<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-12537
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICAN FINANCIAL GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
OHIO
(State or other jurisdiction of incorporation or 31-1422526
organization) (IRS Employer Identification Number)
</TABLE>
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-2121
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
AMERICAN FINANCIAL CAPITAL TRUST I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE
(State or other jurisdiction of incorporation or 31-6538554
organization) (IRS Employer Identification Number)
</TABLE>
ONE EAST FOURTH STREET
CINCINNATI, OHIO 45202
(513) 579-2121
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
------------------------
<TABLE>
<S> <C> <C>
JAMES C. KENNEDY, ESQ.
Deputy General Counsel and Secretary
with copies to: American Financial Group, Inc. with copies to:
One East Fourth Street
Gary P. Kreider, Esq. Cincinnati, Ohio 45202 Timothy E. Hoberg, Esq.
Keating, Muething & Klekamp, P.L.L. (513) 579-2538 Taft, Stettinius & Holliser
1800 Provident Tower (Name, address, including zip code, 1800 Star Bank Center
One East Fourth Street and telephone number, 425 Walnut Street
Cincinnati, Ohio 45202 including area code, of agent for Cincinnati, Ohio 45202
(513) 579-6411 service) (513) 357-9308
</TABLE>
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the date this registration statement becomes effective.
------------------------
If the only securities being registered on this Form are being offered pursuant
to dividend or interest reinvestment plans, please check the following box.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 of the Securities Act of 1933,
other than securities offered only in connection with dividend or interest
reinvestment plans, please check the following box.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box.
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996
PROSPECTUS
4,000,000 PREFERRED SECURITIES
AMERICAN FINANCIAL CAPITAL TRUST I
% TRUST ORIGINATED PREFERRED SECURITIES(SM) ("TOPRS (SM)")
(LIQUIDATION AMOUNT $25 PER PREFERRED SECURITY)
GUARANTEED TO THE EXTENT SET FORTH HEREIN BY
AMERICAN FINANCIAL GROUP, INC.
------------------------
The % Trust Originated Preferred Securities (the "Preferred Securities")
offered hereby (the "Offering") represent preferred undivided beneficial
interests in the assets of American Financial Capital Trust I, a statutory
business trust formed under the laws of the State of Delaware (the "Trust").
American Financial Group, Inc., an Ohio corporation ("AFG" or the "Company"),
will directly or indirectly own all the common securities (the "Common
Securities" and,
(continued on next page)
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR CERTAIN INFORMATION RELEVANT TO
AN INVESTMENT IN THE PREFERRED SECURITIES, INCLUDING THE PERIOD AND
CIRCUMSTANCES DURING AND UNDER WHICH PAYMENTS OF DISTRIBUTIONS ON THE PREFERRED
SECURITIES MAY BE DEFERRED AND THE RELATED UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF SUCH DEFERRAL.
Application has been made to list the Preferred Securities on the New York
Stock Exchange, Inc. ("NYSE"). If approved, trading of the Preferred Securities
on the NYSE is expected to commence within a 30-day period after the initial
delivery of the Preferred Securities. See "Underwriting."
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
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INITIAL PUBLIC UNDERWRITING PROCEEDS TO
OFFERING PRICE(1) COMMISSIONS(2) TRUST(3)(4)
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<S> <C> <C> <C>
Per Preferred Security....................... $25.00 (3) $25.00
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Total(5)..................................... $100,000,000 (3) $100,000,000
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</TABLE>
(1) Plus accrued distributions, if any, from , 1996.
(2) The Trust and the Company have each agreed to indemnify the several
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933. See "Underwriting."
(3) As all of the proceeds of the sale of the Preferred Securities will be
invested in Subordinated Debentures, the Company has agreed to pay to the
Underwriters as compensation ("Underwriters' Compensation") for arranging
the investment therein of such proceeds, $ per Preferred Security
(or $ in the aggregate); provided, that such compensation for sales
of 10,000 or more Preferred Securities to a single purchaser will be $
per Preferred Security. Therefore, to the extent of such sales, the actual
amount of Underwriters' Compensation will be less than the aggregate amount
specified in the preceding sentence. See "Underwriting."
(4) Expenses of the Offering, which are payable by the Company, are estimated to
be $ .
(5) The Trust and the Company have granted to the Underwriters an option
exercisable for 30 days to purchase up to an additional 600,000 Preferred
Securities at the initial public offering price per Preferred Security
solely to cover over-allotments, if any. The Company will pay to the
Underwriters, as Underwriters' Compensation, the commission set forth above
in footnote (3) with respect to such additional Preferred Securities. If
such option is exercised in full, the Initial Public Offering Price,
Underwriters' Compensation and Proceeds to the Trust will be $115,000,000,
, , and $115,000,000, respectively. See "Underwriting."
------------------------
The Preferred Securities offered hereby are offered severally by the
Underwriters, as specified herein, subject to receipt and acceptance by them and
subject to their right to reject any order in whole or in part. It is expected
that delivery of the Preferred Securities will be made only in book-entry form
through the facilities of The Depository Trust Company, on or about
, 1996.
------------------------
MERRILL LYNCH & CO.
CS FIRST BOSTON
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES
CORPORATION
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
------------------------
The date of this Prospectus is October , 1996.
(SM) "Trust Originated Preferred Securities" and "TOPrS" are service marks of
Merrill Lynch & Co., Inc.
<PAGE> 3
(continued from cover page)
together with the Preferred Securities, the "Trust Securities") representing
undivided beneficial interests in the assets of the Trust. The Trust exists for
the sole purpose of issuing the Preferred Securities and Common Securities and
investing the proceeds thereof in an equivalent amount of % Subordinated
Debentures due , 2026 ("Subordinated Debentures") of the Company.
Upon a Declaration Event of Default (as defined herein), the holders of the
Preferred Securities will have a preference over the holders of the Common
Securities with respect to payments in respect of distributions and payments
upon redemption, liquidation and otherwise.
Holders of the Preferred Securities are entitled to receive cumulative cash
distributions at an annual rate of % of the liquidation amount of $25 per
Preferred Security, accruing from the date of original issuance and payable
quarterly in arrears on January 15, April 15, July 15 and October 15 of each
year, commencing January 15, 1997 ("distributions"). The distribution rate and
the distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Subordinated Debentures, which, along with interest and principal payments
received on the Subordinated Debentures, will be the only assets of the Trust.
As a result, if principal or interest is not paid on the Subordinated
Debentures, no amounts will be paid on the Preferred Securities. The payment of
distributions out of moneys held by the Trust and payments on liquidation of the
Trust or the redemption of Preferred Securities, as set forth below, are
guaranteed by the Company (the "Trust Guarantee") if and to the extent the Trust
has funds available therefor. The Company's obligations under the Trust
Guarantee, taken together with its back-up undertakings, consisting of
obligations of the Company as set forth in the Declaration of Trust (including
the obligation to pay expenses of the Trust), the Indenture and any applicable
supplemental indentures, and the Subordinated Debentures issued to the Trust,
provide a full and unconditional guarantee by the Company of payments due on the
Preferred Securities. See "Effect of Obligations Under the Subordinated
Debentures and the Trust Guarantee" herein and "Description of Trust Guarantee."
If the Company does not make principal or interest payments on the Subordinated
Debentures as a result of the Company's election to extend the interest payment
period on the Subordinated Debentures as described below, or otherwise, the
Trust will not have sufficient funds to make distributions on the Preferred
Securities, in which event the Trust Guarantee will not apply to such
distributions until the Company has made such principal or interest payments.
The obligations of the Company under the Subordinated Debentures are unsecured
and will be subordinate and junior in right of payment, to the extent set forth
herein, to all existing and future Senior Indebtedness (as defined herein) of
the Company and will be structurally subordinated to all existing and future
liabilities and obligations of the Company's subsidiaries. At June 30, 1996, the
aggregate amount of Senior Indebtedness and liabilities and obligations of the
Company's subsidiaries that would have effectively ranked senior to the
Subordinated Debentures was approximately $13.4 billion.
The Company has the right to defer payments of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures, from time to time, for up to 20 consecutive quarters (each, an
"Extension Period") provided that no Extension Period may extend beyond the
Maturity Date (as defined herein). If interest payments are so deferred,
distributions on the Preferred Securities will also be deferred. During any
Extension Period, distributions will continue to accrue with interest thereon
(to the extent permitted by applicable law) at an annual rate of % per annum
compounded quarterly, and during any Extension Period, holders of Preferred
Securities will be required to include deferred interest income in their gross
income for United States federal income tax purposes in advance of receipt of
the cash distributions with respect to such deferred interest payments. There
could be multiple Extension Periods of varying lengths throughout the term of
the Subordinated Debentures. See "Risk Factors -- Option to Extend Interest
Payment Period or Change Maturity Date," "Risk Factors -- Tax Consequences of
Extension of Interest Payment Period," "Description of the Subordinated
Debentures -- Option to Extend Interest Payment Period," and "United States
Federal Income Taxation -- Interest Income and Original Issue Discount."
The Subordinated Debentures are redeemable prior to maturity at the option
of the Company (i) in whole or in part, from time to time, on or after
, 2001, or (ii) at any time in whole (but not in
(Continued on next page)
2
<PAGE> 4
(continued from previous page)
part) upon the occurrence and continuation of a Special Event (as defined
herein). If the Company redeems Subordinated Debentures, the Trust must redeem
Trust Securities having an aggregate liquidation amount equal to the aggregate
principal amount of the Subordinated Debentures so redeemed at $25 per Preferred
Security plus accrued and unpaid distributions thereon to the date fixed for
redemption (the "Redemption Price"). See "Description of the Preferred
Securities -- Mandatory Redemption." The outstanding Preferred Securities will
be redeemed upon maturity of the Subordinated Debentures. The Subordinated
Debentures mature on , 2026, which date may be extended at any time
at the election of the Company, but in no event to a date later than the earlier
of (i) , 2045 or (ii) the "Interest Deduction Date" (as hereinafter defined
under "Description of the Subordinated Debentures -- Option to Change Scheduled
Maturity Date"), provided certain financial conditions are met, and may be
shortened to a date not earlier than , 2001 if the Company exercises
its right to liquidate the Trust and distribute the Subordinated Debentures. See
"Description of the Subordinated Debentures -- Option to Change Scheduled
Maturity Date."
At any time, the Company will have the right to liquidate the Trust and
cause the Subordinated Debentures to be distributed to the holders of the Trust
Securities in liquidation of the Trust. If the Company elects to liquidate the
Trust and thereby causes the Subordinated Debentures to be distributed to
holders of the Trust Securities in liquidation of the Trust, the Company shall
have the right to shorten the maturity of such Subordinated Debentures, to a
date not earlier than , 2001, or extend the maturity of such
Subordinated Debentures to a date not later than the earlier of (i) , 2045
or (ii) the Interest Deduction Date, provided that it can extend the maturity
only if certain conditions are met. If the Subordinated Debentures are
distributed to the holders of the Preferred Securities, the Company will use its
best efforts to have the Subordinated Debentures listed on the NYSE or on such
other exchange as the Preferred Securities are then listed. See "Description of
the Preferred Securities -- Distribution of the Subordinated Debentures."
In the event of the involuntary or voluntary liquidation, dissolution,
winding up or termination of the Trust, the holders of the Preferred Securities
will be entitled to receive for each Preferred Security a liquidation amount of
$25 plus accrued and unpaid distributions thereon (including interest thereon)
to the date of payment, unless, in connection with such dissolution, the
Subordinated Debentures are distributed to the holders of the Preferred
Securities. See "Description of the Preferred Securities -- Liquidation
Distribution Upon Dissolution."
------------------------
FOR NORTH CAROLINA RESIDENTS: THESE SECURITIES HAVE NOT BEEN APPROVED OR
DISAPPROVED BY THE COMMISSIONER OF INSURANCE FOR THE STATE OF NORTH CAROLINA
(THE "NORTH CAROLINA INSURANCE COMMISSIONER") NOR HAS THE NORTH CAROLINA
INSURANCE COMMISSIONER RULED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SECURITIES
OFFERED HEREBY AT LEVELS ABOVE THOSE THAT MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NEW YORK STOCK EXCHANGE, IN THE
OVER-THE-COUNTER MARKET OR OTHERWISE. SUCH STABILIZING TRANSACTIONS, IF
COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS OR THE DOCUMENTS
INCORPORATED OR DEEMED INCORPORATED BY REFERENCE HEREIN, AND ANY INFORMATION OR
REPRESENTATIONS NOT CONTAINED HEREIN OR THEREIN MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR THE TRUST OR BY ANY AGENT, DEALER OR
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY CIRCUMSTANCES IN WHICH
SUCH OFFER OR SOLICITATION IS UNLAWFUL. THE DELIVERY OF THIS PROSPECTUS AT ANY
TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN OR THEREIN IS CORRECT AS OF ANY
TIME SUBSEQUENT TO THE DATE OF SUCH INFORMATION.
3
<PAGE> 5
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
periodic reports, proxy and information statements and other information with
the Securities and Exchange Commission (the "Commission"). The Company and the
Trust have filed a Registration Statement on Form S-3 (the "Registration
Statement") with the Commission under the Securities Act of 1933 (the
"Securities Act") with respect to the Securities. This Prospectus does not
contain all the information, exhibits and undertakings contained in the
Registration Statement, to which reference is hereby made. Statements contained
in this Prospectus as to the terms of any contract or other document are not
necessarily complete with respect to each such contract or other document filed
as an exhibit to the Registration Statement. Reference is made to the exhibits
for a more complete description of the matter involved. Such reports, proxy and
information statements, the Registration Statement and other information filed
with the Commission by AFG may be inspected at and obtained from the Commission
at its public reference facilities at 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Suite 1400, 500 West
Madison Avenue, Chicago, Illinois, and at 7 World Trade Center, 13th Floor, New
York, New York. Copies of such material can also be obtained, at prescribed
rates, by mail from the Public Reference Section of the Commission at its
Washington, D.C. address set forth above. In addition, material filed by the
Company can be obtained and inspected at the offices of the NYSE, 20 Broad
Street, New York, New York 10005 on which AFG's Common Stock is listed. Such
material may also be accessed electronically by means of the Commission's home
page on the World Wide Web located at http://www.sec.gov.
No separate financial statements of the Trust have been included or
incorporated by reference herein. The Company does not believe such financial
statements would be material to holders of the Preferred Securities because (i)
all of the voting securities of the Trust will be owned, directly or indirectly,
by the Company, a reporting company under the Exchange Act, (ii) the Trust has
no independent operations but exists for the sole purpose of issuing securities
representing undivided beneficial interests in its assets and investing the
proceeds thereof in Subordinated Debentures issued by the Company, and (iii) the
obligations of the Trust under the Preferred Securities are, to the extent that
the Trust shall have funds available to meet such obligations, fully and
unconditionally guaranteed by the Company. See "Description of Preferred
Securities" and "Description of Trust Guarantees."
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
THIS PROSPECTUS INCORPORATES BY REFERENCE CERTAIN DOCUMENTS RELATING TO THE
COMPANY WHICH ARE NOT DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN THE
EXHIBITS TO SUCH DOCUMENTS, UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE INTO SUCH DOCUMENTS) ARE AVAILABLE, WITHOUT CHARGE, ON ORAL OR
WRITTEN REQUEST BY ANY PERSON TO WHOM THIS PROSPECTUS IS DELIVERED. Written or
telephone requests should be directed to Fred J. Runk, Senior Vice President and
Treasurer, One East Fourth Street, Cincinnati, Ohio 45202, telephone (513)
579-2488. The following documents, which have been filed by the Company with the
Commission, are hereby incorporated by reference in this Prospectus:
American Financial Group, Inc. (File No. 1-11453):
(i) Annual Report on Form 10-K for the fiscal year ended December 31,
1995;
(ii) Quarterly Reports on Form 10-Q for the periods ended March 31, 1996
and June 30, 1996; and
(iii) Current Reports on Form 8-K dated February 12, 1996 and September 20,
1996.
All documents subsequently filed by the Company pursuant to Sections 13(a),
13(c), 14 or 15(d) of the Exchange Act prior to the termination of this Offering
shall be deemed to be incorporated by reference in this Prospectus and to be a
part of this Prospectus from the date of filing thereof. Any statement contained
in a document incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Prospectus.
4
<PAGE> 6
PROSPECTUS SUMMARY
This summary is qualified by the more detailed information and financial
statements appearing elsewhere, or incorporated by reference, in this
Prospectus. Unless otherwise noted, the material set forth herein does not give
effect to the exercise of the Underwriters' over-allotment option.
THE COMPANY
American Financial Group, Inc. ("AFG" or the "Company") is a holding
company which, through its subsidiaries, is engaged primarily in specialty and
multi-line property and casualty insurance businesses and in the sale of
tax-deferred annuities and life and health insurance. AFG's property and
casualty operations originated in 1872 and are the seventeenth largest property
and casualty group in the United States based on 1995 statutory net premiums
written of $3.1 billion. AFG was formed through the combination of American
Premier Underwriters, Inc. ("APU") and American Financial Corporation ("AFC") in
a merger transaction completed in April 1995 (the "Merger"). At June 30, 1996,
the Company had total assets of $14.8 billion and shareholders' equity of $1.4
billion.
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to (i) a declaration of trust, as amended (the "Declaration"), executed by the
Company as sponsor for such trust (the "Sponsor"), and the Trustees (as defined
herein) of such trust and (ii) the filing of a certificate of trust with the
Secretary of State of the State of Delaware on September 13, 1996. The Trust
exists for the exclusive purposes of (i) issuing and selling the Preferred
Securities and Common Securities (ii) using the gross proceeds from the sale of
the Trust Securities to acquire the Subordinated Debentures and (iii) engaging
in only those other activities necessary, appropriate or incidental thereto. All
of the Common Securities will be directly or indirectly owned by the Company.
The Common Securities will rank pari passu, and payments will be made thereon
pro rata, with the Preferred Securities, except that, if a Declaration Event of
Default (as defined herein) has occurred and is continuing, the rights of the
holders of the Common Securities to payment in respect of distributions and
payments upon liquidation, redemption and otherwise will be subordinated to the
rights of the holders of the Preferred Securities. The Company will directly or
indirectly acquire Common Securities in an aggregate liquidation amount equal to
at least 3% of the total capital of the Trust.
