<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 15, 1995
REGISTRATION NO. 33-56813
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------------
AMERICAN PREMIER GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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OHIO 6331 31-1422526
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-6600
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING
AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT W. OLSON, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
AMERICAN PREMIER GROUP, INC.
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-6600
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
WITH COPIES TO:
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GARY P. KREIDER, ESQ. TIMOTHY E. HOBERG, ESQ.
KEATING, MUETHING & KLEKAMP TAFT, STETTINIUS & HOLLISTER
1800 PROVIDENT TOWER 1800 STAR BANK CENTER
ONE EAST FOURTH STREET 425 WALNUT STREET
CINCINNATI, OHIO 45202 CINCINNATI, OHIO 45202
(513) 579-6400 (513) 381-2838
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
------------------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE> 2
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AMERICAN PREMIER GROUP, INC.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
CAPTION OR LOCATION IN PROXY
FORM S-4 ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
-------------------------------------------------- -------------------------------------
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A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus......... Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus..................................... Inside Front Cover; Table of
Contents; Outside Back Cover;
Available Information; Documents
Incorporated by Reference
3. Risk Factors, Ratio of Earnings to Fixed
Charges, and Other Information................. Summary; Risk Factors
4. Terms of the Transaction....................... Summary; The Special Meeting; Special
Factors; The Acquisition Agreement
5. Pro Forma Financial Information................ Pro Forma Financial Information
6. Material Contracts with the Company
Being Acquired................................. Special Factors
7. Additional Information Required for Reoffering
Persons and Parties Deemed to be
Underwriters................................... Not Applicable
8. Interests of Named Experts and Counsel......... Legal Matters; Experts
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................... Not Applicable
B. Information About the Registrant
10. Information With Respect to S-3 Registrants... Not Applicable
11. Incorporation of Certain Information by
Reference..................................... Not Applicable
12. Information With Respect to S-2 or S-3
Registrants................................... Not Applicable
13. Incorporation of Certain Information by
Reference..................................... Not Applicable
14. Information With Respect to Registrants Other
Than S-3 or S-2 Registrants
a. Description of Business -- Item 101 of
Regulation S-K............................. New American Premier
b. Description of Property -- Item 102 of
Regulation S-K............................. New American Premier
c. Legal Proceedings -- Item 103 of Regulation
S-K........................................ New American Premier; Certain
Litigation Regarding the Acquisition
d. Market Price of and Dividends on the
Registrant's Common Equity and Related
Stockholder Matters -- Item 201 of
Regulation S-K............................. Summary; Description of Capital
Stocks
e. Financial Statements....................... New American Premier
f. Selected Financial Data -- Item 301 of
Regulation S-K............................. Not Applicable
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CAPTION OR LOCATION IN PROXY
FORM S-4 ITEM NUMBER AND HEADING STATEMENT/PROSPECTUS
-------------------------------- ----------------------------
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g. Supplementary Financial Information --
Item 302 of Regulation S-K..................... Not Applicable
h. Management's Discussion and Analysis of
Financial Condition and Results of
Operations -- Item 303 of Regulation S-K....... Not Applicable
i. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure -- Item 304 of Regulation S-K....... None
C. Information About the Companies Being Acquired
15. Information With Respect to S-3 Companies
(American Premier Underwriters, Inc.)......... Available Information; Documents
Incorporated by Reference; Summary;
Selected Financial Data
16. Information With Respect to S-2 or S-3
Companies (American Financial Corporation).... Available Information; Documents
Incorporated by Reference; Summary;
Annexes C and D
17. Information with Respect to Companies Other
than S-2 or S-3 Companies..................... Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited............ Available Information; Documents
Incorporated by Reference; The
Special Meeting; New American
Premier; The Acquisition Agreement
19. Information if Proxies, Consents or
Authorizations are not to be Solicited, or in
an Exchange Offer............................. Available Information; Documents
Incorporated by Reference; The
Special Meeting; New American
Premier; The Acquisition Agreement
</TABLE>
<PAGE> 4
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 FEBRUARY 15, 1995
AMERICAN PREMIER
UNDERWRITERS, ONE EAST FOURTH STREET
INC. CINCINNATI, OHIO 45202
TELEPHONE (513) 579-6600
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Dear Shareholder:
You are invited to attend a Special Meeting of Shareholders of American
Premier Underwriters, Inc. ("American Premier") on March 23, 1995 to consider
and act upon a proposal for American Premier to acquire American Financial
Corporation ("AFC") pursuant to the terms of an Acquisition Agreement described
in the attached Proxy Statement/Prospectus.
The proposed acquisition would be accomplished through the issuance to
AFC's common shareholders of 28.6 million shares of a new entity that would be
created to own both American Premier and AFC. Pursuant to the Acquisition
Agreement, each outstanding American Premier common share would be converted
into one common share of the new entity, which would be named American Premier
Group, Inc. ("New American Premier"). Because the 18.7 million American Premier
common shares currently beneficially owned by AFC would in effect be purchased
by New American Premier through the acquisition, the net increase in outstanding
common shares resulting from the acquisition would be 9.9 million shares.
AFC is principally engaged in multi-line property and casualty insurance
businesses through its wholly-owned Great American Insurance Group of
subsidiaries. Approximately 55% of Great American's net written premiums for the
first nine months of 1994 came from specialty lines, with the balance being
produced by commercial and personal lines. AFC also owns 80% of American Annuity
Group, Inc., which through its Great American Life Insurance Company subsidiary
sells tax-deferred annuities principally to employees of educational
institutions. AFC also has substantial investment positions in other businesses,
which are referred to in the Proxy Statement/Prospectus.
The acquisition represents a special opportunity for American Premier to
fulfill its strategic objective of complementing existing insurance operations
through high-quality acquisitions in the property and casualty area. Currently
generating about $1.4 billion of annual net earned premiums, Great American is
one of the nation's premier property and casualty insurers, with a combined
ratio that has consistently outperformed the industry average over the last
decade. Upon completion of the acquisition, we expect Great American, as well as
AFC's other valuable assets, to provide a substantial immediate boost to the
earnings per common share of New American Premier.
Significantly, the acquisition would enable American Premier to make
profitable use of most of its substantial cash and temporary investments. As
described in the Proxy Statement/Prospectus, approximately $625 million of these
assets would be earmarked for the early retirement of relatively expensive AFC
and American Premier debt, which would have an additional positive impact on New
American Premier's earnings per share.
Looking forward, the combined property and casualty businesses of American
Premier and Great American would represent a significant position in the
property and casualty industry, with about $3 billion of net written premiums,
$8 billion of property and casualty assets and $1.5 billion of statutory
capital. Notably, about 80% of their overall premiums would be derived from
specialty lines of business, which we believe have the greatest profit and
growth potential.
"Property and Casualty Insurance Specialists"
<PAGE> 5
The acquisition was approved by a Special Committee of American Premier's
independent directors. In approving the acquisition, the Special Committee
relied on, among other things, an opinion of the investment banking firm of
Furman Selz Incorporated that the number of shares to be issued for AFC is fair
to the American Premier shareholders (other than AFC) from a financial point of
view. Although American Premier's Board of Directors and Special Committee
recognized that the acquisition would result in dilution to book value and
tangible book value per share as described under "Risk Factors" in the Proxy
Statement/Prospectus, they concluded that these and certain other potentially
negative effects of the acquisition are more than outweighed by the positive
impact on earnings per share and the strategic benefits that should accrue to
shareholders as a result of the acquisition. In this regard, I call your
attention to the discussion of the Special Committee's deliberations set forth
in the Proxy Statement/Prospectus under the subcaption "Special Factors" and, in
particular, the Board's and Special Committee's conclusions set forth under the
subcaption "Recommendations of the Special Committee and the Board of Directors
of American Premier; Reasons for Recommendations."
American Premier's Board of Directors and its Special Committee recommend
that you vote FOR the acquisition.
Your vote is important. Please date, sign and return promptly the enclosed
proxy form whether or not you plan to attend the special meeting.
Sincerely,
Carl H. Lindner
Chairman of the Board and
Chief Executive Officer
February , 1995
"Property and Casualty Insurance Specialists"
<PAGE> 6
AMERICAN PREMIER
UNDERWRITERS,
INC. ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
TELEPHONE (513) 579-6600
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NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON MARCH 23, 1995
Dear Shareholder:
We are pleased to invite you to attend a Special Meeting of Shareholders of
American Premier Underwriters, Inc. ("American Premier") to be held at The
Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio on March 23, 1995 at 10:30
a.m. Eastern Time for the following purposes:
1. To consider and act upon a proposal that American Premier acquire all of
the outstanding common stock of American Financial Corporation ("AFC")
pursuant to the Agreement and Plan of Acquisition and Reorganization, as
amended, attached hereto as Annex A (the "Acquisition Agreement"). Under
the terms of the Acquisition Agreement, (a) American Premier would merge
with a subsidiary of a newly formed holding company, American Premier
Group, Inc. ("New American Premier"), and each share of American Premier
common stock would be converted into one share of New American Premier
common stock, and (b) AFC would merge with another subsidiary of New
American Premier and each share of AFC common stock would be converted
into 1.45 shares of New American Premier common stock. As a result,
American Premier and AFC would each become subsidiaries of New American
Premier; and
2. To transact such other business as may properly come before the meeting.
Details of the proposed acquisition and other information concerning the
Special Meeting are included in the accompanying Proxy Statement/Prospectus.
Please give this material your careful attention.
Approval of the acquisition requires the affirmative vote of a majority of
the votes cast at the Special Meeting. Accordingly, whether or not you plan to
attend the Special Meeting, please complete, sign and date the accompanying
Proxy Form and return it in the enclosed envelope. If you attend the Special
Meeting, you may vote in person, even if you have previously returned your Proxy
Form. We would appreciate your prompt consideration.
By Order of the Board of Directors,
Robert W. Olson
Secretary
Date: February , 1995
IF THE ACQUISITION DESCRIBED HEREIN IS CONSUMMATED, CERTIFICATES REPRESENTING
SHARES OF AMERICAN PREMIER WILL AUTOMATICALLY REPRESENT A LIKE NUMBER OF SHARES
OF NEW AMERICAN PREMIER COMMON STOCK WITHOUT ANY FURTHER ACTION. ACCORDINGLY,
SHAREHOLDERS WILL NOT BE REQUIRED TO EXCHANGE THEIR EXISTING CERTIFICATES.
"Property and Casualty Insurance Specialists"
<PAGE> 7
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 FEBRUARY 15, 1995
PROXY STATEMENT RELATING TO A
SPECIAL MEETING OF SHAREHOLDERS OF
AMERICAN PREMIER UNDERWRITERS, INC.
TO BE HELD MARCH 23, 1995
------------------------
PROSPECTUS RELATING TO
64,595,164 SHARES OF COMMON STOCK OF
AMERICAN PREMIER GROUP, INC.
------------------------
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of common
stock ("American Premier Common Stock") of American Premier Underwriters, Inc.,
a Pennsylvania corporation ("American Premier"), in connection with the
solicitation of proxies by the Board of Directors of American Premier for use at
a Special Meeting of Shareholders to be held at 10:30 a.m. Eastern Time on March
23, 1995 at The Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio, and at
any adjournments or postponements thereof (the "Special Meeting").
At the Special Meeting, shareholders will be asked to consider and vote
upon a proposal to acquire all of the outstanding common stock of American
Financial Corporation (the "Acquisition"). In the Acquisition, (a) American
Premier would merge with a subsidiary of a newly formed holding company,
American Premier Group, Inc. ("New American Premier") and each share of American
Premier Common Stock would be converted into one share of New American Premier
common stock ("New American Premier Common Stock") and (b) AFC would merge with
another subsidiary of New American Premier and each share of AFC common stock
("AFC Common Stock") would be converted into 1.45 shares of New American Premier
Common Stock. Following the Acquisition, approximately 55.4% of the New American
Premier Common Stock will be owned by Carl H. Lindner and members of his family.
If approved, these actions will be taken pursuant to the terms and conditions of
the Agreement and Plan of Acquisition and Reorganization among American Premier,
AFC and New American Premier dated December 9, 1994, as amended (the
"Acquisition Agreement"), a copy of which is attached as Annex A.
American Premier Common Stock is listed on the New York Stock Exchange
under the symbol "APZ." On February , 1995, the last reported sale price of
American Premier Common Stock on the New York Stock Exchange Composite Tape was
$ per share. Application will be made to list the New American Premier
Common Stock on the New York Stock Exchange.
New American Premier has filed a registration statement under the
Securities Act of 1933 with the Securities and Exchange Commission covering the
shares of New American Premier Common Stock which may be issued in connection
with the Acquisition. This Proxy Statement also constitutes the Prospectus of
New American Premier filed as part of the registration statement.
Shareholders of American Premier should consider the matters discussed
under "RISK FACTORS."
------------------------
This Proxy Statement/Prospectus and the accompanying proxy are first being
mailed to shareholders on or about February , 1995.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION. NEITHER THE
SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS PASSED UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS IN
CONNECTION WITH THE SOLICITATION OF PROXIES HEREBY AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY NEW AMERICAN PREMIER, AMERICAN PREMIER OR ANY OTHER PERSON. THIS PROXY
STATEMENT, WHICH ALSO CONSTITUTES A PROSPECTUS OF NEW AMERICAN PREMIER, DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO PURCHASE ANY
SECURITIES OTHER THAN THE SHARES OF NEW AMERICAN PREMIER TO WHICH IT RELATES, OR
THE SOLICITATION OF A PROXY, IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO
WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION. NEITHER THE DELIVERY
OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF SUCH SHARES SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF NEW AMERICAN PREMIER, AMERICAN PREMIER OR AFC SINCE THE DATE
HEREOF, OR THE DATE AS OF WHICH CERTAIN INFORMATION IS SET FORTH HEREIN.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS FEBRUARY , 1995.
<PAGE> 8
AVAILABLE INFORMATION
American Premier and AFC are each subject to the informational requirements
of the Securities and Exchange Act of 1934 (the "Exchange Act"), and in
accordance therewith each files reports, proxy statements (where applicable) and
other information with the Securities and Exchange Commission (the
"Commission"). The reports, proxy statements and other information filed by
American Premier and AFC with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's Regional Offices
at 7 World Trade Center, Suite 1300, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material can also be obtained from the Public
Reference Section of the Commission, Washington, D.C. 20549 at prescribed rates.
In addition, material filed by American Premier can be inspected at the offices
of the New York Stock Exchange, Inc. (the "NYSE"), 20 Broad Street, New York,
New York 10005, on which the American Premier Common Stock is traded.
New American Premier has filed a Registration Statement on Form S-4 (the
"Registration Statement") with the Commission under the Securities Act of 1933
(the "Securities Act"). This Proxy Statement/Prospectus does not contain all the
information set forth in the Registration Statement, certain portions of which
are omitted in accordance with the Rules and Regulations of the Commission. For
further information pertaining to New American Premier and the shares to be
issued in the Acquisition, reference is made to the Registration Statement and
the exhibits thereto, which may be inspected without charge at the offices of
the Commission.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed with the Commission by American Premier (File
No. 1-1569) and AFC (File No. 1-7361) are incorporated herein by reference:
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1.a. Annual Report of American Premier on Form 10-K for the year ended December 31, 1993;
b. Quarterly Reports of American Premier on Form 10-Q for the quarters ended March 31, June
30 and September 30, 1994;
c. Proxy Statement of American Premier for its 1994 Annual Meeting of Shareholders;
d. Current Report of American Premier on Form 8-K dated December 9, 1994;
2.a. Annual Report of AFC on Form 10-K for the year ended December 31, 1993, as amended;
b. Quarterly Reports of AFC on Form 10-Q for the quarters ended March 31, June 30 and
September 30, 1994; and
c. Current Report of AFC on Form 8-K dated December 9, 1994.
</TABLE>
AFC's Annual Report on Form 10-K for the year ended December 31, 1993, as
amended, and its Quarterly Report on Form 10-Q for the quarter ended September
30, 1994 are attached hereto as Annexes C and D.
All documents filed subsequent to the date hereof by American Premier
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act, prior to the
Special Meeting, shall be deemed to be incorporated in this Proxy
Statement/Prospectus by reference and to be a part of this Proxy
Statement/Prospectus from the date of filing of such documents. Specifically,
American Premier intends to file Current Reports on Form 8-K with respect to the
1994 financial results of certain of AFC's subsidiaries and investees that are
expected to become publicly available subsequent to the date hereof and prior to
the Special Meeting; such Forms 8-K shall be deemed to be so incorporated by
reference. See "RECENT DEVELOPMENTS." American Premier undertakes to provide
without charge to each person, including any beneficial owner, to whom a copy of
this Proxy Statement/Prospectus has been delivered, on the written or oral
request of any such person, a copy of any or all of the information that has
been incorporated by reference herein (not including exhibits to information
incorporated by reference unless such exhibits are specifically incorporated by
reference to information that this Proxy Statement/Prospectus incorporates).
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE,
UPON REQUEST, FROM PHILIP A. HAGEL, VICE PRESIDENT AND TREASURER, AMERICAN
PREMIER UNDERWRITERS, INC., ONE EAST FOURTH STREET, CINCINNATI, OHIO 45202,
TELEPHONE (513) 579-6600. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS,
ANY REQUEST SHOULD BE MADE AT LEAST FIVE BUSINESS DAYS PRIOR TO THE SPECIAL
MEETING.
New American Premier intends to furnish shareholders with annual reports
containing audited financial statements and with quarterly unaudited reports for
the first three quarters of each fiscal year.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of the Registration Statement and this Proxy Statement/ Prospectus
to the extent that a statement contained herein or in any subsequently filed
document which also is or is deemed to be incorporated by reference herein
modifies or supersedes such statement. Any such statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of the Registration Statement or this Proxy
Statement/Prospectus.
2
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TABLE OF CONTENTS
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INTRODUCTION.......................................................................... 1
AVAILABLE INFORMATION................................................................. 2
DOCUMENTS INCORPORATED BY REFERENCE................................................... 2
SUMMARY............................................................................... 5
The Acquisition..................................................................... 5
The Companies....................................................................... 5
Lindner Family Ownership............................................................ 5
The Mergers......................................................................... 6
Recommendation of the Board of Directors of American Premier........................ 6
Conflicts of Interest............................................................... 6
Opinion of Financial Advisor........................................................ 6
Reasons for the Acquisition......................................................... 6
Utilization of American Premier Cash................................................ 6
Conditions to the Acquisition....................................................... 7
Regulatory Matters.................................................................. 7
Termination......................................................................... 7
Appraisal Rights.................................................................... 7
Tax Effect on Shareholders.......................................................... 7
Tax Ruling; Possible Effect on Lindner Family Ownership............................. 7
The Special Meeting................................................................. 8
Expected Voting..................................................................... 8
Increased Dividends; Stock Repurchase Program....................................... 8
Certain Litigation.................................................................. 8
American Premier Underwriters, Inc. Summary Historical Financial Information........ 9
American Financial Corporation Summary Historical Financial Information............. 11
Summary Unaudited Pro Forma Financial Information................................... 12
Comparative Per Share Data.......................................................... 13
Market and Dividend Information..................................................... 14
INTRODUCTION.......................................................................... 15
THE SPECIAL MEETING................................................................... 15
General............................................................................. 15
Record Date; Shares Entitled to Vote; Vote Required; Conditions..................... 15
RISK FACTORS.......................................................................... 16
Certain Considerations Relating to AFC.............................................. 16
Certain Consequences of the Acquisition............................................. 20
RECENT DEVELOPMENTS................................................................... 22
American Premier 1994 Earnings...................................................... 22
Stock Repurchases................................................................... 23
1994 Earnings of AFC and Affiliates................................................. 23
California Workers' Compensation Market............................................. 24
NEW AMERICAN PREMIER.................................................................. 24
SPECIAL FACTORS....................................................................... 25
Background.......................................................................... 25
Recommendations of the Special Committee and the Board of Directors of American
Premier; Reasons for Recommendations............................................. 31
Reports of Milliman & Robertson..................................................... 33
</TABLE>
3
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Opinion of Financial Advisor........................................................ 35
Accounting Treatment................................................................ 44
TRANSACTIONS INVOLVING INTERESTED PERSONS............................................. 44
CERTAIN LITIGATION REGARDING THE ACQUISITION.......................................... 45
THE ACQUISITION AGREEMENT............................................................. 46
Voting on the Acquisition........................................................... 46
Effective Time of the Acquisition................................................... 47
Effect on Common Stock.............................................................. 47
Effect on Preferred Stock........................................................... 47
Conditions.......................................................................... 47
Amendment and Termination........................................................... 48
Regulatory Matters.................................................................. 48
Transferability of New American Premier Common Stock to be Received in the
Acquisition...................................................................... 48
Tax Ruling; Possible Effect on Lindner Family Ownership............................. 48
Absence of Appraisal Rights......................................................... 49
Miscellaneous....................................................................... 49
TAX CONSEQUENCES...................................................................... 49
Tax Treatment of the Merger Transactions............................................ 50
Tax Basis of New American Premier Stock............................................. 50
Holding Period of New American Premier Stock........................................ 50
Certain Tax Consequences to American Premier and AFC................................ 50
Extension of Voting Rights to AFC's Series F and Series G Preferred Stock........... 51
Backup Withholding.................................................................. 51
UNAUDITED PRO FORMA FINANCIAL INFORMATION............................................. 52
DESCRIPTION OF CAPITAL STOCKS......................................................... 61
New American Premier................................................................ 61
American Premier Underwriters, Inc.................................................. 61
American Financial Corporation...................................................... 62
COMPARATIVE RIGHTS.................................................................... 63
Shareholders of New American Premier and American Premier........................... 63
LEGAL MATTERS......................................................................... 63
EXPERTS............................................................................... 63
PROXY SOLICITATION.................................................................... 64
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING......................................... 64
FINANCIAL STATEMENTS OF AMERICAN PREMIER GROUP, INC................................... 65
</TABLE>
ANNEXES
Annex A -- Agreement and Plan of Acquisition and Reorganization among American
Premier Group, Inc., American Financial Corporation, American Premier
Underwriters, Inc. and others dated December 9, 1994, as amended.
Annex B -- Opinion of Financial Advisor.
Annex C -- Form 10-K for the year ended December 31, 1993, as amended, of
American Financial Corporation.
Annex D -- Form 10-Q for the quarter ended September 30, 1994 of American
Financial Corporation.
4
<PAGE> 11
SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements, including the notes thereto, appearing
elsewhere in this Proxy Statement/Prospectus and incorporated herein by
reference.
THE ACQUISITION............ It is proposed that American Premier acquire all of
the outstanding common stock of AFC pursuant to the
Acquisition Agreement. Under the terms of the
Acquisition Agreement, (a) American Premier would
merge with a subsidiary of New American Premier and
each share of American Premier Common Stock would
be converted into one share of New American Premier
Common Stock, and (b) AFC would merge with another
subsidiary of New American Premier and each share
of AFC Common Stock would be converted into 1.45
shares of New American Premier Common Stock. As a
result of the Acquisition, American Premier and AFC
would each become subsidiaries of New American
Premier.
THE COMPANIES
American Premier
Group, Inc............. New American Premier is a corporation newly formed
under Ohio law to serve as the public holding
company for American Premier and AFC.
American Premier
Underwriters, Inc. .... American Premier's principal operations are
conducted through specialty property and casualty
insurance subsidiaries that underwrite and market
non-standard automobile and workers' compensation
insurance.
American Financial
Corporation............ AFC is principally engaged in multi-line property
and casualty insurance businesses through its
wholly-owned Great American Insurance Group.
Approximately 55% of the Great American Insurance
Group's net written premiums for the first nine
months of 1994 came from specialty lines, with the
balance being produced by commercial and personal
lines. AFC also owns 80% of American Annuity Group,
Inc., which through its Great American Life
Insurance Company subsidiary sells tax-deferred
annuities principally to employees of educational
institutions. AFC's assets also include a 46%
interest in Chiquita Brands International, Inc., a
world-wide marketer and producer of bananas and
other food products, and a 37.5% interest in
Citicasters Inc., which owns a group of radio and
television broadcast stations. AFC also
beneficially owns 18.7 million shares (44.8%) of
the outstanding shares of American Premier Common
Stock, which, following the Acquisition, would be
treated by New American Premier as repurchased
treasury shares.
LINDNER FAMILY OWNERSHIP... Carl H. Lindner and members of his family (the
"Lindner Family") beneficially own 100% of the
outstanding AFC Common Stock. AFC, in turn,
beneficially owns 44.8% of the outstanding American
Premier Common Stock. The Lindner Family controls
AFC and may be deemed to control American Premier.
As a result of the Acquisition, the Lindner Family
would own 55.4% of the outstanding New American
Premier Common Stock and would effectively control
New American Premier.
5
<PAGE> 12
THE MERGERS................ If approved at the Special Meeting, (a) each
outstanding share of American Premier Common Stock
would be converted into one share of New American
Premier Common Stock, and (b) each share of AFC
Common Stock would be converted into 1.45 shares of
New American Premier Common Stock.
AS A RESULT OF THE ACQUISITION, CERTIFICATES
REPRESENTING SHARES OF AMERICAN PREMIER COMMON
STOCK WILL AUTOMATICALLY REPRESENT A LIKE NUMBER OF
SHARES OF NEW AMERICAN PREMIER COMMON STOCK WITHOUT
ANY FURTHER ACTION. SHAREHOLDERS WILL NOT BE
REQUIRED TO EXCHANGE THEIR EXISTING CERTIFICATES.
RECOMMENDATION OF THE
BOARD OF DIRECTORS
OF AMERICAN PREMIER...... Based on the unanimous recommendation of a special
committee of independent directors (the "Special
Committee"), the Board of Directors has approved
the Acquisition and recommended that American
Premier's shareholders vote in favor of the
Acquisition.
Messrs. Carl H. Lindner, Carl H. Lindner III, S.
Craig Lindner and James E. Evans, directors of
American Premier, abstained from voting in view of
their affiliation with AFC.
CONFLICTS OF INTEREST...... Directors and executive officers of AFC and members
of the Lindner Family hold four of the ten
directorships of American Premier and five of the
eleven directorships of New American Premier and
the positions of Chairman of the Board and Chief
Executive Officer and President and Chief Operating
Officer of each company. Because of these factors
and the matters discussed under "RISK
FACTORS -- Controlling Shareholders" and
"TRANSACTIONS INVOLVING INTERESTED PERSONS," such
persons may be deemed to have had a conflict of
interest with respect to the Acquisition.
OPINION OF FINANCIAL
ADVISOR.................... Furman Selz Incorporated ("Furman Selz"), the
financial advisor engaged by the Special Committee,
has delivered its opinion that the ratio of the
number of shares of New American Premier Common
Stock to be issued in exchange for shares of AFC
Common Stock and the ratio of the number of shares
of New American Premier Common Stock to be issued
in exchange for shares of American Premier Common
Stock (such ratios, collectively, the "Exchange
Ratios") are fair from a financial point of view to
holders of American Premier Common Stock, other
than AFC and its affiliates.
REASONS FOR THE
ACQUISITION................ For a description of the factors considered by the
Special Committee in determining that the
Acquisition is fair to the holders of American
Premier Common Stock other than AFC and its
affiliates see "SPECIAL FACTORS -- Background" and
"SPECIAL FACTORS -- Recommendations of the Special
Committee and the Board of Directors of American
Premier; Reasons for Recommendations."
UTILIZATION OF AMERICAN
PREMIER CASH............. At September 30, 1994, American Premier had $820
million of cash and temporary investments.
Approximately $119 million of such assets has been
utilized to repurchase American Premier Common
Stock through February 15, 1995. Following the
Acquisition, an estimated $625 million
6
<PAGE> 13
is expected to be used to retire AFC and American
Premier long-term debt.
CONDITIONS TO THE
ACQUISITION................ Closing of the Acquisition is conditioned upon
receipt of all necessary governmental consents and
approvals; approval by the shareholders of American
Premier in conformity with Pennsylvania law and its
Articles of Incorporation; listing of New American
Premier Common Stock on the NYSE; receipt of a
favorable tax opinion; no court order, litigation
or statute prohibiting the Acquisition; and no
injunction enjoining the Acquisition. The
conditions also include, among other things, the
receipt of an updated fairness opinion of Furman
Selz as of the date of closing. See "THE
ACQUISITION AGREEMENT -- Conditions."
REGULATORY MATTERS......... Consummation of the Acquisition is subject to
compliance with change-in-control regulations
administered by the insurance departments of Ohio,
California and certain other states; clearance
under the Hart-Scott-Rodino Antitrust Improvements
Act; and consents with respect to broadcast
licenses held by AFC's 37.5% owned affiliate,
Citicasters Inc. See "THE ACQUISITION
AGREEMENT -- Regulatory Matters."
TERMINATION................ The Acquisition Agreement may be terminated by
mutual consent; by any party if the Acquisition has
not been consummated by June 30, 1995, unless
failure to consummate is due to the act or failure
to act of the parties seeking to terminate; by any
party if an injunction enjoining the Acquisition
has been issued; by any party if there has occurred
a material adverse change in the business of any of
the parties; by any party if the opinion of Furman
Selz as to fairness is withdrawn or modified in an
adverse manner; and by American Premier if the
Special Committee of its Board of Directors so
determines in the exercise of its fiduciary duties.
See "THE ACQUISITION AGREEMENT -- Amendment and
Termination."
APPRAISAL RIGHTS........... Holders of American Premier and AFC Common Stock
will have no appraisal rights under applicable
state law.
TAX EFFECT ON
SHAREHOLDERS............... American Premier believes that the Acquisition will
constitute tax-free transactions to all
shareholders of each of American Premier and AFC
and that the basis and holding period for New
American Premier Common Stock received will be
those attributed to shares converted in the
Acquisition. See "TAX CONSEQUENCES."
TAX RULING; POSSIBLE EFFECT
ON LINDNER FAMILY
OWNERSHIP................ A private letter ruling has been requested from the
Internal Revenue Service regarding the continuation
of the American Premier consolidated federal income
tax group. Management believes it is probable that
the Service will issue a favorable ruling. However,
if a favorable ruling is not received prior to June
30, 1995, a portion of the AFC Common Stock owned
by the Lindner Family would be exchanged in the
Acquisition for a new issue of AFC non-voting
preferred stock, in which case the Lindner Family
would receive a correspondingly lower number of
shares of New American Premier Common Stock. See
"THE ACQUISITION AGREEMENT -- Tax Ruling; Possible
Effect on Lindner Family Ownership" and Note (i) to
"UNAUDITED PRO FORMA FINANCIAL INFORMATION."
7
<PAGE> 14
THE SPECIAL MEETING
Time, Date and Place..... The Special Meeting will be held on March 23, 1995,
at The Cincinnatian Hotel, 601 Vine Street,
Cincinnati, Ohio at 10:30 a.m. Eastern Time.
Record Date; Shares
Entitled
to Vote................ Record Date -- February 2, 1995. 43,347,987 shares
of American Premier Common Stock.
Affirmative Vote
Required................... A majority of the votes of American Premier Common
Stock cast at the Special Meeting.
EXPECTED VOTING............ AFC and its subsidiaries will vote the
approximately 43.1% of the outstanding shares of
American Premier Common Stock owned by them at the
Record Date in favor of the Acquisition. Directors,
officers and affiliates of American Premier other
than AFC and its subsidiaries own less than 1% of
the outstanding shares of American Premier Common
Stock and intend to vote in favor of the
Acquisition. Therefore, it is believed that
approval of the Acquisition is very likely.
All of the common shareholders of AFC, all of whom
are members of the Lindner Family, have agreed to
vote in favor of AFC's entering into the
Acquisition Agreement.
INCREASED DIVIDENDS;
STOCK REPURCHASE
PROGRAM.................. On December 12, 1994, American Premier announced an
increase in the quarterly cash dividend on American
Premier Common Stock from $0.22 per share to $0.25
per share. American Premier also announced its
intent to reactivate its stock repurchase program,
under which American Premier's management is
authorized to repurchase up to 5 million shares of
American Premier Common Stock, at market prices,
from time to time in open market or privately
negotiated transactions. From December 12, 1994
through February 15, 1995, American Premier had
purchased 4,626,550 shares of American Premier
Common Stock pursuant to such authorization for
$115.1 million. On February 15, 1995, management
was authorized to repurchase an additional
5 million shares. However, American Premier does
not intend to make further purchases of shares
of its common stock prior to the closing of the
Acquisition.
CERTAIN LITIGATION......... Following announcement of the signing of the
Acquisition Agreement, litigation was instituted by
several American Premier shareholders challenging
the Acquisition. The parties have reached agreement
to settle the litigation. See "CERTAIN LITIGATION
REGARDING THE ACQUISITION."
8
<PAGE> 15
<TABLE>
<CAPTION>
AMERICAN PREMIER UNDERWRITERS, INC.
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial information of American Premier set forth below is
derived from, and should be read in conjunction with, the financial statements
and other financial information which are incorporated into this Proxy
Statement/Prospectus by reference. Results for interim periods are not
necessarily indicative of results to be expected for the year.
NINE MONTHS
ENDED SEPTEMBER 30,
YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:(1)
Net Written Premiums............. $1,234.5 $1,013.4 $1,378.9 $1,067.3 $ 864.6 $ 345.1 $ 220.9
======== ======== ======== ======== ======== ======== ========
Insurance Revenues:
Premiums Earned................ $1,160.9 $ 921.2 $1,273.6 $ 998.7 $ 845.6 $ 342.0 $ 231.1
Net Investment Income.......... 94.6 84.1 114.7 105.0 97.9 51.6 36.8
Net Realized Gains (Losses).... .8 14.0 17.5 23.6 26.5 (9.0) 3.1
Other Revenues................... 48.0 221.2 357.5 297.6 305.4 395.3 400.0
-------- -------- -------- -------- -------- -------- --------
Total Revenues.......... $1,304.3 $1,240.5 $1,763.3 $1,424.9 $1,275.4 $ 779.9 $ 671.0
======== ======== ======== ======== ======== ======== ========
Income (Loss) from Continuing
Operations before Income Taxes:
Insurance Operations........... $ 128.8 $ 122.2 $ 167.4 $ 143.5 $ 144.5 $ 36.8 $ 37.4
Other Operations............... (112.4) (14.7) 22.7 (59.4) (65.1) 58.8 103.6
-------- -------- -------- -------- -------- -------- --------
$ 16.4 $ 107.5 $ 190.1 $ 84.1 $ 79.4 $ 95.6 $ 141.0
======== ======== ======== ======== ======== ======== ========
Income (Loss) from Continuing
Operations(2).................. $ (14.1) $ 192.3 $ 242.7 $ 50.9 $ 50.2 $ 62.9 $ 92.6
Income (Loss) from Continuing
Operations Per Share(2)........ $ (.29) $ 4.00 $ 5.03 $ 1.08 $ 1.03 $ 1.03 $ 1.32
Ratio of Earnings to Fixed
Charges........................ 1.4 3.0 3.8 2.1 2.2 2.8 5.7
BALANCE SHEET DATA
(AT PERIOD-END):(1)
Investments Held by Insurance
Operations..................... $1,773.3 $1,583.1 $1,602.7 $1,304.2 $1,121.9 $ 997.2 $ 488.3
Cash, Temporary Investments and
Marketable Securities Other
Than Those of Insurance
Operations..................... 820.0 473.1 611.2 395.1 537.3 458.6 1,146.7
Total Assets..................... 4,167.6 3,901.8 4,049.6 3,486.2 3,330.0 3,280.1 2,962.9
Unpaid Losses and Loss Adjustment
Expenses, Policyholder
Dividends and Unearned
Premiums....................... 1,639.9 1,393.5 1,425.5 1,069.0 889.5 823.4 457.5
Debt............................. 503.6 523.1 523.2 656.1 665.9 516.2 374.0
Common Shareholders' Equity...... 1,625.3 1,708.1 1,722.3 1,502.8 1,479.0 1,634.2 1,826.8
Book Value Per Share of Common
Stock.......................... 34.14 36.11 36.30 32.40 31.23 31.00 27.84
Total Debt to Total
Capitalization................. 24% 23% 23% 30% 31% 24% 17%
</TABLE>
9
<PAGE> 16
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30,
YEARS ENDED DECEMBER 31,
-------------------- --------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
CERTAIN FINANCIAL RATIOS AND
OTHER DATA:
Cash Dividends Declared Per Share
of Common Stock................ $ .66 $ .63 $ .85 $ .81 $ .71 $ .53 $ .42
Statutory Surplus of Insurance
Operations..................... $ 621.5 $ 563.7 $ 567.3 $ 453.6 $ 392.9 $ 345.0 $ 157.7
Statutory Net Written Premiums to
Statutory Surplus(3)........... 2.6x 2.3x 2.4x 2.3x 2.3x 2.2x 2.0x
GAAP Combined Ratio.............. 96.4% 96.4% 96.2% 97.5% 97.0% 99.9% 101.6%
Statutory Combined Ratio......... 96.9% 94.0% 94.0% 96.5% 98.5% 100.1% 98.1%
Industry Statutory Combined Ratio
for Property and Casualty
Insurers(4).................... 109.8% 107.4% 106.9% 115.7% 108.8% 109.5% 109.2%
<FN>
- ---------------
(1) American Premier's principal insurance operations were acquired on March 31,
1989 and December 31, 1990 in business acquisitions accounted for as
purchases. Results of operations of the acquired businesses are included
from the effective dates of the acquisitions and the net assets of the
acquired companies are included as of the effective dates. Year-to-year
comparisons are also affected by business dispositions and by restructuring
provisions and certain unusual charges. Reference is made to American
Premier's Annual Report on Form 10-K for the year ended December 31, 1993,
Note 2 of the Notes to Financial Statements and "Management's Discussion and
Analysis -- Results of Operations" incorporated herein by reference.
(2) The 1993 results include a $132 million, or $2.74 per share, tax benefit
attributable to an increase in the Company's net deferred tax asset.
Reference is made to American Premier's Annual Report on Form 10-K for the
year ended December 31, 1993, Note 7 of Notes to Financial Statements and
"Management's Discussion and Analysis -- Results of Operations" incorporated
herein by reference.
(3) Data for the nine months ended September 30, 1994 and 1993 are based on
prior twelve months written premiums. For 1989 and 1990, the writings to
surplus ratio is based on statutory surplus of Republic Indemnity Company of
America only, excluding the statutory surplus of American Premier's non-
standard automobile insurance group of companies, which was acquired on
December 31, 1990 and a reinsurance subsidiary which had insignificant
written premiums in both years.
(4) Ratios for the years 1989 to 1993 are derived from A.M. Best Company's
BestWeek Property/Casualty Supplement (March 29, 1994 edition). The ratios
for the nine months ended September 30, 1994 and September 30, 1993 are
derived from BestWeek Property/Casualty Supplement (December 12, 1994
edition).
-----------------------
</FN>
</TABLE>
See "RECENT DEVELOPMENTS -- American Premier 1994 Earnings" for a
discussion of the 1994 earnings of American Premier.
10
<PAGE> 17
<TABLE>
<CAPTION>
AMERICAN FINANCIAL CORPORATION
SUMMARY HISTORICAL FINANCIAL INFORMATION
The summary financial information of AFC set forth below is derived from,
and should be read in conjunction with, the financial statements and other
financial information which are attached hereto. Results for interim periods are
not necessarily indicative of results to be expected for the year.
NINE MONTHS
ENDED SEPTEMBER
30, YEARS ENDED DECEMBER 31,
----------------- -----------------------------------------------
1994 1993 1993 1992 1991 1990 1989
------- ------- ------- ------- ------- ------- -------
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATIONS STATEMENT DATA:
Total Revenues(1)......................... $ 1,569 $ 2,137 $ 2,721 $ 3,929 $ 5,219 $ 7,761 $ 7,038
Earnings (Loss) From Continuing Operations
Before Income Taxes..................... 82 211 262 (145) 119 49 39
Earnings (Loss) From:
Continuing Operations................... 57 182 225 (162) 56 (9) (5)
Discontinued Operations................. -- -- -- -- 16 3 8
Extraordinary Items..................... (17) (5) (5) -- -- 28 --
Cumulative Effect of Accounting
Change................................ -- -- -- 85 -- -- --
Net Earnings (Loss)....................... 40 177 220 (77) 72 22 3
Ratio of Earnings to Fixed Charges(2)..... 2.16 2.53 2.62 2.15 1.54 1.12 .96
Ratio of Earnings to Combined Fixed
Charges and Preferred Stock
Dividends(2)............................ 1.79 2.20 2.26 1.94 1.42 1.06 .90
BALANCE SHEET DATA:
Total Assets(1)........................... $10,469 $10,092 $10,077 $12,389 $12,057 $11,500 $10,770
Long-term Debt:
Parent Company.......................... 493 554 572 557 559 558 555
Subsidiaries............................ 588 579 482 1,452 1,549 2,432 2,249
Capital Subject to Mandatory Redemption... 43 39 49 28 82 77 88
Other Capital............................. 434 526 537 280 262 256 333
<FN>
- ---------------
(1) Due to decreases in ownership percentages in 1993, 1992 and 1991, AFC ceased
accounting for certain companies as subsidiaries and began accounting for
them as investees. AFC had accounted for American Premier as a subsidiary
from 1992 through the first quarter of 1993 due to AFC's ownership exceeding
50%. As a result of these changes, income statement and balance sheet
components are not comparable. See Note A of Notes to Financial Statements
and "Management's Discussion and Analysis -- Results of Operations" in AFC's
1993 Form 10-K included herein.
(2) Fixed charges are computed on a "total enterprise" basis. For purposes of
calculating the ratios, "earnings" have been computed by adding to pre-tax
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
policyholders' funds), amortization of debt discount and expense, preferred
stock dividend requirements of subsidiaries and a portion of rental expense
deemed to be representative of the interest factor.
Earnings exceeded fixed charges by $106 million and $202 million in the
first nine months of 1994 and 1993, respectively, $267 million in 1993, $269
million in 1992, $163 million in 1991 and $54 million in 1990. Earnings
exceeded combined fixed charges and preferred stock dividends by $87
million, $182 million, $241 million, $243 million, $138 million and $29
million in the same periods. Fixed charges exceeded earnings by $16 million
in 1989; combined fixed charges plus preferred stock dividends exceeded
earnings by $46 million in 1989.
</TABLE>
11
<PAGE> 18
<TABLE>
<CAPTION>
SUMMARY UNAUDITED PRO FORMA FINANCIAL INFORMATION
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS AND RATIOS)
The summary unaudited pro forma financial information set forth below gives
effect to the proposed Acquisition, without giving effect to certain one-time
charges related to the Acquisition, on the assumption that the Acquisition was
consummated as of January 1, 1993 for purposes of the pro forma consolidated
statements of income and as of September 30, 1994 for purposes of the pro forma
consolidated balance sheet. For financial reporting, the Acquisition will be
accounted for as a purchase type business combination with American Premier
being treated as the acquired company. This pro forma information is not
necessarily indicative of actual operating results or financial position that
would have occurred if the Acquisition had been consummated as of the assumed
dates stated above, nor is it necessarily indicative of future operating results
or financial position. This information should be read in conjunction with the
pro forma financial information appearing herein under " UNAUDITED PRO FORMA
FINANCIAL INFORMATION" and the separate historical consolidated financial
statements of American Premier and AFC which are incorporated herein by
reference.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED
INCOME STATEMENT 1994 DECEMBER 31, 1993
- ----------------------------------------------------------- ----------------- ------------------
<S> <C> <C>
Property and Casualty Premiums........................... $ 2,174.5 $ 2,514.4
Total Revenue.................................... $ 2,847.9 $ 3,796.5
============= ==============
Property and Casualty Loss, Loss Adjustment and
Underwriting Expense and Policyholder Dividends....... $ 2,149.2 $ 2,508.3
Interest on Borrowed Money............................... 73.2 131.3
Earnings from Continuing Operations Before Income
Taxes................................................. 121.4 310.1
Earnings from Continuing Operations...................... $ 55.1 $ 363.4
============= ==============
Earnings Per Share from Continuing Operations............ $1.03 $7.21
============= ==============
Ratio of Earnings to Fixed Charges....................... 2.4 3.3
============= ==============
</TABLE>
<TABLE>
<CAPTION>
BALANCE SHEET SEPTEMBER 30, 1994
- ----------------------------------------------------------- ------------------
<S> <C> <C>
Invested Assets.......................................... $ 9,510.0
Total Assets..................................... $ 13,036.8
==============
Loss and Loss Adjustment Expense Reserves................ $ 4,001.9
Policyholders' Funds Accumulated......................... 4,489.7
Debt..................................................... 1,005.6
Common Shareholders' Equity.............................. 917.6
Total Liabilities and Common Shareholders'
Equity......................................... 13,036.8
==============
Book Value Per Share..................................... $ 17.41
Shares Outstanding....................................... 52.7
</TABLE>
12
<PAGE> 19
<TABLE>
<CAPTION>
COMPARATIVE PER SHARE DATA
The following table presents certain unaudited per share data derived from
historical financial statements of American Premier and AFC and pro forma per
share data, adjusted to reflect consummation of the Acquisition. This pro forma
information is not necessarily indicative of actual or future operating results
or financial position that would occur upon consummation of the Acquisition.
This information should be read in conjunction with the pro forma financial
information appearing herein under "UNAUDITED PRO FORMA FINANCIAL INFORMATION"
and the separate historical consolidated financial statements of American
Premier and AFC which are included or incorporated herein by reference.
NINE MONTHS ENDED SEPTEMBER 30, 1994
---------------------------------------------------
HISTORICAL PRO FORMA
------------------- ------------ AFC
AMERICAN NEW AMERICAN EQUIVALENT
PREMIER AFC PREMIER SHARE(A)
-------- ------ ------------ ----------
<S> <C> <C> <C> <C>
Per Common Share:
Earnings (Loss) from Continuing
Operations(b).......................... $ (.29) $ 1.92 $ 1.03 $ 1.49
Book Value................................ $34.14 $15.99 $17.41 $25.24
Cash Dividends Declared................... $ 0.66 $ 0.20 $ 0.66 $ 0.96
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1993
---------------------------------------------------
HISTORICAL PRO FORMA
------------------- ------------ AFC
AMERICAN NEW AMERICAN EQUIVALENT
PREMIER AFC PREMIER SHARE(A)
-------- ------ ------------ ----------
<S> <C> <C> <C> <C>
Per Common Share:
Earnings from Continuing Operations(b).... $ 5.03 $10.06 $ 7.21 $10.45
Book Value................................ $36.30 $21.52 (c) (c)
Cash Dividends Declared................... $ 0.85 $ 0.10 $ 0.85 $ 1.25
<FN>
- ---------------
(a) Calculated by multiplying pro forma amounts by the rate at which AFC Common
Stock will be converted into New American Premier Common Stock in the
Acquisition.
(b) During 1993 and 1994, AFC and American Premier both reported certain
transactions involving disposition of their ownership interests in
subsidiaries, affiliates and certain other operations, gains and losses on
the sales of investments and certain deferred tax asset adjustments.
Management believes that reported results which include these transactions
are not indicative of future results of operations. During the nine months
ended September 30, 1994, the after tax effect of such American Premier
transactions was a loss of $70.8 million or $1.46 per share and, during the
year ended December 31, 1993, a gain of $175.7 million or $3.64 per share.
On a pro forma basis, for New American Premier, the after tax effect of
these transactions was a loss of $53.3 million or $1.00 per share for the
nine months ended September 30, 1994 and a gain of $311.8 million or $6.19
per share for the year ended December 31, 1993.
