate specified for the
Subordinated Debentures to the extent permitted by applicable law ("Compounded
Interest"). In the event AAG Holding exercises this right, then during any
Extension Period, (a) the Company and AAG Holding shall not declare or pay any
dividends on, make any distribution with respect to, or redeem, purchase,
acquire or make a liquidation payment with respect to any of its capital stock
and (b) the
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Company and AAG Holding shall not, directly or indirectly, and will not allow
any of their subsidiaries to, make any payment of interest, principal or
premium, if any, on, or repay, repurchase or redeem, any debt securities issued
by the Company and AAG Holding that rank pari passu with or junior to the
Subordinated Debentures; provided, however, that, the restriction in clause (a)
above does not apply (i) to repurchases or acquisitions of shares of the common
stock of the Company or AAG Holding as contemplated by any employment
arrangement, benefit plan or other similar contract with or for the benefit of
employees, officers or directors entered into in the ordinary course of
business, (ii) as a result of an exchange or conversion of any class or series
of the Company's or AAG Holding's capital stock for common stock, (iii) to the
purchase of fractional interests in shares of the Company or AAG Holding's
capital stock pursuant to the conversion or exchange provisions of such capital
stock or the security being converted or exchanged or (iv) to the payment of any
stock dividend by the Company or AAG Holding payable in common stock. Prior to
the termination of any such Extension Period, AAG Holding 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 exceed 20 consecutive quarters or extend beyond the Maturity
Date. Upon the termination of any Extension Period and the payment of all
amounts then due, AAG Holding may commence a new Extension Period, subject to
the terms set forth in this section. No interest during an Extension Period,
except at the end thereof, shall be due and payable. AAG Holding has no present
intention of exercising its right to defer payments of interest by extending the
interest payment period on the Subordinated Debentures. If the Property Trustee
shall be the sole holder of the Subordinated Debentures, AAG Holding shall give
the Regular Trustees and the Property Trustee notice of its selection of such
Extension Period one Business Day prior to the earlier of (i) the date
distributions on the Preferred Securities are payable or (ii) the date the
Regular Trustees are required to give notice to the NYSE (or other applicable
self-regulatory organization) or to holders of the Preferred Securities of the
record date or the date such distribution is payable. The Regular Trustees shall
give notice of AAG Holding's selection of such Extension Period to the holders
of the Preferred Securities. If the Property Trustee shall not be the sole
holder of the Subordinated Debentures, AAG Holding shall give the holders of the
Subordinated Debentures notice of its selection of such Extension Period ten
Business Days prior to the earlier of (i) the applicable Interest Payment Date
or (ii) the date upon which AAG Holding is required to give notice to the NYSE
(or other applicable self-regulatory organization) or to holders of the
Subordinated Debentures of the record or payment date of such related interest
payment.
COVENANTS
The Indenture requires AAG Holding to covenant to the following with
respect to the Subordinated Debentures: (i) to duly and punctually pay the
principal of and interest on the Subordinated Debentures (together with any
additional amounts payable pursuant to the terms thereof) and comply with all
other terms, agreements and conditions contained therein or made in the
Indenture for the benefit of the Subordinated Debentures; (ii) to maintain an
office or agency where the Subordinated Debentures may be presented, surrendered
for payment, transferred or exchanged and where notices to AAG Holding may be
served; (iii) if AAG Holding shall act as its own paying agent for the
Subordinated Debentures, to segregate and hold in trust for the benefit of the
persons entitled thereto a sum sufficient to pay the principal of and premium or
interest, if any, so becoming due; (iv) to appoint a successor trustee whenever
necessary to avoid or fill a vacancy in the office of trustee, (v) to preserve
its corporate existence, (vi) to cause all properties used or useful in the
conduct of its business or the business of any Subsidiary to be maintained and
kept in good condition and (vii) to pay or discharge, before the same shall
become delinquent, all taxes, assessments, government charges, and all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon the property of AAG Holding or a Subsidiary that comprise more than
10% or more of the combined assets of AAG Holding and its Subsidiaries, other
than claims contested in good faith by AAG Holding. The Indenture also requires
AAG Holding to deliver to the Trustee, within 120 days after the end of each
fiscal year, a written statement as to whether, to the best knowledge of the
officer signing the statement, AAG Holding is in compliance with the terms of
the Indenture and, if not, the nature and status of such non-compliance.
In addition, AAG Holding has also covenanted, with respect to the
Subordinated Debentures, that for so long as the Preferred Securities and the
Common Securities remain outstanding AAG Holding will
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(i) maintain 100% direct or indirect ownership of the Common Securities,
provided, however, that any permitted successor of AAG Holding under the
Indenture may succeed to AAG Holding's ownership of the Common Securities, (ii)
not voluntarily dissolve, wind-up or terminate the Trust, except in connection
with the distribution of Subordinated Debentures or certain mergers,
consolidations or amalgamations, each as permitted by the Declaration, (iii)
timely perform its duties as sponsor of the Trust, (iv) use its reasonable
efforts to cause the Trust (a) to remain a business trust classified as a
grantor trust, except in connection with a distribution of the Subordinated
Debentures to the holders of Preferred Securities in liquidation of the Trust,
the redemption of all of the Preferred Securities and Common Securities of the
Trust or certain mergers, consolidations or amalgamations, each as permitted by
the Declaration, and (b) continue not to be treated as an association taxable as
a corporation for United States federal income tax purposes other than in
connection with a distribution of Subordinated Debentures to the holders of
Preferred Securities in liquidation of the Trust, and (v) use its reasonable
efforts to cause each holder of Preferred Securities and Common Securities to be
treated as owning an undivided beneficial interest in the Subordinated
Debentures.
CONSOLIDATION, MERGER AND TRANSFER OF ASSETS
Upon any consolidation of AAG Holding with, or merger of AAG Holding into,
any other person or any conveyance, transfer or lease of the properties and
assets of AAG Holding substantially as an entirety, the successor person formed
by such consolidation or into which AAG Holding is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, AAG Holding under the Indenture with
the same effect as AAG Holding prior to such transaction, and thereafter, except
in the case of a lease, the predecessor person shall be relieved of all
obligations and covenants under the Indenture and the Subordinated Debentures.
INDENTURE EVENTS OF DEFAULT
The occurrence of any of the following events with respect to the
Subordinated Debentures will, unless otherwise specified, constitute an "Event
of Default" with respect to the Subordinated Debentures: (a) default for thirty
(30) days in the payment of any installment of interest on the Subordinated
Debentures; (b) default in the payment of any of the principal of the
Subordinated Debentures when due, whether at maturity, upon redemption, by
declaration of acceleration or otherwise; (c) default for sixty (60) days by AAG
Holding in the observance or performance of any other covenant or agreement
contained in the Subordinated Debentures or the Indenture (other than a covenant
or agreement default which is specifically designated as having a different time
period) for the benefit of the Subordinated Debentures after written notice
thereof as provided in the Indenture; (d) (i) an event of default occurs under
any instrument (including the Indenture) under which there is at the time
outstanding, or by which there may be secured or evidenced, any indebtedness of
the Company or AAG Holding for money borrowed by the Company or AAG Holding, as
the case may be, (other than non-recourse indebtedness) which results in
acceleration or nonpayment at maturity (after giving effect to any applicable
grace period) of such indebtedness in an aggregate amount exceeding $15,000,000;
or any such indebtedness exceeding $15,000,000 shall otherwise be declared to be
due and payable, or required to be prepaid (other than by a regularly scheduled
prepayment or exercise of an optional prepayment right), prior to the stated
maturity thereof; or any failure by the Company or AAG Holding to make any
payment under a guarantee in respect of any indebtedness, in each case in an
amount of at least $15,000,000, on the date such payment is due (or within any
grace period specified in the agreement or other instrument governing such
indebtedness); in which case the Company or AAG Holding shall immediately give
notice to the Trustee of such acceleration or non-payment, and (ii) there shall
have been a failure to cure such default or to pay or discharge such defaulted
indebtedness within ten (10) days after written notice thereof as provided in
the Indenture; (e) any final non-appealable judgment or order for the payment of
money in excess of $15,000,000 is rendered against the Company or AAG Holding,
such judgment or order is not satisfied by payment or bonded and either
enforcement proceedings have been commenced by the judgment creditor or there
has been a period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not
have been in effect; provided, however, that a judgment or order fully covered
by insurance (or a judgment or order for the payment of money covered by
insurance to the extent of all payments in excess of $15,000,000), which
coverage has not been disputed by the insurer, shall not be
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considered a default or an Event of Default; or (f) certain events of
bankruptcy, insolvency or reorganization relating to the Company or AAG Holding.
In addition, an Event of Default shall include the voluntary or involuntary
dissolution or winding up of the business of the Trust or other termination of
the existence of the Trust, other than in connection with (i) the distribution
of the Subordinated Debentures to holders of the Trust Securities in liquidation
of their interests in the Trust, (ii) the redemption of all of the outstanding
Trust Securities, or (iii) certain mergers, consolidations or amalgamations of
the Trust, each as permitted by the Declaration.
If any Event of Default shall occur and be continuing, the Property
Trustee, as the holder of the Subordinated Debentures, will have the right to
declare the principal of and the interest on the Subordinated Debentures
(including any Compounded Interest 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 Subordinated Debentures subject to the
subordination provisions in the Indenture. An Event of Default also constitutes
a Declaration Event of Default. If the Property Trustee fails to enforce its
rights with respect to the Subordinated Debentures held by the Trust, any record
holder of Preferred Securities may institute legal proceedings directly against
AAG Holding to enforce the Property Trustee's rights under such Subordinated
Debentures without first instituting any legal proceedings against such Property
Trustee or any other person or entity. In addition, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of AAG Holding to pay interest or principal on the Subordinated
Debentures issued to the Trust on the date such interest or principal is
otherwise payable and the Company fails to make payments under the Debt
Guarantee with respect to such amounts, then a record holder of Preferred
Securities may institute a proceeding directly against AAG Holding for
enforcement of payment to the record holder of the Preferred Securities of the
principal of or interest on the Subordinated Debentures on or after the
respective due dates specified in the Subordinated Debentures, and the amount of
the payment will be based on the holder's pro rata share of the amount due and
owing on all of the Preferred Securities. The record holder in the case of the
issuance of one or more global Preferred Securities certificates will be DTC
acting at the direction of its direct participants who will be acting at the
direction of Beneficial Owners. The holders of Preferred Securities in certain
circumstances have the right to direct the Property Trustee to exercise its
rights, with respect to other than principal and interest payments on the
Subordinated Debentures, as the holder of the Subordinated Debentures. See
"Description of the Preferred Securities--Declaration Events of Default" and
"Description of the Preferred Securities--Voting Rights."
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust, it
is presently anticipated that the Subordinated Debentures will be issued in the
form of one or more global certificates (each a "Global Security") registered in
the name of a securities depository or its nominee. Except under the limited
circumstances described below, Subordinated Debentures represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Subordinated Debentures in definitive form. The Global Securities described
above may not be transferred except by the depository to a nominee of the
depository or by a nominee of the depository to the depository or another
nominee of the depository or to a successor depository or its nominee.
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 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 Subordinated Debentures shall be exchangeable, except for
another Global Security of like denomination and tenor to be registered in the
name of the depository or its nominee or to a successor depository or its
nominee. Accordingly, each beneficial owner must rely on the procedures of the
depository 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.
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THE DEPOSITORY
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, DTC will act
as securities depository for the Subordinated Debentures. For a description of
DTC and the specific terms of the depository arrangements, see "Description of
the Preferred Securities--Book-Entry Issuance--The Depository Trust Company." As
of the date of this Prospectus, the description therein of DTC's book-entry
system and DTC's practices as they relate to purchases, transfers, notices and
payments with respect to the Preferred Securities apply in all material respects
to any debt obligations represented by one or more Global Securities held by
DTC. AAG Holding may appoint a successor to DTC or any successor depository in
the event DTC or such successor depository is unable or unwilling to continue as
the depository for the Global Securities.
None of AAG Holding, the Trust, the Indenture Trustee, any paying agent and
any other agent of AAG Holding or the Indenture 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 the Subordinated Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITORY'S SERVICES
A Global Security shall be exchangeable for Subordinated Debentures in
definitive certificated form registered in the names of persons other than the
depository or its nominee only if (i) the depository notifies AAG Holding that
it is unwilling or unable to continue as a depository for such Global Security
and no successor depository shall have been appointed, (ii) the depository, at
any time, ceases to be a clearing agency registered under the Exchange Act at
which time the depository is required to be so registered to act as such
depository and no successor depository shall have been appointed, or (iii) AAG
Holding, in its sole discretion, determines that such Global Security shall be
so exchangeable. Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Subordinated Debentures registered
in such names as the depository shall direct. It is expected that such
instructions will be based upon directions received by the depository from its
Participants with respect to ownership of beneficial interests in such Global
Security.
MISCELLANEOUS
The Indenture will provide that the AAG Holding will pay all fees and
expenses related to (i) the offering of the Trust Securities and the
Subordinated Debentures, (ii) the organization, maintenance and dissolution of
the Trust, (iii) the retention of the Trustees and (iv) the enforcement by the
Property Trustee of the rights of the holders of the Preferred Securities.
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<PAGE> 51
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED
DEBENTURES, THE DEBT GUARANTEE AND THE TRUST GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to (i)
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, (ii) invest the proceeds from such issuance and sale in the
Subordinated Debentures and (iii) 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
Subordinated Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because: (i) the aggregate principal
amount of 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 Subordinated Debentures will match
the distribution rate and distribution and other payment dates for the Preferred
Securities; (iii) AAG Holding shall pay all, and the Trust shall not be
obligated to pay, directly or indirectly, any, costs, expenses, debts and
obligations (other than with respect to the Trust Securities) related to the
Trust; and (iv) the Declaration provides that the Trustees shall not 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 Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of Trust Guarantee." If AAG Holding does not make interest and/or
principal payments on the Subordinated Debentures purchased by the Trust and the
Company does not make payments under the Debt Guarantee, the Trust will not have
sufficient funds to pay distributions on the Preferred Securities. The Trust
Guarantee will not apply to the payment of distributions and other payments on
the Preferred Securities when the Trust does not have sufficient funds to make
such distributions or other payments.
The Debt 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 except those made pari passu or subordinate by their
terms, and (ii) senior to the Company's preferred and common stock.
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company except those made pari passu or subordinate by their
terms, (ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock of any
affiliate of the Company and (iii) senior to the Company's common stock.
The Trust Guarantee, when taken together with the back-up undertakings,
consisting of obligations of The Company as set forth in the Declaration
(including the obligation to pay expenses of the Trust), the Indenture, the Debt
Guarantee and the Subordinated Debentures issued to the Trust, provide a full
and unconditional guarantee by the Company of the Preferred Securities. If the
Preferred Securities Guarantee Trustee fails to enforce the Trust Guarantee, any
record holder of Preferred Securities may institute a legal proceeding directly
against the Company to enforce the Preferred Securities Guarantee Trustee's
rights under the Trust Guarantee without first instituting a legal proceeding
against the Trust, the Preferred Securities Guarantee Trustee or any other
person or entity. In addition, if the Company has failed to make a Trust
Guarantee Payment, a record holder of Preferred Securities may directly
institute a proceeding against the Company for enforcement of the Trust
Guarantee for such payment to the record holder of the Preferred Securities of
the principal of or interest on the Subordinated Debentures on or after the
respective due dates specified in the Subordinated Debentures, and the amount of
the payment will be based on the holder's pro rata share of the amount due and
owing on all of the Preferred Securities. The Company has waived any right or
remedy to require that any action be brought first against the Trust or any
other person or entity before proceeding directly against the Company. The
record holder in the case of the issuance of one or more global Preferred
Securities certificates will be DTC acting at the direction of its Direct
Participants, who in turn will be acting at the direction of the Beneficial
Owners of the Preferred Securities.
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<PAGE> 52
If the Property Trustee fails to enforce its rights with respect to the
Subordinated Debentures or Debt Guarantee held by the Trust, any record holder
of Preferred Securities may institute legal proceedings directly against AAG
Holding or the Company to enforce the Property Trustee's rights under such
Subordinated Debentures or Debt Guarantee, respectively, without first
instituting any legal proceedings against such Property Trustee or any other
person or entity. In addition, if a Declaration Event of Default has occurred
and is continuing and such event is attributable to the failure of AAG Holding
to pay interest, principal or other required payments on the Subordinated
Debentures issued to the Trust on the date such interest, principal or other
required payment is otherwise payable, then a record holder of Preferred
Securities may institute a Direct Action against AAG Holding for enforcement of
such payment on the Subordinated Debentures on or after the respective due dates
specified in the Subordinated Debentures. To the extent the Company or AAG
Holding makes a payment to a record holder of Preferred Securities in connection
with proceedings by such record holder directly against the Company or AAG
Holding, the Company or AAG Holding, as the case may be, will be subrogated to
the rights of the record holder of Preferred Securities to the extent of
payments made by the Company or AAG Holding to the record holder. The record
holder in the case of the issuance of one or more global Preferred Securities
certificates will be DTC acting at the direction of its Direct Participants, who
in turn will be acting at the direction of the Beneficial Owners of the
Preferred Securities. If another Indenture Event of Default occurs and is
continuing, the Declaration provides a mechanism whereby the holders of the
Preferred Securities, using the procedures described in "Description of the
Preferred Securities--Voting Rights," may direct the Property Trustee to enforce
its rights under the Subordinated Debentures.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of Preferred
Securities. Unless otherwise stated, this summary deals only with Preferred
Securities held as capital assets by holders who purchase the Preferred
Securities upon original issuance ("Initial Holders"). It does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that will hold the
Preferred Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Preferred Securities. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable to
the Preferred Securities. This summary is based on the Code, U.S. 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. Any such changes may be applied retroactively in a manner
that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a beneficial owner of
the Preferred Securities. In particular, legislation has been proposed that
could adversely affect AAG Holding's ability to deduct interest on the
Subordinated Debentures, which may in turn permit AAG Holding to cause a
redemption of the Preferred Securities prior to 2001. See "--Proposed Tax Law
Changes."
CLASSIFICATION OF THE SUBORDINATED DEBENTURES AND THE TRUST
In connection with the issuance of the Subordinated Debentures, Akin, Gump,
Strauss, Hauer & Feld, L.L.P. ("Tax Counsel"), tax counsel for the Company, AAG
Holding and the Trust, will render its opinion generally to the effect that,
although not entirely free from doubt, under current law and assuming full
compliance with the terms of the Indenture (and certain other documents), and
based upon current facts and assumptions contained in such opinion, the
Subordinated Debentures will be classified for United States federal income tax
purposes as indebtedness of AAG Holding.
In connection with the issuance of the Preferred Securities, Tax Counsel
will render its opinion generally to the effect that under current law and
assuming full compliance with the terms of the Declaration and other
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<PAGE> 53
documents, and based upon certain facts and assumptions contained in such
opinion, the Trust will be classified for United States federal income tax
purposes as a grantor trust and not as an association taxable as a corporation.
Accordingly, for United States federal income tax purposes, each holder of
Preferred Securities generally will be considered the owner of an undivided
interest in the Subordinated Debentures. Each holder will be required to include
in its gross income its allocable share of income on the Subordinated
Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued income tax regulations applicable to all debt
instruments that, like the Subordinated Debentures, are issued on or after
August 13, 1996, remote contingencies that stated interest will not be timely
paid are ignored in determining whether a debt instrument is issued with OID.
OID must be included in income by all holders as it accrues economically on a
daily basis, without regard to when it is paid in cash or whether a particular
holder generally uses the cash method of accounting. The Company has concluded
that the likelihood of its exercising its option to defer payments of interest
is remote because exercising that option would prevent the Company from
declaring dividends on its stock. Based upon this conclusion, and although not
entirely free from doubt, in the opinion of Tax Counsel the Subordinated
Debentures will not include OID. As a consequence, holders of the Preferred
Securities should report interest under their own methods of accounting (e.g.,
cash or accrual) instead of under the daily economic accrual rules for OID
instruments.
Under the new regulations, however, if the Company exercises its right to
defer payments of interest, the Subordinated Debentures will become OID
instruments, and all holders of the Preferred Securities will be required to
accrue interest on a daily basis during any Extension Period even though the
Company will not pay the interest in cash until the end of the Extension Period,
and even though a holder may use the cash method of accounting. A holder who
disposes of the Preferred Securities during such an Extension Period may suffer
a loss because the market value of the Trust Securities will likely fall if the
Company exercises its option to defer payments of interest on the Subordinated
Debentures. Furthermore, the market value of the Preferred Securities may not
reflect the accumulated distribution that will be paid at the end of the
Extension Period, and a holder who sells the Preferred Securities during the
Extension Period will not receive from the Company any cash related to the
interest income the holder accrued and included in its taxable income under the
OID rules (because that cash will be paid to the holder of record at the end of
the Extension Period).
If the Subordinated Debentures become OID instruments (i.e., if the Company
ever exercises its right to defer payment of interest), the Subordinated
Debentures will be taxed as OID instruments for as long as they remain
outstanding. Thus, even after the end of the Extension Period, all holders will
be required to continue accruing interest on the Subordinated Debentures on a
daily basis, regardless of their method of accounting.
The new regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service ("IRS"), and it is possible that
the IRS could take a position contrary to the interpretation herein.
Corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Preferred Securities.
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of Preferred Securities other than Initial Holders may be
considered to have acquired their undivided interests in the Subordinated
Debentures with "market discount" or "acquisition premium" as such phrases are
defined for United States federal income tax purposes. Such holders are advised
to consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
As described under the caption "Description of the Preferred
Securities--Distribution of the Subordinated Debentures," Subordinated
Debentures may be distributed to holders in exchange for the Preferred
Securities and in liquidation of the Trust. Under current law, such a
distribution would be treated for United States federal income tax purposes as a
non-taxable event to each holder, and each holder would receive an
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aggregate tax basis in the Subordinated Debentures equal to such holder's
aggregate tax basis in its Preferred Securities. A holder's holding period in
the Subordinated Debentures so received in liquidation of the Trust would
include the period during which the Preferred Securities were held by such
holder. If, however, the liquidation of the Trust were to occur because the
Trust is subject to United States federal income tax with respect to income
accrued or received on the Subordinated Debentures, the distribution of the
Subordinated Debentures to holders would be a taxable event to each holder and a
holder would recognize gain or loss as if the holder had exchanged its Preferred
Securities for the Subordinated Debentures it received upon liquidation of the
Trust.
Under certain circumstances described herein (see "Description of the
Preferred Securities--Special Event Redemption"), the Subordinated Debentures
may be redeemed for cash, with the proceeds of such redemption distributed to
holders in redemption of their Preferred Securities. Under current law, such a
redemption would constitute a taxable disposition of the redeemed Preferred
Securities for United States federal income tax purposes, and a holder would
recognize gain or loss as if it sold such redeemed Preferred Securities for
cash. See "--Sales of Preferred Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. Assuming AAG
Holding does not defer interest on the Subordinated Debentures by extending the
interest payment period, a holder's adjusted tax basis in the Preferred
Securities generally will equal its initial purchase price. Subject to the
market discount rules described above and the discussion below regarding accrued
and unpaid interest, such gain or loss generally will be a capital gain or loss
and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. If the Company exercises its right to defer payments of
interest, a holder who disposes of Preferred Securities between record dates for
payments of distributions thereon will be required to include in income as
ordinary income, accured and unpaid interest on the Subordinated Debentures
through the date of disposition, and to add such amount to such holder's
adjusted tax basis in such holder's pro rata share of the underlying
Subordinated Debentures disposed of. To the extent the selling price is less
than the holder's adjusted tax basis (which will include all accrued but unpaid
interest) a holder will recognize a capital loss. Subject to certain limited
exceptions, capital losses cannot be applied to offset ordinary income for
United States federal income tax purposes. Accrual basis taxpayers would be
subjected to similar treatment without regard to AAG Holding's election to
defer.
UNITED STATES ALIEN HOLDERS
Prospective purchasers of Preferred Securities that are United States Alien
Holders should consult their tax advisors with respect to the United States
federal tax consequences, including in particular potential withholding tax
consequences, as well as any tax consequences that may arise under the laws of
any U.S. state, local or other U.S. or non-U.S. tax jurisdiction. For purposes
of this discussion, a "United States Alien Holder" is any corporation,
individual, partnership, estate or trust that is, as to the United States, a
foreign corporation, a non-resident alien individual, a foreign partnership, or
a non-resident fiduciary of a foreign estate or trust.
INFORMATION REPORTING TO HOLDERS
Income on the Preferred Securities will be reported to holders on Forms
1099, which forms should be mailed to holders of Preferred Securities by January
31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld
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amounts will be allowed as a credit against the holder's federal income tax,
provided the required information is provided to the Internal Revenue Service.
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's fiscal 1997 budget proposal was
released. The Bill would, among other things, generally deny interest deductions
for interest or OID on an instrument, issued by a corporation, that has a
maximum weighted average maturity of more than 40 years. The Bill would also
treat as equity, instruments issued by a corporation that have a maximum term of
more than 20 years and that are not shown as indebtedness on the consolidated
balance sheet of the issuer. For purposes of determining the weighted average
maturity or the term of an instrument, any right to extend would be treated as
exercised. The above-described provisions of the Bill were proposed to be
effective generally for instruments issued on or after December 7, 1995.
However, on March 29, 1996, the Chairmen of the Senate Finance and House Ways
and Means Committees issued a joint statement (the "Joint Statement") to the
effect that it was their intention that the effective date of the President's
legislative proposals, if adopted, would be no earlier than the date of
appropriate Congressional action. In addition, subsequent to the publication of
the Joint Statement, Senator Patrick Moynihan and Representatives Sam M. Gibbons
and Charles B. Rangel wrote letters to Treasury Department officials concurring
with the views expressed in the Joint Statement. Under current law, it is likely
that the Subordinated Debentures will be treated as indebtedness of AAG Holding
and AAG Holding will be able to deduct interest on the Subordinated Debentures
beneficially held by the holders of the Preferred Securities. The terms of the
Subordinated Debentures limit the right to extend the maturity of the
Subordinated Debentures to a date which is six months shorter than any
legislative limit on the length of debt securities for which interest is
deductible. Based on the advice of Tax Counsel, the Company believes this will
allow AAG Holding an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, AAG Holding will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals, final legislation, adverse
judicial decisions or official pronouncements will not affect the ability of AAG
Holding to deduct interest on the Subordinated Debentures, giving rise to a Tax
Event which would permit AAG Holding to cause the redemption of the Preferred
Securities prior to , 2001 (the first date on which AAG Holding would
otherwise be able to cause a redemption of Preferred Securities) as described
more fully under "Description of Preferred Securities--Special Event
Redemption."
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
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UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named herein, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith, Incorporated, Dean Witter Reynolds Inc., Furman Selz
Incorporated, Lehman Brothers, PaineWebber Incorporated and Prudential
Securities Incorporated, are acting as representatives (the "Representatives"),
has severally agreed to purchase the number of Preferred Securities set forth
opposite its name below. In the Underwriting Agreement, the several Underwriters
have agreed, subject to the terms and conditions set forth therein, to purchase
all the Preferred Securities offered hereby if any of the Preferred Securities
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
UNDERWRITER PREFERRED SECURITIES
--------------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated................................
Dean Witter Reynolds Inc. ...............................
Furman Selz Incorporated.................................
Lehman Brothers Inc......................................
PaineWebber Incorporated.................................
Prudential Securities Incorporated.......................
-----------
Total....................................... 3,000,000
===========
</TABLE>
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price, as set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such price
less a concession not in excess of $ per Preferred Security, provided that such
concession for sales of 10,000 or more Preferred Securities to any single
purchaser, will be $ per Preferred Security. The Underwriters may allow, and
such dealers may reallow, a concession not in excess of $ per Preferred
Security to certain brokers and dealers. After the Preferred Securities are
released for sale to the public, the offering price and other selling terms may
from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of AAG Holding,
the Underwriting Agreement provides that AAG Holding will agree to pay as
compensation ("Underwriters' Compensation") for the Underwriters' arranging the
investment therein of such proceeds, an amount of $ per Preferred Security (or
$ in the aggregate) for the accounts of the several Underwriters provided that
such compensation for sales of 10,000 or more Preferred Securities to any single
purchaser will be $ per Preferred Security. Therefore, to the extent of such
sales, the actual amount of Underwriters' Compensation will be less than the
aggregate amount specified in the preceding sentence.
Pursuant to the Underwriting Agreement, the Trust, AAG Holding and the
Company have granted to the Underwriters an option exercisable for 30 days to
purchase up to an additional 450,000 Preferred Securities at the offering price
per Preferred Security set forth on the cover page hereof, solely to cover
over-allotments, if
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any, in the sale of the Preferred Securities. The Company will pay Underwriters'
Compensation in the amounts per Preferred Security set forth above with respect
to such additional Preferred Securities. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional Preferred
Securities as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of Preferred Securities offered by the
Underwriters hereby.
During a period of 90 days from the date of this Prospectus, none of the
Trust, the Company or AAG Holding will, without the prior written consent of the
Representatives, directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities or
any equity securities substantially similar to the Preferred Securities (except
for the Subordinated Debentures and the Preferred Securities offered hereby).
Application will be made to list the Preferred Securities, if approved, on
the NYSE. If approved, trading of the Preferred Securities on the NYSE is
expected to commence within a 30-day period after the initial delivery of the
Preferred Securities. The Representatives have advised the Trust that they
intend to make a market in the Preferred Securities prior to the commencement of
trading on the NYSE. The Representatives have no obligation to make a market in
the Preferred Securities, however, and may cease market making activities, if
commenced, at any time.
Prior to this offering, there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the NYSE, the Underwriters will undertake to sell lots of 100 or
more Preferred Securities to a minimum of 400 beneficial holders.
The Company, AAG Holding and the Trust have agreed to indemnify the
Underwriters against, or contribute to payments that the Underwriters may be
required to make in respect of, certain liabilities, including liabilities under
the Securities Act.
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.
LEGAL MATTERS
The validity of the Subordinated Debentures, the Trust Guarantee and the
Debt Guarantee will be passed upon for the Company, AAG Holding and the Trust by
Keating, Muething & Klekamp, P.L.L., Cincinnati, Ohio. Certain United States
federal income taxation matters also will be passed upon for AAG Holding and the
Trust by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Washington, D.C. Attorneys
in the Keating, Muething & Klekamp, P.L.L. and Akin, Gump, Strauss, Hauer &
Feld, L.L.P. law firms hold shares of Common Stock of the Company. Certain
matters of Delaware law relating to the validity of the Preferred Securities
will be passed upon for the Trust by Morris, Nichols, Arsht & Tunnell,
Wilmington, Delaware. Certain legal matters in connection with the Securities
will be passed upon for the Underwriters by Taft, Stettinius & Hollister,
Cincinnati, Ohio and Skadden, Arps, Meagher & Flom, New York, New York.
EXPERTS
The consolidated financial statements of AAG appearing in AAG's annual
report (Form 10-K) for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon,
included therein and incorporated herein by reference. Such consolidated
financial statements are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in accounting and
auditing.
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------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN 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 THE COMPANY, THE TRUST OR
THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST 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 ANY SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... 4
Incorporation of Certain Documents by
Reference............................. 4
Prospectus Summary...................... 6
Risk Factors............................ 11
The Trust............................... 19
The Company............................. 19
Capitalization.......................... 26
Accounting Treatment.................... 26
Ratio of Earnings to Fixed Charges...... 26
Use of Proceeds......................... 27
Description of the Preferred
Securities............................ 27
Description of Trust Guarantee.......... 39
Description of the Subordinated
Debentures and Debt Guarantee......... 41
Effect of Obligations Under the
Subordinated Debentures, the Debt
Guarantee and the Trust Guarantee..... 49
United States Federal Income Taxation... 50
Underwriting............................ 54
Legal Matters........................... 55
Experts................................. 55
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
3,000,000
PREFERRED SECURITIES
AMERICAN ANNUITY GROUP
CAPITAL TRUST I
% TRUST ORIGINATED
PREFERRED SECURITIESSM ("TOPRSSM")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
AMERICAN ANNUITY GROUP, INC.
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
DEAN WITTER REYNOLDS INC.
FURMAN SELZ INCORPORATED
LEHMAN BROTHERS
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 59
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee*...................... $ 29,742
NYSE listing fee.......................................................... 40,000
Legal fees and expenses................................................... 135,000
Accounting fees and expenses.............................................. 40,000
Printing and engraving expenses........................................... 115,000
Trustee's fees and expenses............................................... 12,000
Rating Agencies' fees..................................................... 95,000
Blue Sky fees and expenses................................................ 20,000
Miscellaneous............................................................. 13,258
--------
Total................................................................ $500,000
========
</TABLE>
- ---------
*Actual; other expenses are estimated.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law ("DGCL") provides
generally and in pertinent part that a Delaware corporation may indemnify its
directors and officer against expenses, judgments, fines, and settlements
actually and reasonably incurred by them in connection with any civil suit or
action, except actions by or in the right of the corporation, or any
administrative or investigative proceeding if, in connection with the matters in
issue, they acted in good faith and in a manner they reasonably believe to be
in, or not opposed to, the best interest of the corporation, and in connection
with any criminal suit or proceeding, if in connection with the matters in
issue, they had no reasonable cause to believe their conduct was unlawful.