The Trust's affairs will be conducted by the trustees (the "Trustees")
appointed by the Company as the direct or indirect holder of all of the Common
Securities. The holder of the Common Securities will be entitled to appoint,
remove or replace any of, or increase or reduce the number of, the Trustees. The
duties and obligations of the Trustees shall be governed by the Declaration. The
Trust will initially have four Trustees. Two Trustees (the "Regular Trustees")
will be employees or officers of or otherwise affiliated with the Company. The
third Trustee (the "Property Trustee") of the Trust will be a financial
institution that is not affiliated with the Company and has a minimum amount of
combined capital and surplus of not less than $50,000,000, which shall act as
property trustee and as indenture trustee for the purposes of compliance with
the provisions of Trust Indenture Act of 1939, as amended (the "Trust Indenture
Act"). The fourth Trustee of the Trust will be an entity having a principal
place of business in, or a natural person resident of, the State of Delaware
(the "Delaware Trustee"). The Company will pay all fees and expenses related to
the Trust and the offering of the Trust Securities.
The Property Trustee for the Trust is The Bank of New York and its
principal corporate trust office is at 101 Barclay Street, 21st Floor, New York,
New York 10286, Attention: Corporate Trust Trustee Administration. The Delaware
Trustee for the Trust is The Bank of New York (Delaware) and its address in the
State of Delaware is 23 White Clay Center, Route 273, Newark, Delaware 19711.
The Delaware Trustee is an affiliate of the Property Trustee. The address for
the Trust is c/o American Financial Group, Inc., the Sponsor of the Trust, at
the Company's corporate headquarters located at One East Fourth Street,
Cincinnati, Ohio 45202, telephone (513) 579-2121.
5
<PAGE> 7
THE OFFERING
Preferred Securities Offered. 4,000,000 % Trust Originated Preferred
Securities evidencing preferred undivided beneficial interests in the assets of
the Trust. Holders of the Preferred Securities will be entitled to receive
cumulative cash distributions at an annual rate of % of the liquidation
amount of $25 per Preferred Security, accruing from the date of original
issuance and payable quarterly in arrears on January 15, April 15, July 15 and
October 15 of each year commencing on January 15, 1997. The distribution rate
and the distribution and other payment dates for the Preferred Securities will
correspond to the interest rate and interest and other payment dates on the
Subordinated Debentures, which, along with interest and principal payments
received on the Subordinated Debentures, will be the only assets of the Trust.
As a result, if principal or interest is not paid on the Subordinated
Debentures, no amounts will be paid on the Preferred Securities. See "Risk
Factors -- Ranking of Subordinate Obligations Under Trust Guarantee and
Subordinated Debentures" and "Description of the Preferred Securities."
Subordinated Debentures. The Trust will invest the proceeds from the
issuance of the Preferred Securities and Common Securities in an equivalent
amount of % Subordinated Debentures of the Company. The Subordinated
Debentures will rank subordinate and junior in right of payment to all Senior
Indebtedness of AFG. In addition, AFG's obligations under the Subordinated
Debentures will be structurally subordinated to all existing and future
liabilities and preferred stock obligations of its subsidiaries. See
"Description of the Subordinated Debentures -- Subordination."
Guarantee. Payment of distributions out of moneys held by the Trust, and
payments on liquidation of the Trust or the redemption of Preferred Securities,
are guaranteed by AFG to the extent the Trust has funds available therefor. If
the Company does not make principal or interest payments on the Subordinated
Debentures, the Trust will not have sufficient funds to make distributions on
the Preferred Securities, in which event the guarantee shall not apply to such
distribution until the Trust has sufficient funds available therefor. See
"Description of Trust Guarantee" and "Effect of Obligations Under the
Subordinated Debentures and the Trust Guarantee." The obligations of AFG under
the Trust Guarantee are subordinate and junior in right of payment to all other
liabilities of AFG. See "Risk Factors -- Holding Company Structure; Ranking of
Subordinate Obligations Under the Guarantee and Subordinated Debentures" and
"Description of Trust Guarantee."
Right to Defer Interest. The Company has the right to defer payments of
interest on the Subordinated Debentures by extending the interest payment period
on the Subordinated Debentures, from time to time, for up to 20 consecutive
quarters. If interest payments on the Subordinated Debentures are so deferred,
distributions on the Preferred Securities will also be deferred. During any
Extension Period, distributions will continue to accrue with interest thereon
(to the extent permitted by applicable usury or similar law) as described
herein. There could be multiple Extension Periods of varying lengths throughout
the term of the Subordinated Debentures. During an Extension Period, holders of
Preferred Securities will be required to include deferred interest income
allocated to their Preferred Securities in their gross income (as Original Issue
Discount ("OID")) even though the cash payments attributable thereto have not
been made. See "Description of the Subordinated Debentures -- Option to Extend
Interest Payment Period" and "United States Federal Income Taxation -- Interest
Income and Original Issue Discount."
Redemption. The Subordinated Debentures are redeemable by the Company (in
whole or, from time to time, in part) on or after , 2001, or at any
time, in whole but not in part, upon the occurrence of a Special Event. If the
Subordinated Debentures are redeemed, the Trust must redeem Trust Securities
having an aggregate liquidation amount equal to the aggregate principal amount
of the Subordinated Debentures so redeemed. The Trust Securities will be
redeemed upon maturity of the Subordinated Debentures. See "Description of the
Preferred Securities -- Mandatory Redemption" and "-- Special Event Redemption."
Option to Extend Maturity. The Subordinated Debentures mature on
, 2026, but the maturity may be extended once only for up to an additional 19
years, provided certain financial covenants and conditions are met. If the
maturity of the Subordinated Debentures is extended, the Preferred Securities
will remain outstanding for the same time period. See "Description of the
Subordinated Debentures -- Option to Change Scheduled Maturity Date."
6
<PAGE> 8
Right to Liquidate the Trust. At any time, the Company will have the right
to liquidate the Trust and cause the Subordinated Debentures to be distributed
to the holders of the Trust Securities in liquidation of the Trust. If the
Company elects to liquidate the Trust and thereby causes the Subordinated
Debentures to be distributed to holders of the Trust Securities in liquidation
of the Trust, the Company shall have the right to shorten the maturity of such
Subordinated Debentures, to a date not earlier than , 2001, or extend
the maturity of such Subordinated Debentures to a date not later than the
earlier of (i) , 2045 or (ii) the Interest Deduction Date, provided
that it can extend the maturity only if certain conditions are met. If the
Subordinated Debentures are distributed to the holders of the Preferred
Securities, the Company will use its best efforts to have the Subordinated
Debentures listed on the NYSE or on such other exchange as the Preferred
Securities are then listed. See "Description of the Preferred
Securities -- Distribution of the Subordinated Debentures."
Use Of Proceeds. The proceeds from the sale of Preferred Securities by the
Trust will be invested in the Subordinated Debentures of the Company. The
Company expects to use a portion of the net proceeds from the sale of such
Subordinated Debentures to the Trust to retire $50 million of outstanding debt
of subsidiaries and the remainder for general corporate purposes, which may
include the retirement of additional fixed rate securities of Company
subsidiaries and investment in insurance businesses. Until the net proceeds are
used for these purposes, the Company will deposit them in interest-bearing
accounts or invest them in short-term marketable securities.
Offering by Subsidiary. American Annuity Group, Inc., an 81% owned
subsidiary of the Company ("AAG") is planning an offering of up to $75 million
of trust originated preferred securities similar to those being offered by the
Company. This Offering is not conditioned on the offering by the trust to be
established by a wholly-owned subsidiary of AAG. See "Capitalization."
Ratings of Securities. The Preferred Securities have been assigned an
investment grade rating of "BBB-" by Standard & Poor's Ratings Group, a division
of McGraw-Hill ("S&P") and an investment grade rating of "BBB-" by Duff & Phelps
Credit Rating Co. ("Duff & Phelps"). Moody's Investors Service, Inc.
("Moody's") has assigned the Preferred Securities a rating of "ba1."
An explanation of the significance of ratings may be obtained from S&P,
Duff & Phelps and Moody's. Generally, rating agencies base their ratings on such
material and information and such of their own investigations, studies and
assumptions as they deem appropriate. A credit rating of a security is not a
recommendation to buy, sell or hold securities. There is no assurance that any
rating will apply for any given period of time or that a rating may not be
adjusted or withdrawn.
RECENT DEVELOPMENTS
On September 20, 1996, the Company announced in a news release the
following three third quarter actions which will result in a significant net
gain to be recorded in the quarter.
Citicasters Gain. AFG reported that its subsidiaries had received
approximately $220 million in gross cash proceeds and expect to realize a pretax
gain of approximately $160 million from the closing of the merger involving
Jacor Communications, Inc. and Citicasters Inc. on September 18, 1996. In the
merger, each Citicasters shareholder, including AFG's subsidiaries, received
$29.50 per share in cash plus warrants to purchase Jacor common stock. See "The
Company -- Investments."
Reserve Strengthening. AFG also reported that it had decided to strengthen
its insurance reserves relating to asbestos and other environmental matters
("A&E"). Based upon recent insurance industry studies of A&E exposure and
revised standards for reserving such claims, AFG has determined that an increase
of its A&E reserves is appropriate. AFG estimates that its reserves for A&E at
September 30, 1996 will be about $340 million, an amount expected to be
approximately 11 times the preceding three years' average claim payments. This
action with respect to A&E reserves will result in a third quarter, non-cash,
pretax charge of approximately $80 million. See "Risk Factors -- Adequacy of
Insurance Loss Reserves."
Hurricane Fran. While it is too soon to report the ultimate loss, AFG
estimated that its loss from Hurricane Fran will be between $30 million and $40
million, net of reinsurance. However, third quarter underwriting results, aside
from Hurricane Fran, are expected to be improved from the second quarter. See
"Risk Factors -- Cyclicality of the Insurance Industry; Impact of Catastrophes."
7
<PAGE> 9
SUMMARY FINANCIAL INFORMATION (UNAUDITED)
The summary pro forma financial information set forth below gives effect to
(i) the Merger assuming it was consummated on January 1, 1995 for purposes of
the income statement data and (ii) the AFG Offering and the offering being
planned by AAG for purposes of the balance sheet data. The pro forma effect of
the Offering on AFG's net earnings is not expected to be material. This
information should be read in conjunction with the separate historical financial
statements and related Management's Discussion and Analysis of Financial
Condition and Results of Operations of AFG, which are incorporated herein by
reference.
The pro forma financial information does not necessarily reflect the
Company's results of operations which would have actually resulted had the
Merger occurred as of the dates indicated above, nor should it be taken as
indicative of the future results of operations of the Company.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, YEAR ENDED
------------------------ DECEMBER 31,
1995 1995
1996 PRO FORMA PRO FORMA
HISTORICAL FOR MERGER FOR MERGER
---------- ---------- -----------
(DOLLARS IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Property and casualty premiums......................... $1,443.8 $1,484.7 $3,030.6
Total revenues......................................... 2,063.7 1,978.2 4,048.7
Property and casualty loss, loss adjustment and
underwriting expense and policyholder dividends...... 1,448.4 1,526.0 3,064.7
Interest on borrowed money............................. 43.4 60.3 116.3
Earnings from continuing operations before income
taxes................................................ 204.8 115.6 280.1
Net earnings from continuing operations (a)............ 122.0 86.3 216.5
Net earnings per common share from continuing
operations(a)........................................ $ 2.01 $ 1.65 $ 4.03
</TABLE>
- ---------------
(a) Includes gains and losses on sales of investments. Management believes that
reported results which include these transactions are not indicative of
future results of operations. Excluding these transactions, pro forma
earnings from continuing operations were as follows (in millions, except per
share amounts).
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, YEAR ENDED
------------------------ DECEMBER 31,
1996 1995 1995
---------- --------- -----------
<S> <C> <C> <C>
Net earnings from continuing operations............ $108.0 $75.9 $146.3
Net earnings per common share from
continuing operations............................ $ 1.78 $1.44 $ 2.72
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
------------------------------------------
ADJUSTED PRO FORMA
HISTORICAL FOR OFFERING
HISTORICAL (B) (C)
---------- ----------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Total assets......................................... $14,820.9 $14,958.4 $15,030.5
Long-term debt....................................... 678.0 665.3 565.3
Minority interest.................................... 301.9 307.9 307.9
Preferred securities of trust subsidiaries........... -- -- 175.0
Shareholders' equity................................. 1,395.5 1,539.7 1,536.8
Long-term debt as a percentage of total
capitalization..................................... 28.5 % 26.5% 21.9%
</TABLE>
- ---------------
(b) Adjusted to reflect the retirement of $12.7 million in debt during July and
August 1996, and a net gain of approximately $145 million on AFG's sale of
Citicasters Inc. in September 1996.
(c) Assumes $52.9 million of the proceeds from this Offering are used to retire
$50 million of AFC debt and $50 million of the proceeds from AAG's planned
sale of $75 million of Trust Originated Preferred Securities are used to
retire its debt and the balance of proceeds from the offerings are used for
general corporate purposes. See "Capitalization."
8
<PAGE> 10
RISK FACTORS
Prospective purchasers of Preferred Securities should consider carefully
all of the information contained in this Prospectus including the information in
the documents incorporated by reference and, in particular, should evaluate the
specific factors set forth below for risks involved with an investment of the
Preferred Securities.
RANKING OF SUBORDINATE OBLIGATIONS UNDER THE TRUST GUARANTEE AND SUBORDINATED
DEBENTURES
The Company's obligations under the Trust Guarantee are unsecured and will
rank (i) subordinate and junior in right of payment to all other liabilities of
the Company except those made pari passu or subordinate by their terms, (ii)
pari passu with the most senior preferred or preference stock now or hereafter
issued by the Company, and with any guarantee now or hereafter issued by the
Company in respect of any preferred stock or preference stock of any affiliate
of the Company, and (iii) senior to the Company's common stock.
The obligations of the Company under the Subordinated Debentures are
unsecured and will rank subordinate and junior in right of payment, to the
extent set forth herein, to all present and future Senior Indebtedness of the
Company and will be structurally subordinated to all existing and future
liabilities and obligations of the Company's subsidiaries. The obligations of
the Company under the Subordinated Debentures will at all times be senior to
common and preferred equity of the Company. At June 30, 1996, the aggregate
amount of Senior Indebtedness and liabilities and obligations of the Company's
subsidiaries that would have effectively ranked senior to the Subordinated
Debentures was approximately $13.4 billion. There are no terms in the Preferred
Securities, the Subordinated Debentures or the Trust Guarantee that limit the
ability of the Company or any of its subsidiaries to incur additional
indebtedness, liabilities or obligations, including indebtedness, liabilities or
obligations that rank senior to the Subordinated Debentures and the Trust
Guarantee. See "Description of Trust Guarantee -- Status of the Trust Guarantee"
and "Description of the Subordinated Debentures -- Subordination."
ENFORCEMENT OF CERTAIN RIGHTS BY HOLDERS OF THE PREFERRED SECURITIES
If a Declaration Event of Default (as defined herein) occurs and is
continuing, then the holders of Preferred Securities would rely on the
enforcement by the Property Trustee of its rights as a holder of the
Subordinated Debentures against the Company. The holders of a majority in
liquidation amount of the Preferred Securities will have the right to direct the
time, method and place of conducting any proceeding for any remedy available to
the Property Trustee or to direct the exercise of any trust or power conferred
upon the Property Trustee under the Declaration, including the right to direct
the Property Trustee to exercise the remedies available to it as a holder of the
Subordinated Debentures. If the Property Trustee fails to enforce its rights
with respect to the Subordinated Debentures held by the Trust, any record holder
of Preferred Securities may institute legal proceedings directly against the
Company to enforce the Property Trustee's rights under such Subordinated
Debentures without first instituting any legal proceedings against such Property
Trustee or any other person or entity. In addition, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest, principal or other required payments on
the Subordinated Debentures issued to the Trust on the date such interest,
principal or other payment is otherwise payable, then a record holder of
Preferred Securities may institute a proceeding directly against the Company for
enforcement of payment of the Subordinated Debentures having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities held by
such holder (a "Direct Action") on or after the respective due dates specified
in the Subordinated Debentures. In connection with such Direct Action, the
Company will be subrogated to the rights of such record holder of Preferred
Securities to the extent of any payment made by the Company to such record
holder of Preferred Securities. The record holder in the case of the issuance of
one or more global Preferred Securities certificates will be The Depository
Trust Company acting at the direction of the beneficial owners of the Preferred
Securities. The holders of Preferred Securities will not be able to exercise
directly any other remedy available to the holders of the Subordinated
Debentures unless the Property Trustee fails to do so. See "Description of the
Preferred Securities -- Declaration Events of Default" and "Description of the
Subordinated Debentures -- Indenture Events of Default."
9
<PAGE> 11
TRUST DISTRIBUTIONS DEPENDENT ON THE COMPANY'S PAYMENTS ON SUBORDINATED
DEBENTURES
The Trust's ability to make distributions and other payments on the
Preferred Securities is entirely dependent upon the Company making interest and
other payments on the Subordinated Debentures. If the Company were not to make
payments on the Subordinated Debentures for any reason, including as a result of
the Company's election to defer the payment of interest on the Subordinated
Debentures by extending the interest payment period on the Subordinated
Debentures, the Trust will not make payments on the Trust Securities. In such an
event, holders of the Preferred Securities would not be able to rely on the
Trust Guarantee because distributions and other payments on the Preferred
Securities are subject to such Trust Guarantee only if and to the extent that
the Trust has funds available therefor. See "Description of Trust
Guarantee -- General" and "Effect of Obligations Under the Subordinated
Debentures and the Trust Guarantee."