(c) Not required.
</TABLE>
13
<PAGE> 20
MARKET AND DIVIDEND INFORMATION
AFC Common Stock is not publicly traded. American Premier Common Stock is
traded on the New York Stock Exchange under the trading symbol "APZ."
<TABLE>
<CAPTION>
The following table sets forth the high and low sales prices per share of
American Premier Common Stock reported on the NYSE Composite Tape for the
periods indicated and dividends declared per share of American Premier Common
Stock during such periods.
SALES PRICES
---------------- DIVIDENDS
HIGH LOW DECLARED
------ ------ ---------
<S> <C> <C> <C>
CALENDAR YEAR
1992
First Quarter.................................... $27 1/8 $22 5/8 $ .20
Second Quarter................................... 23 7/8 19 5/8 .20
Third Quarter.................................... 20 3/8 18 1/4 .20
Fourth Quarter................................... 24 7/8 18 .21
1993
First Quarter.................................... $28 5/8 $23 1/2 $ .21
Second Quarter................................... 33 7/8 25 1/2 .21
Third Quarter.................................... 39 3/4 30 3/8 .21
Fourth Quarter................................... 34 1/8 29 .22
1994
First Quarter.................................... $33 1/4 $23 3/8 $ .22
Second Quarter................................... 30 23 3/4 .22
Third Quarter.................................... 27 5/8 23 3/4 .22
Fourth Quarter................................... 27 21 5/8 .25
1995
First Quarter (through February ).............. $25 7/8 $24 3/8 --
</TABLE>
On December 9, 1994, the last full day of trading immediately preceding the
public announcement of the signing of the Acquisition Agreement, the reported
closing price per share of American Premier Common Stock was $24 1/4. On
February , 1995, the closing price per share of American Premier Common Stock
was .
There were shareholders of record of American Premier Common Stock as of
February , 1995. There were 31 shareholders of record of AFC Common Stock as
of February , 1995.
The dividend declared in the fourth quarter of 1994 was paid on January 13,
1995 to holders of record of American Premier Common Stock at the close of
business on December 30, 1994.
American Premier's policy is to pay quarterly dividends on its common
stock, in amounts determined by American Premier's Board of Directors. It is
expected that New American Premier will adopt this policy. The ability of New
American Premier to pay dividends after the Acquisition will be dependent upon,
among other things, the availability of dividends and payments under
intercompany tax allocation agreements from its insurance company subsidiaries.
See "RISK FACTORS--Certain Consequences of the Acquisition-- Holding Company
Structure of New American Premier."
14
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INTRODUCTION
This Proxy Statement/Prospectus is being furnished to holders of American
Premier Common Stock in connection with the solicitation of proxies by the Board
of Directors of American Premier for use at the Special Meeting of Shareholders
to be held at The Cincinnatian Hotel, 601 Vine Street, Cincinnati, Ohio, at
10:30 a.m. Eastern Time on March 23, 1995.
The principal executive offices of American Premier Group, Inc., an Ohio
corporation ("New American Premier"), are located at One East Fourth Street,
Cincinnati, Ohio 45202, telephone (513) 579-6600. The principal executive
offices of American Premier Underwriters, Inc., a Pennsylvania corporation
("American Premier"), are located at One East Fourth Street, Cincinnati, Ohio
45202, telephone (513) 579-6600. The principal executive offices of American
Financial Corporation, an Ohio corporation ("AFC"), are located at One East
Fourth Street, Cincinnati, Ohio 45202, telephone (513) 579-2121.
THE SPECIAL MEETING
GENERAL
This Proxy Statement/Prospectus and the accompanying Proxy are first being
mailed to the shareholders of American Premier on or about February , 1995.
At the Special Meeting, shareholders will be asked to consider and vote
upon a proposal to acquire American Financial Corporation (the "Acquisition").
The Acquisition would include mergers which will result in American Premier and
AFC each becoming a subsidiary of New American Premier. In the mergers (the
"Mergers"), (a) American Premier would merge with a subsidiary of New American
Premier and each share of American Premier Common Stock would be converted into
one share of New American Premier Common Stock, and (b) AFC would merge with
another subsidiary of New American Premier and each share of AFC Common Stock
would be converted into 1.45 shares of New American Premier Common Stock.
RECORD DATE; SHARES ENTITLED TO VOTE; VOTE REQUIRED; CONDITIONS
American Premier Underwriters, Inc.
American Premier's Board of Directors has fixed the close of business on
February 2, 1995 as the record date (the "Record Date") for determination of the
holders of American Premier Common Stock who are entitled to notice of and to
vote at the American Premier Special Meeting. As of the Record Date, there were
43,347,987 shares of American Premier Common Stock outstanding. The presence at
the Special Meeting, in person or by proxy, of the holders of at least a
majority of the shares of American Premier Common Stock outstanding at the
Record Date will constitute a quorum to consider approval of the Acquisition.
Under Pennsylvania law, the affirmative vote of a majority of the votes
cast by the holders of American Premier Common Stock at the Special Meeting is
required to approve the Acquisition. For these purposes, a failure to vote
(including a broker non-vote) or an abstention has no effect. Approximately
43.1% of the outstanding American Premier Common Stock at the Record Date may be
deemed to be owned or controlled by Carl H. Lindner and members of his family
and corporations controlled by them; such shares will be voted in favor of the
Acquisition. Therefore, it is believed that approval of the Acquisition is very
likely.
American Premier Common Stock represented by properly executed proxies
received at or prior to the Special Meeting and which have not been revoked will
be voted in accordance with the instructions contained therein. Shares
represented by properly executed proxies for which no instruction are given will
be voted FOR approval of the Acquisition.
The execution of a proxy does not affect the right to vote in person at the
Special Meeting, and a proxy may be revoked by the person giving it prior to the
exercise of the powers conferred by it. A shareholder of American Premier may
revoke a proxy by communicating in writing to the Secretary of American Premier
at the address indicated above or by duly executing and delivering a proxy
bearing a later date. In addition, persons attending the Special Meeting in
person may withdraw their proxies. Unless a proxy is revoked or
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withdrawn, the shares represented thereby will be voted or the votes withheld at
the Special Meeting or at any adjournments thereof in the manner described in
this Proxy Statement/Prospectus.
American Financial Corporation
Under Ohio law, approval by the holders of a majority of the outstanding
shares of AFC Common Stock is required to approve the Acquisition. All of the
outstanding AFC Common Stock is owned by Carl H. Lindner, members of his family
and trusts for their benefit. All of the holders of AFC Common Stock have agreed
to vote in favor of the Acquisition.
Conditions and Termination
Consummation of the Acquisition is subject to a number of conditions in
addition to that of shareholder approval, including the condition that the
Special Committee of the Board of Directors of American Premier shall have
received at the closing an updated fairness opinion of Furman Selz. Moreover,
the Acquisition Agreement may be terminated by American Premier if the Special
Committee determines, pursuant to the exercise of its fiduciary duties, that, as
a result of an event or condition not directly caused by American Premier, the
Acquisition Agreement should be terminated. Other conditions include receipt of
all necessary governmental consents and approvals; listing of the New American
Premier Common Stock on the New York Stock Exchange; receipt of a favorable tax
opinion of counsel; no court order, litigation or statute prohibiting the
Acquisition; and no injunction enjoining the Acquisition. The Acquisition
Agreement also may be terminated, inter alia, by mutual consent; by any party if
the Acquisition has not been consummated by June 30, 1995, unless failure to
consummate is due to the act or failure to act of the party seeking to
terminate; and by either American Premier or AFC if any event occurs which has
affected or may affect materially and adversely the condition of the other and
its subsidiaries taken as a whole. See "THE ACQUISITION
AGREEMENT -- Conditions" and "THE ACQUISITION AGREEMENT -- Amendment and
Termination."
RISK FACTORS
In deciding whether to vote for the Acquisition proposal, shareholders of
American Premier should consider the following factors, in addition to the other
information contained in this Proxy Statement/Prospectus or incorporated herein
by reference.
CERTAIN CONSIDERATIONS RELATING TO AFC
Adequacy of Loss Reserves
The insurance subsidiaries of AFC establish reserves to cover their
estimated liability for losses and loss adjustment expense with respect to both
reported and unreported claims as of the end of each accounting period. By their
nature, such reserves do not represent an exact calculation of liabilities.
Rather, except for reserves related to environmental and asbestos type claims,
such reserves are estimates involving projections at a given time of
management's expectations as to the ultimate settlement and administration of
claims. These expectations are, in turn, based on facts and circumstances known
at the time, predictions of future events, estimates of future trends in the
severity and frequency of claims and judicial theories of liability, as well as
inflation.
In recent years, AFC's insurance subsidiaries have increased their premium
writings in specialty commercial lines of business. Estimation of loss reserves
for many specialty commercial lines of business is more difficult than for
certain standard commercial lines because claims may not become apparent for a
number of years (such period of time being referred to as the "tail"), and a
relatively higher proportion of ultimate losses is considered incurred but not
reported. As a result, variations in loss development are more likely in these
lines of business.
AFC regularly reviews its reserving techniques and reserve positions and
believes that adequate provision has been made for loss reserves. Nevertheless,
there can be no assurance that currently established reserves will prove
adequate in light of subsequent actual experience. Future earnings could be
adversely impacted should future loss developments require increases in reserves
previously established for prior periods.
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AFC's insurance subsidiaries face liabilities for asbestos and
environmental ("A&E") claims. A&E claims arise out of general liability and
commercial multi-peril policies issued by Great American Insurance Company
("GAI"), AFC's principal insurance company, prior to the early 1980's when
providing coverage for A&E exposures was not specifically contemplated by GAI's
policies. Establishing reserves for these types of claims is subject to
uncertainties that are greater than those represented by many other types of
claims. These uncertainties include a lack of historical data, inapplicability
of standard actuarial projection techniques and uncertainty with regard to claim
costs, coverage interpretation and the judicial, statutory and regulatory
provisions under which the claims may be ultimately resolved. GAI establishes
reserves for reported A&E claims, but like many similar insurers has generally
not established reserves for unreported claims and related litigation expenses
because such amounts cannot be reasonably estimated. The potential extent of
GAI's A&E claims and its A&E related reserves were considered specifically by
the Special Committee. See "SPECIAL FACTORS -- Background," "SPECIAL
FACTORS -- Recommendations of the Special Committee and the Board of Directors
of American Premier; Reasons for Recommendations," and "SPECIAL
FACTORS -- Reports of Milliman & Robertson."
The review performed by the actuarial consulting firm of Milliman &
Robertson indicated that GAI's non-A&E reserves as of September 30, 1994
appeared to be redundant, while its A&E reserves appeared to be lower than
industry average levels. The indicated reserve redundancy for non-A&E claims was
slightly in excess of the industry average indicated reserve deficiency for A&E
claims. Based on GAI's fourth quarter review process, including the findings of
the Milliman & Robertson review and other information currently available, GAI
will make adjustments to specific reserves at December 31, 1994. While such
adjustments will not have a significant impact on 1994 operating results, in
total or by line of insurance, they will substantially reduce the apparent
industry average indicated deficiency in A&E reserves and redundancy in non-A&E
reserves.
Holding Company Structure; Dividend Restrictions
AFC is organized as a holding company with almost all of its operations
being conducted by subsidiaries. The parent corporation, however, has continuing
expenditures for administrative expenses and corporate services and, most
importantly, for the payment of principal and interest on borrowings and for
redemptions of and dividends on AFC preferred stock. AFC relies on dividends and
tax payments from its subsidiaries as well as dividends from companies in which
it has a significant investment, including American Premier, for funds to meet
its obligations.
As of September 30, 1994, AFC had approximately $493 million of
indebtedness outstanding at the parent company level. It had preferred stock
outstanding at the same date which required annual dividend payments of
approximately $26 million. AFC subsidiaries had additional indebtedness of
approximately $588 million outstanding at September 30, 1994. AFC has
significant assets at the parent company level but they are not sufficient to
enable it to meet its on-going needs for cash from sources other than dividends
and tax payments from its subsidiaries. American Premier has substantial cash
assets at the parent company level, a significant portion of which may be loaned
to AFC to redeem certain of its outstanding long-term debt if the Acquisition is
completed.
Generally over 90% of the dividends AFC has received from subsidiaries have
come from GAI, which is domiciled in Ohio. Payments of dividends by GAI and
AFC's other insurance subsidiaries are subject to various laws and regulations
which limit the amount of dividends that can be paid without prior approval.
During 1993, the State of Ohio revised its dividend law for Ohio-domiciled
insurers. Under the new law, the maximum amount of dividends which may be paid
without either prior approval or expiration of a 30-day waiting period without
disapproval is the greater of statutory net income or 10% of policyholders'
surplus as of the preceding December 31, but only to the extent of earned
surplus as of the preceding December 31. Without such approval, the maximum
amount of dividends payable in 1994 from GAI based on its 1993 earned surplus
was approximately $108 million. The maximum dividend permitted by law is not
indicative of an insurer's actual ability to pay dividends, which may be further
constrained by business and regulatory considerations, such as the impact of
dividends on surplus, which could affect an insurer's ratings, competitive
position, the amount of premiums that can be written, and the ability to pay
future dividends. Furthermore,
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the Ohio Insurance Department has broad discretion to limit the payment of
dividends by insurance companies domiciled in Ohio.
Regulation
AFC's insurance subsidiaries are regulated under the insurance and
insurance holding company laws of their states of domicile and other states in
which they operate. These laws, in general, require approval of the particular
insurance regulators prior to certain actions by the insurance companies, such
as the payment of dividends in excess of statutory limitations (as discussed
above) and certain transactions and continuing service arrangements with
affiliates. Regulation and supervision of each insurance subsidiary is
administered by a state insurance commissioner who has broad statutory powers
with respect to the granting and revoking of licenses, approvals of premium
rates, forms of insurance contracts and types and amounts of business which may
be conducted in light of the policyholders' surplus of the particular company.
The statutes of most states provide for the filing of premium rate schedules and
other information with the insurance commissioner, either directly or through
rating organizations, and the commissioner generally has powers to disapprove
such filings or make changes to the rates if they are found to be excessive,
inadequate or unfairly discriminatory. The determination of rates is based on
various factors, including loss and loss adjustment expense experience.
The National Association of Insurance Commissioners has adopted the Risk
Based Capital For Insurers Model Act which applies to both life and property and
casualty companies. The risk-based capital formulas determine the amount of
capital that an insurance company needs to ensure that it has an acceptably low
expectation of becoming financially impaired. The Model Act provides for
increasing levels of regulatory intervention as the ratio of an insurer's total
adjusted capital and surplus decreases relative to its risk-based capital,
culminating with mandatory control of the operations of the insurer by the
domiciliary insurance department at the so-called "mandatory control level". The
risk-based capital formulas became effective in 1993 for life companies and will
become effective with the filing of the 1994 Annual Statement for property and
casualty companies. Based on the 1993 results and results for the first nine
months of 1994 of AFC's insurance companies, all such companies meet or exceed
all minimum applicable risk-based capital calculations developed by the National
Association of Insurance Commissioners.
Cyclicality of the Insurance Industry; Impact of Catastrophes
AFC's insurance subsidiaries operate in a highly competitive industry that
is affected by many factors which can cause significant fluctuations in the
results of operations. AFC's insurance operations have been subject to operating
cycles and losses from catastrophes. The property and casualty insurance
industry has historically been subject to pricing cycles characterized by
periods of intense competition and lower premium rates (a "downcycle") followed
by periods of reduced competition, reduced underwriting capacity and higher
premium rates (an "upcycle"). The property and casualty insurance industry is
currently in an extended downcycle, which has lasted approximately seven years.
The underwriting results for AFC's property and casualty operations have been
adversely affected by this downcycle, particularly reflected in soft pricing in
certain standard commercial lines of business. AFC believes that specialty lines
of business will be less affected by supply/pricing pressures during downcycles
than other lines of property and casualty insurance. Consequently, AFC believes
that its emphasis towards specialty lines programs, larger accounts and loss
sensitive and retrospectively rated policies will enhance its ability to achieve
improved operating results during both upcycles and downcycles.
As with other property and casualty insurers, AFC's operating results can
be adversely affected by unpredictable catastrophe losses. AFC's insurance
subsidiaries generally seek to reduce their exposure to such events through
individual risk selection and the purchase of reinsurance. Major catastrophes in
recent years included the Northridge earthquake in Southern California and the
winter freeze losses in the South and Northeast in 1994; winter freeze losses
and flooding in the Midwest in 1993; Hurricanes Andrew and Iniki, Chicago
flooding and Los Angeles civil disorder in 1992; Oakland fires in 1991; and
Hurricane Hugo and the San Francisco earthquake in 1989. Total net losses to
AFC's insurance operations from catastrophes were $44 million in the first nine
months of 1994; $26 million in 1993; $42 million in 1992; $22 million in 1991;
$13 million in 1990; and $32 million in 1989.
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Ratings
A.M. Best Company, Inc. ("Best"), publisher of Best's Insurance Reports,
Property-Casualty, has given GAI its rating of "A" (Excellent). Although some of
the large insurance companies against whom GAI competes have a higher rating,
AFC believes that the current rating is adequate to enable GAI to compete
successfully. Best's ratings are not designed for the protection of investors
and do not constitute recommendations to buy, sell or hold any security. A
downgrade in the Best rating below A (Excellent) could adversely affect the
competitive position of GAI. As a result of the Acquisition, GAI's investment
portfolio may be modified in order to maintain its rating due to GAI's sizeable
investment in American Premier.
AFC's Investment Portfolio
Approximately 95% of the bonds and redeemable preferred stocks held by AFC
were rated "investment grade" (credit rating of AAA to BBB-) at September 30,
1994 and December 31, 1993, compared to less than 60% at the end of 1988.
Investment grade securities generally bear lower yields and lower degrees of
risk than those that are unrated or non-investment grade.
At September 30, 1994, AFC held collateralized mortgage obligations
("CMOs") with a market value of $1.6 billion. At that date, interest only
(I/Os), principal only (P/Os) and other "high risk" CMOs represented
approximately one and one-half percent of AFC's total CMO portfolio. AFC invests
primarily in CMOs which are structured to minimize prepayment risk. In addition,
the majority of CMOs held by AFC were purchased at a discount to par value. AFC
believes that the structure and discounted nature of the CMOs will minimize the
effect of prepayments on earnings over the anticipated life of the CMO
portfolio. Substantially all of AFC's CMOs are rated "AAA" by Standard & Poor's
Corporation and are collateralized by GNMA, FNMA or FHLMC single-family
residential pass-through certificates. The market in which these securities
trade is highly liquid. Aside from interest rate risk, AFC does not believe a
material risk (relative to earnings and liquidity) is inherent in holding such
investments. Like other interest rate sensitive instruments, the value of CMOs
in the portfolio generally has declined since December 31, 1993.
AFC has generally followed a practice of concentrating its equity
investments in a relatively limited number of issues rather than maintaining
relatively limited positions in a larger number of issues. This practice permits
concentration of attention on a limited number of companies in relatively few
industries, principally insurance, utilities, financial services, food products,
energy and communications. Some of the investments, because of their size, may
not be as readily marketable as the typical small investment position.
Alternatively, a large equity position may be attractive to persons seeking to
control or influence the policies of a company and AFC's concentration in a
relatively small number of companies and industries may permit it to identify
investments with above average potential to increase in value. Because of its
significant ownership percentage of the voting stock of several companies, AFC
utilizes the equity method of accounting in certain companies. This method
results in AFC reporting its proportionate share of the investees' earnings and
losses. At September 30, 1994, AFC utilized the equity method of accounting with
respect to its investments of: $529 million in American Premier; $255 million in
Chiquita Brands International, Inc. ("Chiquita"); and $67 million in Citicasters
Inc. ("Citicasters"). Upon completion of the Acquisition, New American Premier
would utilize the equity method of accounting with respect to Chiquita and
Citicasters.
Chiquita
From 1984 to 1991, Chiquita reported a continuous record of growth in
annual earnings. In 1992, 1993 and the first nine months of 1994, however,
Chiquita has reported losses from continuing operations. The following factors
relate to Chiquita's businesses.
Approximately 60% of Chiquita's consolidated net sales comes from the sale
of bananas. Banana marketing is highly competitive. Selling prices which
importers receive for bananas are significantly affected by fluctuations in the
available supplies of bananas and other fresh fruit in each market and by the
relative quality and wholesaler and retailer acceptance of bananas offered by
competing importers. Excess supplies may result in increased price competition.
On July 1, 1993, the European Union ("EU") implemented a new quota
restricting the volume of Latin American bananas imported into the EU. Most of
Chiquita's bananas are produced in Latin America and
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subject to the quota. Since imposition of the new EU quota regime on July 1,
1993, prices within the EU have increased to a higher level than for prior
years. Banana prices in other worldwide markets, however, have been lower than
in previous years, as the displaced EU volume has entered those markets.
Challenges to the quota and many matters regarding implementation and
administration of the quota remain to be resolved. Therefore, there can be no
assurance that EU banana regulation will not change further. As a result of
implementation of the EU quota, certain Latin American countries from which
Chiquita exports bananas have agreed to impose additional restrictive and
discriminatory quotas and export licenses on U.S. banana marketing firms while
leaving EU firms exempt. The imposition of such additional quotas and export
licenses could significantly increase Chiquita's cost of exporting Latin
American bananas to the EU.
A significant portion of Chiquita's operations are conducted in foreign
countries and are subject to risks that are inherent in operating in such
foreign countries, including government regulation, currency restrictions and
other restraints, risks of expropriation and burdensome taxes.
Chiquita's operations involve transactions in a variety of currencies.
Results of its operations may be significantly affected by fluctuations in
currency exchange rates. Such fluctuations are significant to Chiquita's banana
operations because many of its costs are incurred in currencies different from
those that are received from the sale of bananas in foreign markets, and there
is normally a time lag between the incurrence of such costs and collection of
the related sales proceeds. Chiquita's policy is to exchange local currencies
for dollars immediately upon receipt, thus reducing exchange risk. Chiquita also
engages from time to time in various hedging activities to minimize potential
losses on cash flows originating in foreign currencies.
Controlling Shareholders
After the Acquisition, 55.4% of the outstanding New American Premier Common
Stock will be owned by Carl H. Lindner and members of his family. It is possible
that this percentage could be reduced under the circumstances described under
"THE ACQUISITION AGREEMENT -- Tax Ruling; Possible Effect on Lindner Family
Ownership." As a result of the ownership position of the Lindner Family, the
position of Carl H. Lindner as Chairman of the Board and Chief Executive Officer
of New American Premier, the position of Carl H. Lindner III as a director,
President and Chief Operating Officer of New American Premier, and the positions
of S. Craig Lindner and Keith E. Lindner as Vice Chairmen of the Board of New
American Premier, the Lindner Family will effectively control New American
Premier after the Acquisition. These persons will have the ability to elect a
majority of directors, approve or disapprove mergers or similar transactions and
amend the articles of incorporation without the necessity of securing votes of
other shareholders. In addition, it would not be possible for a third party to
gain control of New American Premier without the approval of the Lindner Family.
See the reports which are incorporated herein by reference for a description of
certain transactions involving these companies and their controlling
shareholders, directors and executive officers.
CERTAIN CONSEQUENCES OF THE ACQUISITION
Balance Sheet Effects
At September 30, 1994, American Premier had consolidated common
shareholders' equity of $1,625.3 million, book value per common share of $34.14
and tangible book value per common share of $25.80. After the Acquisition, New
American Premier would have, on a pro forma basis at such date, consolidated
common shareholders' equity of $917.6 million, book value per common share of
$17.41 and tangible book value per common share of $10.58. As a result of the
Acquisition and the assumed retirement of debt, New American Premier would have,
on a pro forma basis at September 30, 1994, a consolidated debt-to-total
capitalization ratio of 45.5%, as compared to American Premier's comparable
ratio of 23.6% at that date. See "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
For a discussion of the potential impact of these matters on American Premier's
outstanding debt, see "RISK FACTORS -- Certain Consequences of the
Acquisition -- Effect on Outstanding American Premier Debt." Management of
American Premier believes that these effects will not materially affect the
underlying businesses of New American Premier.
The Special Committee, in its consideration of the proposed Acquisition,
determined that the foregoing pro forma balance sheet effects were outweighed by
the positive impact it expects the Acquisition to have on New American Premier's
earnings per share and its return on equity. See "SPECIAL FACTORS --
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Recommendations of the Special Committee and the Board of Directors of American
Premier; Reasons for Recommendations". Moreover, the Special Committee noted
that, notwithstanding the pro forma increase in debt-to-total capitalization
ratio, New American Premier's pro forma ratio of earnings-to-fixed charges for
the nine months ended September 30, 1994 of 2.4 is higher than American
Premier's comparable ratio of 1.4, and that New American Premier's pro forma
ratio of earnings-to-fixed charges, excluding gains and losses, was 3.1, as
compared to American Premier's comparable ratio of 3.1. See "UNAUDITED PRO FORMA
FINANCIAL INFORMATION."
Holding Company Structure of New American Premier
Although American Premier's insurance subsidiaries, like those of AFC, are
subject to regulatory restrictions on the amounts of dividends that may be paid
to their parent in any twelve-month period, American Premier currently has
substantial assets at the parent company level which enable it to meet its
ongoing needs for cash from sources other than dividends from its insurance
subsidiaries. However, after giving effect to the assumed utilization of $809.9
million of cash to reduce AFC and American Premier debt, repurchase American
Premier Common Stock, and pay other transaction-related expenses, New American
Premier would have, on a pro forma basis, $86.9 million of parent company
investments and $1,005.6 million of consolidated debt at September 30, 1994, as
compared to American Premier's parent company investments of $886.8 million and
consolidated debt of $503.6 million at that date. See "UNAUDITED PRO FORMA
FINANCIAL INFORMATION." After the Acquisition New American Premier will be
dependent on dividends and payments under tax allocation agreements from the
insurance subsidiaries of AFC and American Premier in order to meet parent
company cash requirements for debt service, corporate expenses and dividends to
New American Premier shareholders. In such circumstances, a prolonged material
decline in insurance subsidiary profits or materially adverse insurance
regulatory developments could have the effect of subjecting New American Premier
to shortages of cash at the parent company level. For a discussion of
limitations on payment of dividends by AFC insurance subsidiaries, see "RISK
FACTORS--Certain Considerations Relating to AFC--Holding Company Structure;
Dividend Restrictions." During 1994, the maximum amount of dividends that
American Premier and AFC insurance subsidiaries could have paid to their
respective parents without regulatory approval was approximately $200 million.
Effect on Outstanding American Premier Debt
American Premier has outstanding $500 million of Subordinated Notes (the
"Notes"), consisting of $200 million of 9 3/4% Notes due 1999, $150 million of
10 5/8% Notes due 2000 and $150 million of 10 7/8% Notes due 2011. Each Note has
the benefit of a covenant that would entitle the holder thereof to require
American Premier to purchase all or part of such Note at 100% of its principal
amount (plus accrued interest) in the event of a "Designated Event" that is
followed within 90 days by a "Rating Decline" with respect to the Notes (the
"Put Right"). The Acquisition will constitute a "Designated Event." If, within
the 90-day period following the public announcement of the Acquisition on
December 12, 1994 (which period would be extended for so long as the rating of
the Notes was under publicly announced consideration for possible downgrade),
the rating of the Notes by either Standard & Poor's Corporation ("S&P") or
Moody's Investors Service, Inc. ("Moody's") falls below their current
"investment grade" rating of BBB- by S&P or Baa3 by Moody's, a "Rating Decline"
will be deemed to have occurred.
While New American Premier's pro forma debt-to-total capitalization ratio
at September 30, 1994 (45.5%) would be greater than American Premier's
historical debt-to-total capitalization ratio at that date (23.6%), the similar
September 30, 1994 pro forma ratio of American Premier as the continuing obligor
on the Notes would be significantly lower (18.1%). In addition, notwithstanding
the increase in pro forma debt-to-total capitalization ratio, New American
Premier's pro forma ratio of earnings-to-fixed charges for the nine months ended
September 30, 1994 of 2.4 would improve from American Premier's ratio of 1.4 and
such New American Premier pro forma ratio, excluding gains and losses, would be
3.1 as compared to American Premier's comparable ratio of 3.1. Shortly after the
Acquisition Agreement was announced, S&P announced that it had placed the rating
of the Notes on CreditWatch with negative implications and Moody's announced
that it was reviewing the Notes for a possible ratings downgrade. American
Premier is unable to predict whether either or both of these agencies will in
fact downgrade the Notes, and thereby give rise to the Put
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Right, in light of the factors discussed above. See "UNAUDITED PRO FORMA
FINANCIAL INFORMATION" AND "SPECIAL FACTORS--Opinion of Financial Advisor."
If the Acquisition gives rise to the Put Right, American Premier would be
obligated to mail notice thereof to the holders of the Notes within 28 days
after the later of the closing of the Acquisition or the Rating Decline. A
holder wishing to exercise the Put Right would have to do so at least 10 days
prior to the repurchase date set forth in such notice. Whether any or all of the
holders of the Notes would exercise the Put Right would depend upon prevailing
interest rates, the relative attractiveness of investments other than the Notes
and other factors. Even if the Put Right were exercised in full, however,
American Premier would not, in management's judgment, be adversely affected in
any material way. It is American Premier's intention to purchase or prepay up to
$605.9 million principal amount of AFC and American Premier debt after the
Acquisition is consummated (see "UNAUDITED PRO FORMA FINANCIAL INFORMATION") and
under those circumstances it is expected that the principal negative effect, if
any, of the Put Right would be to reduce the expected savings resulting from
such purchases and repayments because of the requirement that the Notes be
retired in lieu of other debt having higher interest rates.
USX Litigation
In May 1994, lawsuits were filed against American Premier by USX
Corporation ("USX") and its former subsidiary, Bessemer and Lake Erie Railroad
Company ("B&LE"), seeking contribution by American Premier, as the successor to
the railroad business conducted by Penn Central Transportation Company ("PCTC")
prior to 1976, for all or a portion of the approximately $600 million that USX
paid in satisfaction of a judgment against B&LE for its participation in an
unlawful antitrust conspiracy among certain railroads commencing in the 1950's
and continuing through the 1970's. The lawsuits argue that USX's liability for
that payment was attributable to PCTC's alleged activities in furtherance of the
conspiracy. On October 13, 1994, the U.S. District Court for the Eastern
District of Pennsylvania enjoined USX and B&LE from continuing their lawsuits
against American Premier, ruling that their claims are barred by the 1978
consummation order issued by that Court in PCTC's bankruptcy reorganization
proceedings. USX and B&LE have appealed the District Court's ruling to the U.S.
Court of Appeals for the Third Circuit.
American Premier believes that the claims of USX and B&LE are without merit
for the reasons set forth in American Premier's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1994, which is incorporated herein by reference.
However, in considering whether to vote for approval of the Acquisition,
American Premier's shareholders should take into consideration the expected
utilization in connection with the proposed Acquisition of most of American
Premier's substantial cash resources to retire debt and the possibility that if,
contrary to the expectations of American Premier and its counsel, New American
Premier was ultimately required to pay a substantial amount to USX and B&LE as a
result of their litigation, New American Premier might need to make borrowings
in order to make such a payment.
RECENT DEVELOPMENTS
AMERICAN PREMIER 1994 EARNINGS
On February 15, 1995, American Premier reported 1994 income from continuing
operations of $74.5 million, or $1.55 per share, excluding realized capital
gains and losses and certain tax adjustments, compared with $67.1 million, or
$1.39 per share, for 1993. Income from continuing operations for 1994 of $.8
million, or $.02 per share, includes a net realized capital loss of $1.53 per
share, comprised principally of a one-time $75.8 million loss from the disposal
of its General Cable Corporation subordinated notes (the "General Cable Notes").
For the full year 1994, American Premier's net written premiums were
$1,635.5 million, an increase of approximately 19% from $1,378.9 million in
1993. Net written premiums of American Premier's non-standard automobile group
were $1,154.1 million, an increase over 1993 of approximately 28%. Net written
premiums of American Premier's workers' compensation insurance business were
$479.5 million as compared with $465.8 million last year.
The insurance operations' 1994 operating income was $165.4 million.
Excluding realized investment gains, operating income increased approximately
10% over last year principally due to higher investment
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income. For 1994, the combined ratio of the workers' compensation business
decreased to 91.1% from 94.7% in 1993. The 1994 combined ratio of the
non-standard automobile group was 99.8% as compared with 97.0% for 1993.
Excluding realized capital gains and losses and certain tax adjustments,
income from continuing operations for the 1994 fourth quarter was $18.3 million,
or $.38 per share, compared with $18.0 million, or $.37 per share, for the 1993
fourth quarter. Income from continuing operations for the 1994 fourth quarter
was $14.9 million, or $.31 per share.
American Premier's net written premiums for the 1994 fourth quarter were
$401.0 million as compared with $365.5 million for the 1993 period. Net written
premiums of American Premier's non-standard automobile group were $295.2
million, an increase over the 1993 fourth quarter of approximately 18%. Net
written premiums of American Premier's workers' compensation insurance business
were $105.5 million, a decrease of 9.5% from the 1993 fourth quarter.
The insurance operations reported operating income for the 1994 fourth
quarter of $36.6 million compared to $45.2 million for the 1993 fourth quarter.
Excluding realized capital gains and losses, the insurance operations
experienced a 10% decrease in operating income, principally due to lower
underwriting results in the non-standard automobile group, partially offset by
higher investment income. Although the non-standard automobile group continued
to experience net written and earned premium growth, the combined ratio for the
quarter increased to 101.9% from 97.7% last year due to inadequate rate levels
in several markets. During the latter part of 1994, rate increases were
implemented in certain markets and management is taking further steps to address
profitability in the affected jurisdictions. The 1994 fourth quarter combined
ratio of the workers' compensation insurance business was 92.5% compared with
91.7% for the 1993 period.
American Premier's 1993 earnings of $1.39 per share, excluding realized
capital gains and losses, includes approximately $.35 per share of interest
income on the General Cable Notes. While the 1994 results do not include any
interest income on the General Cable Notes, interest income on the cash proceeds
from their disposal of approximately $.06 per share is included in the 1994
earnings of $1.55 per share, excluding realized capital gains and losses.
Net income for 1994 was $.3 million, or $.01 per share. Net income for 1993
was $232.0 million, or $4.81 per share. The 1993 results included a benefit of
$132.0 million, or $2.74 per share, attributable to an increase in American
Premier's net deferred tax asset, net realized capital gains of $43.6 million,
or $.90 per share and a net loss from discontinued operations of $10.7 million,
or $.22 per share.
American Premier ended 1994 with cash, short-term investments and
marketable securities of $758.0 million.
STOCK REPURCHASES
On December 12, 1994, American Premier announced its intent to reactivate
its stock repurchase program under which American Premier's management was
authorized to repurchase up to 5 million shares of American Premier Common
Stock, at market prices, from time to time in open market or privately
negotiated transactions. From December 12, 1994 through February 15, 1995,
American Premier had purchased 4,626,550 shares of American Premier Common Stock
for approximately $115.1 million. On February 15, 1995, American Premier's Board
of Directors authorized management to repurchase an additional 5 million shares
pursuant to such program. However, management does not intend to make further
purchases of shares of American Premier Common Stock prior to the closing of the
Acquisition.
1994 EARNINGS OF AFC AND AFFILIATES
The 1994 consolidated financial results of AFC and its subsidiaries were
not available at the date hereof and are not expected to become available prior
to the Special Meeting. However, GAI is expected to file its Annual Statement
with the Insurance Department of the State of Ohio on or about March 1, 1995,
and American Premier expects to file with the Commission promptly thereafter a
Current Report on Form 8-K summarizing the 1994 financial results of GAI that
will be included in such Annual Statement. Moreover, American Annuity Group,
Inc. (an 80% owned subsidiary of AFC), Chiquita and Citicasters are expected to
announce their respective 1994 financial results prior to the Special Meeting.
American Premier likewise
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expects to file Current Reports on Form 8-K with respect to such announced
results. As a result of the filing of such Current Reports, the information
contained therein will be deemed incorporated herein by reference. See
"DOCUMENTS INCORPORATED BY REFERENCE."
CALIFORNIA WORKERS' COMPENSATION MARKET
As disclosed in American Premier's Form 10-Q for the quarter ended
September 30, 1994 and its Form 10-K for the year ended December 31, 1993, the
California Insurance Commissioner ordered a series of reductions in California
workers' compensation minimum insurance rates in 1993 and 1994. The mandated
premium rate reductions have already impacted the results of operations of
American Premier's workers' compensation insurance subsidiary, Republic
Indemnity Company of America ("Republic"), particularly premium levels, and
during the 1994 fourth quarter Republic experienced a decline in net written
premiums of approximately 9.5% compared with the 1993 period. In addition,
California has enacted legislation which, among other things, repealed the
workers' compensation insurance minimum rate law effective January 1, 1995.
Republic has already encountered extremely competitive pricing in the market
place. Republic intends to maintain its stringent underwriting standards and
pricing discipline, which are likely to have at least a temporary adverse effect
on premium volume and profitability. Historically, Republic's policyholder
dividends have been among the highest in the industry. To meet future pricing
competition, Republic has the option of quoting business without indication of
policyholder dividends. While this option may serve to partially mitigate the
adverse effects of these developments, Republic is unable to predict their
ultimate impact on its workers' compensation insurance operations. Republic has
continued to operate on a profitable basis, but no assurances can be given that
it can continue to do so in the face of adverse conditions in the California
workers' compensation market.
NEW AMERICAN PREMIER
New American Premier is a corporation newly formed under Ohio law for
purposes of the Acquisition. New American Premier has assets of one hundred
dollars and no liabilities. All of its capital stock is held by a nominee who
has agreed to vote all the shares of such stock in favor of the Acquisition. It
will have no independent business operations prior to the Acquisition.
Following the Acquisition, New American Premier will operate the businesses
now being conducted by American Premier and AFC, which will then be subsidiaries
of New American Premier. The information incorporated herein by reference for
each of those companies contains descriptions of their business, management,
property, legal proceedings applicable to them, financial statements,
management's discussion and analysis of their financial conditions and results
of operations, and the principal holders of their voting securities prior to the
Acquisition.
The directors and executive officers of New American Premier are as
follows:
<TABLE>
<CAPTION>
NAME POSITION
------------------------------------------ -------------------------------------
<S> <C>
Carl H. Lindner........................... Chairman of the Board and Chief
Executive Officer
Carl H. Lindner III....................... President, Chief Operating Officer
and Director
S. Craig Lindner.......................... Vice Chairman of the Board
Keith E. Lindner.......................... Vice Chairman of the Board
Neil M. Hahl.............................. Senior Vice President and Director
Robert W. Olson........................... Senior Vice President, General
Counsel, Secretary and Director
Theodore H. Emmerich...................... Director
James E. Evans............................ Director
Thomas M. Hunt............................ Director
William R. Martin......................... Director
Alfred W. Martinelli...................... Director
Robert F. Amory........................... Vice President and Controller
</TABLE>
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<PAGE> 31
All of the above persons (except Keith E. Lindner) are presently directors
and/or executive officers of American Premier. It is anticipated that certain
executive officers of AFC would also become executive officers of New American
Premier. Information concerning those persons listed above as well as a
description of executive compensation and certain relationships and related
transactions involving those persons and AFC's directors and executive officers
is contained in the material incorporated by reference herein with respect to
American Premier and AFC. Keith E. Lindner, age 35, has been President and Chief
Operating Officer of Chiquita for over five years. He is Carl H. Lindner's son
and the brother of Carl H. Lindner III and S. Craig Lindner.
The four members of the Lindner Family listed above have historically been
executives of AFC and, as such, have received compensation from AFC, all of the
common stock of which is privately held by the Lindner Family. Following New
American Premier's acquisition of AFC through the Acquisition, the New American
Premier Board of Directors will form a Compensation Committee consisting
entirely of independent directors, which will establish a compensation system
that is expected to provide annual cash compensation to such members of the
Lindner Family for services to New American Premier and its affiliates that is
substantially less than the aggregate annual compensation they have received
from AFC and its affiliates (including American Premier) in recent years. It is
expected that the Compensation Committee will establish an annual bonus system
that will make a significant portion of such Lindner Family members' total
compensation dependent on New American Premier's future financial performance.
SPECIAL FACTORS
BACKGROUND
Formerly a diversified company, since 1989 American Premier has made a
number of strategic acquisitions and divestitures in order to focus on property
and casualty insurance businesses. In 1989, American Premier (which was then
named The Penn Central Corporation) purchased Republic Indemnity Company of
America (then approximately 40% owned by AFC), which writes workers'
compensation insurance in California, for $288 million in cash. In 1990,
American Premier purchased from AFC its NSA Group of insurance companies, which
write non-standard automobile insurance, for $375 million in cash. In 1993,
American Premier added to its NSA Group by acquiring Leader National Insurance
Company ("Leader"), another writer of non-standard automobile insurance, for $38
million in cash.
In furtherance of this strategy, American Premier has divested all of its
non-insurance businesses. In 1992, American Premier spun off to its shareholders
substantially all of the stock of General Cable Corporation, which had been
formed to own American Premier's principal manufacturing businesses. In 1994,
American Premier sold the General Cable notes and stock that it had retained in
the spin-off for $177 million. In addition, in 1993 and 1994, American Premier
made divestitures of six non-insurance subsidiaries for an aggregate of $149
million and sold two major non-insurance investment positions for an aggregate
of $178 million. With the strategic divestiture program essentially complete, in
March 1994 American Premier changed its name from "The Penn Central Corporation"
to "American Premier Underwriters, Inc." in order to better reflect its new
identity as a property and casualty insurance specialist.
As a result, American Premier owns two principal insurance businesses that
for 1993 and the first nine months of 1994 had net written premiums of $1.4
billion and $1.2 billion, respectively, operating income of $167 million and
$129 million, respectively, and a combined ratio of 96.2% and 96.4%,
respectively. In addition, its divestitures over the past two years increased
American Premier's cash equivalent resources to $820 million at September 30,
1994.
Over the past two years, American Premier has been seeking acquisition and
investment opportunities for the utilization of its cash resources, primarily in
the property and casualty insurance area. Although a number of potential
acquisitions have been explored and in some cases preliminarily negotiated,
these efforts have not resulted in the completion of any transaction other than
the Leader acquisition. One potential acquisition that
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received serious consideration from a special committee of American Premier's
independent directors was AFC's publicly announced proposal in February 1994
that American Premier purchase GAI's personal lines insurance businesses for
$380 million in cash. Negotiations regarding such an acquisition were ultimately
terminated in June 1994 because the parties did not reach agreement on the price
and various other terms and conditions of a sale.
American Premier has recognized that its cash resources need to be
redeployed to produce a higher rate of return than is available on the
short-term fixed maturity instruments in which they have been invested. At the
same time, however, management believes that an imprudent or overpriced
acquisition would be contrary to the best interests of shareholders. Against
this background, in August 1994 American Premier engaged Furman Selz to render
financial advisory and investment banking services to American Premier in
considering alternatives to increase American Premier shareholder value,
including preparation of a report to American Premier's management and Board of
Directors summarizing the significant alternatives available to American Premier
and its views thereof.
Over the ensuing two months, Furman Selz reviewed and analyzed public and
private information about American Premier and developed and evaluated a number
of financial alternatives aimed at achieving the goal of increasing American
Premier shareholder value. This process culminated in a presentation by Furman
Selz of its findings and recommendations to the Board of Directors of American
Premier (the "Board") on October 26, 1994. This presentation discussed a number
of alternatives available to American Premier. These alternatives can be
summarized as: (i) acquisition by American Premier of an unaffiliated insurance
company, (ii) institution by American Premier of a significant stock repurchase
program, (iii) acquisition by American Premier of AFC, (iv) repurchase of
American Premier debt and (v) payment by American Premier of an extraordinary
cash dividend to shareholders. Furman Selz reviewed with the Board certain
potential effects upon American Premier of each of these alternatives. Factors
considered by Furman Selz with respect to various of the alternatives included
hypothetical earnings per share, book value per share, tangible book value per
share and debt-to-equity ratios. After weighing the relative merits of each of
these alternatives, Furman Selz recommended that American Premier explore an
acquisition of AFC.
The Board then discussed and reviewed the various alternatives and
recommendations of Furman Selz. The Board viewed a major acquisition of another
insurance company as being preferable to the other alternatives considered.
Furman Selz's analyses suggested that a major stock repurchase program could
improve earnings per share, but that as a practical matter the size of such a
program would be limited by market constraints to $200 - $300 million. The Board
concluded that a stock repurchase program of that magnitude, by itself, would
still leave a substantial amount of American Premier's excess cash equivalent
assets underdeployed. The Board also noted that a stock repurchase program would
not increase the breadth or diversity of American Premier's insurance operations
and that such a program would decrease American Premier's ability to utilize
fully its net operating loss tax carryforwards before they expire at the end of
1996. The Board viewed the debt repurchase and extraordinary dividend
alternatives as being less attractive than a stock repurchase program. The Board
declined to pursue the debt repurchase because of the non-callability of
American Premier's $500 million principal amount of outstanding long-term debt
and Furman Selz's analyses showing that the premiums that would have to be paid
in order to repurchase all of such debt under current market conditions could be
expected to result in an overall dilution, rather than accretion, to earnings
per share. The extraordinary dividend alternative was rejected because it would
be taxable to individual shareholders of American Premier as ordinary income. In
the Board's view, the attractiveness of an acquisition as compared with the
other alternatives was particularly reinforced by Furman Selz's analyses of
acquisitions of hypothetical companies at various assumed total purchase prices,
multiples of purchase price to the acquired company's book value and
post-acquisition returns on equity investment in the acquired company. Such
analyses were meant to be illustrative only. However, in the Board's view they
indicated, in general, that a suitable acquisition had a greater potential for
increasing American Premier's earnings per share than, in particular, a stock
repurchase program, and would increase the breadth and diversity of American
Premier's insurance operations and the ability to more fully utilize American
Premier's net operating loss carryforward; moreover, a major-sized acquisition
had greater potential for increasing earnings per share than a smaller-sized one
and would also utilize more of American Premier's cash equivalent assets. In
this regard, the Board
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<PAGE> 33
noted that an acquisition of AFC seemed to offer several advantages which were
not apparent in the other alternatives. Such an acquisition would be consistent
with American Premier's previously announced desire to consummate a significant
acquisition in the property and casualty insurance area. AFC, based upon
information available to the Board, appeared to be a profitable company with
operations in attractive specialty insurance areas which would be an excellent
fit with the lines of business in which American Premier operated. A large
portion of American Premier's cash equivalent assets could be used to retire
relatively expensive AFC debt which is callable. Of particular interest was the
fact that because of the large holdings of American Premier stock by AFC, a
stock-for-stock acquisition of AFC could be effected with a substantially
smaller increase in the overall number of shares of American Premier Common
Stock to be outstanding after the Acquisition than would be involved in an
acquisition of an unaffiliated company of comparable size. The use of cash to
repay debt, coupled with the perceived potential management efficiencies,
offered the possibility of substantially increased earnings per share following
an acquisition. Following this discussion, the Board determined that an
acquisition by American Premier of AFC appeared to offer the best alternative
available to American Premier for increasing shareholder value and that this
alternative should be explored to determine whether such a transaction could be
negotiated on terms that would be fair to American Premier and its shareholders.