Section 145 further provides that, in connection with the defense or settlement
of any action by or in the right of the corporation, a Delaware corporation may
indemnify its directors and officers against expenses actually and reasonably
incurred by them if, in connection with the matters in issue, they acted in good
faith, in a manner they reasonably believed to be in, or not opposed to, the
best interests of the corporation, and without negligence or misconduct in the
performance of their duties to the corporation. Section 145 further permits a
Delaware corporation to grant its directors and officers additional rights of
indemnification through by-law provisions and otherwise.
Article VII of American Annuity Group, Inc. ("AAG"), By-Laws provides for
indemnification of directors and officers similar to that provided in Section
145 of DGCL.
Reference is made to Section 102(b)(7) of the DGCL, which enables a
corporation in its original certificate of incorporation or an amendment thereto
to eliminate or limit the personal liability of a director for violations of the
director's fiduciary duty, except (i) for any breach of the director's duty of
loyalty to the corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) pursuant to Section 174 of the DGCL (providing for liability of
directors for unlawful payment of dividends or unlawful stock purchases or
redemptions) or (iv) for any transaction from which a director derived an
improper personal benefit. Article Ninth of the AAG Certificate of Incorporation
eliminates the liability of directors to the extent permitted by Section
102(b)(7) of the DGCL.
AAG also maintains directors' and officers' reimbursement and liability
insurance and has entered into agreements with its directors and officers
providing for indemnification in certain events.
Ohio Revised Code, Section 1701.13(E), allows indemnification by AAG
Holding Company, Inc. ("AAG Holding") to any person made or threatened to be
made a party to any proceedings, other than a
II-1
<PAGE> 60
proceeding by or in the right of AAG Holding, by reason of the fact that he is
or was a director, officer, employee or agent of AAG Holding, against expenses,
including judgment and fines, if he acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interests of AAG Holding
and, with respect to criminal actions, in which he had no reasonable cause to
believe that his conduct was unlawful. Similar provisions apply to actions
brought by or in the right of AAG Holding, except that no indemnification shall
be made in such cases when the person shall have been adjudged to be liable for
negligence or misconduct to AAG Holding unless deemed otherwise by the court.
Indemnification is to be made by a majority vote of a quorum of disinterested
directors or the written opinion of independent counsel or by the shareholders
or by the court. AAG Holding's Regulations extends such indemnification.
The Amended and Restated Declaration of Trust (the "Declaration") of
American Annuity Group Capital Trust I (the "Trust") provides that no Property
Trustee or any of its affiliates, Delaware Trustee or any of its affiliates, or
any officer, director, shareholder, member, partner, employee, representative,
custodian, nominee or agent of the Property Trustee or the Delaware Trustee
(each, a "Fiduciary Indemnified Person"), and no Regular Trustee, affiliate of
any Regular Trustee, or any officer, director, shareholder, member, partner,
employee, representative or agent of any Regular Trustee or any affiliate
thereof, or any employee or agent of the Trust or its affiliates (each an "AAG
Holding Indemnified Person") shall be liable, responsible or accountable in
damages or otherwise to the Trust or any officer, director, shareholder,
partner, member, representative, employee or agent of the Trust or its
affiliates or to any holder of Preferred Securities for any loss, damage or
claim incurred by reason of any act or omission performed or omitted by such
Fiduciary Indemnified Person or AAG Holding Indemnified Person in good faith on
behalf of the Trust and in a manner such Fiduciary Indemnified Person or AAG
Holding Indemnified Person reasonably believed to be within the scope of the
authority conferred on such Fiduciary Indemnified Person or AAG Holding
Indemnified Person by such declaration or by law, except that a Fiduciary
Indemnified Person or AAG Holding Indemnified Person shall be liable for any
loss, damage or claim incurred by reason of such Fiduciary Indemnified Person's
or AAG Holding Indemnified Person's gross negligence or willful misconduct with
respect to such acts or omissions.
The Declaration also provides that to the full extent permitted by law, AAG
Holding shall indemnify any AAG Holding 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 an AAG Holding 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 in 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 also provides that to the full extent permitted by
law, the Company shall indemnify any AAG Holding 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 an AAG Holding 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 AAG Holding 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
indemnify for such expenses which such Court of Chancery or such other court
shall deem proper. The Declaration further provides that expenses (including
attorneys' fees) incurred by an AAG Holding 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 AAG
Holding in advance of the final disposition of such action, suit or proceeding
upon receipt of an undertaking by or on behalf of such AAG Holding Indemnified
Person to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by AAG Holding as authorized in the Declaration.
II-2
<PAGE> 61
The directors and officers of AAG and the Regular Trustees are covered by
insurance policies indemnifying them against certain liabilities including
certain liabilities arising under the Securities Act of 1933 (the "Securities
Act"), which might be insured by them in such capacities and against which they
cannot be indemnified by AAG or the Trust. The Underwriting Agreement provides
that the underwriters will indemnify AAG's or AAG Holding's directors and their
officers and the Trustees who signed the Registration Statement against certain
liabilities that may arise under the Securities Act or with respect to
information furnished to AAG, AAG Holding or the Trust by or on behalf of any
such indemnifying party.
The Declaration also provides that AAG Holding shall indemnify each
Fiduciary Indemnified Person against any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts under the Trust,
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
thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
- ------- -----------------------
<C> <S>
1.1 Form of Underwriting Agreement for Preferred Securities
4.1* Form of Indenture
4.2* Certificate of Trust of American Annuity Group Capital Trust I
4.3 Amended and Restated Declaration of Trust of American Annuity Group Capital Trust
I
4.4* Form of Preferred Securities Guarantee Agreement by American Annuity Group, Inc.
4.5* Form of Subordinated Debenture (contained in Exhibit 4.1)
4.6* Form of Preferred Security
4.7* Form of Common Security
4.9* Form of Subordinated Debt Guarantee by American Annuity Group, Inc. (contained in
Exhibit 4.1)
4.10* Form of Common Securities Guarantee Agreement
5.1 Opinion of Keating, Muething & Klekamp, P.L.L.
5.2 Opinion of Morris, Nichols, Arsht & Tunnell
8.1** Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
23.1 Consent of Ernst & Young.
23.2 Consent of Keating, Muething & Klekamp, P.L.L. (Contained on Exhibit 5.1).
23.3 Consent of Morris, Nichols, Arsht & Tunnel (Contained on Exhibit 5.2).
23.4** Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (Contained in Exhibit 8.1).
24* Powers of Attorney (contained on the signature page).
25.1* Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the Indenture
25.2* Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the Declaration of American
Annuity Group Capital Trust I
25.3* Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee of the Trust Preferred Securities
Guarantee for the benefit of the holders of Preferred Securities of American
Annuity Group Capital Trust I
</TABLE>
- ---------
* Previously filed
** To be filed by amendment.
II-3
<PAGE> 62
ITEM 17. UNDERTAKINGS.
(a) American Annuity Group, Inc. hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrants' annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 that is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(b) 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 foregoing provisions, 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.
(c) 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; and
(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-4
<PAGE> 63
SIGNATURES
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 Cincinnati, State of Ohio, as of the 28th day of
October, 1996.
AMERICAN ANNUITY GROUP, INC.
By: /s/ CARL H. LINDNER
--------------------
Carl H. Lindner
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------ ------------------------------------ ------------------
<C> <S> <C>
* Chairman of the Board of Directors October , 1996
- ------------------------------------ (Principal Executive Officer)
Carl H. Lindner
* Director October , 1996
- ------------------------------------
S. Craig Lindner
* Director October , 1996
- ------------------------------------
Robert A. Adams
* Director October , 1996
- ------------------------------------
A. Leon Fergenson
* Director October , 1996
- ------------------------------------
Ronald G. Joseph
* Director October , 1996
- ------------------------------------
John T. Lawrence III
* Director October , 1996
- ------------------------------------
William R. Martin
* Director October , 1996
- ------------------------------------
Ronald F. Walker
* Senior Vice President, Treasurer and October , 1996
- ------------------------------------ Chief Financial Officer (Principal
William J. Maney Financial Officer and Principal
Accounting Officer)
*By: /s/ MARK F. MUETHING October 28, 1996
- ------------------------------------
Mark F. Muething
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 64
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
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 Cincinnati, State of Ohio, as of the 28th day of
October, 1996.
AAG HOLDING COMPANY, INC.
By: /s/ CARL H. LINDNER
---------------------------------
Carl H. Lindner
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- ------------------------------------ ------------------------------------ ------------------
<C> <S> <C>
* Director October , 1996
- ------------------------------------
CARL H. LINDNER
* Director October , 1996
- ------------------------------------
S. CRAIG LINDNER
* Director October , 1996
- ------------------------------------
ROBERT A. ADAMS
* Senior Vice President, Chief October , 1996
- ------------------------------------ Financial Officer and Treasurer
WILLIAM J. MANEY (Principal Financial Officer and
Principal Accounting Officer)
*By: /s/ MARK F. MUETHING October 28, 1996
- ------------------------------------
MARK F. MUETHING
Attorney-in-Fact
</TABLE>
II-6
<PAGE> 65
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, American
Annuity Group Capital Trust I 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 Cincinnati, State of Ohio,
as of the 28th day of October, 1996.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
AMERICAN ANNUITY GROUP CAPITAL TRUST I
By: MARK F. MUETHING *
---------------------------------------
MARK F. MUETHING, as Trustee
By: *
---------------------------------------
CHRISTOPHER P. MILIANO, as Trustee
*By: MARK F. MUETHING
---------------------------------------
MARK F. MUETHING
Attorney-in-Fact
II-7
<PAGE> 1
EXHIBIT 1
UNDERWRITING AGREEMENT
3,000,000 PREFERRED SECURITIES
AMERICAN ANNUITY GROUP CAPITAL TRUST I
(A DELAWARE TRUST)
_____% TRUST ORIGINATED PREFERRED SECURITIES ("TOPRS")
(LIQUIDATION AMOUNT OF $25 PER PREFERRED SECURITY)SM
UNDERWRITING AGREEMENT
----------------------
____________, 1996
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEAN WITTER REYNOLDS INC.
FURMAN SELZ LLC
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
LEHMAN BROTHERS
as the Representatives of the several Underwriters
c/o Merrill Lynch & Co.
5500 Sears Tower
Chicago, Illinois 60606
Ladies and Gentlemen:
American Annuity Group Capital Trust I (the "Trust"), a statutory
business trust organized under the Business Trust Act (the "Delaware Act") of
the State of Delaware (Chapter 38, Title 12, of the Delaware Code, 12 Del. C.
Sections 3801 et seq.), AAG Holding Company, Inc. ("AAG Holding"), an Ohio
corporation and American Annuity Group, Inc., a Delaware corporation (the
"Company" and, together with the Trust and AAG Holding, the "Offerors"),
confirm their agreement (the "Agreement") with Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Dean Witter
Reynolds Inc., Furman Selz LLC, PaineWebber Incorporated, Prudential Securities
Incorporated and Lehman Brothers as representatives (in such capacity,
collectively, the "Representatives") of the several Underwriters named in
Schedule
__________________________________
SM "Trust Originated Preferred Securities" and "TOPrS" are service marks
of Merrill Lynch & Co. Inc.
<PAGE> 2
A hereto (collectively, the "Underwriters", which term shall also
include any underwriter substituted as hereinafter provided in Section
10 hereof), with respect to the sale by the Trust and the purchase by
the Underwriters, acting severally and not jointly, of the respective
number of ____% Trust Originated Preferred Securities (liquidation
amount of $25 per preferred security) of the Trust ("Preferred
Securities") set forth in said Schedule A and with respect to the
grant by the Trust to the Underwriters, acting severally and not
jointly, of the option described in Section 2(b) hereof to purchase
all or any part of additional Preferred Securities to cover
over-allotments, in each case except as may otherwise be provided in
the Pricing Agreement, as hereinafter defined. The aforesaid
Preferred Securities (the "Initial Securities") to be purchased by the
Underwriters and all or any part of the additional Preferred
Securities subject to the option described in Section 2(b) hereof (the
"Option Securities") are collectively hereinafter called the
"Designated Securities." The Preferred Securities will be guaranteed
by the Company, to the extent described in the Prospectus (as defined
below), with respect to distributions and payments upon liquidation,
redemption and otherwise (the "Preferred Securities Guarantee")
pursuant to the Preferred Securities Guarantee Agreement (the
"Preferred Securities Guarantee Agreement"), dated as of
______________, 1996, between the Company and The Bank of New York, as
trustee (the "Guarantee Trustee") and, in certain circumstances
described in the Prospectus, the Trust will distribute Subordinated
Debentures (as defined herein) to holders of Designated Securities.
In addition, the Subordinated Debentures will be fully and
unconditionally guaranteed (the "Debt Guarantee") on a subordinated
basis as to principal and interest by the Company, pursuant to the
Indenture (as defined herein), which Debt Guarantee shall be set forth
in full on the reverse of the certificate or certificates evidencing
the Subordinated Debentures. The Preferred Securities, together with
the related Preferred Securities Guarantee, the Debt Guarantee and the
Subordinated Debentures, are collectively referred to herein as the
"Securities."
Prior to the purchase and public offering of the Preferred Securities
by the several Underwriters, the Offerors and the Representatives, acting on
behalf of the several Underwriters, shall enter into an agreement substantially
in the form of Exhibit A hereto (the "Pricing Agreement"). The Pricing
Agreement may take the form of an exchange of any standard form of written
telecommunication between the Offerors and the Representatives and shall
specify such applicable information as is indicated in Exhibit A hereto. The
offering of the Securities will be governed by this Agreement, as supplemented
by the Pricing Agreement. From and after the date of the execution and
delivery of the Pricing Agreement, this Agreement shall be deemed to
incorporate the Pricing Agreement.
- 2 -
<PAGE> 3
The Offerors have filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form S-3 (No. 333-12535) and
pre-effective amendment nos. 1 and _________ thereto covering the registration
of up to a combination of $86,250,000 of (i) the Preferred Securities, (ii) the
Preferred Securities Guarantees, (iii) the Subordinated Debentures and (iv) the
Debt Guarantee, under the Securities Act of 1933, as amended (the "1933 Act"),
including the related preliminary prospectus, and the offering thereof in
accordance with the rules and regulations of the Commission under the 1933 Act
(the "1933 Act Regulations") and the Offerors have filed such post-effective
amendments thereto as may be required prior to the execution of the Pricing
Agreement. Such registration statement, as so amended, including the exhibits
and schedules thereto, if any, and the information, if any, deemed to be a part
thereof pursuant to Rule 430A(b) of the 1933 Act Regulations (the "Rule 430A
Information"), is referred to herein as the "Registration Statement"; and the
final prospectus relating to the offering of the Securities, in the form first
furnished to the Underwriters by the Offerors for use in connection with the
offering of the Securities, is referred to herein as the "Prospectus";
provided, however, that all references to the "Registration Statement" and the
"Prospectus" shall be deemed to include all documents incorporated therein by
reference pursuant to the Securities Exchange Act of 1934, as amended (the
"1934 Act"), prior to the execution of the applicable Pricing Agreement. A
"preliminary prospectus" shall be deemed to refer to any prospectus used before
the registration statement became effective and any prospectus that omitted, as
applicable, the Rule 430A Information or other information to be included upon
pricing in a form of prospectus filed with the Commission pursuant to Rule
424(b) of the 1933 Act Regulations, that was used after such effectiveness and
prior to the execution and delivery of the applicable Pricing Agreement. For
purposes of this Agreement, all references to the Registration Statement, any
preliminary prospectus, the Prospectus or any amendment or supplement to any of
the foregoing shall be deemed to include the copy filed with the Commission
pursuant to its Electronic Data Gathering, Analysis and Retrieval system
("EDGAR").
All references in this Agreement to financial statements and schedules
and other information which is "contained," "included", "set forth" or "stated"
in the Registration Statement, any preliminary prospectus or the Prospectus (or
other references of like import) shall be deemed to mean and include all such
financial statements and schedules and other information which is incorporated
by reference in the Registration Statement, any preliminary prospectus or the
Prospectus, as the case may be; and all references in this Agreement to
amendments or supplements to the Registration Statement, any preliminary
prospectus or the Prospectus shall be deemed to mean and include the filing of
any document under the 1934 Act which is incorporated by reference in
- 3 -
<PAGE> 4
the Registration Statement, such preliminary prospectus or the Prospectus, as
the case may be.
The Offerors understand that the Underwriters propose to make a public
offering of the Preferred Securities, the Preferred Securities Guarantee and
the Debt Guarantee as soon as the Representatives deem advisable after the
Pricing Agreement has been executed and delivered, and the Declaration (as
defined herein), the Indenture (as defined herein), and the Preferred
Securities Guarantee Agreement have been qualified under the Trust Indenture
Act of 1939, as amended (the "1939 Act"). The entire proceeds from the sale of
the Designated Securities will be combined with the entire proceeds from the
sale by the Trust to AAG Holding of its common securities (the "Common
Securities" and, together with the Designated Securities, the "Trust
Securities"), as guaranteed by the Company, to the extent set forth in the
Prospectus, with respect to distributions and payments upon liquidation and
redemption (the "Common Securities Guarantee" and, together with the Preferred
Securities Guarantee and the Debt Guarantee, the "Guarantees") pursuant to the
Common Securities Guarantee Agreement (the "Common Securities Guarantee
Agreement" and, together with the Preferred Securities Guarantee Agreement, the
"Guarantee Agreements"), dated as of _______________, 1996, between the Company
and the Guarantee Trustee, as Trustee, and will be used by the Trust to
purchase $_______________ (up to $_______________ if the option described in
Section 2(b) hereof is exercised in full) of _____% Subordinated Debentures due
______________, 2026 (the "Subordinated Debentures") issued by the AAG Holding.
The Preferred Securities and the Common Securities will be issued pursuant to
the Declaration of Trust, dated as of September 13, 1996, as amended and
restated on _____________, 1996 (the "Declaration"), among AAG Holding, as
Sponsor, Mark F. Muething and Christopher P. Miliano (the "Regular Trustees"),
The Bank of New York, as property trustee (the "Property Trustee"), and The
Bank of New York (Delaware) as Delaware Trustee (the "Delaware Trustee," and,
together with the Property Trustee and the Regular Trustees, the "Trustees"),
for the benefit of the holders from time to time of undivided beneficial
interests in the assets of the Trust. The Subordinated Debentures will be
issued pursuant to an indenture, dated as of ________________, 1996 (the
"Indenture"), between AAG Holding, the Company as Guarantor and The Bank of New
York, as trustee (the "Debt Trustee").
SECTION 1. Representations and Warranties.
(a) The Offerors jointly and severally represent and warrant to each
Underwriter as of the date hereof and as of the date of the Pricing Agreement
(such later date being hereinafter referred to as the "Representation Date")
that:
(i) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
- 4 -
<PAGE> 5
purpose has been initiated or, to the knowledge of the Offerors, threatened by
the Commission.
(ii) Each of the Offerors meets, and at the respective times
of commencement and consummation of the Offering of the Securities will meet,
the requirements for the use of Form S-3 under the 1933 Act.
(iii) At the time the Registration Statement becomes
effective and at the Representation Date, the Registration Statement will
conform in all material respects to the requirements of the 1933 Act and the
1933 Act Regulations and will not contain an untrue statement of a material
fact and will not omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; and the Prospectus,
at the time the Registration Statement becomes effective (unless the term
"Prospectus" refers to a prospectus which has been provided to the Underwriters
by the Offerors for use in connection with the offering of the Securities which
differs from the Prospectus on file at the Commission at the time the
Registration Statement becomes effective, in which case at the time it is first
provided to the Underwriters for such use) and at the Representation Date and
at the Closing Time referred to in Section 2, will not include an untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in the light of the circumstances under
which they were made, not misleading; provided, however, that the
representations and warranties in this subsection shall not apply to statements
contained in or omitted from the Registration Statement or the Prospectus in
reliance upon, and in conformity with, (A) information furnished to the
Offerors in writing by any Underwriter through Merrill Lynch expressly for use
in the Registration Statement or the Prospectus, or (B) that part of the
Registration Statement which shall constitute the Statement of Eligibility
(Form T-1) under the 1939 Act.
(iv) The documents incorporated or deemed to be incorporated
by reference in the Registration Statement or the Prospectus, at the time they
were or hereafter are filed or last amended, as the case may be, with the
Commission, complied and will comply in all material respects with the
requirements of the 1934 Act, and the rules and regulations of Commission
thereunder (the "1934 Act Regulations"), and at the time of filing or as of the
time of any subsequent amendment, did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were or are made, not misleading; and any additional documents
deemed to be incorporated by reference in the Registration Statement or the
Prospectus will, if and when such documents are filed with the Commission, or
when amended, as appropriate, comply in all material respects to the
requirements of the 1934 Act and the 1934 Act Regulations and will not contain
an untrue statement of
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<PAGE> 6
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading; provided, however,
that the representations and warranties in this subsection shall not apply to
any statements contained in or omitted from such documents made in reliance
upon and in conformity with information furnished to the Offerors in writing by
any Underwriter through Merrill Lynch expressly for use in such documents.
(v) The accountants who certified the financial statements
and supporting schedules included or incorporated by reference in the
Registration Statement are, to the knowledge of the Offerors, independent
public accountants as required by the 1933 Act and the 1933 Act Regulations.
(vi) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's authorization; and (ii) assets are
safeguarded and transactions are recorded to permit preparation of financial
statements in conformity with generally accepted accounting principles and, as
of the Closing Time, the Company will continue to maintain such a system.
(vii) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, and except as otherwise
stated therein, (A) there has been no material adverse change and no
development which could reasonably be expected to result in a material adverse
change in the condition, financial or otherwise, or in the earnings, business
affairs or business prospects of the Trust or the Company and its Subsidiaries
(as defined below) considered as one enterprise, whether or not arising in the
ordinary course of business or referred to in or contemplated by the
Registration Statement, (B) there have been no transactions entered into by the
Trust or the Company or any of its Subsidiaries which are material with respect
to the Trust or the Company and its Subsidiaries considered as one enterprise,
other than those in the ordinary course of business or those referred to in or
contemplated by the Registration Statement and (C) there has not been any
material increase in the long term debt of the Company.
(viii) Each of the Company and AAG Holding has been duly
incorporated and is validly existing as a corporation in good standing under
the laws of the States of Delaware and Ohio, respectively, with corporate power
and authority to own, lease and operate its properties and to conduct its
business as presently conducted and as described in the Prospectus; and each of
the Company and AAG Holding is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good
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<PAGE> 7
standing would not have a material adverse effect on the condition, financial
or otherwise, or the earnings, business affairs or business prospects of the
Company and its Subsidiaries considered as one enterprise.
(ix) Each of the corporations of which a majority of the
outstanding voting equity securities are owned, directly or indirectly, by the
Company ("Subsidiaries") and which is listed on Schedule B annexed hereto
("Designated Subsidiaries") has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own, lease and operate
its properties and to conduct its business as presently conducted and as
described in the Prospectus, and is duly qualified as a foreign corporation to
transact business and is in good standing in each jurisdiction in which such
qualification is required, whether by reason of the ownership or leasing of
property or the conduct of business, except where the failure to so qualify or
be in good standing would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business prospects
of the Company and its Subsidiaries considered as one enterprise.
(x) The authorized, issued and outstanding capital stock of
the Company is as set forth in or incorporated into the Prospectus; since the
date indicated in the Prospectus there has been no change in the issued and
outstanding capital stock of the Company and the Designated Subsidiaries (other
than changes in outstanding Common Stock resulting from employee benefit plan,
director compensation plan or dividend reinvestment and stock purchase plan
transactions); and all of the issued and outstanding capital stock of the
Company has been duly authorized and validly issued, is fully paid and
non-assessable.
(xi) Each Subsidiary of the Company which is engaged in the
business of insurance or reinsurance (collectively, the "Insurance
Subsidiaries") holds such insurance licenses, certificates and permits from
governmental authorities (including, without limitation, from the insurance
regulatory agencies of the various jurisdictions where it conducts business
(the "Insurance Licenses")) as are necessary to the conduct of its business as
described in the Prospectus; the Company and each Insurance Subsidiary have
fulfilled and performed all obligations necessary to maintain the Insurance
Licenses; except as disclosed in the Prospectus, there is no pending or, to the
knowledge of the Offerors, threatened action, suit, proceeding or investigation
that could reasonably be expected to result in the revocation, termination or
suspension of any Insurance License; and except as disclosed in the Prospectus,
no insurance regulatory agency or body has issued, or commenced any proceeding
for the issuance of, any order or decree impairing, restricting or prohibiting
the payment of dividends by any Insurance Subsidiary to its parent.
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<PAGE> 8
(xii) Except as disclosed in the Prospectus, the Company and
the Insurance Subsidiaries have made no material changes in their insurance
reserving practices since the most recent audited financial statements included
or incorporated in the Prospectus.
(xiii) All reinsurance treaties and arrangements to which any
Insurance Subsidiary is a party are in full force and effect and no Insurance
Subsidiary is in violation of or in default in the performance, observance or
fulfillment of, any obligation, agreement, covenant or condition contained
therein; no Insurance Subsidiary has received any notice from any of the other
parties to such treaties, contracts or agreements that such other party intends
not to perform such treaty and, to the best knowledge of the Company and the
Insurance Subsidiaries, the Company and the Insurance Subsidiaries have no
reason to believe that any of the other parties to such treaties or
arrangements will be unable to perform such treaty or arrangement except to the
extent adequately and properly reserved for in the consolidated financial
statements of the Company included in the Prospectus.
(xiv) The statutory financial statements of the Insurance
Subsidiaries from which certain ratios and other statistical data filed as part
of the Registration Statement or included or incorporated in the Prospectus
have been derived have for each relevant period been prepared in conformity
with statutory accounting principles or practices required or permitted by the
National Association of Insurance Commissioners and by the appropriate
Insurance Department of the jurisdiction of domicile of each Insurance
Subsidiary, and such statutory accounting practices have been applied on a
consistent basis throughout the periods involved, except as may otherwise be
indicated therein or in the notes thereto, and present fairly the statutory
financial position of the Insurance Subsidiaries as of the dates thereof, and
the statutory basis results of operations of the Insurance Subsidiaries for the
periods covered thereby.
(xv) The Trust has been duly created and is validly existing
in good standing as a business trust under the Delaware Act with the power and
authority to own property and to conduct its business as described in the
Registration Statement and Prospectus and to enter into and perform its
obligations under this Agreement, the Pricing Agreement, the Preferred
Securities, the Common Securities and the Declaration; the Trust is not a party
to or otherwise bound by any material agreement other than those described in
the Prospectus; the Trust is and will, under current law, be classified for
United States federal income tax purposes as a grantor trust and not as an
association taxable as a corporation.
(xvi) The Common Securities have been duly authorized by the
Declaration and, when issued and delivered by the Trust to
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<PAGE> 9
AAG Holding against payment therefor as described in the Registration Statement
and Prospectus, will be validly issued and will represent undivided beneficial
interests in the assets of the Trust and will conform in all material respects
to the description thereof contained in the Prospectus; the issuance of the
Common Securities is not subject to preemptive or other similar rights; and at
the Closing Time all of the issued and outstanding Common Securities of the
Trust will be directly owned by AAG Holding free and clear of any security
interest, mortgage, pledge, lien, encumbrance, claim or equitable right.
(xvii) This Agreement and the Pricing Agreement have been
duly authorized, executed and delivered by each of the Offerors.
(xviii) The Declaration has been duly authorized by AAG
Holding and, at the Closing Time, will have been duly executed and delivered
by AAG Holding and the Trustees, and assuming due authorization, execution and
delivery of the Declaration by the Property Trustee and the Delaware Trustee,
the Declaration will, at the Closing Time, be a valid and binding obligation of
AAG Holding and the Regular Trustees, enforceable against AAG Holding and the
Regular Trustees in accordance with its terms, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors' rights generally or by
general principles of equity (regardless of whether enforcement is considered
in a proceeding at law or in equity) (the "Bankruptcy Exceptions") and will
conform in all material respects to the description thereof contained in the
Prospectus.
(xix) Each of the Guarantee Agreements has been duly
authorized by the Company and, when validly executed and delivered by the
Company and, in the case of the Preferred Securities Guarantee Agreement,
assuming due authorization, execution and delivery of the Preferred Securities
Guarantee by the Guarantee Trustee, will constitute a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms except to the extent that enforcement thereof may be limited by the
Bankruptcy Exceptions, and each of the Guarantees and the Guarantee Agreements
will conform in all material respects to the description thereof contained in
the Prospectus.
(xx) The Debt Guarantee has been duly authorized by the
Company and, at the Closing Time, will have been validly executed and delivered
by the Company and will constitute a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms except to
the extent that enforcement thereof may be limited by the Bankruptcy
Exceptions, and will conform in all material respects to the description
thereof contained in the Prospectus.
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<PAGE> 10
(xxi) The Preferred Securities have been duly authorized and,
when issued and delivered against payment therefor as provided herein, will be
validly issued and fully paid and non-assessable undivided beneficial interests
in the assets of the Trust and will conform in all material respects to the
description thereof contained in the Prospectus; the issuance of the Designated
Securities is not subject to preemptive or other similar rights.
(xxii) The Indenture has been duly authorized and qualified
under the 1939 Act and, at the Closing Time, will have been duly executed and
delivered and will constitute a valid and binding agreement of AAG Holding and
the Company, enforceable against each of AAG Holding and the Company in
accordance with its terms except to the extent that enforcement thereof may be
limited by the Bankruptcy Exceptions; the Indenture will conform in all
material respects to the description thereof contained in the Prospectus.
(xxiii) The Subordinated Debentures have been duly authorized
by AAG Holding and, at the Closing Time, will have been duly executed by AAG
Holding and, when authenticated in the manner provided for in the Indenture and
delivered against payment therefor as described in the Prospectus, will
constitute valid and binding obligations of AAG Holding, enforceable against
AAG Holding in accordance with their terms except to the extent that
enforcement thereof may be limited by the Bankruptcy Exceptions, and will be in
the form contemplated by, and entitled to the benefits of, the Indenture and
will conform in all material respects to the description thereof in the
Prospectus.
(xxiv) Each of the Regular Trustees of the Trust is an
employee of the Company and has been duly authorized by the Company to execute
and deliver the Declaration.
(xxv) None of the Offerors is an "investment company" or a
company "controlled" by an "investment company" which is required to be
registered under the Investment Company Act of 1940, as amended (the "1940
Act").
(xxvi) The Trust is not in violation of the Declaration or
its certificate of trust filed with the State of Delaware on September 13,
1996 (the "Certificate of Trust"); none of the execution, delivery and
performance of this Agreement, the Pricing Agreement, the Declaration, the
Designated Securities, the Common Securities, the Indenture, the Subordinated
Debentures, the Guarantee Agreements and the Guarantees and the consummation of
the transactions contemplated herein and therein and compliance by the Offerors
with their respective obligations hereunder and thereunder did or will result
in a breach of any of the terms or provisions of, or constitute a default or
require the consent of any party under the Certificate of Trust or the
Certificate of Incorporation or
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<PAGE> 11
Articles of Incorporation or By-laws or Code of Regulations, as the case may
be, of the Company or AAG Holding, any material agreement or instrument to
which either Offeror is a party, any existing applicable law, rule or
regulation or any judgment, order or decree of any government, governmental
instrumentality or court, domestic or foreign, having jurisdiction over either
Offeror or any of its properties or assets, or did or will result in the
creation or imposition of any lien on the properties or assets of either
Offeror.
(xxvii) No order, license, consent, authorization or approval
of, or exemption by, or the giving of notice to, or the registration with any
federal, state, municipal or other governmental department, commission, board,
bureau, agency or instrumentality, and no filing, recording, publication or
registration in any public office or any other place, was or is now required in
connection with the issuance and sale of the Common Securities or the offering
of the Designated Securities, the Subordinated Debentures or the Guarantees
hereunder, except for such as may be required under the 1933 Act or state
securities laws and the qualification of the Declaration, the Preferred
Securities Guarantee Agreement and the Indenture under the 1939 Act.
(xxviii) Other than as set forth in the Prospectus, there are
no legal or governmental proceedings pending to which the Company or any of its
Subsidiaries is a party or of which any property of the Company or any of its
Subsidiaries is the subject which, if determined adversely to the Company or
any of its subsidiaries, would individually or in the aggregate have a material
adverse effect on the consolidated position, shareholders' equity or results of
operations of the Company and its Subsidiaries considered as one enterprise;
and, to the best of the Company's knowledge, no such proceedings are threatened
or contemplated by governmental authorities or threatened by others.
(xxix) No "forward looking statement" (as defined in Rule 175
under the 1933 Act) contained in the Registration Statement, any preliminary
prospectus or the Prospectus was made or reaffirmed without a reasonable basis
or was disclosed other than in good faith.
(b) Any certificate signed by any Trustee of the Trust or any officer
of the Company and delivered to the Representatives or to counsel for the
Underwriters shall be deemed a representation and warranty by the Trust or the
Company, as the case may be, to each Underwriter as to the matters covered
thereby.
SECTION 2. Sale and Delivery to Underwriters; Closing.
(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein
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<PAGE> 12
set forth, the Trust agrees to sell to each Underwriter, severally and not
jointly, and each Underwriter, severally and not jointly, agrees to purchase
from the Trust, at the price per security set forth in the Pricing Agreement,
the number of Initial Securities set forth in Schedule A hereto opposite the
name of such Underwriter, plus any additional number of Initial Securities
which such Underwriter may become obligated to purchase pursuant to the
provisions of Section 10 hereof.