OPTION TO EXTEND INTEREST PAYMENT PERIOD OR CHANGE MATURITY DATE
The Company has the right under the Indenture to (a) defer payments of
interest on the Subordinated Debentures by extending the interest payment period
at any time, and from time to time, on the Subordinated Debentures or (b) extend
or shorten the maturity date of the Subordinated Debentures. See "Description of
the Subordinated Debentures -- Option to Change Scheduled Maturity Date" and
"Description of the Subordinated Debentures -- Option to Extend Interest Payment
Period." As a consequence of an extension of the interest payment period,
quarterly distributions on the Preferred Securities would be deferred (but
despite such deferral, to the extent permitted by law, would continue to accrue
with interest thereon compounded quarterly) by the Trust during any such
Extension Period. The Company has the right to defer payments of interest on the
Subordinated Debentures, from time to time, but no Extension Period may be more
than 20 consecutive quarters or extend beyond the Maturity Date (as defined
herein) of the Subordinated Debentures. There could be multiple Extension
Periods of varying lengths during the term of the Subordinated Debentures. In
the event that the Company exercises this right to defer interest payments,
then, prior to the payment of all accrued interest on outstanding Subordinated
Debentures, (a) the Company shall not declare or pay dividends on, or make a
distribution with respect to, or redeem, purchase or acquire, or make a
liquidation payment with respect to, any of its capital stock and (b) the
Company shall not, directly or indirectly, and will not allow any of its
subsidiaries to, make any payment of interest, principal or premium, if any, on
or repay, repurchase or redeem any debt securities issued by the Company that
rank pari passu with or junior to the Subordinated Debentures; provided,
however, that the restriction in clause (a) above does not apply to any stock
dividends paid by the Company where the dividend stock is the same stock as that
on which the dividend is being paid. Prior to the termination of any such
Extension Period, the Company may further extend the interest payment period;
provided that each Extension Period, if any, may not exceed 20 consecutive
quarters or extend beyond the Maturity Date of the Subordinated Debentures. Upon
the termination of any Extension Period and the payment of all amounts then due,
the Company may commence a new Extension Period, subject to the above
requirements. Consequently, there could be multiple Extension Periods of varying
lengths prior to the Maturity Date of the Subordinated Debentures. The Company
has no current intention of exercising its right to defer payments of interest
by extending the interest payment period on the Subordinated Debentures.
However, should the Company determine to exercise such right in the future, the
market price of the Preferred Securities is likely to be adversely affected. See
"Description of the Preferred Securities -- Distributions" and "Description of
the Subordinated Debentures -- Option to Extend Interest Payment Period."
TAX CONSEQUENCES OF EXTENSION OF INTEREST PAYMENT PERIOD
Should the Company exercise its right to defer payments of interest by
extending the interest payment period, each holder of Preferred Securities will
accrue income (as original issue discount ("OID")) in respect of the deferred
interest allocable to its Preferred Securities for United States federal income
tax purposes. Such income will be allocated but not distributed to holders of
the Preferred Securities. As a result, each such holder of the Preferred
Securities will recognize income for United States federal income tax purposes
in advance of the receipt of cash and will not receive the cash from the Trust
related to such income if such holder disposes of its Preferred Securities prior
to the record date for the date on which distributions of such
10
<PAGE> 12
amounts are made. A holder that disposes of its Preferred Securities during an
Extension Period, therefore, might not receive the same return on its investment
as a holder that continues to hold its Preferred Securities. In addition, as a
result of the existence of the Company's right to defer interest payments, the
market price of the Preferred Securities (which represent an undivided
beneficial interest in the Subordinated Debentures) may be more volatile than
other securities that do not have such feature. See "United States Federal
Income Taxation -- Interest Income and Original Issue Discount."
SPECIAL EVENT REDEMPTION
Upon the occurrence of a Special Event, the Company will have the right to
redeem the Subordinated Debentures, in whole (but not in part), in which event
the Trust will redeem all outstanding Trust Securities. See "Description of the
Preferred Securities -- Special Event Redemption."
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, the Company will have the right to terminate the Trust and,
after satisfaction of the liabilities to creditors of the Trust as provided by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Preferred Securities in liquidation of the Trust. Under current
United States federal income tax law and interpretation and assuming, as
expected, the Trust is treated as a grantor trust, a distribution of the
Subordinated Debentures should not be a taxable event to holders of the
Preferred Securities. Should there be a change in law, a change in legal
interpretation, a Special Event or other circumstances, however, the
distribution could be a taxable event to the holders of the Preferred
Securities. In addition, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation -- Receipt of Subordinated Debentures or
Cash Upon Liquidation of the Trust."
If the Company elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company shall have the right to shorten the
maturity of such Subordinated Debentures to a date not earlier than
, 2001 or extend the maturity of such Subordinated Debentures to a
date which is not later than the earlier of (i) , 2045 or (ii) the
Interest Deduction Date, provided that it can extend the maturity only if
certain conditions are met. See "Description of the Subordinated
Debentures -- Option to Change Scheduled Maturity Date."
There can be no assurance as to the market prices for the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for Preferred Securities if a dissolution or liquidation of the Trust were to
occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that a holder of Preferred Securities may receive on
dissolution and liquidation of the Trust, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby. In
addition, because the Company has the right to shorten or extend the maturity of
the Subordinated Debentures upon the termination of the Trust and the
distribution of the Subordinated Debentures to the holders of the Preferred
Securities, there can be no assurance that the Company will not exercise its
option to change the maturity of the Subordinated Debentures upon such an event.
Because holders of Preferred Securities may receive Subordinated Debentures upon
any election by the Company to liquidate the Trust and cause the Subordinated
Debentures to be distributed to the holders of the Preferred Securities,
prospective purchasers of Preferred Securities are also making an investment
decision with regard to the Subordinated Debentures and should review carefully
all the information regarding the Subordinated Debentures and the Company
contained herein and in the accompanying Prospectus. See "Description of the
Preferred Securities -- Distribution of the Subordinated Debentures" and
"Description of the Subordinated Debentures."
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's fiscal 1997 budget proposal, was
released. The Bill would, among other things, generally
11
<PAGE> 13
deny interest deductions for interest or OID on an instrument issued by a
corporation that has a maximum weighted average maturity of more than 40 years.
The Bill would also treat as equity, instruments issued by a corporation that
have a maximum term of more than 20 years and that are not shown as indebtedness
on the consolidated balance sheet of the issuer. For purposes of determining the
weighted average maturity or the term of an instrument, any right to extend
would be treated as exercised. The above-described provisions of the Bill were
proposed to be effective generally for instruments issued on or after December
7, 1995. However, on March 29, 1996, the Chairmen of the Senate Finance and
House Ways and Means Committees issued a joint statement (the "Joint Statement")
to the effect that it was their intention that the effective date of the
President's legislative proposals, if adopted, would be no earlier than the date
of appropriate Congressional action. In addition, subsequent to the publication
of the Joint Statement, Senator Daniel Patrick Moynihan and Representatives Sam
M. Gibbons and Charles B. Rangel wrote letters to Treasury Department officials
concurring with the views expressed in the Joint Statement. Under current law,
it is likely that the Subordinated Debentures will be treated as indebtedness of
the Company and the Company will be able to deduct interest on the Subordinated
Debentures beneficially held by the holders of the Preferred Securities. The
terms of the Subordinated Debentures limit the Company's right to extend the
maturity of the Subordinated Debentures to a date which is six months shorter
than any legislative limit on the length of debt securities for which interest
is deductible. Based on the advice of tax counsel, the Company believes this
will allow it an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, the Company will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals, adverse judicial decisions, final
legislation or official administrative pronouncements will not affect the
ability of the Company to deduct interest on the Subordinated Debentures, giving
rise to a Tax Event (as defined below) which would permit the Company to cause
the redemption of the Preferred Securities prior to , 2001 (the
first date on which the Company would otherwise be able to cause a redemption of
the Preferred Securities). See "Description of the Preferred
Securities -- Special Event Redemption" and "United States Federal Income
Taxation."
PREPAYMENT CONSIDERATIONS; OPTION TO CHANGE SCHEDULED MATURITY DATE
At the option of the Company, the Subordinated Debentures may be redeemed,
in whole or in part, at any time on or after , 2001, at a redemption
price equal to 100% of the principal amount to be redeemed plus any accrued and
unpaid interest to the redemption date. See "Description of the Subordinated
Debentures -- Optional Redemption." Investors in the Preferred Securities should
assume that the Company will exercise its redemption option if the Company is
able to refinance at a lower interest rate or it is otherwise in the interest of
the Company to redeem the Subordinated Debentures. If Subordinated Debentures
are redeemed, the Trust must redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of Subordinated
Debentures so redeemed. See "Description of the Preferred
Securities -- Mandatory Redemption."
The Company also has the option to extend the maturity date of the
Subordinated Debentures for one or more periods, but in no event to a date later
than the earlier of (i) , 2045 or (ii) the Interest Deduction Date,
provided certain financial conditions are met. See "Description of the
Subordinated Debentures -- Option to Change Scheduled Maturity Date." Investors
in the Preferred Securities should assume that the Company will exercise its
option to extend the term if the Company is unable to refinance at a lower
interest rate or it is otherwise in the interest of the Company to defer the
maturity of the Subordinated Debentures. The Preferred Securities will not be
redeemed until the Subordinated Debentures have been repaid or redeemed. See
"Description of the Preferred Securities -- Mandatory Redemption."
LIMITED VOTING RIGHTS
Holders of Preferred Securities will have only limited voting rights,
primarily in connection with directing the activities of the Property Trustee as
the holder of the Subordinated Debentures. Such holders will not be entitled to
vote to appoint, remove or replace, or to increase or decrease the number of,
the Trustees (as
12
<PAGE> 14
defined herein). Voting rights with respect to Trustee matters are vested
exclusively in the holder of the Common Securities. See "Description of the
Preferred Securities -- Voting Rights."
TRADING PRICE
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. If the Company exercises its right to defer payments of
interest, a holder who disposes of Preferred Securities between record dates for
payments of distributions thereon will be required to include as ordinary income
OID on the Subordinated Debentures accrued through the date of disposition, and
to add such amount to its adjusted tax basis in its pro rata share of the
underlying Subordinated Debentures deemed disposed of. To the extent the selling
price is less than the holder's adjusted tax basis (which will include, in the
form of OID, all accrued but unpaid interest), a holder will recognize a capital
loss. Subject to certain limited exceptions, capital losses cannot be applied to
offset ordinary income for United States federal income tax purposes. Accrual
basis taxpayers would be subjected to similar treatment without regard to the
Company's election to defer. See "United States Federal Income
Taxation -- Interest Income and Original Issue Discount" and "United States
Federal Income Taxation -- Sales of Preferred Securities."
ABSENCE OF PUBLIC MARKET FOR SECURITIES
Since the Preferred Securities will be newly issued, there is no current
market for them. The Company has applied for listing of the Preferred Securities
on the NYSE, but there can be no assurance that the applicable listing
requirements of any such exchange will be met. There can be no assurance that
there will be an active trading market for the Preferred Securities.
HOLDING COMPANY STRUCTURE; DIVIDEND RESTRICTIONS
The Company and two of its direct subsidiaries, APU and AFC, are organized
as holding companies with almost all of their operations being conducted by
subsidiaries. These parent corporations, however, have continuing expenditures
for administrative expenses, corporate services, the payment of principal and
interest on borrowings and, with respect to AFC, for dividends on AFC preferred
stock. The Company, AFC and APU rely primarily on dividends and tax payments
from their subsidiaries for funds to meet their obligations.
Payments of dividends by the insurance subsidiaries of AFC and APU are
subject to various laws and regulations which limit the amount of dividends that
can be paid without prior approval from the applicable state Department of
Insurance. In June 1996, AFC received a dividend from GAI of $120 million.
Without prior Department of Insurance approval, no additional dividends may be
paid by GAI during 1996. The maximum dividend that can be paid in 1996 by
insurance subsidiaries of APU is approximately $80 million of which $4 million
was paid through June 30, 1996. The maximum dividend permitted by law is not
necessarily indicative of an insurer's actual ability to pay dividends, which
may be further affected 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, each state Department of Insurance has
broad discretion to limit the payment of dividends by insurance companies
domiciled in that state.
The Company believes that the amounts currently available through dividends
and tax payments without approval are sufficient to meet the expenses of the
Company, AFC and APU, including the interest the Company will pay on the
Subordinated Debentures. A prolonged material decline in insurance subsidiary
profits or materially adverse insurance regulatory developments, however, could
subject the Company, AFC or APU to shortages of cash because of their inability
to receive dividends from subsidiaries.
CYCLICALITY OF THE INSURANCE INDUSTRY; IMPACT OF CATASTROPHES
The Company's insurance subsidiaries operate in a highly competitive
industry that is affected by many factors which can cause significant
fluctuations in their results of operations. The Company's insurance
13
<PAGE> 15
operations are 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 nine years. The underwriting results for the Company's
property and casualty operations have been adversely affected by this downcycle,
particularly resulting in unfavorable pricing in certain standard commercial
lines of business.
As with other property and casualty insurers, the Company's operating
results can be adversely affected by unpredictable catastrophe losses. The
Company'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 have included Hurricane Fran in September 1996,
hailstorms in Texas in the second quarter of 1995; the Northridge earthquake in
Southern California and the winter storms in the South and Northeast in 1994;
winter storms and flooding in the Midwest in 1993; Hurricanes Andrew and Iniki,
Chicago flooding and Los Angeles civil disorder in 1992. Total net losses to the
Company's insurance operations from catastrophes were $44 million during the
first six months of 1996; $70 million in 1995; $56 million in 1994; $30 million
in 1993; and $45 million in 1992. While it is too soon to determine the ultimate
loss from Hurricane Fran, the Company estimates that its loss will be between
$30 million and $40 million, net of reinsurance.
REGULATION
AFG'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 under "Holding Company Structure; Dividend Restrictions") 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. 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 failure to obtain, or
delay in obtaining, the required approvals could have an adverse impact on the
operations of the Company's insurance subsidiaries.
The National Association of Insurance Commissioners ("NAIC") has adopted
the Risk Based Capital For Insurers Model Act (the "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 in 1994 for property and casualty companies.
RATINGS; COMPETITION
A.M. Best, publisher of Best's Insurance Reports, Property-Casualty, has
given AFC's principal insurance subsidiary, Great American Insurance Company
("GAI"), a rating of A (Excellent). Although some of the large insurance
companies against which GAI competes have higher ratings, management believes
that the current rating is adequate to enable GAI to compete successfully. A
downgrade in the A.M. Best rating below A (Excellent) could adversely affect the
competitive position of GAI.
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<PAGE> 16
The four major operating units in the Company's Non-Standard Automobile
Insurance Group ("NSA Group") are Atlanta Casualty Company ("Atlanta Casualty"),
Windsor Insurance Company ("Windsor"), Infinity Insurance Company ("Infinity")
and Leader National Insurance Company ("Leader National") and their respective
subsidiaries. In November 1995, A.M. Best downgraded its ratings of Atlanta
Casualty, Windsor and Republic Indemnity Company of America, an APU subsidiary
which writes principally workers compensation insurance in California ("Republic
Indemnity") from A+ (Superior) to A (Excellent) and affirmed its ratings of A
(Excellent) for Infinity and A- (Excellent) for Leader National. In announcing
the rating adjustments of these companies, A.M. Best expressed its opinion that
each of these new ratings primarily reflects the significant financial leverage
of AFG. A further downgrade in the A.M. Best rating for any of these companies
could adversely affect the competitive position of such companies.
Great American Life Insurance Company ("GALIC"), the principal insurance
subsidiary of AAG, is rated A (Excellent). Management believes that a rating in
the "A" category is necessary to market successfully tax-deferred annuities to
public education employees and other not-for-profit groups, the markets in which
GALIC competes. A downgrade in the A.M. Best rating below the "A" category could
materially and adversely affect the competitive position of GALIC.
American Memorial Life Insurance Company (formerly Prairie States Life
Insurance Company) and Loyal American Life Insurance Company, which have
recently become subsidiaries of GALIC, are rated B+ (Very Good) and A-
(Excellent) by A.M. Best, respectively. A downgrade in the A.M. Best rating for
either of these companies could adversely affect the competitive position of
such companies.
CALIFORNIA WORKERS' COMPENSATION MARKET
Republic Indemnity's insurance activities are regulated by the California
Department of Insurance for the benefit of policyholders. Prior to January 1,
1995, minimum premium rates for workers' compensation insurance were determined
by the California Insurance Commissioner based in part upon recommendations of
the Workers' Compensation Insurance Rating Bureau of California. In July 1993,
California enacted legislation effecting an immediate overall 7% reduction in
workers' compensation insurance premium rates and replaced the workers'
compensation insurance minimum rate law, effective January 1, 1995, with a
procedure permitting insurers to use any rate within 30 days after its filing
with the California Insurance Commissioner unless the rate is disapproved by the
California Insurance Commissioner. Since December 1, 1993 and before the "open
rating" policy went into effect on January 1, 1995, the California Insurance
Commissioner ordered rate decreases totaling more than 25%. Republic Indemnity's
net written premiums declined 40% for 1995 and 30% during the first six months
of 1996. Republic Indemnity has encountered extremely competitive pricing in the
marketplace. Republic Indemnity has continued to operate on a profitable basis,
but no assurance can be given that it can continue to do so in light of adverse
conditions in the California workers' compensation market.
INVESTMENT PORTFOLIO; EFFECTS OF CHANGES IN INTEREST RATES
The Company's investment portfolio consists primarily of fixed maturity
securities, such as investment grade, publicly traded corporate debt securities
and mortgage-backed securities, including collateralized mortgage obligations
("CMOs"). At June 30, 1996, 94% of the Company's marketable securities was
invested in fixed maturity securities, of which approximately 25% was invested
in mortgage-backed securities. Certain risks are inherent in connection with
fixed maturity securities, including loss upon default and price volatility in
reaction to changes in interest rates and general market factors. Certain
additional risks are inherent with mortgage-backed securities, including the
risks associated with reinvestment of proceeds due to prepayments of such
obligations in a period of declining interest rates.
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<PAGE> 17
ANNUITY PRODUCT CONCENTRATION; POTENTIAL IMPACT OF CHANGES IN FEDERAL INCOME TAX
TREATMENT OF ANNUITY PRODUCTS
GALIC's business is primarily the sale of flexible premium deferred
annuities ("FPDAs") and single premium deferred annuities ("SPDAs"). The
majority of the FPDAs issued by GALIC are to employees of qualified
not-for-profit organizations under Section 403(b) of the Internal Revenue Code
of 1986, as amended (the "Code"). These employees are eligible to save for
retirement through tax deductible contributions. The majority of SPDAs issued by
GALIC have resulted from rollovers of tax-deferred funds previously maintained
by policyholders with other insurers.
Current federal income tax laws generally permit the tax-deferred
accumulation of earnings on the premiums paid by an annuitant. Taxes are payable
on the accumulated tax-deferred earnings when those earnings are paid to the
annuitant. If the federal income tax laws were to change so that accumulated
earnings on annuity products do not enjoy the tax deferral described above, or
such that other savings and investment products were to achieve similar tax
deferral status, or such that tax rates were significantly lowered so that the
annuitant's ability to deduct contributions and to defer income tax on annuity
earnings were no longer significant factors for the policyholder, consumer
demand for the affected annuity products could decline materially. From time to
time, proposals to one or more of these effects have been made in Congress and
no assurance can be given that a tax law change will not occur in the future. If
the demand for its annuity products were to decrease significantly for any
reason, GALIC's operations and financial condition could be materially and
adversely affected.