In view of the relationship of AFC and American Premier, the Board
appointed a special committee of independent directors (the "Special Committee")
and charged the Special Committee with the task of negotiating the terms of any
acquisition by American Premier of AFC, assessing the fairness of any such
acquisition to the shareholders of American Premier not affiliated with AFC (the
"American Premier Public Shareholders") and making a recommendation to the Board
as to whether such a transaction should be consummated. The Board appointed Mr.
Alfred W. Martinelli as chairman of the Special Committee, and Messrs. Theodore
H. Emmerich, Thomas M. Hunt and William R. Martin as the other members of the
Special Committee. Immediately following the October 26, 1994 Board Meeting, the
Special Committee met preliminarily. At that meeting, the Special Committee
agreed to engage the law firm of Taft, Stettinius & Hollister as its legal
counsel and agreed to engage Furman Selz to provide financial advice to the
Special Committee and, if requested, to provide an opinion to the Special
Committee as to the fairness to the American Premier Public Shareholders of the
consideration, from a financial point of view, to be received in any
transaction.
On November 4, 1994, the Special Committee held another meeting. At this
meeting, and at all of the subsequent meetings of the Special Committee, all
members of the Special Committee were present, as were the Special Committee's
advisors. Senior management (other than the Messrs. Lindner) of American Premier
also attended all or portions of the meetings at the request of the Special
Committee. At the November 4 meeting, the Special Committee was apprised of due
diligence meetings that representatives of the Special Committee's legal and
financial advisors and of American Premier had attended on the Special
Committee's behalf during the week of October 31, 1994, and the status of
certain legal, accounting, tax and valuation issues identified to date.
The Special Committee next met on November 14, 1994 to receive status
reports from its legal and financial advisors. At this meeting, the Special
Committee engaged Milliman & Robertson ("M&R"), an actuarial firm of recognized
national standing, for the purpose of analyzing the adequacy of the loss and
loss adjustment reserves of GAI and certain matters related to American Annuity
Group, an 80% owned subsidiary of AFC ("AAG").
On November 16, 1994, the Special Committee's legal counsel provided a
first draft of the Acquisition Agreement to AFC. The first draft prepared by
legal counsel for the Special Committee included, among other things, provisions
for AFC shareholder indemnifications of American Premier after the closing and
conditions to the Acquisition that a majority of the shares of American Premier
Common Stock held by American Premier Public Shareholders that are voted, vote
in favor of the Acquisition and that American Premier receive an updated Furman
Selz fairness opinion on the date of the closing, as well as a provision
allowing American Premier to terminate the Acquisition Agreement if the Special
Committee determined, pursuant to its fiduciary duties in accordance with
applicable law, that such action should be taken. During the
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<PAGE> 34
rest of November and early December, legal counsel for the Special Committee and
for AFC exchanged comments and held discussions and negotiations regarding the
provisions of the Acquisition Agreement.
On November 22, 1994, another meeting of the Special Committee was held.
The Special Committee reviewed the actions taken to date and received advice
from its counsel regarding the fiduciary duties owed by each member of the
Special Committee. The Special Committee then received detailed reports from
management of, and advisors to, American Premier with respect to various due
diligence reviews carried out with regard to the business operations of AFC and
its affiliates.
M&R then presented preliminary reports on its reviews of the reserves of
GAI. M&R's reports consisted of preliminary versions of the final reports
described under "SPECIAL FACTORS -- Reports of Milliman & Robertson." M&R noted
that the Special Committee ultimately should only rely on the results and
analyses contained in their final reports.
Furman Selz then reported to the Special Committee regarding its progress
to date in reviewing the affairs of AFC and discussed in detail the contemplated
methodologies to be utilized in evaluating the acquisition of AFC. This report
consisted of several preliminary analyses, the final versions of which are
described under the heading "SPECIAL FACTORS -- Opinion of Financial Advisor."
Furman Selz then responded to questions from, and engaged in discussions with,
the Special Committee and its counsel with respect to its preliminary report. In
addition, the Special Committee received a report from its counsel concerning
legal due diligence activities to date and the status of negotiations regarding
the Acquisition Agreement.
The Special Committee met again on November 29, 1994. The Special Committee
reviewed the actions taken to date. Representatives of M&R then presented
further preliminary reports regarding M&R's views of the adequacy of GAI's
reserves (both generally and from an A&E exposure standpoint). Again, M&R stated
that the Special Committee ultimately should only rely on the results and
analyses contained in their final reports and that in order to rely on any of
M&R's work, M&R's reports must be read in their entirety. Copies of the reports
have been filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
M&R indicated that, based upon its preliminary review of GAI's reserves as
of September 30, 1994, GAI's non-A&E reserves appeared to M&R to be redundant by
approximately $100 million. M&R also indicated that the reserves established for
A&E exposure total approximately $130 million. M&R concluded that A&E reserves
carried by GAI are lower than industry average reserve levels for A&E
liabilities and that a $225 million reserve would be consistent with projected
year end 1994 industry A&E reserves. (See "SPECIAL FACTORS -- Reports of
Milliman & Robertson--Adequacy of Loss Reserves of GAI.") M&R stated that the
$225 million reserve does not represent GAI's ultimate liability for A&E
exposures. Due primarily to the inability of the insurance industry to estimate
with reasonable certainty ultimate liabilities for A&E exposures because of lack
of historical data, inapplicability of standard projection techniques and
uncertainty with regard to claim costs, coverage interpretation and the
judicial, statutory and regulatory provisions under which the claims may
ultimately be resolved, the U.S. insurance industry has not recorded an estimate
of the ultimate liability associated with A&E exposures in financial statements.
Instead, based on information provided in a recent report published by Best (the
"Best Report"), property and casualty insurance companies will carry at year end
1994 A&E reserves that will support, on an average, approximately seven years of
payments at current year payment levels. The $225 million indicated reserve for
GAI represents a reserve consistent with industry reserve levels for A&E
exposures based on GAI's current annual rate of A&E payments and the
relationship of GAI's relevant market share to the insurance industry estimated
A&E reserve level as of year end 1994.
It was noted by M&R that, for some companies in the GAI group, current year
payment data was incomplete and that current payment levels for A&E claims were
not necessarily representative of future payment levels. Furthermore, there are
factors that will tend to cause industry reserve adequacy for A&E exposures to
increase over the next few years. M&R also noted that the definition of
environmental claims varies from company to company, and that GAI appears to use
a broad definition for such claims. The Best Report appears to define
environmental claims as being limited to an insured's exposure associated with
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<PAGE> 35
hazardous waste sites. M&R noted that in utilizing the Best Report it was
applying some of the conclusions reached by that report for environmental claims
to GAI's broader class of claims and that to the extent GAI's definition of A&E
claims extends beyond hazards contemplated by the Best Report, M&R's reviews
would be affected.
M&R noted also that the Best Report also provides ultimate loss estimates
for the property and casualty insurance industry for A&E exposures (on an
undiscounted basis) ranging from $90 billion to $658 billion, with an expected
value of $295 billion. A mechanical application of GAI's relevant market share,
which is estimated to be 1.6%, yields ultimate losses for GAI (on an
undiscounted basis) in the range of $1.4 billion to $10.5 billion, or an
expected value estimate of approximately $4.7 billion. However, M&R noted that
there are many factors that might lead one to believe that GAI's ultimate losses
could be materially different than the numbers cited above. First, the ultimate
losses developed by Best are based on numerous assumptions, many of which are
highly uncertain at this time. Second, GAI's share of these ultimate losses may
be different than those estimated by its market share due to factors such as the
type of business written, the coverage provided and the limits of liability
exposed. Finally, GAI defines A&E claims as a broader class of claims than those
considered by the Best Report.
The Special Committee then reviewed with its legal counsel actual and
potential legal developments which might affect ultimate environmental
liabilities in the future and the responsibility of the insurance industry for
such liabilities. In this regard, counsel observed that a significant percentage
of the paid losses reported to date by insurers for environmental matters have
been litigation costs. Counsel noted that such costs might be expected to
decrease in the future because many of the legal issues that previously resulted
in litigation have now been resolved by the courts, and litigation therefore
might be expected to decline. Counsel also noted that Congress was expected to
consider legislation for the purpose of implementing reforms to environmental
legislation and that there appeared to be an increased willingness on behalf of
regulatory bodies to consider more cost effective means of environmental cleanup
up of hazardous waste sites. Counsel advised the Special Committee, however,
that there was no definite way to determine what effect any of these matters
might have upon ultimate future environmental costs. The Special Committee also
was advised that GAI's management has concluded that a reasonable estimate of
ultimate liability for such exposures is not possible at this time.
M&R then reported on the status of its review of Great American Life
Insurance Company ("GALIC"), a wholly owned subsidiary of AAG. M&R's preliminary
reports on reserve adequacy of GAI and of GALIC consisted of preliminary
presentations, the final versions of which are described under the heading
"SPECIAL FACTORS -- Reports of Milliman & Robertson."
The Special Committee then reviewed with its legal counsel the current
status of negotiations and discussions with respect to the terms of the
Acquisition Agreement.
Furman Selz then presented an updated report on the proposed acquisition of
AFC. As before, this report consisted of several preliminary analyses, the final
versions of which are described under the heading "SPECIAL FACTORS -- Opinion of
Financial Advisor." Furman Selz then responded to questions from, and engaged in
further discussions with, the Special Committee and its counsel with respect to
this preliminary report.
The Special Committee then concluded tentatively that, based upon all of
the information which it had received to date, the acquisition of AFC by
American Premier appeared to be in the best interest of American Premier and the
American Premier Public Shareholders, assuming that the transaction could be
carried out on terms acceptable to the Special Committee. The Special Committee
considered the nature of such terms, and it was determined that Mr. Martinelli,
along with a representative of Furman Selz, would contact Mr. Ronald F. Walker,
President of AFC, and discuss with Mr. Walker the terms upon which the Special
Committee would be willing to recommend an acquisition of AFC by American
Premier.
On December 1, 1994, Mr. Martinelli and a representative of Furman Selz met
with Mr. Walker. Another meeting of the Special Committee was held on December
2, 1994, at which time Mr. Martinelli reported to the Special Committee on the
results of the discussions with Mr. Walker. The principal issue discussed
between Mr. Martinelli and Mr. Walker related to the number of shares of New
American Premier Common Stock which would be issued in exchange for AFC Common
Stock in any transaction. It was noted
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<PAGE> 36
that this would depend upon a number of factors, including the value assigned to
American Premier, the value assigned to AFC and the market value assigned to
shares of New American Premier Common Stock. Mr. Walker indicated that AFC and
its shareholders felt that an exchange ratio was warranted which would result in
more than 30 million shares of New American Premier Common Stock being issued in
exchange for the AFC Common Stock. Mr. Martinelli and the representative of
Furman Selz suggested a lower exchange ratio which would have resulted in fewer
than 27 million shares being issued. Following arm's-length negotiations which
lasted for the better part of December 1, the parties agreed that, subject to
approval by AFC and its shareholders and by the full Special Committee, an
exchange ratio of 1.45 shares of New American Premier Common Stock for each
share of AFC Common Stock would be acceptable, assuming that agreement could be
reached on the other terms of the Acquisition Agreement. This exchange ratio
would have resulted in 28.6 million shares of New American Premier Common Stock
being issued in exchange for the AFC Common Stock.
Between December 2 and December 9, 1994, discussions and negotiations
continued regarding the terms of the Acquisition Agreement.
On December 7, 1994, another meeting was held by the Special Committee. The
Special Committee reviewed with its advisors the proposed terms of the
Acquisition Agreement which had been negotiated with AFC. It was noted that the
number of shares of New American Premier Common Stock to be issued in exchange
for AFC Common Stock had been negotiated between Mr. Martinelli on behalf of the
Special Committee and Mr. Walker on behalf of AFC. It was noted further that the
Acquisition Agreement included, among other provisions, a condition to the
merger that the Special Committee will have received an updated opinion as to
fairness from Furman Selz at the time of the closing, and a provision allowing
American Premier to terminate the Acquisition Agreement if the Special Committee
determines that, pursuant to its fiduciary duties in connection with applicable
law, such action should be taken. It was also noted that the Acquisition
Agreement did not include provisions for AFC shareholder indemnification of
American Premier after the closing or a condition that a majority of the shares
of American Premier Common Stock held by American Premier Public Shareholders
that are voted, vote in favor of the Acquisition since AFC and its shareholders
would not agree to such provisions. In considering these matters, the Special
Committee noted specifically and so advised AFC that, notwithstanding the lack
of a separate American Premier Public Shareholder vote, one factor which it
would consider in deciding whether to exercise its fiduciary right to terminate
the Acquisition Agreement would be the vote of the American Premier Public
Shareholders.
Furman Selz then reviewed with the Special Committee a report with regard
to the Acquisition. This report was a preliminary version of, and consistent
with, the final report which is described under the heading "SPECIAL
FACTORS -- Opinion of Financial Advisor." In this review, the Special Committee,
among other things, considered specifically the pro forma estimated earnings
impact on American Premier of the Acquisition as calculated by Furman Selz and
included in Furman Selz's final report. The report, based upon American Premier
management projections, indicated estimated projected earnings per share
(excluding capital gains and losses) of American Premier of $1.54 for 1994 and
$1.88 for 1995 (See "SPECIAL FACTORS -- Opinion of Financial Advisor"). Furman
Selz calculated, based upon assumptions furnished by management which were set
forth in their report, including the use of American Premier cash to retire
certain indebtedness of American Premier and AFC and the reduction of goodwill
required by generally accepted accounting principles ("GAAP"), that the result
of the Acquisition would be to increase estimated projected pro forma earnings
per share of New American Premier to $2.40 for 1994 and in excess of $3.10 for
1995 (in each case, excluding capital gains or losses and without giving effect
to one-time charges associated with the Acquisition). See "SPECIAL
FACTORS -- Opinion of Financial Advisor." The Special Committee recognized that
there could be no assurance that such earnings per share would be achieved
following the Acquisition. The Special Committee also noted that the Acquisition
was calculated by Furman Selz to result in a reduction in book value per share
of American Premier from $34.14 at September 30, 1994 to $16.38 for New American
Premier on a pro forma basis at the same date. The Committee noted that actual
reported results for 1994 and 1995 will be lower than the pro forma estimates
since the Acquisition will close after the beginning of 1995 and because of
one-time charges related to the Acquisition. The Special Committee was advised
and understood that the Furman Selz analyses must be considered in the aggregate
and that selecting
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portions of the analyses or the factors considered by Furman Selz, without
considering all the analyses and factors, could create a misleading view of the
process underlying the Furman Selz opinion.
The Special Committee met again on December 9, 1994. At this meeting, the
Special Committee received the final report of Furman Selz which is described
under "SPECIAL FACTORS -- Opinion of Financial Advisor." The Special Committee
also reviewed with its legal counsel the Acquisition Agreement. Furman Selz also
delivered to the Special Committee its written opinion to the effect that the
Exchange Ratios were fair to the American Premier Public Shareholders from a
financial point of view. The Special Committee also received the final reports
of M&R as described under "SPECIAL FACTORS -- Report of Milliman & Robertson."
At the conclusion of the meeting on December 9, 1994, the Special Committee
unanimously adopted resolutions finding that the Acquisition was fair to the
American Premier Public Shareholders, recommending that the Board of Directors
of American Premier approve the Acquisition Agreement and cause it to be
presented to the shareholders of American Premier for their consideration and
recommending that the American Premier Public Shareholders approve the
Acquisition Agreement.
The Board of Directors of American Premier, later on December 9, 1994,
received the report and recommendation from the Special Committee. The Board
then determined, in light of and subject to the terms and conditions set forth
in the Acquisition Agreement, that it was in the best interest of American
Premier's shareholders for American Premier to enter into the Acquisition
Agreement and that the Acquisition would be fair to, and in the best interest
of, the American Premier Public Shareholders, and determined to recommend to the
shareholders of American Premier that the Acquisition Agreement be approved. At
the meeting, the actions taken were approved by the unanimous affirmative vote
of American Premier's four directors who are not employees of American Premier,
plus the affirmative vote of Neil M. Hahl and Robert W. Olson, Senior Vice
Presidents of American Premier. Messrs. Carl H. Lindner, Carl H. Lindner III, S.
Craig Lindner and James E. Evans abstained with respect to such matters in view
of their positions with AFC.
The Special Committee met again on January 18, 1995. At that meeting, the
Special Committee reviewed events since its last meeting and considered and
approved certain technical amendments to the Acquisition Agreement. The Special
Committee also reviewed with its legal counsel the litigation which had been
brought challenging the Acquisition. See "CERTAIN LITIGATION REGARDING THE
ACQUISITION." After this review, the Special Committee concluded that none of
the assertions set forth in the litigation caused the Special Committee to
change its view with respect to the Acquisition. The Special Committee met again
on February 15, 1995. At that meeting, the Special Committee reviewed with its
legal and financial advisors the settlement described under "CERTAIN LITIGATION
REGARDING THE ACQUISITION." After this review, the Special Committee concluded
that such settlement appeared to be in the best interests of the American
Premier Public Shareholders.
RECOMMENDATIONS OF THE SPECIAL COMMITTEE AND THE BOARD OF DIRECTORS OF AMERICAN
PREMIER;
REASONS FOR RECOMMENDATIONS
As noted above, the Board of Directors of American Premier and the Special
Committee have determined that the Acquisition is fair to the American Premier
Public Shareholders and recommend that the shareholders of American Premier
approve the Acquisition Agreement. In reaching this determination, the Special
Committee and the Board considered a number of factors, including, but not
limited to, the following:
(i) Furman Selz's opinions described below under "SPECIAL
FACTORS -- Opinion of Financial Advisor" to the effect that the Exchange
Ratios are fair, from a financial point of view, to the American Premier
Public Shareholders;
(ii) the various analyses and other information presented to the
Special Committee by Furman Selz, including those described under "SPECIAL
FACTORS -- Background" and "SPECIAL FACTORS -- Opinion of Financial
Advisor;"
(iii) a review of the possible alternatives to the Acquisition,
including the acquisition by American Premier of an unaffiliated insurance
company, institution of a significant stock repurchase program,
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repurchase of debt or the payment of an extraordinary cash dividend, as
considered at the meeting of the Board of Directors held on October 26,
1994;
(iv) the belief of the Special Committee that the Committee's review
of the Acquisition confirmed that the potential advantages of the
Acquisition which had been cited by the Board at the October 26, 1994
meeting did, in fact, exist, and specifically that the Acquisition would
enable American Premier to carry out a significant acquisition in the
property and casualty area and make use of American Premier's excess cash
with a substantially smaller increase in the number of outstanding shares
of New American Premier Common Stock than would be involved in an
acquisition of an unaffiliated company of comparable size, resulting in an
expected substantial increase in earnings per share;
(v) the potential substantial increase in return on equity resulting
from the combination of pro forma increases in earnings per share and
decreases in book value per share, and the prospect that New American
Premier Common Stock may trade at a higher multiple of book value than its
peers because of its relatively higher pro forma return on equity;
(vi) the various factors described under "RISK FACTORS";
(vii) the fact that shares of American Premier Common Stock were, at
the time of the December 9 meeting of the Special Committee, trading at 29%
below the 52-week high and 8% above the 52-week low and that the Special
Committee was able to negotiate a rate of exchange for the AFC Common Stock
which, in the view of the Committee, took into account that the American
Premier stock was trading at the lower end of its 52-week trading range;
(viii) the fact that the Acquisition has been structured in such a way
as to preserve the net operating loss carryforwards which are available to
American Premier and that the Acquisition is expected to result in
increased earnings which will allow New American Premier to make use of the
net operating loss carryforwards; and
(ix) the terms and conditions of the Acquisition Agreement, including
the fact that the Acquisition Agreement is subject to the condition that an
updated opinion as to fairness be received from Furman Selz at the closing
and that American Premier has the right to terminate the Acquisition
Agreement if, in the exercise of its fiduciary duties, the Special
Committee determines that such action is appropriate.
Each of the factors cited above was considered by the Special Committee at
one or more of its meetings described under "SPECIAL FACTORS -- Background." The
consideration of factors (i), (iii), (iv), (vi), (vii), (viii) and (ix) involved
primarily discussions among the members of the Special Committee and its legal
and financial advisors, and was based upon information and advice received by
the Special Committee with respect to each factor from management of American
Premier and the Special Committee's legal and financial advisors, as well as its
members' own knowledge about the matters involved in the Acquisition. The
consideration of factors (ii) and (v) involved detailed reviews by the Special
Committee of factual, financial and numerical information presented to the
Special Committee by its financial advisor as described under "SPECIAL
FACTORS -- Background" and "SPECIAL FACTORS -- Opinion of Financial Advisor."
With respect to factor (ii), the Special Committee noted particularly that the
analyses of Furman Selz indicated: (a) an implied valuation range for AFC of
$1.5 billion to $2.0 billion and that the total transaction value of $1.8
billion (based on the December 1, 1994 American Premier Common Stock closing
price) was within this range; and (b) an increase in 1995 pro forma projected
income (excluding capital gains and losses and certain other nonrecurring items)
of New American Premier to an amount in excess of $3.10 per share from projected
1995 income of American Premier of $1.88 per share. Based upon these
considerations, the Special Committee concluded that factors (i), (ii), (iii),
(iv), (v) and (viii) were favorable as to the fairness of the Acquisition,
factor (vi) was unfavorable and factors (vii) and (ix), while having both
positive and negative implications, were on the whole favorable.
As part of its consideration of factor (vi), the Special Committee gave
specific consideration to the A&E reserves of GAI and, in particular, the
information provided to the Special Committee by M&R (see "SPECIAL
FACTORS -- Reports of Milliman & Robertson"). The Special Committee noted that
the risk exists to GAI of substantial ultimate A&E liabilities of an
undetermined nature, but that it appeared
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impossible to reach any reasonable determination as to the extent of these
ultimate liabilities. The Special Committee further noted that the reserves
available to GAI with respect to A&E matters (consisting of the $100 million
non-A&E reserve redundancy and the $130 million A&E reserve) appeared to be in
line with industry averages and that the ultimate liability for such claims
would be paid out over a considerable period of time, probably exceeding thirty
years. Ultimately, the Special Committee concluded that the uncertainties in
this regard were more than outweighed by the positive factors described above
indicating that the Acquisition was fair to and in the best interests of
American Premier and the American Premier Public Shareholders.
In reaching its determination that the Acquisition is fair to the American
Premier Public Shareholders, the Special Committee considered solely the
interests of such Shareholders and did not consider the interests of other
parties or of officers or directors of either American Premier or AFC. The
amount to be paid under AFC's Book Value Incentive Plan (see "TRANSACTIONS
INVOLVING INTERESTED PERSONS") was considered as part of the negotiations
between the Special Committee and AFC, but the considerations of the Special
Committee in this regard related solely to the interests of the American Premier
Public Shareholders.
In view of the wide variety of factors considered in connection with its
evaluation of the Acquisition, neither the Special Committee nor the Board found
it practicable to, and did not, quantify or otherwise attempt to assign relative
weights to the specific factors considered in reaching its respective
determinations, except that the Special Committee and the Board placed special
emphasis on the number of shares to be issued in exchange for AFC and on the
matters set forth in items (i), (ii), (iv) and (v) above as well as the A&E
matters relating to GAI discussed below under "Reports of Milliman & Robertson."
Because of the appointment of the Special Committee and the engagement of
Furman Selz and special counsel by the Special Committee, neither the Board nor
the Special Committee considered it necessary to retain an unaffiliated
representative to act solely on behalf of the American Premier Public
Shareholders for the purpose of negotiating the terms of the Acquisition
Agreement.
REPORTS OF MILLIMAN & ROBERTSON
Adequacy of Loss Reserves of GAI
As part of its due diligence of AFC, American Premier engaged the actuarial
consulting firm of M&R to analyze the adequacy of the net reserves carried by
GAI as of September 30, 1994 and to conduct an independent analysis of GAI's
exposure to A&E claims. Below is a brief description of the findings from these
two reports. In order to understand or rely on M&R's work, the reports must be
read in their entirety. A copy of the reports has been filed as an exhibit to
the Registration Statement of which this Proxy Statement/Prospectus is a part.
Non-A&E Exposures. The actuarial analysis indicates that, excluding
reserves for A&E exposures, GAI is redundantly reserved by approximately $100
million. This reserve redundancy is net of ceded reinsurance and assumes that
all reinsurance cessions are valid and collectible. The estimated reserve
redundancy of approximately $100 million for non-A&E exposures is subject to
significant uncertainty and actual results may be materially different than the
estimate cited. Such uncertainties include but are not limited to:
1. M&R relied on data and other information supplied by GAI without
audit or other verification.
2. While projections of reserve adequacy are based on reasonable
actuarial procedures, projections of future events are uncertain
and actual results will likely vary from the projections.
3. There are certain business segments in runoff for which historical
data is limited or unavailable. These business segments include
some assumed reinsurance underwritten prior to 1985, commercial
surplus lines, excess and umbrella business, as well as commercial
automobile and workers' compensation coverage associated with long
haul trucking. The total aggregate recorded reserves as of
September 30, 1994 for the business segments in runoff were $139
million.
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4. There are roughly $220 million or 10% of the carried reserves that
M&R did not review, of which $161 million are comprised of reserves
from industry pools and associations. These reserves were not
reviewed by M&R because GAI follows the industry practice of
recording the amount of reserves reported to them by the pools and
associations. The remaining reserves were not reviewed by M&R
because there was not sufficient detail to allow for an actuarial
analysis.
5. M&R's reserve estimates are net of ceded reinsurance and assume
that all reinsurance cessions are valid and collectible.
A&E Exposures. As of September 30, 1994, GAI is carrying approximately
$130 million in reserves for A&E exposures. M&R concluded that GAI's A&E
reserves are lower than industry average reserve levels for A&E liabilities. M&R
used two methods to evaluate GAI's reserves relative to industry average reserve
levels for A&E liabilities. One method considers the current rate of A&E
payments by GAI and results in an indicated reserve of $193 million. The second
method applies GAI's market share for general liability and commercial
multi-peril business to industry A&E reserve levels and results in an indicated
reserve of $249 million. M&R selected a $225 million reserve for GAI to be
consistent with projected 1994 industry average A&E levels in light of the
results of these two methods. Each of these indicated A&E reserve amounts is net
of ceded reinsurance and assumes that all reinsurance cessions are valid and
collectible.
The $225 million reserve does not represent GAI's ultimate liability for
A&E exposures. Due primarily to the inability of the insurance industry to
estimate with reasonable certainty ultimate liabilities for A&E exposures
because of the factors discussed in the following paragraph, the U.S. insurance
industry has not recorded an estimate of the ultimate liability associated with
A&E exposures in financial statements. As a result, the $225 million reserve or
some other appropriate reserve level will need to be maintained on GAI's balance
sheet into the foreseeable future while GAI makes annual loss, loss adjustment
expense and declaratory judgment expense payments for these exposures. The
appropriate reserve for A&E exposures for GAI would need to be reevaluated
regularly based on an analysis of GAI's exposures, together with industry
reserving levels and financial reporting principles. There are factors that
would tend to cause the industry reserves for A&E exposures to increase over the
next few years. These factors include: clarification of insurers' liabilities
through case law and Superfund reform, making ultimate liabilities more subject
to estimation; financial reporting pressure for more adequate reserving and more
complete disclosure of A&E liabilities; reluctance of insurance rating agencies
to give the highest ratings to companies not perceived to be adequately
reserved; and reluctance of actuaries and auditors to give clean opinions to
companies with questionable A&E reserves.
The appropriate level of A&E reserves and the future A&E claim payments to
be made by GAI are subject to an unusual degree of uncertainty. This uncertainty
stems from several factors including lack of historical data, inapplicability of
standard actuarial projection techniques, and uncertainty with regard to claim
costs, coverage interpretation and the judicial, statutory and regulatory
provisions under which the claims may be ultimately resolved. All of these
factors affect both the quantification of these liabilities and the timing of
the payout of these liabilities.
In March 1994, Best published the Best Report as referred to above that
provides ultimate loss estimates for the property and casualty insurance
industry for environmental and asbestos exposures which range from $30 billion
to $50 billion for asbestos exposures and $60 billion to $608 billion for
environmental exposures. The expected values of ultimate losses provided in the
Best Report are $40 billion for asbestos exposures and $255 billion for
environmental exposures. These values are on an undiscounted basis. If GAI were
to share in the ultimate insurance industry liability in proportion to its
premium market share for general liability and commercial multi-peril business,
this suggests that GAI's ultimate losses would be in the range of $1.4 billion
to $10.5 billion, or $4.7 billion on an undiscounted expected value basis.
There are factors that might lead M&R to believe that GAI's ultimate losses
could be materially different than that indicated by mechanically applying a
market share percentage to the Best Report's estimate of ultimate losses. First,
the ultimate losses projected by Best are highly uncertain. Second, GAI's share
of these ultimate losses may be different than those indicated by its premium
market share due to factors such as the type of business written, the coverage
provided, and the limits of liability exposed. Finally, GAI's definition of
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A&E claims is broader than the definition used in the Best Report, as GAI
categorizes asbestos, environmental, DES, breast implant, Agent Orange,
repetitive keyboard stress and other repetitive injuries as A&E claims. It is
not possible to predict whether GAI's ultimate losses will be higher or lower
than that indicated by mechanically applying its market share percentage, or the
extent of any such variance.
The actuarial reserve estimates for both A&E and non-A&E exposures are
subject to numerous limitations, assumptions, explanations and caveats. In order
to understand or rely on any of M&R's work, it is necessary to read the reports
prepared by M&R in their entirety. A copy of the reports has been filed as an
exhibit to the Registration Statement of which this Proxy Statement/Prospectus
is a part.
Actuarial Analysis of Great American Life Insurance Company
M&R also was engaged by the Special Committee to perform certain actuarial
analyses of GALIC, a wholly-owned subsidiary of AAG which, in turn, is 80% owned
by AFC.
In preparing its actuarial analyses of GALIC, M&R developed projected
pre-tax statutory profits of GALIC. Based upon such analysis, M&R calculated,
utilizing discount rates of 10%, 12%, 14% and 16%, the present value of cash
flows from GALIC. Cash flow is defined as pre-tax statutory income adjusted for
taxes using a 35% tax rate and further adjusted for the incremental capital, if
any, assumed to be retained within GALIC to fund the business and ongoing
operations of GALIC. The values developed by M&R represent the sum of:
(a) Present value of twenty years of projected cash flows, plus
(b) Present value of adjusted statutory book value assumed to be
remaining in GALIC at the end of twenty years, plus
(c) Present value of future statutory profits on business remaining in
force at the end of the twenty year projection.
This resulted in actuarial values of GALIC equal to $733 million, $574
million, $462 million and $382 million at discount rates of 10%, 12%, 14% and
16%, respectively, under a specific set of assumptions including twenty years of
new business.
These values represent actuarial values for GALIC and not values for AAG.
That is, these values do not include, among other items, the assets and
liabilities of AAG. Furthermore, M&R noted that actuarial values do not
necessarily represent the value which might be received upon a sale of an
entity; rather, an actuarial value reflects the value of a company's earnings
potential under a specific set of assumptions. Market value may be higher or
lower than actuarial value.
The preparation of an actuarial analysis is a complex process utilizing
technical actuarial methodologies and is not susceptible to partial analysis or
summary description. M&R's report contains a number of assumptions which
substantially impact its actuarial projections and are beyond the control of
GALIC. Furthermore, actual results to be realized in the future, as well as
actual values to be received on the sale of a business, may differ greatly from
the actuarial projections. In addition, M&R's report has been prepared by
actuaries solely for use by actuaries and other persons possessing the knowledge
of actuarial methodologies. In order to understand or rely upon any of M&R's
work, M&R's report must be read in its entirety. A copy of M&R's report has been
filed as an exhibit to the Registration Statement of which this Proxy
Statement/Prospectus is a part.
OPINION OF FINANCIAL ADVISOR
The Special Committee of the Board of Directors of American Premier
retained Furman Selz to render an opinion to the Special Committee as to whether
the ratio of the number of shares of New American Premier Common Stock to be
issued in exchange for shares of AFC Common Stock and the ratio of the number of
shares of New American Premier common stock to be issued in exchange for shares
of American Premier Common Stock (such ratios, collectively, the "Exchange
Ratios") are fair, from a financial point of view, to American Premier Public
Shareholders.
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On December 9, 1994, Furman Selz advised the Special Committee that, as of
such date, the Exchange Ratios were fair, from a financial point of view, to
American Premier Public Shareholders, and delivered its written opinion to the
Special Committee, dated as of such date, to the same effect. [Furman Selz has
also delivered to the Special Committee a substantially identical opinion, dated
the date of this Proxy Statement/Prospectus, to the same effect.] The full text
of the Furman Selz written opinion dated the date hereof, which sets forth the
assumptions made, matters considered, and scope and limitations of the review
undertaken and procedures followed by Furman Selz in rendering its opinion, is
attached to this Proxy Statement/Prospectus as Annex B. The following
description of the Furman Selz opinions is qualified in its entirety by
reference to the full text of the opinion dated the date hereof. American
Premier shareholders are urged to read carefully the opinion of Furman Selz in
its entirety.
Furman Selz's opinions are directed only to the Special Committee, address
only the fairness of the Exchange Ratios from a financial point of view and do
not constitute a recommendation to any American Premier shareholder as to how
such shareholder should vote at the American Premier Special Meeting. Although
Furman Selz advised the Special Committee with respect to various alternatives
to increase shareholder value, Furman Selz was not requested to opine as to, and
its opinions do not in any manner address, American Premier's underlying
business decision to proceed with or effect the Acquisition, or the relative
merits of the Acquisition as compared to any alternative business strategies
which might exist for American Premier or the effect of any other transaction in
which American Premier might engage.
In connection with its opinions, Furman Selz reviewed, among other things,
the following: (i) the Acquisition Agreement; (ii) the potential exchange of a
portion of the AFC Common Stock owned by the Lindner Family for a new series of
AFC non-voting preferred stock (see Exhibit A to the Acquisition Agreement);
(iii) publicly available information concerning American Premier, AFC and
certain of AFC's affiliates which Furman Selz believed to be relevant to its
inquiry, including Annual Reports, Form 10-Ks, Form 10-Qs, Form 8-Ks, Proxy
Statements, stock prices, news releases and research reports; (iv) financial and
operating information with respect to the business, operations and prospects of
AFC and certain of its affiliates, including actuarial analyses of GAI and GALIC
prepared by M&R, all furnished to Furman Selz by AFC and American Premier; (v)
financial and operating information with respect to the business, operations and
prospects of American Premier furnished to Furman Selz by American Premier; (vi)
the common stock price and trading histories of American Premier Common Stock
and the common stock of certain publicly traded affiliates of AFC; (vii) a
comparison of the financial positions and operating results of American Premier,
AFC and certain affiliates of AFC, and of the common stock price trading
histories of American Premier and certain affiliates of AFC, with those of
publicly traded companies that Furman Selz deemed relevant; (viii) a comparison
of certain financial terms of the Acquisition to certain financial terms of
selected other business combinations that Furman Selz deemed relevant; (ix)
analyses of the respective contributions in terms of assets, liabilities and
earnings of American Premier and AFC to New American Premier and the relative
ownership of New American Premier after the Acquisition by the current
shareholders of American Premier and AFC; (x) analyses of other potential
financial effects of the Acquisition; and (xi) synergies and other potential
benefits arising from the Acquisition.
In addition, Furman Selz held discussions with various members of the
senior management of American Premier, AFC and certain affiliates of AFC
(including Chiquita) concerning their respective businesses, operations, assets,
present condition and future prospects. Furman Selz also held discussions with
various members of the senior management of American Premier and AFC concerning
the strategic and operating benefits anticipated from the Acquisition, and
conducted such other financial studies, analyses and investigations as it deemed
appropriate for purposes of rendering its opinions. Furman Selz was not
furnished with financial projections with respect to Chiquita as they were
advised by Chiquita's management that it was not feasible to develop reliable
projections of future operating results for Chiquita due to uncertainties
regarding its business. See "RISK FACTORS--Certain Considerations Relating to
AFC-Chiquita." Except for the unavailability of such projections, no limitations
were placed on Furman Selz with respect to the scope of the investigations made
or the procedures followed by it in rendering its opinions.
In arriving at its opinions, Furman Selz assumed and relied upon the
accuracy and completeness of the financial and other information used by it in
arriving at its opinions and did not assume responsibility for any
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independent verification of such information. Furman Selz did not conduct any
independent evaluations or appraisals of the properties, assets, liabilities or
reserves of American Premier or AFC, nor did it conduct any independent
actuarial evaluations. In addition, Furman Selz assumed that the financial
forecasts prepared by the managements of American Premier and AFC represented
the best current judgment of their respective managements as to the future
financial condition and results of operations of American Premier and AFC,
respectively, and assumed that the forecasts had been reasonably prepared based
on such current judgment. In valuing AFC's investments in its publicly traded
affiliates, Furman Selz relied primarily on current market prices of the
relevant capital stock.
Furman Selz also took into account its assessment of general economic,
market, and financial conditions and its experience in similar transactions, as
well as its experience in securities valuation in general. Furman Selz based its
opinions upon regulatory, economic and market conditions as they existed on, and
the information made available to it as of, the date of such opinions. Furman
Selz assumed the Acquisition would be accounted for as if AFC had acquired
American Premier in a transaction accounted for as a purchase. Furman Selz also
assumed that, in the course of obtaining necessary regulatory approvals for the
Acquisition, no restrictions would be imposed that would have a material adverse
effect on the contemplated benefits of the Acquisition to American Premier
following the Acquisition. Furman Selz expressed no opinion as to what the value
of New American Premier Common Stock actually will be when issued to the
shareholders of American Premier and AFC pursuant to the Acquisition or the
price at which New American Premier Common Stock will trade subsequent to the
Acquisition.
Furman Selz believes that its analyses must be considered in the aggregate,
and that selecting portions of its analyses or the factors considered by it,
without considering all factors and analyses, could create a misleading view of
the process underlying its opinions. The preparation of a fairness opinion is a
complex process and is not necessarily susceptible to partial analyses or
summary description. In its analyses, Furman Selz made numerous implicit
assumptions about industry and general economic conditions, and other matters,
many of which are beyond the control of American Premier or AFC and may not be
indicative of future results or actual values, which may be significantly more
or less favorable than such estimates.
The Acquisition Agreement is subject to the condition that the Special
Committee receive from Furman Selz at the closing an updated opinion as to the
fairness from a financial point of view of the Exchange Ratios to the American
Premier Public Shareholders.
The following is a brief summary of the financial analyses utilized by
Furman Selz in rendering its opinion on December 9, 1994, the results of which
were reviewed by Furman Selz in connection with rendering its opinion dated the
date of this Proxy Statement/Prospectus. Such summary does not purport to be a
complete description of all of the analyses performed by Furman Selz in
connection with its opinions.
Pro Forma Acquisition Analysis
Furman Selz performed a series of analyses based on pro forma historical
financial information prepared by management of American Premier and forecasted
financial information for New American Premier which was based on information
provided by the managements of American Premier and AFC which included
assumptions regarding the retirement of approximately $431.7 million of AFC debt
and $292.2 million of American Premier debt, the elimination of approximately
$308.8 million in goodwill as a result of the accounting treatment for the
Acquisition, and various costs savings and other synergies anticipated to result
from the Acquisition. All pro forma amounts used by Furman Selz exclude capital
gains and losses and certain other nonrecurring items and give effect to the
other matters discussed above. In addition, the pro forma amounts used by Furman
Selz are based on the American Premier Common Stock closing price of $23.00 per
share on December 1, 1994 and the number of shares of American Premier Common
Stock outstanding as of November 30, 1994.
Based upon such information, New American Premier's pro forma September
1994 nine month income increases to $1.99 per share from income of $1.17 per
share, an increase of 70%. Similarly, New American Premier's 1994 pro forma
projected twelve month income increases to $2.40 per share from projected income
of $1.54 per share, a 56% increase, and 1995 pro forma projected income
increases to an amount in excess of
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$3.10 per share from projected income of $1.88 per share, an increase of over
65%. The increase in income per share reflects principally the combination of
the projected earnings of AFC and American Premier, the retirement of debt and
elimination of goodwill referred to above.
Pro forma book value and tangible book value per share of New American
Premier Common Stock at September 30, 1994 are $16.38 and $11.81, respectively,
compared to actual book value and tangible book value per share of American
Premier Common Stock at September 30, 1994 of $34.14 and $25.80, respectively.
This decline is primarily due to (i) the elimination of goodwill on American
Premier's balance sheet that is required by GAAP as a result of the Acquisition
and (ii) the dilutive effect of issuing to AFC shareholders in the Acquisition
New American Premier shares assumed to have an aggregate market value greater
than AFC's consolidated shareholders' equity at September 30, 1994.
New American Premier's pro forma projected 1994 return on equity
approximates 15%, compared to American Premier's projected 1994 return on equity
of 4.5%, on the respective September 30, 1994 book values. Similarly, New
American Premier's 1995 pro forma projected return on equity exceeds 19%
compared to American Premier's projected return on equity of 5.5%, on the
respective September 30, 1994 book values.
Based upon the number of shares of American Premier Common Stock
outstanding on November 30, 1994, and assuming the issuance of 28.6 million New
American Premier shares and the de facto retirement of 18.7 million of such
shares, the aggregate ownership percentage of the American Premier Public
Shareholders declines from approximately 61% prior to the Acquisition to
approximately 50% after the Acquisition. However, the American Premier Public
Shareholders' aggregate share of projected 1994 income excluding capital gains
and losses and other nonrecurring items increases from $45.2 million to $70.0
million, a 55% increase, and its aggregate share of projected 1995 net income
increases from $55.2 million to in excess of $89.8 million, an increase of in
excess of 63%.
Furman Selz determined that the pro forma financial impact of the
transaction on American Premier and, in particular, on the American Premier
Public Shareholders supported its conclusion as to the fairness of the Exchange
Ratios from a financial point of view to the American Premier Public
Shareholders.
Analyses Relating to AFC
AFC is a holding company the principal assets of which consist of GAI, a
multi-line property and casualty insurance company, and selected holdings in
publicly-traded companies. In performing its analysis of AFC, Furman Selz used
such valuation methodologies as Furman Selz deemed necessary or appropriate for
purposes of rendering its opinion.
Furman Selz derived the implied aggregate purchase price for AFC by
applying the December 1, 1994 American Premier closing stock price to the
Exchange Ratios. This resulted in an implied purchase price for AFC's equity of
$658 million, which, when added to the $1.1 billion of AFC debt and preferred
stock and approximately $54 million of other AFC liabilities being assumed by
American Premier, results in an implied aggregate purchase price of $1.8
billion.
Using the analyses discussed in detail below, Furman Selz derived a
valuation range for AFC of $1.5 billion to $2.0 billion, comprised of a
valuation range for GAI of $1.3 billion to $1.8 billion and a valuation of AFC's
other holdings of $233.5 million. The implied aggregate purchase price for AFC
of $1.8 billion falls within this range, supporting Furman Selz's conclusion as
to the fairness of the Exchange Ratios from a financial point of view to the
American Premier Public Shareholders.
Analyses of GAI. GAI is a multi-line property and casualty insurance
company with significant holdings in selected publicly traded affiliates,
including AAG, Chiquita and American Premier.
In its comparable company analysis of GAI, Furman Selz compared selected
historical, current and projected financial and operating results of GAI with
the operating results of selected publicly traded property and casualty
insurance companies that, in Furman Selz's judgement, were most closely
comparable to GAI (the "GAI Comparable Companies"). The GAI Comparable Companies
were chosen by Furman Selz as companies that possess general business, operating
and financial characteristics representative of companies in
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<PAGE> 45
the property and casualty insurance industry in which GAI operates, although
Furman Selz recognized that each of the GAI Comparable Companies is
distinguishable from GAI in certain respects. Such GAI Comparable Companies
included W.R. Berkley, Chubb, Cincinnati Financial, Ohio Casualty, Orion
Capital, USF&G, Safeco, St. Paul Cos. and TIG Holdings. Furman Selz considered,
among other things: (i) selected balance sheet data (both on a statutory and
GAAP accounting basis); (ii) operating statement data, including latest twelve
month (previous reported four quarters or "LTM") net income excluding realized
gains; (iii) 1994 net income estimates made by research analysts excluding
certain catastrophic losses; (iv) 1995 net income estimates made by research
analysts; and (v) historical trading ranges of the GAI Comparable Companies'
stocks. In addition, Furman Selz analyzed the return on average invested assets
and average common shareholders equity for these companies.
Furman Selz then calculated a range of market multiples for the GAI
Comparable Companies by dividing the Total Market Capitalization (total common
shares outstanding multiplied by closing market price per share, or "Equity
Market Capitalization", plus total debt and minority interest, less equity in
investee companies, minus cash and cash equivalents) as of December 1, 1994 for
each GAI Comparable Company by such company's statutory surplus as reported on
December 31, 1993 and book capitalization adjusted for a mark-to-market of its
investment portfolio as of September 30, 1994. Multiples of Total Market
Capitalization to statutory surplus ranged from 1.1x to 3.6x, and multiples of
Total Market Capitalization to adjusted book capitalization ranged from 1.0x to
1.3x. Furman Selz also calculated a range of market multiples by dividing each
of the GAI Comparable Company's respective Equity Market Capitalization as of
December 1, 1994 by its respective book value, book value adjusted for a
mark-to-market of its investment portfolio, tangible book value and tangible
book value adjusted for a mark-to-market of its investment portfolio as of
September 30, 1994. Multiples of Equity Market Capitalization to book value,
book value adjusted for a mark-to-market of its investment portfolio, tangible
book value and tangible book value adjusted for a mark-to-market of its
investment portfolio ranged from 1.0x to 1.5x. Finally, Furman Selz calculated a
range of multiples by dividing each of the GAI Comparable Company's Equity
Market Capitalization by each company's estimated 1994 net income excluding
realized gains, estimated 1994 net income, excluding certain catastrophic
losses, and estimated 1995 net income. Multiples of Equity Market Capitalization
to estimated 1994 net income excluding realized gains ranged from 8.9x to 21.6x,
multiples of estimated 1994 net income excluding certain catastrophic losses
ranged from 8.1x to 14.2x and multiples of estimated 1995 net income ranged from
7.7x to 13.6x. In reviewing the above GAI Comparable Company multiples as they
relate to the comparable financial statistics of GAI, Furman Selz placed greater
emphasis on multiples of adjusted book value and adjusted estimated 1995 net
income, and based upon these multiples derived an implied range of values for
GAI of $1.0 billion to $1.8 billion.
Furman Selz also evaluated acquisitions currently pending or completed
during the last 5 years of selected U.S. property and casualty insurance or
related companies (the "Acquired P&C Insurance Companies"). None of such
acquisitions took place under market conditions or competitive conditions or
circumstances that were directly comparable to those of the Acquisition, and
each of the Acquired P&C Insurance Companies is distinguishable from GAI in
certain respects. Furman Selz calculated a range of multiples based on the ratio
of the purchase price to trailing twelve months net income excluding realized
gains, the purchase price to the latest reported stated book value, the purchase
price to the latest reported stated book value adjusted for a mark-to-market of
the latest reported investment portfolio and the adjusted purchase price (offer
price plus latest reported total debt and preferred stock) to the latest fiscal
year end reported statutory surplus for each Acquired P&C Insurance Company.
Multiples of the purchase price to trailing twelve months net income excluding
realized gains ranged from 8.9x to 22.7x, purchase price to the latest reported
stated book value ranged from 0.4x to 2.9x and purchase price to the latest
reported stated book value adjusted for a mark-to-market of the latest reported
investment portfolio ranged from 0.8x to 3.1x. Multiples of the adjusted
purchase price to the latest fiscal year end reported statutory surplus ranged
from 1.2x to 3.0x. Although Furman Selz applied these ranges of multiples to the
appropriate financial data of GAI, it ultimately concluded that none of these
transactions was comparable to the Acquisition and, accordingly, that the
results derived were not meaningful in its valuation of GAI.