(1) If the Offerors have elected not to rely upon Rule 430A
of the 1933 Act Regulations, the initial public offering price per Preferred
Security and the purchase price per Initial Security to be paid by the several
Underwriters for the Initial Securities have each been determined and set forth
in the Pricing Agreement, dated the date hereof, and any necessary amendments
to the Registration Statement and the Prospectus will be filed before the
Registration Statement becomes effective.
(2) If the Offerors have elected to rely upon Rule 430A of
the 1933 Act Regulations, the purchase price per Initial Security to be paid by
the several Underwriters shall be an amount equal to the initial public
offering price per Initial Security. The initial public offering price per
Initial Security shall be a fixed price to be determined by agreement between
the Underwriters and the Offerors. The initial public offering price and the
purchase price, when so determined, shall be set forth in the Pricing
Agreement. In the event that such prices have not been agreed upon and the
Pricing Agreement has not been executed and delivered by all parties thereto by
the close of business on the fourth business day following the date of this
Agreement, this Agreement shall terminate forthwith, without liability of any
party to any other party, unless otherwise agreed to by the Offerors and the
Underwriters.
(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Trust hereby grants an option to the Underwriters, severally and not jointly,
to purchase up to an additional 450,000 Option Securities at the price per
security set forth in the Pricing Agreement, less an amount per share equal to
any dividends declared by the Trust and payable on the Initial Securities but
not payable on the Option Securities. The option hereby granted will expire 30
days after the Representation Date and may be exercised in whole or in part
from time to time only for the purpose of covering over-allotments which may be
made in connection with the offering and distribution of the Initial Securities
upon notice by the Representative to the Trust setting forth the number of
Option Securities as to which the several Underwriters are then exercising the
option and the time and date of payment and delivery for such Option
Securities. Any such time and date of delivery (a "Date of Delivery") shall be
determined by the Representatives, but shall not be later than seven full
business
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<PAGE> 13
days after the exercise of said option, nor in any event prior to the Closing
Time, as hereinafter defined, unless otherwise agreed by the Representative and
the Trust. If the option is exercised as to all or any portion of the Option
Securities, each of the Underwriters, acting severally and not jointly, will
purchase that proportion of the total number of Option Securities then being
purchased which the number of Initial Securities set forth in Schedule A
opposite the name of such Underwriter bears to the total number of Initial
Securities (except as otherwise provided in the Pricing Agreement), subject in
each case to such adjustments as the Representative in its discretion shall
make to eliminate any sales or purchases of fractional securities.
(c) Delivery of certificates for the Securities shall be made at the
offices of the Underwriters in New York, and payment of the purchase price for
the Securities shall be made by wire transfer of immediately available funds
contemporaneous with closing at the offices of Taft, Stettinius & Hollister,
1800 Star Bank Center, 425 Walnut Street, Cincinnati, Ohio 45202, or at such
other place as shall be agreed upon by the Underwriters and the Offerors, at
10:00 a.m. (New York time) on the third business day after the date the
Registration Statement becomes effective (or, if the Offerors have elected to
rely upon Rule 430A, the third full business day after execution of the Pricing
Agreement (or, if pricing of the Securities occurs after 4:30 p.m. Eastern
time, on the fourth full business day thereafter)), or such other time not
later than ten business days after such date as shall be agreed upon by the
Underwriters and the Offerors (such time and date of payment and delivery being
herein called the "Closing Time"). In addition, in the event that any or all
of the Option Securities are purchased by the Underwriters, payment of the
purchase price for, and delivery of certificates for, such Option Securities
shall be made by wire transfer of immediately available funds and by the
delivery of certificates at the above mentioned offices of Taft, Stettinius &
Hollister, or at such other place as shall be agreed upon by the Representative
and the Trust, on each Date of Delivery as specified in the notice from the
Representative to the Trust. Payment for the Securities purchased by the
Underwriters shall be made to the Trust by wire transfer of immediately
available funds, payable to the order of the Trust, against delivery to the
respective accounts of the Underwriters of certificates for the Initial
Securities and the Option Securities, if any, to be purchased by them.
Certificates for the Initial Securities and the Option Securities, if any,
shall be in such denominations and registered in such names as the Underwriters
may request in writing at least two full business days before the Closing Time
or the relevant Date of Delivery, as the case may be. Merrill Lynch,
individually and not as representative of the Underwriters, may (but shall not
be obligated to) make payment of the purchase price for the Initial Securities,
or the Option Securities, if any, to be purchased by any Underwriter whose
check has not been received by the Closing Time or the relevant Date of
Delivery, as the case may be, but
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<PAGE> 14
such payment shall not relieve such Underwriter from its obligations hereunder.
The certificates for the Securities, will be made available for examination and
packaging by the Underwriters no later than 10:00 a.m. (New York City time) on
the last business day prior to the Closing Time or the relevant Date of
Delivery, as the case may be.
(d) As compensation to the Underwriters for their commitments
hereunder and in view of the fact that the proceeds of the sale of the
Designated Securities will be used to purchase the Subordinated Debentures of
AAG Holding, AAG Holding and the Company hereby jointly and severally agree to
pay at the Closing Time, or the relevant Date of Delivery, as the case may be,
to the Representatives, for the accounts of the several Underwriters, a
commission per Designated Security determined by agreement between the
Representatives, AAG Holding and the Company for the Designated Securities to
be delivered by the Trust hereunder at Closing Time, or the relevant Date of
Delivery, as the case may be. The commission, when so determined, shall be set
forth in the Pricing Agreement.
SECTION 3. Covenants of the Offerors. Each of the Offerors jointly
and severally agrees with each Underwriter as follows:
(a) The Offerors will comply with the requirements of Rule 430A of
the 1933 Act Regulations if and as applicable, and will notify the Underwriters
immediately, and confirm the notice in writing, (i) of the effectiveness of the
Registration Statement and any amendment thereto (including any post-effective
amendment) or the filing of any supplement or amendment to the Prospectus, (ii)
of any request by the Commission for any amendment to the Registration
Statement and any amendment thereto (including any post-effective amendment) or
any amendment or supplement to the Prospectus or for additional information,
(iii) of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any
proceedings for that purpose and (iv) of the issuance by any state securities
commission or other regulatory authority of any order suspending the
qualification or the exemption from qualification of the Preferred Securities
under state securities or Blue Sky laws or the initiation or threatening of any
proceeding for such purpose. The Offerors will make every reasonable effort to
prevent the issuance of any stop order and, if any stop order is issued, to
obtain the lifting thereof at the earliest possible moment.
(b) The Offerors will give the Representatives notice of their
intention to file or prepare (i) any amendment to the Registration Statement
(including any post-effective amendment) or (ii) any amendment or supplement to
the Prospectus (including any revised prospectus which the Offerors propose for
use by the Underwriters in connection with the offering of the Preferred
Securities which differs from the prospectus on file at the
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<PAGE> 15
Commission at the time the Registration Statement became effective, whether or
not such revised prospectus is required to be filed pursuant to Rule 424(b) of
the 1933 Act Regulations); will furnish the Representatives with copies of any
such amendment or supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be; and will not file any such amendment or
supplement or use any such prospectus to which the Representatives or counsel
for the Underwriters shall reasonably object.
(c) The Offerors will deliver to each of the Representatives one
signed copy of the Registration Statement as originally filed and of each
amendment thereto (including exhibits filed therewith or incorporated by
reference therein and documents incorporated or deemed to be incorporated by
reference therein) and will also deliver to the Representatives, without
charge, as many conformed copies of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) as the Representatives
may reasonably request. If applicable, the copies of the Registration
Statement and each amendment thereto furnished to the Underwriters will be
identical to the electronically transmitted copies thereof filed with the
Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.
(d) The Offerors will deliver to each Underwriter, without charge, as
many copies of each preliminary prospectus as such Underwriter may reasonably
request, and the Offerors hereby consent to the use of such copies for purposes
permitted by the 1933 Act. The Offerors will furnish to each Underwriter, from
time to time during the period when the Prospectus is required to be delivered
under the 1933 Act or the 1934 Act, such number of copies of the Prospectus (as
amended or supplemented) as such Underwriter may reasonably request. If
applicable, the Prospectus and any amendments or supplements thereto furnished
to the Underwriters will be identical to the electronically transmitted copies
thereof filed with the Commission pursuant to EDGAR, except to the extent
permitted by Regulation S-T.
(e) If at any time when the Prospectus is required by the 1933 Act to
be delivered in connection with sales of the Securities, any event shall occur
as a result of which it is necessary, in the opinion of counsel for the
Underwriters, to amend or supplement the Prospectus or to file under the 1934
Act any document incorporated by reference in the Prospectus in order to make
the Prospectus not misleading in the light of the circumstances existing at the
time it is delivered to a purchaser, the Offerors will forthwith amend or
supplement the Prospectus or file such document (in form and substance
satisfactory to counsel for the Underwriters) so that, as so amended or
supplemented, the Prospectus will not include an untrue statement of a material
fact or omit to state a material fact necessary in order to make the statements
therein, in the
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<PAGE> 16
light of the circumstances existing at the time it is delivered to a purchaser,
not misleading, and the Company will furnish to the Underwriters a reasonable
number of copies of such amendment or supplement.
(f) The Offerors will endeavor, in cooperation with the Underwriters,
to qualify the Preferred Securities for offering and sale under the applicable
securities laws of such states and other jurisdictions of the United States as
the Underwriters may designate; provided, however, that the Offerors shall not
be obligated to qualify as a foreign corporation in any jurisdiction in which
they are not so qualified. In each jurisdiction in which the Preferred
Securities have been so qualified, the Offerors will file such statements and
reports as may be required by the laws of such jurisdiction to continue such
qualification in effect for so long as may be required in connection with
distribution of the Preferred Securities.
(g) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba after the date the
Registration Statement becomes or has become effective with the Commission or
with the Florida Department of Banking and Finance (the "Department"),
whichever date is later, or if the information reported in the Prospectus, if
any, concerning the Company's business with Cuba or with any person or
affiliate located in Cuba changes in any material way, the Company will provide
the Department notice of such business or change, as appropriate, in a form
acceptable to the Department.
(h) The Company will make generally available to the holders of
Preferred Securities as soon as practicable, but not later than 45 days (or 90
days, in the case of a period that is also the Company's fiscal year) after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 of the 1933 Act Regulations) covering a
twelve-month period beginning not later than the first day of the Trust's
fiscal quarter next following the "effective date" (as defined in said Rule 158
of the Registration Statement.
(i) The Trust will use the proceeds received by it from the sale of
the Preferred Securities, and AAG Holding and the Company will use the proceeds
received by it from the sale of the Subordinated Debentures, in the manners
specified in the Prospectus under "Use of Proceeds".
(j) If, at the time that the Registration Statement became (or in the
case of a post-effective amendment becomes) effective, any information shall
have been omitted therefrom in reliance upon Rule 430A of the 1933 Act
Regulations, then immediately
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<PAGE> 17
following the execution of the Pricing Agreement, the Offerors will prepare,
and file or transmit for filing with the Commission in accordance with such
Rule 430A and Rule 424(b) of the 1933 Act Regulations, copies of an amended
Prospectus or, if required by such Rule 430A, a post-effective amendment to the
Registration Statement (including an amended Prospectus), containing all
information so omitted.
(k) The Company, during the period when the Prospectus is required to
be delivered under the 1933 Act, will file all documents required to be filed
with the Commission pursuant to Section 13, 14 or 15 of the 1934 Act within the
time periods required by the Exchange Act and the 1934 Act Regulations.
(l) The Company will use its best efforts to effect the listing of
the Designated Securities (including the Preferred Securities Guarantee with
respect thereto) on the New York Stock Exchange and to cause the Designated
Securities to be registered under the 1934 Act. If the Preferred Securities
are exchanged for Subordinated Debentures, the Company will use its best
efforts to effect the listing of the Subordinated Debentures on the exchange on
which the Designated Securities were then listed and to cause the Subordinated
Debentures to be registered under the 1934 Act.
(m) During a period of 90 days from the date of the Pricing
Agreement, neither the Trust nor the Company will, without the prior written
consent of the Underwriters, 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 Preferred Securities, any security convertible into or
exchangeable or exercisable for Preferred Securities, or the Subordinated
Debentures or any debt securities substantially similar to the Subordinated
Debentures or any equity securities substantially similar to the Preferred
Securities (except for the Subordinated Debentures and the Preferred Securities
issued pursuant to this Agreement).
(n) During a period of two years from the Closing Time, the Company
will make generally available to the Underwriters copies of all reports and
other communications (financial or other) mailed to shareholders, and deliver
to the Underwriters promptly after they are available, copies of any reports
and financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the Company is
listed; and shall furnish such additional information concerning the business
and financial condition of the Company as the Underwriters may from time to
time reasonably request (such financial statements to be on a consolidated
basis to the extent the accounts of the Company and its subsidiaries are
consolidated in reports furnished to its shareholders generally or to the
Commission).
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<PAGE> 18
SECTION 4. Payment of Expenses. The Company agrees with the several
Underwriters to pay all expenses incident to the performance of each Offeror's
obligations under this Agreement and the Pricing Agreement, including, without
limitation, expenses related to the following, if incurred (i) the preparation,
delivery, printing and filing of the Registration Statement and Prospectus as
originally filed (including financial statements and exhibits) and of each
amendment thereto; (ii) the printing and delivery to the Underwriters of this
Agreement, the Pricing Agreement, any Agreement among Underwriters and such
other documents as may be required in connection with offering, purchase, sale
and delivery of the Securities; (iii) the preparation, issuance and delivery of
the certificates for the Preferred Securities; (iv) the fees and disbursements
of the Company's counsel, accountants and other advisors or agents (including
the transfer agents and registrars); (v) the qualification of the Preferred
Securities under securities laws in accordance with the provisions of Section
3(f), including filing fees and the reasonable fees and disbursements of
counsel for the Underwriters in connection therewith and in connection with the
preparation of the Blue Sky Survey and any Legal Investment Survey; (vi) the
printing and delivery to the Underwriters of copies of the Registration
Statement as originally filed and of each amendment thereto, of each
preliminary prospectus and of the Prospectus and any amendments thereto; (vii)
the printing and delivery to the Underwriters of copies of the Blue Sky Survey
and any Legal Investment Survey; (viii) any fees payable in connection with the
rating of the Preferred Securities by nationally recognized statistical rating
organizations; (ix) the filing fees incident to, and the fees and disbursements
of counsel to the Underwriters in connection with, the review, if any, by the
National Association of Securities Dealers, Inc. (the "NASD") of the terms of
the sale of the Designated Securities; (x) any fees payable to the Commission;
(xi) the fees and expenses incurred in connection with the listing of the
Designated Securities (and the related Preferred Securities Guarantee) and, if
applicable, the Subordinated Debentures on the New York Stock Exchange; (xii)
the fees and expenses of the Debt Trustee, the Property Trustee and the
Guarantee Trustee, including fees and disbursements of counsel for such
trustees, in connection with the Indenture and the Subordinated Debentures, the
Declaration, the Certificate of Trust and the Guarantee; and (xiii) the cost of
qualifying the Designated Securities with the Depository Trust Company.
If this Agreement is terminated by the Representatives in accordance
with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall
reimburse the Underwriters for all of their out-of-pocket expenses, including
the reasonable fees and disbursements of Taft, Stettinius & Hollister and
Skadden, Arps, Meagher & Flom, counsel for the Underwriters.
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<PAGE> 19
SECTION 5. Conditions of Underwriters' Obligations. The obligations
of the Underwriters hereunder are subject to the accuracy of the
representations and warranties of the Offerors herein contained, to the
performance by the Offerors of their obligations hereunder, and to the
following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m., New York City time, on the date hereof, and on the date hereof
and at the Closing Time, no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued under the
1933 Act or proceedings therefor initiated or threatened by the Commission, and
any request on the part of the Commission for additional information shall have
been complied with to the satisfaction of counsel to the Underwriters. A
prospectus, if required, shall have been filed with the Commission in
accordance with Rule 424(b), as applicable (or any required post-effective
amendment providing such information shall have been filed and declared
effective in accordance with the requirements of Rule 430A).
(b) At the Closing Time the Underwriters shall have received:
(1) The favorable opinion, dated as of the Closing Time, of
Keating, Muething & Klekamp, PLL, counsel for the Company, in form and
substance satisfactory to counsel for the Underwriters, to the effect that:
(i) Each of the Company and the Designated
Subsidiaries has been duly incorporated and is validly existing under
the laws of the state of its incorporation, in each case with
corporate power and authority to carry on the business in which it is
engaged and to own, lease and operate its properties and conduct its
business as described in the Prospectus, and is duly qualified as a
foreign corporation to transact business and is in good standing in
each jurisdiction in which such qualification is required, whether by
reason of the ownership or leasing of property or the conduct of
business, except where the failure to so qualify or be in good
standing would not have a material adverse effect on the condition,
financial or otherwise, or the earnings, business affairs or business
prospects of the Company and its Subsidiaries considered as one
enterprise.
(ii) The Preferred Securities conform in all
material respects to the description thereof in the Prospectus.
(iii) The Trust is not required to be qualified and
in good standing as a foreign company in Ohio, and if it were required
to be so qualified the failure to so qualify or be in good standing
would not have a material adverse effect on the Trust; and the Trust
is not a party to or
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<PAGE> 20
otherwise bound by any material agreement other than those described
in the Prospectus.
(iv) The Declaration has been duly authorized,
executed and delivered by the Company and the Trustees and is a valid
and binding obligation of the Company, enforceable against the Company
and each of the Regular Trustees in accordance with its terms, except
as enforcement thereof may be limited by the Bankruptcy Exceptions;
and the Declaration has been duly qualified under the 1939 Act.
(v) All legally required proceedings in connection
with the authorization, issuance and validity of the Securities and
the sale of the Securities in accordance with this Agreement (other
than the filing of post-issuance reports, the non-filing of which
would not render the Securities invalid) have been taken and all
legally required orders, consents or other authorizations or approvals
of any other public boards or bodies in connection with the
authorization, issuance and validity of the Securities and the sale of
the Securities in accordance with this Agreement (other than in
connection with or in compliance with the provisions of the securities
or Blue Sky laws of any jurisdictions, as to which no opinion need be
expressed) have been obtained and are in full force and effect.
(vi) The Registration Statement is effective under
the 1933 Act and, to the best knowledge of such counsel, no stop order
suspending the effectiveness of the Registration Statement has been
issued under the 1933 Act, and no proceedings therefor have been
initiated or threatened by the Commission.
(vii) The Registration Statement as of its effective
date and the Prospectus and each amendment thereto as of its issue
date (in each case, other than the operating statistics, the financial
statements and the notes thereto, the financial schedules, and any
other financial data included or incorporated by reference therein, as
to which such counsel need express no belief), complied as to form in
all material respects with the requirements of the 1933 Act and the
1933 Act Regulations; and the Declaration, the Indenture, the
Preferred Securities Guarantee Agreement and the Statements of
Eligibility on Forms T-1 with respect to each of the Property Trustee,
the Debt Trustee, and the Guarantee Trustee filed with the Commission
as part of the Registration Statement complied as to form in all
material respects with the requirements of the 1939 Act and the 1939
Act Regulations.
(viii) Each of the documents incorporated by
reference in the Registration Statement or the Prospectus at the time
they were filed or last amended (other than the
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<PAGE> 21
financial statements and the notes thereto, the financial schedules,
and any other financial or statistical data included or incorporated
by reference therein, as to which such counsel need express no belief)
complied as to form in all material respects with the requirements of
the 1934 Act, and the 1934 Act Regulations, as applicable.
(ix) Each of the Offerors meets the registrant
requirements for use of Form S-3 under the 1933 Act.
(x) The Common Securities, the Preferred Securities,
the Subordinated Debentures, each of the Guarantees, the Declaration,
the Indenture and each of the Guarantee Agreements conform in all
material respects to the descriptions thereof contained in the
Prospectus.
(xi) The descriptions in the Registration Statement
and the Prospectus and each amendment or supplement thereto of
regulations, statutes, legal and governmental proceedings and
contracts and other documents are accurate in all material respects
and fairly present the information required to be shown and such
counsel does not know of any legal or governmental proceedings
required to be described in the Registration Statement or the
Prospectus or any amendment or supplement thereto that are not so
described (or the descriptions of which are not incorporated by
reference) or of any contracts or documents of a character required to
be described in the Registration Statement or the Prospectus or any
amendment or supplement thereto or to be filed as exhibits to the
Registration Statement or any amendment thereto that are not so
described (or the descriptions of which are not incorporated by
reference) or so filed.
(xii) All of the issued and outstanding Common
Securities of the Trust are directly owned by AAG Holding free and
clear of any security interest, mortgage, pledge, lien, encumbrance,
claim or equitable right.
(xiii) This Agreement and the Pricing Agreement have
been duly authorized, executed and delivered by each of the Trust and
the Company.
(xiv) Each of the Guarantee Agreements has been duly
authorized, executed and delivered by the Company; the Preferred
Securities Guarantee Agreement, assuming it is duly authorized,
executed, and delivered by the Guarantee Trustee, and the Debt
Guarantee constitute valid and binding obligations of the Company,
enforceable in accordance with their terms, except to the extent that
enforcement thereof may be limited by Bankruptcy Exceptions; and the
Preferred Securities Guarantee Agreement has been duly qualified under
the 1939 Act.
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<PAGE> 22
(xv) The Debt Guarantee has been duly authorized by
the Company and constitutes a valid and binding obligation of the
Company, enforceable against the Company in accordance with its terms
except to the extent that enforcement thereof may be limited by the
Bankruptcy Exceptions.
(xvi) The Indenture has been duly executed and
delivered by each of AAG Holding and the Company and, assuming due
authorization, execution, and delivery thereof by the Debt Trustee, is
a valid and binding obligation of each of AAG Holding and the Company,
enforceable against each of AAG Holding and the Company in accordance
with its terms, except to the extent that enforcement thereof may be
limited by the Bankruptcy Exceptions; and the Indenture has been duly
qualified under the 1939 Act.
(xvii) The Subordinated Debentures are in the form
contemplated by the Indenture, have been duly authorized, executed and
delivered by AAG Holding and, when authenticated by the Debt Trustee
in the manner provided for in the Indenture and delivered against
payment therefor as provided in this Agreement, will constitute valid
and binding obligations of AAG Holding, enforceable against the
Company in accordance with their terms, except to the extent that
enforcement thereof may be limited by the Bankruptcy Exceptions.
(xviii) Neither the Company, AAG Holding nor the
Trust is an "investment company" or a company "controlled" by an
"investment company" which is required to be registered under the
1940 Act.
(xix) The execution, delivery and performance of
this Agreement, the Pricing Agreement, the Declaration, the Preferred
Securities, the Common Securities, the Indenture, the Subordinated
Debentures, the Guarantee Agreements, and the Guarantees; the
consummation of the transactions contemplated herein and therein; and
the compliance by each of the Offerors with their respective
obligations hereunder and thereunder do not and will not conflict
with, result in a breach of, or constitute a default under the
Certificate of Incorporation or the By-laws of the Company or the
governing documents or any of its Subsidiaries or the terms of any
indenture or other agreement or instrument known to such counsel and
to which the Company or any of its Subsidiaries is a party or bound,
or result in a violation of any statute or regulation, or any order or
decree known to such counsel to be applicable to the Company or any of
its Subsidiaries of any court, regulatory body, administrative agency,
governmental body or arbitrator having jurisdiction over the Company
or any of its Subsidiaries;
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<PAGE> 23
(xx) Each Insurance Subsidiary holds such insurance
licenses, certificates and permits from governmental authorities
(including, without limitation, Insurance Licenses) which are
necessary to the conduct of its business as described in the
Prospectus; to the best knowledge of such counsel, there is no pending
or threatened action, suit, proceeding or investigation that could
reasonably be expected to result in the revocation, termination or
suspension of any Insurance License; and, except as disclosed in the
Prospectus, to the knowledge of such counsel, no insurance regulatory
agency or body has issued, or commenced any proceeding for the
issuance of, any order or decree impairing, restricting or prohibiting
the payment of dividends by any Insurance Subsidiary to its parent;
and
(xxi) To the best knowledge of such counsel, all
reinsurance treaties and arrangements to which any Insurance
Subsidiary is a party are in full force and effect and no Insurance
Subsidiary is in violation of or in default in the performance,
observance or fulfillment of, any obligation, agreement, covenant or
condition contained therein.
Moreover, such counsel shall confirm that nothing has come to
such counsel's attention that would lead such counsel to believe that the
Registration Statement, including any information provided pursuant to Rule
430A (except for financial statements and related schedules and other financial
data included or incorporated by reference therein or in the related Forms T-1,
as to which counsel need express no opinion), at the time it became effective
or at the Representation Date, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein or necessary
to make the statements therein not misleading or that the Prospectus (except
for financial statements and related schedules and other financial data
included or incorporated by reference therein or in the related Forms T-1, as
to which counsel need express no opinion), at the Representation Date (unless
the term "Prospectus" refers to a prospectus which has been provided to the
Underwriters by the Company for use in connection with the offering of the
Securities which differs from the Prospectus on file at the Commission at the
time the Registration Statement became effective, in which case at the time it
is first provided to the Underwriters for such use) or at the Closing Time,
included (or includes) an untrue statement of a material fact or omitted or
omits to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading.
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws other than the laws of Delaware, Ohio
and the federal law of the United States, to the extent they deem proper and
specified in such opinion, upon
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<PAGE> 24
the opinion of other counsel of good standing whom they believe to be reliable
and who are satisfactory to counsel for the Underwriters and (B) as to matters
of Delaware Law, upon the opinion of Morris, Nichols, Arsht & Tunnell, special
Delaware counsel to the Offerors, in which case the opinion shall state that
such counsel believes that you and such counsel are entitled to so rely.
Further, in rendering the foregoing opinion, such counsel may rely, to the
extent they deem such reliance proper, on the opinions (in form and substance
reasonably satisfactory to Underwriters' counsel) of other counsel reasonably
acceptable to Underwriters' counsel, including counsel employed by the Company,
as to matters governed by the laws of jurisdictions other than the United
States, the State of Ohio or the General Corporation Law of the State of
Delaware, and as to matters of fact, upon certificates of officers of the
Company and of government officials; provided that such counsel shall state
that the opinion of any other counsel is in form satisfactory to such counsel
and, in such counsel's opinion, such counsel and the Underwriters are justified
in relying on such opinions of other counsel. Copies of all such opinions and
certificates shall be furnished to counsel to the Underwriters on each Closing
Date. Such counsel may state that they are not passing on matters relating to
patents and trademarks.
(2) The favorable opinion, dated as of Closing Time, of
Morris, Nichols, Arsht & Tunnell, special Delaware counsel to the Offerors, in
form and substance satisfactory to counsel for the Underwriters, to the effect
that:
(i) The Trust has been duly created and is validly
existing in good standing as a business trust under the Delaware Act,
and all filings required under the laws of the State of Delaware with
respect to the creation and valid existence of the Trust as a business
trust have been made.
(ii) Under the Delaware Act and the Declaration, the
Trust has the business trust power and authority to own property and
conduct its business, all as described in the Prospectus.
(iii) The Declaration constitutes a valid and
binding obligation of the Company and the Trustees and is enforceable
against the Company and the Trustees in accordance with its terms,
subject, as to enforcement, to (i) bankruptcy, insolvency, moratorium,
receivership, reorganization, liquidation, fraudulent conveyance and
other similar laws relating to or affecting the rights and remedies of
creditors generally, (ii) principles of equity (regardless of whether
considered and applied in a proceeding in equity or at law), and (iii)
considerations of public policy or the effect of applicable law
relating to fiduciary duties.
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<PAGE> 25
(iv) Under the Delaware Act and the Declaration, the
Trust has the business trust power and authority to (i) execute and
deliver, and to perform its obligations under, this Agreement and the
Pricing Agreement and (ii) issue, and perform its obligations under,
the Trust Securities.
(v) Under the Delaware Act and the Declaration, the
execution and delivery by the Trust of this Agreement and the Pricing
Agreement, and the performance by the Trust of its obligations
hereunder and under the Pricing Agreement, have been duly authorized
by all necessary action on the part of the Trust.
(vi) The certificates for the Preferred Securities
are in due and proper form; the Preferred Securities have been duly
authorized by the Declaration and are duly and validly issued and,
subject to qualifications hereinafter expressed in this paragraph
(vi), fully paid and nonassessable undivided beneficial interests in
the assets of the Trust; the holders of the Preferred Securities, as
beneficial owners of the Trust, will be entitled to the same
limitation of personal liability extended to shareholders of private
corporations for profit organized under the General Corporation Law of
the State of Delaware; said counsel may note that the holders of the
Preferred Securities may be obligated to make payments as set forth in
the Declaration.
(vii) The Common Securities have been duly
authorized by the Declaration and are duly and validly issued and
represent undivided beneficial interests in the assets of the Trust.
(viii) Under the Delaware Act and the Declaration,
the issuance of the Trust Securities is not subject to Preemptive
rights.
(ix) The issuance and sale by the Trust of the Trust
Securities, the purchase by the Trust of the Subordinated Debentures,
the execution, delivery and performance by the Trust of this Agreement
and the Pricing Agreement, the consummation by the Trust of the
transactions contemplated hereby and by the Pricing Agreement and
compliance by the Trust with its obligations hereunder and thereunder
will not violate (i) any of the provisions of the Certificate of Trust
or the Declaration or (ii) any applicable Delaware law or
administrative regulation.
(3) The favorable opinion, dated as of Closing Time, of Emmet, Marvin
& Martin, LLP, counsel of The Bank of New York, as Property Trustee under the
Declaration, and Guarantee Trustee under the Preferred Securities Guarantee
Agreements, in form and substance satisfactory to counsel for the Underwriters,
to the effect that:
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<PAGE> 26
(i) The Bank of New York is a national banking
association with trust powers, duly organized, validly existing and in
good standing under the laws of the United States with all necessary
power and authority to execute and deliver, and to carry out and
perform its obligations under the terms of the Declaration and the
Preferred Securities Guarantee Agreement.
(ii) The execution, delivery and performance by the
Property Trustee of the Declaration and the execution, delivery and
performance by the Guarantee Trustee of the Preferred Securities
Guarantee Agreement have been duly authorized by all necessary
corporation action on the part of the Property Trustee and the
Guarantee Trustee, respectively. The Declaration and the Preferred
Securities Guarantee Agreement have been duly executed and delivered
by the Property Trustee and the Guarantee Trustee, respectively, and
constitute the legal, valid and binding obligations of the Property
Trustee and the Guarantee Trustee, respectively, enforceable against
the Property Trustee and the Guarantee Trustee, respectively, in
accordance with their terms, except to the extent the enforcement
thereof may be limited by the Bankruptcy Exceptions.
(iii) The execution, delivery and performance of the
Declaration and the Preferred Securities Guarantee Agreement by the
Property Trustee and the Guarantee Trustee, respectively, do not
conflict with or constitute a breach of the Articles of Organization
or Bylaws of the Property Trustee and the Guarantee Trustee,
respectively.
(iv) No consent, approval or authorization of, or
registration with or notice to, any state or federal banking authority
is required for the execution, delivery or performance by the Property
Trustee and the Guarantee Trustee of the Declaration and the Preferred
Securities Guarantee Agreement.
(4) The opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.,
special tax counsel to the Offerors, on the status of the Subordinated
Debentures as indebtedness for United States federal income tax purposes, on
the status of the Trust as a grantor trust for United States federal income tax
purposes, and on the status of the Subordinated Debentures as instruments that
are not OID instruments prior to an election by the Company to defer payments
of interest thereon. Such opinion may be conditioned on, among other things,
the initial and continuing accuracy of the facts, financial and other
information, covenants and representations set forth in certificates of
officers of the Company and the Trust and other documents deemed necessary for
such opinion. With regard to the balance of the discussion set forth in the
Prospectus under the heading "United States Federal
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<PAGE> 27
Income Taxation," special tax counsel shall have reviewed such discussion and
shall have concluded, subject to the qualifications set forth in the preceding
sentence hereof, that such discussion accurately summarizes the specific tax
matters addressed therein.
(5) The favorable opinion, dated as of Closing Time, of Taft,
Stettinius & Hollister, counsel for the Underwriters, in form and substance
satisfactory to the Underwriters with respect to the incorporation and legal
existence of the Company, the Preferred Securities, the Indenture, the
Preferred Securities Guarantee Agreement, this Agreement, the Pricing
Agreement, the Registration Statement, the Prospectus and other related matters
as the Representative may require. In giving its opinion, Taft, Stettinius &
Hollister may rely upon the opinions of Keating, Muething & Klekamp, PLL and
Morris, Nichols, Arsht & Tunnell, counsel for the Offerors, which shall be
delivered in accordance with Section 5(b)(1) and 5(b)(2) hereto.
(c) Between the date of this Agreement and prior to the Closing Time,
no material adverse change shall have occurred in the condition, financial or
otherwise, or in the earnings, business affairs or business prospects of the
Trust or the Company and its Subsidiaries considered as one enterprise, whether
or not in the ordinary course of business.
(d) At Closing Time, the Representatives shall have received a
certificate of an executive officer of each of the Company and AAG Holding and
a certificate of a Regular Trustee of the Trust, and dated as of Closing Time,
to the effect that to the best of such person's knowledge, information and
belief (i) there has been no material adverse change in the condition,
financial or otherwise, or in the earnings, business affairs or business
prospects of the Trust or the Company and its Subsidiaries considered as one
enterprise, whether or not in the ordinary course of business, (ii) the
representations and warranties in Section 1 hereof are true and correct as
though expressly made at and as of Closing Time, (iii) the Trust, the Company
and AAG Holding have complied with all agreements and satisfied all conditions
on their part to be performed or satisfied at or prior to Closing Time, and
(iv) no stop order suspending the effectiveness of the Registration Statement
has been issued and no proceedings for that purpose have been initiated or
threatened by the Commission.