In August 1996, a new federal law became effective which expanded the
ability of not-for-profit organizations to offer non-qualified deferred
compensation plans to their employees. The full impact of this change is
impossible to predict. However, if the increased availability of these plans
reduces the demand for annuities qualified under Section 403(b) of the Code, the
Company's business could be adversely affected.
ADEQUACY OF INSURANCE LOSS RESERVES
The insurance subsidiaries of AFG 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 management's projections 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, AFG'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").
Consequently, in these specialty lines a higher proportion of ultimate losses is
considered incurred but not reported, and fluctuations in loss development are
more likely than in standard commercial lines of business.
Certain of AFG's insurance subsidiaries face liabilities for asbestos and
environmental claims arising out of general liability and commercial multi-peril
policies issued by GAI prior to the early 1980's when providing coverage for
such exposures was not specifically contemplated by GAI's policies ("A&E").
The insurance industry typically includes only claims relating to polluted
waste sites and asbestos in defining environmental exposures. GAI extends its
definition of A&E claims to include claims relating to breast implants,
repetitive stress on keyboards, DES (a drug used in pregnancies years ago
alleged to cause cancer and birth defects) and other latent injuries.
Establishing reserves for A&E claims is subject to uncertainties that are
greater than those presented by other types of claims. Factors contributing to
those uncertainties include a lack of sufficiently detailed historical data,
long reporting delays, uncertainty as to the number and identity of insureds
with potential exposure, unresolved legal issues regarding policy coverage and
the extent and timing of any such contractual
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<PAGE> 18
liability. Courts have reached different and sometimes inconsistent conclusions
as to when a loss is deemed to have occurred, what policies provide coverage,
what claims are covered, whether there is an insured obligation to defend, how
policy limits are determined and other policy provisions. Management believes
these issues are not likely to be resolved in the near future and that, as a
result, a reasonable estimate of ultimate liability for A&E exposure is not
possible at this time.
GAI's A&E reserves (net of reinsurance recoverable) at December 31, 1995
were approximately $220 million. In September 1996, AFG reported that it had
decided to strengthen its A&E reserves. Based upon recent insurance industry
studies of A&E exposure and revised standards for reserving such claims, the
Company has determined that an increase of its A&E reserves is appropriate. AFG
estimates that its reserves for A&E at September 30, 1996 will be about $340
million, an amount expected to be approximately 11 times the preceding three
years' average claim payments. This action with respect to A&E reserves will
result in a third quarter, non-cash, pretax charge of approximately $80 million.
AFG 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 development require increases in reserves
previously established for prior periods.
REINSURANCE
AFG relies to a certain extent on the use of reinsurance to limit the
amount of risk it retains. The availability and cost of reinsurance are subject
to prevailing market conditions which are beyond the Company's control and which
may affect its level of business and profitability. AFG is subject to credit
risk with respect to its reinsurers, as the ceding of risk to reinsurers does
not relieve AFG of its liability to insureds. As of December 31, 1995, AFG had
reinsurance recoverables of approximately $788 million, representing estimated
amounts recoverable from reinsurers pertaining to paid and unpaid claims, claims
incurred but not reported and prepaid reinsurance premiums.
USX LITIGATION
In May 1994, lawsuits were filed against APU by USX Corporation ("USX") and
its former subsidiary, Bessemer and Lake Erie Railroad Company ("B&LE"), seeking
contribution by APU, as the successor to the railroad business conducted by Penn
Central Transportation Company, APU's predecessor ("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 in 1991 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. APU argued that the lawsuits were barred by an order issued in
connection with PCTC's 1978 bankruptcy reorganization.
In May 1996, the U.S. Supreme Court declined to hear APU's petition with
respect to the bankruptcy bar issue, thereby permitting USX's lawsuits to
proceed. APU and its outside counsel continue to believe that APU has
substantial defenses and should not suffer a material loss as a result of this
litigation.
CONCENTRATION OF CERTAIN EQUITY INVESTMENTS
Because of its significant ownership percentage of the voting stock of
Chiquita Brands International, Inc. ("Chiquita") and Citicasters Inc.
("Citicasters"), AFG utilizes the equity method of accounting for these
companies. Under this method, AFG has included in its results its proportionate
share of the investees' earnings and losses. At June 30, 1996, the carrying
values of AFG's investments in Chiquita and Citicasters were $252.3 million and
$75.5 million, respectively. In September 1996, the Company sold its entire
investment in Citicasters to Jacor Communications, Inc. ("Jacor") for
approximately $220 million in cash and certain warrants to purchase Jacor common
stock, resulting in a net gain of approximately $145 million.
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<PAGE> 19
From 1984 to 1991, Chiquita reported a continuous record of growth in
annual earnings. In 1992, 1993 and 1994, however, Chiquita reported net losses.
In 1995, Chiquita reported net income of $9 million. The following factors
relate to Chiquita's business.
Approximately 60% of Chiquita's consolidated net sales comes from the sale
of bananas. Banana marketing is highly competitive. Prices which sellers 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 competitors. Excess
supplies may result in increased price competition. Although production of
bananas tends to be relatively stable throughout the year, competition in the
sale of bananas comes not only from bananas sold by others, but also from other
fresh fruit which may be seasonal in nature. The resulting seasonal variations
in demand cause banana pricing to be seasonal. As a result, quarterly results of
Chiquita, and therefore AFG's equity in Chiquita's earnings, are subject to
significant seasonal variations with stronger quarterly results occurring in the
first six months of the calendar year. Chiquita reported net income of $62.0
million for the six months ended June 30, 1996.
On July 1, 1993, the European Union ("EU") implemented a new quota
restricting the volume of Latin American bananas imported into the EU, which had
the effect of decreasing Chiquita's volume and market share in Europe. The quota
regime grants preferred status to producers and importers within the EU and its
former colonies, while imposing quotas and tariffs on bananas imported from
other sources, including Latin America, Chiquita's primary source of fruit. In
March 1994, four countries which had previously filed actions against the EU
banana policy (Costa Rica, Colombia, Nicaragua and Venezuela) reached a
settlement with the EU by signing a "Framework Agreement." The Framework
Agreement authorizes the imposition of additional restrictive and discriminatory
quotas and export licenses on U.S. banana marketing firms, while leaving certain
EU firms exempt. Costa Rica and Colombia began implementing the Framework
Agreement in early 1995, resulting in increased costs to Chiquita to export
bananas from these sources.
Several challenges to the EU regime have resulted in findings that its
practices and regulations are illegal and discriminatory. In February 1996, the
United States Government, joined by Equador, Guatemala, Honduras and Mexico,
commenced a new international trade challenge against the EU regime using the
procedures of the World Trade Organization ("WTO"). A WTO panel is reviewing the
matter and is expected to render its decision by late January, 1997. Subject to
limited appeal procedures, any ruling by the WTO must be implemented within a
"reasonable" time. However, there can be no assurance as to the outcome of these
proceedings or their impact, if any, on the EU quota regime or the Framework
Agreement.
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, fluctuations in exchange
rates, currency restrictions and other restraints, risks of expropriation and
burdensome taxes.
THE TRUST
The Trust is a statutory business trust formed under Delaware law pursuant
to the Declaration and the filing of a certificate of trust with the Secretary
of State of Delaware on September 13, 1996. The Declaration will be qualified as
an indenture under the Trust Indenture Act of 1939, as amended (the "Trust
Indenture Act"). Upon issuance of the Preferred Securities, the Company will
directly or indirectly acquire Common Securities which will represent at least
3% of the total capital of the Trust and will own all of the issued and
outstanding Common Securities. The Trust exists for the exclusive purposes of
(i) issuing the Trust Securities representing undivided beneficial interests in
the assets of the Trust, (ii) investing the gross proceeds of the Trust
Securities in the Subordinated Debentures and (iii) engaging in only those other
activities necessary or incidental thereto.
Pursuant to the Declaration, the number of the Trustees will initially be
four. The two Regular Trustees will be persons who are employees or officers of,
or who are affiliated with, the Company. The Property Trustee will be a
financial institution unaffiliated with the Company that will serve as property
trustee under the Declaration and as indenture trustee for the purposes of the
Trust Indenture Act. The Delaware Trustee will be a natural person who is a
resident of the State of Delaware or a legal entity which maintains its
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<PAGE> 20
principal place of business in the State of Delaware. The Bank of New York will
act as the Property Trustee and The Bank of New York (Delaware), an affiliate of
the Property Trustee, will act as the Delaware Trustee, in each case until
removed or replaced by the holder of the Common Securities. The Bank of New York
will also act as indenture trustee under the Trust Guarantee (the "Preferred
Securities Guarantee Trustee"). See "Description of Trust Guarantee."
The Property Trustee will hold title to the Subordinated Debentures for the
benefit of the Trust and the holders of the Trust Securities and, so long as the
Subordinated Debentures are held by the Trust, the Property Trustee will have
the power to exercise all rights, powers, and privileges of a holder of
Subordinated Debentures under the Indenture (as defined in "Description of the
Subordinated Debentures" herein). In addition, the Property Trustee will
maintain exclusive control of a segregated non-interest bearing bank account
(the "Property Account") to hold all payments made in respect of the
Subordinated Debentures for the benefit of the holders of the Trust Securities.
The Property Trustee will make payments of distributions and payments on
liquidation, redemption and otherwise to the holders of the Trust Securities out
of funds from the Property Account. The Preferred Securities Guarantee Trustee
will hold the Trust Guarantee for the benefit of the holders of the Preferred
Securities.
The Company, as the direct or indirect holder of all the Common Securities,
will have the right to appoint, remove or replace any Trustee (subject to the
limitations set forth in the Declaration) and to increase or decrease the number
of the Trustees. The Company will pay all fees, expenses, debts and obligations
(other than with respect to the Trust Securities) related to the Trust and the
offering of the Trust Securities. See "Description of the Preferred Securities."
The rights of the holders of the Preferred Securities, including economic
rights, rights to information and voting rights, are set forth in the
Declaration, the Delaware Business Trust Act, as amended (the "Trust Act"), the
Indenture and the Trust Indenture Act. See "Description of the Preferred
Securities."
THE COMPANY
OVERVIEW
American Financial Group, Inc. is a holding company which, through its
subsidiaries, is engaged primarily in specialty and multi-line property and
casualty insurance businesses and in the sale of tax-deferred annuities. AFG's
property and casualty operations originated in 1872 and are the seventeenth
largest property and casualty group in the United States based on 1995 statutory
net premiums written of $3.1 billion. At June 30, 1996, the Company had total
assets of $14.8 billion and shareholders' equity of $1.4 billion.
The Company's strategy is to build shareholder value as a property and
casualty insurance and annuity specialist by:
- Concentrating on specialty insurance lines. Approximately 35% of
1995 property and casualty statutory net premiums written were from lines
of business which the Company considers to be specialty insurance lines.
Management believes that such lines offer greater profit potential for AFG
and added value for its customers. The Company's annuity business similarly
concentrates on specialty business, marketing annuities principally to
employees of primary and secondary educational institutions and hospitals,
and recently has expanded by acquisition into the financial institution,
payroll deduction and pre-need funeral markets.
- Achieving superior underwriting results. AFG's property and casualty
insurance operations have operated at a lower combined ratio than the
property and casualty insurance industry in each of the last ten years.
Management believes that its record of producing superior underwriting
results can be attributed to its concentration on specialty insurance
lines, pricing discipline, focus on profitability rather than premium
growth and management compensation plans that reward unit managers based
primarily on underwriting results.
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- Operating on a decentralized basis. The Company's insurance business
is conducted through approximately 30 separate business units. Each unit
has independent management with significant operating autonomy to oversee
the important operational functions of the business unit, including
underwriting, pricing, marketing, policy processing and claims service.
Management believes that operating on a decentralized basis promotes
creativity and entrepreneurship within the Company, enhances its ability to
act quickly and opportunistically in each of its insurance markets, enables
the Company to provide a high level of service to its insureds and, as a
result, has contributed to the Company's record of superior underwriting
performance.
- Continuing to strengthen its balance sheet. Since the Merger, the
Company has reduced its debt to capital ratio from 58.4% to 28.5% at June
30, 1996. See "Capitalization."
PROPERTY AND CASUALTY INSURANCE OPERATIONS
The Company manages and operates its property and casualty insurance
business in three major business segments: Non-Standard Automobile Insurance;
Specialty Lines; and Commercial and Personal Lines. Each segment is comprised of
multiple business units which operate autonomously but with strong central
financial controls and full accountability. Decentralized control allows each
unit the autonomy necessary to respond to local and specialty market conditions
while capitalizing on the efficiencies of centralized investment, actuarial,
financial and legal support functions. Management's focus on underwriting
profitability has resulted in a statutory combined ratio averaging 100.9% for
the period 1991 to 1995, as compared to 109.3% for the property and casualty
industry over the same period (Source: A.M. Best Company, Inc. ("A.M. Best")).
The Company's statutory combined ratio for the first six months of 1996 was
99.8%.
NON-STANDARD AUTOMOBILE INSURANCE
AFG's Non-Standard Automobile Insurance group (the "NSA Group") writes
automobile insurance policies for drivers who may represent higher-than-normal
risks due to a record of prior accidents, traffic violations or other factors.
AFG believes that it is the second largest writer of this coverage through
independent agents and the fifth largest overall in the U.S. Management believes
that its careful selection of risks and pricing has contributed to its
underwriting success compared to industry averages. The NSA Group writes
business in 42 states and the United Kingdom.
SPECIALTY LINES
AFG's Specialty Lines insurance operations include a highly diversified
group of over 25 specialty business units offering a wide range of commercial
and specialty coverages. Major lines in this group include California workers'
compensation, executive liability, ocean and inland marine, agricultural-related
coverages, non-profit liability, umbrella and excess and surplus lines.
Specialization is the key element to the underwriting success of these business
units. These specialty lines are opportunistic, and their premium volume will
vary by product based on current market conditions.
COMMERCIAL AND PERSONAL LINES
The Company's Commercial and Personal Lines insurance business consists
primarily of standard automobile and homeowners' insurance and commercial
multi-peril, workers' compensation, umbrella, excess and general liability
insurance. In the Commercial Lines businesses, the Company emphasizes
underwriting profitability by intensely targeting specific customer groups and
markets that have adequate rate level potential and by stressing customer
service and retention of business. In the Personal Lines businesses, the Company
emphasizes the use of market segmentation data to price its products more
accurately for different insureds. In order to improve its underwriting results
in standard personal automobile insurance, the Company is focused on further
refining its market segmentation techniques and implementing selective premium
rate increases where needed. The Company has aggressively reduced exposure to
catastrophes in homeowners' insurance by reducing the number of policies written
in geographic areas that are known to be susceptible to weather-related events
and by increasing policy deductibles.
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ANNUITY OPERATIONS
As a complement to its property and casualty insurance business, the
Company operates an annuity business through its 81% owned subsidiary, American
Annuity Group, Inc. The remaining common stock of AAG is publicly held and
trades on the NYSE. At June 30, 1996, the market capitalization of AAG was
approximately $560 million. AAG's principal insurance subsidiary, GALIC, issues
and services tax-deferred annuities, principally to employees of primary and
secondary educational institutions and hospitals, and, through a subsidiary,
began marketing variable annuities in the fourth quarter of 1995. GALIC had over
$5.6 billion in assets at June 30, 1996, and ranked among the top 5% of all U.S.
stock life insurance companies based on total assets at December 31, 1995.
AAG broadened its distribution channels and product offerings by acquiring
Laurentian Capital Corporation in November 1995. The acquired operations sell
life, accident and health insurance and annuities to the financial institution
and payroll deduction markets and sell individual life insurance and annuity
policies in the pre-need funeral market through AAG's subsidiaries, Loyal
American Life Insurance Company and American Memorial Life Insurance Company
(formerly Prairie States Life Insurance Company).
INVESTMENTS
The Company invests its insurance portfolios in a mix of securities to
balance strong total returns with prudent asset preservation. Investments in
fixed income securities constituted approximately 94% of the Company's
marketable securities at June 30, 1996. Approximately 94% of the bonds and
redeemable preferred stocks held by AFG at that date were rated "investment
grade" (credit rating of AAA to BBB-) by at least one nationally recognized
rating agency.
The Company 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. A large equity position is often considered attractive to persons
seeking to control or influence the policies of a company and AFG believes that
a concentration in a relatively small number of companies 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 certain
companies, AFG utilizes the equity method of accounting in those companies,
which results in AFG including in its results its proportionate share of the
investee's earnings and losses. At June 30, 1996, AFG utilized the equity method
of accounting with respect to its investments of $252.3 million in Chiquita, a
world leader in marketing, processing and producing fresh fruit and vegetables,
and $75.5 million in Citicasters, an owner and operator of radio and television
stations in major metropolitan markets in the United States. In September 1996,
the Company sold its entire investment in Citicasters to Jacor for approximately
$220 million in cash and warrants to purchase Jacor common stock, leaving
Chiquita as the Company's sole investment accounted for utilizing the equity
method of accounting. As of September 13, 1996, the market value of AFG's
investment in Chiquita on the NYSE was $297 million.
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CAPITALIZATION
The following table sets forth the historical capitalization of the Company
at June 30, 1996, as adjusted to give effect to certain third quarter
transactions discussed below and as further adjusted to give pro forma effect to
the sale of Preferred Securities by AFG and the assumed sale of $75 million of
Trust Originated Preferred Securities by AAG.
<TABLE>
<CAPTION>
JUNE 30, 1996
-------------------------------------------
HISTORICAL
HISTORICAL ADJUSTED(A) PRO FORMA(B)
---------- ----------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Long-term debt:
Direct obligations of AFG..................... $ -- $ -- $ --
Obligations of AFG subsidiaries:
American Financial Corporation (parent
only).................................... 175,324 173,365 123,365
American Premier Underwriters (parent
only).................................... 267,888 267,560 267,560
American Annuity Group, Inc................ 170,397 160,022 110,022
Other subsidiaries......................... 64,366 64,366 64,366
---------- ---------- ----------
Total long-term debt..................... 677,975 665,313 565,313
Minority interest(c)............................ 301,871 307,871 307,871
Preferred securities of trust subsidiaries...... -- -- 175,000
Shareholders' equity:
Common Stock, $1.00 par value................. 60,940 60,940 60,940
Capital surplus............................... 755,336 755,336 755,336
Retained earnings............................. 478,937 623,136 620,236
Net unrealized gain on marketable securities,
net of deferred income taxes............... 100,300 100,300 100,300
---------- ---------- ----------
Total shareholders' equity............... 1,395,513 1,539,712 1,536,812
---------- ---------- ----------
Total capitalization............................ $2,375,359 $2,512,896 $2,584,996
========== ========== ==========
Long-term debt as a percentage of total
capitalization................................ 28.5% 26.5% 21.9%
========== ========== ==========
</TABLE>
- ---------------
(a) Adjusted to reflect the retirement of $12.7 million in debt during July and
August, 1996 and a net gain of approximately $145 million on AFG's sale of
Citicasters in September 1996.