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<PAGE> 46
Furman Selz also discounted the projected after-tax cash flows generated by
GAI through 1999 in the form of dividends based upon its projected statutory net
income adjusted for required statutory surplus balances. These cash flows were
discounted to present value using discount rates ranging from 12.0% to 16.0%. In
addition, Furman Selz derived terminal values for GAI at the end of 1999 by
multiplying GAI's projected 1999 GAAP book value by book value multiples ranging
from 1.0x to 1.5x and discounting them to present value using the same range of
discount rates. Such discounted cash flow analysis derived a range of values for
GAI of $1.1 billion to $1.7 billion.
In analyzing all of the foregoing, Furman Selz considered, among other
things, GAI's business, operating and financial characteristics versus those of
the GAI Comparable Companies, the lack of comparability with the Acquired P&C
Insurance Companies' transactions and the impact of the uncertainty of future
operating results on the discounted cash flow analysis. Based on these
considerations, Furman Selz derived a valuation range for GAI of $1.3 billion to
$1.8 billion.
Analyses of Publicly Traded Affiliates. In addition to GAI, AFC holds
significant positions in certain publicly traded companies, including several
affiliated companies. Based upon public market prices at December 1, 1994, these
stockholdings together with other net assets had a value of $233.5 million.
Furman Selz performed certain financial analyses, including those described
below, which supported the public market valuations.
American Annuity Group. Furman Selz reviewed: (i) the closing stock price
of AAG common stock on December 1, 1994 ($9.125); (ii) the 52-week trading range
of AAG common stock ($8.375 to $10.625); (iii) relevant publicly available
financial information on AAG, including Annual Reports, Form 10-Ks, Form 10-Qs,
Form 8-Ks, Proxy Statements, stock prices, news releases and research reports;
(iv) selected comparable publicly traded companies; and (v) selected acquisition
transactions.
In its comparable company analysis of AAG, Furman Selz compared selected
historical, current and projected financial and operating results of American
Annuity Group with the operating results of selected publicly traded annuity
companies that, in Furman Selz's judgment, were most closely comparable to
American Annuity Group (the "AAG Comparable Companies"). The AAG Comparable
Companies were chosen by Furman Selz as companies that possess general business,
operating and financial characteristics representative of companies in the
annuity insurance industry in which AAG operates, although Furman Selz
recognized that each of the AAG Comparable Companies is distinguishable from AAG
in certain respects. Such AAG Comparable Companies included AmVestors Financial,
CCP Insurance, Equitable of Iowa, First Colony, Presidential Life, SunAmerica
and Western National. Furman Selz considered, among other things: (i) selected
balance sheet data (both on a statutory and GAAP accounting basis); (ii)
operating statement data, including LTM net income excluding realized gains;
(iii) 1994 and 1995 net income estimates made by research analysts; and (iv)
historical trading ranges of the AAG Comparable Companies' stocks. In addition,
Furman Selz analyzed the return on average common shareholders equity for these
companies.
Furman Selz then calculated a range of market multiples for the AAG
Comparable Companies by dividing the Total Market Capitalization (total common
shares outstanding multiplied by closing market price per share or "Equity
Market Capitalization," plus total debt and minority interests minus equity in
investee companies, cash and cash equivalents) as of December 1, 1994 for each
AAG Comparable Company by such company's statutory surplus (including Asset
Valuation Reserve and Interest Maintenance Reserve) as reported on December 31,
1993. Multiples of Total Market Capitalization to statutory surplus (including
Asset Valuation Reserve and Interest Maintenance Reserve) ranged from 0.6x to
3.0x. Furman Selz also calculated a range of market multiples by dividing each
AAG Comparable Company's respective Equity Market Capitalization as of December
1, 1994 by its respective book value, book value adjusted for a mark-to-market
of its investment portfolio, tangible book value and tangible book value
adjusted for a mark-to-market of its investment portfolio as of September 30,
1994. Multiples of Equity Market Capitalization to book value, book value
adjusted for a mark-to-market of its investment portfolio, tangible book value
and tangible book value adjusted for a mark-to-market of its investment
portfolio ranged from 0.6x to 2.3x. Finally, Furman Selz calculated a range of
multiples by dividing each of the AAG Comparable Company's Equity Market
Capitalization by each company's estimated 1994 net income and estimated 1995
net income. Multiples of
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<PAGE> 47
Equity Market Capitalization to estimated 1994 net income ranged from 5.8x to
11.1x and multiples of estimated 1995 net income ranged from 5.2x to 9.5x. In
reviewing the above AAG Comparable Company multiples as they relate to the
comparable financial statistics of AAG, Furman Selz placed greater emphasis on
estimated 1995 net income multiples. AAG's implied 1995 estimated net income
multiple fell within the range of the Comparable Company multiples, supporting
its public market valuation.
Furman Selz also evaluated acquisitions currently pending or completed
during the last 5 years of selected U.S. annuity insurance or related companies
(the "Acquired Annuity Insurance Companies"). None of such acquisitions took
place under market conditions or competitive conditions or circumstances that
were directly comparable to those of the Acquisition, and each of the Acquired
Annuity Insurance Companies is distinguishable from AAG in certain respects.
Furman Selz calculated a range of market multiples based on the ratio of the
purchase price to trailing twelve months net income excluding realized gains,
purchase price to the latest reported stated book value and the adjusted
purchase price (offer price plus latest reported total debt and preferred stock)
to the latest fiscal year end reported statutory surplus (including Asset
Valuation Reserve and Interest Maintenance Reserve) for each Acquired Annuity
Insurance Company. Multiples of purchase price to trailing twelve months net
income excluding realized gains ranged from 7.2x to 22.9x and purchase price to
the latest reported stated book value ranged from 0.8x to 2.0x. Multiples of the
adjusted purchase price to the latest fiscal year end reported statutory surplus
(including Asset Valuation Reserve and Interest Maintenance Reserve) ranged from
0.9x to 2.2x. In applying these ranges of multiples to the appropriate financial
data of AAG, Furman Selz placed greater emphasis on the multiples of trailing
twelve months net income excluding realized gains. AAG's implied trailing twelve
months net income (excluding realized gains) multiple fell within the range of
the Acquired Annuity Insurance Company multiples, supporting its public market
valuation.
The above analyses considered in conjunction with AAG's business, operating
and financial characteristics versus those of the AAG Comparable Companies and
those of the Acquired Annuity Insurance Companies and AAG's historical trading
range support AAG's December 1, 1994 stock price of $9.125.
Chiquita Brands International, Inc. Furman Selz reviewed: (i) the closing
price of Chiquita common stock on December 1, 1994 ($13.00); (ii) the previous
five year and 52-week trading ranges of Chiquita common stock ($10.00 to $50.75,
and $10.125 to $19.375, respectively); (iii) relevant publicly available
financial information on Chiquita, including Annual Reports, Form 10-Ks, Form
10-Qs, Form 8-Ks, Proxy Statements, stock prices, news releases and research
reports; (iv) selected comparable publicly traded companies; and (v) selected
acquisition transactions.
In its comparable company analysis of Chiquita, Furman Selz compared
selected historical, current and projected financial and operating results of
Chiquita with the operating results of selected publicly traded companies that,
in Furman Selz's judgment, were most closely comparable to Chiquita (the
"Chiquita Comparable Companies"). The Chiquita Comparable Companies were chosen
by Furman Selz as companies that possess general business, operating and
financial characteristics representative of companies in the business in which
Chiquita operates, although Furman Selz recognized that each of the Chiquita
Comparable Companies is distinguishable from Chiquita in certain respects. Such
Chiquita Comparable Companies consisted of: The Albert Fisher Group plc;
Archer-Daniels-Midland Company; ConAgra, Inc.; CPC International Company; Dean
Foods Company; Dole Food Company, Inc.; Fyffes PLC; Geest PLC; Perkins Foods
plc; Stokely USA, Inc.; and Seneca Foods Corporation. Furman Selz considered,
among other things: (i) selected balance sheet data; (ii) selected income
statement data, including LTM revenue, earnings before interest, taxes,
depreciation and amortization ("EBITDA"), earnings before interest, taxes and
amortization ("EBITA"), net income and earnings per share ("EPS"); and (iii)
1994 and 1995 EPS estimates made by research analysts.
Furman Selz then calculated a range of market multiples for the Chiquita
Comparable Companies by dividing the Total Market Capitalization as of December
1, 1994 for each Chiquita Comparable Company by, among other things, such
company's LTM Revenue, LTM EBITDA, and LTM EBITA. Multiples of Total Market
Capitalization to LTM Revenue ranged from 0.3x to 1.3x, Total Market
Capitalization to LTM EBITDA ranged from 4.0x to 9.4x and Total Market
Capitalization to LTM EBITA ranged from 5.2x to
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19.5x. Furman Selz also calculated a range of multiples by dividing each of the
Chiquita Comparable Company's equity price per share by the respective LTM EPS,
estimated 1994 EPS and estimated 1995 EPS. Multiples of equity price per share
to LTM EPS ranged from 9.1x to 17.4x, equity price per share to estimated 1994
EPS ranged from 5.8x to 16.4x and equity price per share to estimated 1995 EPS
ranged from 5.3x to 14.7x.
Furman Selz also evaluated acquisitions, currently pending or completed
during the last five years, of selected food companies (the "Acquired Food
Companies"). None of such acquisitions took place under market conditions or
competitive conditions or circumstances that were comparable, and each of the
Acquired Food Companies is distinguishable from Chiquita in certain respects.
Among the multiples reviewed by Furman Selz were the equity purchase prices as a
multiple of historical net income, and the transaction values as a multiple of
historical revenues, EBITDA and EBITA. Multiples of equity purchase prices to
historical net income ranged from 9.3x to 26.7x. Multiples of transaction values
to historical revenues ranged from 0.1x to 1.8x, transaction values to EBITDA
ranged from 3.8x to 10.7x and transaction values to EBITA ranged from 5.2x to
16.9x.
Excluding Chiquita's implied LTM Net Income and estimated 1994 Net Income
multiples, which were not meaningful due to Chiquita's operating difficulties,
Chiquita's implied multiples were within the range of the multiples for the
Chiquita Comparable Companies and the multiples for the Acquired Food Companies.
After considering the adverse operating environment experienced by Chiquita
since 1992 (see "RISK FACTORS--Certain Considerations Relating to
AFC-Chiquita"), the distinctions between Chiquita and the Chiquita Comparable
Companies and the Acquired Food Companies, as well as the fact that Furman Selz
was advised by Chiquita management that it was not feasible to develop reliable
projections of future operating results due to uncertainties regarding its
business, and the extensive institutional ownership and research analyst
coverage of Chiquita common stock, Furman Selz relied primarily on the closing
stock price of Chiquita Common Stock on December 1, 1994 of $13.00 for its
valuation analysis.
Overall Analysis of AFC. Adding the implied valuation range for GAI of
$1.3 billion to $1.8 billion to the valuation of AFC's other holdings of $233.5
million, Furman Selz derived a valuation range for AFC of $1,533.5 million to
$2,033.5 million. The implied aggregate purchase price of $1.8 billion derived
by applying the December 1, 1994 American Premier closing stock price to the
Exchange Ratios falls within this valuation range, supporting Furman Selz's
conclusion as to the fairness of the Exchange Ratios from a financial point of
view to the American Premier Public Shareholders.
Analyses Relating to American Premier
Furman Selz reviewed: (i) the closing price of American Premier Common
Stock on December 1, 1994 ($23.00 per share); (ii) the 52-week trading range of
American Premier ($21.625 to $33.25); (iii) relevant publicly available
financial information on American Premier, including Annual Reports, Form 10-Ks,
Form 10-Qs, Form 8-Ks, Proxy Statements, stock prices, news releases and
research reports; (iv) historical and projected results of operations provided
by management; and (v) selected comparable publicly traded companies.
In its comparable company analysis of American Premier, Furman Selz
compared selected historical, current and projected financial and operating
results of American Premier with the operating results of selected publicly
traded workers compensation and non-standard automobile insurance companies
that, in Furman Selz's judgment, were most closely comparable to American
Premier (the "American Premier Comparable Companies"). The American Premier
Comparable Companies were chosen by Furman Selz as companies that possess
general business, operating and financial characteristics representative of
companies in the property and casualty insurance industry in which American
Premier operates, although Furman Selz recognized that each of the American
Premier Comparable Companies is distinguishable from American Premier in certain
respects. Such American Premier Comparable Companies included Argonaut Group,
CII Financial, Citation Insurance, Fremont General, GEICO, Guaranty National,
Integon, Mercury General, Progressive and Zenith National. Furman Selz
considered, among other things: (i) selected balance sheet data (both on a
statutory and GAAP accounting basis); (ii) operating statement data, including
LTM net
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income excluding realized gains; (iii) 1994 and 1995 net income estimates made
by research analysts; and (iv) historical trading ranges of the American Premier
Comparable Companies' stocks. In addition, Furman Selz analyzed the return on
average common shareholders equity for these companies.
Furman Selz then calculated a range of market multiples for the American
Premier Comparable Companies by dividing the Total Market Capitalization (total
common shares outstanding multiplied by closing market price per share or
"Equity Market Capitalization," plus total debt and minority interest minus
equity in investee companies, cash and cash equivalents) as of December 1, 1994
for each American Premier Comparable Company by such company's statutory surplus
as reported on December 31, 1993 and book capitalization adjusted for a
mark-to-market of its investment portfolio as of September 30, 1994. Non-
standard automobile insurance company multiples of Total Market Capitalization
to statutory surplus ranged from 1.8x to 4.5x, and multiples of Total Market
Capitalization to adjusted book capitalization ranged from 1.2x to 2.1x. Workers
compensation company multiples of Total Market Capitalization to statutory
surplus ranged from 0.5x to 4.0x, and multiples of Total Market Capitalization
to adjusted book capitalization ranged from 0.9x to 1.3x. Furman Selz also
calculated a range of market multiples by dividing each of the American Premier
Comparable Company's respective Equity Market Capitalization as of December 1,
1994 by its respective book value, book value adjusted for a mark-to-market of
its investment portfolio, tangible book value and tangible book value adjusted
for a mark-to-market of its investment portfolio as of September 30, 1994.
Non-standard automobile insurance company multiples of Equity Capitalization to
book value, book value adjusted for a mark-to-market of its investment
portfolio, tangible book value and tangible book value adjusted for a
mark-to-market of its investment portfolio ranged from 1.3x to 13.0x. Workers
compensation company multiples of Equity Capitalization to book value, book
value adjusted for a mark-to-market of its investment portfolio, tangible book
value and tangible book value adjusted for a mark-to-market of its investment
portfolio ranged from 0.5x to 1.7x. Finally, Furman Selz calculated a range of
multiples by dividing each of the American Premier Comparable Company's Equity
Market Capitalization by each company's estimated 1994 net income and estimated
1995 net income. Non-standard automobile insurance company multiples on
estimated 1994 net income ranged from 7.5x to 17.0x and multiples on estimated
1995 net income ranged from 6.8x to 14.3x. Workers compensation company
multiples on estimated 1994 net income ranged from 5.4x to 11.3x and multiples
on estimated 1995 net income ranged from 3.5x to 10.0x.
American Premier's Equity Market Capitalization multiples for estimated
1994 and 1995 EPS were at the high end of the range of equivalent multiples for
the American Premier Comparable Companies. American Premier's Equity Market
Capitalization multiples for book value, book value adjusted for a mark-
to-market of its investment portfolio, tangible book value and tangible book
value adjusted for a mark-to-market of its investment portfolio were generally
at the low end of the range of equivalent multiples for the American Premier
Comparable Companies, reflecting the low current return generated by the large
cash position (in excess of $820 million at September 30, 1994) on American
Premier's balance sheet.
Furman Selz reviewed the stock price performance of American Premier during
the one year period from December 2, 1993 to December 1, 1994 and noted that the
December 1, 1994 closing price of $23.00 per share was 31% below the year high
of $33.25 and 6% above the year low of $21.625. In assessing the impact of
American Premier's stock price on the fairness of the Exchange Ratios, Furman
Selz considered: (i) the overall decline in the common stock prices of
comparable insurance companies during that period and the impact thereof on the
implied equity valuation of AFC; (ii) the effective retirement following the
Acquisition of the New American Premier shares representing the American Premier
shares currently held by AFC; and (iii) the fact that, net of the retirement of
New American Premier shares held by AFC, only 18.8% of the total net
consideration of $1.4 billion is being issued in the form of New American
Premier common stock.
Furman Selz is a nationally recognized investment banking firm engaged in,
among other things, the valuation of businesses and securities in connection
with mergers, acquisitions, underwritings, sales and distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Furman Selz has substantial experience in merger and acquisition
transactions and is familiar with American Premier. In the ordinary course of
its business, Furman Selz may actively trade in the equity and debt securities
of AFC and American Premier for its own account and the accounts of its
customers, and accordingly, may at any time hold a long or short position in
such securities for the accounts of its customers,
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the firm and/or the officers of the firm. Furman Selz acted as financial advisor
to American Premier in connection with its exploration of various strategic
alternatives which resulted in the Board of Directors' determination to explore
the Acquisition. In connection with such services, American Premier paid Furman
Selz fees totalling $165,000.
For its services as advisor to the Special Committee and pursuant to the
terms of an engagement letter, American Premier has paid Furman Selz a $285,000
non-refundable retainer and a monthly non-refundable retainer of $150,000 for
November and December 1994, and will pay Furman Selz (i) $4,500,000 (net of any
retainer payments) on the earlier of termination of the engagement or June 30,
1995 provided that Furman Selz has carried out its assignments through such date
to the reasonable satisfaction of the Special Committee and (ii) an additional
$2,335,000 upon the mailing of this Proxy Statement/Prospectus. American Premier
also has agreed to reimburse Furman Selz for its out-of-pocket expenses,
including reasonable fees and expenses of its legal counsel, and to indemnify
Furman Selz and certain related parties against certain liabilities, including
liabilities under the federal securities laws, arising out of or in connection
with the services rendered by Furman Selz under the engagement letter. The terms
of the fee arrangement with Furman Selz were negotiated at arm's length between
American Premier's management and Furman Selz. As previously noted, it is a
condition to the closing that the Special Committee receive an updated opinion
from Furman Selz as to the fairness from a financial point of view of the
Exchange Ratios to the American Premier Public Shareholders. As of the date of
this Proxy Statement/Prospectus, under the above described fee structure Furman
Selz is entitled to receive its entire fee (subject to the conditions set forth
above) regardless of whether it provides this updated opinion. Therefore, the
Special Committee believes that Furman Selz is free of any conflict of interest
in this regard. The Special Committee did note that approximately one-third of
Furman Selz's fee was dependent upon the mailing of this Proxy
Statement/Prospectus and, thus, in effect, upon the giving of the opinion
included herein, and that this aspect of the fee structure could be viewed as a
conflict of interest.
ACCOUNTING TREATMENT
For financial reporting purposes, the Acquisition will be accounted for as
a purchase type business combination with American Premier being treated as the
acquired company. As a result, a portion of the carrying values of American
Premier's net assets will be adjusted to fair market value. See "UNAUDITED PRO
FORMA FINANCIAL INFORMATION."
TRANSACTIONS INVOLVING INTERESTED PERSONS
Certain employees of AFC, including those persons named in the Executive
Compensation Table of AFC included in its Form 10-K, attached as Annex C,
participate in AFC's Book Value Incentive Plan (the "Incentive Plan"), which was
established in 1980. The Incentive Plan generally provides for the granting of
Units measured by an adjusted book value of AFC Common Stock at the time of
grant with distributions based on the increase in the value of the Units to the
date of exercise to the extent vested. The Incentive Plan, which is
approximately 95% vested currently, will terminate upon completion of the
Acquisition, at which time full vesting will be granted and payments are
expected to be made in cash to holders of the Units. Payments to the named
persons and all other participants are anticipated to be approximately as
follows:
<TABLE>
<CAPTION>
NAME PAYMENT
------------------------------------------------------------- ----------------
<S> <C>
Carl H. Lindner.............................................. -0-
Ronald F. Walker............................................. $ 9.22 million
Carl H. Lindner III.......................................... 5.95 million
S. Craig Lindner............................................. 5.95 million
James E. Evans............................................... 1.48 million
All Other Participants....................................... 27.29 million
</TABLE>
Robert D. Lindner, brother of Carl H. Lindner, other members of Robert D.
Lindner's family and Carl H. Lindner's sons hold options to purchase a total of
762,500 shares of AFC Common Stock at a current
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<PAGE> 51
exercise price of approximately $11.37 per share, which will be exercised
immediately prior to the consummation of the Acquisition. Those members of
Robert D. Lindner's family also have the ability to require AFC to purchase the
1,533,767 shares of AFC Common Stock owned by them and the equity in such
options based on AFC's adjusted book value per share, as calculated under the
Incentive Plan. The purchase price for all shares and options covered by their
sale right amounted to $37.8 million at September 30, 1994. Upon completion of
the Acquisition this right will be extinguished.
<TABLE>
<CAPTION>
Options to purchase American Premier Common Stock will become options to
purchase New American Premier Common Stock on a share-for-share basis
maintaining the same exercise price, terms and conditions as now exist. Persons
named in the Summary Compensation Table in American Premier's Proxy Statement
for its 1994 Annual Meeting of Shareholders, incorporated herein by reference,
hold those options as follows:
VALUE OF UNEXERCISED
IN-THE-MONEY
NUMBER OF UNEXERCISED OPTIONS OPTIONS AT SEPTEMBER 30,
AT SEPTEMBER 30, 1994 1994(1)
------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Carl H. Lindner....................... 620,904 83,636 $ 3,675,229 $ 329,661
Carl H. Lindner III................... 239,180 411,270 601,095 901,643
Neil M. Hahl.......................... 288,965 70,182 1,459,261 324,014
Robert W. Olson....................... 251,954 61,818 1,236,986 282,523
<FN>
- ---------------
(1) Based on the closing price of American Premier Common Stock on the NYSE on
September 30, 1994 of $26.75.
</FN>
</TABLE>
CERTAIN LITIGATION REGARDING THE ACQUISITION
Several actions were filed following the December 12, 1994 public
announcement of the signing of the Acquisition Agreement ("Actions"). The
Actions and procedural matters relating to them are described below. As a
result of the filing of the Actions, negotiations between counsel for
plaintiffs and representatives of defendants, the parties have executed a
memorandum of understanding which settles all of the claims in the Actions,
subject to court approval and confirmatory discovery ("Settlement"). The
defendants in the Actions deny any liability, that they acted or failed to act
in any manner that could rise to a claim of breach of fiduciary duty, or that
they have violated any law. The defendants have agreed to the Settlement solely
to avoid the burden and expense of further litigation and to facilitate the
consummation of the Acquisition, which they believe is in the best interests of
American Premier Public Shareholders.
The Settlement requires that the Lindner Family reduce the number of shares
of New American Premier Common Stock that they will receive in the Acquisition
by 290,000 shares and required certain revisions to the Proxy
Statement/Prospectus which are included herein. American Premier Public
Shareholders will benefit from the Settlement because there will be fewer shares
of New American Premier Common Stock outstanding. The defendants have agreed not
to oppose the application of plaintiffs' counsel to the Court for up to
$2,000,000 in fees and up to $100,000 in costs to be paid by New American
Premier.
AFC, American Premier and the directors of American Premier are defendants
in the Actions, six of which are class actions and one of which is a derivative
action pending in the Court of Common Pleas of Hamilton County, Ohio, and two of
which are class actions pending in the Court of Common Pleas of Philadelphia
County, Pennsylvania. The eight class actions are: Romie Shapiro v. Carl H.
Lindner, et al., Case No. A9406195, filed December 12, 1994; Karen Schiff,
Custodian, v. Carl H. Lindner, et al., Case No. A9406196, filed December 12,
1994; Nina Rosinek v. Carl H. Lindner, et al., Case No. A9406205, filed December
12, 1994; Terry A. Goldberg v. Carl H. Lindner, et al., Case No. 9412-0035,
filed December 12, 1994 in the Court of Common Pleas of Philadelphia County,
Pennsylvania; Harry Lewis v. American Premier Underwriters, Inc., Case No.
A9406218, filed December 13, 1994; Helen Foster v. Carl H. Lindner, et al., Case
No. A9406219, filed December 13, 1994; Harry Polikoff v. Carl H. Lindner, et
al., Case No. A9406278, filed December 15, 1994; and David Rowitt v. American
Premier Underwriters, Inc., et al., Case No. 9412-0101, filed December 23, 1994
in the Court of Common Pleas of Philadelphia County, Pennsylvania. The
shareholder derivative complaint has been filed under the caption Sanford Seplow
v. Carl
45
<PAGE> 52
H. Lindner, et al., Case No. A9406217, filed December 13, 1994. Counsel for all
parties have agreed upon an order of consolidation pursuant to which the Actions
pending in Ohio were consolidated on January 23, 1995 under the caption In Re:
American Premier Underwriters, Inc. Litigation, Consolidated Case No. A9406195
(the "Consolidated Action"). The Pennsylvania actions have been stayed pending
resolution of the Consolidated Action.
The Actions generally allege that the Acquisition Agreement would result in
self-dealing transactions which dilute the equity interests of American Premier
shareholders, and involve the purchase of AFC at a price which is excessive and
unfair to American Premier Public Shareholders. The Actions also allege, among
other things, that: (1) AFC and persons affiliated with AFC will benefit
disproportionately at the expense of American Premier Public Shareholders if the
Acquisition is completed; (2) the exchange ratio of 1.45 shares of New American
Premier Common Stock for each share of AFC Common Stock is excessive and unfair
in view of the one-to-one exchange ratio for holders of shares of American
Premier Common Stock; (3) the transaction between American Premier and AFC is
not being negotiated at arms-length, but has been initiated and pursued without
adequate corporate and procedural safeguards to protect the interest of American
Premier Public Shareholders; (4) the price being paid for AFC does not reflect
the true value of American Premier or AFC; (5) the defendants have not taken
appropriate steps to explore alternative transactions and acquisitions by
American Premier, which would be superior to the AFC transaction and which would
maximize the value of the shares held by American Premier Public Shareholders;
(6) the transaction is inconsistent with American Premier's stated corporate
strategy of divesting itself of non-insurance holdings; (7) the directors of
American Premier and AFC have breached their fiduciary duties by negotiating the
transaction without the benefit of truly independent negotiations and
valuations, and by failing to require approval of the transaction by a majority
of the American Premier Public Shareholders; (8) the transaction constitutes a
waste of corporate assets, serves no legitimate business purpose of American
Premier and constitutes an attempt by AFC and the defendants to benefit
themselves at the expense of American Premier; (9) the defendants have violated
their fiduciary relationships of good faith, fair dealing, due care, loyalty and
full and adequate disclosure; (10) the shareholders of American Premier do not
share in the benefits to the shareholders of AFC of the tax-free nature of the
transaction; (11) the American Premier Public Shareholders will receive no
control premium in the transaction; and (12) the Preliminary Proxy
Statement/Prospectus filed with the Commission on January 20, 1995 failed to
disclose material facts regarding the terms of the Acquisition and the manner in
which it was negotiated.
Prior to the Settlement, the Actions sought to (1) enjoin preliminarily and
permanently the Acquisition until full disclosure of all material facts has been
made; (2) establish an independent special committee to evaluate the terms of
the proposed merger and employ appropriate procedural safeguards to protect the
interests of the American Premier Public Shareholders; (3) rescind the
Acquisition or pay unspecified rescissory damages; and (4) recover unspecified
compensatory and rescissory damages and court costs and attorneys' fees.
THE ACQUISITION AGREEMENT
The Acquisition Agreement provides for American Premier to acquire AFC
through mergers resulting in American Premier and AFC each becoming subsidiaries
of New American Premier. Newly formed wholly-owned subsidiaries of New American
Premier will be merged into American Premier and AFC with American Premier and
AFC being the surviving corporations. The following description of the
Acquisition Agreement is not complete and is qualified in its entirety by
reference to the Acquisition Agreement which is attached as Annex A as a part of
this Proxy Statement/Prospectus.
VOTING ON THE ACQUISITION
Under the Pennsylvania Business Corporation Law and the Articles of
Incorporation of American Premier, the affirmative vote of a majority of the
votes cast by the holders of American Premier Common Stock at the Special
Meeting is required to approve the Acquisition. AFC and its subsidiaries will
vote their approximately 43.1% of the outstanding American Premier Common Stock
at the Record Date in favor of the
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<PAGE> 53
Acquisition. All of the common shareholders of AFC, which is a private
corporation, have agreed to vote in favor of AFC's entering into the Acquisition
Agreement.
EFFECTIVE TIME OF THE ACQUISITION
If approved by American Premier shareholders and if all other conditions to
the completion of the Acquisition are either waived or satisfied, the
Acquisition will be consummated through the filing of merger documents with the
Secretaries of State of Pennsylvania and Ohio, at which time it will become
effective. The closing of the Acquisition may be delayed beyond the date of the
Special Meeting (but not later than June 30, 1995) pending receipt of the
requested private letter ruling described below under "Tax Ruling; Possible
Effect on Lindner Family Ownership."
EFFECT ON COMMON STOCK
Each outstanding share of American Premier Common Stock will be converted
into one share of New American Premier Common Stock, and each outstanding share
of AFC Common Stock will be converted into 1.45 shares of New American Premier
Common Stock.
EFFECT ON PREFERRED STOCK
As a result of the Acquisition, each outstanding share of American Premier
preferred stock will be converted into one share of New American Premier
preferred stock of a class and series having terms identical in all material
respects to the applicable class and series of American Premier stock so
converted. All outstanding shares of AFC preferred stock will remain outstanding
after the Acquisition without alteration, except that holders of AFC Series F
and Series G Preferred Stock will be granted voting rights equal to
approximately 21% of the total voting power of AFC.
CONDITIONS
The respective obligations of New American Premier, American Premier and
AFC to effect the Acquisition are subject to the satisfaction of certain
conditions prior to its effectiveness. These include:
a. approval of the Acquisition by a majority of the votes cast by the
holders of American Premier Common Stock at the Special Meeting;
b. the absence of any injunction or other court ruling or any
regulatory or governmental action which would prevent consummation of the
Acquisition;
c. the authorization for listing on the NYSE of the New American
Premier Common Stock issuable in the Acquisition;
d. either the receipt of a favorable tax ruling that the Acquisition
qualifies as a reverse acquisition with the consequence that, for federal
income tax purposes, the American Premier consolidated tax group will
continue; or exchange of a sufficient number of shares of AFC Common Stock
into shares of AFC preferred stock that such a ruling is not required (See
"TAX CONSEQUENCES");
e. the receipt of a favorable opinion of counsel, that for federal
income tax purposes, the Acquisition qualifies as a tax free exchange with
respect to shareholders of American Premier Common Stock and AFC Common
Stock and that such shareholders' basis and holding period will be the same
for their shares of New American Premier Common Stock as for the American
Premier Common Stock and AFC Common Stock held at the time of the
Acquisition;
f. all filings required to be made, and all consents, approvals,
permits and authorizations required to be obtained from, governmental and
regulatory authorities in connection with the Acquisition and the
consummation of the transactions contemplated thereby having been made or
obtained without conditions, except where the failure to obtain such
consents, approvals, permits and authorizations or the imposition of
conditions could not reasonably be expected to have a material adverse
effect on (i) AFC and its subsidiaries taken as whole or (ii) American
Premier and its subsidiaries taken as a whole; and
47
<PAGE> 54
g. the exercise for cash of all outstanding options to purchase AFC
Common Stock.
In addition, the Special Committee shall have received an opinion of Furman
Selz as of the closing that the Exchange Ratios are fair to American Premier
Public Shareholders from a financial point of view.
AMENDMENT AND TERMINATION
At any time prior to its effectiveness, the parties to the Acquisition
Agreement may mutually modify or terminate it except that, after it is approved
by the holders of American Premier Common Stock, no amendment may be made which
changes the consideration payable to shareholders of American Premier or AFC or
makes any other change which would require approval by shareholders of American
Premier or AFC. In addition, the Acquisition Agreement provides that any
condition to any party's obligations may, at any time prior to effectiveness of
the Acquisition, be waived by such party in whole or in part. In addition,
approval of the Special Committee will be required to amend, terminate or waive
any of American Premier's rights under the Acquisition Agreement.
The Acquisition Agreement may be terminated at any time prior to its
effectiveness by any party if the transactions have not been consummated prior
to June 30, 1995, except that a party who is in breach of its obligations shall
not have the unilateral right to terminate the Acquisition Agreement. The
Acquisition Agreement may be terminated by American Premier if any event occurs
which has or may affect materially and adversely the condition of AFC, its
subsidiaries and affiliates, taken as a whole, or by AFC if similar developments
have affected or may affect materially and adversely the condition of American
Premier and its subsidiaries taken as a whole. For these purposes a material and
adverse effect on the condition of AFC shall not be deemed to occur solely as a
result of market fluctuations in the trading value of common stock of any of
American Premier, AAG, Chiquita or Citicasters, nor shall a material adverse
effect on the condition of American Premier be deemed to occur solely as a
result of market fluctuations in the trading value of American Premier Common
Stock. American Premier may also terminate the Acquisition Agreement prior to
effectiveness if the Special Committee of its Board of Directors determines
that, as a result of an event or condition not directly caused by American
Premier, the Acquisition Agreement should be terminated pursuant to the exercise
of their fiduciary duties in accordance with applicable law.
REGULATORY MATTERS
Consummation of the Acquisition is subject to compliance with
change-in-control regulations administered by the insurance departments of Ohio,
California and certain other states; clearance under the Hart-Scott-Rodino
Antitrust Improvements Act; and consents with respect to broadcast licenses held
by Citicasters. Under the Acquisition Agreement, the parties have agreed to make
all required filings with governmental or regulatory authorities as promptly as
practicable.
TRANSFERABILITY OF NEW AMERICAN PREMIER COMMON STOCK TO BE RECEIVED IN THE
ACQUISITION
In the Acquisition, American Premier Public Shareholders will receive New
American Premier Common Stock which has been registered with the Securities and
Exchange Commission. Accordingly, that stock will be freely transferable by such
persons. Members of the Lindner Family, the directors of New American Premier
and certain of its executive officers will only be able to sell their stock in
public transactions pursuant to another registration or in limited amounts under
Rule 144 under the Securities Act. There will be no period of time during which
the New American Premier Common Stock must be held prior to commencement of
sales by any such person.
TAX RULING; POSSIBLE EFFECT ON LINDNER FAMILY OWNERSHIP
The Acquisition Agreement provides that a portion of the AFC Common Stock
otherwise to be converted into New American Premier Common Stock will instead be
exchanged prior to the closing of the Acquisition for a new issue of AFC
non-voting preferred stock if the requested Internal Revenue Service ruling has
not been received to the effect that the consolidated tax group for which New
American Premier will be the common parent will be considered for federal income
tax purposes to be a continuation of the
48
<PAGE> 55
American Premier Consolidated Group. See "TAX CONSEQUENCES--Certain Tax
Consequences to American Premier and AFC." Management believes it is probable
that the Service will issue a favorable ruling. However, should an unfavorable
response to the request for ruling be received or if no favorable response is
received by June 30, 1995, and all other conditions regarding the closing of the
Acquisition have been met, the Acquisition Agreement provides that, unless other
arrangements are made, the transaction would be closed with the exchange of AFC
non-voting preferred stock in lieu of New American Premier Common Stock to the
extent required to maintain the continuation of such consolidated tax treatment.
If AFC preferred stock is required to be issued, it will have a liquidation
value which equals the value of the shares of New American Premier Common Stock
which would have been received, which will be based on the trading value of
American Premier Common Stock for the ten trading days prior to the closing. The
annual dividend rate of such AFC preferred stock will be equal to the average
yield per share on AFC Series F Preferred Stock for the ten trading days prior
to the closing. The terms of the AFC preferred stock were determined in
consultation with Furman Selz and are intended to ascribe to such preferred
stock a market dividend rate. While it is not possible to determine at this time
how many shares of such AFC preferred stock may be issued, if any, if any shares
had been issued on February , 1995, the liquidation value would be $
per share and the annual dividend rate would be $ per share.
The general effect of exchanging AFC Common Stock for AFC preferred stock
would be to reduce the number of shares of New American Premier Common Stock to
be outstanding and the percentage of that common stock to be owned by the
Lindner Family. See Note (i) to "UNAUDITED PRO FORMA FINANCIAL INFORMATION."
ABSENCE OF APPRAISAL RIGHTS
Under Pennsylvania and Ohio law, holders of American Premier Common Stock
and AFC Common Stock will not have the right to demand appraisal rights for
their shares in connection with the Acquisition.
MISCELLANEOUS
Whether or not the Acquisition is consummated, each party shall pay its own
expenses in connection with the Acquisition.
TAX CONSEQUENCES
The following is a discussion of the material U.S. federal income tax
considerations relevant to shareholders of American Premier and AFC whose shares
will be converted into shares of New American Premier Common Stock
(collectively, the "Exchanging Shareholders"). The discussion is limited to U.S.
federal income tax matters. The discussion is based upon the Internal Revenue
Code of 1986, as amended (the "Code"), Treasury regulations, administrative
rulings and pronouncements of the Internal Revenue Service ("IRS"), and judicial
decisions, all as of the date hereof and all of which are subject to change at
any time, possibly with retroactive effect.
The discussion of tax consequences to Exchanging Shareholders is limited to
those Exchanging Shareholders that hold shares of common stock in American
Premier or AFC (and that will hold New American Premier Common Stock as "capital
assets," for U.S. federal income tax purposes). This discussion does not purport
to address U.S. federal income tax consequences that may be applicable to
particular categories of shareholders such as insurance companies, financial
institutions, dealers in securities, persons with significant holdings of
American Premier Common Stock or AFC Common Stock, and non-United States persons
such as foreign corporations and nonresident alien individuals. This discussion
does not address any tax considerations under the laws of any state, locality,
or jurisdiction, or foreign country.
A ruling has been sought from the IRS with respect to the application of
the "reverse acquisition" provisions of the consolidated return Treasury
regulations (discussed below). No other rulings have been sought with respect to
any other aspect of the Acquisition, and there can be no assurance that the IRS
will not successfully challenge the conclusions reached in this discussion.
BECAUSE THE U.S. FEDERAL
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<PAGE> 56
INCOME TAX CONSEQUENCES DISCUSSED BELOW MAY VARY DEPENDING UPON EACH
SHAREHOLDER'S PARTICULAR TAX STATUS, AND UPON U.S. FEDERAL INCOME TAX LAWS,
REGULATIONS, RULINGS AND DECISIONS WHICH ARE SUBJECT TO CHANGE (WHICH CHANGE MAY
BE RETROACTIVE IN EFFECT), SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS
REGARDING THE PARTICULAR TAX CONSEQUENCES OF THE TRANSACTIONS.
TAX TREATMENT OF THE MERGER TRANSACTIONS
The American Premier Merger. The transaction pursuant to which a
transitory subsidiary of New American Premier merges with and into American
Premier, with American Premier surviving and with the holders of American
Premier Common Stock surrendering such stock solely in exchange for New American
Premier Common Stock and the holder of American Premier preferred stock
surrendering such stock solely in exchange for New American Premier preferred
stock, will be treated for federal income tax purposes as if the American
Premier shareholders transferred their American Premier Common Stock or American
Premier preferred stock directly to New American Premier in exchange for New
American Premier Common Stock or New American Premier preferred stock in a
transaction qualifying under Section 351 of the Code. (The existence of the
transitory subsidiary will be disregarded for tax purposes.) Accordingly, under
Section 351(a), no gain or loss will be recognized by such American Premier
shareholders. No gain or loss will be recognized by either New American Premier
or American Premier as a result of the merger.
The AFC Merger. The transaction pursuant to which a transitory subsidiary
of New American Premier merges with and into AFC, with AFC surviving and with
the holders of AFC Common Stock surrendering such stock solely in exchange for
New American Premier Common Stock plus cash in lieu of fractional shares, will
be treated for federal income tax purposes as if the AFC shareholders
transferred their AFC Common Stock directly to New American Premier in exchange
for New American Premier Common Stock and cash in lieu of fractional shares, in
a transaction qualifying under Section 351 of the Code. (The existence of the
transitory subsidiary will be disregarded for tax purposes.) Accordingly, under
Section 351(a), no gain or loss will be recognized by such AFC shareholders that
receive solely New American Premier Common Stock. Taxable income will be
recognized by an Exchanging Shareholder of AFC, however, if such shareholder
receives cash in addition to New American Premier Common Stock but not in an
amount in excess of the amount of the cash received. No gain or loss will be
recognized by New American Premier or AFC as a result of the merger.
TAX BASIS OF NEW AMERICAN PREMIER STOCK
Exchanging Shareholders of American Premier. The tax basis of an
Exchanging Shareholder of American Premier in New American Premier Common Stock
or New American Premier preferred stock received in the exchange will be the
same as such Exchanging Shareholder's tax basis in the American Premier Common
Stock or New American Premier preferred stock converted in the Acquisition.
Exchanging Shareholders of AFC. The tax basis of an Exchanging Shareholder
of AFC in New American Premier Common Stock received in the exchange generally
will be the same as such Exchanging Shareholder's tax basis in the American
Premier or AFC Common Stock converted in the Acquisition.
HOLDING PERIOD OF NEW AMERICAN PREMIER STOCK
An Exchanging Shareholder's holding period in New American Premier Common
Stock or New American Premier preferred stock received in the exchange will
include the period during which such shareholder held the American Premier
Common Stock or New American Premier preferred stock or AFC Common Stock that is
converted in the Acquisition.
CERTAIN TAX CONSEQUENCES TO AMERICAN PREMIER AND AFC
By reason of the Acquisition, American Premier will become a wholly-owned
subsidiary of New American Premier and will join in filing consolidated federal
income tax returns with New American Premier.
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<PAGE> 57
It is anticipated that the acquisition of American Premier by New American
Premier will constitute a "reverse acquisition" within the meaning of Treas.
Reg. sec. 1.1502-75(d)(3), with the consequence that the consolidated group of
which New American Premier will be the common parent will be considered for
federal income tax purposes to be a continuation of the American Premier
consolidated group. A ruling confirming this result has been sought from the
IRS.
Management believes it is probable that the IRS will issue a favorable
ruling. However, if such a ruling is not obtained, it is anticipated that a
portion of the AFC Common Stock will be exchanged for shares of AFC preferred
stock instead of New American Premier Common Stock prior to consummation of the
Acquisition. Because AFC preferred stock received in this transaction will not
be exchanged for New American Premier Common Stock, the value of the AFC Common
Stock held by New American Premier would be less than if the preferred stock
exchange had not occurred. AFC Common Stock would be so exchanged for AFC
preferred stock only to the extent necessary to ensure that the Acquisition
results in the continuation of the American Premier consolidated tax group
pursuant to the reverse acquisition rule. Neither the holders of AFC Common
Stock that exchange such stock for AFC preferred stock nor AFC should recognize
gain or loss by reason of such exchange. See Note (i) to "UNAUDITED PRO
FORMA FINANCIAL INFORMATION."
As a result of the Acquisition, New American Premier will own all of the
AFC Common Stock. It is anticipated, however, that AFC will not be includible in
the consolidated tax group of which New American Premier is the common parent.
(This result is expected regardless of whether a portion of the AFC Common Stock
is exchanged for AFC preferred stock.) As a consequence, AFC will continue to
file consolidated returns as the common parent of a separate consolidated tax
group.
EXTENSION OF VOTING RIGHTS TO AFC'S SERIES F AND SERIES G PREFERRED STOCK
Prior to the Acquisition (including the possible exchange of a portion of
the outstanding AFC Common Stock for AFC preferred stock), permanent voting
rights will be extended to the Series F and Series G preferred stock of AFC.
Neither the holders of such preferred stock nor AFC should recognize gain or
loss by reason of this event.
BACKUP WITHHOLDING
Federal income tax backup withholding at a rate of 31% on dividends and
proceeds from a sale, exchange, or redemption of New American Premier Common
Stock will apply unless the holder (i) is a corporation or comes within certain
other exempt categories (and, when required, demonstrates this fact) or (ii)
provides a taxpayer identification number, certifies as to no loss of exemption
from backup withholding, and otherwise complies with applicable requirements of
the backup withholding rules. The amount of any backup withholding from a
payment to a holder will be allowed as a credit against the holder's federal
income tax liability and may entitle such holder to a refund, provided that the
required information is furnished to the IRS.
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<PAGE> 58
UNAUDITED PRO FORMA FINANCIAL INFORMATION
GENERAL
The accompanying Unaudited Pro Forma Condensed Consolidated Financial
Statements illustrate the estimated effects of the Acquisition of AFC on the
historical Financial Statements of New American Premier. The acquisition will be
accounted for as a "purchase" type business combination with American Premier
being treated as the acquired company because the former shareholders of AFC
will acquire a majority of the voting shares and will effectively control New
American Premier. The Unaudited Pro Forma Condensed Consolidated Balance Sheet
at September 30, 1994 assumes that the Acquisition was consummated at that date.
The Unaudited Pro Forma Condensed Consolidated Statements of Income for the nine
months ended September 30, 1994 and the year ended December 31, 1993 were
prepared assuming that the acquisition was consummated on January 1, 1993. The
Unaudited Pro Forma Condensed Consolidated Financial Statements give effect to
the issuance of 1.45 shares of New American Premier Common Stock for each share
of common stock of AFC, the application of approximately $625 million of parent
company investments of American Premier to reduce long-term debt (including
assumed premiums) of American Premier and AFC, the utilization, between October
1, 1994 and February 15, 1995, of approximately $119 million of parent company
investments of American Premier to repurchase approximately 4.8 million shares
of American Premier Common Stock, the payment of transaction costs and expenses
and the revaluation of American Premier's net assets as described below.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
necessarily reflect the results of operations or the financial position of New
American Premier which would have actually resulted had the proposed Acquisition
occurred as of the dates indicated, nor should they be taken as indicative of
the future results of operations or the future financial position of New
American Premier. The Unaudited Pro Forma Condensed Consolidated Financial
Statements of New American Premier should be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations of AFC and American Premier included in their respective Annual
Reports on Form 10-K for the year ended December 31, 1993 and Quarterly Reports
on Form 10-Q for the nine months ended September 30, 1994, included or
incorporated herein by reference.
Since American Premier is the acquired company for financial reporting
purposes, generally accepted accounting principles require that American
Premier's historical net assets be adjusted to their fair market values at the
date of the Acquisition. Because AFC owned approximately 40% of American Premier
prior to the Acquisition, only that portion of American Premier's net assets
that was attributable to American Premier Public Shareholders immediately prior
to the acquisition (approximately 60%) are affected by such revaluation. For
purposes of the Unaudited Pro Forma Condensed Consolidated Financial Statements,
the revaluation of American Premier's net assets is based on a market value of
$26.75 per share, which is the market price of the American Premier Common Stock
on September 30, 1994. The actual adjustment of American Premier's historical
net assets will be based on the per share fair market value of the American
Premier stock at the closing date. In addition, New American Premier will be
required to retain the accounting policies of AFC. Consequently, the accounting
policy currently used by American Premier with respect to pre-reorganization
matters (see Note 1 of Notes to Financial Statements included in the Annual
Report on Form 10-K for the year ended December 31, 1993 of American Premier
Underwriters, Inc. incorporated herein by reference) will not be available to
New American Premier, but will continue to be available to American Premier in
its separate company financial statements.