(e) At the time of the execution of this Agreement and at the Closing
Time, Ernst & Young LLP shall have furnished to the Representatives a letter or
letters, dated respectively as of the date of this Agreement and as of the
Closing Time, in form and substance satisfactory to the Representatives,
confirming that they are independent accountants within the meaning of the Act
and the Exchange Act and the applicable published rules and regulations
thereunder and stating in effect that:
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<PAGE> 28
(i) in their opinion the audited financial
statements and financial statement schedules incorporated in the
Registration Statement and the Prospectus and reported on by them
comply in form in all material respects with the applicable accounting
requirements of the Act and the Exchange Act and the related published
rules and regulations;
(ii) on the basis of a reading of the latest
unaudited financial statements made available by the Company and its
subsidiaries; their limited review in accordance with standards
established by the American Institute of Certified Public Accountants
of the unaudited interim financial information; carrying out certain
specified procedures (but not an examination in accordance with
generally accepted auditing standards) which would not necessarily
reveal matters of significance with respect to the comments set forth
in such letter; a reading of the minutes of the meetings of the
shareholders, directors and executive and audit committees of the
Company; and inquiries of certain officials of the Company who have
responsibility for financial and accounting matters of the Company and
its subsidiaries as to transactions and events subsequent to the date
of the most recent audited financial statements included or
incorporated into the Registration Statement, nothing came to their
attention which caused them to believe that:
(1) the unaudited financial statements included or
incorporated in the Registration Statement and the Prospectus do not
comply in form in all material respects with applicable accounting
requirements of the Act and the Exchange Act and with the published
rules and regulations of the Commission with respect to financial
statements included or incorporated in quarterly reports on Form 10-Q
under the Exchange Act; or any material modifications should be made
to said unaudited financial statements for them to be in conformity
with generally accepted accounting principles; or
(2) with respect to the period subsequent to the
date of the most recent financial statements, audited or unaudited, in
or incorporated in the Registration Statement and the Prospectus,
there were any changes, at a specified date not more than five
business days prior to the date of the letter, or any net increases in
the long-term debt or short-term debt (defined for this purpose as
amounts payable within twelve months to banks, factors or other
financial institutions and holders of commercial paper) of the Company
and its subsidiaries or capital stock of the Company or decreases in
the shareholders' equity of the Company as compared with the amounts
shown on the most recent consolidated balance sheet incorporated in
the Registration Statement and the Prospectus, or for the period from
the
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<PAGE> 29
date of the most recent financial statements incorporated in the
Prospectus to such specified date there were any decreases, as
compared with the corresponding period in the preceding year, in net
investment income, total revenues, income before income taxes or net
income of the Company and its subsidiaries, except in all instances
for changes or decreases set forth in such letter, in which case the
letter shall be accompanied by an explanation by the Company as to the
significance thereof unless said explanation is not deemed necessary
by the Representatives; and
(iii) they have performed certain other specified
procedures as a result of which they determined that certain
information of an accounting, financial or statistical nature (which
is limited to accounting, financial or statistical information derived
from the general accounting records of the Company and its
subsidiaries) set forth in the Registration Statement and the
Prospectus, including, without limitation, the information set forth
under the caption "Ratio of Earnings to Fixed Charges" and such other
materials set forth under such other captions as the Representatives
may reasonably request in the Prospectus, the Registration Statement
and the documents incorporated by reference therein, agrees with the
accounting records of the Company and its subsidiaries, excluding any
questions of legal interpretation.
(f) At Closing Time, counsel for the Underwriters shall have been
furnished with such documents and opinions as they may reasonably require for
the purpose of enabling them to pass upon the issuance and sale of the
Preferred Securities as herein contemplated and related proceedings, or in
order to evidence the accuracy of any of the representations or warranties, or
the fulfillment of any of the conditions herein contained; and all proceedings
taken by the Offerors in connection with the issuance and sale of the Preferred
Securities as herein contemplated shall be satisfactory in form and substance
to the Underwriters and counsel for the Underwriters.
(g) In the event that the Underwriters exercise their option
provided in Section 2(b) hereof to purchase all or any portion of the Option
Securities, the representations and warranties of the Offerors contained herein
and the statements in any certificates furnished by the Offerors hereunder
shall be true and correct as of each Date of Delivery and, at the relevant Date
of Delivery, the Representative shall have received:
(1) The certificates, each dated such Date of Delivery,
of the relevant officer of the respective Offeror confirming that the
respective certificates delivered at the Closing Time pursuant to Section 5(d)
hereof remains true and correct as of such Date of Delivery.
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<PAGE> 30
(2) The favorable opinion of Keating, Muething & Klekamp,
PLL, counsel for the Offerors, in form and substance satisfactory to counsel
for the Underwriters, dated such Date of Delivery, related to the Option
Securities to be purchased on such Date of Delivery and otherwise to the same
effect as the opinion required by Sections 5(b)(1).
(3) The favorable opinion of Morris, Nichols, Arsht &
Tunnell, Special Delaware counsel for the Offerors, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Sections 5(b)(2).
(4) The favorable opinion of the Law Department of The
Bank of New York, counsel for The Bank of New York, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Sections 5(b)(3).
(5) The favorable opinion of Akin, Gump, Strauss, Hauer &
Feld, L.L.P., special tax counsel to the Offerors, in form and substance
satisfactory to counsel for the Underwriters, dated such Date of Delivery,
relating to the Option Securities to be purchased on such Date of Delivery and
otherwise to the same effect as the opinion required by Sections 5(b)(4).
(6) The favorable opinion of Taft, Stettinius &
Hollister, counsel for the Underwriters, dated such Date of Delivery, relating
to the Option Securities to be purchased on such Date of Delivery and otherwise
to the same effect as the opinion required by Sections 5(b)(5).
(7) A letter from Ernst & Young LLP, in form and
substance satisfactory to the Representatives and dated such Date of Delivery,
substantially the same in form and substance as the letter furnished to the
Representatives pursuant to Section 5(e) hereof, except that the "specified
date" in the letter furnished pursuant to this Section 5(g)(7) shall be a date
not more than five days prior to such Date of Delivery.
(h) At Closing Time, and at the relevant Date of Delivery, as the
case may be, the Preferred Securities shall be rated "BBB-" or higher by
Standard & Poor's Corporation ("S&P") and "ba1" or higher by Moody's Investors
Services ("Moody's") and the Trust shall have delivered to the Representatives
a letter, dated the Closing Time, and at the relevant Date of Delivery, as the
case may be, from S&P or Moody's, or other evidence satisfactory to the
Representatives, confirming that the Preferred Securities have such ratings;
and there shall not have occurred any decrease in the ratings of any of the
debt securities of the Company or of the Preferred Securities by either S&P or
Moody's and neither S&P
- 30 -
<PAGE> 31
nor Moody's shall have publicly announced that it has under surveillance or
review, with possible negative implications, its rating of any of the debt
securities of the Company or of the Preferred Securities.
(i) At Closing Time, and at the relevant Date of Delivery, as the
case may be, the Preferred Securities shall have been approved for listing on
the New York Stock Exchange upon notice of issuance.
(j) The NASD shall not have raised any objection with respect to the
fairness and reasonableness of the underwriting terms and arrangements.
If any condition specified in this Section 5 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Underwriters by notice to the Offerors at any time at or
prior to Closing Time, and such termination shall be without liability of any
party to any other party except as provided in Section 4.
SECTION 6. Indemnification.
(a) The Offerors agree to jointly and severally indemnify and hold
harmless each Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out of any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement (or any amendment thereto) or the omission
or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein not misleading or
arising out of any untrue statement or alleged untrue statement of a
material fact included in any preliminary prospectus or the Prospectus
(or any amendment or supplement thereto), or the omission or alleged
omission therefrom of a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the extent of the
aggregate amount paid in settlement of any litigation, or any
investigation or proceeding by any governmental agency or body,
commenced or threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged untrue
statement or omission, provided that (subject to Section 6(d) below)
any such settlement is effected with the written consent of the
Offerors; and
- 31 -
<PAGE> 32
(iii) against any and all expense whatsoever, as
incurred (including the fees and disbursements of counsel chosen by
Merrill Lynch), reasonably incurred in investigating, preparing or
defending against any litigation, or any investigation or proceeding
by any governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or omission, or
any such alleged untrue statement or omission, to the extent that any
such expense is not paid under (i) or (ii) above;
provided, however, that the foregoing indemnity agreement shall not apply to
any loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Offerors by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto), including the Rule 430(A)
Information deemed to be a part thereof, if applicable, or any preliminary
prospectus or the Prospectus (or any amendment or supplement thereto). The
foregoing indemnity with respect to any untrue statement contained in or
omission from a preliminary prospectus shall not inure to the benefit of any
Underwriter (or any person controlling such Underwriter) from whom the person
asserting any such loss, liability, claim, damage or expense purchased any of
the Securities that are the subject thereof if such person was not sent or
given a copy of the Prospectus (or the Prospectus as amended or supplemented)
(in each case exclusive of the documents from which information is incorporated
by reference) at or prior to the written confirmation of the sale of such
Securities to such person and the untrue statement contained in or omission
from such preliminary prospectus was corrected in the Prospectus (or the
Prospectus as amended or supplemented).
(b) Each Underwriter severally agrees to indemnify and hold harmless
the Company, its directors, each of its officers who signed the Registration
Statement, the Trust and each of its Trustees who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of Section 15 of the 1933 Act against any and all loss, liability, claim,
damage and expense described in the indemnity contained in subsection (a) of
this Section, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the Registration
Statement (or any amendment thereto), including the Rule 430(A) Information
deemed to be a part thereof, if applicable, or any preliminary prospectus or
the Prospectus (or any amendment or supplement thereto) in reliance upon and in
conformity with written information furnished to the Offerors by such
Underwriter through Merrill Lynch expressly for use in the Registration
Statement (or any amendment thereto) or such preliminary prospectus or the
Prospectus (or any amendment or supplement thereto).
- 32 -
<PAGE> 33
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but failure
to so notify an indemnifying party shall not relieve such indemnifying party
from any liability hereunder to the extent it is not materially prejudiced as a
result thereof and in any event shall not relieve it from any liability which
it may have otherwise than on account of this indemnity agreement. In the case
of parties indemnified pursuant to Section 6(a) above, counsel to the
indemnified parties shall be selected by Merrill Lynch, provided, however, that
such counsel shall be reasonably satisfactory to the Offerors. In the case of
parties indemnified pursuant to Section 6(b) above, counsel to the indemnified
parties shall be selected by the Offerors, provided, however, such counsel
shall be reasonably satisfactory to Merrill Lynch. An indemnifying party may
participate at its own expense in the defense of any such action; provided,
however, that counsel to the indemnifying party shall not (except with the
consent of the indemnified party) also be counsel to the indemnified party. In
no event shall the indemnifying parties be liable for fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out of
the same general allegations or circumstances. No indemnifying party shall,
without the prior written consent of the indemnified parties, settle or
compromise or consent to the entry of any judgment with respect to any
litigation, or any investigation or proceeding by any governmental agency or
body, commenced or threatened, or any claim whatsoever in respect of which
indemnification or contribution could be sought under this Section 6 or Section
7 hereof (whether or not the indemnified parties are actual or potential
parties thereto), unless such settlement, compromise or consent (i) includes an
unconditional release of each indemnified party from all liability arising out
of such litigation investigation, proceeding or claim and (ii) does not include
a statement as to or an admission of fault, culpability or a failure to act by
or on behalf of any indemnified party.
(d) If at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and expenses of
counsel, such indemnifying party agrees that it shall be liable for any
settlement of the nature contemplated by Section 6(a)(ii) effected without its
written consent if (i) such settlement is entered into more than 45 days after
receipt by such indemnifying party of the aforesaid request, (ii) such
indemnifying party shall have received notice of the terms of such settlement
at least 30 days prior to such settlement being entered into and (iii) such
indemnifying party shall not have reimbursed such indemnified party in
accordance with such request prior to the date of such settlement.
- 33 -
<PAGE> 34
SECTION 7. Contribution. If the indemnification provided for in
Section 6 hereof is for any reason unavailable to or insufficient to hold
harmless an indemnified party in respect of any losses, liabilities, claims,
damages or expenses referred to therein, then each indemnifying party shall
contribute to the aggregate amount of such losses, liabilities, claims, damages
and expenses incurred by such indemnified party, as incurred, (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Offerors on the one hand and the Underwriters on the other hand from offering
of the Designated Securities pursuant to this Agreement or (ii) if the
allocation provided by clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Offerors on the one
hand and of the Underwriters on the other hand in connection with the
statements or omissions which resulted in such losses, liabilities, claims,
damages or expenses, as well as any other relevant equitable considerations.
The relative benefits received by the Offerors on the one hand and the
Underwriters on the other hand in connection with the offering of the
Designated Securities pursuant to this Agreement shall be deemed to be in the
same respective proportions as the total net proceeds from the offering of the
Designated Securities pursuant to this Agreement (before deducting expenses)
received by the Offerors and the total underwriting discount received by the
Underwriters, in each case as set forth on the cover of the Prospectus, or, if
Rule 434 is used, the corresponding location on the Term Sheet, bear to the
aggregate initial public offering price of the Designated Securities as set
forth on such cover.
The relative fault of the Offerors on the one hand and the
Underwriters on the other hand shall be determined by reference to, among other
things, whether any such untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Offerors or by the Underwriters and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission.
The Offerors and the Underwriters agree that it would not be just and
equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Underwriters were treated as one entity for such
purpose) or by any other method of allocation which does not take account of
the equitable considerations referred to above in this Section 7. The
aggregate amount of losses, liabilities, claims, damages and expenses incurred
by an indemnified party and referred to above in this Section 7 shall be deemed
to include any legal or other expenses reasonably incurred by such indemnified
party in investigating, preparing or defending against any litigation, or
- 34 -
<PAGE> 35
any investigation or proceeding by any governmental agency or body, commenced
or threatened, or any claim whatsoever based upon any such untrue or alleged
untrue statement or omission or alleged omission.
Notwithstanding the provisions of this Section 7, no Underwriter shall
be required to contribute any amount in excess of the amount by which the total
price at which the Securities underwritten by it and distributed to the public
were offered to the public exceeds the amount of any damages which such
Underwriter has otherwise been required to pay by reason of any such untrue or
alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the 1933 Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of
the 1934 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement, and each person, if any, who controls the Company
within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act
shall have the same rights to contribution as the Company. The Underwriters'
respective obligations to contribute pursuant to this Section 7 are several in
proportion to the principal amount of Securities set forth opposite their
respective names in Schedule A hereto and not joint.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery. All representations, warranties and agreements contained in this
Agreement and the Pricing Agreement, or contained in certificates of officers
of the Company or trustees of the Trust submitted pursuant hereto, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of any Underwriter or controlling person, or by or on behalf of
the Trust or the Company, and shall survive delivery of the Designated
Securities to the Underwriters.
SECTION 9. Termination of Agreement.
(a) The Representatives may terminate this Agreement, by notice to
the Offerors at any time at or prior to Closing Time (i) if there has been,
since the date of this Agreement or since the respective dates as of which
information is given in the Registration Statement, any material adverse change
or any development which could reasonably be expected to result in a
prospective material adverse change in the business or the condition, financial
or otherwise, or in the earnings, business affairs or business prospects of the
Trust or Company and its
- 35 -
<PAGE> 36
Subsidiaries considered as one enterprise, whether or not arising in the
ordinary course of business, or (ii) if there has occurred any material adverse
change in the financial markets in the United States or any outbreak of
hostilities or escalation of hostilities or other calamity or crisis, or any
change or development involving a prospective change in national or
international political, financial or economic conditions the effect of which
is such as to make it, in the judgment of the Underwriters, impracticable to
market the Preferred Securities or to enforce contracts for the sale of the
Preferred Securities, or (iii) if trading in the Preferred Securities or any
securities of the Company has been suspended or limited by the Commission, NASD
or the New York Stock Exchange, or if trading generally on either the American
Stock Exchange or the New York Stock Exchange has been suspended or limited, or
minimum or maximum prices for trading have been fixed, or maximum ranges for
prices for securities have been required, by either of said Exchanges or by
order of the Commission or any other governmental authority, or (iv) if a
banking moratorium has been declared by either Federal, New York or Ohio
authorities.
(b) If this Agreement and the Pricing Agreement are terminated
pursuant to this Section, such termination shall be without liability of any
party to any other party except as provided in Section 4, and provided,
further, that Sections 1, 6 and 7 shall survive such termination and remain in
full force and effect.
SECTION 10. Default by One or More of the Underwriters. If one or
more of the Underwriters shall fail at the Closing Time to purchase the
Securities which it or they are obligated to enter into under this Agreement
and the Pricing Agreement (the "Defaulted Securities"), the Representatives
shall have the right, within 24 hours thereafter, to make arrangements for one
or more of the non-defaulting Underwriters, or any other underwriters, to
purchase all, but not less than all, of such Defaulted Securities in such
amounts as may be agreed upon and upon the terms herein set forth; if, however,
the Representatives shall not have completed such arrangements within such
24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Securities, the non-defaulting Underwriters shall be obligated
to purchase the full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting obligations of all
non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the
Securities, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter.
- 36 -
<PAGE> 37
No action taken pursuant to this Section shall relieve any defaulting
Underwriter from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Representatives or the Company shall
have the right to postpone the Closing Time for a period not exceeding seven
days in order to effect any required changes in the Registration Statement or
Prospectus or in any other documents or arrangements.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the
Underwriters shall be directed to c/o Merrill Lynch & Co., Merrill Lynch,
Pierce, Fenner & Smith Incorporated at 5500 Sears Tower, Chicago, Illinois
60606, Attention of David C. Sherwood, Director, with a copy to Taft,
Stettinius & Hollister, 1800 Star Bank Center, 425 Walnut Street, Cincinnati,
Ohio 45202, Attention of Timothy E. Hoberg, Esq.; notices to the Offerors shall
be directed to American Annuity Group, Inc., 250 East Fifth Street, Cincinnati,
Ohio 45202, Attention of Mark F. Muething, Esq., Senior Vice President,
General Counsel and Secretary, with a copy to Keating, Muething & Klekamp, PLL,
1800 Provident Tower, One East Fourth Street, Cincinnati, Ohio 45202, Attention
of Gary P. Kreider, Esq.
SECTION 12. Parties. This Agreement and the Pricing Agreement shall
each inure to the benefit of and be binding upon the Underwriters and the
Offerors and their respective successors. Nothing expressed or mentioned in
this Agreement or the Pricing Agreement is intended or shall be construed to
give any person, firm or corporation, other than the Underwriters and the
Offerors and their respective successors and the controlling persons and
officers and directors referred to in Sections 6 and 7 and their heirs and
legal representatives, any legal or equitable right, remedy or claim under or
in respect of this Agreement or the Pricing Agreement or any provision herein
or therein contained. This Agreement and the Pricing Agreement and all
conditions and provisions hereof and thereof are intended to be for the sole
and exclusive benefit of the Underwriters and the Offerors and their respective
successors and legal representatives, and said controlling persons and officers
and directors and their heirs and legal representatives, and for the benefit of
no other person, firm or corporation. No purchaser of Securities from any
Underwriter shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. Governing Law and Time. This Agreement and the Pricing
Agreement shall be governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be performed in said
State. Specified times of day refer to New York City time unless otherwise
indicated.
- 37 -
<PAGE> 38
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Trust a counterpart hereof,
whereupon this instrument, along with all counterparts, shall become a binding
agreement among the Underwriters and the Offerors in accordance with its terms.
Very truly yours,
AMERICAN ANNUITY GROUP, INC.
By: ______________________________
Name:
Title:
AAG HOLDING COMPANY, INC.
By: ______________________________
Name:
Title:
AMERICAN ANNUITY GROUP CAPITAL TRUST I
By: _____________________________
Title: Regular Trustee
By: _____________________________
Title: Regular Trustee
- 38 -
<PAGE> 39
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
DEAN WITTER REYNOLDS INC.
FURMAN SELZ LLC
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
LEHMAN BROTHERS
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _____________________________________
Authorized Signatory
For themselves and as the Representatives of the several Underwriters
named in Schedule A hereto.
- 39 -
<PAGE> 40
SCHEDULE A
<TABLE>
<CAPTION>
Name of Underwriter Number of Shares
------------------- ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . . . . . . . . . .
Dean Witter Reynolds Inc.. . . . . . .
Furman Selz LLC. . . . . . . . . . . . . . . . . . . . . . . . . .
PaineWebber Incorporated . . . . . . . . . . . . . . . . . . . . .
Prudential Securities Incorporated . . . . . . . . . . . . . . . .
Lehman Brothers. . . . . . . . . . . . . . . . . . . . . . . . . .
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,000,000
</TABLE>
- 40 -
<PAGE> 41
SCHEDULE B
<TABLE>
<CAPTION>
Percentage of
State of Common Equity
Name of Company Incorporation Ownership
- --------------- ------------- ---------
<S> <C> <C>
AAG HOLDING COMPANY, INC. Delaware 100%
AAG Securities, Inc. [100%]
Annuity Investors Life Insurance
Company [100%]
CSW Management Services, Inc. [100%]
International Funeral Associates [100%]
Laurentian Investment Services, Inc. [100%]
Lifestyle Financial Investments, Inc. [100%]
Retirement Resources Group, Inc. [100%]
</TABLE>
- 41 -
<PAGE> 42
EXHIBIT A
3,000,000 Preferred Securities
AMERICAN ANNUITY GROUP CAPITAL TRUST I
(a Delaware business trust)
____% Trust Originated Preferred Securities ("TOPrS")
(Liquidation Amount of $25 Per Security)(SM)
PRICING AGREEMENT
MERRILL LYNCH & CO. ___________, 1996
MERRILL LYNCH, PIERCE, FENNER
& SMITH INCORPORATED
DEAN WITTER REYNOLDS INC.
FURMAN SELZ LLC
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
LEHMAN BROTHERS
as Representative of the several
Underwriters named in the
within-mentioned Underwriting
Agreement
Merrill Lynch World Headquarters
5500 Sears Tower
Chicago, Illinois 60606
Ladies and Gentlemen:
Reference is made to the Underwriting Agreement, dated
___________________, 1996 (the "Underwriting Agreement"), relating to the
purchase by the several Underwriters named in Schedule A thereto, for whom
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Dean
Witter Reynolds Inc., Furman Selz LLC, PaineWebber Incorporated, Prudential
Securities Incorporated, and Lehman Brothers are acting as representatives (the
"Representatives"), of the above ___% Trust Originated Preferred Securities
(the "Preferred Securities"), of American Annuity Group Capital Trust I, a
Delaware business trust (the "Trust").
Pursuant to Section 2 of the Underwriting Agreement, the Trust,
American Annuity Group, Inc. (the "Company"), a Delaware corporation, and AAG
Holding Company, Inc. ("AAG Holding"), an Ohio corporation, and American
Annuity Group Capital Trust I agree with each Underwriter as follows:
1. The initial public offering price per security for the Preferred
Securities, determined as provided in said Section 2, shall be $_____.
2. The purchase price per security for the Preferred Securities to be
paid by the several Underwriters shall be $_____, being an amount equal to the
initial public offering price set forth above; provided that the purchase price
per Preferred Security for any Option
<PAGE> 43
Securities (as defined in the Purchase Agreement) purchased upon exercise of
the over-allotment option described in Section 2(b) of the Purchase Agreement
shall be reduced by an amount per share equal to any distribution declared by
the Trust and payable on the Initial Securities (as defined in the Purchase
Agreement) but not payable on the Option Securities.
3. The compensation per Preferred Security to be paid by the Company
to the several Underwriters in respect of their commitments hereunder shall be
$______; provided, however, that the compensation per Preferred Security for
sales of 10,000 or more Preferred Securities to a single purchaser shall be
$_______.
If the foregoing is in accordance with your understanding of
our agreement, please sign and return to the Trust a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Underwriters and the Trust, AAG Holding and the Company
in accordance with its terms.
Very truly yours,
AMERICAN ANNUITY GROUP, INC.
By: ______________________________
Name:
Title:
AAG HOLDING COMPANY, INC.
By: _____________________________
Name:
Title:
AMERICAN ANNUITY GROUP CAPITAL TRUST I
By: _____________________________
Title: Regular Trustee
By: _____________________________
Title: Regular Trustee
__________________________
A-2
<PAGE> 44
(SM) "Trust Originated Preferred Securities" and "TOPrS" are service marks
of Merrill Lynch & Co. Inc.
<PAGE> 45
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEAN WITTER REYNOLDS INC.
FURMAN SELZ LLC
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
LEHMAN BROTHERS
By: MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _____________________________________
Authorized Signatory
For themselves and as the Representatives of the several Underwriters
named in Schedule A to the Underwriting Agreement.
A-4
<PAGE> 1
EXHIBIT 4.3
================================================================================
AMENDED AND RESTATED DECLARATION OF TRUST
AMERICAN ANNUITY GROUP CAPITAL TRUST I
Dated as of November ____, 1996
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1 INTERPRETATION AND DEFINITIONS............................................................. 1
Section 1.1 Interpretation and Definitions....................................................... 1
ARTICLE 2 TRUST INDENTURE ACT........................................................................ 8
Section 2.1 Trust Indenture Act; Application..................................................... 8
Section 2.2 Lists of Holders of Securities....................................................... 9
Section 2.3 Reports by the Property Trustee...................................................... 9
Section 2.4 Periodic Reports to the Property Trustee............................................. 10
Section 2.5 Evidence of Compliance with Conditions Precedent..................................... 10
Section 2.6 Events of Default; Waiver............................................................ 10
Section 2.7 Event of Default; Notice............................................................. 12
ARTICLE 3 ORGANIZATION............................................................................... 12
Section 3.1 Name and Organization................................................................ 12
Section 3.2 Office............................................................................... 13
Section 3.3 Purpose.............................................................................. 13
Section 3.4 Authority............................................................................ 13
Section 3.5 Title to Property of the Trust....................................................... 14
Section 3.6 Powers and Duties of the Regular Trustees............................................ 14
Section 3.7 Prohibition of Actions by the Trust and the Trustees................................. 17
Section 3.8 Powers and Duties of the Property Trustee............................................ 18
Section 3.9 Certain Duties and Responsibilities of the Property Trustee.......................... 20
Section 3.10 Certain Rights of Property Trustee................................................... 22
Section 3.11 Delaware Trustee..................................................................... 25
Section 3.12 [Intentionally omitted].............................................................. 25
Section 3.13 Not Responsible for Recitals or Issuance of Securities............................... 25
Section 3.14 Duration of Trust.................................................................... 25
Section 3.15 Mergers.............................................................................. 25
Section 3.16 Property Trustee May File Proofs of Claim............................................ 27
ARTICLE 4 SPONSOR.................................................................................... 28
Section 4.1 Sponsor's Purchase of Common Securities.............................................. 28
Section 4.2 Responsibilities of the Sponsor...................................................... 28
ARTICLE 5 TRUSTEES................................................................................... 29
Section 5.1 Number of Trustees................................................................... 29
Section 5.2 Delaware Trustee..................................................................... 30
Section 5.3 Property Trustee; Eligibility........................................................ 30
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C>
Section 5.4 Qualifications of Regular Trustees and Delaware Trustee Generally..................... 31
Section 5.5 Initial Trustees...................................................................... 31
Section 5.6 Appointment, Removal and Resignation of Trustees...................................... 31
Section 5.7 Vacancies among Trustees.............................................................. 33
Section 5.8 Effect of Vacancies................................................................... 33
Section 5.9 Meetings.............................................................................. 33
Section 5.10 Delegation of Power................................................................... 34
Section 5.11 Merger, Conversion, Consolidation or Succession to Business........................... 34
ARTICLE 6 DISTRIBUTIONS.............................................................................. 35
Section 6.1 Distributions......................................................................... 35
ARTICLE 7 ISSUANCE OF SECURITIES..................................................................... 35
Section 7.1 General Provisions Regarding Securities............................................... 35
ARTICLE 8 DISSOLUTION AND TERMINATION OF TRUST....................................................... 36
Section 8.1 Dissolution and Termination of Trust.................................................. 36
ARTICLE 9 TRANSFER OF INTERESTS ..................................................................... 37
Section 9.1 Transfer of Securities................................................................ 37
Section 9.2 Transfer and Exchange of Certificates................................................. 38
Section 9.3 Deemed Security Holders............................................................... 38
Section 9.4 Book Entry Interests.................................................................. 38
Section 9.5 Notices to Clearing Agency............................................................ 39
Section 9.6 Appointment of Successor Clearing Agency.............................................. 39
Section 9.7 Definitive Preferred Security Certificates............................................ 39
Section 9.8 Mutilated, Destroyed, Lost or Stolen Certificates..................................... 40
ARTICLE 10 LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS ................................................. 41
Section 10.1 Liability............................................................................. 41
Section 10.2 Exculpation........................................................................... 41
Section 10.3 Fiduciary Duty........................................................................ 42
Section 10.4 Indemnification....................................................................... 43
Section 10.5 Outside Businesses.................................................................... 46
ARTICLE 11 ACCOUNTING................................................................................. 46
Section 11.1 Fiscal Year........................................................................... 46
Section 11.2 Certain Accounting Matters............................................................ 46
Section 11.3 Banking............................................................................... 47
Section 11.4 Withholding........................................................................... 47
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
ARTICLE 12 AMENDMENTS AND MEETINGS.................................................................... 48
Section 12.1 Amendments........................................................................... 48
Section 12.2 Meetings of the Holders of Securities; Action by Written Consent..................... 50
ARTICLE 13 REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE....................................................................... 52
Section 13.1 Representations and Warranties of the Property Trustee............................... 52
Section 13.2 Representations and Warranties of the Delaware Trustee............................... 52
ARTICLE 14 MISCELLANEOUS.............................................................................. 53
Section 14.1 Notices.............................................................................. 53
Section 14.2 Governing Law........................................................................ 54
Section 14.3 Intention of the Parties............................................................. 55
Section 14.4 Headings............................................................................. 55
Section 14.5 Successors and Assigns............................................................... 55
Section 14.6 Partial Enforceability............................................................... 55
Section 14.7 Counterparts......................................................................... 55
</TABLE>
iii
<PAGE> 5
AMENDED AND RESTATED DECLARATION OF TRUST
THIS AMENDED AND RESTATED DECLARATION OF TRUST ("Declaration") dated as
of November ___, 1996 between AAG Holding Company, Inc., an Ohio corporation, as
Sponsor, and Christopher P. Miliano and Mark F. Muething as the initial Regular
Trustees, The Bank of New York as the initial Property Trustee and The Bank of
New York (Delaware) as the initial Delaware Trustee, not in their individual
capacities but solely as Trustees, and the holders, from time to time, of
undivided beneficial interests in the Trust to be issued pursuant to this
Declaration.
WHEREAS, the Sponsor desires to establish a statutory business trust
(the "Trust") under the Business Trust Act (as hereinafter defined); and
WHEREAS, the Trustees and the Sponsor established American Annuity
Group Capital Trust I (the "Trust"), a Delaware trust under the Business Trust
Act (as defined herein) pursuant to a Declaration of Trust dated as of September
13, 1996, (the "Original Declaration") and a Certificate of Trust filed with the
Secretary of State of the State of Delaware on September 13, 1996, 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 (as defined herein) of the Debenture Issuer; and
WHEREAS, the sole purpose of the Trust shall be to issue and sell
certain securities representing undivided beneficial interests in the assets of
the Trust, to invest the proceeds from such sales in the Debentures issued by
the Debenture Issuer (as those terms are hereinafter defined) and to engage in
only those activities necessary or incidental thereto; and
WHEREAS, all of the Trustees and the Sponsor, by this Declaration,
amend and restate each and every term and provision of the Original Declaration.
NOW, THEREFORE, it being the intention of the parties hereto that the
Trust constitute a business trust under the Business Trust Act, the Trustees
hereby declare that all assets contributed to the Trust 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 1
INTERPRETATION AND DEFINITIONS
Section 1.1 Interpretation and 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;
<PAGE> 6
(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 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;
(e) a term defined in the Trust Indenture Act has the same meaning when
used in this Declaration unless otherwise defined in this Declaration or unless
the context otherwise requires; and
(f) 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.
"Authorized Officer" of a Person means the Chairman of the Board, a
Vice Chairman of the Board, the Chief Executive Officer, a President, a vice
president, the principal financial officer, the Treasurer, an Assistant
Treasurer, the Secretary or an Assistant Secretary of the Company.
"Book Entry Interest" means a beneficial interest in a Global
Certificate, ownership and transfers of which shall be maintained and made
through book entries by a Clearing Agency as described in Section 9.4.
"Business Day" means any day other than a day on which banking
institutions in New York, New York or in Wilmington, Delaware are authorized or
required by law to close.
"Business Trust Act" means Chapter 38 of Title 12 of the Delaware Code,
12 Del. Code Section 3801 et seq., as it may be amended from time to time, or
any successor legislation.
"Certificate" means a Common Security Certificate or a Preferred
Security Certificate.
"Certificate of Trust" has the meaning specified in Section 3.1.
"Clearing Agency" means an organization registered as a "Clearing
Agency" pursuant to Section 17A of the Exchange Act that is acting as depositary
for the Preferred Securities and in whose name or in the name of a nominee of
that organization shall be registered a Global
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<PAGE> 7
Certificate and which shall undertake to effect book entry transfers and pledges
of the Preferred Securities.