(b) Assumes that $52.9 million of the proceeds from this Offering are used to
retire $50 million of AFC debt and $50 million of the proceeds from the
separate AAG offering of Trust Originated Preferred Securities are used to
retire its debt and the balance of the proceeds from the offerings are used
for general corporate purposes. If the AAG offering is not made, pro forma
amounts would be as follows (dollars in thousands):
<TABLE>
<S> <C>
Total long-term debt................................ $ 615,313
Preferred securities of trust subsidiaries.......... 100,000
Total capitalization................................ 2,559,996
Long-term debt as a percentage of total
capitalization.................................... 24.0%
</TABLE>
(c) Minority interest represents the interests of noncontrolling shareholders in
AFG subsidiaries and includes AFC preferred stock.
ACCOUNTING TREATMENT
The financial statements of the Trust will be consolidated with the
Company's financial statements with the Preferred Securities accounted for and
captioned in the consolidated balance sheet directly above shareholders' equity.
22
<PAGE> 24
RATIO OF EARNINGS TO FIXED CHARGES
The following table sets forth the historical ratios of earnings to fixed
charges for the Company and its subsidiaries. Fixed charges are computed on a
"total enterprise" basis. For purposes of calculating the ratios, "earnings"
have been computed by adding to pretax earnings (excluding discontinued
operations) the fixed charges and the minority interest in earnings of
subsidiaries having fixed charges and deducting (adding) the undistributed
equity in earnings (losses) of investees. Fixed charges include interest
(excluding interest on annuity benefits), amortization of debt discount and
expense, preferred dividend requirements of subsidiaries and a portion of rental
expense deemed to represent the interest factor.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
JUNE 30, YEAR ENDED DECEMBER 31,
------------- ----------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Ratio of earnings to fixed charges.... 3.77 2.01 2.60 1.69 2.62 2.15 1.54
</TABLE>
Assuming the Merger and related transactions occurred at the beginning of
each of the following periods, the earnings to fixed charges ratios would have
been as follows:
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED DECEMBER 31,
ENDED ----------------------
JUNE 30, 1995 1995 1994 1993
------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Pro forma ratio of earnings to fixed
charges............................. 2.24 2.93 2.07 3.09
</TABLE>
USE OF PROCEEDS
The proceeds from the sale of Preferred Securities by the Trust will be
invested in the Subordinated Debentures of the Company. The Company expects to
use a portion of the net proceeds from the sale of such Subordinated Debentures
to the Trust to retire $50 million of outstanding debt of subsidiaries and the
remainder for general corporate purposes, which may include the retirement of
additional fixed rate securities of Company subsidiaries and investment in
insurance businesses. Until the net proceeds are used for these purposes, the
Company will deposit them in interest-bearing accounts or invest them in
short-term marketable securities.
DESCRIPTION OF THE PREFERRED SECURITIES
The Preferred Securities will be issued pursuant to the terms of the
Declaration. The Declaration will be qualified as an indenture under the Trust
Indenture Act. The Property Trustee, The Bank of New York, will act as the
indenture trustee for purposes of compliance with the provisions of the Trust
Indenture Act. The terms of the Preferred Securities will include those stated
in the Declaration, including those required to be made part of the Declaration
by the Trust Indenture Act. The following summary of the principal terms and
provisions of the Preferred Securities does not purport to be complete and is
subject to, and qualified in its entirety by reference to, the Declaration, a
copy of which is filed as an exhibit to the Registration Statement of which this
Prospectus is a part, the Trust Act and the Trust Indenture Act.
GENERAL
The Declaration authorizes the Regular Trustees to issue, on behalf of the
Trust, the Trust Securities, which represent undivided beneficial interests in
the assets of the Trust. All of the Common Securities will be owned by the
Company. The Common Securities will have equivalent terms to and will rank pari
passu, and payments will be made thereon on a pro rata basis, with the Preferred
Securities, except that upon the occurrence and during the continuance of a
Declaration Event of Default (as defined herein), the rights of the holders of
the Common Securities to receive payment of periodic distributions and payments
upon liquidation, redemption and otherwise will be subordinated to the rights of
the holders of the Preferred Securities. In addition, holders of the Common
Securities have the exclusive right (subject to the terms of the Declaration) to
appoint, replace or remove the Trustees and to increase or decrease the number
of the Trustees. The Declaration does not permit the issuance by the Trust of
any securities other than the Trust Securities or the incurrence of any
indebtedness by the Trust. Pursuant to the Declaration, the Property Trustee
will hold the
23
<PAGE> 25
Subordinated Debentures purchased by the Trust for the benefit of the holders of
the Trust Securities. The payment of distributions out of money held by the
Trust, and payments upon redemption of the Preferred Securities or liquidation
of the Trust, are guaranteed by the Company to the extent described under
"Description of Trust Guarantee." The Trust Guarantee, when taken together with
the back-up undertakings, consisting of obligations of the Company as set forth
in the Declaration of Trust (including the obligation to pay expenses of the
Trust), the Indenture and the Subordinated Debentures issued to the Trust,
provide a full and unconditional guarantee by the Company of the Preferred
Securities. The Trust Guarantee will be held by The Bank of New York, the
Preferred Securities Guarantee Trustee, for the benefit of the holders of the
Preferred Securities. The Trust Guarantee only covers payment of distributions
when the Company has made the corresponding payment of interest or principal on
the Subordinated Debentures held by the Trust. In the absence of such payment of
interest or principal, the remedy of a holder of Preferred Securities is to
direct the Property Trustee to enforce the Property Trustee's rights as the
holder of the Subordinated Debentures except in the limited circumstances where
the holder may take direct action against the Company. See -- "Declaration
Events of Default."
DISTRIBUTIONS
Distributions on the Preferred Securities will be fixed at a rate per annum
of % of the stated liquidation amount of $25 per Preferred Security.
Distributions in arrears for more than one quarter will (to the extent permitted
by applicable law) bear interest thereon from and including the last day of such
quarter at the rate per annum of % thereof compounded quarterly. The term
"distributions" as used herein includes any such interest payable unless
otherwise stated. The amount of distributions payable for any period will be
computed on the basis of a 360-day year of twelve 30-day months, and for any
period shorter than a full quarter, on the basis of the actual number of days
elapsed in such 90-day quarter.
Distributions on the Preferred Securities will be cumulative, will accrue
from , 1996 and will be payable quarterly in arrears on January 15,
April 15, July 15 and October 15 of each year, commencing January 15, 1997,
when, as and if available for payment by the Property Trustee, except as
otherwise described below.
The Company has the right under the Indenture to defer payments of interest
on the Subordinated Debentures by extending the interest payment period from
time to time on the Subordinated Debentures, which right, if exercised, would
defer quarterly distributions on the Preferred Securities (although to the
extent permitted by law, such distributions would continue to accrue with
interest since interest would continue to accrue on the Subordinated Debentures)
during any such Extension Period. The Company has the right to defer payments of
interest on the Subordinated Debentures, from time to time, for up to 20
consecutive quarters, provided that no Extension Period may extend beyond the
Maturity Date of the Subordinated Debentures. There could be multiple Extension
Periods of varying lengths during the term of the Subordinated Debentures. In
the event that the Company exercises this right, then during any Extension
Period (a) the Company shall not declare or pay dividends on, make distributions
with respect to, or redeem, purchase or acquire, or make a liquidation payment
with respect to, any of its capital stock and (b) the Company shall not,
directly or indirectly, and will not allow any of its subsidiaries to, make any
payment of interest, principal or premium, if any, on or repay, repurchase or
redeem any debt securities issued by the Company that rank pari passu with or
junior to the Subordinated Debentures; provided, however, that the restriction
in clause (a) above does not apply (i) to repurchases or acquisitions of shares
of common stock of the Company as contemplated by any employment arrangement,
benefit plan or similar contract with or for the benefit of employees, officers
or directors entered into in the ordinary course of business, (ii) as a result
of an exchange or conversion of any class or series of the Company's capital
stock for common stock, (iii) to the purchase of fractional interests in shares
of the Company's capital stock pursuant to the conversion or exchange provisions
of such capital stock or the security being converted or exchanged or (iv) to
the payment of any stock dividend by the Company payable in common stock. Prior
to the termination of any such Extension Period, the Company may further extend
the interest payment period; provided that each Extension Period, if any, may
not exceed 20 consecutive quarters and may not extend beyond the Maturity Date
of the Subordinated Debentures. Upon the termination of any Extension Period and
the payment of all amounts then
24
<PAGE> 26
due, the Company may commence a new Extension Period, subject to the above
requirements. See "Description of the Subordinated Debentures -- Interest" and
"Description of the Subordinated Debentures -- Option to Extend Interest Payment
Period." If distributions are deferred, the deferred distributions and accrued
interest thereon shall be paid to holders of record of the Preferred Securities
as they appear on the books and records of the Trust on the record date for
distributions due at the end of such deferral period.
Distributions on the Preferred Securities must be paid on the dates payable
to the extent that the Trust has funds available for the payment of such
distributions in the Property Account. The Trust's funds available for
distribution to the holders of the Preferred Securities will be limited to
payments received from the Company under the Subordinated Debentures. See
"Description of the Subordinated Debentures." The payment of distributions out
of moneys held by the Trust is guaranteed by the Company to the extent set forth
under "Description of Trust Guarantee." The Trust Guarantee, when taken together
with the back-up undertakings, consisting of obligations of the Company as set
forth in the Declaration of Trust of the Trust (including the obligation to pay
expenses of the Trust), the Indenture and the Subordinated Debentures issued to
the Trust, provides a full and unconditional guarantee by the Company of the
Preferred Securities.
Distributions on the Preferred Securities will be payable to the holders
thereof as they appear on the books and records of the Trust on the relevant
record dates, which, as long as the Preferred Securities remain in global form,
will be one Business Day (as defined below) prior to the relevant payment dates.
Such distributions will be paid through the Property Trustee, which will hold
amounts received in respect of the Subordinated Debentures in the Property
Account for the benefit of the holders of the Trust Securities. Subject to any
applicable laws and regulations and the provisions of the Declaration, each such
payment will be made as described under "-- Book-Entry Issuance -- The
Depository Trust Company" below. In the event that the Preferred Securities do
not continue to remain in global form, the relevant record dates for the
Preferred Securities shall conform to the rules of any securities exchange on
which the Preferred Securities are listed and, if none, shall be selected by the
Regular Trustees, which dates shall be at least one Business Day but less than
60 Business Days prior to the relevant payment dates. Distributions payable on
any Preferred Securities that are not punctually paid on any distribution
payment date will cease to be payable to the person in whose name such Preferred
Securities are registered on the relevant record date, and such defaulted
distribution will instead be payable to the person in whose name such Preferred
Securities are registered on the special record date or other specified date
determined in accordance with the Indenture. In the event that any date on which
distributions are to be made on the Preferred Securities is not a Business Day,
then payment of the distributions payable on such date will be made on the next
succeeding day which is a Business Day (and without any interest or other
payment in respect of any such delay), except that, if such Business Day is in
the next succeeding calendar year, such payment shall be made on the immediately
preceding Business Day, in each case with the same force and effect as if made
on such record date. A "Business Day" shall mean any day other than a day on
which banking institutions in New York, New York are authorized or required by
law to close.
MANDATORY REDEMPTION
Upon the repayment of the Subordinated Debentures, whether at maturity or
upon redemption, the proceeds from such repayment or redemption shall
simultaneously be applied to redeem Trust Securities having an aggregate
liquidation amount equal to the aggregate principal amount of the Subordinated
Debentures so repaid or redeemed at the Redemption Price; provided that, holders
of Trust Securities shall be given not less than 30 nor more than 60 days notice
of such redemption. The Subordinated Debentures will mature on ,
2026 unless the maturity date is changed at the option of the Company (provided
in the case of an extension of the maturity date that certain financial
conditions are met), and may be redeemed, in whole or in part, at any time on or
after , 2001 or at any time, in whole (but not in part), upon the
occurrence of a Special Event. See "Description of the Subordinated
Debentures -- Optional Redemption." In the event that fewer than all of the
outstanding Trust Securities are to be redeemed, the Trust Securities will be
redeemed pro rata to each holder according to the aggregate liquidation amount
of Trust Securities held by the relevant holder in relation to the aggregate
liquidation amount of all Trust Securities outstanding.
25
<PAGE> 27
See "-- Book-Entry Issuance -- The Depository Trust Company" below for a
description of DTC's (as hereinafter defined) procedures in the event of
redemption.
SPECIAL EVENT REDEMPTION
"Tax Event" means that the Regular Trustees shall have received an opinion
of an independent tax counsel experienced in such matters to the effect that, as
a result of (a) any amendment to, or change (including any announced prospective
change) in, the laws (or any regulations thereunder) of the United States or any
political subdivision or taxing authority thereof or therein or (b) any official
administrative pronouncement or judicial decision interpreting or applying such
laws or regulations, which amendment or change is effective or such
pronouncement or decision is announced on or after the date of original issuance
of the Preferred Securities, there is more than an insubstantial risk that (i)
the Trust is, or will be within 90 days after the date thereof, subject to
United States federal income tax with respect to interest accrued or received on
the Subordinated Debentures, (ii) the Trust is, or will be within 90 days after
the date thereof, subject to more than a de minimis amount of taxes, duties or
other governmental charges, or (iii) interest payable to the Trust on the
Subordinated Debentures is not, or within 90 days of the date thereof, will not
be deductible, in whole or in part, by the Company for United States federal
income tax purposes.
"Investment Company Event" means that the Regular Trustees shall have
received an opinion of an independent counsel experienced in practice under the
Investment Company Act of 1940, as amended (the "1940 Act"), to the effect that,
as a result of the occurrence of a change in law or regulation or a change in
interpretation or application of law or regulation by any legislative body,
court, governmental agency or regulatory authority (a "Change in 1940 Act Law"),
there is more than insubstantial risk that the Trust is or will be considered an
"investment company" which is required to be registered under the 1940 Act,
which Change in 1940 Act Law becomes effective on or after the date of original
issuance of the Preferred Securities.
If, at any time, a Tax Event or an Investment Company Event (each, as
defined above, a "Special Event") shall occur and be continuing, the Company
shall have the right, upon not less than 30 nor more than 60 days notice, to
redeem the Subordinated Debentures, in whole (but not in part), for cash within
90 days following the occurrence of such Special Event, and, following such
redemption, all Trust Securities shall be redeemed by the Trust at the
Redemption Price.
DISTRIBUTION OF THE SUBORDINATED DEBENTURES
At any time, the Company will have the right to terminate the Trust and,
after satisfaction of the liabilities of creditors of the Trust as provided by
applicable law, cause the Subordinated Debentures to be distributed to the
holders of the Trust Securities in liquidation of the Trust. Under current
United States federal income tax law and interpretation and assuming, as
expected, the Trust is treated as a grantor trust, a distribution of the
Subordinated Debentures should not be a taxable event to holders of the
Preferred Securities. Should there be a change in law, a change in legal
interpretation, a Special Event or other circumstances, however, the
distribution could be a taxable event to the holders of the Preferred
Securities. In addition, a dissolution of the Trust in which holders of the
Preferred Securities receive cash would be a taxable event to such holders. See
"United States Federal Income Taxation -- Receipt of Subordinated Debentures or
Cash Upon Liquidation of the Trust."
If the Subordinated Debentures are distributed to the holders of the
Preferred Securities, the Company will use its best efforts to cause the
Subordinated Debentures to be listed on the NYSE or on such other exchange as
the Preferred Securities are then listed.
After the date for any distribution of Subordinated Debentures upon
dissolution of the Trust, (i) the Preferred Securities will no longer be deemed
to be outstanding and (ii) the record holders of the Preferred Securities will
receive a registered global certificate or certificates representing the
Subordinated Debentures to be delivered upon such distribution in exchange for
the Preferred Securities held by such holders.
If the Company elects to liquidate the Trust and thereby causes the
Subordinated Debentures to be distributed to holders of the Preferred Securities
in liquidation of the Trust, the Company shall have the right
26
<PAGE> 28
to shorten the maturity of such Subordinated Debentures to a date not earlier
than , 2001 or extend the maturity of such Subordinated Debentures to
a date not later than the earlier of (a) , 2045 or (b) the Interest
Deduction Date (as defined herein), provided that it can extend the maturity
only if certain conditions are met. See "Description of the Subordinated
Debentures -- Option to Change Scheduled Maturity Date."
There can be no assurance as to the market prices for either the Preferred
Securities or the Subordinated Debentures that may be distributed in exchange
for the Preferred Securities if a dissolution and liquidation of the Trust were
to occur. Accordingly, the Preferred Securities that an investor may purchase,
whether pursuant to the offer made hereby or in the secondary market, or the
Subordinated Debentures that an investor may receive if a dissolution and
liquidation of the Trust were to occur, may trade at a discount to the price
that the investor paid to purchase the Preferred Securities offered hereby.
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's fiscal 1997 budget proposal, was
released. The Bill would, among other things, generally deny interest deductions
for interest or OID on an instrument issued by a corporation that has a maximum
weighted average maturity of more than 40 years. The Bill would also treat as
equity, instruments issued by a corporation that have a maximum term of more
than 20 years and that are not shown as indebtedness on the consolidated balance
sheet of the issuer. For purposes of determining the weighted average maturity
or the term of an instrument, any right to extend would be treated as exercised.
The above-described provisions of the Bill were proposed to be effective
generally for instruments issued on or after December 7, 1995. However, on March
29, 1996, the Chairmen of the Senate Finance and House Ways and Means Committees
issued a joint statement (the "Joint Statement") to the effect that it was their
intention that the effective date of the President's legislative proposals, if
adopted, would be no earlier than the date of appropriate Congressional action.