The Unaudited Pro Forma Condensed Consolidated Financial Statements do not
reflect the reduction in the number of shares of New American Premier Common
Stock to be held by the Lindner Family if the Settlement is approved by the
Court. See "CERTAIN LITIGATION REGARDING THE ACQUISITION." Implementation of the
Settlement would not have a material effect upon the Unaudited Pro Forma
Condensed Consolidated Financial Statements.
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<TABLE>
<CAPTION>
AMERICAN PREMIER GROUP, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 30, 1994
NEW
HISTORICAL AMERICAN
AMERICAN HISTORICAL PRO FORMA PREMIER
PREMIER AFC ADJUSTMENTS PRO FORMA
---------- ---------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
ASSETS
Insurance company investments............... $ 1,773.3 $ 6,580.2 $ (48.8)(a) $ 8,304.7
Parent company investments.................. 886.8 10.0 (809.9)(b) 86.9
Investment in investees..................... -- 850.9 (529.3)(c) 321.6
Loans receivable, real estate and other..... -- 796.8 -- 796.8
---------- ---------- ----------- ---------
Total invested assets....................... 2,660.1 8,237.9 (1,388.0) 9,510.0
Cash........................................ 32.9 172.8 -- 205.7
Reinsurance recoverable and prepaid
reinsurance............................... 51.5 913.9 -- 965.4
Other receivables........................... 444.5 587.5 -- 1,032.0
Goodwill.................................... 397.4 174.4 (211.8)(d) 360.0
Other assets................................ 581.2 382.5 -- 963.7
---------- ---------- ----------- ---------
Total assets........................... $ 4,167.6 $ 10,469.0 $(1,599.8) $13,036.8
======= ======== ========= ========
LIABILITIES AND EQUITY
Unpaid losses and loss adjustment
expenses.................................. $ 1,087.1 $ 2,914.8 $ -- $ 4,001.9
Annuity policyholders' funds accumulated.... -- 4,489.7 -- 4,489.7
Policyholder dividends...................... 120.0 7.6 -- 127.6
Unearned premium............................ 432.8 805.6 -- 1,238.4
Minority interest........................... 4.8 107.2 173.7(e) 285.7
Debt........................................ 503.6 1,080.7 (578.7)(f) 1,005.6
Accounts payable and other liabilities...... 394.0 586.3 (10.0)(g) 970.3
---------- ---------- ----------- ---------
Total liabilities...................... 2,542.3 9,991.9 (415.0) 12,119.2
---------- ---------- ----------- ---------
Preferred stock............................. -- 168.4 (168.4)(e) --
---------- ---------- ----------- ---------
Redeemable preferred stock.................. -- 5.3 (5.3)(e) --
---------- ---------- ----------- ---------
Common Stock subject to mandatory
redemption................................ -- 37.8 (37.8)(h) --
Common Stock................................ 47.6 0.9 4.2(h) 52.7
Capital surplus............................. 729.4 -- (126.1)(h) 603.3
Retained earnings........................... 864.1 236.3 (867.2)(h) 233.2
Net unrealized gains (losses) on
investments............................... (15.8) 28.4 15.8(h) 28.4
---------- ---------- ----------- ---------
Common shareholders' equity............ 1,625.3 303.4 (1,011.1) 917.6
---------- ---------- ----------- ---------
Total liabilities and equity........... $ 4,167.6 $ 10,469.0 $(1,599.8) $13,036.8
======= ======== ========= ========
Number of shares outstanding................ 47.6 5.1(i) 52.7
======= ========= ========
Book value per share........................ $ 34.14 $ 17.41
======= ========
Debt to capitalization ratio................ 23.6% 45.5%
======= ========
</TABLE>
53
<PAGE> 60
<TABLE>
<CAPTION>
AMERICAN PREMIER GROUP, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED INCOME STATEMENT
NINE MONTHS ENDED SEPTEMBER 30, 1994
NEW
AMERICAN
HISTORICAL HISTORICAL PRO FORMA PREMIER
AMERICAN PREMIER AFC ADJUSTMENTS PRO FORMA
---------------- -------- ------------ -----------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C>
INCOME
Property and casualty insurance premiums.......... $1,160.9 $1,013.6 -- $ 2,174.5
Investment income................................. 120.8 434.1 $(30.4)(j) 524.5
Realized gains (losses) on sales of securities.... (74.9) 43.1 -- (31.8)
Equity in net (losses) of investee corporations... -- (8.8) 4.9(k) (3.9)
Gains on sales of investee corporations........... -- 1.7 -- 1.7
Sales of other products and services.............. 97.5 -- -- 97.5
Other income...................................... -- 85.4 -- 85.4
---------------- -------- ------------ -----------
1,304.3 1,569.1 (25.5) 2,847.9
---------------- -------- ------------ -----------
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses............. 799.0 710.6 -- 1,509.6
Commissions and other underwriting expenses..... 260.9 311.1 -- 572.0
Policyholder dividends.......................... 67.6 -- -- 67.6
Interest charges on:
Annuity policyholders' funds.................... -- 180.7 -- 180.7
Borrowed money.................................. 39.9 87.1 (53.8)(l) 73.2
Cost of sales..................................... 53.9 -- -- 53.9
Other operating and general expenses.............. 66.6 197.1 5.8(m) 269.5
---------------- -------- ------------ -----------
1,287.9 1,486.6 (48.0) 2,726.5
---------------- -------- ------------ -----------
Earnings from continuing operations before income
taxes........................................... 16.4 82.5 22.5 121.4
Income tax expense................................ (30.5) (25.1) (10.7)(n) (66.3)
---------------- -------- ------------ -----------
Net earnings (loss) from continuing operations.... (14.1) 57.4 11.8 55.1
Dividends on preferred stock...................... -- (19.5) 19.5(m) --
---------------- -------- ------------ -----------
Net earnings (loss) from continuing operations
available for common shareholders............... $ (14.1) $ 37.9 $ 31.3 $ 55.1
=============== ========= =========== ==========
Weighted average common shares outstanding........ 48.2 5.1(o) 53.3
=============== =========== ==========
Earnings (loss) per common share from continuing
operations(p)................................... $ (0.29) $ 1.03
=============== ==========
Ratio of Earnings to Fixed Charges(q)............. 1.4 2.4
=============== ==========
</TABLE>
54
<PAGE> 61
<TABLE>
<CAPTION>
AMERICAN PREMIER GROUP, INC.
UNAUDITED PRO FORMA
CONDENSED CONSOLIDATED INCOME STATEMENT
YEAR ENDED DECEMBER 31, 1993
PRO FORMA ADJUSTMENTS
------------------------------
DEDUCT 1ST QTR NEW
HISTORICAL AMERICAN AMERICAN
AMERICAN HISTORICAL PREMIER IN PREMIER
PREMIER AFC AFC(R) ADJUSTMENTS PRO FORMA
-------- -------- --------------- ------------ -------------
(IN MILLIONS, EXCEPT PER SHARE AND RATIO AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME
Property and casualty insurance premiums............... $1,273.6 $1,494.8 $(254.0) -- $ 2,514.4
Investment income...................................... 168.1 601.9 (39.0) $(40.5)(j) 690.5
Realized gains on sales of securities.................. 123.3 82.3 (6.0) -- 199.6
Equity in net earnings (losses) of investee
corporations......................................... -- 69.9 (2.0) (91.7)(k) (23.8)
Gains on sales of investee corporations................ -- 83.2 -- (28.3)(s) 54.9
Gains (losses) on sales of subsidiaries................ (41.6) 75.3 -- (31.4)(s) 2.3
Sales of other products and services................... 198.3 152.1 (152.0) -- 198.4
Other income........................................... -- 161.2 (1.0) -- 160.2
-------- -------- --------------- ------------ -------------
1,721.7 2,720.7 (454.0) (191.9) 3,796.5
-------- -------- --------------- ------------ -------------
COSTS AND EXPENSES
Property and casualty insurance:
Losses and loss adjustment expenses.................. 856.9 1,064.1 (187.0) -- 1,734.0
Commissions and other underwriting expenses.......... 288.3 449.8 (57.0) -- 681.1
Policyholder dividends............................... 93.2 -- -- -- 93.2
Interest charges on:
Annuity policyholders' funds......................... -- 228.6 -- -- 228.6
Borrowed money....................................... 62.8 157.2 (17.0) (71.7)(l) 131.3
Costs of sales......................................... 88.9 134.9 (135.0) -- 88.8
Other operating and general expenses................... 141.5 424.1 (44.0) 7.8(m) 529.4
-------- -------- --------------- ------------ -------------
1,531.6 2,458.7 (440.0) (63.9) 3,486.4
-------- -------- --------------- ------------ -------------
Earnings from continuing operations before income
taxes................................................ 190.1 262.0 (14.0) (128.0) 310.1
Income tax (expense) benefit........................... 52.6 (37.3) (3.0) 41.0(n) 53.3
-------- -------- --------------- ------------ -------------
Net earnings from continuing operations................ 242.7 224.7 (17.0) (87.0) 363.4
Dividends on preferred stock........................... -- (26.1) -- 26.1(m) --
-------- -------- --------------- ------------ -------------
Net earnings from continuing operations available for
common shareholders.................................. $ 242.7 $ 198.6 $ (17.0) $( 60.9) $ 363.4
======== ======== ============= =========== ============
Weighted average common shares outstanding............. 48.2 2.2(o) 50.4
======== =========== ============
Earnings per common share from continuing
operations(p)........................................ $ 5.03 $ 7.21
======== ============
Ratio of Earnings to Fixed Charges(q).................. 3.8 3.3
======== ============
</TABLE>
55
<PAGE> 62
AMERICAN PREMIER GROUP, INC.
NOTES TO UNAUDITED PRO FORMA
FINANCIAL INFORMATION
(a) Represents the write-down of American Premier fixed maturity securities
which are classified as held to maturity to market value at September 30, 1994.
(b) Consists of the use of American Premier parent company investments
which will be reclassified as "Available for Sale" in purchase accounting: (1)
to retire outstanding debt (approximately $625 million including assumed
premiums); (2) to repurchase American Premier Common Stock (approximately $119
million); (3) to pay AFC's obligations under the Incentive Plan (approximately
$50 million) and (4) to pay other transaction related costs (approximately $25
million). These payments are partially offset by the receipt of approximately $9
million upon exercise of AFC stock options.
(c) Elimination of AFC's investment in American Premier.
<TABLE>
(d) The adjustment to goodwill is determined as follows (in millions):
<S> <C>
Value of 24.2 million shares of American Premier owned by American
Premier Public Shareholders, computed at $26.75 per share........ $ 646.5
Carrying value of American Premier stock owned by AFC at September
30, 1994......................................................... 529.3
Transaction costs.................................................. 25.0
--------
Total amount to be allocated to the net assets of American
Premier.......................................................... 1,200.8
American Premier shareholders' equity at September 30, 1994 of
$1,625.3 reduced by the cost of shares repurchased since that
date ............................................................ 1,506.4
--------
Required adjustment to American Premier shareholders' equity....... $ 305.6
=======
Write-down of insurance investment portfolio to market value....... $ 48.8
Write-up long-term debt to market value............................ 45.0
Required write-down of American Premier goodwill................... 211.8
--------
$ 305.6
=======
</TABLE>
The actual adjustments of American Premier historical assets and
liabilities will depend, among other things, on the fair market value of its
stock at the closing date. An increase or decrease from the $26.75 per share
price used in these pro forma statements will result in a corresponding change
(totalling $24.2 million for each $1.00 per share) in the common shareholders'
equity of American Premier and an offsetting change by the same amount to the
aggregate adjustment of net assets.
(e) AFC preferred stock will remain outstanding and, accordingly, is
reclassified to minority interest.
(f) Consists of application of American Premier parent company investments
to retire $605.9 million principal amount of American Premier and AFC long-term
debt, and an increase of $27.2 million to state American Premier debt which is
not assumed to be retired at its market value at September 30, 1994. For pro
forma purposes, it is assumed that premiums in the amount of approximately $19.1
million will be required to retire the debt, and therefore, the total cash
required is $625.0 million. The determination of which and how much of the AFC
and American Premier debt issues will be repurchased, and whether such
repurchases would be effected through redemption (where callable), tender or
privately negotiated transactions will depend on various factors, including
whether and to what extent the "Put Right" applicable to outstanding American
Premier debt is exercised (see "RISK FACTORS -- Certain Consequences of the
Acquisition -- Effect on Outstanding American Premier Debt"), the amount of
funds expended in the American Premier share repurchase program referred to
under "SUMMARY" and the terms of each such debt issue (including interest rate,
maturity and redemption provisions, if any). The following table sets forth the
principal outstanding debt issues at September 30, 1994 of AFC and American
Premier and certain provisions thereof.
56
<PAGE> 63
<TABLE>
<S> <C> <C>
PRINCIPAL
AMOUNT
LONG TERM DEBT ISSUES OUTSTANDING REDEMPTION PROVISIONS
(SEPTEMBER 30, 1994)
AFC
12 1/4% Debentures due 2003 $ 52 million Redeemable at 102.5% in 1995,
101.25% in 1996, 100% thereafter
12% Debentures due 1999 $134 million Redeemable at par
(includes Series A, B and BV)
10% Debentures due 1999 $ 89 million Redeemable at par
9 3/4% Debentures due 2004 $204 million Non-redeemable until 1999
9 1/2% Subordinated Debentures $ 4 million Redeemable at par
due 1999
AFC SUBSIDIARIES
11% Notes due 1998 $150 million Redeemable at par beginning
(Great American Holding 8/15/95
Corporation)
Floating Rate Notes due 1995 $ 50 million Redeemable at par
(Great American Holding
Corporation)
Bank Line of Credit $135 million Redeemable at par
(Great American Holding
Corporation)
Various Mortgage Loans $ 59 million Redeemable at par
(Great American Insurance)
11 1/8% Senior Subordinated $104 million Non-redeemable until 1998
Notes
due 2003
(American Annuity Group,
Inc.)
9 1/2% Senior Notes due 2001 $ 59 million Non-redeemable until 1997
(American Annuity Group,
Inc.)
Other $ 40 million
AMERICAN PREMIER
10 7/8% Subordinated Notes due $150 million Non-redeemable. Following the
2011 Acquisition, holders would have a
put right to American Premier at
par if credit rating falls below
investment grade.
10 5/8% Subordinated Notes due $150 million Non-redeemable. Following the
2000 Acquisition, holders would have a
put right to American Premier at
par if credit rating falls below
investment grade.
9 3/4% Subordinated Notes due $200 million Non-redeemable. Following the
1999 Acquisition, holders would have a
put right to American Premier at
par if credit rating falls below
investment grade.
</TABLE>
(g) Represents the portion of the Incentive Plan which was previously
accrued by AFC. See also Notes (b) and (h) to Unaudited Pro Forma Financial
Information.
57
<PAGE> 64
<TABLE>
<CAPTION>
(h) Adjustments to shareholders' equity are comprised of the following (in
millions):
COMMON
STOCK
SUBJECT TO COMMON CAPITAL RETAINED UNREALIZED TOTAL COMMON
REDEMPTION STOCK SURPLUS EARNINGS GAIN (LOSS) EQUITY
---------- ------ ------- -------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Historical Amounts for American
Premier.......................... $ 0.0 $(47.6) $(729.4) $ (864.1) $15.8 $ (1,625.3)
Value of New American Premier
Shares Issued.................... (37.8) 43.2 603.3 37.8 0.0 646.5
Call Premiums on AFC Debt Assumed
Retired.......................... 0.0 0.0 0.0 (1.3) 0.0 (1.3)
Accrual of Additional
Expense -- AFC Incentive Plan.... 0.0 0.0 0.0 (39.6) 0.0 (39.6)
Proceeds of Assumed Exercise of AFC
Stock Options.................... 0.0 8.6 0.0 0.0 0.0 8.6
---------- ------ ------- -------- ----------- ------------
$(37.8) $ 4.2 $(126.1) $ (867.2) $15.8 $ (1,011.1)
======== ====== ======= ======= ========= =========
</TABLE>
Certain members of the Lindner Family who in the aggregate owned 1.5
million shares of AFC Common Stock at December 31, 1993 have the right to
require AFC to redeem such shares at a stipulated value. Since these shares
would be converted into New American Premier Common Stock, this amount is
included in Common Shareholders' Equity for pro forma purposes.
(i) Represents the net increase in New American Premier common shares
outstanding, comprised of 28.6 million shares issued in the merger of a
subsidiary of New American Premier with AFC pursuant to which each share of AFC
common stock would be converted into 1.45 shares of New American Premier Common
Stock, reduced by 18.7 million shares held by AFC or its subsidiaries, which
will be accounted for as treasury shares by New American Premier after the
Acquisition and 4.8 million shares of American Premier Common Stock repurchased
between October 1, 1994 and February 15, 1995.
<TABLE>
The following table sets forth information regarding ownership by the
Lindner Family of American Premier Common Stock at February 15, 1995 and
ownership by the Lindner Family of New American Premier Common Stock upon
consummation of the Acquisition:
<CAPTION>
HISTORICAL
AMERICAN PRO FORMA
PREMIER NEW AMERICAN PREMIER
- ----------------------- -----------------------
NUMBER OF PERCENT NUMBER OF PERCENT
SHARES OF CLASS SHARES OF CLASS
- ---------- -------- ---------- --------
<S> <C> <C> <C>
18,666,614(1) 44.8 %(2) 28,613,890(3) 55.4 %(2)
<FN>
- ---------------
(1) The shares listed are held by subsidiaries of AFC (of which Carl H. Lindner
may be deemed to be the beneficial owner), but do not include 1,033,811
shares of American Premier Common Stock purchasable by Carl H. Lindner, Carl
H. Lindner III and S. Craig Lindner through exercise of the vested portions
of stock options held by them.
(2) Does not include the 1,375,095 shares set aside at February 15, 1995 for
issuance to certain pre-reorganization creditors and other claimants under
the 1978 Plan of Reorganization of American Premier's predecessor which, if
included, would change such percentages to 43.4% (historical) and 54.0% (pro
forma).
(3) The 19,733,717 shares of AFC Common Stock which will be outstanding
immediately prior to the Acquisition will be converted (1.45 for 1) into
28,613,890 shares of New American Premier Common Stock. The shares listed do
not include 1,033,811 shares of New American Premier Common Stock that would
be purchasable by Carl H. Lindner, Carl H. Lindner III and S. Craig Lindner
through vested portions of stock options which would be substituted for an
equal number of American Premier vested stock options held by them prior to
the Acquisition. The shares listed include the 290,000 shares which may be
returned to New American Premier by the Lindner Family in connection with
the settlement of
58
<PAGE> 65
litigation regarding the Acquisition. See "CERTAIN LITIGATION REGARDING THE
ACQUISITION."
</TABLE>
If the ruling described in "THE ACQUISITION AGREEMENT--Tax Ruling; Possible
Effect on Lindner Family Ownership" is not obtained, the Lindner Family will be
required to take shares of AFC preferred stock in lieu of a portion of the
shares of New American Premier Common Stock which they would otherwise have
received. The number of shares of AFC preferred stock to be issued if a
favorable ruling is not received would be the minimum number that would be
necessary to ensure that American Premier Public Shareholders would own more
than 50% of the value of New American Premier capital stock as computed for tax
purposes. The issuance of AFC preferred stock to the Lindner Family would result
in the Lindner Family owning more than 50% of the voting stock, but less than
50% of the value of New American Premier's total capital stock, including the
value of the 212,698 shares of non-voting preference stock of American Premier
currently outstanding. Based on the number of shares held by American Premier
Public Shareholders on February 15, 1995, the number of shares of New American
Premier Common Stock to be issued to the Lindner Family would be reduced by not
more than 5.6 million and approximately 3.9 million shares of AFC preferred
stock would be issued in lieu thereof. In such case, the Lindner Family
ownership of New American Premier Common Stock would be reduced from 55.4% to no
less than 50.0%. The pro forma effect of such issuance of AFC preferred stock on
selected financial information is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED YEAR ENDED
SEPTEMBER 30, 1994 DECEMBER 31, 1993
----------------------- -----------------------
WITHOUT WITH WITHOUT WITH
ISSUANCE ISSUANCE ISSUANCE ISSUANCE
OF AFC OF AFC OF AFC OF AFC
PREFERRED PREFERRED PREFERRED PREFERRED
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings per common share from
continuing operations........................ $ 1.03 $ 0.99 $7.21 $7.88
Ratio of earnings to fixed charges............. 2.4 2.3 3.3 3.1
Book value per share........................... $ 17.41 $ 16.28 -- --
Debt to capitalization ratio................... 45.5% 45.5% -- --
</TABLE>
(j) Reflects the estimated decrease in investment income resulting from the
use of American Premier parent company investments to retire debt, to repurchase
American Premier Common Stock, to pay AFC obligations under the Incentive Plan,
and to pay transaction related costs, partially offset by an increase in
investment income ($3.7 million for the nine months ended September 30, 1994 and
$4.9 million the year ended December 31, 1993) from the amortization of the
write-down of the American Premier fixed maturity securities.
(k) Reflects the elimination of AFC's equity in earnings of American
Premier.
(l) Reflects the estimated decrease in interest expense resulting from the
repurchase or retirement of debt and the amortization of the market value
adjustment applicable to the American Premier debt which is not retired ($3.7
million for the nine months ended September 30, 1994 and $4.9 million the year
ended December 31, 1993).
(m) Reflects the estimated reduction in operating and general expenses
which are expected to result from the Acquisition ($9.7 million for the nine
months ended September 30, 1994 and $13.0 million the year ended December 31,
1993) and the reduction of goodwill amortization ($4.0 million for the nine
months ended September 30, 1994 and $5.2 million the year ended December 31,
1993). Also includes expenses related to AFC preferred dividends ($19.5 million
for the nine months ended September 30, 1994 and $26.1 million for the year
ended December 31, 1993).
(n) The adjustment to the tax provision represents the statutory federal
rate applied to the estimated adjustments to pre-tax income excluding
amortization of goodwill and other permanent items.
(o) Net income per share for the nine months ended September 30, 1994 is
calculated based on the assumption that 53.3 million shares were outstanding
during the entire period reflecting the 5.1 million
59
<PAGE> 66
increase in shares explained in note (i) above. Net income per share for the
year ended December 31, 1993 is calculated based on the assumption that 50.4
million shares were outstanding during the entire year. In August 1993, AFC sold
4.5 million American Premier shares to the public. For pro forma purposes these
shares are considered to be treasury shares for the period January 1, 1993
through the date of sale. Accordingly, the pro forma increase in shares is
reduced to 2.2 million.
(p) During 1993 and 1994, AFC and American Premier both reported
certain transactions involving disposition of their ownership interests in
subsidiaries, affiliates and certain other operations, gains and losses on the
sales of investments and certain deferred tax asset adjustments. Management
believes that reported results which include these transactions are not
indicative of future results of operations. During the nine months ended
September 30, 1994, the after tax effect of such American Premier transactions
was a loss of $70.8 million or $1.46 per share, and during the year ended
December 31, 1993, a gain of $175.7 million or $3.64 per share. On a pro forma
basis, for New American Premier, the after tax effect of these transactions
was a loss of $53.3 million or $1.00 per share for the nine months ended
September 30, 1994 and a gain of $311.8 million or $6.19 per share for the year
ended December 31, 1993.
(q) For purposes of calculating the Ratio of Earnings to Fixed Charges,
"earnings" have been computed by adding to earnings from continuing operations
before income taxes total 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 policyholders' funds), amortization of debt
discount and expense, preferred stock dividend requirements of subsidiaries and
a portion of rental expense deemed to be representative of the interest factor.
(r) Reflects the elimination of American Premier first quarter results from
AFC results. During the first quarter 1993, AFC owned more than 50% of American
Premier and, accordingly, consolidated American Premier. In anticipation of a
reduction in AFC's ownership of American Premier below 50%, AFC ceased
accounting for American Premier as a subsidiary following the 1993 first
quarter.
(s) Reflects the elimination of the gain on sale of American Premier shares
held by AFC ($28.3 million) and a recorded gain on the sale of NSA Companies to
American Premier by AFC ($31.4 million).
60
<PAGE> 67
DESCRIPTION OF CAPITAL STOCKS
NEW AMERICAN PREMIER
The following description is a summary and is qualified in its entirety by
the provisions of New American Premier's Articles of Incorporation, Code of
Regulations and the Ohio General Corporation Law.
The total number of authorized shares of New American Premier Common Stock
will be 200,000,000. There are 10 shares of New American Premier Common Stock
issued and outstanding. Following the Acquisition, New American Premier will
have approximately 54.0 million shares of Common Stock issued and outstanding
and approximately 1.4 million shares issuable pursuant to the 1978 Plan of
Reorganization of American Premier's predecessor. In addition, approximately
500,000 shares will be reserved for optional conversion of preferred stock and
approximately 5.1 million shares will be reserved for issuance upon exercise of
stock options. Holders of New American Premier Common Stock are entitled to one
vote for each share held of record on all matters submitted to a vote of
shareholders. New American Premier common shareholders have the right to
cumulate their votes in the election of directors but are not entitled to any
preemptive rights.
Subject to preferences which may be granted to holders of Preferred Stock,
holders of New American Premier Common Stock are entitled to the share of such
dividends as the Board of Directors, in its discretion, may validly declare from
funds legally available. In the event of liquidation, each outstanding share of
Common Stock entitles its holder to participate ratably in the assets remaining
after the payment of liabilities and any Preferred Stock liquidation
preferences.
New American Premier will be authorized to issue 12,500,000 shares of
voting Preferred Stock, and 12,500,000 shares of nonvoting Preferred Stock, each
without par value. New American Premier's Articles of Incorporation authorize
the Board of Directors, without further shareholder approval, to designate for
any series of Preferred Stock not fixed in New American Premier's Articles of
Incorporation the designations, preferences, conversion rights, and relative,
participating, optional and other special rights, and such qualifications,
limitations or restrictions, as they determine and as are permitted by the Ohio
General Corporation Law. The Acquisition provides for the conversion of each of
the 212,698 shares of Preference Stock of American Premier into one like share
of Preferred Stock of New American Premier having terms identical in all
material respects to the series of Preferred Stock of American Premier as
converted.
The affirmative vote of the holders of a majority of the outstanding shares
of New American Premier Common Stock is required to amend the Articles of
Incorporation and to approve mergers, reorganizations, share exchanges and
similar transactions.
New American Premier will act as its own transfer agent and registrar.
AMERICAN PREMIER UNDERWRITERS, INC.
The following description is a summary and is qualified in its entirety by
the provisions of American Premier's Amended and Restated Articles of
Incorporation, By-laws and the Pennsylvania Business Corporation Law.
The total number of authorized shares of American Premier Common Stock is
200,000,000. At February 15, 1995, there were 43,039,067 shares of Common Stock
of American Premier issued and issuable, of which 41,663,972 shares were
outstanding and 1,375,095 shares remained issuable pursuant to the 1978 Plan of
Reorganization of American Premier's predecessor. In addition, at that date,
446,799 shares were reserved for optional conversion of Preference Stock and
5,070,765 shares were reserved for issuance upon exercise of stock options
granted or to be granted pursuant to American Premier's Stock Option Plan.
Any outstanding Preference Stock ranks prior to the Common Stock as to
dividends and as to distributions in the event of liquidation, dissolution or
winding up of American Premier. There are 212,698 shares of Preference Stock
outstanding.
61
<PAGE> 68
Holders of American Premier Common Stock are entitled to vote cumulatively
for the election of directors. On all other matters, holders of American Premier
Common Stock are entitled to one vote per share. Holders of American Premier
Common Stock are not entitled to any preemptive rights.
American Premier is authorized to issue 23,090,274 shares of Preference
Stock, without par value. The Board of Directors is authorized to designate for
any series of Preference Stock not fixed in American Premier's Amended and
Restated Articles of Incorporation the voting powers, designations, preferences,
conversion rights, and relative, participating, optional and other special
rights, and such qualifications, limitations or restrictions, as they determine
and as are permitted by the Pennsylvania Business Corporation Law. The Board of
Directors, without shareholder approval, could issue Preference Stock with
voting and conversion rights which could adversely affect the voting power of
the holders of the Common Stock. As described above under "New American
Premier," the Acquisition Agreement provides for the conversion of each share of
each series of Preference Stock of American Premier into one share of a like
series of Preferred Stock of New American Premier having terms identical in all
material respects to the series of Preference Stock of American Premier so
converted.
The affirmative vote of the holders of a majority of the shares of American
Premier Common Stock cast is required to amend the Amended and Restated Articles
of Incorporation and to approve mergers, reorganizations, share exchanges and
similar transactions.
American Premier acts as its own transfer agent and registrar.
AMERICAN FINANCIAL CORPORATION
The following description is a summary and is qualified in its entirety by
the provisions of AFC's Articles of Incorporation, Code of Regulations and the
Ohio General Corporation Law.
The total number of authorized shares of AFC Common Stock is 32,300,000, of
which 18,971,217 shares are issued and outstanding. At February 15, 1995,
options for 762,500 shares of AFC Common Stock were outstanding. Holders of AFC
Common Stock are entitled to one vote for each share held of record on all
matters submitted to a vote of shareholders. AFC shareholders are not entitled
to vote cumulatively in the election of directors and do not have preemptive
rights.
AFC has 13,744,754 shares of $1 par, Series F Cumulative Preferred
Stock and 364,158 shares of $1 par, Series G Cumulative Preferred Stock
outstanding. The annual per share dividend rates for the Series F and Series G
Preferred Stocks are $1.80 and $1.05, respectively. The Series F and Series G
Preferred Stocks have liquidation values of $20 and $10.50 per share,
respectively. The Series F Preferred Stock is redeemable through 1996 at $20
per share plus accrued but unpaid dividends to the extent of 10% of the total
number of shares originally issued per year. The Series G Preferred Stock is
redeemable at any time at $10.50 per share plus accrued but unpaid dividends.
As part of the Acquisition, AFC's Articles of Incorporation will be amended to
provide that the Series F and Series G Preferred Stocks will be granted the
same voting rights as pertain to AFC Common Stock and will vote together with
the AFC Common Stock as one class on all matters except where a separate class
vote may be required by law. AFC has 274,242 shares of $10.50 par, Series E
Nonvoting Cumulative Preferred Stock outstanding. The annual dividend rate on
this series is $1.00 per share and the liquidation value is $10.50 per share.
The remaining shares of AFC Series E Preferred Stock will be redeemed on
December 3, 1995.
The affirmative vote of two-thirds of AFC's outstanding Common and Series F
and G Preferred Stock is required to amend its Articles of Incorporation and
Code of Regulations and to approve mergers, reorganizations and similar
transactions.
AFC acts as its own transfer agent and registrar.
62
<PAGE> 69
COMPARATIVE RIGHTS
SHAREHOLDERS OF NEW AMERICAN PREMIER AND AMERICAN PREMIER
If the Acquisition is consummated, public holders of American Premier
Common Stock and all holders of AFC Common Stock will become common shareholders
of New American Premier. The rights of holders of both New American Premier
Common Stock and AFC Common Stock are governed by Ohio law whereas those of
holders of American Premier Common Stock are governed by Pennsylvania law. In
addition, the rights and obligations of shareholders are also governed by the
Articles of Incorporation and the Codes of Regulations or By-laws of the
respective companies.
The rights and obligations of shareholders of American Premier will be
affected by the change in state of incorporation. The Articles of Incorporation
of New American Premier have been designed to provide the same rights as are now
provided to shareholders of American Premier by its Articles of Incorporation.
Specifically, the Articles of Incorporation of both New American Premier and
American Premier provide that common shareholders have one vote per share, are
able to vote cumulatively in the election of directors, can amend the Articles
of Incorporation, approve mergers and similar transactions by a vote of the
majority of the outstanding common stock (majority of votes cast in the case of
American Premier) and do not have pre-emptive rights. Several corporate actions
that may be taken by directors of American Premier without the approval of
common shareholders cannot, under Ohio law, be taken by directors of New
American Premier without the approval of common shareholders, such as, changing
the name of the corporation, providing voting rights for undesignated preferred
stock and amending the Code of Regulations. Furthermore, appraisal rights are
generally provided for mergers and similar transactions under Ohio law whereas
Pennsylvania law does not provide such rights if the particular stock is
publicly traded, as is the case with American Premier. There are no provisions
in the Articles of Incorporation of either New American Premier or American
Premier that can be construed as restricting changes in control except to the
extent that the issuance of preferred stock by the directors could be utilized
for such purposes.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for New
American Premier by Robert W. Olson, Esq., Senior Vice President, General
Counsel and Secretary of New American Premier. Mr. Olson, a director and
full-time employee of American Premier, owns 37,095 shares of American Premier
Common Stock and holds options to purchase 306,875 shares of American Premier
Common Stock.
EXPERTS
The balance sheet appearing herein for New American Premier at December 9,
1994 has been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which has been included herein and has been so included in
reliance upon the report of such firm given upon their authority as experts in
accounting and auditing.
The consolidated financial statements of AFC appearing in its Annual Report
on Form 10-K for the year ended December 31, 1993 have been audited by Ernst &
Young LLP, independent auditors, as set forth in their report thereon included
therein and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
The financial statements and the related financial statement schedules
incorporated in this Prospectus by reference from American Premier's Annual
Report on Form 10-K for the year ended December 31, 1993 have been audited by
Deloitte & Touche, independent auditors, as stated in their reports, which are
incorporated by reference herein, and have been incorporated in reliance upon
the reports of such firm given upon their authority as experts in accounting and
auditing.
63
<PAGE> 70
PROXY SOLICITATION
Solicitation of proxies is being made by management at the direction of
American Premier's Board of Directors, without additional compensation, through
the mail, in person or by telephone. The cost will be borne by American Premier.
In addition, American Premier will request brokers and other custodians,
nominees and fiduciaries to forward proxy soliciting material to the beneficial
owners of shares held of record by such persons, and American Premier will
reimburse them for their expenses in so doing. American Premier has also
retained Morrow & Co., Inc. to aid in the solicitation of proxies for a fee
estimated at $10,500 plus out-of-pocket expenses.
SHAREHOLDER PROPOSALS FOR 1996 ANNUAL MEETING
Proposals intended to be presented by shareholders at the 1996 Annual
Meeting of Shareholders of American Premier must be received by American Premier
not later than December 15, 1995, in order to be considered for inclusion in
American Premier's proxy statement and form of proxy relating to that meeting.
Any such proposal should be communicated in writing to American Premier's
Secretary at the address indicated above. If the Acquisition is consummated, no
such meeting will be held.
64
<PAGE> 71
FINANCIAL STATEMENTS OF AMERICAN PREMIER GROUP, INC.
INDEPENDENT AUDITORS' REPORT
American Premier Group, Inc.:
We have audited the accompanying balance sheet of American Premier Group,
Inc. as of December 9, 1994 (date of inception). This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, such balance sheet presents fairly, in all material
respects, the financial position of the Company at December 9, 1994 in
conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
December 9, 1994
65
<PAGE> 72
<TABLE>
AMERICAN PREMIER GROUP, INC.
BALANCE SHEET
DECEMBER 9, 1994 (DATE OF INCEPTION)
ASSETS
<S> <C>
Cash.................................................................................. $ 100
====
SHAREHOLDER'S EQUITY
Shareholder's Equity:
Common Stock, $1 par value; authorized 750 shares;
issued and outstanding 10 shares................................................. $ 10
Paid in Capital..................................................................... 90
-----
Total Shareholder's Equity.................................................. $ 100
====
</TABLE>
AMERICAN PREMIER GROUP, INC.
NOTES TO BALANCE SHEET
1. DESCRIPTION OF THE COMPANY
American Premier Group, Inc. ("New American Premier") was formed on
December 9, 1994 to serve as successor to American Premier Underwriters, Inc.
("American Premier") and as a public holding company for American Premier and
American Financial Corporation ("AFC") if the proposed acquisition of AFC by
American Premier described in Note 2 were to occur.
New American Premier was formed by American Premier and is currently 100%
owned by an officer of American Premier who paid $100 for 10 shares of New
American Premier on December 9, 1994.
2. PROPOSED ACQUISITION
American Premier is currently considering a proposal to acquire AFC. Under
the terms of the Acquisition Agreement, (a) American Premier would merge with a
subsidiary of New American Premier, and each share of American Premier Common
Stock would be converted into one share of newly issued New American Premier
Common Stock and (b) AFC would merge into another subsidiary of New American
Premier and each share of AFC Common Stock would be converted into 1.45 shares
of New American Premier Common Stock. As a result, American Premier and AFC
would each become subsidiaries of New American Premier.
3. RELATED PARTIES
The Chairman, Chief Executive Officer and principal shareholder of AFC,
which beneficially owned approximately 40.4 percent of American Premier's
outstanding common shares at December 7, 1994, is also the Chairman and Chief
Executive Officer of American Premier and New American Premier.
66
<PAGE> 73
ANNEX A
AGREEMENT AND PLAN OF
ACQUISITION AND REORGANIZATION
(ACQUISITION AGREEMENT)
BY AND AMONG
AMERICAN PREMIER GROUP, INC.
AMERICAN PREMIER UNDERWRITERS, INC.,
AMERICAN PREMIER SUB, INC.,
AMERICAN FINANCIAL CORPORATION
AND
AFC SUB, INC.
DATED AS OF DECEMBER 9, 1994, AS AMENDED
ACQUISITION AGREEMENT
A-1
<PAGE> 74
<TABLE>
INDEX OF DEFINED TERMS
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------- ---------
<S> <C>
AFC................................................................................ Recitals
AFC Affiliate...................................................................... 4.1
AFC Common Stock................................................................... 1.4(b)
AFC Merger......................................................................... Recitals
AFC Personnel...................................................................... 3.13(a)
AFC Preferred Stock................................................................ 3.2
AFC Proxy Statement................................................................ 2.5
AFC Related Person................................................................. 3.15(g)
AFC Stock Options.................................................................. 2.1(a)
AFC's Common Shareholders.......................................................... 2.3
AFEI............................................................................... 4.1
Affiliate SEC Filings.............................................................. 4.3
Annual Statements.................................................................. 3.6
APZ................................................................................ Recitals
APZ Common Stock................................................................... 1.4(a)
APZ Disclosure Schedule............................................................ 5.2(a)
APZ Merger......................................................................... Recitals
APZ Preferred Stock................................................................ 5.2(a)
APZ SEC Filings.................................................................... 5.5
APZ Stock Option................................................................... 2.1(b)
APZ Sub............................................................................ Recitals
APZ Subsidiaries................................................................... 5.1(a)
APZ's Public Shareholders.......................................................... 5.3
Balance Sheets..................................................................... 3.10
Benefit Plan....................................................................... 3.13(a)
Certificates....................................................................... 1.5(b)
Closing............................................................................ 9.2
Code............................................................................... Recitals
Condition.......................................................................... 3.1
Disclosure Schedule................................................................ 3.1
Effective Time..................................................................... 1.2
Environmental Claim................................................................ 3.21(b)
Environmental Laws................................................................. 3.21(c)
ERISA.............................................................................. 3.13(a)
ESORP.............................................................................. 3.13(a)
Exchange Act....................................................................... 3.4
FCC................................................................................ 2.8
Financial Statements............................................................... 3.5
GAAP............................................................................... 3.5
</TABLE>
A-2
ACQUISITION AGREEMENT
<PAGE> 75
<TABLE>
<CAPTION>
TERM SECTION
- ----------------------------------------------------------------------------------- ---------
<S> <C>
Group.............................................................................. 3.10
HSR Act............................................................................ 2.8
Insurance Subsidiary............................................................... 3.6
Joint Proxy/Registration Statement................................................. 2.5
Liens.............................................................................. 3.14
Materials of Environmental Concern................................................. 3.21(d)
Mergers............................................................................ Recitals
NYSE............................................................................... 2.4
New American Premier............................................................... Recitals
New American Premier Common Stock.................................................. 1.4(a)
New American Premier Entities...................................................... Recitals
New American Premier Preferred Stock............................................... 5.2(b)
New American Premier Stock......................................................... 1.5(a)
OGCL............................................................................... 1.1(b)
PBCL............................................................................... 1.1(a)
Permitted Liens.................................................................... 3.14
Proposal........................................................................... 2.3
Proxy Statement.................................................................... 2.5
Put................................................................................ 2.1(a)
Registration Statement............................................................. 2.5
Returns............................................................................ 3.10
SAP................................................................................ 3.6
SAP Statements..................................................................... 3.6
SEC................................................................................ 2.5
SEC Filings........................................................................ 3.5
Securities Act..................................................................... 2.5
Shareholders Agreement............................................................. 2.3
Special Committee.................................................................. 5.3
subsidiary......................................................................... 9.9
Taxes.............................................................................. 3.10
Welfare Plan....................................................................... 3.13(a)
</TABLE>
A-3
ACQUISITION AGREEMENT
<PAGE> 76
AGREEMENT AND PLAN OF ACQUISITION AND REORGANIZATION
AGREEMENT AND PLAN OF ACQUISITION AND REORGANIZATION dated as of December
9, 1994, as amended on January 18, 1995 (this "Agreement") by and among American
Premier Group, Inc., an Ohio corporation ("New American Premier"), American
Premier Underwriters, Inc., a Pennsylvania corporation ("APZ"), American Premier
Sub, Inc., a Pennsylvania corporation and a wholly owned subsidiary of New
American Premier ("APZ Sub"), American Financial Corporation, an Ohio
corporation ("AFC"), and AFC Sub, Inc., an Ohio corporation and a wholly owned
subsidiary of New American Premier ("AFC Sub") (New American Premier, APZ Sub
and AFC Sub being hereinafter sometimes collectively referred to as the "New
American Premier Entities").
WHEREAS, the parties hereto entered into an Agreement and Plan of
Acquisition and Reorganization dated as of December 9, 1994 (the "1994
Agreement").
WHEREAS, the parties hereto wish to amend and restate the 1994 Agreement in
its entirety.
WHEREAS, the respective Boards of Directors of APZ, AFC, New American
Premier, APZ Sub and AFC Sub deem it advisable and in the best interests of
their respective shareholders to effect the merger of APZ Sub with and into APZ
(the "APZ Merger") and AFC Sub with and into AFC (the "AFC Merger") (the APZ
Merger and the AFC Merger being hereinafter sometimes collectively referred to
as the "Mergers"), all pursuant to the terms set forth in this Agreement.
WHEREAS, for federal income tax purposes, it is intended that the APZ
Merger and the AFC Merger, taken together with the APZ Merger, will be treated
as tax free exchanges under Section 351 of the Internal Revenue Code of 1986, as
amended (the "Code"), and that the parties hereto and their respective
shareholders will recognize no gain or loss for federal income tax purposes as a
result of the consummation of the Mergers.
NOW THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements contained herein, the parties hereto,
intending to be legally bound hereby, agree as follows:
ARTICLE I
THE MERGERS
SECTION 1.1 THE MERGERS. Upon the terms and subject to the conditions of
this Agreement:
(a) The APZ Merger. At the Effective Time (as defined in Section 1.2
hereof) APZ Sub shall be merged with and into APZ in accordance with the
laws of the Commonwealth of Pennsylvania. APZ shall be the surviving
corporation of the APZ Merger and shall continue its corporate existence
under the laws of the Commonwealth of Pennsylvania. As a result of the APZ
Merger, APZ shall become a subsidiary of New American Premier. From and
after the Effective Time, all property of the constituent corporations of
the APZ Merger shall be deemed transferred to APZ, and APZ shall be
responsible for all the liabilities of each such constituent corporation,
all as set forth in Section 1929 of the Business Corporation Law of 1988 of
the Commonwealth of Pennsylvania (the "PBCL").
(b) The AFC Merger. At the Effective Time, AFC Sub shall be merged
with and into AFC in accordance with the laws of the State of Ohio. AFC
shall be the surviving corporation of the AFC Merger and shall continue its
corporate existence under the laws of the State of Ohio. As a result of the
AFC Merger, AFC shall become a subsidiary of New American Premier. From and
after the Effective Time, AFC shall possess all assets and property of
every description, and every interest in the assets and property, wherever
located, and the rights, privileges, powers, franchises and authority, of a
public as well as of a private nature, and all obligations belonging to or
due to each of the constituent corporations of the AFC Merger, all as set
forth in Section 1701.82 of the Ohio General Corporation Law (the "OGCL").
SECTION 1.2 EFFECTIVE TIME OF THE MERGERS. On the date of the Closing (as
defined in Section 9.2), (a) with respect to the APZ Merger, Articles of Merger
complying with the requirements of the PBCL shall
ACQUISITION AGREEMENT
A-4
<PAGE> 77
be executed and filed with the Secretary of State of the Commonwealth of
Pennsylvania, and (b) with respect to the AFC Merger, a Certificate of Merger
complying with the requirements of the OGCL shall be executed and filed with the
office of the Secretary of State of the State of Ohio. The Mergers shall become
effective at the time specified in the Articles of Merger filed with respect to
the APZ Merger (the "Effective Time"). The effective time specified in the
Certificate of Merger to be filed with respect to the AFC Merger shall be the
same effective time specified in the Articles of Merger with respect to the APZ
Merger. Each of the Mergers shall be deemed to occur simultaneously and shall
not be effective unless the other shall occur.
SECTION 1.3 CHARTER DOCUMENTS OF THE SURVIVING CORPORATIONS.
(a) Charter Documents of APZ. The Articles of Incorporation of APZ, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of APZ as the surviving corporation. The By-laws of APZ, as in
effect immediately prior to the Effective Time, shall be the By-laws of APZ, as
the surviving corporation, until thereafter changed or amended as provided
therein or by law.
(b) Charter Documents of AFC. The Articles of Incorporation of AFC, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of AFC as the surviving corporation. The Code of Regulations of
AFC, as in effect immediately prior to the Effective Time, shall be the Code of
Regulations of AFC, as the surviving corporation, until thereafter changed or
amended as provided therein or by law.
SECTION 1.4 CONVERSION OF SHARES. (a) At the Effective Time, by virtue of
the APZ Merger and without any action on the part of the holder thereof:
(i) Conversion of APZ Common Stock. Each issued and outstanding share
of Common Stock, par value $1.00, of APZ ("APZ Common Stock") shall be
converted into validly issued, fully paid and nonassessable shares of
Common Stock, par value $1.00 per share, of New American Premier ("New
American Premier Common Stock") at a rate equal to one share of New
American Premier Common Stock for each share of APZ Common Stock; with
respect to the aggregate number of authorized but unissued shares of APZ
Common Stock that immediately prior to the Effective Time continues to be
reserved by APZ for future delivery to certain creditors and claimants in
accordance with Section 4.03(e) of the Consummation Order and Final Decree
dated August 17, 1978 of the U.S. District Court for the Eastern District
of Pennsylvania in the proceedings for the bankruptcy reorganization of
APZ's predecessor, Penn Central Transportation Company (the "Consummation
Order"), there shall be issued to APZ the same aggregate number of shares
of New American Premier Common Stock which shall be retained by APZ in
accordance with the Consummation Order for future delivery to such
creditors and claimants in lieu of shares of APZ Common Stock; and the
reservation of authorized but unissued shares of APZ Common Stock for such
delivery shall terminate and such creditors and claimants shall have no
rights in respect thereof;
(ii) Conversion of APZ Preferred Stock. Each issued and outstanding
share of APZ Preferred Stock (as defined in Section 5.2 hereof) shall be
converted into one validly issued, fully paid and nonassessable share of
New American Premier Preferred Stock (as defined in Section 5.2 hereof) of
a class and series having terms identical in all material respects to the
applicable class and series of APZ Preferred Stock so converted; and
(iii) Conversion of APZ Sub Common Stock. The aggregate of all shares
of capital stock of APZ Sub issued and outstanding immediately prior to the
Effective Time shall be converted into 47,000,000 shares of APZ Common
Stock (as the surviving corporation of the APZ Merger).