"Clearing Agency Participant" means a broker, dealer, bank, other
financial institution or other Person for whom from time to time the Clearing
Agency effects book entry transfers and pledges of securities deposited with the
Clearing Agency.
"Closing Date" means the date on which the Preferred Securities are
sold pursuant to the terms of the Underwriting Agreement.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor legislation. A reference to a specific section of the
Code refers not only to such specific section but also to any corresponding
provision of any federal tax statute enacted after the date of this Declaration,
as such specific section or corresponding provision is in effect on the date of
application of the provisions of this Declaration containing such reference.
"Commission" means the Securities and Exchange Commission.
"Common Securities Guarantee" means the guarantee agreement of the
Sponsor in respect of the Common Securities.
"Common Security" has the meaning specified in Section 7.1.
"Common Security Certificate" means a definitive certificate in fully
registered form representing a Common Security.
"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 any Affiliate thereof; or (d) any officer, employee or agent of the Trust or
its Affiliates.
"Corporate Trust Office" means the office of the Property Trustee at
which the corporate trust business of the Property Trustee shall, at any
particular time, be principally administered, which office at the date of
execution of this Declaration is located at 101 Barclay Street, Floor 21W, New
York, New York 10286, Attention: Corporate Trust Trustee Administration;
telecopy no. (212) 815-5915.
"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.
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<PAGE> 8
"Debenture Guarantor" means American Annuity Group, Inc. in its
capacity as guarantor of the Debentures under the Indenture.
"Debenture Issuer" means AAG Holding Company, Inc. in its capacity as
issuer of the Debentures under the Indenture.
"Debenture Trustee" means The Bank of New York, in its capacity as
trustee under the Indenture until a successor is appointed thereunder, and
thereafter means such successor trustee.
"Debentures" means the series of debentures to be issued by the
Debenture Issuer under the Indenture to be held by the Property Trustee.
"Definitive Preferred Security Certificates" has the meaning set forth
in Section 9.4.
"Delaware Trustee" has the meaning set forth in Section 5.2.
"Distribution" means a distribution payable to Holders of Securities in
accordance with Section 6.1.
"DTC" means The Depository Trust Company, the initial Clearing Agency.
"Event of Default" in respect of the Securities means an Event of
Default (as defined in the Indenture) has occurred and is continuing in respect
of the Debentures.
"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
10.4(b).
"Fiscal Year" has the meaning set forth in Section 11.1.
"Global Certificate" has the meaning set forth in Section 9.4.
"Holder" means a Person in whose name a Certificate representing a
Security is registered, such Person being a beneficial owner within the meaning
of the Business Trust Act; provided, however, that in determining whether the
Holders of the requisite liquidation amount of Preferred Securities have voted
on any matter provided for in this Declaration, then for the purpose of such
determination only (and not for any other purpose hereunder), if the Preferred
Securities remain in the form of one or more Global Certificates, the term
"Holders" shall mean the holder of the Global Certificate acting at the
direction of the Preferred Security Beneficial Owners.
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<PAGE> 9
"Indemnified Person" means a Company Indemnified Person or a Fiduciary
Indemnified Person.
"Indenture" means the Indenture dated as of November ___, 1996, among
the Debenture Issuer, the Debenture Guarantor and the Debenture Trustee, and any
indenture supplemental thereto pursuant to which the Debentures are to be
issued.
"Investment Company" means an investment company as defined in the
Investment Company Act and the regulations promulgated thereunder.
"Investment Company Act" means the Investment Company Act of 1940, as
amended from time to time, or any successor legislation.
"Legal Action" has the meaning set forth in Section 3.6(g).
"List of Holders" has the meaning specified in Section 2.2(a).
"Majority in Liquidation Amount" means, except as provided in the terms
of the Preferred Securities or by the Trust Indenture Act, Holder(s) of
outstanding Securities, voting together as a single class, or, as the context
may require, Holders of outstanding Preferred Securities or Holders of
outstanding Common Securities, voting separately as a class, who are the record
owners of more than 50% of the aggregate liquidation amount (including the
stated amount that would be paid on redemption, liquidation or otherwise, plus
accrued and unpaid Distributions to the date upon which the voting percentages
are determined) of all outstanding Securities of the relevant class.
"Officers' Certificate" means, with respect to any Person (other than
Regular Trustees who are natural persons), a certificate signed by two
Authorized Officers of such Person. Any Officers' Certificate delivered with
respect to compliance with a condition or covenant provided for in this
Declaration shall include:
(a) a statement that each officer signing the Officers' Certificate has
read the covenant or condition and the definitions relating thereto;
(b) a brief statement of the nature and scope of the examination or
investigation undertaken by each officer in rendering the Officers' Certificate;
(c) a statement that each such officer has made such examination or
investigation as, in such officer's opinion, is necessary to enable such officer
to express an informed opinion as to whether or not such covenant or condition
has been complied with; and
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<PAGE> 10
(d) a statement as to whether, in the opinion of each such officer,
such condition or covenant has been complied with;
provided, that the term "Officers' Certificate" when used with reference to
Regular Trustees who are natural persons shall mean a certificate signed by two
of the Regular Trustees which otherwise satisfies the foregoing requirements.
"Paying Agent" has the meaning specified in Section 3.8(h).
"Payment Amount" has the meaning specified in Section 6.1.
"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 Securities Guarantee" means the guarantee agreement of the
Sponsor in respect of the Preferred Securities.
"Preferred Security" has the meaning specified in Section 7.1.
"Preferred Security Beneficial Owner" means, with respect to a Book
Entry Interest, a Person who is the beneficial owner of such Book Entry
Interest, as reflected on the books of the Clearing Agency, or on the books of a
Person maintaining an account with such Clearing Agency (directly as a Clearing
Agency Participant or as an indirect participant, in each case in accordance
with the rules of such Clearing Agency).
"Preferred Security Certificate" means a certificate representing a
Preferred Security.
"Pricing Agreement" means the pricing agreement between the Trust, the
Debenture Issuer and the underwriters designated by the Regular Trustees with
respect to the offer and sale of the Preferred Securities.
"Property Trustee" means the Trustee meeting the eligibility
requirements set forth in Section 5.3.
"Property Trustee Account" has the meaning set forth in Section 3.8(c).
"Quorum" means a majority of the Regular Trustees or, if there are only
two Regular Trustees, both of them.
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<PAGE> 11
"Regular Trustee" means any Trustee other than the Property Trustee and
the Delaware Trustee.
"Related Party" means, with respect to the Sponsor, any direct or
indirect wholly owned subsidiary of the Sponsor or any Person that owns,
directly or indirectly, 100% of the outstanding voting securities of the
Sponsor.
"Responsible Officer" means, with respect to the Property Trustee, any
officer within the Corporate Trust Office of the Property Trustee, including any
vice-president, any assistant vice-president, the secretary, any assistant
secretary, the treasurer, any assistant treasurer or other officer of the
Corporate Trust Office of the Property Trustee customarily performing functions
similar to those performed by any of the above designated officers and also
means, with respect to a particular corporate trust matter, any other officer to
whom such matter is referred because of that officer's knowledge of and
familiarity with the particular subject.
"Rule 3a-5" means Rule 3a-5 under the Investment Company Act or any
successor rule thereunder.
"Rule 3a-7" means Rule 3a-7 under the Investment Company Act or any
successor rule thereunder.
"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.
"Securities Guarantees" means the Common Securities Guarantee and the
Preferred Securities Guarantee.
"Sponsor" means AAG Holding Company, Inc., an Ohio corporation, or any
successor entity in a merger, consolidation or amalgamation, in its capacity as
sponsor of the Trust.
"Successor Delaware Trustee" has the meaning specified in Section
5.6(b).
"Successor Entity" has the meaning specified in Section 3.15(b)(i).
"Successor Property Trustee" has the meaning specified in Section
5.6(b).
"Successor Security" has the meaning specified in Section 3.15(b)(i)b.
"Super Majority" has the meaning set forth in Section 2.6(a)(ii).
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<PAGE> 12
"10% in Liquidation Amount" means, except as provided in the terms of
the Preferred Securities or by the Trust Indenture Act, Holder(s) of outstanding
Securities, voting together as a single class, or, as the context may require,
Holders of outstanding Preferred Securities or Holders of outstanding Common
Securities, voting separately as a class, who are the record owners of 10% or
more of the aggregate liquidation amount (including the stated amount that would
be paid on redemption, liquidation or otherwise, plus accrued and unpaid
Distributions to the date upon which the voting percentages are determined) of
all outstanding Securities of the relevant class.
"Treasury Regulations" means the income tax regulations, including
temporary and proposed regulations, promulgated under the Code by the United
States Treasury, as such regulations may be amended from time to time (including
corresponding provisions of succeeding regulations).
"Trust Indenture Act" means the Trust Indenture Act of 1939, as amended
from time to time, or any successor legislation.
"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.
"Trustees' Authorization Certificate" means a written certificate
signed by two of the Regular Trustees for the purpose of establishing the terms
and form of the Preferred Securities and the Common Securities as determined by
the Regular Trustees.
"Underwriting Agreement" means the Underwriting Agreement for the
offering and sale of Preferred Securities between the Trust, the Debenture
Issuer and the underwriters designated by the Regular Trustees.
ARTICLE 2
TRUST INDENTURE ACT
Section 2.1 Trust Indenture Act; Application.
(a) This Declaration is subject to the provisions of the Trust
Indenture Act that are required to be part of this Declaration and
shall, to the extent applicable, be governed by such provisions.
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<PAGE> 13
(b) The Property Trustee shall be the only Trustee which is a
Trustee for the purposes of the Trust Indenture Act.
(c) If and to the extent that any provision of this
Declaration conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the Trust Indenture Act, such imposed duties shall
control.
(d) The application of the Trust Indenture Act to this
Declaration shall not affect the Trust's classification as a grantor
trust for United States Federal income tax purposes and shall not
affect the nature of the Securities as equity securities representing
undivided beneficial interests in the assets of the Trust.
Section 2.2 Lists of Holders of Securities.
(a) Unless the Property Trustee acts as Registrar, each of the Sponsor
and the Regular Trustees on behalf of the Trust shall provide the Property
Trustee with a list, in such form as the Property Trustee may reasonably
require, of the names and addresses of the Holders of the Securities ("List of
Holders"), (i) within one Business Day after January 1 and June 30 of each year
and current as of such date, and (ii) at any other time, within 30 days of
receipt by the Trust of a written request from the Property Trustee for a List
of Holders as of a date no more than 14 days before such List of Holders is
given to the Property Trustee; provided that neither the Sponsor nor the Regular
Trustees on behalf of the Trust shall be obligated to provide such List of
Holders at any time the List of Holders does not differ from the most recent
List of Holders given to the Property Trustee by the Sponsor and the Regular
Trustees on behalf of the Trust. The Property Trustee shall preserve, in as
current a form as is reasonably practicable, all information contained in Lists
of Holders given to it or which it receives in the capacity as Paying Agent (if
acting in such capacity), provided that the Property Trustee may destroy any
List of Holders previously given to it on receipt of a new List of Holders.
(b) The Property Trustee shall comply with its obligations under, and
shall be entitled to the benefits of, Sections 311(a), 311(b) and 312(b) of the
Trust Indenture Act.
Section 2.3 Reports by the Property Trustee.
Within 60 days after May 15 of each year(commencing with the year of
the first anniversary of the issuance of the Preferred Securities), the Property
Trustee shall provide to the Holders of the Preferred Securities such reports as
are required by Section 313 of the Trust Indenture Act, if any, in the form and
in the manner provided by Section 313 of the Trust Indenture Act. The Property
Trustee shall also comply with the requirements of Section 313(d) of the Trust
Indenture Act.
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<PAGE> 14
Section 2.4 Periodic Reports to the Property Trustee.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such documents, reports and information as
required by Section 314 (if any) of the Trust Indenture Act and the compliance
certificate required by Section 314 of the Trust Indenture Act in the form, in
the manner and at the times required by Section 314 of the Trust Indenture Act.
Delivery of such reports, information and documents to the Trustee is for
information purposes only and the Trustee's receipt of such shall not constitute
constructive notice of any information contained therein or determinable from
information contained therein, including the Company's compliance with any of
its covenants hereunder (as to which the Trustee is entitled to rely exclusively
on Officers' Certificates).
Section 2.5 Evidence of Compliance with Conditions Precedent.
Each of the Sponsor and the Regular Trustees on behalf of the Trust
shall provide to the Property Trustee such evidence of compliance with any
conditions precedent, if any, provided for in this Declaration that relate to
any of the matters set forth in Section 314(c) of the Trust Indenture Act. Any
certificate or opinion required to be given by an officer pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.
Section 2.6 Events of Default; Waiver.
(a) The Holders of a Majority in Liquidation Amount of the Preferred
Securities may, by vote, on behalf of the Holders of all of the Preferred
Securities, waive any past Event of Default in respect of the Preferred
Securities and its consequences, provided that, if the underlying Event of
Default under the Indenture:
(i) is not waivable under the Indenture, the Event of Default
under the Declaration shall also not be waivable; or
(ii) requires the consent or vote of greater than a majority in
principal amount of the holders of the Debentures (a "Super
Majority") to be waived under the Indenture, the Event of
Default under the Declaration may only be waived by the vote
of the Holders of at least the proportion in liquidation
amount of the Preferred Securities that the relevant Super
Majority represents of the aggregate principal amount of the
Debentures outstanding.
The foregoing provisions of this Section 2.6(a) shall be in lieu of
Section 316(a)(1)(B) of the Trust Indenture Act and such Section 316(a)(1)(B) of
the Trust Indenture Act is hereby expressly excluded from this Declaration and
the Securities, as permitted by the Trust Indenture Act. Upon such waiver, any
such default shall cease to exist, and any Event of Default with
10
<PAGE> 15
respect to the Preferred Securities arising therefrom shall be deemed to have
been cured, for every purpose of this Declaration and the Preferred Securities,
but no such waiver shall extend to any subsequent or other default or Event of
Default with respect to the Preferred Securities or impair any right consequent
thereon. Any waiver by the Holders of the Preferred Securities of a Declaration
Event of Default with respect to the Preferred Securities shall also be deemed
to constitute a waiver by the Holders of the Common Securities of any such
Declaration Event of Default with respect to the Common Securities for all
purposes of this Declaration without any further act, vote, or consent of the
Holders of the Common Securities.
(b) The Holders of a Majority in Liquidation Amount of the Common
Securities may, by vote, on behalf of the Holders of all of the Common
Securities, waive any past Event of Default in respect of the Common Securities
and its consequences, provided that, if the underlying Event of Default under
the Indenture:
(i) is not waivable under the Indenture, except where the Holders
of the Common Securities are deemed to have waived such Event
of Default under the Declaration as provided below in this
Section 2.6(b), the Event of Default under the Declaration
shall also not be waivable; or
(ii) requires the consent or vote of a Super Majority to be waived
under the Indenture, except where the Holders of the Common
Securities are deemed to have waived such Event of Default
under the Declaration as provided below in this Section
2.6(b), the Event of Default under the Declaration may only be
waived by the vote of the Holders of at least the proportion
in liquidation amount of the Common Securities that the
relevant Super Majority represents of the aggregate principal
amount of the Debentures outstanding;
provided further, each Holder of Common Securities will be deemed to have waived
any such Event of Default and all Events of Default with respect to the Common
Securities and the consequences thereof until all Events of Default with respect
to the Preferred Securities have been cured, waived or otherwise eliminated, and
until such Events of Default with respect to the Preferred Securities have been
so cured, waived or otherwise eliminated, the Property Trustee will be deemed to
be acting solely on behalf of the Holders of the Preferred Securities and only
the Holders of the Preferred Securities will have the right to direct the
Property Trustee in accordance with the terms of the Securities. The foregoing
provisions of this Section 2.6(b) shall be in lieu of Sections 316(a)(1)(A) and
316(a)(1)(B) of the Trust Indenture Act and such Sections 316(a)(1)(A) and
316(a)(1)(B) of the Trust Indenture Act are hereby expressly excluded from this
Declaration and the Securities, as permitted by the Trust Indenture Act. Subject
to the foregoing provisions of this Section 2.6(b), upon such waiver, any such
default shall cease to exist and any Event of Default with respect to the Common
Securities arising therefrom shall be deemed to have been cured for every
purpose of this Declaration, but no such waiver shall
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<PAGE> 16
extend to any subsequent or other default or Event of Default with respect to
the Common Securities or impair any right consequent thereon.
(c) A waiver of an Event of Default under the Indenture by the Property
Trustee at the direction of the Holders of the Preferred Securities constitutes
a waiver of the corresponding Event of Default with respect to the Preferred
Securities under this Declaration. The foregoing provisions of this Section
2.6(c) shall be in lieu of Section 316(a)(1)(B) of the Trust Indenture Act and
such Section 316(a)(1)(B) of the Trust Indenture Act is hereby expressly
excluded from this Declaration and the Securities, as permitted by the Trust
Indenture Act.
Section 2.7 Event of Default; Notice.
(a) The Property Trustee shall, within 90 days after the occurrence of
an Event of Default, transmit by mail, first class postage prepaid, to the
Holders of the Securities, notices of all defaults with respect to the
Securities actually known to a Responsible Officer of the Property Trustee,
unless such defaults have been cured before the giving of such notice (the term
"defaults" for the purposes of this Section 2.7(a) being hereby defined to be an
Event of Default as defined in the Indenture, not including any periods of grace
provided for therein and irrespective of the giving of any notice provided
therein); provided that, except for a default in the payment of principal of (or
premium, if any) or interest on any of the Debentures, the Property Trustee
shall be protected in withholding such notice if and so long as a Responsible
Officer of the Property Trustee in good faith determines that the withholding of
such notice is in the interests of the Holders of the Securities.
(b) The Property Trustee shall not be deemed to have knowledge of any
default except:
(i) a default under Sections 501(1) and 501(2) of the
Indenture; or
(ii) any default as to which the Property Trustee shall
have received written notice or of which a
Responsible Officer of the Property Trustee charged
with the administration of this Declaration shall
have actual knowledge.
ARTICLE 3
ORGANIZATION
Section 3.1 Name and Organization.
The Trust hereby created is named "American Annuity Group Capital Trust
I" as such name may be modified from time to time by the Regular Trustees
following written notice to
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the Holders of Securities. The Trust's activities may be conducted under the
name of the Trust or any other name deemed advisable by the Regular Trustees.
Section 3.2 Office.
The address of the principal office of the Trust is c/o American
Annuity Group, Inc., 250 East Fifth Street, Cincinnati, Ohio 45202. On ten
Business Days written notice to the Holders of Securities, the Regular Trustees
may designate another principal office.
Section 3.3 Purpose.
The exclusive purposes and functions of the Trust are (a) to issue and
sell Securities and use the gross 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.
The Trust will be classified as a grantor trust for United States
federal income tax purposes under Subpart E of Subchapter J of the Code,
pursuant to which the owners of the Preferred Securities and the Common
Securities will be the owners of the Trust for United States federal income tax
purposes, and such owners will include directly in their gross income the
income, deductions and credits of the Trust as if the Trust did not exist. By
the acceptance of this Trust, none of the Trustees, the Sponsor, the Holders of
the Preferred Securities or Common Securities or the Preferred Securities
Beneficial Owners will take any position for United States federal income tax
purposes which is contrary to the classification of the Trust as a grantor
trust.
Section 3.4 Authority.
Subject to the limitations provided in this Declaration and to the
specific duties of the Property Trustee, the Regular Trustees shall have
exclusive 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 and an action taken by the Property Trustee on
behalf of the Trust in accordance with its powers shall constitute the act of
and serve to bind the Trust. In dealing with the Trustees acting on behalf of
the Trust, no person shall be required to inquire into the authority of the
Trustees to bind the Trust. Persons dealing with the Trust are entitled to rely
conclusively on the power and authority of the Trustees as set forth in this
Declaration.
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(a) Except as expressly set forth in this Declaration and except if a
meeting of the Regular Trustees is called with respect to any matter over which
the Regular Trustees have power to act, 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 or applicable law, any Regular
Trustee is authorized to execute on behalf of the Trust any documents which the
Regular Trustees have the power and authority to cause the Trust to execute
pursuant to Section 3.6(b)(i), provided, that the registration statement
referred to in Section 3.6(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 which the Regular Trustees
have power and authority to cause the Trust to execute pursuant to Section 3.6.
Section 3.5 Title to Property of the Trust.
Except as provided in Section 3.8 with respect to the Debentures and
the Property Trustee Account or as otherwise provided in this Declaration, legal
title to all assets of the Trust shall be vested in the Trust. The Holders shall
not have legal title to any part of the assets of the Trust, but shall have an
undivided beneficial interest in the assets of the Trust.
Section 3.6 Powers and Duties of the Regular Trustees.
The Regular Trustees shall have the exclusive power, duty and authority
to cause the Trust to engage in the following activities:
(a) to establish the terms and form of the Preferred Securities and the
Common Securities in the manner specified in Section 7.1 and 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 Securities shall be limited to a one-time,
simultaneous issuance of both Preferred Securities and Common Securities on the
Closing Date (other than subsequent issuances to cover over-allotments pursuant
to the terms of the Underwriting Agreement);
(b) in connection with the issue and sale of the Preferred Securities,
at the direction of the Sponsor, to:
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(i) execute and file with the Commission a registration
statement on Form S-3 prepared by the Sponsor,
including any amendments thereto, pertaining to the
Preferred Securities, the Preferred Securities
Guarantee and the Debentures;
(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, Inc. or any
other national stock exchange or the Nasdaq Stock
Market's National Market System 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 the Underwriting Agreement and
Pricing Agreement and other related agreements
providing for the sale of the Preferred Securities;
(c) to acquire the Debentures with the proceeds of the sale of the
Preferred Securities and the Common Securities; provided, however, that the
Regular Trustees shall cause legal title to the Debentures to be held of record
in the name of the Property Trustee for the benefit of the Holders of the
Preferred Securities and the Holders of the Common Securities;
(d) to give the Sponsor and the Property Trustee prompt written notice
of the occurrence of certain events (as may be specified in the terms of the
Securities) arising from a change in law or a change in legal interpretation or
other circumstances specified in the terms of the Securities provided that the
Regular Trustees shall consult with the Sponsor and the Property Trustee before
taking or refraining from taking any action in relation to any such event;
(e) to establish a record date with respect to all actions to be taken
hereunder that require a record date be established, including and with respect
to, for the purposes of Section 316(c) of the Trust Indenture Act,
Distributions, voting rights, redemptions and exchanges, and to issue relevant
notices to the Holders of Preferred Securities and Holder of Common Securities
as to such actions and applicable record dates;
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(f) to take all actions and perform such duties as may be required of
the Regular Trustees pursuant to the terms of the Securities;
(g) to bring or defend, pay, collect, compromise, arbitrate, resort to
legal action or otherwise adjust claims or demands of or against the Trust
("Legal Action"), unless pursuant to Section 3.8(e), the Property Trustee has
the exclusive power to bring such Legal Action;
(h) to employ or otherwise engage employees and agents (who may be
designated as officers with titles) and managers, contractors, advisors and
consultants to conduct only those services that the Regular Trustees have
authority to conduct directly, and to pay reasonable compensation for such
services;
(i) to cause the Trust to comply with the Trust's obligations under the
Trust Indenture Act;
(j) to give the certificate required by Section 314(a)(4) of the Trust
Indenture Act to the Property Trustee, which certificate may be executed by any
Regular Trustee;
(k) to incur expenses that are necessary or incidental to carry out any
of the purposes of the Trust;
(l) to act as, or appoint another Person to act as, registrar and
transfer agent for the Securities;
(m) to give prompt written notice to the Holders of the Securities of
any notice received from the Debenture Issuer of its election (i) to defer
payments of interest on the Debentures by extending the interest payment period
under the Debentures as authorized by the Indenture, or (ii) to extend the
maturity date of the Debentures if so authorized by the Indenture, provided that
any such extension of the maturity date will not adversely affect the federal
income tax status of the Trust;
(n) to take all action that may be necessary or appropriate for the
preservation and the continuation of the Trust's valid existence, rights,
franchises and privileges as a statutory business trust under the laws of the
State of Delaware and of each other jurisdiction in which such existence is
necessary to protect the limited liability of the Holders of the Preferred
Securities or to enable the Trust to effect the purposes for which the Trust was
created;
(o) to take any action, not inconsistent with applicable law, that the
Regular Trustees determine in their discretion to be necessary or desirable in
carrying out the purposes and functions of the Trust as set out in Section 3.3
or the activities of the Trust as set out in this Section 3.6, including, but
not limited to:
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(i) causing the Trust not to be deemed to be an
Investment Company required to be registered under
the Investment Company Act;
(ii) causing the Trust to be classified for United States
federal income tax purposes as a grantor trust; and
(iii) cooperating with the Debenture Issuer to ensure that
the Debentures will be treated as indebtedness of the
Debenture Issuer for United States federal income tax
purposes.
(p) to take all action necessary to cause all applicable tax returns
and tax information reports that are required to be filed with respect to the
Trust to be duly prepared and filed by the Regular Trustees, on behalf of the
Trust; and
(q) 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.
The Regular Trustees must exercise the powers set forth in this Section
3.6 in a manner that is consistent with the purposes and functions of the Trust
set out in Section 3.3, and the Regular Trustees shall have no power to, and
shall not, take any action that is inconsistent with the purposes and functions
of the Trust set forth in Section 3.3.
Subject to this Section 3.6, the Regular Trustees shall have none of
the powers or the authority of the Property Trustee set forth in Section 3.8.
Any expenses incurred by the Regular Trustees pursuant to this Section
3.6 shall be reimbursed by the Debenture Issuer.
Section 3.7 Prohibition of Actions by the Trust and the Trustees.
(a) The Trust shall not, and the Trustees (including the Property
Trustee) shall cause the Trust not to, engage in any activity other than as
required or authorized by this Declaration. In particular, the Trust shall not
and the Trustees (including the Property Trustee) shall cause the Trust not to:
(i) invest any proceeds received by the Trust from holding the
Debentures, but shall distribute all such proceeds to Holders
of Securities pursuant to the terms of this Declaration and of
the Securities;
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(ii) acquire any assets other than the Debentures (and any interest
or proceeds received thereon);
(iii) possess Trust property for other than a Trust purpose;
(iv) make any loans or incur any indebtedness other than loans
represented by the Debentures;
(v) possess any power or otherwise act in such a way as to vary
the Trust assets;
(vi) possess any power or otherwise act in such a way as to vary
the terms of the Securities in any way whatsoever (except to
the extent expressly authorized in this Declaration or by the
terms of the Securities);
(vii) issue any securities or other evidences of beneficial
ownership of, or beneficial interest in, the Trust other than
the Securities; or
(viii) other than as provided in this Declaration or by the terms of
the Securities, (A) direct the time, method and place of
exercising any trust or power conferred upon the Debenture
Trustee with respect to the Debentures, (B) waive any past
default that is waivable under the Indenture, (C) exercise any
right to rescind or annul any declaration that the principal
of all the Debentures shall be due and payable, or (D) consent
to any amendment, modification or termination of the Indenture
or the Debentures where such consent shall be required unless
the Trust shall have received an opinion of counsel to the
effect that such modification will not cause more than an
insubstantial risk that the Trust will be deemed an Investment
Company required to be registered under the Investment Company
Act, or the Trust will not be classified as a grantor trust
for United States federal income tax purposes; or
(ix) take any action inconsistent with the status of the Trust as a
grantor trust for United States federal income tax purposes.
Section 3.8 Powers and Duties of the Property Trustee.
(a) The legal title to the Debentures shall be owned by and held of
record in the name of the Property Trustee in trust for the benefit of the Trust
and the Holders of the Securities. The right, title and interest of the Property
Trustee to the Debentures shall vest automatically in each Person who may
hereafter be appointed as Property Trustee in accordance with Section 5.6. Such
vesting and cessation of title shall be effective whether or not conveyancing
documents with regard to the Debentures have been executed and delivered.
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(b) The Property Trustee shall not transfer its right, title and
interest in the Debentures to the Regular Trustees or to the Delaware Trustee
(if the Property Trustee does not also act as Delaware Trustee).
(c) The Property Trustee shall:
(i) establish and maintain a segregated non-interest bearing trust
account (the "Property Trustee Account") in the name of and
under the exclusive control of the Property Trustee on behalf
of the Holders of the Securities and, upon the receipt of
payments of funds made in respect of the Debentures held by
the Property Trustee, deposit such funds into the Property
Trustee Account and make payments to the Holders of the
Preferred Securities and Holders of the Common Securities from
the Property Trustee Account in accordance with Section 6.1.
Funds in the Property Trustee Account shall be held uninvested
until disbursed in accordance with this Declaration. The
Property Trustee Account shall be an account that is
maintained with a banking institution the rating on whose
long-term unsecured indebtedness is at least equal to the
rating assigned to the Preferred Securities by a "nationally
recognized statistical rating organization", as that term is
defined for purposes of Rule 436(g)(2) under the Securities
Act;
(ii) engage in such ministerial activities as shall be necessary or
appropriate to effect the redemption of the Preferred
Securities and the Common Securities to the extent the
Debentures are redeemed or mature; and
(iii) upon written notice of distribution issued by the Regular
Trustees in accordance with the terms of the Securities,
engage in such ministerial activities as so directed and as
shall be necessary or appropriate to effect the distribution
of the Debentures to Holders of Securities upon the occurrence
of certain special events (as may be defined in the terms of
the Securities) arising from a change in law or a change in
legal interpretation or other specified circumstances pursuant
to the terms of the Securities.
(d) The Property Trustee shall take all actions and perform such duties
as may be specifically required of the Property Trustee pursuant to the terms of
the Securities.
(e) The Property Trustee shall take any Legal Action which arises out
of or in connection with an Event of Default of which a Responsible Officer of
the Property Trustee has actual knowledge or the Property Trustee's duties and
obligations under this Declaration or the Trust Indenture Act.
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(f) The Property Trustee shall continue to serve as a Trustee until
either:
(i) the Trust has been completely liquidated and the proceeds of
the liquidation distributed to the Holders of Securities
pursuant to the terms of the Securities; or
(ii) a Successor Property Trustee has been appointed and has
accepted that appointment in accordance with Section 5.6.
(g) Subject to such limitations as are necessary to insure compliance
with Section 3.3, the Property Trustee shall have the legal power to exercise
all of the rights, powers and privileges of a holder of Debentures under the
Indenture and, if an Event of Default actually known to a Responsible Officer of
the Property Trustee occurs and is continuing, the Property Trustee shall, for
the benefit of Holders of the Securities, enforce its rights as holder of the
Debentures subject to the rights of the Holders pursuant to the terms of such
Securities.
(h) The Property Trustee may authorize one or more Persons (each, a
"Paying Agent") to pay Distributions, redemption payments or liquidation
payments on behalf of the Trust with respect to all Securities and any such
Paying Agent shall comply with Section 317(b) of the Trust Indenture Act. Any
Paying Agent may be removed by the Property Trustee at any time and a successor
Paying Agent or additional Paying Agents may be appointed at any time by the
Property Trustee. In the event the Preferred Securities do not remain in the
form of one or more Global Certificates, the Property Trustee will act as Paying
Agent and may designate an additional or substitute Paying Agent at any time.
(i) Subject to this Section 3.8, the Property Trustee shall have none
of the duties, liabilities, powers or the authority of the Regular Trustees set
forth in Section 3.6.
The Property Trustee must exercise the powers set forth in this Section
3.8 in a manner that is consistent with the purposes and functions of the Trust
set out in Section 3.3, and the Property Trustee shall have no power to, and
shall not, take any action that is inconsistent with the purposes and functions
of the Trust set out in Section 3.3.
Section 3.9 Certain Duties and Responsibilities of the Property Trustee.
(a) The Property Trustee, before the occurrence of any Event of Default
and after the curing of all Events of Default that may have occurred, shall
undertake to perform only such duties as are specifically set forth in this
Declaration and no implied covenants shall be read into this Declaration against
the Property Trustee. In case an Event of Default has occurred (that has not
been cured or waived pursuant to Section 2.6) of which a Responsible Officer of
the Property Trustee has actual knowledge, the Property Trustee shall exercise
such of the rights and powers vested in it by this Declaration, and use the same
degree of care and skill in their
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exercise, as a prudent person would exercise or use under the circumstances in
the conduct of his or her own affairs.