In addition, subsequent to the publication of the Joint Statement, Senator
Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel
wrote letters to Treasury Department officials concurring with the views
expressed in the Joint Statement. Under current law, it is likely that the
Subordinated Debentures will be treated as indebtedness of the Company and the
Company likely will be able to deduct interest on the Subordinated Debentures
beneficially held by the holders of the Preferred Securities. The terms of the
Subordinated Debentures limit the Company's right to extend the maturity of the
Subordinated Debentures to a date which is six months shorter than any
legislative limit on the length of debt securities for which interest is
deductible. Based on the advice of tax counsel, the Company believes this will
allow it an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, the Company will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals, adverse judicial decisions, final
legislation or official administrative pronouncements will not affect the
ability of the Company to deduct interest on the Subordinated Debentures, giving
rise to a Tax Event (as defined below) which would permit the Company to cause
the redemption of the Preferred Securities prior to , 2001 (the
first date on which the Company would otherwise be able to cause a redemption of
the Preferred Securities). See "Description of the Preferred
Securities -- Special Event Redemption" and "United States Federal Income
Taxation."
REDEMPTION PROCEDURES
The Trust may not redeem any Preferred Securities unless all accrued and
unpaid distributions have been paid on all Preferred Securities for all
quarterly distribution periods terminating on or prior to the date of
redemption.
If the Trust gives a notice of redemption in respect of Preferred
Securities (which notice will be irrevocable), then, by 12:00 noon, New York
City time, on the redemption date, provided that the Company has paid to the
Property Trustee a sufficient amount of cash in connection with the related
redemption or maturity of the Subordinated Debentures, the Trust will
irrevocably deposit with the depository funds sufficient to pay the applicable
Redemption Price and will give the depository irrevocable instructions to pay
the Redemption Price to the holders of the Preferred Securities. If notice of
redemption shall have been given
27
<PAGE> 29
and funds deposited as required, then immediately prior to the close of business
on the date of such deposit, distributions will cease to accrue and all rights
of holders of such Preferred Securities so called for redemption will cease,
except the right of the holders of such Preferred Securities to receive the
Redemption Price, but without interest on such Redemption Price. In the event
that any date fixed for redemption of Preferred Securities is not a Business
Day, then payment of the Redemption Price payable on such date will be made on
the next succeeding day that is a Business Day (without any interest or other
payment in respect of any such delay), except that, if such Business Day falls
in the next calendar year, such payment will be made on the immediately
preceding Business Day. In the event that the Company fails to repay the
Subordinated Debentures on maturity or payment of the Redemption Price in
respect of Preferred Securities is improperly withheld or refused and not paid
either by the Trust or by the Company pursuant to the Trust Guarantee,
distributions on such Preferred Securities will continue to accrue at the then
applicable rate from the original redemption date to the actual date of payment,
in which case the actual payment date will be considered the date fixed for
redemption for purposes of calculating the Redemption Price.
In the event that fewer than all of the outstanding Preferred Securities
are to be redeemed, the Preferred Securities will be redeemed as described below
under "-- Book-Entry Issuance -- The Depository Trust Company."
If a partial redemption of the Preferred Securities would result in the
delisting of the Preferred Securities by a national securities exchange or other
organization on which the Preferred Securities are then listed, the Company
pursuant to the Indenture will only redeem the Subordinated Debentures in whole
and, as a result, the Trust may only redeem the Preferred Securities in whole.
Subject to the foregoing and applicable law (including, without limitation,
United States federal securities laws), the Company or its subsidiaries may at
any time, and from time to time, purchase outstanding Preferred Securities by
tender, in the open market or by private agreement.
LIQUIDATION DISTRIBUTION UPON DISSOLUTION
In the event of any voluntary or involuntary liquidation, dissolution,
winding-up or termination of the Trust (each a "Liquidation"), the then holders
of the Preferred Securities will be entitled to receive on a pro rata basis
solely out of the assets of the Trust, after satisfaction of liabilities to
creditors, distributions in an amount equal to the aggregate of the stated
liquidation amount of $25 per Preferred Security plus accrued and unpaid
distributions thereon to the date of payment (the "Liquidation Distribution"),
unless, in connection with such Liquidation, Subordinated Debentures in an
aggregate stated principal amount equal to the aggregate stated liquidation
amount of, with an interest rate identical to the distribution rate of, and
accrued and unpaid interest equal to accrued and unpaid distributions on, the
Preferred Securities have been distributed on a pro rata basis to the holders of
the Preferred Securities.
If, upon any such Liquidation, the Liquidation Distribution can be paid
only in part because the Trust has insufficient assets available to pay in full
the aggregate Liquidation Distribution, then the amounts payable directly by the
Trust on the Preferred Securities shall be paid on a pro rata basis. The holders
of the Common Securities will be entitled to receive distributions upon any such
dissolution pro rata with the holders of the Preferred Securities, except that
if a Declaration Event of Default has occurred and is continuing, the Preferred
Securities shall have a preference over the Common Securities with regard to
such distributions.
The Trust Guarantee, when taken together with the back-up undertakings,
consisting of obligations of the Company as set forth in the Declaration
(including the obligation to pay expenses of the Trust), the Indenture and the
Subordinated Debentures issued to the Trust, provide a full and unconditional
guarantee by the Company of the Preferred Securities.
TERMINATION
Pursuant to the Declaration, the Trust shall terminate upon the earliest of
(i) , 2051, (ii) the bankruptcy of the Company, (iii) the filing of a
certificate of dissolution or its equivalent with respect to the Company, the
filing of a certificate of cancellation with respect to the Trust after
obtaining the consent of the
28
<PAGE> 30
holders of at least a majority in liquidation amount of the Trust Securities
affected thereby voting together as a single class to file such certificate of
cancellation, or the revocation of the charter of the Company and the expiration
of 90 days after the date of revocation without a reinstatement thereof, (iv)
the distribution of all of the Subordinated Debentures from the Trust, (v) the
entry of a decree of a judicial dissolution of the Company or the Trust, or (vi)
the redemption of all the Trust Securities.
DECLARATION EVENTS OF DEFAULT
An Event of Default under the Indenture (an "Indenture Event of Default")
constitutes an event of default under the Declaration with respect to the Trust
Securities (a "Declaration Event of Default"), provided that pursuant to the
Declaration, the holder of the Common Securities will be deemed to have waived
any Declaration Event of Default with respect to the Common Securities until all
Declaration Events of Default with respect to the Preferred Securities have been
cured, waived or otherwise eliminated. Until such Declaration Event of Default
with respect to the Preferred Securities has been so cured, waived or otherwise
eliminated, the Property Trustee will be deemed to be acting solely on behalf of
the holders of the Preferred Securities and only the holders of the Preferred
Securities will have the right to direct the Property Trustee with respect to
certain matters under the Declaration, and therefore the Indenture.
Upon the occurrence of a Declaration Event of Default, the Indenture
Trustee (as defined herein) or the Property Trustee as the holder of the
Subordinated Debentures will have the right under the Indenture to declare the
principal of and interest on the Subordinated Debentures to be immediately due
and payable. Each of the Company and the Trust is required to file annually with
the Property Trustee an officer's certificate as to its compliance with all
conditions and covenants under the Declaration.
If the Property Trustee fails to enforce its rights with respect to the
Subordinated Debentures held by the Trust, any record holder of Preferred
Securities may institute legal proceedings directly against the Company to
enforce the Property Trustee's rights under such Subordinated Debentures without
first instituting any legal proceedings against such Property Trustee or any
other person or entity. In addition, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest, principal or other required payments on the
Subordinated Debentures issued to the Trust on the date such interest, principal
or other payment is otherwise payable, then a record holder of Preferred
Securities may institute a proceeding directly against the Company for
enforcement of payment on the Subordinated Debentures on or after the respective
due dates specified in the Subordinated Debentures having a principal amount
equal to the aggregate liquidation amount of the Preferred Securities held by
such holder. In connection with such Direct Action, the Company will be
subrogated to the rights of such record holder of Preferred Securities to the
extent of any payment made by the Company to such record holder of Preferred
Securities. The record holder in the case of the issuance of one or more global
Preferred Securities certificates will be The Depository Trust Company acting at
the direction of the beneficial owners of the Preferred Securities.
VOTING RIGHTS
Except as described herein, under the Trust Act, the Trust Indenture Act
and under "Description of Trust Guarantee -- Modification of the Trust
Guarantee; Assignment," and as otherwise required by law and the Declaration,
the holders of the Preferred Securities will have no voting rights.
Subject to the requirement of the Property Trustee obtaining a tax opinion
in certain circumstances set forth in the last sentence of this paragraph, the
holders of a majority in aggregate liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy available to the Property Trustee, or direct the
exercise of any trust or power conferred upon the Property Trustee under the
Declaration, including the right to direct the Property Trustee, as holder of
the Subordinated Debentures, to (i) exercise the remedies available under the
Indenture with respect to the Subordinated Debentures, (ii) waive any past
Indenture Event of Default that is waivable under the Indenture (as defined
herein), or (iii) exercise any right to rescind or annul a declaration that the
principal of all the Subordinated Debentures shall be due and payable, or
consent to any amendment, modification or termination
29
<PAGE> 31
of the Indenture or the Subordinated Debentures, where such consent should be
required; provided, however, that, where a consent or action under the Indenture
would require the consent or act of the holders of greater than a majority in
principal amount of Subordinated Debentures affected thereby (a
"Super-Majority"), the Property Trustee may only give such consent or take such
action at the written direction of the holders of at least the proportion in
liquidation amount of the Preferred Securities which the relevant Super-Majority
represents of the aggregate principal amount of the Subordinated Debentures
outstanding. The Property Trustee shall notify all holders of the Preferred
Securities of any notice of default received from the Indenture Trustee with
respect to the Subordinated Debentures. Except with respect to directing the
time, method and place of conducting a proceeding for a remedy, the Property
Trustee shall not take any of the actions described in clauses (i), (ii) or
(iii) above unless the Property Trustee has obtained an opinion of tax counsel
to the effect that, as a result of such action, the Trust will not be classified
as other than a grantor trust for United States federal income tax purposes.
In the event the consent of the Property Trustee, as the holder of the
Subordinated Debentures, is required under the Indenture with respect to any
amendment, modification or termination of the Indenture or the Subordinated
Debentures, the Property Trustee shall request the direction of the holders of
the Trust Securities with respect to such amendment, modification or termination
and shall vote with respect to such amendment, modification or termination as
directed by a majority in liquidation amount of the Trust Securities voting
together as a single class; provided, however, that where a consent under the
Indenture would require the consent of a Super-Majority, the Property Trustee
may only give such consent at the direction of the holders of at least the
proportion in liquidation amount of the Trust Securities which the relevant
Super-Majority represents of the aggregate principal amount of the Subordinated
Debentures outstanding. The Property Trustee shall not take any such action in
accordance with the directions of the holders of the Trust Securities unless the
Property Trustee has obtained an opinion of tax counsel to the effect that the
Trust will not be classified as other than a grantor trust for United States
federal income tax purposes on account of such action.
A waiver of an Indenture Event of Default will constitute a waiver of the
corresponding Declaration Event of Default.
Any required approval or direction of holders of Preferred Securities may
be given at a separate meeting of holders of Preferred Securities convened for
such purpose, at a meeting of all of the holders of Trust Securities or pursuant
to written consent. The Regular Trustees will cause a notice of any meeting at
which holders of Preferred Securities are entitled to vote, or of any matter
upon which action by written consent of such holders is to be taken, to be
mailed to each holder of record of Preferred Securities. Each such notice will
include a statement setting forth the following information: (i) the date of
such meeting or the date by which such action is to be taken; (ii) a description
of any resolution proposed for adoption at such meeting on which such holders
are entitled to vote or of such matter upon which written consent is sought; and
(iii) instructions for the delivery of proxies or consents. No vote or consent
of the holders of Preferred Securities will be required for the Trust to redeem
and cancel Preferred Securities or distribute Subordinated Debentures in
accordance with the Declaration.
Notwithstanding that holders of Preferred Securities are entitled to vote
or consent under any of the circumstances described above, any of the Preferred
Securities that are owned at such time by the Company or any entity directly or
indirectly controlling or controlled by, or under direct or indirect common
control with, the Company, shall not be entitled to vote or consent and shall,
for purposes of such vote or consent, be treated as if such Preferred Securities
were not outstanding.
The procedures by which holders of Preferred Securities may exercise their
voting rights are described below. See "--Book-Entry Issuance -- The Depository
Trust Company" below.
Holders of the Preferred Securities will have no rights to appoint or
remove the Trustees, who may be appointed, removed or replaced solely by the
Company as the indirect or direct holder of all of the Common Securities.
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MODIFICATION OF THE DECLARATION
The Declaration may be modified and amended if approved by a majority of
the Regular Trustees (and in certain circumstances the Property Trustee),
provided that, if any proposed amendment provides for, or the Regular Trustees
otherwise propose to effect, (i) any action that would adversely affect the
powers, preferences or special rights of the Trust Securities, whether by way of
amendment to the Declaration or otherwise or (ii) the dissolution, winding-up or
termination of the Trust other than pursuant to the terms of the Declaration,
then the holders of the Trust Securities voting together as a single class will
be entitled to vote on such amendment or proposal and such amendment or proposal
shall not be effective except with the approval of at least a majority in
liquidation amount of the Trust Securities affected thereby; provided that, if
any amendment or proposal referred to in clause (i) above would adversely affect
only the Preferred Securities or the Common Securities, then only the affected
class will be entitled to vote on such amendment or proposal and such amendment
or proposal shall not be effective except with the approval of a majority in
liquidation amount of such class of Trust Securities.
Notwithstanding the foregoing, no amendment or modification may be made to
the Declaration if such amendment or modification would (i) cause the Trust to
be classified as other than a grantor trust for United States federal income tax
purposes, (ii) reduce or otherwise adversely affect the powers of the Property
Trustee or (iii) cause the Trust to be deemed an "investment company" which is
required to be registered under the 1940 Act.
MERGERS, CONSOLIDATIONS OR AMALGAMATIONS
The Trust may not consolidate, amalgamate, merge with or into or be
replaced by, or convey, transfer or lease its properties and assets
substantially as an entirety, to any corporation or other body, except as
described below. The Trust may, with the consent of a majority of the Regular
Trustees and without the consent of the holders of the Trust Securities, the
Property Trustee or the Delaware Trustee, consolidate, amalgamate, merge with or
into, or be replaced by a trust organized as such under the laws of any State;
provided that, (i) such successor entity either (x) expressly assumes all of the
obligations of the Trust under the Trust Securities or (y) substitutes for the
Trust Securities other securities having substantially the same terms as the
Trust Securities (the "Successor Securities"), so long as the Successor
Securities rank the same as the Trust Securities rank with respect to
distributions and payments upon liquidation, redemption and otherwise, (ii) the
Company expressly acknowledges a trustee of such successor entity possessing the
same powers and duties as the Property Trustee as the holder of the Subordinated
Debentures, (iii) the Preferred Securities or any Successor Securities with
respect to the Preferred Securities are listed, or any such Successor Securities
will be listed upon notification of issuance, on any national securities
exchange or with another organization on which the Preferred Securities are then
listed or quoted, (iv) such merger, consolidation, amalgamation or replacement
does not cause the Preferred Securities (including any Successor Securities with
respect to the Preferred Securities) to be downgraded by any nationally
recognized statistical rating organization, (v) such merger, consolidation,
amalgamation or replacement does not adversely affect the rights, preferences
and privileges of the holders of the Trust Securities (including any Successor
Securities) in any material respect (other than with respect to any dilution of
the holders' interest in the new entity), (vi) such successor entity has a
purpose identical to that of the Trust, (vii) prior to such merger,
consolidation, amalgamation or replacement, the Company has received an opinion
of an independent counsel to the Trust experienced in such matters to the effect
that, (A) such merger, consolidation, amalgamation or replacement does not
adversely affect the rights, preferences and privileges of the holders of the
Trust Securities (including any Successor Securities) in any material respect
(other than with respect to any dilution of the holders' interest in the new
entity), (B) following such merger, consolidation, amalgamation or replacement,
neither the Trust nor such successor entity will be required to register as an
investment company under the 1940 Act and (C) the Trust will continue to be
classified as a grantor trust for federal income tax purposes, and (viii) the
Company guarantees the obligations of such successor entity under the Successor
Securities at least to the extent provided by the Trust Guarantee.
Notwithstanding the foregoing, the Trust shall not, except with the consent of
holders of 100% in liquidation amount of the Trust Securities, consolidate,
amalgamate, merge with or into, or be replaced by any other entity or permit any
other entity to consolidate, amalgamate, merge with or into, or
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replace it, if such consolidation, amalgamation, merger or replacement would
cause the Trust or the Successor Entity to be classified as other than a grantor
trust for United States federal income tax purposes and each holder of the Trust
Securities not to be treated as owning an undivided interest in the Subordinated
Debentures.
EXPENSES AND TAXES
In the Indenture, the Company has agreed to pay all debts and other
obligations (other than with respect to the Trust Securities) and all costs and
expenses of the Trust (including costs and expenses relating to the organization
of the Trust, the fees and expenses of the Trustees and the costs and expenses
relating to the operation of the Trust) and to pay any and all taxes and all
costs and expenses with respect thereto (other than United States withholding
taxes) to which the Trust might become subject. The foregoing obligations of the
Company under the Indenture are for the benefit of, and shall be enforceable by,
any person to whom any such debts, obligations, costs, expenses and taxes are
owed (a "Creditor") whether or not such Creditor has received notice thereof.
Any such Creditor may enforce such obligations of the Company directly against
the Company, and the Company has irrevocably waived any right or remedy to
require that any such Creditor take any action against the Trust or any other
person before proceeding against the Company. The Company has also agreed in the
Indenture to execute such additional agreements as may be necessary or desirable
to give full effect to the foregoing.
BOOK-ENTRY ISSUANCE -- THE DEPOSITORY TRUST COMPANY
The Depository Trust Company ("DTC") will act as securities depository for
the Preferred Securities. The Preferred Securities initially will be issued only
as fully-registered securities registered in the name of Cede & Co. (DTC's
nominee). One or more fully-registered global Preferred Securities certificates,
representing the total aggregate number of Preferred Securities, will be issued
and will be delivered to DTC.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of securities in definitive form. Such laws
may impair the ability to transfer beneficial interests in the global Preferred
Securities as represented by a global certificate.
DTC has advised the Company and the Trust that DTC is a limited-purpose
trust company organized under the New York Banking Law, a "banking organization"
within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform
Commercial Code, and a "clearing agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC holds securities that its participants
("Participants") deposit with DTC. DTC also facilitates the settlement among
Participants of securities transactions, such as transfers and pledges, in
deposited securities through electronic computerized book-entry changes in
Participants' accounts, thereby eliminating the need for physical movement of
securities certificates. Direct Participants include securities brokers and
dealers, banks, trust companies, clearing corporations and certain other
organizations ("Direct Participants"). DTC is owned by a number of its Direct
Participants and by the NYSE, the American Stock Exchange, Inc., and the
National Association of Securities Dealers, Inc. Access to the DTC system is
also available to others, such as securities brokers and dealers, banks and
trust companies that clear transactions through or maintain a direct or indirect
custodial relationship with a Direct Participant ("Indirect Participants"). The
rules applicable to DTC and its Participants are on file with the Commission.