(b) At the Effective Time, by virtue of the AFC Merger and without any
action on the part of the holder thereof:
(i) Conversion of AFC Common Stock. Each issued and outstanding share
of Common Stock, without par value, of AFC ("AFC Common Stock") shall be
converted into the right to receive validly issued, fully paid and
nonassessable shares of New American Premier Common Stock at a rate equal
to 1.45 shares of New American Premier Common Stock for each share of AFC
Common Stock;
ACQUISITION AGREEMENT
A-5
<PAGE> 78
(ii) No Effect on AFC Preferred Stock. Each issued and outstanding
share of AFC Preferred Stock (as defined in Section 3.2 hereof) shall
remain issued and outstanding after the Effective Time and the AFC Merger
shall have no effect on any shares of AFC Preferred Stock; and
(iii) Conversion of AFC Sub Common Stock. The aggregate of all shares
of capital stock of AFC Sub issued and outstanding immediately prior to the
Effective Time shall be converted into 53,000,000 validly issued, fully
paid and nonassessable shares of AFC Common Stock (as the surviving
corporation of the AFC Merger).
SECTION 1.5 CONVERSION OF CERTIFICATES; ISSUANCE OF NEW CERTIFICATES.
(a) Conversion of APZ Stock Certificates. At the Effective Time, each
certificate which immediately prior to the Effective Time evidenced outstanding
shares of APZ Common Stock or APZ Preferred Stock shall, by virtue of the APZ
Merger and without further act or deed, be deemed to evidence an identical
number of shares of New American Premier Common Stock or New American Premier
Preferred Stock, as the case may be (New American Premier Common Stock and New
American Premier Preferred Stock being hereinafter sometimes collectively
referred to as the "New American Premier Stock"). As certificates formerly
evidencing shares of APZ Common Stock or APZ Preferred Stock are, over time,
surrendered to New American Premier to effect transfers thereof, New American
Premier shall cancel such certificates and issue new certificates of New
American Premier Stock in place thereof. Notwithstanding the foregoing
provisions of this paragraph (a), if prior to the Effective Time New American
Premier determines that it is necessary or desirable that the certificates
evidencing shares of APZ Common Stock and APZ Preferred Stock be surrendered in
exchange for new certificates evidencing shares of New American Premier Stock,
then the parties hereto shall amend this Agreement to provide for a suitable
mechanism for effecting such exchange.
(b) Surrender of AFC Common Stock. Promptly after the Effective Time, AFC
shall request each registered holder of a certificate or certificates which
immediately prior to the Effective Time evidenced outstanding shares of AFC
Common Stock (the "Certificates") to surrender such Certificates to New American
Premier for exchange. Upon such surrender, New American Premier shall issue to
the holder of such Certificates the number of whole shares of New American
Premier Stock which such holder is entitled to receive pursuant to Section 1.4
hereof and the Certificates so surrendered shall be cancelled. Until so
surrendered, such Certificates shall represent solely the right to receive the
applicable number of shares of New American Premier Stock with respect to the
number of shares of AFC Common Stock evidenced thereby. No dividends or other
distributions declared or made after the Effective Time with respect to shares
of New American Premier Stock with a record date after the Effective Time shall
be paid to the holder of an unsurrendered Certificate with respect to the shares
of New American Premier Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant to Section 1.5(c)
hereof until the holder of record of such Certificate shall surrender such
Certificate. Subject to the effect of unclaimed property, escheat and other
applicable laws, following surrender of any such Certificate, there shall be
paid to the registered holder of the certificates representing whole shares of
New American Premier Stock issued in exchange therefor, without interest, (i) at
the time of such surrender, the amount of any cash payable in lieu of a
fractional share of New American Premier Stock to which such holder is entitled
pursuant to Section 1.5(c) hereof and the amount of dividends or other
distributions with a record date after the Effective Time theretofore paid with
respect to such whole shares of New American Premier Stock and (ii) at the
appropriate payment date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender and a payment date
subsequent to surrender payable with respect to such whole shares of New
American Premier Stock, as the case may be. If any cash or certificate
evidencing shares of New American Premier Stock is to be paid to or issued in a
name other than that in which the Certificate surrendered in exchange therefor
is registered, it shall be a condition of such exchange that the Certificate so
surrendered shall be properly endorsed and otherwise in proper form for transfer
and that the person requesting such exchange shall pay to New American Premier
any transfer or other taxes required by reason of the issuance of certificates
for such shares of New American Premier Stock in a name other than that of the
registered holder of the Certificate surrendered, or shall establish to the
satisfaction of New American Premier that such tax has been paid or is not
applicable.
ACQUISITION AGREEMENT
A-6
<PAGE> 79
(c) No Fractional Shares. Notwithstanding any other provision of this
Agreement, no certificates or scrip representing fractional shares of New
American Premier Stock shall be issued upon the surrender for exchange of
Certificates. Any holder of AFC Common Stock who would otherwise have been
entitled to a fractional share of New American Premier Stock shall be entitled
to receive a cash payment in lieu of such fractional share in an amount equal to
the product of such fraction multiplied by the average of the last reported
sales prices, regular way, per share of APZ Common Stock on the New York Stock
Exchange Composite Tape on the ten consecutive trading days ending with the last
trading day on which APZ Common Stock was traded on the New York Stock Exchange,
without any interest thereon. Any such holder shall not be entitled to vote or
to any other rights of a holder of New American Premier Stock in respect of such
fractional share.
SECTION 1.6 NO FURTHER TRANSFERS. From and after the Effective Time, there
shall be no transfers on the stock transfer books of APZ and AFC of any shares
of APZ Common Stock, APZ Preferred Stock or AFC Common Stock, as the case may
be, that are to be converted into New American Premier Stock pursuant to the
terms of Section 1.4 hereof. If, after the Effective Time, certificates
evidencing any such shares are presented to one of the surviving corporations
they shall be cancelled and exchanged for the applicable shares of New American
Premier Stock as provided herein.
ARTICLE II
RELATED MATTERS
SECTION 2.1 TREATMENT OF AFC'S STOCK OPTIONS/PUT AND APZ'S STOCK OPTIONS.
(a) Cancellation of AFC's Stock Options and the Put. AFC shall take all
actions necessary to cause that certain agreement dated April 15, 1983 with
certain members of the Lindner family to be amended to provide that (i) the
outstanding options (the "AFC Stock Options") relating to the right to purchase
762,500 shares of AFC Common Stock shall become fully vested and immediately
exercised for the then applicable exercise price and, if such AFC Stock Options
are not so exercised with the exercise price fully paid in cash by the Effective
Time, such AFC Stock Options shall be deemed cancelled and (ii) the right to put
shares of AFC Common Stock to AFC (the "Put"), as more particularly described in
such agreement, shall be terminated as of immediately prior to the Effective
Time.
(b) Amendment of APZ Stock Option Plan. Effective as of the Effective
Time, APZ shall amend the "APZ Stock Option Plan" to provide that each
outstanding option to purchase shares of APZ Common Stock (each, an "APZ Stock
Option" and, collectively, the "APZ Stock Options"), shall constitute an option
to acquire shares of New American Premier Common Stock, at the same exercise
price and on the same terms and other conditions as were applicable to such APZ
Stock Option. At the Effective Time, New American Premier shall assume each
stock option agreement relating to the APZ Stock Option Plan. To the extent
necessary, the respective Compensation Committees of the Boards of Directors of
APZ and New American Premier will take all action necessary or advisable to
provide for the foregoing.
SECTION 2.2 TREATMENT OF AFC'S BOOK VALUE INCENTIVE PLAN. Effective as of
the Effective Time, AFC shall take all action to provide for the termination of
its Book Value Incentive Plan and the extinguishment of all rights thereunder
for a net payment in cash by AFC to each grantee, such payments in the aggregate
not to exceed $49,600,000.
SECTION 2.3 AFC SHAREHOLDER APPROVAL. AFC shall take all action necessary
in accordance with applicable law, the respective rules of The Cincinnati Stock
Exchange and The Pacific Stock Exchange, Incorporated, and its Articles of
Incorporation and Code of Regulations to convene a meeting of its shareholders
as promptly as practicable to consider and vote upon a proposal to approve and
adopt this Agreement (the "Proposal"). The Board of Directors of AFC will
recommend that its shareholders vote in favor of the Proposal and will use its
best efforts to take all other actions reasonably necessary or advisable to
secure the vote or consent of AFC's shareholders required to effect the AFC
Merger. Simultaneously with the execution and delivery of this Agreement by AFC,
AFC shall deliver to APZ an agreement (the
ACQUISITION AGREEMENT
A-7
<PAGE> 80
"Shareholders Agreement") substantially in the form of Exhibit A attached hereto
executed by AFC and all the holders of shares of AFC Common Stock ("AFC's Common
Shareholders") whereby AFC's Common Shareholders shall agree, provided this
Agreement has not been terminated in accordance with Article VIII hereof, to (i)
vote their shares of AFC Common Stock in favor of the Proposal, (ii) amend AFC's
Articles of Incorporation in the manner contemplated by Section 6.8 hereof,
(iii) treat the AFC Stock Options and the Put in the manner described in Section
2.1 hereof and (iv) exchange, prior to the Closing, under the circumstances and
subject to the terms and conditions stated therein, shares of AFC Common Stock
for shares of AFC Preferred Stock.
SECTION 2.4 APZ SHAREHOLDER APPROVAL. APZ shall take all action necessary
in accordance with applicable law, the rules of the New York Stock Exchange (the
"NYSE"), and its Articles of Incorporation and By-laws to convene a meeting of
its shareholders as promptly as practicable to consider and vote upon the
Proposal. Subject to its fiduciary duties under applicable law and the receipt
of a favorable recommendation from the Special Committee (as defined in Section
5.3 hereof), the Board of Directors of APZ will recommend that its shareholders
vote in favor of the Proposal and will use its best efforts to solicit proxies
from the shareholders of APZ in favor of the Proposal and to take all other
actions reasonably necessary or advisable to secure the vote or consent of APZ's
shareholders required to effect the APZ Merger. Provided that this Agreement
shall not have been terminated in accordance with Article VIII hereof, at the
meeting of APZ's shareholders, AFC covenants that all shares of APZ Common Stock
then owned, directly or indirectly, by AFC and its subsidiaries (except for
shares held by AFEI (as defined in Section 4.1 hereof)) will be voted in favor
of the Proposal.
SECTION 2.5 JOINT PROXY/REGISTRATION STATEMENT. The parties shall, as
promptly as practicable, prepare and file with the Securities and Exchange
Commission (the "SEC") a registration statement on Form S-4 (the "Registration
Statement") and proxy and information statement (the "Proxy Statement") (the
Proxy Statement and the Registration Statement being, collectively, the "Joint
Proxy/Registration Statement") in connection with (a) the registration under the
Securities Act of 1933, as amended (the "Securities Act"), of the New American
Premier Stock issuable in connection with the Mergers and (b) the meetings of
the respective shareholders of AFC and APZ described in Sections 2.3 and 2.4
hereof. Each of APZ and AFC shall use its best efforts to have or cause the
Joint Proxy/Registration Statement declared effective and cleared as promptly as
practicable, shall take any and all other action required to be taken under
federal or state securities laws in connection therewith, and shall use its best
efforts to cause the Joint Proxy/Registration Statement to be mailed to its
respective shareholders at the earliest practicable date. AFC shall use its best
efforts to prepare and deliver to its shareholders, at the earliest practicable
date, a notice and proxy statement (the "AFC Proxy Statement") meeting the
requirements of Ohio law.
SECTION 2.6 APPROVAL OF SOLE SHAREHOLDER OF NEW AMERICAN
PREMIER. Simultaneously with the execution and delivery of this Agreement by
New American Premier, New American Premier shall deliver to APZ and AFC an
agreement signed by the sole shareholder of New American Premier whereby such
shareholder agrees, provided this Agreement has not been terminated in
accordance with Article VIII hereof, to (a) vote all of his shares of New
American Premier Common Stock in favor of this Agreement and the Mergers, (b)
cause New American Premier, as the sole shareholder of all of the outstanding
shares of common stock of APZ Sub and AFC Sub, to vote all of such shares in
favor of this Agreement and the Mergers and (c) cause New American Premier, and
APZ Sub, and AFC Sub, as wholly owned subsidiaries of New American Premier, to
perform all things necessary, proper or advisable on their part to consummate
the transactions contemplated by this Agreement.
SECTION 2.7 WAIVER OF DISSENTERS RIGHTS RELATING TO APZ PREFERRED
STOCK. Simultaneously with the execution and delivery of this Agreement by APZ,
APZ shall deliver an agreement signed by the sole shareholder of all issued and
outstanding APZ Preferred Stock whereby such shareholder agrees to waive all
dissenters rights he would be entitled to assert under Subchapter D of Chapter
15 of the PBCL as a result of the APZ Merger and the other transactions
contemplated by this Agreement.
SECTION 2.8 CERTAIN FILINGS. The parties shall (a) as promptly as
practicable, make any filings required to be filed with any governmental
authority or other regulatory or administrative agency (including, without
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limitation, the filings under Section 2.5 hereof, any filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), and any filings required by the Federal Communications Commission (the
"FCC"), the NYSE, the Department of Insurance of Ohio and any other insurance
regulatory agencies) in order to consummate the transactions contemplated by
this Agreement, (b) cooperate with one another (i) in promptly determining
whether any other filings are required to be made or consents, approvals,
permits or authorizations are required to be obtained under any other relevant
federal, state or foreign law or regulation and (ii) in promptly making any such
filings, furnishing information required in connection therewith and timely
seeking to obtain any such consents, approvals, permits or authorizations; and
(c) deliver to the other parties to this Agreement copies of the publicly
available portions of all such filings promptly after they are filed.
SECTION 2.9 TAX RULING. The parties shall seek a ruling from the Internal
Revenue Service to the effect that the APZ Merger, as contemplated by this
Agreement, will constitute a reverse acquisition of New American Premier and
that, after the Mergers, the APZ federal consolidated tax group which existed
prior to the Mergers shall continue to exist with APZ as the common parent for
federal income tax purposes.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF AFC
AFC represents and warrants to New American Premier and APZ as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION. AFC is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Ohio. AFC owns, directly or indirectly, all of the outstanding capital stock of,
and ownership interests in, its subsidiaries (as such term is defined in Section
9.9 hereof), or such lesser amount of the capital stock or ownership interests
as is set forth in the SEC Filings (as defined in Section 3.5 hereof) or
Schedule 3.1 of the disclosure schedule previously delivered by AFC to APZ (the
"Disclosure Schedule"). Except as set forth in the SEC Filings or Schedule 3.1
of the Disclosure Schedule, other than as contained in the investment portfolio
of any Insurance Subsidiary (as defined in Section 3.6 hereof), AFC does not
own, directly or indirectly, any capital stock or other equity securities or any
ownership interest in any corporation, partnership, joint venture, association
or similar business or entity that is material to the financial condition,
business, results of operations, prospects, properties or assets (the
"Condition") of AFC and its subsidiaries taken as a whole. All of AFC's material
subsidiaries are corporations or other limited liability entities duly
organized, validly existing and in good standing (or the local law equivalent)
under the laws of their jurisdictions of incorporation or other organization.
AFC and its subsidiaries have the requisite corporate power to conduct their
businesses as they are currently being conducted and are duly qualified as
foreign corporations (or the local law equivalent) to do business in the
respective jurisdictions where the character of their properties owned or leased
or the nature of their activities makes such qualification necessary, except to
the extent that lack of such qualification would not in the aggregate have a
material adverse effect on the Condition of AFC and its subsidiaries taken as a
whole.
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<TABLE>
SECTION 3.2 CAPITALIZATION. The authorized capital stock of AFC consists
of 32,300,000 shares of AFC Common Stock and 59,300,000 shares of Preferred
Stock ("AFC Preferred Stock"). As of the date of this Agreement, the AFC
Preferred Stock was authorized and issued and outstanding as follows:
<CAPTION>
ISSUED AND
AUTHORIZED SHARES OUTSTANDING SHARES
----------------- ------------------
<S> <C> <C>
$1 PAR, Voting Cumulative:............................... 3,500,000 0
$1 PAR, Nonvoting Cumulative:
Series F............................................... 15,000,000 13,753,254
Series G............................................... 2,000,000 364,158
$10.50 PAR, Nonvoting Cumulative:
Series D............................................... 8,375,000 0
Series E............................................... 2,725,000 274,242
$1.50 PAR, Nonvoting Cumulative:
Series H............................................... 7,700,000 0
$.01 PAR, Nonvoting Cumulative:.......................... 20,000,000 0
</TABLE>
As of the date of this Agreement, 18,971,217 shares of AFC Common Stock were
issued and outstanding, and 314,468 shares of AFC Common Stock were held in
AFC's treasury. In addition, as of such date, 762,500 shares of AFC Common Stock
were reserved for issuance upon the exercise of outstanding AFC Stock Options.
All of the issued and outstanding shares of capital stock of AFC are validly
issued, fully paid and nonassessable and are not subject to, nor were they
issued in violation of, any preemptive rights. Except as set forth above or in
Schedule 3.2 of the Disclosure Schedule, as of the date hereof, (i) there are no
shares of capital stock of AFC authorized, issued or outstanding, and (ii) there
are no outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character obligating AFC or
any of its subsidiaries, to issue, transfer or sell, presently or in the future,
any shares of the capital stock or any securities convertible into, exchangeable
for, or evidencing the right to subscribe for, any shares of the capital stock
of AFC. Except for the AFC Stock Options and the issuance of shares pursuant to
Section 1.4(b)(iii) hereof, AFC currently has and, immediately after the
Effective Time, will have, no obligation to issue, transfer or sell any shares
of its capital stock, pursuant to any Benefit Plan (as defined in Section 3.13
hereof), or otherwise. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, all of the outstanding shares of capital stock of each of AFC's
material subsidiaries have been validly issued and are fully paid and
nonassessable and are beneficially owned by either AFC or one of AFC's directly
or indirectly wholly owned subsidiaries free and clear of all liens, charges,
claims or encumbrances. Except as set forth in Schedule 3.2 of the Disclosure
Schedule, there are no outstanding subscriptions, options, warrants, calls,
rights, convertible securities or other agreements or commitments of any
character relating to the issued or unissued capital stock of any of AFC's
subsidiaries or securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock, or otherwise obligating
any such subsidiary to issue, transfer or sell any such capital stock or other
securities. Except as set forth in Schedule 3.2 of the Disclosure Schedule,
other than the Shareholders Agreement, there are no voting trusts or other
agreements or understandings to which AFC or any of its subsidiaries is a party
with respect to the voting of the capital stock of AFC or any of its
subsidiaries.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. AFC has the requisite
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly authorized by the Board of Directors of AFC. Except for the approval
by the shareholders of AFC of this Agreement and the amendment to AFC's Articles
of Incorporation contemplated by Section 6.8 hereof, no other corporate
proceedings on the part of AFC are necessary to authorize this Agreement and the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by AFC and (assuming this Agreement is a valid and
binding obligation of the other parties hereto) constitutes a valid and binding
agreement of AFC enforceable against AFC in accordance with its terms, except
that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) remedies of specific
performance and
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injunctive and other forms of relief may be subject to general principles of
equity and public policy and to the discretion of the court before which any
proceeding therefor may be brought.
SECTION 3.4 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation or the Code of Regulations of AFC or the charter documents of any
of its subsidiaries or (ii) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
AFC or any of its subsidiaries under any of the terms, conditions or provisions
of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement
or other instrument or obligation to which AFC or any such subsidiary is a party
or to which they or any of their respective properties or assets may be subject,
other than, in the case of clause (ii), (a) breaches, conflicts or violations
that would not have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole and (b) the agreements set forth in Schedule 3.4
of the Disclosure Schedule as to each of which AFC shall obtain all necessary
consents and/or waivers prior to the Closing, except where the failure to obtain
such consents and/or waivers would not have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole. Except as set forth in
Schedule 3.4 of the Disclosure Schedule, other than in connection with, or in
compliance with, the provisions of the PBCL, the OGCL, the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), the Securities Act, the HSR Act
and requirements of the FCC, the NYSE, the Department of Insurance of Ohio and
any other insurance regulatory agencies, the execution, delivery and performance
by AFC of this Agreement and the consummation by AFC of the transactions
contemplated hereby will not (i) require the consent or approval of any other
party to any of the above or affect the validity or effectiveness of any of the
above except for consents or approvals, the failure to obtain which would not,
in the aggregate, have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole or (ii) constitute a breach or violation of or
default under any law, rule or regulation or any judgment, decree, order,
governmental permit or license to which AFC or any of its subsidiaries is
subject, which would have a material adverse effect on the Condition of AFC and
its subsidiaries taken as a whole. Except as set forth on Schedule 3.4 of the
Disclosure Schedule, to the best of AFC's knowledge, New American Premier shall
not be required to obtain any actions, nonactions, consents, approvals or
waivers from any regulatory agencies or other authorities in order to consummate
the transactions contemplated by this Agreement.
SECTION 3.5 SEC REPORTS AND FINANCIAL STATEMENTS. AFC has previously
delivered or made available to APZ true and complete copies of its (i) Annual
Report on Form 10-K for the year ended December 31, 1993, as filed with the SEC,
and all amendments thereto; (ii) Quarterly Reports on Form 10-Q for the periods
ended March 31, 1994, June 30, 1994 and September 30, 1994, as filed with the
SEC; and (iii) all other reports, statements and registration statements
(including Current Reports on Form 8-K) filed by it with the SEC since December
31, 1993 (collectively, the "SEC Filings"). As of their respective dates, the
SEC Filings did not contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of AFC included in the SEC Filings (the
"Financial Statements") present fairly, in all material respects, the financial
condition, results of operations and changes in financial position of AFC as at
the dates or for the periods indicated therein in conformity with generally
accepted accounting principles applied on a consistent basis (except as
otherwise indicated in such financial statements or the notes thereto), subject,
in the case of unaudited interim financial statements, to normal recurring
year-end adjustments ("GAAP").
SECTION 3.6 ANNUAL STATEMENTS AND OTHER FILINGS FOR INSURANCE SUBSIDIARIES.
(a) AFC has previously delivered or made available to APZ true and complete
copies of the annual statements for each of the years ended December 31, 1991,
1992 and 1993 filed pursuant to state insurance law requirements (the "Annual
Statements") by each subsidiary of AFC that is subject to regulation as an
insurance company (each, an "Insurance Subsidiary" and, collectively, the
"Insurance Subsidiaries"). Except as would not have a material adverse effect on
the Condition of the applicable Insurance Subsidiary, (i) each
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such Annual Statement was in substantial compliance with applicable law when so
filed, and (ii) there were no material deficiencies with respect to any such
Annual Statement. AFC has also furnished to APZ true and complete copies of the
separate unaudited balance sheet of each Insurance Subsidiary as of September
30, 1994 and the related separate unaudited statements of operations, capital
and surplus, and changes in financial position of each such entity for the
period then ended (collectively, the "SAP Statements"). All of such SAP
Statements were prepared in accordance with accounting practices required or
permitted by applicable insurance regulatory authorities applied on a consistent
basis (except as otherwise indicated in such financial statements or the notes
thereto), subject, in the case of unaudited interim financial statements, to
normal recurring year-end adjustments ("Statutory Accounting Procedures" or
"SAP"), and each fairly presents the separate SAP financial condition of the
entity covered thereby as of the date thereof and the separate SAP results of
operations, capital and surplus, and changes in financial position of the entity
covered thereby for and during each of the periods covered thereby.
(b) Each Insurance Subsidiary has made all filings required pursuant to,
and otherwise in compliance with, the Ohio Insurance Holding Company Systems Act
and the regulations promulgated thereunder, or any comparable state insurance
law requirements in other applicable jurisdictions, except to the extent the
failure to make any such filing would not have a material adverse effect on the
Condition of any such Insurance Subsidiary. AFC has previously delivered or made
available to APZ true and complete copies of all such filings made by any
Insurance Subsidiary since January 1, 1991, and all such filings were true,
accurate and complete in all material respects as of the dates of their
respective filings.
SECTION 3.7 RESERVES. The aggregate reserves and (except with respect to
clause (a) below) other amounts of liabilities or obligations of each Insurance
Subsidiary (including, without limitation, reserves established as an allowance
for uncollectible amounts under any reinsurance, coinsurance or similar
contract) as established or reflected on the books and records of AFC and each
of the Insurance Subsidiaries (a)(i) were determined in accordance with
generally accepted actuarial standards consistently applied, (ii) are fairly
stated in accordance with sound actuarial principles, and (iii) on the date
hereof are, and at the Effective Time will be, based on actuarial assumptions
that are in accordance with those specified in the related insurance contracts,
(b) meet on the date hereof, and at the Effective Time will meet, in all
material respects, the requirements of the insurance laws of the applicable
jurisdiction as in effect on the date hereof, or on the date of the Effective
Time, as the case may be, and (c), except as set forth in the SEC Filings, are
on the date hereof, and at the Effective Time will be, adequate to cover the
total amount of all matured and unmatured liabilities and obligations of such
Insurance Subsidiary under all outstanding insurance contracts pursuant to which
such Insurance Subsidiary has any liability (whether absolute, accrued,
contingent or otherwise) or obligation, including without limitation any
incurred but not reported claims and any liability or obligation arising as a
result of any reinsurance, coinsurance or other similar contract. For the
purposes of clause (c) above, the fact that reserves covered by any such
representation are subsequently adjusted at times and under circumstances
consistent with AFC's ordinary practices of reassessing the adequacy of its
reserves shall not be used to support any claim regarding the accuracy of such
representation, provided that such adjustments do not exceed $50,000,000 in the
aggregate. As of the date hereof, each Insurance Subsidiary owns assets that
qualify as reserve assets to the extent required by applicable insurance laws.
SECTION 3.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the SEC Filings or Schedule 3.8 of the Disclosure Schedule, since December 31,
1993, each of AFC and its subsidiaries has conducted its businesses only in the
ordinary and usual course and there has not occurred any material adverse change
in the Condition of AFC and its subsidiaries taken as a whole.
SECTION 3.9 NO UNDISCLOSED LIABILITIES. Except as set forth in the
Financial Statements or Schedule 3.9 of the Disclosure Schedule, neither AFC nor
any of its subsidiaries has any liabilities or obligations (whether absolute,
accrued, contingent or otherwise) that in the aggregate have or may reasonably
be expected to have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole.
SECTION 3.10 TAXES AND TAX RETURNS. AFC and each of its subsidiaries
(collectively, the "Group") has timely filed or been included in all tax
returns, declarations, reports, estimates, information returns, statements and
other material returns (collectively, "Returns") relating to Taxes (as
hereinafter defined) required to be
ACQUISITION AGREEMENT
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filed under U.S. federal, state, local or any foreign laws (taking into account
any extensions of time for filing such Returns) and such Returns were in all
material respects (and, as to Returns not filed as of the date hereof, will be
in all material respects) true, complete and correct. The Group has paid or made
provision for (by a tax accrual or tax reserve on the most recent consolidated
balance sheets of the Group (the "Balance Sheets") contained in the SEC Filings,
which accruals or reserves have been recorded in accordance with GAAP), all
Taxes (except for such Taxes which if not so paid or provided for would not, in
the aggregate, have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole) in respect of all taxable periods or portions
thereof ending on or before the date of the Balance Sheets. Except as set forth
in Schedule 3.10 of the Disclosure Schedule, any Taxes incurred or accrued since
September 30, 1994, or which will be incurred or accrued as a result of
transactions occurring prior to the Effective Time or as a result of the
Mergers, have (or will have) arisen in the ordinary course of business. There
are no material liens for Taxes upon the assets of AFC or any of its
subsidiaries except liens for Taxes not yet due. The Group is not delinquent in
the payment of any federal income or other Taxes and, except as set forth in
Schedule 3.10 of the Disclosure Schedule, there are no outstanding deficiencies,
assessments or written proposals for assessment of federal income or other Taxes
proposed, asserted or assessed against the Group. AFC has, since December 31,
1967, filed a consolidated return for federal income tax purposes on behalf of
itself as a common parent and those of its subsidiaries which are members of its
"affiliated group" (within the meaning of Section 1504(a) of the Code) and which
are "includable corporations" (within the meaning of Section 1504(b) of the
Code). Except as set forth in the Financial Statements or in Schedule 3.10 of
the Disclosure Schedule, no waivers are presently open for the statute of
limitations for the assessment of federal income taxes for any consolidated
federal income tax return of AFC and its subsidiaries. Except as set forth in
the Financial Statements or in Schedule 3.10 of the Disclosure Schedule, no
federal, state, local or foreign audits or other administrative proceedings or
court proceedings which are material to the Condition of the Group taken as a
whole are presently pending with regard to any Taxes or Returns of AFC or its
subsidiaries. As used herein, "Taxes" means (A) all net income, gross income,
gross receipts, sales, use, transfer, franchise, profits, withholding, payroll,
employment, excise, severance, property or windfall profits taxes, or other
taxes of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any taxing authority (domestic
or foreign) upon AFC or any of its subsidiaries with respect to all periods or
portions thereof ending on or before the Effective Time and/or (B) any liability
of AFC or any of its subsidiaries for the payment of any amounts of the type
described in the immediately preceding clause (A) as a result of being a member
of an affiliated or combined group.
SECTION 3.11 LITIGATION. Except as set forth in the SEC Filings or
Schedule 3.11 of the Disclosure Schedule, there are no actions, suits, claims,
investigations or proceedings pending or, to the knowledge of AFC, threatened
against, relating to, involving or otherwise affecting AFC or any of its
subsidiaries before any court, governmental agency, commission, or
administrative or regulatory authority which, if adversely decided, in the
aggregate, may reasonably be expected to have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole. Except as set forth in
the SEC Filings or Schedule 3.11 of the Disclosure Schedule, neither AFC nor any
of its subsidiaries is subject to any order, judgment, injunction or decree that
materially and adversely affects or will materially and adversely affect the
Condition of AFC and its subsidiaries taken as a whole.
SECTION 3.12 COMPLIANCE WITH LAW. Except as set forth in the SEC Filings
or Schedule 3.12 of the Disclosure Schedule, neither AFC nor any of its
subsidiaries is in violation (or with or without notice or lapse of time or
both, would be in violation) of any term or provision of any law or any writ,
judgment, decree, injunction or similar order applicable to AFC or any
subsidiary or any of its respective assets or properties, the result of which
violations in the aggregate has or may reasonably be expected to have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole.
Without limiting the generality of the foregoing: (i) AFC and each of its
subsidiaries has filed or caused to be filed all reports, statements, documents,
registrations, filings or submissions which were required by law to be filed by
it and as to which the failure to so file, in the aggregate with other such
failures, may reasonably be expected to have a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole; all such filings
complied with applicable laws in all material respects when filed, and no
material deficiencies have been asserted with respect to any such filings; (ii)
AFC has delivered or made available to APZ all reports reflecting the results of
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financial and market conduct examinations of the affairs of each Insurance
Subsidiary issued by insurance regulatory authorities for each year commencing
January 1, 1989 and, except as set forth in Schedule 3.12 of the Disclosure
Schedule, all material deficiencies or violations in such reports for any prior
period have been resolved; (iii) AFC has delivered or made available to APZ the
preliminary results or findings of financial examinations of the affairs of each
Insurance Subsidiary that are on-going in nature on or as of the date hereof;
and (iv) except as set forth in Schedule 3.12 of the Disclosure Schedule and
except as would not have a material adverse effect on the Condition of any
Insurance Subsidiary, all outstanding insurance contracts issued or assumed by
any Insurance Subsidiary are, to the extent required under applicable laws, on
forms approved by the insurance regulatory authority of the jurisdiction where
issued or have been filed with and not objected to by such authority within the
period provided for objection.
SECTION 3.13 EMPLOYEE BENEFIT PLANS.
(a) AFC has previously delivered or made available to APZ true and complete
copies of (i) any written Benefit Plans (as defined below) maintained for the
benefit of any AFC Personnel (as defined below), or in the case of an unwritten
Benefit Plan, a written description thereof; (ii) any annual or actuarial
reports relating to such Benefit Plans (including the most recent accounting of
related plan assets with respect to AFC's Employee Stock Ownership Retirement
Plan ("ESORP")) as of the most recent valuation date, with copies of all extant
summary plan descriptions (whether or not required to be furnished under the
Employment Retirement Income Security Act of 1974, as amended ("ERISA")) and
material communications relating to such Benefit Plans distributed to employees
within the past three years; (iii) the most recent determination letters issued
by the Internal Revenue Service with respect to the ESORP and each of the other
Benefit Plans; and (iv) with respect to any "employee welfare benefit plan" as
defined in Section 3(1) of ERISA ("Welfare Plan") which is funded through a
trust, a letter of exemption from taxation (under Section 501(c)(9) of the Code)
issued by the Internal Revenue Service. For this purpose, "Benefit Plan" shall
mean "employee benefit plan", as defined in Section 3(3) of ERISA, maintained by
AFC or any of its subsidiaries (within the meaning of Section 414(b), (c), (m)
or (o) of the Code), for the benefit of AFC Personnel, or with respect to which
AFC or any of its subsidiaries makes or has an obligation to make contributions
on behalf of AFC Personnel. "AFC Personnel" shall mean any present or former
employee, director, officer, agent, consultant, broker or representative of AFC
or any of its subsidiaries.
(b) Except as set forth in Schedule 3.13 of the Disclosure Schedule, there
are no material employment contracts or other employee benefit arrangements to
which AFC or any of its subsidiaries is a party with "change of control"
provisions or any severance agreements with AFC Personnel.
(c) Except as set forth in Schedule 3.13 of the Disclosure Schedule, there
are no AFC Personnel who are entitled to any pension or other material benefit
to be paid after termination of employment other than pursuant to the ESORP or
other Benefit Plans or as otherwise required by Section 601 of ERISA, and no
other material benefits whatsoever are payable to any AFC Personnel after
termination of employment.
(d) All Benefit Plans have been administered in accordance with their terms
and are in substantial compliance with all material provisions of the Code and
ERISA. There are no actions, suits or claims pending (other than claims for
benefits) or, to the best knowledge of AFC, threatened against any Benefit Plan
or any administrator or fiduciary.
(e) Each Benefit Plan that is a Welfare Plan is either funded through an
insurance contract or unfunded. Except as set forth in Schedule 3.13 of the
Disclosure Schedule, neither AFC nor any of its subsidiaries has or expects to
have any liability under any insurance policy in the nature of a retroactive
rate adjustment or loss sharing or similar arrangement.
(f) As to each Benefit Plan for which an annual report, including
schedules, is required to be filed under ERISA or the Code, liabilities do not
exceed assets and no material adverse change has occurred with respect to the
financial matters covered by the latest annual report since the date thereof.
(g) Neither AFC nor any of its subsidiaries (nor any entity that is treated
as a single employer with AFC or its subsidiaries under Section 414(b), (c), (m)
or (o) of the Code) has (i) at any time since July 1, 1992 maintained,
contributed to or been required to contribute to any plan under which more than
one employer
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makes contributions (within the meaning of Section 4064(a) or ERISA) or any plan
that is a "multi-employer plan" as defined in Section 3(37) of ERISA or (ii)
become subject to or expects to be subject to the lien described in Section
412(n) of the Code.
(h) Neither AFC nor any of its subsidiaries (nor any entity that is treated
as a single employer with AFC or its subsidiaries under Section 414(b), (c), (m)
or (o) of the Code) has at any time since July 1, 1992 contributed to or
maintained any "employee pension benefit plan" as defined in Section 3(2) of
ERISA other than the plans referred to in Section 3.13(a). AFC has received
favorable determination letters from the Internal Revenue Service stating that
the ESORP and the other qualified plans referred to in Section 3.13(a) are
qualified under the Code and are exempt from federal income tax under Section
401(a) of the Code, and the ESORP is qualified under Section 4975(e)(7) of the
Code. The ESORP is not subject to the requirements of Title IV of ERISA. The
trustee for the ESORP is a bank independent of AFC and any of its subsidiaries.
(i) Neither the execution and delivery of this Agreement nor the actions
contemplated by this Agreement will result in a "prohibited transaction" (as
defined in Section 4975 of the Code or Section 406 of ERISA). Neither AFC, any
of its subsidiaries nor any other person, including any fiduciary, has engaged
in any prohibited transaction which could subject any of the Benefit Plans (or
their trusts), AFC or any of its subsidiaries, or any person who they have any
obligation to indemnify, to any tax or penalty imposed under Section 4975 of the
Code or Section 502(e) of ERISA.
(j) None of the assets of any Benefit Plan other than the ESORP are
invested in any property constituting employer real property or any employer
security (within the meaning of Section 407(d) of ERISA).
(k) There is no other entity with any employees which together with AFC is
a member of a group described in Section 414(b), (c), (m) or (o) of the Code
other than AFC and its subsidiaries.
(l) Neither the execution and delivery of this Agreement nor the actions
contemplated by this Agreement will terminate or modify, or give a third party a
right to terminate or modify, the provisions or terms of any Benefit Plan or
will constitute a stated triggering event under any Benefit Plan that will
result in any payment (including golden parachute payments, severance payments
or other similar payments) becoming due to any AFC Personnel (other than
payments due under the terms of a Benefit Plan due on account of termination of
employment).
SECTION 3.14 PROPERTIES. Except as set forth in the SEC Filings or
Schedule 3.14 of the Disclosure Schedule and except as would not have a material
adverse effect on the Condition of AFC and its subsidiaries taken as a whole:
(i) AFC and each of its subsidiaries has good title to all bonds, stocks and
other assets reflected in its most recent SEC Filings (including, with respect
to any Insurance Subsidiary, such assets of a type required to be disclosed in
Schedules A through DB of its 1993 Annual Statement) or acquired after the date
thereof and such assets are owned by it free and clear of all mortgages, liens,
pledges, assessments, security interests, leases, subleases, adverse claims,
levies, charges or other encumbrances of any kind ("Liens"), other than Liens
approved in writing by APZ, any Tax which is incurred in the ordinary course of
business of such subsidiary and is not delinquent and can be paid without
interest or penalty and such other liens and encumbrances that do not materially
detract from the value or impair the use of the asset in question (collectively,
"Permitted Liens"); and the respective loan portfolio of each subsidiary of AFC
(including, without limitation, with respect to any Insurance Subsidiaries the
mortgage loans of the type required to be disclosed in Schedule B of its 1993
Annual Statement), is in all material respects collectible in accordance with
the terms of the loan documents included in such loan portfolio; (ii)(a) AFC and
each of its subsidiaries owns good, marketable and indefeasible title to, or has
a valid leasehold interest in, all real property owned or used in the conduct of
its business, operations or affairs or of a type disclosed by AFC or a
subsidiary in its most recent SEC Filings or acquired after the date thereof,
free and clear of all Liens other than Permitted Liens; (b) all such real
property, other than unimproved land, is, in all material respects, in good
operating condition and repair and suitable for its current uses; (c) no
improvement on any such real property owned, leased or held by AFC or any of its
subsidiaries encroaches upon any real property of another person, the result of
which encroachments in the aggregate has or may reasonably be expected to have a
material adverse effect
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on the Condition of AFC and its subsidiaries taken as a whole; and (d) AFC and
each of its subsidiaries, in all material respects, owns, leases or has the
valid right to use adequate means of ingress and egress to, from and over all
such real property; (iii) AFC and each of its subsidiaries owns good, marketable
and indefeasible title to, or has a valid leasehold interest in or a valid right
under contract to use, all of its tangible personal property free and clear of
all Liens other than Permitted Liens and all such tangible personal property is
in good operating condition and repair and is suitable and adequate for its
current uses; and (iv) AFC and its subsidiaries have the right to use, free and
clear of any royalty or other payment obligations, claims of infringement or
alleged infringement or other Liens other than Permitted Liens, all marks, names
trademarks, service marks, patents, patent rights, assumed names, logos, trade
secrets, copyrights, and trade names used by AFC and its subsidiaries and
neither AFC nor any of its subsidiaries is in conflict with or violation or
infringement of, nor has AFC or any of its subsidiaries received any notice of
any conflict with or violation or infringement of or any claimed conflict with,
any asserted rights of any other person with respect to any intellectual
property.
SECTION 3.15 CONTRACTS. Except as set forth in the SEC Filings or Schedule
3.15 of the Disclosure Schedule, there are no contracts or other documents or
arrangements currently in force or operative in any respect (other than
contracts or other documents operative only with respect to non-material
post-termination confidentiality or indemnification obligations), to which AFC
or any of its subsidiaries is a party or by which any of AFC's or any of its
subsidiaries' assets or properties is or may be bound that involve any of the
following:
(a) employment, agency, brokerage, consultation or representation
contracts or other contracts of any type (including without limitation
loans or advances) that cannot be terminated, as of right and without
penalty, on less than 90 days' notice with any AFC Personnel who receives
compensation from any one or more of AFC and its subsidiaries of $250,000
or more per year;
(b) contracts with any person containing any provision or covenant
limiting, in any material respect, the ability of AFC or any of its
subsidiaries to engage in any line of business or compete with any person
or limiting the ability of any person, in any material respect, to compete
with AFC or any of its subsidiaries;
(c) material partnership, joint venture or profit-sharing contracts
with any person that involve more than $250,000 and cannot be terminated,
as of right and without penalty, on 180 days' or less notice;
(d) contracts relating to the borrowing of money in excess of
$5,000,000 or to the direct or indirect guarantee of any obligation for, or
contract to service the repayment of, borrowed money in excess of such
amount, or any other liability or obligation in respect of indebtedness for
borrowed money of any other person in excess of such amount, including
without limitation any contract relating to (i) the maintenance of
compensating balances that are not terminable by AFC or any of its
subsidiaries without penalty upon not more than 90 days notice, (ii) any
lines of credit, (iii) the payment for property, products or services of
any other person even if such property, products or services are not
conveyed, delivered or rendered, (iv) any obligation to take-or-pay,
keep-well, make-whole or maintain working capital or earnings levels or
perform similar requirements or (vi) the guarantee of any lease or other
similar periodic payments to be made by any other person;
(e) any lease or sublease of real property used in the conduct of
AFC's or any of its subsidiaries' business, operations or affairs, and any
other lease, sublease or rental or use contract providing for annual rental
payments to be paid by or on behalf of AFC or any of its subsidiaries in
excess of $1,000,000;
(f) material contracts relating to the future disposition or
acquisition of any investment in any person or of any interest in any
business enterprise, and any material contracts requiring AFC or any of its
subsidiaries to purchase any security other than notes or other debt
securities having a maturity date less than 90 days from the date of
purchase;
(g) contracts and arrangements that involve more than $250,000 and
cannot be terminated, as of right and without penalty, on less than 90
days' notice between (i) AFC or any of its subsidiaries and (ii) any AFC
Affiliate (as defined in Section 4.1 hereof) or any AFC Related Person (for
the purposes
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hereof "AFC Related Person" shall mean (A) any AFC Common Shareholder or
any director or executive officer of AFC or any of its subsidiaries, (B)
any spouse or immediate family member of any such shareholder, director or
officer, and (C) any corporation or other entity (other than AFC and its
subsidiaries) of which any of the aforementioned persons is an officer,
director or partner or is, directly or indirectly, the beneficial owner of
at least 5% of the ownership interest of such entity);
(h) reinsurance or other similar contracts; and
(i) other contracts (other than insurance contracts) that involve the
payment or potential payment, pursuant to the terms of such contracts, by
or to AFC or any of its subsidiaries of $2,000,000 or more within any
twelve-month period commencing after the date hereof or that are otherwise
material to the Condition of AFC and its subsidiaries taken as a whole.
Each of the contracts listed in Schedule 3.15 of the Disclosure Schedule is
in full force and effect and constitutes a valid and legally binding obligation
of AFC or each of its subsidiaries to the extent that AFC or any of it
subsidiaries is party thereto and, except as set forth in Schedule 3.15 of the
Disclosure Schedule, to the knowledge of AFC and its subsidiaries, of each other
person that is a party thereto in accordance with its terms; and neither AFC nor
any of its subsidiaries is, and, except as set forth in Schedule 3.15 of the
Disclosure Schedule, to the knowledge of AFC and its subsidiaries, no other
party to such contract is, in violation, breach or default of any such contract
(or with or without notice or lapse of time or both would be in violation,
breach or default of any such contract). Except as set forth in the SEC Filings
or Schedule 3.15 of the Disclosure Schedule, neither AFC nor any subsidiary of
AFC is a party to or bound by any contract that was not entered into in the
ordinary course of business or that has or may reasonably be expected to have,
in the aggregate with any other contracts, a material adverse effect on the
Condition of AFC and its subsidiaries taken as a whole. Neither AFC nor any of
its subsidiaries is a party to or bound by any collective bargaining or similar
labor contract.
SECTION 3.16 INSURANCE ISSUED BY INSURANCE SUBSIDIARIES. Except as
required by law or as set forth in Schedule 3.16 of the Disclosure Schedule,
since December 31, 1993:
(a) except as originated or amended in the ordinary course of business
and as would not have a material adverse effect on the Condition of any
such Insurance Subsidiary, no insurance product or program of any Insurance
Subsidiary has been amended in any material respect or introduced;
(b) all insurance contract obligations incurred by any Insurance
Subsidiary have in all material respects been paid (or provision for
payment has been made therefor) in accordance with the terms of the
contracts under which they arose, except for such obligations for which any
Insurance Subsidiary reasonably believes there is a reasonable basis to
contest payment;
(c) no outstanding insurance contract which would entitle the holder
thereof or any other person to receive dividends, distributions or other
benefits based on the revenues or earnings of any Insurance Subsidiary has
been issued or assumed by any Insurance Subsidiary; and
(d) the underwriting standards utilized and ratings applied by each
Insurance Subsidiary with respect to insurance contracts outstanding as of
the date hereof conform in all material respects to industry accepted
practices (or otherwise are reasonable where no such industry accepted
practices exist) and, with respect to any such contract reinsured in whole
or in part, conform in all material respects to the standards and ratings
required pursuant to the terms of the related reinsurance, coinsurance or
other similar contracts. Except as set forth in Schedule 3.16 of the
Disclosure Schedule, to the knowledge of AFC and the Insurance
Subsidiaries, since the respective date of the most recent financial
examination report of each Insurance Subsidiary: (i) all amounts
recoverable under reinsurance, coinsurance or other similar contracts
(including without limitation amounts based on paid and unpaid losses) are
fully collectible in the ordinary course, net of established reserves as
set forth in the Annual Statements or as reflected in the SEC Filings; (ii)
each insurance agent or broker appointed by AFC or any Insurance
Subsidiary, at the time such agent or broker wrote, sold or produced
business for any Insurance Subsidiary, was duly appointed and, to the best
of AFC's knowledge, duly licensed, as an insurance agent or broker (for the
type of business written, sold or produced by such insurance agent or
broker) in the
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particular jurisdiction in which such agent or broker wrote, sold or
produced such business for any Insurance Subsidiary, except for such
failures to be so appointed or so licensed which would not, in the
aggregate, have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole; (iii) to the best of AFC's knowledge, no
such insurance agent or broker violated (or with or without notice or lapse
of time or both would have violated) any term or provision of any law or
any writ, judgment, decree, injunction or similar order applicable to the
writing, sale or production of business for any Insurance Subsidiary, the
result of which violations in the aggregate has or may reasonably be
expected to have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole and (iv) each Insurance Subsidiary has all
licenses and permits required to conduct its insurance business and
operations as they are currently being conducted.