(b) No provision of this Declaration shall be construed to relieve the
Property Trustee from liability for its own negligent action, its own negligent
failure to act or its own willful misconduct, except that:
(i) prior to the occurrence of an Event of Default and after the
curing or waiving of all such Events of Default that may have
occurred:
a. the duties and obligations of the Property Trustee
shall be determined solely by the express provisions
of this Declaration and the Property Trustee shall
not be liable except for the performance of such
duties and obligations as are specifically set forth
in this Declaration, and no implied covenants or
obligations shall be read into this Declaration
against the Property Trustee; and
b. in the absence of bad faith on the part of the
Property Trustee, the Property Trustee may
conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed
therein, upon any certificates or opinions furnished
to the Property Trustee and conforming to the
requirements of this Declaration; but in the case of
any such certificates or opinions that by any
provision hereof are specifically required to be
furnished to the Property Trustee, the Property
Trustee shall be under a duty to examine the same to
determine whether or not they conform to the
requirements of this Declaration;
(ii) the Property Trustee shall not be liable for any error of
judgment made in good faith by a Responsible Officer of the
Property Trustee, unless it shall be proved that the Property
Trustee was negligent in ascertaining the pertinent facts;
(iii) the Property Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than
a Majority in Liquidation Amount of the Securities relating to
the time, method and place of conducting any proceeding for
any remedy available to the Property Trustee, or exercising
any trust or power conferred upon the Property Trustee under
this Declaration;
(iv) no provision of this Declaration shall require the Property
Trustee to expend or risk its own funds or otherwise incur
personal financial liability in the performance of any of its
duties or in the exercise of any of its rights or powers,
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if it shall have reasonable grounds for believing that the
repayment of such funds or liability is not reasonably assured
to it under the terms of this Declaration or indemnity
reasonably satisfactory to the Property Trustee against such
risk or liability is not reasonably assured to it;
(v) the Property Trustee's sole duty with respect to the custody,
safe keeping and physical preservation of the Debentures and
the Property Trustee Account shall be to deal with such
property in a similar manner as the Property Trustee deals
with similar property for its own account, subject to the
protections and limitations on liability afforded to the
Property Trustee under this Declaration and the Trust
Indenture Act;
(vi) the Property Trustee shall have no duty or liability for or
with respect to the value, genuineness, existence or
sufficiency of the Debentures or the payment of any taxes or
assessments levied thereon or in connection therewith;
(vii) the Property Trustee shall not be liable for any interest on
any money received by it except as it may otherwise agree with
the Sponsor. Money held by the Property Trustee need not be
segregated from other funds held by it except in relation to
the Property Trustee Account maintained by the Property
Trustee pursuant to Section 3.8(c)(i) and except to the extent
otherwise required by law; and
(viii) the Property Trustee shall not be responsible for monitoring
the compliance by the Regular Trustees or the Sponsor with
their respective duties under this Declaration, nor shall the
Property Trustee be liable for any default or misconduct of
the Regular Trustees or the Sponsor.
Section 3.10 Certain Rights of Property Trustee.
(a) Subject to the provisions of Section 3.9:
(i) the Property Trustee may conclusively rely and shall
be fully protected in acting or refraining from
acting upon any resolution, certificate, statement,
instrument, opinion, report, notice, request,
direction, consent, order, bond, debenture, note,
other evidence of indebtedness or other paper or
document believed by it to be genuine and to have
been signed, sent or presented by the proper party or
parties;
(ii) any direction or act of the Sponsor or the Regular
Trustees contemplated by this Declaration shall be
sufficiently evidenced by an Officers'
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Certificate (or, with respect to the establishment of
the terms and form of the Securities by the Regular
Trustees, by a Trustees' Authorization Certificate);
(iii) whenever in the administration of this Declaration,
the Property Trustee shall deem it desirable that a
matter be proved or established before taking,
suffering or omitting any action hereunder, the
Property Trustee (unless other evidence is herein
specifically prescribed) may, in the absence of bad
faith on its part, request and conclusively rely upon
an Officers' Certificate which, upon receipt of such
request, shall be promptly delivered by the Sponsor
or the Regular Trustees;
(iv) the Property Trustee shall have no duty to see to any
recording, filing or registration of any instrument
(including any financing or continuation statement or
any filing under tax or securities laws) or any
rerecording, refiling or registration thereof;
(v) the Property Trustee may consult with counsel of its
choice or other experts and the advice or opinion of
such counsel and experts with respect to legal
matters or advice within the scope of such experts'
area of expertise shall be full and complete
authorization and protection in respect of any action
taken, suffered or omitted by it hereunder in good
faith and in accordance with such advice or opinion,
such counsel may be counsel to the Sponsor or any of
its Affiliates, and may include any of its employees.
The Property Trustee shall have the right at any time
to seek instructions concerning the administration of
this Declaration from any court of competent
jurisdiction;
(vi) the Property Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by
this Declaration at the request or direction of any
Holder, unless such Holder shall have provided to the
Property Trustee security and indemnity, reasonably
satisfactory to the Property Trustee, against the
costs, expenses (including attorneys' fees and
expenses and the expenses of the Property Trustee's
agents, nominees or custodians) and liabilities that
might be incurred by it in complying with such
request or direction, including such reasonable
advances as may be requested by the Property Trustee;
provided that, nothing contained in this Section
3.10(a)(vi) shall be taken to relieve the Property
Trustee, upon the occurrence of an Event of Default,
of its obligation to exercise the rights and powers
vested in it by this Declaration;
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(vii) the Property Trustee shall not be bound to make any
investigation into the facts or matters stated in any
resolution, certificate, statement, instrument,
opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of
indebtedness or other paper or document, but the
Property Trustee, in its discretion, may make such
further inquiry or investigation into such facts or
matters as it may see fit;
(viii) the Property Trustee may execute any of the trusts or
powers hereunder or perform any duties hereunder
either directly or by or through agents, custodians,
nominees or attorneys and the Property Trustee shall
not be responsible for any misconduct or negligence
on the part of any agent or attorney appointed with
due care by it hereunder;
(ix) any action taken by the Property Trustee or its
agents hereunder shall bind the Trust and the Holders
of the Securities, and the signature of the Property
Trustee or its agents alone shall be sufficient and
effective to perform any such action and no third
party shall be required to inquire as to the
authority of the Property Trustee to so act or as to
its compliance with any of the terms and provisions
of this Declaration, both of which shall be
conclusively evidenced by the Property Trustee's or
its agent's taking such action;
(x) whenever in the administration of this Declaration
the Property Trustee shall deem it desirable to
receive instructions with respect to enforcing any
remedy or right or taking any other action hereunder,
the Property Trustee (i) may request instructions
from the Holders of the Securities which instructions
may only be given by the Holders of the same
proportion in liquidation amount of the Securities as
would be entitled to direct the Property Trustee
under the terms of the Securities in respect of such
remedy, right or action, (ii) may refrain from
enforcing such remedy or right or taking such other
action until such instructions are received, and
(iii) shall be protected in conclusively relying on
or acting in or accordance with such instructions;
(xi) except as otherwise expressly provided by this
Declaration, the Property Trustee shall not be under
any obligation to take any action that is
discretionary under the provisions of this
Declaration; and
(xii) the Property Trustee shall not be liable for any
action taken, suffered or omitted to be taken by it
in good faith and reasonably believed by it to be
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authorized or within the discretion, rights or powers
conferred upon it by this Declaration.
(b) No provision of this Declaration shall be deemed to impose any duty
or obligation on the Property Trustee to perform any act or acts or exercise any
right, power, duty or obligation conferred or imposed on it, in any jurisdiction
in which it shall be illegal, or in which the Property Trustee shall be
unqualified or incompetent in accordance with applicable law, to perform any
such act or acts, or to exercise any such right, power, duty or obligation. No
permissive power or authority available to the Property Trustee shall be
construed to be a duty.
Section 3.11 Delaware Trustee.
Notwithstanding any other provision of this Declaration other than
Section 5.2, the Delaware Trustee shall not be entitled to exercise any powers,
nor shall the Delaware Trustee have any of the duties and responsibilities of
the Regular Trustees or the Property Trustee described in this Declaration.
Except as set forth in Section 5.2, the Delaware Trustee shall be a Trustee for
the sole and limited purpose of fulfilling the requirements of Section 3807 of
the Business Trust Act.
Section 3.12 [Intentionally omitted]
Section 3.13 Not Responsible for Recitals or Issuance of Securities.
The recitals contained in this Declaration and the Securities 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, the Securities or the Debentures or the Indenture.
Section 3.14 Duration of Trust.
The Trust, unless terminated pursuant to the provisions of Article 8
hereof, shall have existence for the forty-nine (49) year maximum term of the
Preferred Securities plus the applicable escheat period.
Section 3.15 Mergers.
(a) 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 in Section 3.15(b) and (c).
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(b) The Trust may, with the consent of the Regular Trustees or, if
there are more than two, a majority of the Regular Trustees and without the
consent of the Holders of the Securities, the Delaware Trustee or the Property
Trustee, consolidate, amalgamate, merge with or into, or be replaced by a trust
organized as such under the laws of any State; provided that:
(i) if the Trust is not the survivor, such successor entity
(the "Successor Entity") either:
a. expressly assumes all of the obligations of
the Trust under the Securities; or
b. substitutes for the Securities other
securities having substantially the same
terms as the Securities (the "Successor
Securities") so long as the Successor
Securities rank the same as the Securities
rank with respect to Distributions and
payments upon liquidation, redemption and
otherwise;
(ii) the Debenture Issuer expressly acknowledges a trustee
Successor Entity that possesses the same powers and
duties as the Property Trustee as the holder of the
Debentures;
(iii) the Preferred Securities or any Successor Securities
are listed, or any Successor Securities will be
listed upon notification of issuance, on any national
securities exchange or with any other organization on
which the Preferred Securities are then listed or
quoted;
(iv) such merger, consolidation, amalgamation or
replacement does not cause the Preferred Securities
(including any Successor Securities with respect to
the Preferred Securities) to be downgraded by any
nationally recognized statistical rating organization
then rating the Preferred Securities at the request
of the Sponsor;
(v) such merger, consolidation, amalgamation or
replacement does not adversely affect the rights,
preferences and privileges of the Holders of the
Securities (including any Successor Securities) in
any material respect (other than with respect to any
dilution of such Holders' interests in the Successor
Entity);
(vi) such Successor Entity has a purpose identical to that
of the Trust;
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(vii) prior to such merger, consolidation, amalgamation or
replacement, the Sponsor has received an opinion of
qualified independent counsel to the Trust
experienced in such matters to the effect that:
a. such merger, consolidation, amalgamation or
replacement does not adversely affect the
rights, preferences and privileges of the
Holders of the Securities (including any
Successor Securities) in any material
respect (other than with respect to any
dilution of such Holders' interests in the
Successor Entity's);
b. following such merger, consolidation,
amalgamation or replacement, neither the
Trust nor the Successor Entity will be
required to register as an Investment
Company; 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 United
States federal income tax purposes; and
(viii) the Sponsor guarantees the obligations of such
Successor Entity under the Successor Securities at
least to the extent provided by the Securities
Guarantee.
(c) Notwithstanding Section 3.15(b), the Trust shall not, except with
the consent of Holders of 100% in liquidation amount of the 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 Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes and each Holder of the
Securities not to be treated as owning an undivided interest in the Debentures.
Section 3.16 Property Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
similar judicial proceeding relative to the Trust or any other obligor upon the
Securities or the property of the Trust or of such other obligor or their
creditors, the Property Trustee (irrespective of whether any Distributions on
the Securities shall then be due and payable as therein expressed or by
declaration or otherwise and irrespective of whether the Property Trustee shall
have made any demand on the Trust for the payment of any past due Distributions)
shall be entitled and
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empowered, to the fullest extent permitted by law, by intervention in such
proceeding or otherwise:
(a) to file and prove a claim for the whole amount of any Distributions
owing and unpaid in respect of the Securities (or, if the Securities are
original issue discount Securities, such portion of the liquidation amount as
may be specified in the terms of such Securities) and to file such other papers
or documents as may be necessary or advisable in order to have the claims of the
Property Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Property Trustee, and its counsel) and of the
Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other property payable or
deliverable on any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
other similar official in any such judicial proceeding is hereby authorized by
each Holder to make such payments to the Property Trustee and, in the event the
Property Trustee shall consent to the making of such payments directly to the
Holders, to pay to the Property Trustee any amount due it for the reasonable
compensation, expenses, disbursements and advances of the Property Trustee, its
agents and counsel, and any other amounts due the Property Trustee.
Nothing herein contained shall be deemed to authorize the Property
Trustee to authorize or consent to or accept or adopt on behalf of any Holder
any plan of reorganization, arrangement adjustment or compensation affecting the
Securities or the rights of any Holder thereof or to authorize the Property
Trustee to vote in respect of the claim of any Holder in any such proceeding.
ARTICLE 4
SPONSOR
Section 4.1 Sponsor's Purchase of Common Securities.
On the Closing Date the Sponsor will purchase all of the Common
Securities issued by the Trust, in an amount at least equal to 3% of the capital
of the Trust, at the same time as the Preferred Securities are sold.
Section 4.2 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:
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(a) to prepare for filing by the Trust with the Commission a
registration statement on Form S-3 pertaining to the Preferred Securities,
including any amendments thereto (which registration statement may also include
other securities of the Sponsor);
(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 which 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;
(c) to prepare for filing by the Trust an application to the New York
Stock Exchange, Inc. or any other national stock exchange or the Nasdaq Stock
Market's National Market System 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 Preferred
Securities under Section 12(b) of the Exchange Act, including any amendments
thereto; and
(e) to negotiate the terms of the Underwriting Agreement and Pricing
Agreement providing for the sale of the Preferred Securities.
ARTICLE 5
TRUSTEES
Section 5.1 Number of Trustees.
The number of Trustees initially shall be four (4), and:
(a) at any time before the issuance of any Securities, the Sponsor may,
by written instrument, increase or decrease the number of Trustees; and
(b) after the issuance of any Securities, the number of Trustees may be
increased or decreased by vote of the Holders of a Majority in Liquidation
Amount of the Common Securities voting as a class at a meeting of the Holders of
the Common Securities or by written consent in lieu of such meeting.
provided that, if the Property Trustee does not also act as Delaware Trustee,
the number of Trustees shall be at least three (3); and provided further that
(1) the Delaware 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 which has its principal place of business in the State of Delaware; (2)
at least one Regular Trustee is an employee or officer of, or is affiliated with
the
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Sponsor; and (3) one Trustee shall be the Property Trustee for so long as this
Declaration is required to qualify as an indenture under the Trust Indenture
Act, and such Trustee may also serve as Delaware Trustee if it meets the
applicable requirements.
Section 5.2 Delaware Trustee.
If required by the Business Trust Act, one Trustee (the "Delaware
Trustee") shall be:
(a) a natural person who is a resident of the State of Delaware; or
(b) if not a natural person, an entity which has its principal place of
business in the State of Delaware, and otherwise meets the requirements of
applicable law,
provided that, if the Property Trustee has its principal place of business in
the State of Delaware and otherwise meets the requirements of applicable law,
then the Property Trustee shall also be the Delaware Trustee and Section 3.11
shall have no application.
Section 5.3 Property Trustee; Eligibility.
(a) There shall at all times be one Trustee which shall act as Property
Trustee which shall:
(i) not be an Affiliate of the Sponsor;
(ii) be a corporation organized and doing business under
the laws of the United States of America or any State
or Territory thereof or of the District of Columbia,
or a corporation or other Person permitted by the
Commission to act as an institutional trustee under
the Trust Indenture Act, authorized under such laws
to exercise corporate trust powers, having a combined
capital and surplus of at least 50 million U.S.
dollars ($50,000,000), and subject to supervision or
examination by Federal, State, Territorial or
District of Columbia authority. If such corporation
publishes reports of condition at least annually,
pursuant to law or to the requirements of the
supervising or examining authority referred to above,
then for the purposes of this Section 5.3(a)(ii), the
combined capital and surplus of such corporation
shall be deemed to be its combined capital and
surplus as set forth in its most recent report of
condition so published; and
(iii) if the Trust is excluded from the definition of an
Investment Company solely by means of Rule 3a-7 and
to the extent Rule 3a-7 requires a
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trustee having certain qualifications to hold title
to the "eligible assets" (as defined in Rule 3a-7) of
the Trust, the Property Trustee shall possess those
qualifications.
(b) If at any time the Property Trustee shall cease to be eligible to
so act under Section 5.3(a), the Property Trustee shall immediately resign in
the manner and with the effect set forth in Section 5.6(c).
(c) If the Property Trustee has or shall acquire any "conflicting
interest" within the meaning of Section 310(b) of the Trust Indenture Act, the
Property Trustee and the Holder of the Common Securities (as if it were the
Obligor referred to in Section 310(b) of the Trust Indenture Act) shall in all
respects comply with the provisions of Section 310(b) of the Trust Indenture
Act.
(d) The Preferred Securities Guarantee shall be deemed to be
specifically described in this Declaration for purposes of clause (i) of the
first provision contained in Section 310(b) of the Trust Indenture Act.
Section 5.4 Qualifications of Regular Trustees and Delaware Trustee Generally.
Each Regular Trustee and the Delaware Trustee (unless the Property
Trustee also acts as Delaware Trustee) shall be either a natural person who is
at least 21 years of age or a legal entity that shall act through one or more
Authorized Officers.
Section 5.5 Initial Trustees.
The initial Regular Trustees shall be:
Christopher P. Miliano and Mark F. Muething, the
business address of both of whom is 250 East Fifth
Street, Cincinnati, Ohio 45202
Section 5.6 Appointment, Removal and Resignation of Trustees.
(a) Subject to Section 5.6(b), Trustees may be appointed or removed
without cause at any time:
(i) until the issuance of any Securities, by written
instrument executed by the Sponsor; and
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(ii) after the issuance of any Securities, by vote of the
Holders of a Majority in Liquidation Amount of the
Common Securities voting as a class at a meeting of
the Holders of the Common Securities.
(b) The Trustee that acts as Property Trustee shall not be removed in
accordance with Section 5.6(a) until a successor Trustee possessing the
qualifications to act as Property Trustee under Section 3.8(h) (a "Successor
Property Trustee") has been appointed and has accepted such appointment by
written instrument executed by such Successor Property Trustee and delivered to
the Regular Trustees and the Sponsor. The Trustee that acts as Delaware Trustee
shall not be removed in accordance with Section 5.6(a) until a successor Trustee
possessing the qualifications to act as Delaware Trustee under Sections 5.2 and
5.4 (a "Successor Delaware Trustee") has been appointed and has accepted such
appointment by written instrument executed by such Successor Delaware Trustee
and delivered to the Regular Trustees and the Sponsor.
(c) A Trustee appointed to office shall hold office until his or its
successor shall have been appointed, until his death or its dissolution or until
his or its removal or resignation. Any Trustee may resign from office (without
need for prior or subsequent accounting) by an instrument in writing signed by
the Trustee and delivered to the Sponsor and the Trust, which resignation shall
take effect upon such delivery or upon such later date as is specified therein;
provided, however, that:
(i) No such resignation of the Trustee that acts as the
Property Trustee shall be effective:
a. until a Successor Property Trustee has been
appointed and has accepted such appointment
by instrument executed by such Successor
Property Trustee and delivered to the Trust,
the Sponsor and the resigning Property
Trustee; or
b. until the assets of the Trust have been
completely liquidated and the proceeds
thereof distributed to the holders of the
Securities; and
(ii) no such resignation of the Trustee that acts as the
Delaware Trustee shall be effective until a Successor
Delaware Trustee has been appointed and has accepted
such appointment by instrument executed by such
Successor Delaware Trustee and delivered to the
Trust, the Sponsor and the resigning Delaware
Trustee.
(d) The Holders of the Common Securities shall use their best efforts
to promptly appoint a Successor Delaware Trustee or Successor Property Trustee,
as the case may be, if the
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Property Trustee or the Delaware Trustee delivers an instrument of resignation
in accordance with this Section 5.6.
(e) If no Successor Property Trustee or Successor Delaware Trustee, as
the case may be, shall have been appointed and accepted appointment as provided
in this Section 5.6 within 60 days after delivery to the Sponsor and the Trust
of an instrument of resignation or removal, the resigning or removed Property
Trustee or Delaware Trustee, as applicable, may petition any court of competent
jurisdiction for appointment of a Successor Property Trustee or Successor
Delaware Trustee, as applicable. Such court may thereupon, after prescribing
such notice, if any, as it may deem proper, appoint a Successor Property Trustee
or Successor Delaware Trustee, as the case may be.
(f) No Property Trustee or Delaware Trustee shall be liable for the
acts or omissions to act of any Successor Property Trustee or Successor Delaware
Trustee, as the case may be.
Section 5.7 Vacancies among Trustees.
If a Trustee ceases to hold office for any reason and the number of
Trustees is not reduced pursuant to Section 5.1, or if the number of Trustees is
increased pursuant to Section 5.1, a vacancy shall occur. A resolution
certifying the existence of such vacancy by the Regular Trustees or, if there
are more than two, a majority of the Regular Trustees shall be conclusive
evidence of the existence of such vacancy. The vacancy shall be filled with a
Trustee appointed in accordance with Section 5.6.
Section 5.8 Effect of Vacancies.
The death, resignation, retirement, removal, bankruptcy, dissolution,
liquidation, incompetence or incapacity to perform the duties of a Trustee shall
not operate to annul the Trust. Whenever a vacancy in the number of Regular
Trustees shall occur, until such vacancy is filled by the appointment of a
Regular Trustee in accordance with Section 5.6, the Regular Trustees in office,
regardless of their number, shall have all the powers granted to the Regular
Trustees and shall discharge all the duties imposed upon the Regular Trustees by
this Declaration.
Section 5.9 Meetings.
If there is more than one Regular Trustee, meetings of the Regular
Trustees shall be held from time to time upon the call of any Regular Trustee.
Regular meetings of the Regular Trustees may be held at a time and place fixed
by resolution of the Regular Trustees. Notice of any in-person meetings of the
Regular Trustees shall be hand delivered or otherwise delivered in writing
(including by facsimile, with a hard copy by overnight courier) not less than 48
hours
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before such meeting. Notice of any telephonic meetings of the Regular Trustees
shall be hand delivered or otherwise delivered in writing (including by
facsimile, with a hard copy by overnight courier) not less than 24 hours before
a meeting. Notices shall contain a brief statement of the time, place and
anticipated purposes of the meeting. The presence (whether in person or by
telephone) of a Regular Trustee at a meeting shall constitute a waiver of notice
of such meeting except where a Regular Trustee attends a meeting for the express
purpose of objecting to the transaction of any activity on the ground that the
meeting has not been lawfully called or convened. Unless provided otherwise in
this Declaration, any action of the Regular Trustees may be taken at a meeting
by vote of a majority of the Regular Trustees present (whether in person or by
telephone) and eligible to vote with respect to such matter, provided that a
Quorum is present, or without a meeting by the unanimous written consent of the
Regular Trustees. In the event there is only one Regular Trustee, any and all
action of such Regular Trustee shall be evidenced by a written consent of such
Regular Trustee.
Section 5.10 Delegation of Power.
(a) Any Regular Trustee may, by power of attorney consistent with
applicable law, delegate to any natural person over the age of 21 his, her or
its power for the purpose of executing any documents contemplated in Section
3.6, including any registration statement or amendment thereto filed with the
Commission, or making any other governmental filing.
(b) The Regular Trustees shall have power to delegate from time to time
to such of their number or to officers of the Trust the doing of such things and
the execution of such instruments either in the name of the Trust or the names
of the Regular Trustees or otherwise as the Regular Trustees may deem expedient,
to the extent such delegation is not prohibited by applicable law or contrary to
the provisions of the Trust, as set forth herein.
Section 5.11 Merger, Conversion, Consolidation or Succession to Business.
Any corporation into which the Property Trustee or the Delaware
Trustee, as the case may be, may be merged or converted or with which either may
be consolidated, or any corporation resulting from any merger, conversion or
consolidation to which the Property Trustee or the Delaware Trustee, as the case
may be, shall be a party, or any corporation succeeding to all or substantially
all the corporate trust business of the Property Trustee or the Delaware
Trustee, as the case may be, shall be the successor of the Property Trustee or
the Delaware Trustee, as the case may be, hereunder, provided such corporation
shall be otherwise qualified and eligible under this Article without the
execution or filing of any paper or any further act on the part of any of the
parties hereto.
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ARTICLE 6
DISTRIBUTIONS
Section 6.1 Distributions.
Holders shall receive Distributions (as defined herein) in accordance
with the applicable terms of the relevant Holder's Securities. Distributions
shall be made on the Preferred Securities and the Common Securities in
accordance with the preferences set forth in the Annex provided for in Section
7.1(a) and their respective terms. If and to the extent that the Debenture
Issuer makes a payment of interest (including Compounded Interest (as defined in
the Indenture) and Additional Interest (as defined in the Indenture)), premium
and/or principal on the Debentures held by the Property Trustee (the amount of
any such payment being a "Payment Amount"), the Property Trustee shall and is
directed, to the extent funds are available for that purpose, to make a
distribution (a "Distribution") of the Payment Amount to Holders.
ARTICLE 7
ISSUANCE OF SECURITIES
Section 7.1 General Provisions Regarding Securities.
(a) The Regular Trustees shall on behalf of the Trust issue one class
of preferred securities representing undivided beneficial interests in the
assets of the Trust having such terms and in such form as shall be set forth in
Annex A (the "Preferred Securities") and one class of common securities
representing undivided beneficial interests in the assets of the Trust having
such terms and in such form as shall be set forth in Annex A (the "Common
Securities"). The Trust shall issue no securities or other interests in the
assets of the Trust other than the Preferred Securities and the Common
Securities.
(b) The Certificates shall be signed on behalf of the Trust by a
Regular Trustee. Such signature shall be the manual or facsimile signature of
any present or any future Regular Trustee. In case any Regular Trustee of the
Trust who shall have signed any of the Certificates shall cease to be such
Regular Trustee before the Certificates so signed shall be delivered by the
Trust, such Certificates nevertheless may be delivered as though the person who
signed such Certificates had not ceased to be such Regular Trustee; and any
Certificate may be signed on behalf of the Trust by such persons who, at the
actual date of execution of such Certificate, shall be the Regular Trustees of
the Trust, although at the date of the execution and delivery of the Declaration
any such person was not such a Regular Trustee. Certificates shall be printed,
lithographed or engraved or may be produced in any other manner as is reasonably
acceptable to the Regular Trustees, as evidenced by their execution thereof, and
may have such letters, numbers or other marks of identification or designation
and such legends or endorsements as the
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Regular Trustees may deem appropriate, or as may be required to comply with any
law or with any rule or regulation of any stock exchange on which Securities may
be listed, or to conform to usage.
(c) The consideration received by the Trust for the issuance of the
Securities shall constitute a contribution to the capital of the Trust and shall
not constitute a loan to the Trust.
(d) Upon issuance of the Securities as provided in this Declaration,
the Securities so issued shall be deemed to be validly issued, fully paid and
non-assessable.
(e) Every Person, by virtue of having become a Holder or a Preferred
Security Beneficial Owner 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 and the terms of the Securities, the Securities
Guarantees, the Indenture and the Debentures.
(f) The Securities shall have no preemptive rights.
ARTICLE 8
DISSOLUTION AND TERMINATION OF TRUST
Section 8.1 Dissolution and Termination of Trust.
(a) The Trust shall dissolve upon the earlier of:
(i) the bankruptcy of the Sponsor;
(ii) the filing of a certificate of dissolution or its
equivalent with respect to the Sponsor; the consent
of the Holders of at least a Majority in Liquidation
Amount of the Securities and the filing of a
certificate of cancellation with respect to the Trust
or the revocation of the Sponsor's charter and the
expiration of 90 days after the date of revocation
without a reinstatement thereof;
(iii) the entry of a decree of judicial dissolution of the
Sponsor or the Trust;
(iv) the time when all of the Securities shall have been
called for redemption and the amounts necessary for
redemption thereof shall have been paid to the
Holders in accordance with the terms of the
Securities;
(v) if the Sponsor elects to terminate the Trust and,
upon satisfaction of the liabilities of creditors of
the Trust as provided by applicable law, provided
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all of the Debentures shall have been distributed to
the Holders of the Preferred Securities in
liquidation of the Trust;
(vi) the time when all of the Regular Trustees and the
Sponsor shall have consented to termination of the
Trust provided such action is taken before the
issuance of any Securities; or
(vii) the expiration of the term of the Trust as set forth
in Section 3.14.
(b) As soon as is practicable after the occurrence of an event referred
to in Section 8.1(a) and upon completion of the winding up of the Trust, the
Trustees shall file a certificate of cancellation with the Secretary of State of
the State of Delaware terminating the Trust (which certificate can be signed by
any of the Trustees on behalf of the Trust).
(c) The provisions of Section 3.9 and Article 10 shall survive the
termination of the Trust.
ARTICLE 9
TRANSFER OF INTERESTS
Section 9.1 Transfer of Securities.
(a) Securities may only be transferred, in whole or in part, in
accordance with the terms and conditions set forth in this Declaration and in
the terms of the Securities. Any transfer or purported transfer of any Security
not made in accordance with this Declaration shall be null and void.
(b) Subject to this Article 9, Preferred Securities shall be freely
transferable.
(c) Subject to this Article 9, the Sponsor and any Related Party may
only transfer Common Securities to the Sponsor or a Related Party of the
Sponsor; PROVIDED THAT, any such transfer is subject to the condition precedent
that the transferor obtain the written opinion of qualified independent counsel
experienced in such matters that such transfer would not cause more than an
insubstantial risk that:
(i) the Trust would not be classified for United States
federal income tax purposes as a grantor trust; and
(ii) the Trust would be an Investment Company or the
transferee would become an Investment Company.
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(d) The Trust shall not be required to issue Preferred Securities
during a period beginning at the opening of business 15 days before the day the
Trustee shall mail notice of any selection of Preferred Securities for
redemption set forth in the Terms and ending at the close of business on the day
of such mailing.
Section 9.2 Transfer and Exchange of Certificates.
The Regular Trustees shall provide for the registration of Certificates
and of transfers or exchanges of Certificates, which will be effected without
charge but only upon payment (with such indemnity as the Regular Trustees may
require) in respect of any tax or other government charges that may be imposed
in relation to it. Upon surrender for registration of transfer of any
Certificate, the Regular Trustees shall cause one or more new Certificates to be
issued in the name of the designated transferee or transferees. Upon surrender
for exchange of any Certificate, the Regular Trustees shall cause one or more
new Certificates in the same aggregate liquidation amount as the Certificate
surrendered for exchange to be issued in the name of the Holder of the
Certificate so surrendered. Every Certificate surrendered for registration of
transfer or for exchange shall be accompanied by a written instrument of
transfer in form satisfactory to the Regular Trustees duly executed by the
Holder or such Holder's attorney duly authorized in writing. Each Certificate
surrendered for registration of transfer or for exchange shall be canceled by
the Regular Trustees. A transferee of a Certificate shall be entitled to the
rights and subject to the obligations of a Holder hereunder upon the receipt by
such transferee of a Certificate. By acceptance of a Certificate, each
transferee shall be deemed to have agreed to be bound by this Declaration.
Section 9.3 Deemed Security Holders.
The Trustees may treat the Person in whose name any Certificate shall
be registered on the books and records of the Trust as the sole holder of such
Certificate and of the Securities represented by such Certificate for purposes
of receiving Distributions and for all other purposes whatsoever and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such Certificate or in the Securities represented by such
Certificate on the part of any Person, whether or not the Trust shall have
actual or other notice thereof.
Section 9.4 Book Entry Interests.
Unless otherwise specified in the terms of the Preferred Securities,
the Preferred Securities Certificates, on original issuance, will be issued in
the form of one or more fully registered, global Preferred Security Certificates
(each a "Global Certificate"), to be delivered to DTC, the initial Clearing
Agency, by, or on behalf of, the Trust. Such Global Certificates shall initially
be registered on the books and records of the Trust in the name of Cede & Co.,
the nominee of DTC, and no Preferred Security Beneficial Owner will receive a
definitive
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Preferred Security Certificate representing such Preferred Security Beneficial
Owner's interests in such Global Certificates, except as provided in Section
9.7. Unless and until definitive, fully registered Preferred Security
Certificates (the "Definitive Preferred Security Certificates") have been issued
to the Preferred Security Beneficial Owners pursuant to Section 9.7:
(a) the provisions of this Section 9.4 shall be in full force and
effect;
(b) the Trust and the Trustees shall be entitled to deal with the
Clearing Agency for all purposes of this Declaration (including the payment of
Distributions on the Global Certificates and receiving approvals, votes or
consents hereunder) as the Holder of the Preferred Securities and the sole
holder of the Global Certificates and shall have no obligation to the Preferred
Security Beneficial Owners;
(c) to the extent that the provisions of this Section 9.4 conflict with
any other provisions of this Declaration, the provisions of this Section 9.4
shall control; and
(d) the rights of the Preferred Security Beneficial Owners shall be
exercised only through the Clearing Agency and shall be limited to those
established by law and agreements between such Preferred Security Beneficial
Owners and the Clearing Agency and/or the Clearing Agency Participants. DTC will
make book entry transfers among the Clearing Agency Participants and receive and
transmit payments of Distributions on the Global Certificates to such Clearing
Agency Participants.
Section 9.5 Notices to Clearing Agency.
Whenever a notice or other communication to the Preferred Security
Holders is required under this Declaration, unless and until Definitive
Preferred Security Certificates shall have been issued to the Preferred Security
Beneficial Owners pursuant to Section 9.7, the Regular Trustees shall give all
such notices and communications specified herein to be given to the Preferred
Security Holders to the Clearing Agency, and shall have no notice obligations to
the Preferred Security Beneficial Owners.
Section 9.6 Appointment of Successor Clearing Agency.
If any Clearing Agency elects to discontinue its services as securities
depositary with respect to the Preferred Securities, the Regular Trustees may,
in their sole discretion, appoint a successor Clearing Agency with respect to
such Preferred Securities.
Section 9.7 Definitive Preferred Security Certificates.