Purchases of Preferred Securities within the DTC system must be made by or
through Direct Participants, which will receive a credit for the Preferred
Securities on DTC's records. The ownership interest of each actual purchaser of
each Preferred Security ("Beneficial Owner") is in turn to be recorded on the
Direct and Indirect Participants' records. Beneficial Owners will not receive
written confirmation from DTC of their purchases, but Beneficial Owners are
expected to receive written confirmations providing details of the transactions,
as well as periodic statements of their holdings, from the Direct or Indirect
Participants through which the Beneficial Owners purchased Preferred Securities.
Transfers of ownership interests in the Preferred Securities are to be
accomplished by entries made on the books of Participants acting on behalf of
Beneficial
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Owners. Beneficial Owners will not receive certificates representing their
ownership interests in the Preferred Securities, except in the event that use of
the book-entry system for the Preferred Securities is discontinued.
To facilitate subsequent transfers, all the Preferred Securities deposited
by Participants with DTC are registered in the name of DTC's nominee, Cede & Co.
The deposit of Preferred Securities with DTC and their registration in the name
of Cede & Co. effect no change in beneficial ownership. DTC has no knowledge of
the actual Beneficial Owners of the Preferred Securities. DTC's records reflect
only the identity of the Direct Participants to whose accounts such Preferred
Securities are credited, which may or may not be the Beneficial Owners. The
Participants will remain responsible for keeping account of their holdings on
behalf of Beneficial Owners that are their customers.
Conveyance of notices and other communications by DTC to Direct
Participants, by Direct Participants to Indirect Participants and by Direct
Participants and Indirect Participants to Beneficial Owners will be governed by
arrangements among them, subject to any statutory or regulatory requirements
that may be in effect from time to time.
Redemption notices shall be sent to Cede & Co. If less than all of the
Preferred Securities are being redeemed, DTC will reduce pro rata the amount of
the interest of each Direct Participant in such Preferred Securities to be
redeemed in accordance with its procedures.
Although voting with respect to the Preferred Securities is limited, in
those cases where a vote is required, neither DTC nor Cede & Co. will itself
consent or vote with respect to Preferred Securities. Under its usual
procedures, DTC would mail an Omnibus Proxy to the Trust as soon as possible
after the record date. The Omnibus Proxy assigns Cede & Co.'s consenting or
voting rights to those Direct Participants to whose accounts the Preferred
Securities are credited on the record date (identified in a listing attached to
the Omnibus Proxy). The Company and the Trust believe that the arrangements
among DTC, Direct and Indirect Participants, and Beneficial Owners will enable
the Beneficial Owners to exercise rights equivalent in substance to the rights
that can be directly exercised by a holder of a beneficial interest in the
Trust.
Distribution payments on the Preferred Securities will be made to DTC.
DTC's practice is to credit Direct Participants' accounts on the relevant
payment date in accordance with their respective holdings shown on DTC's records
unless DTC has reason to believe that it will not receive payments on such
payment date. Payments by Participants to Beneficial Owners will be governed by
standing instructions and customary practices, as is the case with securities
held for the account of customers in bearer form or registered in "street name,"
and such payments will be the responsibility of such Participant and not of DTC,
the Trust or the Company, subject to any statutory or regulatory requirements
that may be in effect from time to time. Payment of distributions to DTC is the
responsibility of the Trust, disbursement of such payments to Direct
Participants is the responsibility of DTC and disbursement of such payments to
the Beneficial Owners is the responsibility of Direct and Indirect Participants.
Except as provided herein, a Beneficial Owner in a global Preferred
Security certificate will not be entitled to receive physical delivery of
Preferred Securities. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Preferred Securities.
DTC may discontinue providing its services as securities depository with
respect to the Preferred Securities at any time by giving reasonable notice to
the Trust. Under such circumstances, in the event that a successor securities
depository is not obtained, Preferred Securities certificates are required to be
printed and delivered. Additionally, the Regular Trustees (with the consent of
the Company) may decide to discontinue use of the system of book-entry transfers
through DTC (or any successor depository) with respect to the Preferred
Securities. In that event, certificates for the Preferred Securities will be
printed and delivered.
The information in this section concerning DTC and DTC's book-entry system
has been obtained from sources that the Company and the Trust believe to be
reliable, but neither the Company nor the Trust takes responsibility for the
accuracy thereof.
Unless the context otherwise requires, the term "holder of Preferred
Securities" shall refer to Beneficial Owners rather than to DTC.
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INFORMATION CONCERNING THE PROPERTY TRUSTEE
The Property Trustee, prior to the occurrence of a default with respect to
the Trust Securities, undertakes to perform only such duties as are specifically
set forth in the Declaration and the Indenture, in the terms of the Trust
Securities or in the Trust Indenture Act and, after default, shall exercise the
same degree of care as a prudent individual would exercise in the conduct of his
or her own affairs. Subject to such provisions, the Property Trustee is under no
obligation to exercise any of the powers vested in it by the Declaration at the
request of any holder of Preferred Securities, unless offered reasonable
indemnity by such holder against the costs, expenses and liabilities which might
be incurred thereby. The holders of Preferred Securities will not be required to
offer such indemnity in the event such holders, by exercising their voting
rights, direct the Property Trustee to take any action following a Declaration
Event of Default. The Property Trustee also serves as Preferred Securities
Guarantee Trustee.
PAYING AGENT
In the event that the Preferred Securities do not remain in book-entry
form, the following provisions would apply:
Securities Transfer Company, Cincinnati, Ohio, will act as the initial
paying agent. The Company may designate an additional or substitute paying agent
at any time.
Registration of transfers of Preferred Securities will be effected without
charge by or on behalf of the Trust, but upon payment (with the giving of such
indemnity as the Trust or the Company may require) in respect of any tax or
other government charges that may be imposed in relation to it.
The Trust will not be required to register or cause to be registered the
transfer of Preferred Securities after such Preferred Securities have been
called for redemption.
GOVERNING LAW
The Declaration and the Preferred Securities will be governed by, and
construed in accordance with, the internal laws of the State of Delaware.
MISCELLANEOUS
The Regular Trustees are authorized and directed to operate the Trust in
such a way so that the Trust will not be required to register as an "investment
company" under the 1940 Act or be characterized as other than a grantor trust
for United States federal income tax purposes. The Company is authorized and
directed to conduct its affairs so that the Subordinated Debentures will be
treated as indebtedness of the Company for United States federal income tax
purposes. In this connection, the Company and the Regular Trustees are
authorized to take any action, not inconsistent with applicable law, the
certificate of trust of the Trust or the articles of incorporation of the
Company, that each of the Company and the Regular Trustees determines in their
discretion to be necessary or desirable to achieve such end, as long as such
action does not adversely affect the interests of the holders of the Preferred
Securities or vary the terms thereof.
Holders of the Preferred Securities have no preemptive rights.
DESCRIPTION OF TRUST GUARANTEE
Set forth below is a summary of information concerning the Trust Guarantee
that will be executed and delivered by the Company for the benefit of the
holders, from time to time, of Preferred Securities. The Trust Guarantee will be
qualified as an indenture under the Trust Indenture Act. The Bank of New York
will act as independent indenture trustee for Trust Indenture Act purposes under
the Trust Guarantee (the "Preferred Securities Guarantee Trustee"). The terms of
the Trust Guarantee will be those set forth in such Trust Guarantee and those
made part of such Trust Guarantee by the Trust Indenture Act. The summary of
certain provisions of the Trust Guarantee does not purport to be complete and is
subject to and qualified in its entirety by reference to the provisions of the
form of Trust Guarantee, a copy of which has been filed as an exhibit to
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the Registration Statement of which this Prospectus is a part, and the Trust
Indenture Act. The Trust Guarantee will be held by the Preferred Securities
Guarantee Trustee for the benefit of the holders of the Preferred Securities of
the Trust.
GENERAL
Pursuant to the Trust Guarantee, the Company will agree, to the extent set
forth therein, to pay in full to the holders of the Preferred Securities, the
Trust Guarantee Payments (as defined below) (except to the extent paid by the
Trust), as and when due, regardless of any defense, right of set-off or
counterclaim which the Trust may have or assert. The following payments or
distributions with respect to the Preferred Securities (the "Trust Guarantee
Payments"), to the extent not paid by the Trust, will be subject to the Trust
Guarantee (without duplication): (i) any accrued and unpaid distributions that
are required to be paid on such Preferred Securities, to the extent the Trust
shall have funds available therefor, (ii) the redemption price, including all
accrued and unpaid distributions to the date of redemption (the "Redemption
Price"), to the extent the Trust has funds available therefor, with respect to
any Preferred Securities called for redemption by the Trust and (iii) upon a
voluntary or involuntary dissolution, winding-up or termination of the Trust
(other than in connection with the distribution of Subordinated Debentures to
the holders of Preferred Securities or the redemption of all of the Preferred
Securities upon maturity or redemption of the Subordinated Debentures) the
lesser of (a) the aggregate of the liquidation amount and all accrued and unpaid
distributions on such Preferred Securities to the date of payment, to the extent
the Trust has funds available therefor or (b) the amount of assets of the Trust
remaining for distribution to holders of such Preferred Securities in
liquidation of the Trust. The Company's obligation to make a Trust Guarantee
Payment may be satisfied by direct payment of the required amounts by the
Company to the holders of Preferred Securities or by causing the Trust to pay
such amounts to such holders.
The Trust Guarantee will not apply to any payment of distributions except
to the extent the Trust shall have funds available therefor. If the Company does
not make interest or principal payments on the Subordinated Debentures purchased
by the Trust, the Trust will not pay distributions on the Preferred Securities
issued by the Trust and will not have funds available therefor.
The Company has also agreed to guarantee the obligations of the Trust with
respect to the Common Securities (the "Trust Common Guarantee") to the same
extent as the Trust Guarantee, except that, if an Event of Default under the
Indenture has occurred and is continuing, holders of Preferred Securities under
the Trust Guarantee shall have priority over holders of the Common Securities
under the Trust Common Guarantee with respect to distributions and payments on
liquidation, redemption or otherwise.
CERTAIN COVENANTS OF THE COMPANY
In the Trust Guarantee, the Company will covenant that, so long as any
Preferred Securities remain outstanding, if there shall have occurred any event
of default under the Trust Guarantee or a Declaration Event of Default, then (a)
the Company will not declare or pay any dividend on, make any distributions with
respect to, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of its capital stock; (b) the Company shall not make any payment
of interest, principal or premium, if any, on or repay, repurchase or redeem any
debt securities (including guarantees) issued by the Company which rank pari
passu with or junior to the Subordinated Debentures issued to the Trust and (c)
the Company shall not make any guarantee payments with respect to the foregoing
(other than pursuant to the Trust Guarantee); provided, however, that the
Company may declare and pay a stock dividend where the dividend is paid in the
form of the same stock as that on which the dividend is being paid.
MODIFICATION OF THE TRUST GUARANTEE; ASSIGNMENT
Except with respect to any changes that do not adversely affect the rights
of holders of Preferred Securities (in which case no consent of such holders
will be required), the Trust Guarantee may be amended only with the prior
approval of the holders of not less than a majority in liquidation amount of the
outstanding Preferred Securities. The manner of obtaining any such approval of
holders of such Preferred Securities is set
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forth above under "Description of the Preferred Securities -- Voting Rights."
All guarantees and agreements contained in the Trust Guarantee shall bind the
successors, assigns, receivers, trustees and representatives of the Company and
shall inure to the benefit of the holders of the Preferred Securities then
outstanding.
EVENTS OF DEFAULT
An event of default under the Trust Guarantee will occur upon the failure
of the Company to perform any of its payment or other obligations thereunder.
The holders of a majority in liquidation amount of the Preferred Securities have
the right to direct the time, method and place of conducting any proceeding for
any remedy available to the Preferred Securities Guarantee Trustee in respect of
the Trust Guarantee or to direct the exercise of any trust or power conferred
upon the Preferred Securities Guarantee Trustee under the Trust Guarantee.
If the Preferred Securities Guarantee Trustee fails to enforce the Trust
Guarantee, any record holder of Preferred Securities may institute a legal
proceeding directly against the Company to enforce the Preferred Securities
Guarantee Trustee's rights under the Trust Guarantee without first instituting a
legal proceeding against the Trust, the Preferred Securities Guarantee Trustee
or any other person or entity. Notwithstanding the foregoing, if the Company has
failed to make a Trust Guarantee Payment, a record holder of Preferred
Securities may directly institute a proceeding against the Company for
enforcement of the Trust Guarantee for such payment to the record holder of the
Preferred Securities of the principal of or interest on the Subordinated
Debentures on or after the respective due dates specified in the Subordinated
Debentures, and the amount of the payment will be based on the holder's pro rata
share of the amount due and owing on all of the Preferred Securities. The
Company has waived any right or remedy to require that any action be brought
first against the Trust or any other person or entity before proceeding directly
against the Company. The record holder in the case of the issuance of one or
more global Preferred Securities certificates will be DTC acting at the
direction of its Direct Participants, who in turn will be acting at the
direction of the beneficial owners of the Preferred Securities.
The Company will be required to provide annually to the Preferred
Securities Guarantee Trustee a statement as to the performance by the Company of
certain of its obligations under the Trust Guarantee and as to any default in
such performance.
INFORMATION CONCERNING THE PREFERRED SECURITIES GUARANTEE TRUSTEE
The Preferred Securities Guarantee Trustee, prior to the occurrence of a
default, undertakes to perform only such duties as are specifically set forth in
the Trust Guarantee and, after default with respect to the Trust Guarantee,
shall exercise the same degree of care as a prudent individual would exercise in
the conduct of his or her own affairs. Subject to such provision, the Preferred
Securities Guarantee Trustee is under no obligation to exercise any of the
powers vested in it by the Trust Guarantee at the request of any holder of
Preferred Securities unless it is offered reasonable indemnity against the
costs, expenses and liabilities that might be incurred thereby.
TERMINATION OF THE TRUST GUARANTEE
The Trust Guarantee will terminate as to the Preferred Securities upon full
payment of the Redemption Price of all Preferred Securities, upon distribution
of the Subordinated Debentures held by the Trust to the holders of all of the
Preferred Securities or upon full payment of the amounts payable in accordance
with the Declaration upon liquidation of the Trust. The Trust Guarantee will
continue to be effective or will be reinstated, as the case may be, if at any
time any holder of Preferred Securities must restore payment of any sums paid
under such Preferred Securities or the Trust Guarantee.
STATUS OF THE TRUST GUARANTEE
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company, including the Subordinated Debentures, except those
liabilities of the Company made pari passu or subordinate by their
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terms, (ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock of any
affiliate of the Company and (iii) senior to the Company's Common Stock. The
terms of the Preferred Securities provide that each holder of Preferred
Securities by acceptance thereof agrees to the subordination provisions and
other terms of the Trust Guarantee.
The Trust Guarantee will constitute a guarantee of payment and not of
collection (that is, the guaranteed party may institute a legal proceeding
directly against the Company to enforce its rights under the Trust Guarantee
without instituting a legal proceeding against any other person or entity).
GOVERNING LAW
The Trust Guarantee will be governed by and construed in accordance with
the law of the State of Ohio.
DESCRIPTION OF THE SUBORDINATED DEBENTURES
Set forth below is a description of the specific terms of the Subordinated
Debentures in which the Trust will invest the proceeds from the issuance and
sale of the Trust Securities. The following description does not purport to be
complete and is subject to, and is qualified in its entirety by reference to,
the description in the Indenture, dated as of September , 1996 (the
"Indenture"), between the Company and The Bank of New York, as Trustee (the
"Indenture Trustee"), the form of which is filed as an Exhibit to the
Registration Statement of which this Prospectus is a part, and the Trust
Indenture Act. Certain capitalized terms used herein are defined in the
Indenture.
At any time, the Company will have the right to liquidate the Trust and
cause the Subordinated Debentures to be distributed to the holders of the
Preferred Securities in liquidation of the Trust. See "Description of the
Preferred Securities -- Distribution of the Subordinated Debentures."
If the Subordinated Debentures are distributed to the holders of the
Preferred Securities, the Company will use its best efforts to have the
Subordinated Debentures listed on the NYSE or on such other exchange on which
the Preferred Securities are then listed.
GENERAL
The Subordinated Debentures will be issued as unsecured subordinated debt
securities under the Indenture. The Subordinated Debentures will be limited in
aggregate principal amount to approximately $ million, such amount being the
sum of the aggregate stated liquidation amount of the Preferred Securities and
the capital contributed by the Company in exchange for the Common Securities
(the "Company Payment").
The Subordinated Debentures are not subject to a sinking fund provision.
The entire principal amount of the Subordinated Debentures will mature and
become due and payable, together with any accrued and unpaid interest thereon
including Compounded Interest (as hereinafter defined), if any, on ,
2026, subject to the election of the Company to shorten or extend the scheduled
maturity date of the Subordinated Debentures, which election in the case of an
extension of the scheduled maturity date is subject to the Company's satisfying
certain financial conditions. See "-- Option to Change Scheduled Maturity Date."
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, it is
presently anticipated that such Subordinated Debentures will initially be issued
in the form of one or more Global Securities (as defined below). As described
herein, under certain limited circumstances, Subordinated Debentures may be
issued in definitive certificated form in exchange for a Global Security. See
"-- Book-Entry and Settlement" below. In the event that Subordinated Debentures
are issued in definitive certificated form, such Subordinated Debentures will be
in denominations of $25 and integral multiples thereof and may be transferred or
exchanged at the offices described below. Payments on Subordinated Debentures
issued as a Global Security will be made to DTC or its nominee, a successor
depository or its nominee. In the event Subordinated Debentures are issued in
definitive certificated form,
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principal and interest will be payable, the transfer of the Subordinated
Debentures will be registrable and Subordinated Debentures will be exchangeable
for Subordinated Debentures of other denominations of a like aggregate principal
amount at the principal corporate trust office of the Indenture Trustee in New
York, New York; provided that payment of interest may be made at the option of
the Company by check mailed to the address of the persons entitled thereto.
The Indenture does not contain provisions that afford the holders of the
Subordinated Debentures protection in the event of a highly leveraged
transaction involving the Company or other similar transaction that may
adversely affect such holders.