SECTION 3.17 THREATS OF CANCELLATION. Except as set forth in Schedule 3.17
of the Disclosure Schedule, since January 1, 1993 no policyholder, group of
policyholder affiliates, or persons writing, selling or producing insurance
business, which in the aggregate accounted for 10% or more of the premium income
of any Insurance Subsidiary for the year ended December 31, 1993, has terminated
or, to the knowledge of AFC and the Insurance Subsidiaries, threatened to
terminate its relationship with any Insurance Subsidiary.
SECTION 3.18 OPERATIONS INSURANCE. All liability, property, workers
compensation, directors' and officers' liability, and other similar insurance
contracts that insure the businesses, operations or affairs of AFC or any of its
subsidiaries or affect or relate to the ownership, use, or operations of AFC's
or any of its subsidiaries assets or properties and that have been issued to AFC
or any of its subsidiaries are in full force and effect and, to the knowledge of
AFC and its subsidiaries, are with financially sound and reputable insurers and,
in light of the respective business operations and affairs of AFC and each of
its subsidiaries, are in amounts and provide coverage that are reasonable and
customary for persons in similar businesses.
SECTION 3.19 BUSINESS OF AFC. Except as set forth in the SEC Filings or
Schedule 3.19 of the Disclosure Schedule, AFC is a holding company and does not
conduct any material business operations or affairs other than that of holding
capital stock of its subsidiaries, APZ, and the AFC Affiliates.
SECTION 3.20 JOINT PROXY/REGISTRATION STATEMENT. None of the information
supplied or to be supplied by AFC (including, without limitation, any
information relating to any of the AFC Affiliates) for inclusion or
incorporation by reference in the Joint Proxy/Registration Statement, the AFC
Proxy Statement, and any amendments or supplements thereto, will (i) in the case
of the Registration Statement, at the time it becomes effective and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not misleading, or (ii) (a) in the case of the Proxy Statement, at the time of
the mailing of the Proxy Statement and at the times of the meetings of
shareholders of AFC and APZ described in Sections 2.3 and 2.4, and (b) in the
case of the AFC Proxy Statement, at the time of the delivery of the AFC Proxy
Statement to AFC's shareholders and at the time of the meeting of AFC's
shareholders described in Section 2.3, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading. If at any time prior to
the Effective Time any event with respect to AFC, its officers and directors or
any of its subsidiaries or any AFC Affiliate should occur which is required to
be described in an amendment of, or a supplement to, the Joint
Proxy/Registration Statement, such event shall be so described, and such
amendment or supplement shall be promptly filed with the SEC and, as required by
law, disseminated to the shareholders of AFC and APZ. The Joint
Proxy/Registration Statement will (with respect to AFC) comply as to form in all
material respects with the requirements of the Securities Act and the Exchange
Act. The AFC Proxy Statement will comply as to form in all material respects
with the requirements of Ohio law.
SECTION 3.21 ENVIRONMENTAL MATTERS. (a) Except as set forth in the SEC
Filings or Schedule 3.21 of the Disclosure Schedule (and excluding any
liability, if any, of an Insurance Subsidiary for an Environmental
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Claim (as hereinafter defined) which is addressed by representations regarding
reserves set forth in Section 3.7 hereof):
(i) Each of AFC and its subsidiaries is, in all material respects, in
compliance with all Environmental Laws (as hereinafter defined) and has not
received any communication within the last three years from a governmental
authority that alleges that AFC or any of its subsidiaries is not in such
full compliance;
(ii) There is no Environmental Claim (as hereinafter defined) pending
or, to AFC's best knowledge, threatened against AFC or any of its
subsidiaries or, to AFC's knowledge, pending or threatened against any
person or entity whose liability for any Environmental Claim AFC or any of
its subsidiaries has retained or assumed either contractually or by
operation of law; and
(iii) Except to the extent the same would not have a material adverse
effect on the Condition of AFC and its subsidiaries taken as a whole, there
are no past or present actions, activities, circumstances, conditions,
events or incidents, including, without limitation, the release, emission,
discharge or disposal of any Material of Environmental Concern (as
hereinafter defined), that could reasonably be expected to result in any
Environmental Claim against AFC or any of its subsidiaries or against any
person or entity whose liability for any Environmental Claim AFC or any of
its subsidiaries has retained or assumed either contractually or by
operation of law.
(b) "Environmental Claim" means any written notice by any governmental or
regulatory agency, authority or instrumentality alleging potential liability
(including, without limitation, potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, property
damages, personal injuries, or penalties) arising out of, based on or resulting
from (i) the presence, or release into the environment, of any Material of
Environmental Concern at any location, whether or not owned by AFC or any of its
subsidiaries, or (ii) circumstances forming the basis of any violation, or
alleged violation, of any Environmental Laws.
(c) "Environmental Laws" means all federal, state, local and foreign laws
and regulations relating to pollution or protection of human health or the
environment (including, without limitation, ambient air, surface water, ground
water, land surface or subsurface strata), including, without limitation, laws
and regulations relating to emissions, discharges, releases or threatened
releases of Materials of Environmental Concern or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Materials of Environmental Concern.
(d) "Materials of Environmental Concern" means any substance, material or
waste which is regulated by any governmental authority, including, without
limitation, any material, substance or waste which is defined as a "hazardous
waste," "hazardous material," "hazardous substance," "extremely hazardous
waste," "restricted hazardous waste," "contaminant," "toxic waste" or "toxic
substance" under any law or regulation, including, but not limited to,
petroleum, petroleum products, asbestos, urea formaldehyde and polychlorinated
biphenyls.
SECTION 3.22 STATE TAKEOVER STATUTES. To the best of AFC's knowledge,
other than Ohio Revised Code Section 1701.831 and the Ohio Insurance Holding
Company Systems Act or any comparable state insurance law in other applicable
jurisdictions, no state takeover statute, control share acquisition statute,
business combination statute or similar statute or regulation applies to the
Mergers, this Agreement or any of the transactions contemplated by this
Agreement.
SECTION 3.23 COMPLIANCE WITH BANK REGULATORY MATTERS. AFC has previously
delivered or made available to APZ true and complete copies of all agreements
and undertakings that AFC or any of its subsidiaries has entered into with the
Federal Reserve Bank in connection with The Provident Bank or any other matters.
Each of AFC and its subsidiaries, in all material respects, is in full and
complete compliance with all such agreements and undertakings, and has not
received any communication that alleges AFC or any such subsidiaries is not in
full compliance.
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SECTION 3.24 COLLECTIBILITY UNDER REINSURANCE CONTRACTS. All amounts
(including without limitation amounts based on paid and unpaid losses)
recoverable under reinsurance, coinsurance or other similar contracts to which
any Insurance Subsidiary is a party are fully collectible in the ordinary
course, net of established reserves therefor. Each of such contracts is in full
force and effect and constitutes a valid and legally binding obligation of each
person that is a party thereto in accordance with its terms.
SECTION 3.25 DISCLOSURE. No representation or warranty contained in this
Agreement or the Disclosure Schedule, and no statement, certificate, schedule,
list or other information furnished or to be furnished by or on behalf of AFC to
APZ in connection with this Agreement, contains or will contain any untrue
statement of a material fact, or omits to state or will omit to state a material
fact necessary in order to make the statements herein or therein not misleading.
The word "material" as used in this Section 3.25 shall mean material to the
Condition of AFC and its subsidiaries taken as a whole.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF AFC
PERTAINING TO THE AFC AFFILIATES
AFC represents and warrants to New American Premier and APZ as follows:
SECTION 4.1 CAPITALIZATION. Set forth on Section 4.1 of the Disclosure
Schedule is the capital structure of each of Chiquita Brands International, Inc.
("Chiquita"), Citicasters Inc. ("Citicasters") and American Financial
Enterprises, Inc. ("AFEI") (each of Chiquita, Citicasters and AFEI, an "AFC
Affiliate" and, collectively, the "AFC Affiliates") and the number of shares and
percentage of the capital stock, or other ownership interest, owned of record
and/or beneficially by AFC or any of its subsidiaries in each such AFC
Affiliate. Except as set forth on Schedule 4.1 of the Disclosure Schedule, (i)
all of the outstanding shares of capital stock and other ownership interests of
AFC and any of its subsidiaries in the AFC Affiliates have been validly issued
and are fully paid and nonassessable and are beneficially owned by either AFC or
one of its directly or indirectly wholly owned subsidiaries free and clear of
all liens, charges, claims or encumbrances, (ii) except as disclosed in the
Affiliate SEC Filings (as defined in Section 4.3 hereof), there are no
outstanding subscriptions, options, warrants, calls, rights, convertible
securities or other agreements or commitments of any character relating to the
issued or unissued capital stock or other ownership interest of any of the AFC
Affiliates or securities convertible into, exchangeable for or evidencing the
right to subscribe for any shares of such capital stock or other ownership
interest, or otherwise obligating any such AFC Affiliate to issue, transfer or
sell any such capital stock or other securities or other ownership interest and
(iii) there are no voting trusts or other arrangements or understanding to which
AFC, any subsidiary of AFC or any of the AFC Affiliates is a party with respect
to the voting of the capital stock or other ownership interest of the AFC
Affiliates.
SECTION 4.2 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation, the By-laws or other charter documents of any AFC Affiliate or
any of its subsidiaries or (ii) violate, conflict with, or result in a breach of
any provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination of, or accelerate the performance required by, or result in a right
of termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
any AFC Affiliate or any of its subsidiaries under any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which any AFC Affiliate or
any of its subsidiaries is a party or to which they or any of their respective
properties or assets may be subject, other than, in the case of clause (ii), (a)
breaches, conflicts or violations that would not have a material adverse effect
on the Condition of AFC and its subsidiaries taken as a whole and (b) the
agreements set forth in Schedule 4.2 of the Disclosure Schedule as to which AFC
shall obtain all necessary consents and/or waivers prior to the Closing, except
where the failure to obtain such consents and/or waivers would not have a
material adverse effect on the Condition of AFC and its subsidiaries taken as
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a whole. The execution, delivery and performance by AFC of this Agreement and
the consummation by AFC of the transactions contemplated hereby will not
constitute a breach or violation of or default under any law, rule or regulation
or any judgment, decree, order, governmental permit or license to which any AFC
Affiliate or any of its subsidiaries is subject, except to the extent the same
would not have a material adverse effect on the Condition of AFC and its
subsidiaries taken as a whole.
SECTION 4.3 SEC REPORTS AND FINANCIAL STATEMENTS. AFC has previously
delivered to APZ true and complete copies of each AFC Affiliate's (i) Annual
Report on Form 10-K for the year ended December 31, 1993, as filed with the SEC,
and all amendments thereto; (ii) Quarterly Reports on Form 10-Q for the periods
ended March 31, 1994, June 30, 1994 and September 30, 1994, as filed with the
SEC; (iii) proxy statements relating to all meetings of its shareholders
(whether annual or special) held or scheduled to be held since January 1, 1994;
and (iv) all other reports, statements and registration statements (including
Current Reports on Form 8-K) filed by it with the SEC since December 31, 1993
(collectively, the "Affiliate SEC Filings"). As of their respective dates, the
Affiliate SEC Filings did not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of each AFC Affiliate included in
the Affiliate SEC Filings present fairly, in all material respects, the
financial condition, results of operations and changes in financial position of
such AFC Affiliate as at the dates or for the periods indicated therein in
conformity with GAAP.
SECTION 4.4 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the Affiliate SEC Filings or Schedule 4.4 of the Disclosure Schedule, since
December 31, 1993, each AFC Affiliate and its subsidiaries has conducted
business only in the ordinary and usual course and there has not occurred any
adverse change in the Condition of the AFC Affiliates and their subsidiaries
taken as a whole that, in the aggregate, may reasonably be expected to have a
material adverse effect on the Condition of AFC and its subsidiaries taken as a
whole.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF APZ
APZ represents and warrants to AFC as follows:
SECTION 5.1 ORGANIZATION AND QUALIFICATION.
(a) APZ. APZ is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Pennsylvania. All material
subsidiaries of APZ (the "APZ Subsidiaries") are corporations duly organized,
validly existing and in good standing (or the local law equivalent) under the
laws of their jurisdictions of incorporation. APZ and the APZ Subsidiaries have
the requisite corporate power to conduct their businesses as they are currently
being conducted and are duly qualified as foreign corporations (or the local law
equivalent) to do business in the respective jurisdictions where the character
of their properties owned or leased or the nature of their activities makes such
qualification necessary, except to the extent that lack of such qualification
would not have a material adverse effect on the Condition of APZ and its
subsidiaries taken as a whole.
(b) New American Premier Entities. Each of the New American Premier
Entities is a newly formed corporation, duly incorporated and organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation. APZ Sub and AFC Sub are each a wholly owned subsidiary of New
American Premier, and each such subsidiary was formed solely for the purpose of
effectuating the Mergers. Except for the activities incident to its organization
and the transactions contemplated by this Agreement, each of the New American
Premier Entities has not engaged in any business activities of any type
whatsoever and has no material assets or liabilities.
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SECTION 5.2 CAPITALIZATION.
(a) APZ. The authorized capital stock of APZ consists of 200,000,000
shares of APZ Common Stock and 23,090,274 shares of preference stock ("APZ
Preferred Stock"). As of November 30, 1994, (i) 47,616,111 shares of APZ Common
Stock were outstanding or issuable, including 1,375,304 shares set aside for
issuance pursuant to APZ's 1978 Plan of Reorganization, (ii) 212,698 shares of
APZ Preferred Stock were issued and outstanding, which are convertible into
446,799 shares of APZ Common Stock and (iii) no shares of APZ Common Stock were
held in APZ's treasury. In addition, as of such date, (i) 446,799 shares of APZ
Common Stock were reserved for issuance upon optional conversion of the
outstanding shares of APZ Preferred Stock and (ii) 5,115,671 shares of APZ
Common Stock were reserved for issuance in connection with the APZ Stock Option
Plan, of which 2,957,291 shares were reserved for issuance upon the exercise of
outstanding APZ Stock Options and 2,158,380 shares were reserved for issuance in
connection with ungranted additional stock options. All of the issued and
outstanding shares of capital stock of APZ are validly issued, fully paid and
nonassessable and are not subject to, nor were they issued in violation of, any
preemptive rights. Since November 30, 1994, APZ has not issued any shares of its
capital stock or additional options to purchase shares of its capital stock
except for the issuance of shares of APZ Common Stock (i) upon exercise of APZ
Stock Options, (ii) in connection with shares issued pursuant to APZ's 1978 Plan
of Reorganization, or (iii) in connection with shares issued pursuant to APZ's
Employee Stock Purchase Plan. Except as set forth above or in Schedule 5.2 of
the disclosure schedule previously delivered by APZ to AFC (the "APZ Disclosure
Schedule"), as of the date hereof, (i) there are no shares of capital stock of
APZ authorized, issued or outstanding and (ii) there are no outstanding
subscriptions, options, warrants, calls, rights, convertible securities or other
agreements or commitments of any character obligating APZ or its subsidiaries,
to issue, transfer or sell, presently or in the future, any shares of the
capital stock or any securities convertible into, exchangeable for, or
evidencing the right to subscribe for, any shares of the capital stock of APZ.
Except as set forth in the APZ SEC Filings (as defined in Section 5.5 below) or
Schedule 5.2 of the APZ Disclosure Schedule, all of the outstanding shares of
capital stock of each of the APZ Subsidiaries have been validly issued and are
fully paid and nonassessable and are beneficially owned by either APZ or another
of the APZ Subsidiaries free and clear of all liens, charges, claims or
encumbrances. Except as set forth in the APZ SEC Filings or Schedule 5.2 of the
APZ Disclosure Schedule, there are no outstanding subscriptions, options,
warrants, calls, rights, convertible securities or other agreements or
commitments of any character relating to the issued or unissued capital stock of
any of the APZ Subsidiaries or securities convertible into, exchangeable for or
evidencing the right to subscribe for any shares of such capital stock, or
otherwise obligating any such APZ Subsidiary to issue, transfer or sell any such
capital stock or other securities. There are no voting trusts or other
agreements or understandings to which APZ or any of its subsidiaries is a party
with respect to the voting of the capital stock of APZ or any of the APZ
Subsidiaries.
(b) New American Premier. The authorized capital stock of New American
Premier consists of 750 shares of New American Premier Common Stock and 100
shares of preferred stock ("New American Premier Preferred Stock"). As of the
date of this Agreement, (i) ten (10) shares of New American Premier Common Stock
were issued and outstanding and owned in the manner set forth in Schedule 5.2 of
the APZ Disclosure Schedule, (ii) no shares of New American Premier Preferred
Stock were issued or outstanding, and (iii) no shares of New American Premier
Stock were held in New American Premier's treasury. All of the issued and
outstanding shares of capital stock of New American Premier and its subsidiaries
are validly issued, fully paid and nonassessable and are not subject to, nor
were they issued in violation of, any preemptive rights. Except as contemplated
by this Agreement, there are no outstanding subscriptions, options, warrants,
calls, rights, convertible securities or other agreements or commitments of any
character obligating New American Premier or its subsidiaries, to issue,
transfer or sell, presently or in the future, any shares of the capital stock or
any securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of the capital stock of New American Premier or its
subsidiaries.
SECTION 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of APZ and the New
American Premier Entities has the requisite corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by the Boards of Directors
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of each of APZ and the New American Premier Entities and this Agreement has been
approved by the sole shareholders of each of the New American Premier Entities.
A special committee of the Board of Directors of APZ (the "Special Committee")
has adopted resolutions recommending that the full Board of Directors of APZ
approve this Agreement and the APZ Merger, determining that the terms of this
Agreement and the APZ Merger are fair to, and in the best interest of, the
shareholders of APZ Common Stock other than AFC and its subsidiaries (such
shareholders of APZ Common Stock, other than AFC and its subsidiaries,
hereinafter referred to as "APZ's Public Shareholders"). Except for the approval
of this Agreement by the shareholders of APZ, no other corporate proceedings on
the part of APZ or the New American Premier Entities are necessary to authorize
this Agreement and the transactions contemplated hereby. This Agreement has been
duly and validly executed and delivered by APZ and each of the New American
Premier Entities and (assuming this Agreement is a valid and binding obligation
of AFC) constitutes a valid and binding agreement of APZ and the New American
Premier Entities enforceable against each of them in accordance with its terms,
except that (i) such enforcement may be subject to bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) remedies of specific
performance and injunctive and other forms of relief may be subject to general
principles of equity and public policy and to the discretion of the court before
which any proceeding therefor may be brought.
SECTION 5.4 NO VIOLATION. The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby will not
(i) constitute a breach or violation of or default under the Articles of
Incorporation, By-laws or Code of Regulations of APZ or any of the New American
Premier Entities or (ii) violate, conflict with, or result in a breach of any
provisions of, or constitute a default (or an event which, with notice or lapse
of time or both, would constitute a default) under, or result in the termination
of, or accelerate the performance required by, or result in a right of
termination or acceleration under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
APZ or any of the New American Premier Entities under, any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which APZ or any
of the New American Premier Entities is a party or to which they or any of their
properties or assets may be subject, other than, in the case of clause (ii) (a)
breaches, conflicts or violations that would not have a material adverse effect
on the Condition of APZ and its subsidiaries taken as a whole and (b) the
agreements set forth in Schedule 5.4 of the APZ Disclosure Schedule. Other than
in connection with, or in compliance with, the provisions of the PBCL, the OGCL,
the Exchange Act, the Securities Act, and the HSR Act and requirements of the
FCC, the NYSE, the Department of Insurance of Ohio and other insurance
regulatory agencies, (i) the consummation by APZ and the New American Premier
Entities of the transactions contemplated hereby will not require the consent or
approval of any other party to any of the above or affect the validity or
effectiveness of any of the above except for consents or approvals, the failure
to obtain which would not, in the aggregate, have a material adverse effect on
the Condition of APZ and its subsidiaries taken as a whole and (ii) the
execution, delivery and performance by APZ and the New American Premier Entities
of this Agreement and the consummation by APZ and the New American Premier
Entities of the transactions contemplated hereby will not constitute a breach or
violation of or default under any law, rule or regulation or any judgment,
decree, order, governmental permit or license to which APZ or any of the New
American Premier Entities is subject, which would have a material adverse effect
on the Condition of APZ and its subsidiaries taken as a whole.
SECTION 5.5 SEC REPORTS AND FINANCIAL STATEMENTS. APZ has previously
delivered to AFC true and complete copies of its (i) Annual Report on Form 10-K
for the year ended December 31, 1993, as filed with the SEC, and all amendments
thereto; (ii) Quarterly Reports on Form 10-Q for the periods ended March 31,
1994, June 30, 1994 and September 30, 1994, as filed with the SEC; (iii) proxy
statements relating to all meetings of its shareholders (whether annual or
special) held or scheduled to be held since January 1, 1994; and (iv) all other
reports, statements and registration statements (including Current Reports on
Form 8-K) filed by it with the SEC since December 31, 1993 (collectively, the
"APZ SEC Filings"). As of their respective dates, the APZ SEC Filings did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading. The
financial statements of APZ included in the
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APZ SEC Filings present fairly, in all material respects, the financial
condition, results of operations and changes in financial position of APZ as at
the dates or for the periods indicated therein in conformity with GAAP.
SECTION 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as set forth in
the APZ SEC Filings or Schedule 5.6 of the APZ Disclosure Schedule, since
December 31, 1993, each of APZ and the APZ Subsidiaries has conducted its
businesses only in the ordinary and usual course and there has not occurred any
material adverse change in the Condition of APZ and its subsidiaries taken as a
whole.
SECTION 5.7 JOINT PROXY/REGISTRATION STATEMENT. None of the information to
be supplied by APZ and the New American Premier Entities for inclusion or
incorporation by reference in the Joint Proxy/Registration Statement, or any
amendment or supplement thereto, will (i) in the case of the Registration
Statement, at the time it becomes effective and at the Effective Time, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
or (ii) in the case of the Proxy Statement, at the time of the mailing of the
Proxy Statement and at the times of the meetings of shareholders of AFC and APZ
described in Sections 2.3 and 2.4, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time prior to the Effective
Time any event with respect to APZ, its officers and directors, or any of its
subsidiaries or the New American Premier Entities shall occur which is required
to be described in the Joint Proxy/Registration Statement, such event shall be
so described, and an amendment or supplement shall be promptly filed with the
SEC. The Registration Statement will comply (with respect to APZ and the New
American Premier Entities) as to form in all material respects with the
provisions of the Securities Act and the Exchange Act.
ARTICLE VI
CERTAIN COVENANTS
SECTION 6.1 CONDUCT OF BUSINESS PENDING THE MERGERS. AFC covenants and
agrees that, prior to the Effective Time, unless APZ shall otherwise agree in
writing or as otherwise expressly permitted or contemplated by this Agreement:
(a) the business of AFC and its subsidiaries shall be conducted only in the
ordinary course and consistent with past practice and neither AFC nor any of its
subsidiaries shall sell any material properties or assets;
(b) except as provided in Section 6.8 hereof, AFC shall not (i) split,
combine or reclassify any shares of its capital stock or (ii) declare, set aside
or pay any dividend or other distribution or make any payment in cash, stock or
property in respect of any shares of its capital stock other than cash dividends
on the AFC Preferred Stock at presently established rates;
(c) except as provided in Section 6.8 hereof or as contemplated by the
Shareholders Agreement, neither AFC nor any of its subsidiaries shall (i) amend
its Articles of Incorporation, By-laws, Code of Regulations or other charter
documents, (ii) issue or sell any shares of, or rights of any kind to acquire
any shares of or to receive any payment based on the value of, its capital stock
or any securities convertible into shares of any such capital stock (including,
without limitation, any further stock options or stock appreciation rights),
except upon the exercise of presently outstanding options or rights to acquire
shares of AFC Common Stock, in each case in accordance with their present terms,
or (iii) acquire, directly or indirectly, by redemption or otherwise, any shares
of its capital stock;
(d) each of AFC and its subsidiaries shall use its best efforts to preserve
intact its business organization, to keep available the services of its current
officers and key employees, and to preserve the goodwill of those having
business relationships with it;
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(e) neither AFC nor any of its subsidiaries shall agree, in writing or
otherwise, to take any of the actions prohibited by the foregoing clauses (a)
through (d).
SECTION 6.2 REASONABLE EFFORTS. Upon the terms and subject to the
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, to do, or cause to
be done, and to assist and cooperate with the other parties hereto in doing, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective, in the most expeditious manner practicable, the
transactions contemplated by this Agreement, including, but not limited to, (i)
the obtaining of all necessary actions or nonactions, waivers, consents and
approvals from all appropriate regulatory agencies or authorities and the making
of all necessary registrations and filings, (ii) the obtaining of all necessary
consents, approvals or waivers from third parties, and (iii) the defending of
any lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby.
SECTION 6.3 ACCESS AND INFORMATION. Each party hereto shall (and shall
cause each of its subsidiaries to) afford to each other party hereto and such
party's accountants, counsel and other representatives full access during normal
business hours through the period prior to the Effective Time to all of its
properties, books, contracts, commitments and records (including, but not
limited to, tax returns) and, during such period, such party shall furnish
promptly to each other party (i) a copy of each report, schedule and other
document filed or received by it pursuant to the requirement of federal or state
securities laws or state insurance laws and (ii) all other information
concerning its business, properties and personnel as each other party may
reasonably request; provided, however, that no investigation pursuant to this
Section 6.3 shall affect any representations or warranties or the conditions to
the obligations of the parties to consummate the Mergers.
SECTION 6.4 NOTICE OF ACTIONS AND PROCEEDINGS. AFC shall promptly notify
APZ, and APZ shall promptly notify AFC, of any actions, suits, claims,
investigations, or proceedings commenced or, to the best of its knowledge,
threatened against, relating to or involving or otherwise affecting AFC or APZ,
as the case may be, which, if pending on the date hereof, would have been
required to have been disclosed in writing pursuant to Section 3.11 hereof or
which relate to the consummation of the Mergers.
SECTION 6.5 NOTIFICATION OF CERTAIN OTHER MATTERS.
(a) AFC shall promptly notify APZ of:
(i) any notice of, or other communication relating to, a default or
event which, with notice or lapse of time or both, would become a default,
received by AFC, any of its subsidiaries, any AFC Affiliate or any
subsidiary of a AFC Affiliate subsequent to the date of this Agreement and
prior to the Effective Time, under any material agreement to which AFC, any
of its subsidiaries, any AFC Affiliate or any subsidiary of a AFC Affiliate
is a party or to which any such entity or any of its respective properties
or assets may be subject or bound;
(ii) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement;
(iii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated hereby; and
(iv) any material adverse change in the Condition of AFC and its
subsidiaries taken as a whole or the occurrence of an event or development
which, so far as reasonably can be foreseen at the time of its occurrence,
could result in any such change.
(b) APZ shall promptly notify AFC of:
(i) any notice or other communication from any third party alleging
that the consent of such third party is or may be required in connection
with the transactions contemplated by this Agreement;
(ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated hereby; and
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(iii) any material adverse change in the Condition of APZ and its
subsidiaries taken as a whole or the occurrence of an event or development
which, so far as reasonably can be seen at the time of its occurrence,
could result in any such change.
SECTION 6.6 SUPPLEMENTAL DISCLOSURE. Each party shall have the continuing
right and obligation promptly to supplement or amend its disclosure schedule
with respect to any matter hereafter arising or discovered which, if existing or
known at the date hereof, would have been required to be set forth or described
in its disclosure schedule; provided, however, that for the purpose of the
rights and obligations of the parties hereunder, any such supplemental or
amended disclosure shall not be deemed to have been disclosed as of the date
hereof unless so agreed to in writing by the other party.
SECTION 6.7 REGISTRATION, LISTING AND ISSUANCE OF NEW AMERICAN PREMIER
STOCK. APZ shall use its best efforts to (a) cause the registration of the
issuance of the New American Premier Common Stock to be issued pursuant to this
Agreement under the applicable provisions of the Securities Act and the Exchange
Act and (b) cause the New American Premier Common Stock to be issued pursuant to
this Agreement to be listed for trading on the NYSE. APZ covenants that the New
American Premier Stock issuable pursuant to this Agreement will be duly and
validly authorized and will, upon issuance, be validly issued, fully paid and
nonassessable.
SECTION 6.8 AMENDMENT TO AFC'S ARTICLES OF INCORPORATION. Prior to the
Effective Time, AFC shall cause its Articles of Incorporation to be amended so
as to provide (a) that holders of Series F and Series G AFC Preferred Stock
shall be entitled, effective one day prior to the Effective Time, to one vote
per share, voting with the holders of AFC Common Stock as a single class, on all
matters presented to the shareholders of AFC for their vote, consent or waiver,
including the election of directors, (b) for the authorization of a total of
53,000,000 shares of AFC Common Stock and a new series of non-voting AFC
Preferred Stock as may be required to be issued pursuant to the Shareholders
Agreement, (c) that Section 1701.831 of the OGCL shall not apply to control
share acquisitions of shares of AFC and (d) that shareholders of AFC shall not
have the right to vote cumulatively in the election of directors.
SECTION 6.9 SURVIVAL OF INDEMNIFICATION. To the fullest extent not
prohibited by law, from and after the Effective Time, all rights to
indemnification as of the date hereof in favor of the employees, agents,
directors or officers of APZ, AFC and their respective subsidiaries with respect
to their activities as such prior to the Effective Time, as provided in their
respective Articles of Incorporation, By-laws, Code of Regulations or other
charter documents, in effect on the date thereof or otherwise in effect on the
date hereof, shall survive the Mergers and shall continue in full force and
effect for a period of not less than six years from the Effective Time.
SECTION 6.10 NO DECONSOLIDATION. New American Premier covenants that it
will not engage voluntarily in any transaction or other action for a period of
two years after the Effective Time that would (i) result in the termination of
AFC's federal consolidated tax group which existed prior to the Mergers, (ii)
involve the stock, or, other than in the ordinary course of business, the assets
(other than the stock of New American Premier), of AFC or any member of AFC's
federal consolidated tax group, or (iii) involve the stock of any AFC Affiliate,
or any subsidiary of AFC that is not a member of AFC's federal consolidated tax
group, and would result, or reasonably could be expected to result, when
combined with any other similar transactions that have been demonstrated to the
satisfaction of the Special Committee (or qualifying successor directors
described below) to be reasonably likely to occur, in a net tax cash cost of
more than $25,000,000, without the approval of the directors comprising the
Special Committee or any successor directors who would be permitted to serve on
an Audit Committee of New American Premier in accordance with the rules
promulgated under The New York Stock Exchange Listed Company Manual.
SECTION 6.11 AMENDMENT TO NEW AMERICAN PREMIER'S ARTICLES OF
INCORPORATION. Immediately prior to the Effective Time, New American Premier
shall cause its Articles of Incorporation to be amended to provide for the
authorization of a total of (i) 200,000,000 shares of New American Premier
Common Stock and (ii) 25,000,000 shares of New American Premier Preferred Stock,
with terms substantially identical in all material respects with the existing
capital structure of APZ.
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ARTICLE VII
CONDITIONS
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGERS. The respective obligations of each party to effect the Mergers shall
be subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) this Agreement and the Mergers shall have been approved and
adopted by the requisite vote of the shareholders of AFC and APZ;
(b) no preliminary or permanent injunction or other order, decree or
ruling issued by any court of competent jurisdiction nor any statute, rule,
regulation or order entered, promulgated or enacted by any governmental,
regulatory or administrative agency or authority shall be in effect which
would prevent the consummation of the Mergers or the other transactions
contemplated hereby;
(c) all waiting periods applicable to the consummation of the Mergers
under the HSR Act shall have expired;
(d) the Registration Statement shall have been declared effective and
no stop order suspending effectiveness shall have been issued, no action,
suit, proceeding or investigation by the SEC to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary
approvals under federal and state securities laws relating to the issuance
of the New American Premier Stock shall have been received;
(e) the New American Premier Common Stock required to be issued
hereunder shall have been approved for listing on the NYSE, subject to
official notice of issuance;
(f) all actions, nonactions, consents, approvals and waivers from
third parties (including, without limitation, the FCC, the NYSE, banking
regulatory authorities, the Department of Insurance of Ohio or any other
insurance regulatory agencies) necessary or appropriate to consummate the
transactions contemplated by this Agreement shall have been obtained
without imposing any conditions that would have a material adverse effect
on the Condition of (i) AFC and its subsidiaries taken as a whole or (ii)
APZ and its subsidiaries taken as a whole, except to the extent that, if
not obtained, would not result in any such material adverse effect;
(g) the Special Committee shall have received from Furman Selz
Incorporated an opinion, dated the date of the mailing of the Proxy
Statement and re-dated as of the Effective Time, in customary form, to the
effect that the consideration for the Mergers is fair to APZ's Public
Shareholders from a financial point of view;
(h) the parties shall have received a favorable response to the tax
ruling sought pursuant to Section 2.9 hereof by June 30, 1995 or, in lieu
thereof, to the extent applicable, the exchange of shares of AFC Common
Stock for AFC Preferred Stock shall have taken place in accordance with the
terms and provisions of the Shareholders Agreement;
(i) counsel to APZ shall have delivered to APZ an opinion (dated the
date of the Effective Time and based on facts, representations and
assumptions set forth in such opinion which are consistent with the state
of facts existing at the Effective Time), substantially to the effect that:
(i) no gain or loss will be recognized by APZ, APZ Sub or New American
Premier as a result of the APZ Merger; (ii) no gain or loss will be
recognized by an APZ shareholder who receives shares of New American
Premier Stock pursuant to the APZ Merger; (iii) the tax basis of the shares
of New American Premier Stock owned by a former shareholder of APZ will be
the same as the tax basis of the shares of APZ Common Stock and APZ
Preferred Stock formerly owned by such shareholder; and (iv) the holding
period of the shares of New American Premier Stock received as a result of
the APZ Merger will include the period during which the shares formerly
representing APZ Common Stock and APZ Preferred Stock were held, provided
such shares of APZ Common Stock and APZ Preferred Stock were held as
capital assets
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immediately prior to the Effective Time (in rendering such opinion, counsel
may require and rely upon representations contained in certificates of
officers of APZ);
(j) counsel to AFC shall have delivered to AFC an opinion (dated the
date of the Effective Time and based on facts, representations and
assumptions set forth in such opinion which are consistent with the state
of facts existing at the Effective Time), substantially to the effect that:
(i) no gain or loss will be recognized by AFC, AFC Sub or New American
Premier as a result of the AFC Merger; (ii) no gain or loss will be
recognized by an AFC shareholder who receives solely shares of New American
Premier Stock pursuant to the AFC Merger; (iii) an AFC shareholder who
receives cash in lieu of a fractional share of New American Premier Stock
pursuant to the AFC Merger will recognize gain to the extent of cash
received; (iv) the tax basis of the shares of New American Premier Stock
owned by a former shareholder of AFC will be the same as the tax basis of
the AFC Common Stock formerly owned by such shareholder minus the cash
received, if any, plus gain recognized on receipt of such cash, if any; and
(v) the holding period of the shares of New American Premier Stock received
as a result of the AFC Merger will include the period during which the
shares formerly representing AFC Common Stock were held, provided such
shares of AFC Common Stock were held as capital assets immediately prior to
the Effective Time (in rendering such opinion, counsel may require and rely
upon representations contained in certificates of officers of AFC); and
(k) a Certificate of Amendment in form and substance reasonably
acceptable to APZ and AFC shall have been filed with the Secretary of State
amending New American Premier's Articles of Incorporation in the manner
contemplated by Section 6.11 hereof.
SECTION 7.2 CONDITIONS TO OBLIGATION OF AFC TO EFFECT THE MERGERS. Unless
waived by AFC in the manner provided in Section 9.6 hereof, the obligation of
AFC to effect the Mergers shall be subject to the fulfillment at or prior to the
Effective Time of the following additional conditions:
(a) New American Premier and APZ shall have performed and complied in
all material respects with all obligations and agreements required to be
performed and complied with by them under this Agreement at or prior to the
Effective Time and the representations and warranties of New American
Premier and APZ contained in this Agreement shall be true and correct in
all material respects at and as of the Effective Time as if made at and as
of such date, except as otherwise contemplated or permitted by this
Agreement, and AFC shall have received a Certificate of the Chairman of the
Board, the President or a Vice President of APZ as to the satisfaction of
this condition.; and
(b) AFC shall have received an opinion of counsel to APZ reasonably
satisfactory to AFC, dated as of the Effective Time and in form and
substance reasonably satisfactory to AFC, substantially to the effect that:
(1) Each of APZ and the New American Premier Entities has been duly
organized, and is subsisting and in good standing, as a corporation
under the laws of its respective jurisdiction of incorporation.
(2) Each of APZ and the New American Premier Entities has the
corporate power and corporate authority to enter into this Agreement and
consummate the transactions provided for herein. The execution and
delivery of this Agreement by APZ and the New American Premier Entities,
and the consummation by APZ and the New American Premier Entities of the
transactions provided for herein, have been duly authorized by requisite
corporate action on the part of APZ and the New American Premier
Entities. This Agreement has been executed and delivered by APZ and the
New American Premier Entities and (assuming this Agreement is a valid
and binding obligation of AFC) is a valid and binding obligation of APZ
and the New American Premier Entities enforceable against each of them
in accordance with its terms, except (A) that such enforcement may be
subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (B) that remedies of specific performance and injunctive
and other forms of relief may be subject to general principles of equity
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ACQUISITION AGREEMENT
<PAGE> 101
and public policy and to the discretion of the court before which any
proceeding therefor may be brought.
(3) The execution, delivery and performance by APZ of this
Agreement will not (A) conflict with or result in a breach of any
provision of the Articles of Incorporation or By-laws of APZ, (B),
except as set forth in the APZ SEC Filings, result in, constitute a
violation of or a default under, or cause the creation of any security
interest or lien upon any of the properties or assets of APZ pursuant
to, or cause the acceleration of the maturity of any debt or obligation
of APZ pursuant to, any agreement, instrument, order, judgment or decree
to which APZ is subject and of which such counsel is specifically aware
and which APZ has advised such counsel in connection with this
transaction is material to the Condition of APZ or (C) insofar as is
actually known to such counsel, violate any law, rule or regulation or
any judgment, decree, order, governmental permit or license to which APZ
is subject which would have a material adverse effect on the Condition
of APZ and its subsidiaries taken as a whole.
(4) No facts have come to the attention of such counsel which would
lead such counsel to believe that (except for information relating to
tax or accounting matters and except for the financial statements and
other financial or statistical information contained therein or the
information concerning AFC, its subsidiaries and the AFC Affiliates, as
to which such counsel expresses no opinion), at the respective times the
Joint Proxy/Registration Statement or any amendments or supplements
thereto were declared effective by the SEC or mailed to the respective
shareholders of AFC and APZ, or at the times of the meetings of AFC's
and APZ's shareholders referred to in Sections 2.3 and 2.4 hereof, the
Joint Proxy/Registration Statement contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading.
As to any matter contained in such opinion which involves the laws of any
jurisdiction other than the federal laws of the United States or the laws of a
state in which such counsel is licensed, such counsel may rely upon opinions of
counsel admitted to practice in such other jurisdictions. Any opinions relied
upon by such counsel as aforesaid shall be delivered together with the opinion
of such counsel, which shall state that AFC's and such counsel's reliance
thereon is justified. Such opinion may include qualifications similar to those
set forth in Article V hereof and may expressly rely as to matters of fact upon
certificates furnished by appropriate officers and directors of APZ and its
subsidiaries and by public officials.
SECTION 7.3 CONDITIONS TO OBLIGATIONS OF APZ AND NEW AMERICAN PREMIER TO
EFFECT THE MERGERS. Unless waived by APZ in the manner provided in Section 9.6
hereof, the obligations of APZ to effect the Mergers shall be subject to the
fulfillment at or prior to the Effective Time of the following additional
conditions:
(a) AFC shall have performed or complied in all material respects with
all obligations and agreements required to be performed or complied with by
it under this Agreement at or prior to the Effective Time and the
representations and warranties of AFC contained in this Agreement shall be
true and correct in all material respects at and as of the Effective Time
as if made at and as of such date, except as otherwise contemplated or
permitted by this Agreement, and APZ shall have received a Certificate of
the Chairman of the Board or the President of AFC as to the satisfaction of
this condition;
(b) a Certificate of an Amendment to AFC's Articles of Incorporation
shall have been filed with the Secretary of State of Ohio amending AFC's
Articles of Incorporation in the manner contemplated by Section 6.8 hereof;
(c) the AFC Stock Options shall have been exercised with the exercise
price fully paid therefor in cash, or otherwise cancelled, and the Put
shall have been terminated, as provided for in Section 2.1 hereof; and
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ACQUISITION AGREEMENT
<PAGE> 102
(d) APZ shall have received an opinion of counsel to AFC reasonably
satisfactory to APZ, dated as of the Effective Time and in form and
substance reasonably satisfactory to APZ, substantially to the effect that:
(1) Each of AFC, its material subsidiaries and the AFC Affiliates
has been duly organized, and is subsisting and in good standing, as a
corporation or other limited liability entity under the laws of its
respective jurisdiction of incorporation or other organization.
(2) AFC has the corporate power and corporate authority to enter
into this Agreement and consummate the transactions provided for herein.
The execution and delivery of this Agreement by AFC, and the
consummation by AFC of the transactions provided for herein, have been
duly authorized by requisite corporate action on the part of AFC. This
Agreement has been executed and delivered by AFC and (assuming this
Agreement is a valid and binding obligation of APZ and the New American
Premier Entities) is a valid and binding obligation of AFC enforceable
against AFC in accordance with its terms, except (A) that such
enforcement may be subject to bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to
creditors' rights generally and (B) that remedies of specific
performance and injunctive and other forms of relief may be subject to
general principles of equity and public policy and to the discretion of
the court before which any proceeding therefor may be brought.
(3) The execution, delivery and performance by AFC of this
Agreement will not (A) conflict with or result in a breach of any
provision of the Articles of Incorporation or Code of Regulations of AFC
or any of the charter documents of its subsidiaries, (B), except as
provided in Section 3.4 hereof, result in, constitute a violation of or
a default under, or cause the creation of any security interest or lien
upon any of the properties or assets of AFC or any of its subsidiaries
pursuant to, or cause the acceleration of the maturity of any debt or
obligation of AFC or any of its subsidiaries pursuant to, any agreement,
instrument, order, judgment or decree to which AFC or any of its
subsidiaries is subject and of which such counsel is specifically aware
and which AFC has advised such counsel in connection with this
transaction is material to the Condition of AFC and its subsidiaries
taken as a whole or (C) insofar as is actually known to such counsel,
violate any law, rule or regulation or any judgment, decree, order,
governmental permit or license to which AFC or any of its subsidiaries
is subject which would have a material adverse effect on the Condition
of AFC and its subsidiaries taken as a whole.
(4) To the best knowledge of such counsel, neither the execution
and delivery by AFC of this Agreement nor the consummation by AFC of the
transactions contemplated hereby, nor compliance by AFC with any of the
provisions hereof will require, except for the applicable requirements
of the HSR Act, the Securities Act, the Exchange Act, the FCC, the NYSE,
the Department of Insurance of Ohio and other insurance regulatory
agencies and the filing of appropriate documents to effect the Mergers
as required by the Commonwealth of Pennsylvania and the State of Ohio,
any consent, approval or authorization of, or notice to, or declaration,
filing or registration with, any governmental or regulatory authority
except for consents or approvals, the failure to obtain which would not,
in the aggregate, have a material adverse effect on the Condition of AFC
and its subsidiaries taken as a whole. To the best knowledge of such
counsel, except with respect to the HSR Act, the Securities Act, the
Exchange Act and requirements of the FCC, the NYSE, the Department of
Insurance of Ohio and other insurance regulatory agencies, no consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority is necessary
in connection with the execution, delivery and performance of this
Agreement or to enable AFC and its subsidiaries to continue to conduct
their entire business, properties and operations after the Effective
Time in a manner which is consistent with that in which they are
presently conducted.
(5) No facts have come to the attention of such counsel which would
lead such counsel to believe that (except for information relating to
tax or accounting matters and except for the financial statements and
other financial or statistical information contained therein or the
information concerning APZ and its subsidiaries, as to which such
counsel expresses no opinion), at the
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ACQUISITION AGREEMENT
<PAGE> 103
respective times the Joint Proxy/Registration Statement or any
amendments or supplements thereto were filed declared effective by the
SEC or mailed to the respective shareholders of AFC and APZ, or at the
times of the meetings of AFC's and APZ's shareholders referred to in
Sections 2.3 and 2.4 hereof, the Joint Proxy/Registration Statement
contained any untrue statement of a material fact or omitted to state
any material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading.
As to any matter contained in such opinion which involves the laws of any
jurisdiction other than the federal laws of the United States or the laws of the
State of Ohio, such counsel may rely upon opinions of counsel admitted to
practice in such other jurisdictions. Any opinions relied upon by such counsel
as aforesaid shall be delivered together with the opinion of such counsel, which
shall state that APZ's and such counsel's reliance thereon is justified. Such
opinion may include qualifications similar to those set forth in Article III
hereof and may expressly rely as to matters of fact upon certificates furnished
by appropriate officers and directors of AFC and its subsidiaries and by public
officials.
ARTICLE VIII
TERMINATION
SECTION 8.1 TERMINATION. This Agreement may be terminated and the Mergers
abandoned at any time prior to the Effective Time, whether before or after
approval of the Mergers by the respective shareholders of AFC and APZ:
(a) by mutual consent of the Boards of Directors of APZ and AFC;
(b) by either APZ or AFC if the Mergers shall not have been
consummated on or before June 30, 1995; provided that no party in breach of
its obligations hereunder shall have the right unilaterally to terminate
this Agreement;
(c) by APZ if there shall have occurred any events, changes or
developments which, individually or in the aggregate, have affected or may
affect materially and adversely the Condition of AFC and its subsidiaries
taken as a whole, provided, however, for the purposes of this clause (c), a
material and adverse effect on the Condition of AFC shall not be deemed to
occur solely as a result of market fluctuations in the trading value of
common stock of any AFC Affiliate or APZ;
(d) by AFC if there shall have occurred any events, changes or
developments which, individually or in the aggregate, have affected or may
affect materially and adversely the Condition of APZ and its subsidiaries
taken as a whole, provided, however, for the purposes of this clause (d), a
material adverse effect on the Condition of APZ shall not be deemed to
occur solely as a result of market fluctuations in the trading value of APZ
Common Stock; or
(e) by APZ if the Special Committee determines, after consultation
with legal counsel, that as a result of an event or condition not directly
caused by APZ, pursuant to its fiduciary duties in accordance with
applicable law, this Agreement should be terminated.
SECTION 8.2 EFFECT OF TERMINATION. In the event of the termination of this
Agreement by either APZ or AFC, as provided above, this Agreement shall
thereafter become void and there shall be no liability on the part of any party
hereto against any other party hereto, or their respective directors, officers,
shareholders or agents, except as provided in Section 9.3 hereof and except that
any such termination shall be without prejudice to the rights of any party
hereto arising out of the inaccuracy of any representation or warranty or breach
by any other party of any covenant or agreement contained in this Agreement.