If:
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(a) a Clearing Agency elects to discontinue its services as securities
depositary with respect to the Preferred Securities and a successor Clearing
Agency is not appointed within 90 days after such discontinuance pursuant to
Section 9.6; or
(b) the Regular Trustees elect after consultation with the Sponsor to
terminate the book entry system through the Clearing Agency with respect to the
Preferred Securities, then:
(i) Definitive Preferred Security Certificates shall be prepared
by the Regular Trustees on behalf of the Trust with respect to
such Preferred Securities; and
(ii) upon surrender of the Global Certificates by the
Clearing Agency, accompanied by registration
instructions, the Regular Trustees shall cause
Definitive Preferred Security Certificates to be
delivered to the Preferred Security Beneficial Owners
in accordance with the instructions of the Clearing
Agency. Neither the Trustees nor the Trust shall be
liable for any delay in delivery of such instructions
and each of them may conclusively rely on, and shall
be protected in relying on, said instructions of the
Clearing Agency. The Definitive Preferred Security
Certificates shall be printed, lithographed or
engraved or may be produced in any other manner as is
reasonably acceptable to the Regular Trustees, as
evidenced by their execution thereof, and may have
such letters, numbers or other marks of
identification or designation and such legends or
endorsements as the Regular Trustees may deem
appropriate, or as may be required to comply with any
law or with any rule or regulation made pursuant
thereto or with any rule or regulation of any stock
exchange on which Preferred Securities may be listed,
or to conform to usage.
Section 9.8 Mutilated, Destroyed, Lost or Stolen Certificates.
If:
(a) any mutilated Certificates should be surrendered to the Regular
Trustees, or if the Regular Trustees shall receive evidence to their
satisfaction of the destruction, loss or theft of any Certificate; and
(b) there shall be delivered to the Regular Trustees such security or
indemnity as may be required by them to keep each of them, the Sponsor and the
Trust harmless,
then, in the absence of notice that such Certificate shall have been acquired by
a bona fide purchaser, any Regular Trustee on behalf of the Trust shall execute
and deliver, in exchange for or in lieu of any such mutilated, destroyed, lost
or stolen Certificate, a new Certificate of like
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denomination. In connection with the issuance of any new Certificate under this
Section 9.8, the Regular Trustees may require the payment of a sum sufficient to
cover any tax or other governmental charge that may be imposed in connection
therewith. Any duplicate Certificate issued pursuant to this Section shall
constitute conclusive evidence of an ownership interest in the relevant
Securities, as if originally issued, whether or not the lost, stolen or
destroyed Certificate shall be found at any time.
ARTICLE 10
LIMITATION OF LIABILITY OF
HOLDERS OF SECURITIES, TRUSTEES OR OTHERS
Section 10.1 Liability.
(a) Except as expressly set forth in this Declaration, the Securities
Guarantees and the terms of the Securities, the Sponsor:
(i) shall not be personally liable for the return of any
portion of the capital contributions (or any return
thereon) of the Holders of the Securities which shall
be made solely from assets of the Trust; and
(ii) shall not be required to pay to the Trust or to any
Holder of Securities any deficit upon dissolution of
the Trust or otherwise.
(b) The Holder of the Common Securities shall be liable for all of the
debts and obligations of the Trust (other than with respect to the Securities)
to the extent not satisfied out of the Trust's assets.
(c) Pursuant to Section 3803(a) of the Business Trust Act, the Holders
of the Preferred Securities shall be entitled to the same limitation of personal
liability extended to stockholders of private corporations for profit organized
under the General Corporation Law of the State of Delaware.
Section 10.2 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
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such Indemnified Person's gross negligence or willful misconduct with respect to
such acts or omissions.
(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.
Section 10.3 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 (other than the
duties imposed on the Property Trustee under the Trust Indenture Act), 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 any 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.
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(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 10.4 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 which 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.
(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
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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 which such Court of Chancery or such other court shall deem proper.
(iii) Any indemnification under paragraphs (i) and (ii) of this Section
10.4(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 10.4(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 10.4(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 10.4(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
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and as to action in another capacity while holding such office. All rights to
indemnification under this Section 10.4(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 10.4(a) is in effect. Any
repeal or modification of this Section 10.4(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 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 10.4(a).
(vii) For purposes of this Section 10.4(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
10.4(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 10.4(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. The obligation to indemnify as set forth in
this Section 10.4(a) shall survive the satisfaction and discharge of this
Declaration.
(b) The Debenture Issuer agrees to indemnify the (i) Property Trustee,
(ii) the Delaware Trustee, (iii) any Affiliate of the Property Trustee and the
Delaware Trustee, and (iv) any officers, directors, shareholders, members,
partners, employees, representatives, custodians, nominees or agents of the
Property Trustee and the Delaware Trustee (each of the Persons in (i) through
(iv) 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 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 obligation to indemnify as set forth in this Section 10.4(b)
shall survive the satisfaction and discharge of this Declaration.
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Section 10.5 Outside Businesses.
Any Covered Person, the Sponsor, the Delaware Trustee and the Property
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 activities 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 activities of the Trust, shall not be deemed
wrongful or improper. No Covered Person, the Sponsor, the Delaware Trustee or
the Property 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 any Covered Person,
the Sponsor, the Delaware Trustee and the Property 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. Any
Covered Person, the Delaware Trustee and the Property 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
act on any committee or body of holders of, securities or other obligations of
the Sponsor or its Affiliates.
ARTICLE 11
ACCOUNTING
Section 11.1 Fiscal Year.
The fiscal year ("Fiscal Year") of the Trust shall be the calendar
year, or such other year as is required by the Code.
Section 11.2 Certain Accounting Matters.
(a) At all times during the existence of the Trust, the Regular
Trustees shall keep, or cause to be kept, full books of account, records and
supporting documents, which shall reflect in reasonable detail, each transaction
of the Trust. The books of account shall be maintained on the accrual method of
accounting, in accordance with generally accepted accounting principles. The
Trust shall use the accrual method of accounting for United States federal
income tax purposes. The books of account and the records of the Trust shall be
examined by and reported upon as of the end of each Fiscal Year of the Trust by
a firm of independent certified public accountants selected by the Regular
Trustees.
(b) The Regular Trustees shall cause to be prepared and delivered to
each of the Holders of Securities and to the Property Trustee, within 90 days
after the end of each Fiscal
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Year of the Trust, annual financial statements of the Trust, including a balance
sheet of the Trust as of the end of such Fiscal Year, and the related statements
of income or loss.
(c) The Regular Trustees shall cause to be duly prepared and delivered
to each of the Holders of Securities, any annual United States federal income
tax information statement, required by the Code, containing such information
with regard to the Securities held by each Holder as is required by the Code and
the Treasury Regulations. Notwithstanding any right under the Code to deliver
any such statement at a later date, the Regular Trustees shall endeavor to
deliver all such statements within 30 days after the end of each Fiscal Year of
the Trust.
(d) The Regular Trustees shall cause to be duly prepared and filed with
the appropriate taxing authority, an annual United States federal income tax
return, on a Form 1041 or such other form required by United States federal
income tax law, and any other annual income tax returns required to be filed by
the Regular Trustees on behalf of the Trust with any state or local taxing
authority.
Section 11.3 Banking.
The Trust shall maintain one or more bank accounts in the name and for
the sole benefit of the Trust; provided, however, that all payments of funds in
respect of the Debentures held by the Property Trustee shall be made directly to
the Property Trustee Account and no other funds of the Trust shall be deposited
in the Property Trustee Account. The sole signatories for such accounts shall be
designated by the Regular Trustees; provided, however, that the Property Trustee
shall designate the signatories for the Property Trustee Account.
Section 11.4 Withholding.
The Trust and the Regular Trustees shall comply with all withholding
requirements under United States federal, state and local law. The Trust shall
request, and the Holders shall provide to the Trust, such forms or certificates
as are necessary to establish an exemption from withholding with respect to each
Holder, and any representations and forms as shall reasonably be requested by
the Trust to assist it in determining the extent of, and in fulfilling, its
withholding obligations. The Regular Trustees shall file required forms with
applicable jurisdictions and, unless an exemption from withholding is properly
established by a Holder, shall remit amounts withheld with respect to the Holder
to applicable jurisdictions. To the extent that the Trust is required to
withhold and pay over any amounts to any authority with respect to distributions
or allocations to any Holder, the amount withheld shall be deemed to be a
distribution in the amount of the withholding to the Holder. In the event of any
claimed over withholding, Holders shall be limited to an action against the
applicable jurisdiction. If the amount required to be withheld was not withheld
from actual Distributions made, the Trust may reduce subsequent Distributions by
the amount of such withholding.
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ARTICLE 12
AMENDMENTS AND MEETINGS
Section 12.1 Amendments.
(a) Except as otherwise provided in this Declaration or by any
applicable terms of the Securities, this Declaration may only be amended by a
written instrument approved and executed by the Regular Trustees (or, if there
are more than two Regular Trustees, a majority of the Regular Trustees) and:
(i) by the Property Trustee if the amendment affects the
rights, powers, duties, obligations or immunities of
the Property Trustee; and (ii) by the Delaware
Trustee if the amendment affects the rights, powers,
duties, obligations or immunities of the Delaware
Trustee;
(b) no amendment shall be made, and any such purported amendment shall
be void and ineffective:
(i) unless, in the case of any proposed amendment, the
Property Trustee shall have first received an
Officers' Certificate from each of the Trust and the
Sponsor that such amendment is permitted by, and
conforms to, the terms of this Declaration (including
the terms of the Securities);
(ii) unless, in the case of any proposed amendment which
affects the rights, powers, duties, obligations or
immunities of the Property Trustee, the Property
Trustee shall have first received:
a. an Officers' Certificate from each of the
Trust and the Sponsor that such amendment is
permitted by, and conforms to, the terms of
this Declaration (including the terms of the
Securities); and
b. an opinion of counsel (who may be counsel to
the Sponsor or the Trust) that such
amendment is permitted by, and conforms to,
the terms of this Declaration (including the
terms of the Securities); and
(iii) to the extent the result of such amendment would be
to:
a. cause the Trust to be classified other than
a grantor trust for United States federal
income tax purposes;
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b. reduce or otherwise adversely affect the
powers of the Property Trustee in
contravention of the Trust Indenture Act; or
c. cause the Trust to be deemed to be an
Investment Company required to be registered
under the Investment Company Act;
(c) at such time after the Trust has issued any Securities that remain
outstanding, any amendment that would (i) adversely affect the powers,
preferences or special rights of the 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 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 Securities affected thereby; provided that, if any amendment or proposal
referred to in clause (i) above would adversely affect only the Preferred
Securities or the 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.;
(d) Section 9.1(c) and this Section 12.1 shall not be amended without
the consent of all of the Holders of the Securities;
(e) Article 4 shall not be amended without the consent of the Holders
of a Majority in Liquidation Amount of the Common Securities;
(f) the rights of the Holders of the Common Securities under Article 5
to increase or decrease the number of, and appoint and remove Trustees shall not
be amended without the consent of the Holders of a Majority in Liquidation
Amount of the Common Securities; and
(g) notwithstanding Section 12.1(c), this Declaration may be amended
without the consent of the Holders of the Securities to:
(i) cure any ambiguity;
(ii) correct or supplement any provision in this
Declaration that may be defective or inconsistent
with any other provision of this Declaration;
(iii) add to the covenants, restrictions or obligations of
the Sponsor;
(iv) to conform to any change in Rule 3a-5 or written
change in interpretation or application of Rule 3a-5
by any legislative body, court, government
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agency or regulatory authority which amendment does
not have a material adverse effect on the rights,
preferences or privileges of the Holders; and
(v) to modify, eliminate and add to any provision of this
Declaration, provided such modification, elimination
or addition would not adversely affect the rights,
privileges or preferences of any Holder of the
Securities.
(h) The issuance of a Trustees' Authorization Certificate by the
Regular Trustees for purposes of establishing the terms and form of the
Securities as contemplated by Section 7.1 shall not be deemed an amendment of
this Declaration subject to the provisions of this Section 12.1.
Section 12.2 Meetings of the Holders of Securities; Action by Written Consent.
(a) Meetings of the Holders of any class of Securities may be called at
any time by the Regular Trustees (or as provided in the terms of the Securities)
to consider and act on any matter on which Holders of such class of Securities
are entitled to act under the terms of this Declaration, the terms of the
Securities or the rules of any stock exchange on which the Preferred Securities
are listed or admitted for trading. The Regular Trustees shall call a meeting of
the Holders of such class if directed to do so by the Holders of at least 10% in
Liquidation Amount of such class of Securities. Such direction shall be given by
delivering to the Regular Trustees one or more calls in a writing stating that
the signing Holders of Securities wish to call a meeting and indicating the
general or specific purpose for which the meeting is to be called. Any Holders
of Securities calling a meeting shall specify in writing the Certificates held
by the Holders of Securities exercising the right to call a meeting and only
those Securities specified shall be counted for purposes of determining whether
the required percentage set forth in the second sentence of this paragraph has
been met.
(b) Except to the extent otherwise provided in the terms of the
Securities, the following provisions shall apply to meetings of Holders of
Securities:
(i) notice of any such meeting shall be given to all the
Holders of Securities having a right to vote thereat
at least 7 days and not more than 60 days before the
date of such meeting. Whenever a vote, consent or
approval of the Holders of Securities is permitted or
required under this Declaration or the rules of any
stock exchange on which the Preferred Securities are
listed or admitted for trading, such vote, consent or
approval may be given at a meeting of the Holders of
Securities. Any action that may be taken at a meeting
of the Holders of Securities may be taken without a
meeting if a consent in writing setting forth the
action so taken is signed by the Holders of
Securities owning not less than the minimum amount of
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Securities in liquidation amount that would be
necessary to authorize or take such action at a
meeting at which all Holders of Securities having a
right to vote thereon were present and voting. Prompt
notice of the taking of action without a meeting
shall be given to the Holders of Securities entitled
to vote who have not consented in writing. The
Regular Trustees may specify that any written ballot
submitted to the Security Holders for the purpose of
taking any action without a meeting shall be returned
to the Trust within the time specified by the Regular
Trustees;
(ii) each Holder of a Security may authorize any Person to
act for it by proxy on all matters in which a Holder
of Securities is entitled to participate, including
waiving notice of any meeting, or voting or
participating at a meeting. No proxy shall be valid
after the expiration of 11 months from the date
thereof unless otherwise provided in the proxy. Every
proxy shall be revocable at the pleasure of the
Holder of Securities executing such proxy. Except as
otherwise provided herein, all matters relating to
the giving, voting or validity of proxies shall be
governed by the General Corporation Law of the State
of Delaware relating to proxies, and judicial
interpretations thereunder, as if the Trust were a
Delaware corporation and the Holders of the
Securities were stockholders of a Delaware
corporation;
(iii) each meeting of the Holders of the Securities shall
be conducted by the Regular Trustees or by such other
Person that the Regular Trustees may designate; and
(iv) unless the Business Trust Act, this Declaration, the
terms of the Securities, the Trust Indenture Act or
the listing rules of any stock exchange on which the
Preferred Securities are then listed for trading,
otherwise provides, the Regular Trustees, in their
sole discretion, shall establish all other provisions
relating to meetings of Holders of Securities,
including notice of the time, place or purpose of any
meeting at which any matter is to be voted on by any
Holders of Securities, waiver of any such notice,
action by consent without a meeting, the
establishment of a record date, quorum requirements,
voting in person or by proxy or any other matter with
respect to the exercise of any such right to vote.
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ARTICLE 13
REPRESENTATIONS OF PROPERTY TRUSTEE
AND DELAWARE TRUSTEE
Section 13.1 Representations and Warranties of the Property Trustee.
The Trustee that acts as initial Property Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Property Trustee represents and warrants to the Trust and the
Sponsor at the time of the Successor Property Trustee's acceptance of its
appointment as Property Trustee that:
(a) the Property Trustee is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization, with trust power and authority to execute and
deliver, and to carry out and perform its obligations under the terms of, this
Declaration;
(b) the Property Trustee satisfies the requirements set forth in
Section 5.3(a);
(c) the execution, delivery and performance by the Property Trustee of
this Declaration has been duly authorized by all necessary corporate action on
the part of the Property Trustee. This Declaration has been duly executed and
delivered by the Property Trustee, and it constitutes a legal, valid and binding
obligation of the Property Trustee, enforceable against it in accordance with
its terms, subject to applicable bankruptcy, reorganization, moratorium,
insolvency and other similar laws affecting creditors' rights generally and to
general principles of equity and the discretion of the court (regardless of
whether the enforcement of such remedies is considered in a proceeding in equity
or at law);
(d) the execution, delivery and performance of this Declaration by the
Property Trustee does not conflict with or constitute a breach of the articles
of association or incorporation, as the case may be, or the by-laws (or other
similar organizational documents) of the Property Trustee; and
(e) no consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for the execution,
delivery or performance by the Property Trustee of this Declaration.
Section 13.2 Representations and Warranties of the Delaware Trustee.
The Trustee that acts as initial Delaware Trustee represents and
warrants to the Trust and to the Sponsor at the date of this Declaration, and
each Successor Delaware Trustee represents
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and warrants to the Trust and the Sponsor at the time of the Successor Delaware
Trustee's acceptance of its appointment as Delaware Trustee that:
(a) the Delaware Trustee satisfies the requirements set forth in
Section 5.2 and has the power and authority to execute and deliver, and to carry
out and perform its obligations under the terms of, this Declaration and, if it
is not a natural person, is duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization;
(b) the Delaware Trustee has been authorized to perform its obligations
under the Certificate of Trust and this Declaration. This Declaration under
Delaware law constitutes a legal, valid and binding obligation of the Delaware
Trustee, enforceable against it in accordance with its terms, subject to
applicable bankruptcy, reorganization, moratorium, insolvency and other similar
laws affecting creditors' rights generally and to general principles of equity
and the discretion of the court (regardless of whether the enforcement of such
remedies is considered in a proceeding in equity or at law); and
(c) no consent, approval or authorization of, or registration with or
notice to, any State or Federal banking authority is required for the execution,
delivery or performance by the Delaware Trustee of this Declaration.
ARTICLE 14
MISCELLANEOUS
Section 14.1 Notices.
All notices provided for in this Declaration shall be in writing, duly
signed by the party giving such notice, and shall be delivered, telecopied or
mailed by registered or certified mail, as follows:
(a) if given to the Trust, in care of the Regular Trustees at the
Trust's mailing address set forth below (or such other address as the Trust may
give notice of to the Property Trustee, the Delaware Trustee and the Holders of
the Securities):
(b) if given to the Delaware Trustee, at the mailing address set forth
below (or such other address as Delaware Trustee may give notice of to the
Regular Trustees, the Property Trustee and the Holders of the Securities):
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(c) if given to the Property Trustee, at its Corporate Trust Office (or
such other address as the Property Trustee may give notice of to the Regular
Trustees, the Delaware Trustee and the Holders of the Securities).
(d) if given to the Holder of the Common Securities, at the mailing
address of the Sponsor set forth below (or such other address as the Holder of
the Common Securities may give notice of to the Property Trustee, the Delaware
Trustee and the Trust):
(e) if given to any other Holder, at the address set forth on the books
and records of the Trust.
All such notices shall be deemed to have been given when received in person,
telecopied with receipt confirmed or mailed by first class mail, postage prepaid
except that if a notice or other document is refused delivery or cannot be
delivered because of a changed address of which no notice was given, such notice
or other document shall be deemed to have been delivered on the date of such
refusal or inability to deliver.
Section 14.2 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 of the State of Delaware or any other
jurisdiction that would call for the application of the law of any jurisdiction
other than the State of Delaware; provided, however, that there shall not be
applicable to the Trust, the Trustees or this Declaration any provision of the
laws (statutory or common) of the State of Delaware pertaining to trusts that
relate to or regulate, in a manner inconsistent with the terms hereof (a) the
filing with any court or governmental body or agency of trustee accounts or
schedules of trustee fees and charges, (b) affirmative requirements to post
bonds for trustees, officers, agents or employees of a trust, (c) the necessity
for obtaining court or other governmental approval concerning the acquisition,
holding or disposition of real or personal property, (d) fees or other sums
payable to the trustees, officers, agents or employees of a trust, (e) the
allocation of receipts and expenditures to income or principal, (f) restrictions
or limitations on the permissible nature, amount or concentration of trust
investments or requirements relating to the titling, storage or other manner of
holding or investing trust assets or (g) the establishment of fiduciary or other
standards of responsibility or limitations on the acts or powers of trustees
that are inconsistent with the limitations or liabilities or authorities and
powers of the Trustees as set forth or referenced in this Declaration. Section
3540 of Title 12 of the Delaware Code shall not apply to the Trust.
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Section 14.3 Intention of the Parties.
It is the intention of the parties hereto that the Trust be classified
for United States federal income tax purposes as a grantor trust. The provisions
of this Declaration shall be interpreted in a manner consistent with such
classification.
Section 14.4 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 14.5 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 14.6 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.
Section 14.7 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.
[The remainder of this page is intentionally left blank]
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IN WITNESS WHEREOF, the undersigned have caused these presents to be
executed as of the day and year first above written.
AAG HOLDING COMPANY, INC.,
as Sponsor and Debenture Issuer
BY:______________________________________
Name: Mark F. Muething
Title: Senior Vice President
THE BANK OF NEW YORK,
as Property Trustee
BY:______________________________________
Name:____________________________________
Title:___________________________________
THE BANK OF NEW YORK (DELAWARE),
as Delaware Trustee
BY:______________________________________
Name:____________________________________
Title:___________________________________
_________________________________________
Mark F. Muething, as Regular Trustee
_________________________________________
Christopher P. Miliano,
as Regular Trustee
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ANNEX I
TERMS OF
_____% TRUST ORIGINATED PREFERRED SECURITIES
_____% TRUST ORIGINATED COMMON SECURITIES
Pursuant to Section 7.1 of the Amended and Restated Declaration of
Trust, dated as of November ___, 1996 (as further amended from time to time, the
"Declaration"), the designation, rights, privileges, restrictions, preferences
and other terms and provisions of the Preferred Securities and the Common
Securities are set forth below (each capitalized term used but not defined
herein having the meaning set forth in the Declaration or, if not defined in the
Declaration, as defined in the Prospectus referred to below):
1. Designation and Number.
(a) PREFERRED SECURITIES. Three Million (3,000,000) Preferred
Securities of the Trust with an aggregate liquidation amount with respect to the
assets of the Trust of up to Seventy- Five Million Dollars ($75,000,000)
(subject to increase up to a maximum of Three Million Four Hundred Fifty
Thousand (3,450,000) Preferred Securities with an aggregate liquidation amount
with respect to the assets of the Trust of up to Eighty-Six Million Two Hundred
Fifty Thousand Dollars ($86,250,000) in the event that the over-allotment option
provided for in the Underwriting Agreement dated November ___, 1996 among AAG
Holding Company, Inc., American Annuity Group, Inc., the Trust and the
representatives of the several underwriters named therein is exercised) and a
liquidation amount with respect to the assets of the Trust of $25 per Preferred
Security, are hereby designated for the purposes of identification only as
"_____% Trust Originated Preferred Securities(sm) ('TOPrS'(sm))" (the "Preferred
Securities"). The Preferred Security Certificates evidencing the Preferred
Securities shall be substantially in the form of Exhibit A-1 hereto, with such
changes and additions thereto or deletions therefrom as may be required by
ordinary usage, custom or practice or to conform to the rules of any stock
exchange on which the Preferred Securities are listed.
(b) COMMON SECURITIES. Ninety Two Thousand Seven Hundred Eighty Four
(92,784) Common Securities of the Trust with an aggregate liquidation amount
with respect to the assets of the Trust of up to Two Million Three Hundred
Nineteen Thousand Six Hundred and 00/100 Dollars ($2,319,600.00) (subject to
increase up to a maximum of One Hundred Six Thousand Seven Hundred Two (106,702)
Common Securities with an aggregate liquidation amount with respect to the
assets of the Trust of up to Two Million Six Hundred Sixty Seven Thousand Five
Hundred Fifty and 00/100 Dollars ($2,667,550.00) in the event that the
over-allotment option provided for in the Underwriting Agreement dated November
___, 1996 among the Company, the Trust and the representatives of the several
underwriters named therein is exercised) and a liquidation amount with respect
to the assets of the Trust of $25 per Common Security are hereby designated for
the purposes of identification only as "_____% Trust Originated Common
Securities" (the "Common Securities"). The Common Security Certificates
evidencing the Common Securities shall be substantially in the form of Exhibit
A-2 hereto, with such changes and additions thereto or deletions therefrom as
may be required by ordinary usage, custom or practice.
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2. Distributions.
(a) Distributions payable on each Security will be fixed at a rate per
annum of _____% (the "Coupon Rate") of the stated liquidation amount of $25 per
Security, such rate being the rate of interest payable on the Debentures to be
held by the Property Trustee. Distributions in arrears for more than one quarter
will bear interest thereon from and including the last day of such quarter at
the Coupon Rate compounded quarterly (to the extent permitted by applicable
law). The term "Distributions" as used herein includes such cash distributions
and any such interest payable unless otherwise stated. A Distribution is payable
only to the extent that payments are made in respect of the Debentures held by
the Property Trustee and to the extent the Property Trustee has funds available
therefor. The amount of Distributions payable for any period will be computed
for any full quarterly Distribution period on the basis of a 360-day year of
twelve 30-day months, and for any period shorter than a full quarterly
Distribution period for which Distributions are computed, Distributions will be
computed on the basis of the actual number of days elapsed per 90-day quarter.
(b) Distributions on the Securities will be cumulative, will accrue
from November ___, 1996, and will be payable quarterly in arrears, on January
15, April 15, July 15 and October 15 of each year, commencing on January 15,
1997, except as otherwise described below. The Debenture Issuer has the right
under the Indenture to defer payments of interest on the Debentures, from time
to time, by extending the interest payment period at any time from time to time
for a period not exceeding 20 consecutive quarters (each an "Extension Period"),
during which Extension Period no interest shall be due and payable on the
Debentures, PROVIDED THAT no Extension Period shall last beyond the date of
maturity of the Debentures. There may be multiple Extension Periods of varying
lengths during the term of the Debentures. As a consequence of such deferral,
Distributions will also be deferred. Despite such deferral, quarterly
Distributions will continue to accrue with interest thereon (to the extent
permitted by applicable law) at the Coupon Rate compounded quarterly during any
such Extension Period. Prior to the termination of any such Extension Period,
the Debenture Issuer may further extend such Extension Period, PROVIDED THAT
such Extension Period together with all such previous and further extensions
thereof may not exceed 20 consecutive quarters and may not extend beyond the
date of maturity of the Debentures. Payments of deferred Distributions will be
payable to Holders of record of the Securities as they appear on the books and
records of the Trust on the record date for Distributions due at the end of such
Extension Period. Upon the termination of any Extension Period and the payment
of all amounts then due, the Debenture Issuer may commence a new Extension
Period, subject to the above requirements.
(c) Distributions on the Securities will be payable to the Holders
thereof as they appear on the books and records of the Trust on the relevant
record dates. While the Preferred Securities remain in global form, the relevant
record dates shall be one Business Day prior to the relevant payment dates which
payment dates correspond to the interest payment dates on the Debentures.
Subject to any applicable laws and regulations and the provisions of the
Declaration, each such payment in respect of the Preferred Securities will be
made as described under the heading "Description of the Preferred Securities -
Book-Entry Issuance - The Depositary Trust Company" in the Prospectus dated ,
1996 (the "Prospectus") included in the Registration Statement
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on Form S-3 of the Sponsor and the Trust. The relevant record dates for the
Common Securities shall be the same record dates as for the Preferred
Securities. If the Preferred Securities shall not continue to remain in global
form, the relevant record dates for the Preferred Securities shall conform to
the rules of any securities exchange on which the Preferred Securities are
listed and, if none, shall be selected by the Regular Trustees, which dates
shall be at least one Business Day but less than 60 Business Days before the
relevant payment dates, which payment dates correspond to the interest payment
dates on the Debentures. Distributions payable on any Securities that are not
punctually paid on any Distribution payment date, as a result of the Debenture
Issuer having failed to make a payment under the Debentures, will cease to be
payable to the Person in whose name such Securities are registered on the
relevant record date, and such defaulted Distribution will instead be payable to
the Person in whose name such Securities are registered on the special record
date or other specified date determined in accordance with the Indenture. If any
date on which Distributions are payable on the Securities is not a Business Day,
then payment of the Distribution payable on such date will be made on the next
succeeding day that is a Business Day (and without any interest or other payment
in respect of any such delay) except that, if such Business Day is in the next
succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such date.
(d) If there is any money or other property held by or for the Trust
that is not accounted for hereunder, such property shall be distributed Pro Rata
(as defined herein) among the Holders of the Securities.
3. Liquidation Distribution Upon Dissolution.
(a) In the event of any voluntary or involuntary liquidation,
dissolution, winding-up or termination of the Trust, the Holders of the
Securities on the date of the liquidation, dissolution, winding-up or
termination, as the case may be, will be entitled to receive solely out of the
assets of the Trust available for distribution to Holders of Securities, after
paying or making reasonable provision to pay all claims and obligations of the
Trust in accordance with Section 3808(e) of the Business Trust Act, an amount
equal to the aggregate of the stated liquidation amount of $25 per Security plus
accrued and unpaid Distributions thereon to the date of payment (such amount
being the "Liquidation Distribution"), unless, in connection with such
liquidation, dissolution, winding-up or termination, Debentures in an aggregate
principal amount equal to the aggregate stated liquidation amount of such
Securities, with an interest rate equal to the Coupon Rate of, and bearing
accrued and unpaid interest in an amount equal to the accrued and unpaid
Distributions on, such Securities, shall be distributed on a Pro Rata basis to
the Holders of the Securities in exchange for such Securities in accordance with
Section 4(e) hereof.
(b) If, upon any such dissolution, the Liquidation Distribution can be
paid only in part because the Trust has insufficient assets available to pay in
full the aggregate Liquidation Distribution, then the amounts payable directly
by the Trust on the Securities shall be paid on a Pro Rata basis.
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4. Redemption and Distribution.
(a) Upon the repayment of the Debentures in whole or in part, whether
at maturity or upon redemption (such redemption being either at the option of
the Debenture Issuer on or after November ___, 2001 or at the option of the
Debenture Issuer in connection with the occurrence of a Special Event as
described below), the proceeds from such repayment or redemption shall be
simultaneously applied to redeem Securities having an aggregate liquidation
amount equal to the aggregate principal amount of the Debentures so repaid or
redeemed at a redemption price of $25 per Security plus an amount equal to
accrued and unpaid Distributions thereon at the date of the redemption, payable
in cash (the "Redemption Price"). Holders will be given not less than 30 nor
more than 60 days notice of such redemption.
(b) If fewer than all the outstanding Securities are to be so redeemed,
the Common Securities will be redeemed Pro Rata and the Preferred Securities to
be redeemed will be redeemed as described in Section 4(f) below.
(c) If, at any time, a Tax Event or an Investment Company Event (each
as defined below, and each a "Special Event") shall occur and be continuing, the
Debenture Issuer shall have the right, upon not less than 30 nor more than 60
days' notice, to redeem the Debentures in whole (but not in part) for cash
within 90 days following the occurrence of such Special Event, and, following
such redemption, all Securities shall be redeemed by the Trust at the Redemption
Price. The Common Securities will be redeemed Pro Rata with the Preferred
Securities, except that if an Event of Default has occurred and is continuing,
the Preferred Securities will have priority over the Common Securities with
respect to payment of the Redemption Price.
"Tax Event" means that the Regular Trustees shall have received an
opinion of an independent tax counsel experienced in such matters 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 official administrative pronouncement or judicial decision interpreting
or applying such laws or regulations, which amendment or change is effective or
such pronouncement or decision is announced on or after the date of issuance of
the Preferred Securities, there is more than an insubstantial risk that (i) the
Trust is, or will be within 90 days of the date thereof, subject to United
States Federal income tax with respect to interest accrued or received on the
Debentures, (ii) the Trust is, or will be within 90 days of the date thereof,
subject to more than a de minimis amount of other taxes, duties or other
governmental charges or (iii) interest payable to the Trust on the Debentures is
not, or within 90 days of the date thereof, will not be deductible, in whole or
in part, by the Company for United States Federal income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of an independent counsel experienced in practice under the
Investment Company Act to the effect that, as a result of the occurrence of a
change in law or regulation or a 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"), there is a more than insubstantial risk
that the Trust is or
<PAGE> 65
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will be considered an "investment company" which is required to be registered
under the Investment Company Act, which Change in 1940 Act Law becomes effective
on or after the date of original issuance of the Preferred Securities.
(d) The Trust may not redeem fewer than all the outstanding Securities
unless all accrued and unpaid Distributions have been paid on all Securities for
all quarterly Distribution periods terminating on or before the date of
redemption.
(e) If the Sponsor makes the election referred to in Section 8.1(a)(v)
of the Declaration, the Regular Trustees shall dissolve the Trust and, after
paying or making reasonable provision to pay all claims and obligations of the
Trust in accordance with Section 3808(e) of the Business Trust Act, cause
Debentures, held by the Property Trustee, having an aggregate principal amount
equal to the aggregate stated liquidation amount of, with an interest rate
identical to the Coupon Rate of, and accrued and unpaid interest equal to
accrued and unpaid Distributions on and having the same record date for payment,
as the Securities, to be distributed to the Holders of the Securities in
liquidation of such Holders' interests in the Trust. On and from the date fixed
by the Regular Trustees for any distribution of Debentures and dissolution of
the Trust: (i) the Securities will no longer be deemed to be outstanding, and
(ii) the Depositary or its nominee (or any successor Depositary or its nominee)
will receive one or more global certificate or certificates representing the
Debentures to be delivered upon such distribution, and having an aggregate
principal amount equal to the aggregated stated liquidation amount of, with an
interest rate identical to the Coupon Rate of, and accrued and unpaid interest
equal to accrued and unpaid Distributions on such Securities. Any certificates
representing Securities, except for certificates representing Preferred
Securities held by the Depositary or its nominee (or any successor Clearing
Agency or its nominee), will be deemed to represent beneficial interests in the
Debentures having an aggregate principal amount equal to the aggregated stated
liquidation amount of, with an interest rate identical to the Coupon Rate of,
and accrued and unpaid interest equal to accrued and unpaid Distributions on
such Securities until such certificates are presented to the Debenture Issuer or
its agent for transfer or reissue. If the Debentures are distributed to Holders
of the Securities, pursuant to the terms of the Indenture, the Debenture Issuer
will use its best efforts to have the Debentures listed on the New York Stock
Exchange or on such other exchange as the Preferred Securities were listed
immediately prior to the distribution of the Debentures.