Notwithstanding the foregoing, (i) AFC shall not assert any claim or action
against APZ (or any of its directors, officers, shareholders or agents) or
against any third party, including any action based on tort or other
extra-contractual theories of law or equity, that arises from or is based upon
any act that interferes or allegedly interferes with this Agreement or that
results in the termination of this Agreement pursuant to Section 8.1(e) hereof
and (ii) it is further understood that any supplemental or amended disclosure
made pursuant to Section 6.6 hereof
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ACQUISITION AGREEMENT
<PAGE> 104
with respect to a matter that did not exist as of the date hereof and arises
hereafter or, to the extent a representation or warranty is based on a party's
knowledge, becomes known for the first time after the date hereof, shall be
deemed a closing condition only and shall not be a basis for a claim or action
that the representations and warranties made herein are inaccurate.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement shall survive the Effective
Time.
SECTION 9.2 CLOSING. The closing of the Mergers (the "Closing") shall take
place at the offices of Taft, Stettinius & Hollister, 1800 Star Bank Center, 425
Walnut Street, Cincinnati, Ohio 45202 (or at such other place as the parties
shall agree) as promptly as practicable after the later of (i) the meetings of
shareholders of AFC and APZ referred to in Sections 2.3 and 2.4 hereof and (ii)
satisfaction or waiver of all other conditions.
SECTION 9.3 FEES AND EXPENSES. Whether or not the Mergers are consummated,
all costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby shall be paid by the party incurring such costs
or expenses, except that the expenses incurred in connection with the printing
of the Joint Proxy/Registration Statement shall be borne equally by APZ and AFC.
SECTION 9.4 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given if hand delivered,
transmitted by telegram, telex or telecopy or mailed by registered or certified
mail, postage prepaid, return receipt requested, as follows:
(a) If to APZ or any New American Premier Entity, to:
American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Attention: Robert W. Olson, Esq.
with copies to:
Alfred W. Martinelli
Chairman of the Special Committee
c/o American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
and
Taft, Stettinius & Hollister
1800 Star Bank Center
425 Walnut Street
Cincinnati, OH 45202
Attention: Timothy E. Hoberg, Esq.
(b) If to AFC, to:
American Financial Corporation
919 Provident Tower
One East Fourth Street
Cincinnati, OH 45202
Attention: James E. Evans, Esq.
ACQUISITION AGREEMENT
A-32
<PAGE> 105
with copy to:
Keating, Muething & Klekamp
1800 Provident Tower
One East Fourth Street
Cincinnati, OH 45202
Attention: Gary P. Kreider, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the other parties in writing in accordance herewith,
except that notices of change of address shall be effective only upon receipt.
SECTION 9.5 AMENDMENTS. This Agreement may be amended by the parties
hereto, by action taken by their respective Boards of Directors, at any time
before or after the approval of this Agreement by the respective shareholders of
AFC and APZ, but after such approval, there shall be no amendment or
modification that by law requires the approval by such shareholders without the
further approval of such shareholders. This Agreement may not be amended,
modified or supplemented except by written agreement of the parties hereto.
SECTION 9.6 WAIVER. At any time prior to the Effective Time, the parties
hereto by action taken by their respective Boards of Directors may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions contained herein
to the extent permitted by law. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
SECTION 9.7 BROKERS. AFC represents and warrants that no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated hereby based upon
arrangements made by or on behalf of AFC. APZ and New American Premier represent
and warrant that no broker, finder or investment banker is entitled to any
brokerage, finder's or other fee or commission in connection with the
transactions contemplated hereby based upon arrangements made by or on behalf of
APZ or New American Premier, except for their financial advisor, Furman Selz
Incorporated.
SECTION 9.8 PUBLICITY. So long as this Agreement is in effect, the parties
hereto shall not, and shall cause their affiliates not to, issue or cause the
publication of any press release or other announcement with respect to the
Mergers or this Agreement without the consent of the other party, which consent
shall not be unreasonably withheld or delayed where such release or announcement
is required by applicable law.
SECTION 9.9 SUBSIDIARIES. When a reference is made in this Agreement to
any subsidiary of APZ, New American Premier, AFC or any AFC Affiliate, the word
"subsidiary" means another entity, an amount of the voting securities, other
voting ownership or voting partnership interests of which is sufficient to elect
at least a majority of its Board of Directors or other governing body (or, if
there are no such voting interests, 50% or more of the equity interests of
which) is owned directly or indirectly by APZ, New American Premier, AFC or such
AFC Affiliate, as the case may be, provided that the word subsidiary shall not
be deemed to include any employee benefit plan for the employees of AFC. For the
purposes of this Agreement, AFEI shall be deemed both an AFC Affiliate and a
subsidiary of AFC.
SECTION 9.10 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.11 NONASSIGNABILITY. This Agreement shall not be assigned by
operation of law or otherwise.
SECTION 9.12 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of the parties hereto and their permitted assigns,
and nothing in this Agreement, expressed or implied, is intended to confer upon
any other person any rights or remedies of any nature under or by reason of this
Agreement, except for Sections 1.4, 1.5, and 6.9
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ACQUISITION AGREEMENT
<PAGE> 106
SECTION 9.13 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which shall constitute one and the same agreement.
SECTION 9.14 GOVERNING LAW. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of Ohio, without
regard to its conflicts of law rules, except to the extent the provisions of
this Agreement are expressly governed by or derive their authority from the
PBCL.
SECTION 9.15 REMEDIES FOR BREACH; SPECIFIC PERFORMANCE. Each of the
parties acknowledges and agrees that the other party or parties would be
irreparably damaged in the event any covenant or agreement contained in this
Agreement is not performed in accordance with its specific terms or is otherwise
breached. Accordingly, each of the parties shall be entitled, without bond or
other security, to an injunction or injunctions to enforce specifically this
Agreement and the covenants and agreements contained herein in any action
instituted in any court of the United States or any state thereof having subject
matter jurisdiction, in addition to any other remedy to which such party may be
entitled, at law or in equity. Each party agrees that, should any court or other
competent authority hold any provision of this Agreement or part hereof to be
null, void or unenforceable, or order any party to take any action inconsistent
herewith or not take any action required herein, the other party shall not be
entitled to specific performance of such provision or part hereof or to any
other remedy, including money damages, for breach hereof as a result of such
holding or order.
SECTION 9.16 APPROVAL BY SPECIAL COMMITTEE. The approval of the Special
Committee shall be required for (i) any amendment or termination of this
Agreement by APZ, (ii) the waiver of any of APZ's rights or remedies under this
Agreement or (iii) the extension for the time of performance of AFC's
obligations under this Agreement.
SECTION 9.17 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement among the parties hereto and supersedes all prior agreements and
understandings, oral or written, among the parties hereto with respect to the
subject matter hereof.
SECTION 9.18 CERTAIN REFERENCES: DELIVERIES. All references in this
Agreement to "the date hereof " or to "the date of this Agreement" shall be
deemed to mean December 9, 1994. Any representation qualified by reference to
the Disclosure Schedule or the APZ Disclosure Schedule shall be deemed to be
made as of December 9, 1994, unless otherwise specified. Unless otherwise
specified, references to agreements to be delivered simultaneously with the
execution and delivery of this Agreement shall be deemed to refer to agreements
delivered simultaneously with the execution and delivery of the 1994 Agreement.
ACQUISITION AGREEMENT
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<PAGE> 107
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of New American Premier, APZ, APZ Sub, AFC and AFC
Sub on the date first above written.
AMERICAN PREMIER GROUP, INC.
By: /s/ ROBERT W. OLSON
-------------------------
Robert W. Olson
Senior Vice President
ATTEST:
By: /s/ PAMELA S. MEYERS
-------------------------
Pamela S. Meyers
Assistant Secretary
AMERICAN PREMIER UNDERWRITERS, INC.
By: /s/ ALFRED W. MARTINELLI
-------------------------
Alfred W. Martinelli
Chairman of the Special
Committee
of the Board of Directors
ATTEST:
By: /s/ PAMELA S. MEYERS
-------------------------
Pamela S. Meyers
Assistant Secretary
AMERICAN PREMIER SUB, INC.
By: /s/ ROBERT W. OLSON
-------------------------
Robert W. Olson
Vice President
ATTEST:
By: /s/ PAMELA S. MEYERS
-------------------------
Pamela S. Meyers
Secretary
AMERICAN FINANCIAL CORPORATION
By: /s/ RONALD F. WALKER
-------------------------
Ronald F. Walker
President
ATTEST:
By: /s/ JAMES C. KENNEDY
-------------------------
James C. Kennedy
Secretary
AFC SUB, INC.
By: /s/ RONALD F. WALKER
-------------------------
Ronald F. Walker
President
ATTEST:
By: /s/ JAMES C. KENNEDY
-------------------------
James C. Kennedy
Secretary
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ACQUISITION AGREEMENT
<PAGE> 108
EXHIBIT A
SHAREHOLDERS AGREEMENT
Agreement (this "Agreement") entered into as of December , 1994 by and
among the undersigned shareholders (each a "Shareholder" and, collectively, the
"Shareholders"), American Financial Corporation ("AFC"), American Premier
Underwriters, Inc. ("APZ") and American Premier Group, Inc. ("New American
Premier").
WHEREAS, the Shareholders own all of the issued and outstanding common
stock of AFC ("AFC Common Stock") and all the outstanding AFC Stock Options;
WHEREAS, pursuant to an Agreement and Plan of Acquisition and
Reorganization (the "Acquisition Agreement") of even date herewith, subject to
the conditions set forth therein, the parties thereto have agreed to effect the
Mergers, as more specifically set forth in the Acquisition Agreement;
WHEREAS, as a result of the transactions contemplated by the Acquisition
Agreement, the Shareholders will receive shares of New American Premier Common
Stock in exchange for their shares of AFC Common Stock; and
WHEREAS, as a condition to entering into the Acquisition Agreement, APZ and
New American Premier have required the Shareholders and AFC to make certain
agreements and covenants as more particularly set forth herein.
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
1. Defined Terms. Except as otherwise defined in this Agreement, defined
terms shall have respective meanings ascribed to them in the Acquisition
Agreement.
2. Ownership of AFC Common Stock. The Shareholders represent that Schedule
1 attached hereto is a true, accurate and complete list of the shareholders of
AFC Common Stock and holders of AFC Stock Options and each Shareholder's
respective ownership interest thereof.
3. Approval of AFC Merger and Related Transactions. Each Shareholder
covenants that, unless the Acquisition Agreement is terminated in accordance
with the provisions of Article VIII thereof, such Shareholder shall vote all of
his/her/its shares of AFC Common Stock in favor of (a) the AFC Merger at the
meeting of the Shareholders contemplated by Section 2.3 of the Acquisition
Agreement and thereby waive any dissenters rights which such Shareholder may
otherwise be entitled to assert pursuant to Section 1701.85 of the Ohio General
Corporation Law and (b) amending AFC's Articles of Incorporation in the manner
contemplated by Section 6.8 of the Acquisition Agreement.
4. Treatment of AFC Stock Options and the Put. The Shareholders and AFC
hereby amend that certain agreement dated April 15, 1983 between AFC with
certain members of the Lindner family to provide that (a) the outstanding
options (the "AFC Stock Options") relating to the right to purchase 762,500
shares of AFC Common Stock shall be fully vested and immediately exercised for
the then applicable exercise price and, if such AFC Stock Options are not so
exercised with the exercise price fully paid in cash by the Effective Time, such
AFC Stock Options shall be deemed cancelled and (b) the right to put shares of
AFC Common Stock to AFC, as more particularly described in such agreement, shall
be deemed terminated as of immediately prior to the Effective Time.
5. Exchange of AFC Common Stock for AFC Preferred Stock. If AFC and APZ
have either (a) received an unfavorable response to the request for the tax
ruling sought pursuant to Section 2.9 of the Acquisition Agreement or (b) not
received a favorable response to such tax ruling request by June 30, 1995 and
AFC has received notice from APZ that all other conditions to effect the Mergers
have been satisfied, and if the value of the shares of New American Premier
Stock that are held by certain former APZ shareholders ("Certain APZ
Shareholders" as defined in paragraph 6 below) immediately after the Mergers
would (absent
A-36
ACQUISITION AGREEMENT
<PAGE> 109
the exchange of shares described below) not exceed fifty percent (50%) of the
total value of New American Premier Stock issued and outstanding immediately
after the Merger, then the Shareholders and AFC shall promptly (i) exchange an
aggregate number of shares of AFC Common Stock then held by the Shareholders in
exchange for an aggregate number of validly issued and non assessable shares of
non-voting AFC Preferred Stock of a newly authorized series (as more
particularly described below) so that, immediately after the Mergers, the
aggregate value of New American Premier Stock owned by Certain APZ Shareholders
shall exceed fifty percent (50%) of the total value of New American Premier
Stock issued and outstanding immediately after the Mergers or (ii) take such
action or actions as AFC and APZ mutually agree shall result in the Mergers
constituting a reverse acquisition with respect to APZ for federal consolidated
tax return purposes, provided that if no such mutual agreement is made within
fourteen (14) days of the date on which the exchange hereunder would occur then
such exchange shall be carried out as provided in (i) above. The aggregate
liquidation value of the shares of AFC Preferred Stock received in such exchange
by the Shareholders (determined as of the day immediately prior to the Effective
Time) shall equal the value of the additional shares of New American Premier
Common Stock that the Shareholders would have received as a result of the New
American Premier Merger but for the aforementioned exchange. For the purposes of
calculating such value, (i) each such share of New American Premier Common Stock
shall be deemed to have a value equal to the average of the last reported sales
prices, regular way, per share of APZ Common Stock on the New York Stock
Exchange Composite Tape on the ten consecutive trading days ending with the
trading day immediately prior to the Effective Time and (ii) each share of New
American Premier Preferred Stock shall be deemed to have a value equal to the
greater of (x) $44.08 or (y) the value (calculated as set forth above) of that
number of shares of New American Premier Common Stock into which it is
convertible. Each share of such AFC Preferred Stock shall, when issued, have an
annual dividend rate equal to the average yield per share on Series F of AFC
Preferred Stock for the ten consecutive trading days for such Series F of AFC
Preferred Stock ending with the last trading day occurring immediately prior to
the Effective Time. If the Shareholders cannot agree as to how the exchange of
such shares shall be apportioned among the Shareholders, then AFC Common Stock
shall be exchanged for AFC Preferred Stock on a basis pro-rata to each
Shareholder's respective ownership interest in AFC Common Stock as shown on
Schedule 1.
6. Certain APZ Shareholders. For purposes of this Shareholders Agreement,
shares owned by Certain APZ Shareholders includes only shares held by APZ
shareholders other than such shares held by AFC and its subsidiaries but shall
include shares owned by the AFC ESORP.
7. Successors and Assigns. This Agreement shall be binding on the parties
hereto and upon their heirs, executors, administrators, successors and assigns.
8. Amendment. No cancellation, amendment, change or addition to this
Agreement shall be effective unless in writing and signed by each of the parties
hereto.
9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to constitute an original, but all
of which shall constitute one and the same agreement.
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ACQUISITION AGREEMENT
<PAGE> 110
IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the parties hereto as of the date first above written.
American Financial Corporation
By:
--------------------------
American Premier Underwriters, Inc.
By:
--------------------------
American Premier Group, Inc.
By:
--------------------------
[Signature lines for each Shareholder.]
A-38
ACQUISITION AGREEMENT
<PAGE> 111
SCHEDULE 1
<TABLE>
<CAPTION>
NAME OF SHAREHOLDER SHARES OWNED OF AFC COMMON STOCK
------------------- --------------------------------
<S> <C>
</TABLE>
A-39
ACQUISITION AGREEMENT
<PAGE> 112
ANNEX B
[LETTERHEAD OF FURMAN SELZ]
February , 1995
Special Committee of the Board of Directors
American Premier Underwriters, Inc.
1400 Provident Tower
One East Fourth Street
Cincinnati, Ohio 45202
Gentlemen:
We understand that American Premier Sub, Inc. ("American Premier Sub"), a
wholly-owned subsidiary of New American Premier Group, Inc. ("New American
Premier"), will merge with American Premier Underwriters, Inc. ("American
Premier") and that AFC Sub, Inc. ("AFC Sub"), a wholly-owned subsidiary of New
American Premier, will merge with American Financial Corporation ("AFC") in
simultaneous transactions pursuant to which the outstanding shares of common
stock of American Premier ("American Premier Common Stock") and the outstanding
shares of common stock of AFC will be converted into shares of common stock of
New American Premier ("New American Premier Common Stock") at specified exchange
ratios (collectively, the "Exchange Ratios") under terms and conditions set
forth in an Agreement and Plan of Acquisition and Reorganization (Merger
Agreement) dated December 9, 1994, as amended (the "Merger Agreement") entered
into by and among New American Premier, American Premier, American Premier Sub,
AFC and AFC Sub (the "Acquisition"). The terms and conditions of the Acquisition
will be set forth in more detail in the Merger Agreement.
You have requested our opinion, as investment bankers, as to the fairness,
from a financial point of view, of the Exchange Ratios to the holders of
American Premier Common Stock, other than AFC and its affiliates. In conducting
our analysis and arriving at our opinion as expressed herein, we have reviewed
and analyzed, among other things, the following:
(i) the Merger Agreement;
(ii) publicly available information concerning American Premier, AFC
and certain affiliates of AFC which Furman Selz believed to be relevant to
its inquiry;
(iii) financial and operating information with respect to the
business, operations and prospects of AFC, including actuarial analyses of
Great American Insurance Company and American Annuity Group, Inc. prepared
by Milliman & Robertson, all furnished to Furman Selz by AFC and American
Premier;
(iv) financial and operating information with respect to the business,
operations and prospects of American Premier furnished to Furman Selz by
American Premier;
(v) the common stock price and trading histories of American Premier
Common Stock and the common stock of certain publicly traded affiliates of
AFC;
(vi) a comparison of the financial positions and operating results of
American Premier, AFC and certain affiliates of AFC, and of the common
stock price trading histories of American Premier and certain affiliates of
AFC, with those of publicly traded companies Furman Selz deemed relevant;
(vii) a comparison of certain financial terms of the Acquisition to
certain financial terms of selected other business combinations Furman Selz
deemed relevant;
(viii) analyses of the respective contributions in terms of assets,
liabilities and earnings of American Premier and AFC to New American
Premier and the relative ownership of New American Premier after the
Acquisition by the current stockholders of American Premier and AFC;
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<PAGE> 113
(ix) analyses of other potential pro forma financial effects of the
Acquisition; and
(x) synergies and other potential benefits arising from the
Acquisition.
We have also met with certain officers and employees of American Premier,
AFC and certain affiliates of AFC concerning their respective businesses,
operations, assets, present condition and future prospects and undertook such
other studies, analyses and investigations as we deemed appropriate. Our opinion
is limited insofar as we were not furnished with financial projections with
respect to Chiquita Brands International, Inc. ("Chiquita") as we were advised
by management of Chiquita that it was not feasible to develop reliable
projections of future operating results for Chiquita due to uncertainties
regarding its business.
In arriving at our opinion, we have assumed and relied upon the accuracy
and completeness of the financial and other information used by us in arriving
at our opinion and have not assumed responsibility for any independent
verification of such information. We have not conducted any independent
evaluation or appraisal of the properties, assets, liabilities or reserves of
American Premier or AFC, nor have we conducted any independent actuarial
evaluations. In addition, we have assumed that the financial projections
prepared by the managements of American Premier and AFC represent the best
current judgment of their respective managements as to the future financial
condition and results of operations of American Premier and AFC, respectively,
and have assumed that the projections have been reasonably prepared based on
such current judgment.
We have also taken into account our assessment of general economic, market,
and financial conditions and our experience in similar transactions, as well as
our experience in securities valuation in general. Our opinion necessarily is
based upon regulatory, economic, market and other conditions as they exist on,
and the information made available to us as of, the date hereof. In addition, we
have assumed, with your consent, the Merger would be accounted for as if AFC had
acquired American Premier in a transaction accounted for a purchase. We further
assumed, with your consent, that, in the course of obtaining necessary
regulatory approvals for the Acquisition, no restrictions would be imposed that
would have a material adverse effect on the contemplated benefits of the
Acquisition to American Premier following the Merger.
We are not expressing any opinion as to what the value of New American
Premier Common Stock actually will be when issued to the shareholders of
American Premier and AFC pursuant to the Acquisition or the price at which the
New American Premier Common Stock will trade subsequent to the Acquisition.
Furman Selz will receive fees for its services to American Premier in
connection with the Acquisition, including a fee upon the inclusion of this
opinion in a proxy statement mailed by American Premier in connection with a
meeting of its shareholders to vote on the Acquisition. In addition, American
Premier has agreed to indemnify Furman Selz for certain liabilities arising from
the delivery of this opinion. We have previously acted as financial advisor to
American Premier and, in the ordinary course of our business, may trade the
equity and debt securities of American Premier and AFC for our own account, and
the account of our customers and, accordingly, may at any time hold a long or
short position in such securities for the accounts of our customers, the firm
and/or the officers of the firm.
Based upon and subject to the foregoing, it is our opinion as investment
bankers that, from a financial point of view, the Exchange Ratios are fair to
the holders of American Premier Common Stock, other than AFC and its affiliates.
Very truly yours,
FURMAN SELZ INCORPORATED
B-2
<PAGE> 114
ANNEX C
Annex C will consist of the Annual Report of American Financial Corporation
on Form 10-K for the year ended December 31, 1993, as amended, which is
incorporated herein by reference and will be included in the final prospectus.
C-1
<PAGE> 115
ANNEX D
Annex D will consist of the Quarterly Report of American Financial
Corporation on Form 10-Q for the quarter ended September 30, 1994, which is
incorporated herein by reference and will be included in the final prospectus.
D-1
<PAGE> 116
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AMERICAN PREMIER GROUP, INC.
64,595,164 SHARES
COMMON STOCK
------------------------
PROXY STATEMENT/PROSPECTUS
------------------------
, 1995
UNTIL , 1995 ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED
TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 117
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
A. Indemnification Pursuant to the Ohio General Corporation Law and the Articles
and Code of Regulations of New American Premier.
Section 1701.13(E) of the Ohio General Corporation Law allows
indemnification by New American Premier to any person made or threatened to be
made a party to any proceedings, other than a proceeding by or in the right of
New American Premier, by reason of the fact that he is or was a director,
officer, employee or agent of New American Premier, against expenses, including
judgments and fines, if he acted in good faith and in a manner reasonably
believed to be in or not opposed to the best interests of New American Premier
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 New American Premier, 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 New American Premier
unless determined by the court. The right to indemnification is mandatory in the
case of a director or officer who is successful on the merits or otherwise in
defense of any action, suit or proceeding or any claim, issue or matter therein.
Permissive indemnification is to be made by a court of competent jurisdiction,
the majority vote of a quorum of disinterested directors, the written opinion of
independent counsel or by the shareholders. New American Premier has entered
into an indemnification agreement with each director and officer which provides
a contractual right to indemnification against such expenses and liabilities
(subject to certain limitations and exceptions) and a contractual right to
advancement of expenses and contains additional provisions regarding
determination of entitlement, defense of claims, rights of contribution and
other matters.
New American Premier's Code of Regulations provides that New American
Premier shall indemnify such persons to the fullest extent permitted by law.
B. Other indemnification provisions affecting directors and officers of New
American Premier are described below. The Penn Central Corporation, referred
to below, is the former name of American Premier.
The Penn Central Corporation Annual Incentive Compensation Plan (the
"Incentive Compensation Plan"), which is to be adopted by New American Premier,
provides that New American Premier shall indemnify and hold harmless any member
of the Compensation Subcommittee of the Executive Committee of the Board of
Directors, the Board of Directors and the Chief Executive Officer of New
American Premier, to the extent permitted by the Articles of Incorporation and
Code of Regulations of New American Premier and applicable law, against and from
any loss, cost, liability or expense that might be imposed upon or reasonably
incurred by him in connection with or resulting from any claim, action, suit or
proceeding to which he may be a party or in which he may be involved by reason
of any action taken or failure to act under the Incentive Compensation Plan and
against and from any and all amounts paid by him in settlement thereof, with
approval of New American Premier, or paid by him in satisfaction of judgment in
any such action, suit or proceeding against him. Indemnification pursuant to the
Incentive Compensation Plan is not exclusive of any other rights of
indemnification to which such person seeking indemnification may be entitled
under the Articles of Incorporation or Code of Regulations of New American
Premier as a matter of law or otherwise, or any power that New American Premier
may have to indemnify him or hold him harmless.
The Penn Central Corporation Stock Option Plan (the "Stock Option Plan"),
which is to be adopted by New American Premier, provides that no member of the
Board of Directors of New American Premier or any committee thereof organized to
administer the Stock Option Plan shall be liable for any action, determination
or omission taken or made in good faith with respect to the Stock Option Plan or
any option granted thereunder.
The Penn Central Corporation 1992 Spin-Off Stock Option Plan (the "Spin-Off
Option Plan"), which is to be adopted by New American Premier, provides that no
member of the Board of Directors of New
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<PAGE> 118
American Premier or any committee thereof organized to administer the Spin-Off
Option Plan shall be liable for any action, determination or omission taken or
made in good faith with respect to the Spin-Off Option Plan or any option
granted thereunder.
The Penn Central Corporation Employee Stock Purchase Plan (the "Employee
Stock Purchase Plan"), which is to be adopted by New American Premier, provides
that no member of the Board of Directors of New American Premier or any
committee thereof organized to administer the Employee Stock Purchase Plan shall
be liable for any action, determination or omission taken or made in good faith
with respect to the Employee Stock Purchase Plan or any right granted
thereunder.
The Penn Central Retirement and Savings Plan (the "Retirement and Savings
Plan"), which is to be adopted by New American Premier, provides that New
American Premier shall indemnify and hold harmless any member of the Retirement
Plans Finance Committee, the Retirement Plans Administration Committee or the
Board of Directors of New American Premier, and any other employee of New
American Premier deemed to be a fiduciary under the Retirement and Savings Plan
against all liability, joint and several, for their acts, omissions and conduct
and for the acts, omissions and conduct of their duly appointed agents made in
good faith pursuant to the provisions of the Retirement and Savings Plan,
including any out-of-pocket expenses reasonably incurred in the defense of any
claim relating thereto; provided, however, that no indemnitee shall voluntarily
assume or admit any liability, nor, except at its or his own cost, shall any of
the foregoing make any payment, assume any obligations or incur any expense
without the prior written consent of the Board of Directors. New American
Premier may purchase, at its own expense, liability insurance to protect New
American Premier and the persons indemnified under the Retirement and Savings
Plan from liability incurred in the good faith administration of the Retirement
and Savings Plan.
The Penn Central Corporation Retirement Income Guarantee Plan (the
"R.I.G.P."), which is to be adopted by New American Premier, provides that New
American Premier shall indemnify and hold harmless any member of the Retirement
Plans Finance Committee, the Retirement Plans Administration Committee or the
Board of Directors of New American Premier, and any other employee of New
American Premier deemed to be a fiduciary under the R.I.G.P. against all
liability, joint and several, for their acts, omissions and conduct and for the
acts, omissions and conduct of their duly appointed agents made in good faith
pursuant to the provisions of the R.I.G.P. and the Trust Agreement pursuant
thereto, including any out-of-pocket expenses reasonably incurred in the defense
of any claim relating thereto; provided, however, that no indemnitee shall
voluntarily assume or admit any liability, nor, except at its or his own cost,
shall any of the foregoing make any payment, assume any obligations or incur any
expense without the prior written consent of the Board of Directors. New
American Premier may purchase, at its own expense, liability insurance to
protect New American Premier and the persons indemnified under the R.I.G.P. from
liability incurred in the good faith administration of the R.I.G.P.
The Penn Central Corporation Benefits Equalization Plan (the "BEP"), which
is to be adopted by New American Premier, provides that New American Premier
shall indemnify and hold harmless the BEP Committee and each of its members and
the Board of Directors of New American Premier and each of its members against
all liability, joint and several, for their acts, omissions and conduct and for
the acts, omissions and conduct of their duly appointed agents made in good
faith pursuant to the provisions of the Plan, including any out-of-pocket
expenses reasonably incurred in defense of any claim relating thereto; provided,
however, that no indemnitee shall voluntarily assume or admit any such
liability, nor, except at its or his own cost, shall any of the foregoing make
any payment, assume any obligations or incur any expenses in respect thereof
without the consent of the Board of Directors. New American Premier may
purchase, at its expense, liability insurance to protect New American Premier
and the persons indemnified under the BEP from liability incurred in the good
faith administration of the BEP.
American Premier maintains, at its expense, Directors and Officers
Liability and Company Reimbursement Liability Insurance. The Directors and
Officers Liability portion of such policy covers all directors and officers of
New American Premier and of the companies which are, directly or indirectly,
more than 50% owned by New American Premier. The policy provides for payment on
behalf of the directors and officers, up to the policy limits and after
expenditure of a specified deductible, or all Loss (as defined) from claims made
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<PAGE> 119
against them during the policy period for defined wrongful acts, which include
errors, misstatements or misleading statements, acts or omissions and neglect or
breach of duty by directors and officers in the discharge of their individual or
collective duties as such. The insurance includes the cost of investigations and
defenses, appeals and bonds, settlements and judgments, but not fines or
penalties imposed by law. The insurance does not cover any claim arising out of
acts alleged to have been committed prior to October 24, 1978. The insurer limit
of liability under the policy is $50,000,000 in the aggregate for all losses
each year subject to certain individual and aggregate deductibles. The policy
contains various exclusions and reporting requirements.
<TABLE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
------ ---------------------------------------------------------------------------------
<S> <C>
2* Acquisition Agreement, as amended (Contained in Annex A to Proxy
Statement/Prospectus)
3.1* Form of Articles of Incorporation of American Premier Group, Inc.
3.2* Form of Code of Regulations of American Premier Group, Inc.
5* Opinion of Robert W. Olson, Esq.
8 Form of opinion on tax matters
12 Calculation of Ratio of Earnings to Fixed Charges
23.1 Consents of Deloitte & Touche LLP
23.2 Consent of Ernst & Young LLP
23.3* Consent of Robert W. Olson, Esq. (Contained in Exhibit 5)
23.4* Consent of Furman Selz Incorporated (Contained in Exhibit 99.1)
24* Power of Attorney (Contained on the signature page)
99.1* Opinion of Furman Selz Incorporated
99.2* Milliman & Robertson, Inc. Analysis of September 30, 1994 Loss and Loss
Adjustment Expense Reserves for Great American Insurance Group
99.3* Milliman & Robertson, Inc. Analysis of Asbestos and Environmental Expenses for
Great American Insurance Group at September 30, 1994.
99.4* Milliman & Robertson, Inc. Actuarial Appraisal of Great American Life Insurance
Company, September 30, 1994.
99.5* Form of Proxy
<FN>
- ---------------
* Previously filed.
</TABLE>
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes that:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement (i) to
include any prospectus required by section 10(a)(3) of the Securities Act,
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement for the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement, and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
II-3
<PAGE> 120
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant 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 Registrant 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 Securities
Act and will be governed by the final adjudication of such issue.
(c) That, for purposes of determining any liability under the Securities
Act of 1933, each filing of the Registrant's Annual Report pursuant to Section
13(a) or Section 15(d) of the Securities Exchange Act of 1934 (and, where
applicable, each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Securities Exchange Act of 1934) that is incorporated by
reference in the Registration Statement shall be deemed to be a new Registration
Statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(d) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the incorporated
documents by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date of the
Registration Statement through the date of responding to the request.
(e) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the Registration Statement when it became
effective.
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<PAGE> 121
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Amendment No. 2 to Registration Statement No.
33-56813 to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Cincinnati, State of Ohio, on the 15th day of
February, 1995.
AMERICAN PREMIER GROUP, INC.
By: NEIL M. HAHL
------------------------------------
Neil M. Hahl
Senior Vice President
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Amendment No. 2 to Registration Statement No. 33-56813 has been signed on
February 15, 1995 by the following persons in the capacities indicated.
*
--------------------------------------
Carl H. Lindner
Chairman of the Board and
Chief Executive Officer and a Director
*
--------------------------------------
Theodore H. Emmerich
Director
*
--------------------------------------
James E. Evans
Director
Neil M. Hahl
--------------------------------------
Neil M. Hahl
Senior Vice President and a Director
(Principal Financial Officer)
*
--------------------------------------
Thomas M. Hunt
Director
*
--------------------------------------
Carl H. Lindner III
Director
*
--------------------------------------
S. Craig Lindner
Director
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<PAGE> 122
*
--------------------------------------
William R. Martin
Director
*
--------------------------------------
Alfred W. Martinelli
Director
Robert W. Olson
--------------------------------------
Robert W. Olson
Director
Robert F. Amory
--------------------------------------
Robert F. Amory
Vice President and Controller
(Principal Accounting Officer)
*By: ROBERT W. OLSON
-----------------------------------
Robert W. Olson
Attorney-in-Fact
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<PAGE> 1
TAFT, STETTINIUS & HOLLISTER
1800 Star Bank Center
425 Walnut Street
Cincinnati, Ohio 45202-3957
513-381-0205
____________, 1995
Board of Directors
American Premier Underwriters, Inc.
One East Fourth Street
Cincinnati, OH 45202
Members of the Board:
This is in response to your request for our tax opinion
on the merger (the "APZ Merger") of American Premier Sub, Inc.
("APZ Sub") (a wholly owned subsidiary of American Premier Group,
Inc. ("New American Premier")) with and into American Premier
Underwriters, Inc. ("APZ"). The conclusions presented herein are
based on the facts and representations in the Agreement and Plan
of Acquisition and Reorganization ("Agreement") dated as of
December 9, 1994 by and among New American Premier, APZ, APZ Sub,
American Financial Corporation ("AFC") and AFC Sub, Inc. ("AFC
Sub"), the Proxy Statement-Prospectus dated February ___, 1995
with the Securities and Exchange Commission with regard thereto,
the representations of facts set forth in a letter dated
February ___, 1995 from APZ (collectively, the "Documents"), and
the applicable tax law as it exists today. Capitalized terms
herein have the same meaning as those appearing in the Agreement.
<PAGE>
FACTS
APZ is a corporation duly incorporated and existing
in good standing under the laws of Pennsylvania. The authorized
capital stock of APZ consists of 200,000,000 shares of common
stock, par value $1.00, ("APZ Common Stock") of which, as of
November 30, 1994, 47,616,111 were outstanding or issuable
(including 1,375,304 shares set aside for issuance pursuant to
APZ's 1978 Plan of Reorganization) and 23,090,274 shares of
preference stock ("APZ Preferred Stock") of which 212,698 are
issued and outstanding (which are convertible into 446,799 shares
of APZ Common Stock). APZ's principal operations are conducted
through specialty property and casualty insurance subsidiaries
that underwrite and market non-standard automobile and workers
compensation insurance.
The authorized capital stock of AFC consists of
32,300,000 shares of Common Stock, without par value ("AFC Common
Stock") of which, as of the date of the Agreement, 18,971,217
shares were issued and outstanding and 314,468 were held in AFC's
treasury. In addition, 762,500 shares were reserved for issuance
upon exercise of outstanding stock options. Also as of the date
of the Agreement, AFC had authorized 59,300,000 shares of
Preferred Stock ("AFC Preferred Stock) which was authorized and
issued as follows:
Issued and
Authorized Outstanding
Shares Shares
$1 PAR,
Voting Cumulative: 3,500,000 0
$1 PAR,
Nonvoting Cumulative:
Series F 15,000,000 13,753,254
Series G 2,000,000 364,158
$10.50 PAR,
Nonvoting Cumulative:
Series D 8,375,000 0
Series E 2,725,000 274,242
<PAGE>
$1.50 PAR,
Nonvoting Cumulative:
Series H 7,700,000 0
$.01 PAR,
Nonvoting Cumulative: 20,000,000 0
AFC is principally engaged in multi-line property and casualty
insurance businesses through its wholly-owned Great American
Insurance Group. Approximately forty-nine percent (49%) of the
Great American Insurance Group's 1993 net insurance premiums
written were derived from specialty lines, with the balance being
produced by commercial and personal lines. AFC also owns eighty
percent (80%) of American Annuity Group, Inc., which through its
Great American Life Insurance Company subsidiary sells tax-
deferred annuities principally to employees of educational
institutions. AFC's assets also include a forty-six percent
(46%) interest in Chiquita Brands International, Inc., a world-
wide marketer and producer of bananas and other food products,
and a thirty-six percent (36%) interest in Citicasters Inc.,
which owns a group of radio and television broadcast stations.
AFC also beneficially owns 18.7 million shares (40.4%) of the
outstanding shares of APZ Common Stock, which, following the
Mergers, would be treated by New American Premier as repurchased
treasury shares.
New American Premier is a corporation newly formed
under Ohio law to serve as the public holding company for APZ and
AFC. APZ Sub and AFC Sub were organized for purposes of this
transaction.
THE TRANSACTION
APZ and AFC will combine their respective businesses
through becoming subsidiaries of New American Premier pursuant to
the Mergers. The Agreement provides that at the Effective Time
APZ Sub will be merged with and into APZ in accordance with the
laws of Pennsylvania; as a result of the merger, APZ will become
a subsidiary of New American Premier. Pursuant to the APZ Merger
each issued and outstanding share of APZ Common Stock will be
converted into one share of Common Stock, par value $1.00 per
share, of New American Premier ("New American Premier Common
Stock), each issued and outstanding share of APZ Preferred Stock
will be converted into one share of preferred stock of New
American Premier ("New American Premier Preferred Stock") and the
aggregate of all shares of capital stock of APZ Sub issued and
outstanding prior to the Effective Time will be converted into
47,000,000 shares of APZ Common Stock (as the surviving
corporation of the APZ merger).
<PAGE>
Also at the Effective Time, AFC Sub will be merged
with and into AFC under Ohio law, and as a result of the AFC
Merger AFC will become a subsidiary of New American Premier.
Pursuant to the AFC Merger, each share of AFC Common Stock will
be converted into the right to receive shares of New American
Premier Common Stock at a rate equal to 1.45 shares of New
American Premier Common Stock for each share of AFC Common Stock;
the AFC merger will have no effect upon the AFC Preferred Stock
which will remain issued and outstanding after the Effective
Time. The aggregate of all shares of AFC Sub issued and
outstanding immediately prior to the Effective Time will be
converted into 53,000,000 shares of AFC Common Stock (as the
surviving corporation of the AFC Merger).
REPRESENTATIONS
In order to determine the consequences of the Mergers
for federal income tax purposes, you directed us to rely on the
following assumptions and representations regarding the Mergers:
1. No New American Premier Common Stock and no New
American Premier Preferred Stock will be issued for services
rendered to or for the benefit of New American Premier.
2. None of the APZ Preferred Stock to be converted
into New American Premier Preferred Stock is Section 306 stock
within the meaning of Section 306(c) of the Internal Revenue Code
of 1986 (the "Code").
3. There is no indebtedness between the holders
of AFC Common Stock and New American Premier and no suchindebted-
ness will be created as a result of the Merger.
4. There is no indebtedness between the holders of
APZ Common Stock and New American Premier and no such indebted-
ness will be created as a result of the Merger.
5. There is no indebtedness between the holders
of APZ Preferred Stock and New American Premier and no such
indebtedness will be created as a result of the Merger.
6. Immediately after the Merger, the former holders
of APZ Common Stock, APZ Preferred Stock and AFC Common Stock
will, in the aggregate, hold stock of New American Premier
constituting control of New American Premier within the meaning
of Section 368(c) of the Code.
7. After the Effective Time, New American Premier
will not be an investment company within the meaning of Section
351(e)(1) of the Code.
<PAGE>
APPLICABLE LAW
Although both the AFC Merger and the APZ Merger will
constitute statutory mergers under applicable state law, neither
merger qualifies as a "reorganization" as defined in Section
368(a)(1) of the Code. However, for the reasons set forth below,
taken together, the Mergers constitute a ta-free exchange under
Section 351(a) of the Code.
Section 351(a) provides that no gain or loss shall be
recognized if property is transferred to a corporation by one or
more persons ("transferors") solely in exchange for stock in such
corporation and immediately after the exchange such transferors
are in control of the transferee corporation as defined in
Section 368(c). In this case, the transferors are the holders
of AFC Common Stock, APZ Common Stock and APZ Preferred Stock
prior to the Effective Time. The property transferred is the
aforementioned stock, and, immediately after the effective time
the transferors will in fact hold an amount of New American
Premier Common Stock and New American Premier Preferred stock
constituting control of New American Premier.
The holders of APZ Common Stock, APZ Preferred Stock
and AFC Common stock, although in large part unrelated to each
other, nevertheless are properly viewed as a group of transferors
acting together pursuant to the Agreement; accordingly, in
determining whether the control immediately after requirement
is met, their stock ownership in New American Premier will be
aggregated. Treas. Reg. Section 1.351-1(a). Further, the failed
reverse mergers, which result in AFC and APZ becoming subsid-
iaries of New American Premier, are treated for federal income
tax purposes as if each holder of AFC Common Stock, APZ Common
Stock and APZ Preferred Stock had actually transferred his or her
stock to New American Premier. Rev. Rul. 76-123, 1976-1 C.B. 95;
Rev. Rul. 84-71, 1984-1 C.B. 106. These revenue rulings also
confirm that the AFC Common Stock, APZ Common Stock and APZ
Preferred Stock constitute "property" within the meaning of
Section 351(a).
Section 351(a) requires that the transfer of property
be "solely" in exchange for stock. In the instant case, certain
holders of AFC Common Stock may receive cash for fractional
shares of New American Premier otherwise issuable to them.
However, the payment of such cash will not destroy the tax-free
nature of the exchange, but rather could require recipients of
cash to recognize gain under Section 351(b).
"Control" for purposes of Section 351(a) is defined
as control within the meaning of Section 368(c) which provides
that control means the ownership of stock possessing at least
eighty percent (80%) of the total combined voting power of all
classes entitled to vote and at least eighty percent (80%) of the
total number of all other classes of stock of the corporation.
<PAGE>
As a result of the Mergers, the former holders of AFC Common
Stock, APZ Common Stock and APZ Preferred Stock will be in
control of New American Premier.
Under Section 351(e)(1) of the Code, Section 351(a)
does not apply to a transfer of property to an "investment
company." New American Premier could be an investment company if
it is a regulated investment company or a real estate investment
trust; it will be neither of these. New American Premier could
also be an investment company if more than eighty percent (80%)
of its assets will be securities traded on a securities exchange
or regularly quoted in the over the counter market; this will
also not be the case.
OPINION
In view of the above, it is our opinion that, under the
tax law as it exists today:
(1) No gain or loss will be recognized by APZ, APZ Sub
or New American Premier as a result of the APZ Merger. Sections
351(a) and 1032(a) of the Code.
(2) No gain or loss will be recognized by an APZ
shareholder who receives shares of New American Premier Stock
pursuant to the APZ Merger. Section 351(a) of the Code.
(3) The tax basis of the shares of New American
Premier Stock owned by a former shareholder of APZ will be the
same as the tax basis of the shares of APZ Common Stock and APZ
Preferred Stock formerly owned by such shareholder. Section 358
of the Code.
(4) The holding period of the shares of New American
Premier Stock received as a result of the APZ Merger will include
the period during which the shares formerly representing APZ
Common Stock and APZ Preferred Stock were held, provided such
shares of APZ Common Stock and APZ Preferred Stock were held as
capital assets immediately prior to the Effective Time. Section
1223 of the Code.
Our opinion is not the equivalent of a ruling from the
Internal Revenue Service and may upon audit be challenged by the
Internal Revenue Service. Our opinion is based on the under-
standing that the relevant facts are as set forth in this letter.
It is also based on the Code, Regulations, case law and Internal
Revenue Service rulings as they now exist. These authorities are
all subject to change and such change may be made with retro-
<PAGE>
active effect. Were there to be such changes either before or
after the Effective Time, or should the relevant facts prove to
be other than as set forth in this letter, our opinion could be
affected.
Sincerely,
TAFT, STETTINIUS & HOLLISTER
<PAGE> 1
<TABLE>
<CAPTION>
EXHIBIT 12
AMERICAN PREMIER GROUP, INC.
CALCULATION OF RATIO OF EARNINGS TO FIXED CHARGES
(IN MILLIONS, EXCEPT RATIO AMOUNTS)
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31, 1993 SEPTEMBER 30, 1994
------------------------ ------------------------
NEW NEW
HISTORICAL AMERICAN HISTORICAL AMERICAN
AMERICAN PREMIER AMERICAN PREMIER
PREMIER PRO FORMA PREMIER PRO FORMA
-------- ----------- -------- -----------
<S> <C> <C> <C> <C>
Earnings from continuing operations, before
income taxes................................... $190.1 $ 310.1 $ 16.4 $ 121.4
Undistributed losses (earnings) of equity
investees...................................... -- 53.7 -- 17.9
Minority interest in subsidiaries with fixed
charges........................................ -- 17.8 -- 5.9
Interest and debt expense........................ 62.8 133.1 39.9 73.9
Preferred dividend requirements of
subsidiaries................................... -- 26.1 -- 19.5
One-third of rent expense........................ 4.4 9.1 3.3 6.8
-------- ----------- -------- -----------
Earnings before fixed charges.................... $257.3 $ 549.9 $ 59.6 $ 245.4
======= ======== ======= ========
Fixed Charges:
Interest and debt expense...................... $ 62.8 $ 133.1 $ 39.9 $ 73.9
Preferred dividend requirements of
subsidiaries................................ -- 26.1 -- 19.5
One-third of rent expense...................... 4.4 9.1 3.3 6.8
-------- ----------- -------- -----------
Total fixed charges.................... $ 67.2 $ 168.3 $ 43.2 $ 100.2
======= ======== ======= ========
Ratio of Earnings to Fixed Charges..... 3.8 3.3 1.4 2.4
======= ======== ======= ========
</TABLE>
<PAGE> 1
EXHIBIT 23.1(A)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
33-56813 of American Premier Group, Inc. of our report dated December 9, 1994,
appearing in the Prospectus, which is part of such Registration Statement. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
February 15, 1995
<PAGE> 2
EXHIBIT 23.1(B)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Amendment No. 2 to
Registration Statement No. 33-56813 of American Premier Group, Inc. of the
reports of Deloitte & Touche dated February 16, 1994 regarding American Premier
Underwriters, Inc. appearing in and incorporated by reference in the Annual
Report on Form 10-K of American Premier Underwriters, Inc. for the year ended
December 31, 1993. We also consent to the incorporation by reference in such
Registration Statement of the reports of Deloitte & Touche dated February 18,
1994 and March 24, 1992 regarding General Cable Corporation and American Annuity
Group, Inc., respectively which are included in the Annual Report on Form 10-K
of American Financial Corporation for the year ended December 31, 1993, as
amended. We also consent to the reference to Deloitte & Touche LLP under the
heading "Experts" in the Prospectus, which is part of such Registration
Statement.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
February 15, 1995
<PAGE> 1
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 2 to the Registration Statement (Form S-4) and related Proxy
Statement/Prospectus of American Premier Group, Inc. for the registration of
shares of its common stock and to the incorporation by reference therein of our
report dated March 25, 1994, with respect to the consolidated financial
statements and schedules of American Financial Corporation included in its
Annual Report (Form 10-K) for the year ended December 31, 1993, filed with the
Securities and Exchange Commission.
ERNST & YOUNG LLP
Cincinnati, Ohio
February 15, 1995