(f) Redemption or Distribution Procedures.
(i) Notice of any redemption of, or notice of distribution of
Debentures in exchange for the Securities (a "Redemption/Distribution Notice")
will be given by the Trust by mail to each Holder of Securities to be redeemed
or exchanged not fewer than 30 nor more than 60 days before the date fixed for
redemption or exchange thereof which, in the case of a redemption, will be the
date fixed for redemption of the Debentures. For purposes of the calculation of
the date of redemption or exchange and the dates on which notices are given
pursuant to this Section 4(f)(i), a Redemption/Distribution Notice shall be
deemed to be given on the day such notice is first mailed by first-class mail,
postage prepaid, to Holders of Securities. Each Redemption/Distribution Notice
shall be addressed to the Holders of Securities at the address of each such
Holder appearing in the
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books and records of the Trust. No defect in the Redemption/Distribution Notice
or in the mailing of either thereof with respect to any Holder shall affect the
validity of the redemption or exchange proceedings with respect to any other
Holder.
(ii) If fewer than all the outstanding Securities are to be
redeemed, the Securities to be redeemed shall be redeemed from each Holder of
Preferred Securities by lot or by such other means as the Property Trustee shall
deem fair or appropriate, it being understood that, in respect of Preferred
Securities registered in the name of and held of records by the Depositary or
its nominee (or any successor Clearing Agency or its nominee), the distribution
of the proceeds of such redemption will be made to each Clearing Agency
Participant (or Person on whose behalf such nominee holds such securities) in
accordance with the procedures applied by such agency or nominee.
(iii) If Securities are to be redeemed and the Trust gives a
Redemption/Distribution Notice (which notice will be irrevocable), then (A)
while the Preferred Securities are in global form, with respect to the Preferred
Securities, by 1:00 p.m., New York City time, on the redemption date, provided
that the Debenture Issuer has paid the Property Trustee a sufficient amount of
cash in connection with the related redemption or maturity of the Debentures,
the Property Trustee will deposit irrevocably with the Depositary or its nominee
(or successor Clearing Agency or its nominee) funds sufficient to pay the
applicable Redemption Price with respect to the Preferred Securities and will
give the Depositary irrevocable instructions and authority to pay the Redemption
Price to the Holders of the Preferred Securities, and (B) with respect to
Preferred Securities issued in definitive form and Common Securities, provided
that the Debenture Issuer has paid the Property Trustee a sufficient amount of
cash in connection with the related redemption or maturity of the Debentures,
the Property Trustee will pay the relevant Holder appearing on the books and
records of the Trust on the redemption date. If a Redemption/Distribution Notice
shall have been given and funds deposited as required, then immediately prior to
the close of business on the date of such deposit, Distributions will cease to
accrue on the Securities so called for redemption and all rights of Holders of
such Securities so called for redemption will cease, except the right of the
Holders of such Securities to receive the Redemption Price, but without interest
on such Redemption Price. Neither the Regular Trustees nor the Trust shall be
required to register or cause to be registered the transfer of any Securities
that have been so called for redemption. If any date fixed for redemption of
Securities is not a Business Day, then payment of the Redemption Price payable
on such date will be made on the next succeeding day that is a Business Day
(without any interest or other payment in respect of any such delay) except
that, if such Business Day falls in the next calendar year, such payment will be
made on the immediately preceding Business Day, in each case with the same force
and effect as if made on such date fixed for redemption. If the Debenture Issuer
fails to repay the Debentures on maturity or if payment of the Redemption Price
in respect of any Securities is improperly withheld or refused and not paid
either by the Property Trustee or by the Sponsor as guarantor pursuant to the
relevant Securities Guarantee, Distributions on such Securities will continue to
accrue at the then applicable rate from the original redemption date to the
actual date of payment, in which case the actual payment date will be considered
the date fixed for redemption for purposes of calculating the Redemption Price.
<PAGE> 67
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(iv) Redemption/Distribution Notices shall be sent by the
Regular Trustees on behalf of the Trust to (A) in respect of the Preferred
Securities, the Depositary or its nominee (or any successor Clearing Agency or
its nominee) if the Global Certificates have been issued or, if Definitive
Preferred Security Certificates have been issued, to the Holder thereof, and (B)
in respect of the Common Securities to the Holder thereof.
(v) Subject to the foregoing and applicable law (including,
without limitation, United States federal securities laws), the Sponsor or any
of its subsidiaries may at any time and from time to time purchase outstanding
Preferred Securities by tender, in the open market or by private agreement.
5. Voting Rights - Preferred Securities.
(a) Except as provided under Sections 5(b) and 7 and as otherwise
required by law and the Declaration, the Holders of the Preferred Securities
will have no voting rights.
(b) Subject to the requirements set forth in this paragraph, the
Holders of a Majority in Liquidation Amount of the Preferred Securities, voting
separately as a class, may direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as Holder of
the Debentures, to (i) exercise the remedies available under the Indenture with
respect to the Debentures, (ii) waive any past default and its consequences that
is waivable under the Indenture, or (iii) exercise any right to rescind or annul
a declaration that the principal of all the Debentures shall be due and payable,
or consent to any amendment, modification or termination of the Indenture or the
Debentures, where such consent would be required; PROVIDED THAT where a consent
or action under the Indenture would require the consent or act of the Holders of
greater than a majority in principal amount of Debentures affected thereby (a
"Super Majority"), the Property Trustee may only give such consent or take such
action at the written direction of the Holders of at least the proportion in
liquidation amount of the Preferred Securities which the relevant Super Majority
represents of the aggregate principal amount of the Debentures outstanding. The
Property Trustee shall not revoke any action previously authorized or approved
by a vote of the Holders of the Preferred Securities. The Property Trustee shall
notify all Holders of the Preferred Securities of any notice of default received
from the Debenture Trustee with respect to the Debentures. Other than with
respect to directing the time, method and place of conducting a proceeding for
any remedy available to the Property Trustee or the Debenture Trustee as set
forth above, the Property Trustee shall not take any action in accordance with
the directions of the Holders of the Preferred Securities under this paragraph
unless the Property Trustee has obtained an opinion of tax counsel to the effect
that for the purposes of United States federal income tax the Trust will not be
classified as other than a grantor trust on account of such action. If the
Property Trustee fails to enforce its rights with respect to the Debentures held
by the Trust, any Holder of Preferred Securities may institute legal proceedings
directly against the Debenture Issuer to enforce the Property Trustee's rights
under the Debentures without first instituting any legal proceedings against the
Property Trustee or any other person or entity. Notwithstanding the foregoing,
if an Event of Default under the Declaration has occurred
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and is continuing and such event is attributable to the failure of the Debenture
Issuer to pay interest, principal or other required payment on the Debentures
issued to the Trust on the date such interest or principal is otherwise payable,
then a Holder of Preferred Securities may directly institute a proceeding
against the Debenture Issuer for enforcement of payment to the Holder of the
Preferred Securities of the principal, interest or other required payment on the
Debentures on or after the respective due dates specified in the Debentures, and
the amount of the payment will be based on the Holder's pro rata share of the
amount due and owing on all of the Preferred Securities.
Any approval or direction of Holders of Preferred Securities may be
given at a separate meeting of Holders of Preferred Securities convened for such
purpose, at a meeting of all of the Holders of Securities in the Trust or
pursuant to written consent. The Regular Trustees will cause a notice of any
meeting at which Holders of 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 Preferred Securities. Each such notice will include
a statement setting forth (i) the date of such meeting or the date by which such
action is to be taken, (ii) a description of any 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 the Preferred Securities will be
required for the Trust to redeem and cancel Preferred Securities or to
distribute the Debentures in accordance with the Declaration and the terms of
the Securities.
Notwithstanding that Holders of Preferred Securities are entitled to
vote or consent under any of the circumstances described above, any of the
Preferred Securities that are owned by the Sponsor or any Affiliate of the
Sponsor shall not be entitled to vote or consent and shall, for purposes of such
vote or consent, be treated as if they were not outstanding.
6. Voting Rights - Common Securities.
(a) Except as provided under Section 6(b), (c) and 7 and as otherwise
required by law and the Declaration, the Holders of the Common Securities will
have no voting rights.
(b) The Holders of the Common Securities are entitled, in accordance
with Article V of the Declaration, to vote to appoint, remove or replace any
Trustee or to increase or decrease the number of Trustees.
(c) Subject to Section 2.6 of the Declaration and only after the Event
of Default with respect to the Preferred Securities has been cured, waived or
otherwise eliminated and subject to the requirements set forth in this
paragraph, the Holders of an Majority in Liquidation Amount of the Common
Securities, voting separately as a class, may direct the time, method and place
of conducting any proceeding for any remedy available to the Property Trustee,
or direct the exercise of any trust or power conferred upon the Property Trustee
under the Declaration, including the right to direct the Property Trustee, as
Holder of the Debentures, to (i) exercise the remedies available under the
Indenture with respect to the Debentures, (ii) waive any past default and its
consequences
<PAGE> 69
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that is waivable under the Indenture, or (iii) exercise any right to rescind or
annul a declaration that the principal of all the Debentures shall be due and
payable, or consent to any amendment, modification or termination of the
Indenture or the Debentures, where such consent would be required; PROVIDED
THAT, where a consent or action under the Indenture would require the consent or
act of a Super Majority of the Holders of the Debentures affected thereby, the
Property Trustee may only give such consent or take such action at the written
direction of the Holders of at least the proportion in liquidation amount of the
Common Securities which the relevant Super Majority represents of the aggregate
principal amount of the Debentures outstanding. The Property Trustee shall not
revoke any action previously authorized or approved by a vote of the Holders of
the Common Securities. The Property Trustee shall notify all Holders of the
Preferred Securities of any notice of default received from the Debenture
Trustee with respect to the Debentures. Other than with respect to directing the
time, method and place of conducting a proceeding for any remedy available to
the Property Trustee or the Debenture Trustee as set forth above, the Property
Trustee shall not take any action in accordance with the directions of the
Holders of the Common Securities under this paragraph unless the Property
Trustee has obtained an opinion of tax counsel to the effect that for the
purposes of United States federal income tax the Trust will not be classified as
other than a grantor trust on account of such action. If the Property Trustee of
the Trust fails to enforce its rights with respect to the Debentures held as
assets of the Trust, any Holder of Common Securities may institute legal
proceedings directly against the Debenture Issuer to enforce such Property
Trustee's rights under the Debentures without first instituting any legal
proceedings against the Property Trustee or any other person or entity.
Notwithstanding the foregoing, if an Event of Default under the Declaration has
occurred and is continuing and such event is attributable to the failure of the
Debenture Issuer to pay interest, principal or other required payment on the
Debentures on the date such interest or principal is otherwise payable, a Holder
of Common Securities may directly institute a proceeding against the Debenture
Issuer for enforcement of payment to the Holder of the Common Securities of the
principal, interest or other required payment on the Debentures on or after the
respective due dates specified in the Debentures, and the amount of the payment
will be based on the Holder's pro rata share of the amount due and owing on all
of the Common Securities.
Any approval or direction of Holders of Common Securities may be given
at a separate meeting of Holders of Common Securities convened for such purpose,
at a meeting of all of the Holders of Securities in the Trust or pursuant to
written consent. The Regular Trustees will cause a notice of any meeting at
which Holders of Common 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 Common Securities. Each such notice will include a statement
setting forth (i) the date of such meeting or the date by which such action is
to be taken, (ii) a description of any 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 the Common Securities will be
required for the Trust to redeem and cancel Common Securities or to distribute
the Debentures in accordance with the Declaration and the terms of the
Securities.
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7. Amendments to Declaration and Indenture.
(a) In addition to any requirements under Section 12.1 of the
Declaration, if any proposed amendment to the Declaration 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 Securities,
whether by way of amendment to the Declaration of otherwise, or (ii) the
dissolution, winding up or termination of the Trust, other than as described in
Section 8.1 of the Declaration, then the Holders of outstanding Securities
voting together as a single class, will be entitled to vote on such amendment or
proposal (but not on any other amendment or proposal) and such amendment or
proposal shall not be effective except with the approval of the Holders of at
least a Majority in Liquidation Amount of the Securities affected thereby,
voting together as a single class; PROVIDED, HOWEVER, if any amendment or
proposal referred to in clause (i) above would adversely affect only the
Preferred Securities or only the 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 as other than a grantor
trust for United States federal income tax purposes, (ii) reduce or otherwise
adversely affect the powers of the Property Trustee or (iii) cause the Trust to
be deemed an "investment company" which is required to be registered under the
Investment Company Act.
(b) In the event the consent of the Property Trustee as the holder of
the Debentures is required under the Indenture with respect to any amendment,
modification or termination of the Indenture or the Debentures, the Property
Trustee shall request the written direction of the Holders of the 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 Securities voting together as a single class;
PROVIDED, HOWEVER, that where a consent under the Indenture would require the
consent of a Super Majority of the Holders of the Debentures, the Property
Trustee may only give such consent at the direction of the Holders of at least
the proportion in liquidation amount of the Securities which the relevant Super
Majority represents of the aggregate principal amount of the Debentures
outstanding; PROVIDED, FURTHER, that the Property Trustee shall not take any
action in accordance with the directions of the Holders of the Securities under
this Section 7(b) unless the Property Trustee has obtained an opinion of tax
counsel to the effect that for the purposes of United States federal income tax
the Trust will not be classified as other than a grantor trust on account of
such action.
8. Pro Rata.
A reference in these terms of the Securities to any payment,
distribution or treatment as being "Pro Rata" shall mean pro rata to each Holder
of Securities according to the aggregate liquidation amount of the Securities
held by the relevant Holder in relation to the aggregate liquidation amount of
all Securities outstanding unless, in relation to a payment, an Event of Default
under the Declaration has occurred and is continuing, in which case any funds
available to make such payment shall be paid first to each Holder of the
Preferred Securities pro rata according to the aggregate
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liquidation amount of Preferred Securities held by the relevant Holder relative
to the aggregate liquidation amount of all Preferred Securities outstanding, and
only after satisfaction of all amounts owed to the Holders of the Preferred
Securities, to each Holder of Common Securities pro rata according to the
aggregate liquidation amount of Common Securities held by the relevant Holder
relative to the aggregate liquidation amount of all Common Securities
outstanding.
9. Ranking.
The Preferred Securities rank PARI PASSU and payment thereon shall be
made Pro Rata with the Common Securities except that, where an Event of Default
occurs and is continuing under the Indenture in respect of the Debentures held
by the Property Trustee, the rights of Holders of the Common Securities to
payment in respect of Distributions and payments upon liquidation, redemption
and otherwise are subordinated to the rights to payment of the Holders of the
Preferred Securities.
10. Listing.
The Regular Trustees shall use their best efforts to cause the
Preferred Securities to be listed for quotation on the New York Stock Exchange,
Inc.
11. Acceptance of Securities Guarantee and Indenture.
Each Holder of Preferred Securities and Common Securities, by the
acceptance thereof, agrees to the provisions of the Preferred Securities
Guarantee and the Common Securities Guarantee, respectively, including the
subordination provisions therein and to the provisions of the Indenture.
12. No Preemptive Rights.
The Holders of the Securities shall have no preemptive rights to
subscribe for any additional securities.
13. Miscellaneous.
These terms constitute a part of the Declaration.
The Sponsor will provide a copy of the Declaration, the Preferred
Securities Guarantee or the Common Securities Guarantee (as may be appropriate)
and the Indenture to a Holder without charge on written request to the Sponsor
at its principal place of business.
<PAGE> 72
EXHIBIT A-1
This Preferred Security is a Global Certificate within the meaning of the
Declaration hereinafter referred to and is registered in the name of The
Depository Trust Company, a New York corporation (the "Depositary"), or a
nominee of the Depositary. This Preferred Security is exchangeable for Preferred
Securities registered in the name of a person other than the Depositary or its
nominee only in the limited circumstances described in the Declaration and no
transfer of this Preferred Security (other than a transfer of this Preferred
Security as a whole 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) may be registered except in limited circumstances.
Unless this Preferred Security Certificate is presented by an authorized
representative of the Depositary to the Trust or its agent for registration of
transfer, exchange or payment, and any Preferred Security Certificate issued is
registered in the name of Cede & Co. or such other name as requested by an
authorized representative of the Depositary (and any payment hereon is made to
Cede & Co. or to such other entity as is requested by an authorized
representative of the Depositary), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL since the registered owner
hereof, Cede & Co., has an interest herein.
CERTIFICATE NUMBER NUMBER OF PREFERRED SECURITIES
- P-1 - - 3,000,000 -
CUSIP NO. 023833 20 5
CERTIFICATE EVIDENCING PREFERRED SECURITIES
OF
AMERICAN ANNUITY GROUP CAPITAL TRUST I
_____% TRUST ORIGINATED PREFERRED SECURITIES(S)M ("TOPrS"(SM))
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
AMERICAN ANNUITY GROUP CAPITAL TRUST I, a statutory business trust
formed under the laws of the State of Delaware (the "Trust"), hereby certifies
that Cede & Co. (the "Holder") is the registered owner of 3,000,000 preferred
securities of the Trust representing undivided beneficial interests in the
assets of the Trust designated the _____% Trust Originated Preferred
Securities(sm) (liquidation amount $25 per Preferred Security) (the "Preferred
Securities"). The Preferred Securities are transferable on the books and records
of the Trust, in person or by a duly authorized attorney, upon surrender of this
certificate duly endorsed and in proper form for transfer. The designation,
rights, privileges, restrictions, preferences and other terms and provisions of
the Preferred Securities represented hereby shall in all respects be subject to
the provisions of the Amended and Restated Declaration of Trust of the Trust
dated as of November ___, 1996, as the
ii
<PAGE> 73
same may be amended from time to time (the "Declaration"), including the
designation of the terms of the Preferred Securities as set forth in Annex I to
the Declaration. Capitalized terms used herein but not defined shall have the
meaning given them in the Declaration. The Holder of this Certificate is
entitled to the benefits of the Preferred Securities Guarantee to the extent
provided therein. The Sponsor will provide a copy of the Declaration, the
Preferred Securities Guarantee and the Indenture to a Holder of this Certificate
without charge upon written request to the Sponsor at its principal place of
business.
Upon receipt of this certificate, the Holder of this Certificate is
bound by the Declaration and is entitled to the benefits thereunder.
By acceptance, the Holder agrees to treat, for United States federal
income tax purposes, the Debentures as indebtedness and the Preferred Securities
as evidence of indirect beneficial ownership in the Debentures.
IN WITNESS WHEREOF, the Trust has executed this certificate this 30th day of
October, 1996.
AMERICAN ANNUITY GROUP CAPITAL TRUST I
By: _____________________________
Name: Mark F. Muething
Title: Regular Trustee
By: _____________________________
Name: Christopher P. Miliano
Title: Regular Trustee
iii
<PAGE> 74
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Preferred
Security Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocable appoints
________________________________________________________________________________
________________________________________________________________________________
_________________agent to transfer this Preferred Security Certificate on the
books of the Trust. The agent may substitute another to act for him or her.
Date:_____________
Signature:_______________________________________
(Sign exactly as your name appears on the other side of this Preferred Security
Certificate)
Signature Guarantee:______________________________
iv
<PAGE> 75
EXHIBIT A-2
Certificate Number Number of Common Securities
-C-1- -__________-
Certificate Evidencing Common Securities
of
AMERICAN ANNUITY GROUP CAPITAL TRUST I
_____% Trust Originated Common Securities
(liquidation amount $25 per Common Security)
American Annuity Group Capital Trust I, a statutory business
trust formed under the laws of the State of Delaware (the "Trust"),
hereby certifies that AAG Holding Company, Inc. (the "Holder") is the
registered owner of common securities of the Trust representing
undivided beneficial interests in the assets of the Trust designated
the _____% Trust Originated Common Securities (liquidation amount $25
per Common Security) (the "Common Securities"). The Common Securities
are transferable on the books and records of the Trust, in person or by
a duly authorized attorney, upon surrender of this certificate duly
endorsed and in proper form for transfer. The designation, rights,
privileges, restrictions, preferences and other terms and provisions of
the Common Securities represented hereby shall in all respects be
subject to the provisions of the Amended and Restated Declaration of
Trust of the Trust dated as of November ___, 1996, as the same may be
amended from time to time (the "Declaration"), including the
designation of the terms of the Common Securities as set forth in Annex
I to the Declaration. Capitalized terms used herein but not defined
shall have the meaning given them in the Declaration. The Holder of
this Certificate is entitled to the benefits of the Common Securities
Guarantee to the extent provided therein. The Sponsor will provide a
copy of the Declaration, the Common Securities Guarantee and the
Indenture to a Holder of this Certificate without charge upon written
request to the Sponsor at its principal place of business.
Upon receipt of this certificate, the Holder of this
Certificate is bound by the Declaration and is entitled to the benefits
thereunder.
By acceptance, the Holder agrees to treat, for United States
federal income tax purposes, the Debentures as indebtedness and the
Common Securities as evidence of indirect beneficial ownership in the
Debentures.
i
<PAGE> 76
IN WITNESS WHEREOF, the Trust has executed this certificate
this 30th day of October, 1996.
AMERICAN ANNUITY GROUP CAPITAL
TRUST I
By: ________________________
Name: Mark F. Muething
Title: Regular Trustee
By: ________________________
Name: Christopher P. Miliano
Title: Regular Trustee
ii
<PAGE> 77
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned assigns and transfers this Common Security
Certificate to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert assignee's social security or tax identification number)
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Insert address and zip code of assignee)
and irrevocably appoints
________________________________________________________________________________
________________________________________________________________________________
__________________________________________________________agent to transfer this
Common Security Certificate on the books of the Trust. The agent may substitute
another to act for him or her.
Date: ______________________
Signature: _____________________________
(Sign exactly as your name appears on the other side of this Common Security
Certificate)
Signature Guaranteed:_____________________________
iii
<PAGE> 1
[KEATING, MUETHING & KLEKAMP, P.L.L. LETTERHEAD]
October 28, 1996
Direct Dial: (513) 579-6517
American Annuity Group, Inc.
250 East Fifth Street
Cincinnati, Ohio 45202
AAG Holding Company, Inc.
250 East Fifth Street
Cincinnati, Ohio 45202
American Annuity Group Capital Trust I
c/o AAG Holding Company, Inc. , Sponsor
250 East Fifth Street
Cincinnati, Ohio 45202
Ladies and Gentlemen:
We have acted as counsel to American Annuity Group, Inc., a Delaware
corporation (the "Company"), AAG Holding Company, Inc., an Ohio corporation
("Holding") and American Annuity Group Capital Trust I, a Delaware business
trust (the "Trust"), in connection with the preparation of the registration
statement of the Company and the Trust on Form S-3 (333-12535), filed with the
Securities and Exchange Commission (the "Commission") on September 24, 1996, as
amended by Amendment No. 1 filed on October 28, 1996 (the "Registration
Statement"), relating to the registration under the Securities Act of 1933 (the
"Securities Act"), of preferred securities of the Trust (the "Preferred
Securities") and subordinated debentures of Holding which are guaranteed by the
Company (the "Subordinated Debentures"). The Subordinated Debentures will be
issued in accordance with the provisions of an indenture (the "Indenture") to be
executed by the Company and The Bank of New York, as trustee (the "Trustee"),
the form of which is an exhibit to the Registration Statement. The Preferred
Securities will be guaranteed by the Company in the manner and to the extent set
forth in a Preferred Securities Guarantee Agreement (the "Preferred Securities
Guarantee"), the form of which is an exhibit to the Registration Statement.
<PAGE> 2
American Annuity Group, Inc.
AAG Holding Company, Inc.
American Annuity Group Capital Trust I
Page 2
October 28, 1996
In so acting, we have reviewed the Registration Statement, including
the prospectus (the "Prospectus") contained therein, the form of Indenture, form
of Subordinated Debenture and form of Preferred Securities Guarantee filed with
the Commission as exhibits to the Registration Statement. In addition, we have
examined originals or copies, certified or otherwise identified to our
satisfaction, of such corporate records, agreements, documents and other
instruments, and such certificates or comparable documents of public officials
and of officers and representatives of the Company, and have made such inquiries
of such officers and representatives as we have deemed relevant and necessary as
a basis for the opinions set forth below.
In such examination, we have assumed the genuineness of all signatures,
the legal capacity of natural persons, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to all questions of
fact material to this opinion that have not been independently established, we
have relied upon certificates or comparable documents of officers and
representatives of the Company.
Based on the foregoing, and subject to the qualifications stated
herein, we are of the opinion that:
1. The Subordinated Debentures have been duly and validly authorized by
Holding and, when executed, authenticated, issued and delivered in the manner
contemplated in the Indenture, will constitute legal, valid and binding
obligations of Holding, entitled to the benefits of the Indenture and
enforceable against Holding in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a proceeding at law or in equity) and except
to the extent that rights to indemnification thereunder may be limited by
federal or state securities laws or public policy relating thereto.
2. The Guaranty of the Subordinated Debentures included in the
Indenture and affixed to the form of the certificate for the Subordinated
Debentures has been duly and validly authorized by the Company and, such
Guaranty, when executed, authenticated, issued and delivered in the manner
contemplated in the Indenture, will constitute legal, valid and binding
obligation of the Company, entitled to the benefits of the Indenture and
enforceable against the Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and subject, as to enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair dealing (regardless
of whether enforcement is sought in a
<PAGE> 3
American Annuity Group, Inc.
AAG Holding Company, Inc.
American Annuity Group Capital Trust I
Page 3
October 28, 1996
proceeding at law or in equity) and except to the extent that rights to
indemnification thereunder may be limited by federal or state securities laws or
public policy relating thereto.
3. The Preferred Securities Guarantee has been duly and validly
authorized by the Company and, when executed and delivered by the Company, will
constitute the legal, valid and binding obligation of the Company, enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity, including principles of
commercial reasonableness, good faith and fair dealing (regardless of whether
enforcement is sought in a proceeding at law or in equity).
The opinions expressed herein are rendered solely for your benefit in
connection with the transactions described herein. These opinions may not be
used or relied upon by any other person, nor may this letter or any copies
thereof be furnished to a third party, filed with a governmental agency, quoted,
cited or otherwise referred to without our prior written consent.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the references to this firm under the heading
"Legal Matters" in the Prospectus, without admitting that we are "experts" under
the Securities Act of the rules and regulations of the Commission issued
thereunder with respect to any part of the Registration Statement, including
this exhibit thereto.
Yours truly,
KEATING, MUETHING & KLEKAMP, P.L.L.
BY: /s/ Paul V. Muething
---------------------------------
Paul V. Muething
<PAGE> 1
Exhibit 5.2
October 28, 1996
American Annuity Group Capital Trust I
c/o American Annuity Group, Inc.
250 East Fifth Street
Cincinnati, OH 45202
Re: American Annuity Group Capital Trust I
--------------------------------------
Ladies and Gentlemen:
We have acted as special Delaware counsel to American Group Capital
Trust I, a Delaware statutory business trust (the "Trust"), in Annuity
connection with certain matters relating to the organization of the Trust and
the proposed issuance of Preferred Securities to beneficial owners pursuant to
and as described in Registration Statement No. 333-12535 (and the Prospectus
forming a part thereof) on Form S-3 filed with the Securities and Exchange
Commission on September 24, 1996, as amended by Pre-Effective Amendment No. 1
thereto (as so amended, the "Registration Statement"). Capitalized terms used
herein and not otherwise herein defined are used as defined in the Amended and
Restated Declaration of Trust of the Trust in the form attached as an exhibit to
the Registration Statement (the "Governing Instrument").
In rendering this opinion, we have examined copies of the following
documents in the forms provided to us: the Certificate of Trust of the Trust as
filed in the Office of the Secretary of State of the State of Delaware (the
"State Office") on September 13, 1996 (the "Certificate"); a Declaration of
Trust of the Trust dated as of September 13, 1996 (the "Original Governing
Instrument"); the Governing Instrument; the Indenture to be entered into
between AAG Holding Company, Inc. ("AAG Holding") and The Bank of New York, as
Trustee; the Preferred Securities Guarantee to be made by American Annuity
Group, Inc. ("AAG"); the Common Securities Guarantee to be made by AAG; the
Underwriting Agreement relating to the Preferred Securities between, among
others, AAG Holding, AAG, the Trust and Merrill Lynch & Co. (the "Underwriting
Agreement") and the related Pricing Agreement; the Registration Statement; and
a certification of good standing of the Trust obtained as of a
<PAGE> 2
American Annuity Group Capital Trust I
c/o American Annuity Group, Inc.
October 28, 1996
Page 2
recent date from the State Office. In such examinations, we have assumed the
genuineness of all signatures, the conformity to original documents of all
documents submitted to us as drafts or copies or forms of documents to be
executed and the legal capacity of natural persons to complete the execution of
documents. We have further assumed for purposes of this opinion: (i) the due
formation or organization, valid existence and good standing of each entity that
is a party to any of the documents reviewed by us under the laws of the
jurisdiction of its respective formation or organization; (ii) the due
authorization, execution and delivery by, or on behalf of, each of the parties
thereto of the above-referenced documents (including, without limitation, the
due authorization, execution and delivery of the Governing Instrument and the
Underwriting Agreement and related Pricing Agreement prior to the first issuance
of Preferred Securities); (iii) that no event has occurred subsequent to the
filing of the Certificate that would cause a dissolution or liquidation of the
Trust under the Original Governing Instrument or the Governing Instrument, as
applicable; (iv) that the activities of the Trust have been and will be
conducted in accordance with the Original Governing Instrument or the Governing
Instrument, as applicable, and the Delaware Business Trust Act, 12 Del. C.
Section 3801 et seq. (the "Delaware Act"); (v) that each Holder of Preferred
Securities has, or prior to the first issuance of Preferred Securities will
have, made payment of the required consideration therefor and received a
Preferred Securities Certificate in consideration thereof in accordance with the
terms and conditions of the Governing Instrument, Registration Statement and
Underwriting Agreement and that the Preferred Securities are otherwise issued
and sold to the Preferred Securities Holders in accordance with the terms,
conditions, requirements and procedures set forth in the Governing Instrument,
Registration Statement and Underwriting Agreement and related Pricing Agreement;
and (vi) that the documents examined by us are in full force and effect, express
the entire understanding of the parties thereto with respect to the subject
matter thereof and have not been modified, supplemented or otherwise amended,
except as herein referenced. No opinion is expressed with respect to the
requirements of, or compliance with, federal or state securities or blue sky
laws. Further, we express no opinion with respect to the Registration Statement
or any other offering materials relating to the Preferred Securities and we
assume no responsibility for their contents. As to any fact material to our
opinion, other than those assumed, we have relied without independent
investigation on the above-referenced documents and on the accuracy, as of the
date hereof, of the matters therein contained.
Based on and subject to the foregoing, and limited in all respects to
matters of Delaware law, it is our opinion that, upon issuance, the Preferred
Securities will constitute validly issued
<PAGE> 3
American Annuity Group Capital Trust I
c/o American Annuity Group, Inc.
October 28, 1996
Page 3
and, subject to the terms of the Governing Instrument, fully paid and
nonassessable beneficial interests in the assets of the Trust. We note that
pursuant to Section 11.04 of the Governing Instrument, the Trust may withhold
amounts otherwise distributable to a Holder and pay over such amounts to the
applicable jurisdictions in accordance the federal, state and local law and any
amount withheld will be deemed to have been distributed to such Holder and
that, pursuant to the Governing Instrument, Preferred Security Holders may be
obligated to make payments or provide indemnity or security under the
circumstances set forth therein.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the heading "LEGAL
MATTERS" in the Prospectus forming a part thereof. In giving this consent, we
do not thereby admit that we come within the category of persons whose consent
is required under Section 7 of the Securities Act of 1933, as amended, or the
rules and regulations of the Securities and Exchange Commission thereunder.
This opinion speaks only as of the date hereof and is based on our
understandings and assumptions as to present facts, and on our review of the
above referenced documents and the application of Delaware law as the same
exist as of the date hereof, and we undertake no obligation to update or
supplement this opinion after the date hereof for the benefit of any person or
entity with respect to any facts or circumstances that may hereafter come to
our attention or any changes in facts or law that may hereafter occur or take
effect. This opinion is intended solely for the benefit of the addressee
hereof in connection with the matters contemplated hereby and may not be relied
on by any other person or entity or for any other purpose without our prior
written consent.
Very truly yours,
MORRIS, NICHOLS, ARSHT, & TUNNELL
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3) and related Prospectus of
American Annuity Group, Inc. for the registration of 3,450,000 Preferred
Securities of American Annuity Group Capital Trust I and to the incorporation by
reference therein of our report dated February 29, 1996, with respect to the
consolidated financial statements and schedules of American Annuity Group, Inc.
included in its Annual Report (Form 10-K) for the year ended December 31, 1995,
filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cincinnati, Ohio
October 28, 1996