SUBORDINATION
The Indenture provides that the Subordinated Debentures are subordinated
and junior in right of payment to the prior payment in full of all Senior
Indebtedness of the Company whether now existing or hereafter incurred. In the
event and during the continuation of any default by the Company in the payment
of principal, premium, interest or any other payment due on any Senior
Indebtedness of the Company, or in the event that the maturity of any Senior
Indebtedness of the Company has been accelerated because of a default, then in
either case, no payment will be made by the Company with respect to the
principal (including redemption payments) of or interest on the Subordinated
Debentures. Upon any distribution of assets of the Company to creditors upon any
dissolution, winding-up, liquidation or reorganization, whether voluntary or
involuntary, or in bankruptcy, insolvency, receivership or other proceedings,
all principal, premium, if any, and interest due or to become due on all Senior
Indebtedness of the Company (including interest after the commencement of any
bankruptcy, insolvency, receivership or other proceedings at the rate specified
in the applicable Senior Indebtedness, whether or not such interest is an
allowable claim in any such proceeding) must be paid in full before the holders
of Subordinated Debentures are entitled to receive or retain any payment. In the
event that the Subordinated Debentures are declared due and payable before the
Maturity Date, then all amounts due or to become due on all Senior Indebtedness
shall have been paid in full (including interest after the commencement of any
bankruptcy, insolvency, receivership or other proceedings at the rate specified
in the applicable Senior Indebtedness, whether or not such interest is an
allowable claim in any such proceeding) before holders of the Subordinated
Debentures are entitled to receive or retain any payment. Upon satisfaction of
all claims of all Senior Indebtedness then outstanding, the rights of the
holders of the Subordinated Debentures will be subrogated to the rights of the
holders of Senior Indebtedness of the Company to receive payments or
distributions applicable to Senior Indebtedness until all amounts owing on the
Subordinated Debentures are paid in full.
The term "Senior Indebtedness" shall include (i) the principal, premium, if
any, and interest in respect of (A) indebtedness of the Company for money
borrowed and (B) indebtedness evidenced by securities, debentures, bonds or
other similar instruments issued by the Company; (ii) all capital lease
obligations of the Company; (iii) all obligations of the Company issued or
assumed as the deferred purchase price of property, all conditional sale
obligations of the Company and all obligations of the Company under any title
retention agreement (but excluding trade accounts payable arising in the
ordinary course of business); (iv) all obligations of the Company for the
reimbursement on any letter of credit, banker's acceptance, security purchase
facility or similar credit transaction; (v) all obligations of the type referred
to in clauses (i) through (iv) above of other persons for the payment of which
the Company is responsible or liable as obligor, guarantor or otherwise,
including under all support agreements or guarantees by the Company of
debentures, notes and other securities issued by its subsidiaries; and (vi) all
obligations of the type referred to in clauses (i) through (v) above of other
persons secured by any lien on any property or asset of the Company (whether or
not such obligation is assumed by the Company); except in each case for (1) any
such indebtedness that is by its terms subordinated to or pari passu with the
Subordinated Debentures, and (2) any indebtedness in respect of debt securities
issued to any trust, or a trustee of such trust, partnership or other entity
affiliated with the Company that is a financing entity for such obligor (a
"financing entity") in connection with the issuance by such financing entity of
securities that are similar to the Preferred Securities. Such Senior
Indebtedness shall continue to be Senior Indebtedness and be entitled to the
benefits of the subordination provisions irrespective of any amendment,
modification or waiver of any term of such Senior Indebtedness.
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The Indenture does not limit the aggregate amount of Senior Indebtedness
that may be issued by the Company.
OPTIONAL REDEMPTION
The Company shall have the right to redeem the Subordinated Debentures, (i)
at any time, in whole or in part, from time to time, on or after ,
2001 or (ii) at any time in whole (but not in part) upon the occurrence of a
Special Event as described under "Description of the Preferred
Securities -- Special Event Redemption," upon not less than 30 nor more than 60
days notice, at a redemption price equal to 100% of the principal amount to be
redeemed plus any accrued and unpaid interest to the redemption date. If a
partial redemption of the Preferred Securities resulting from a partial
redemption of the Subordinated Debentures would result in the delisting of the
Preferred Securities, the Company may only redeem the Subordinated Debentures in
whole. The Company may not redeem any Subordinated Debentures if there is
accrued and unpaid interest on the Subordinated Debentures as of the Interest
Payment Date (as defined below) next preceding the redemption date.
INTEREST
Each Subordinated Debenture shall bear interest at the rate of % per
annum from the original date of issuance, or from the most recent interest
payment date to which interest has been paid or provided for, payable quarterly
in arrears on January 15, April 15, July 15 and October 15 of each year (each an
"Interest Payment Date"), commencing January 15, 1997, to the person in whose
name such Subordinated Debenture is registered, subject to certain exceptions,
at the close of business on the Business Day next preceding such Interest
Payment Date. In the event the Subordinated Debentures shall not continue to
remain in book-entry form, the Company shall have the right to select record
dates, which shall be more than one Business Day but less than 60 Business Days
prior to the Interest Payment Date. Any installment of interest not punctually
paid will cease to be payable to the holders of the Subordinated Debentures on
the regular record date and may be paid to the person in whose name the
Subordinated Debentures are registered at the close of business on a special
record date to be fixed by the Indenture Trustee for the payment of such
defaulted interest, notice of which shall be given to the holders of the
Subordinated Debentures not less than 10 days prior to such special record date,
or may be paid at any time in any other lawful manner not inconsistent with the
requirements of any securities exchange, interdealer quotation system or other
organization on which the Subordinated Debentures may be listed, and upon such
notice as may be required by such exchange, system or organization.
The amount of interest payable for any period will be computed on the basis
of a 360-day year of twelve 30-day months. The amount of interest payable for
any period shorter than a full quarterly period for which interest is computed,
will be computed on the basis of the actual number of days elapsed in such 90
day quarter. In the event that any date on which interest is payable on the
Subordinated Debentures is not a Business Day, then payment of the interest
payable on such date will be made on the next succeeding day that is a Business
Day (and without any interest or other payment in respect of any such delay),
except that, if such Business Day is in the next succeeding calendar year, then
such payment shall be made on the immediately preceding Business Day, in each
case with the same force and effect as if made on such date.
OPTION TO CHANGE SCHEDULED MATURITY DATE
The "Scheduled Maturity Date" of the Subordinated Debentures is ,
2026. The Company, however, may extend such maturity date ( , 2026 or
the maturity date then in effect, as the case may be, is hereinafter referred to
as the "Maturity Date") for one or more periods, but in no event later than the
earlier of (i) , 2045 or (ii) the "Interest Deduction Date." The
"Interest Deduction Date" shall mean the date which is six months earlier than
the ending date of the maximum term (beginning on the date of issue of the
Subordinated Debentures and including any extensions thereof), as determined
under any federal statute applicable by its terms to the Subordinated Debentures
which is enacted at any time after the issuance of the Subordinated Debentures
(including, but not limited to, at any time after an extension of the Maturity
Date), of a debt instrument for which interest is deductible for federal income
tax purposes. In no event shall the extended Maturity Date be later than the
Interest Deduction Date even if the Maturity Date
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has previously been extended to a date beyond the Interest Deduction Date. The
Company must exercise its right to extend the term at least 90 days prior to the
Maturity Date then in effect and must satisfy the following conditions on the
date the Company exercises such right and on the Maturity Date then in effect
prior to such proposed extension: (a) the Company is not in bankruptcy or
otherwise insolvent, (b) the Company is not in default on any Subordinated
Debenture issued to the Trust or to any trustee of the Trust in connection with
an issuance of Trust Securities by the Trust, (c) the Company has made timely
payments on the Subordinated Debentures for the immediately preceding six
quarters without deferrals, (d) the Trust is not in arrears on payments of
distributions on the Trust Securities, (e) the Subordinated Debentures or
Preferred Securities are rated investment grade by any one of Standard & Poor's
Corporation, Moody's Investors Service, Inc., Fitch Investor Services, Duff &
Phelps Credit Rating Company or any other nationally recognized statistical
rating organization, and (f) the final maturity of such Subordinated Debentures
is not later than the 49th anniversary of the issuance of the Preferred
Securities. Pursuant to the Declaration, the Regular Trustees are required to
give notice of the Company's election to change the Maturity Date to the holders
of the Preferred Securities.
In addition, if the Company exercises its right to liquidate the Trust and
distribute the Subordinated Debentures as discussed above under "Description of
the Preferred Securities -- Distribution of the Subordinated Debentures,"
effective upon such exercise, the Maturity Date of the Subordinated Debentures
may be changed to (i) any date elected by the Company that is no earlier than
, 2001 and (ii) any date elected by the Company which is not later
than the earlier of (a) , 2045 or (b) the "Interest Deduction Date";
provided that on the date the Company exercises such right, and on the Maturity
Date in effect prior to such proposed extension, the conditions specified in the
previous paragraph are satisfied.
OPTION TO EXTEND INTEREST PAYMENT PERIOD
The Company has the right, from time to time, to defer payment of interest
on the Subordinated Debentures for up to 20 consecutive quarters, provided that
no Extension Period may extend beyond the Maturity Date of the Subordinated
Debentures. There could be multiple Extension Periods of varying lengths during
the term of the Subordinated Debentures. At the end of each Extension Period, if
any, the Company shall pay all interest then accrued and unpaid, together with
interest thereon, compounded quarterly at the rate specified for the
Subordinated Debentures to the extent permitted by applicable law ("Compound
Interest"). In the event the Company exercises this right, then during any
Extension Period, (a) the Company shall not declare or pay any dividends on,
make any distribution with respect to, or redeem, purchase, acquire or make a
liquidation payment with respect to any of its capital stock and (b) the Company
shall not, directly or indirectly, and will not allow any of its subsidiaries
to, make any payment of interest, principal or premium, if any, on or repay,
repurchase or redeem any debt securities issued by the Company that rank pari
passu with or junior to the Subordinated Debentures; provided, however, that,
the restriction in clause (a) above does not apply (i) to repurchases or
acquisitions of shares of common stock of the Company as contemplated by any
employment arrangement, benefit plan or other similar contract with or for the
benefit of employees, officers or directors entered into in the ordinary course
of business, (ii) as a result of an exchange or conversion of any class or
series of the Company's capital stock for common stock, (iii) to the purchase of
fractional interests in shares of the Company's capital stock pursuant to the
conversion or exchange provisions of such capital stock or the security being
converted or exchanged or (iv) to the payment of any stock dividend by the
Company payable in common stock. Prior to the termination of any such Extension
Period, the Company may further defer payments of interest by extending the
interest payment period; provided, however, that each Extension Period,
including all such previous and further extensions if any, may not exceed 20
consecutive quarters or extend beyond the Maturity Date. Upon the termination of
any Extension Period and the payment of all amounts then due, the Company may
commence a new Extension Period, subject to the terms set forth in this section.
No interest during an Extension Period, except at the end thereof, shall be due
and payable. The Company has no present intention of exercising its right to
defer payments of interest by extending the interest payment period on the
Subordinated Debentures. If the Property Trustee shall be the sole holder of the
Subordinated Debentures, the Company shall give the Regular Trustees and the
Property Trustee notice of its selection of such Extension Period one Business
Day prior to the earlier of (i) the date distributions on the Preferred
Securities are payable or (ii) the date the Regular Trustees are required to
give notice to the NYSE
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(or other applicable self-regulatory organization) or to holders of the
Preferred Securities of the record date or the date such distribution is
payable. The Regular Trustees shall give notice of the Company's selection of
such Extension Period to the holders of the Preferred Securities. If the
Property Trustee shall not be the sole holder of the Subordinated Debentures,
the Company shall give the holders of the Subordinated Debentures notice of its
selection of such Extension Period ten Business Days prior to the earlier of (i)
the applicable Interest Payment Date or (ii) the date upon which the Company is
required to give notice to the NYSE (or other applicable self-regulatory
organization) or to holders of the Subordinated Debentures of the record or
payment date of such related interest payment.
COVENANTS
The Indenture requires the Company to covenant to the following with
respect to the Subordinated Debentures: (i) to duly and punctually pay the
principal of and interest on the Subordinated Debentures (together with any
additional amounts payable pursuant to the terms thereof) and comply with all
other terms, agreements and conditions contained therein or made in the
Indenture for the benefit of the Subordinated Debentures; (ii) to maintain an
office or agency where the Subordinated Debentures may be presented, surrendered
for payment, transferred or exchanged and where notices to the Company may be
served; (iii) if the Company shall act as its own paying agent for the
Subordinated Debentures, to segregate and hold in trust for the benefit of the
persons entitled thereto a sum sufficient to pay the principal of and premium or
interest, if any, so becoming due; (iv) to appoint a successor trustee whenever
necessary to avoid or fill a vacancy in the office of trustee; (v) to preserve
its corporate existence; (vi) to cause all properties used or useful in the
conduct of its business or the business of any subsidiary to be maintained and
kept in good condition and (vii) to pay or discharge, before the same shall
become delinquent, all taxes, assessments, government charges, and all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien upon the property of the Company or a subsidiary that comprise 10% or more
of the combined assets of the Company, other than claims contested in good faith
by the Company. The Indenture also requires the Company to deliver to the
Trustee, within 120 days after the end of each fiscal year, a written statement
as to whether, to the best knowledge of the officer signing the statement, the
Company is in compliance with the terms of the Indenture and, if not, the nature
and status of such non-compliance.
In addition, the Company has also covenanted, with respect to the
Subordinated Debentures, that for so long as the Preferred Securities and the
Common Securities remain outstanding the Company will (i) maintain 100% direct
or indirect ownership of the Common Securities, provided, however, that any
permitted successor of the Company under the Indenture may succeed to the
Company's ownership of the Common Securities, (ii) not voluntarily dissolve,
wind-up or terminate the Trust, except in connection with the distribution of
Subordinated Debentures or certain mergers, consolidations or amalgamations,
each as permitted by the Declaration, (iii) timely perform its duties as sponsor
of the Trust, (iv) use its reasonable efforts to cause the Trust (a) to remain a
business trust classified as a grantor trust, except in connection with a
distribution of the Subordinated Debentures to the holders of Preferred
Securities in liquidation of the Trust, the redemption of all of the Preferred
Securities and Common Securities of the Trust or certain mergers, consolidations
or amalgamations, each as permitted by the Declaration, and (b) continue not to
be treated as an association taxable as a corporation for United States federal
income tax purposes other than in connection with a distribution of the
Subordinated Debentures to the holders of Preferred Securities in liquidation of
the Trust, and (v) use its reasonable efforts to cause each holder of Preferred
Securities and Common Securities to be treated as owning an undivided beneficial
interest in the Subordinated Debentures.
CONSOLIDATION, MERGER AND TRANSFER OF ASSETS
Upon any consolidation of the Company with, or merger of the Company into,
any other person or any conveyance, transfer or lease of the properties and
assets of the Company substantially as an entirety, the successor person formed
by such consolidation or into which the Company is merged or to which such
conveyance, transfer or lease is made shall succeed to, and be substituted for,
and may exercise every right and power of, the Company under the Indenture with
the same effect as the Company prior to such transaction, and thereafter, except
in the case of a lease, the Company shall be relieved of all obligations and
covenants under the Indenture and the Subordinated Debentures.
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INDENTURE EVENTS OF DEFAULT
The occurrence of any of the following events with respect to the
Subordinated Debentures will, unless otherwise specified, constitute an "Event
of Default" with respect to the Subordinated Debentures: (a) default for thirty
(30) days in the payment of any installment of interest on the Subordinated
Debentures; (b) default in the payment of any of the principal of the
Subordinated Debentures when due, whether at maturity, upon redemption, by
declaration of acceleration or otherwise; (c) default for sixty (60) days by the
Company in the observance or performance of any other covenant or agreement
contained in the Subordinated Debentures or the Indenture (other than a covenant
or agreement default which is specifically designated as having a different time
period) for the benefit of the Subordinated Debentures after written notice
thereof as provided in the Indenture; (d) (i) an event of default occurs under
any instrument (including the Indenture) under which there is at the time
outstanding, or by which there may be secured or evidenced, any indebtedness of
the Company for money borrowed by the Company (other than non-recourse
indebtedness) which results in acceleration or nonpayment at maturity (after
giving effect to any applicable grace period) of such indebtedness in an
aggregate amount exceeding $15,000,000; or any such indebtedness exceeding
$15,000,000 shall otherwise be declared to be due and payable, or required to be
prepaid (other than by a regularly scheduled prepayment or exercise of an
optional prepayment right), prior to the stated maturity thereof; or any failure
by the Company to make any payment under a guarantee in respect of any
indebtedness, in each case in an amount of at least $15,000,000, on the date
such payment is due (or within any grace period specified in the agreement or
other instrument governing such indebtedness); in which case the Company shall
immediately give notice to the Trustee of such acceleration or non-payment, and
(ii) there shall have been a failure to cure such default or to pay or discharge
such defaulted indebtedness within ten (10) days after written notice thereof as
provided in the Indenture; (e) any final non-appealable judgment or order for
the payment of money in excess of $15,000,000 is rendered against the Company,
such judgment or order is not satisfied by payment or bonded and either
enforcement proceedings have been commenced by the judgment creditor or there
has been a period of 30 consecutive days during which a stay of enforcement of
such judgment or order, by reason of a pending appeal or otherwise, shall not
have been in effect; provided, however, that a judgment or order fully covered
by insurance (or a judgment or order for the payment of money covered by
insurance to the extent of all payments in excess of $15,000,000), which
coverage has not been disputed by the insurer, shall not be considered a default
or an Event of Default; or (f) certain events of bankruptcy, insolvency or
reorganization relating to the Company.
In addition, an Event of Default shall include the voluntary or involuntary
dissolution or winding up of the business of the Trust or other termination of
the existence of the Trust, other than in connection with (i) the distribution
of the Subordinated Debentures to holders of the Trust Securities in liquidation
of their interests in the Trust, (ii) the redemption of all of the outstanding
Trust Securities, or (iii) certain mergers, consolidations or amalgamations of
the Trust, each as permitted by the Declaration.
If any Event of Default shall occur and be continuing, the Property
Trustee, as the holder of the Subordinated Debentures, will have the right to
declare the principal of and the interest on the Subordinated Debentures
(including any Compounded Interest and any other amounts payable under the
Indenture) to be forthwith due and payable and to enforce its other rights as a
creditor with respect to the Subordinated Debentures subject to the
subordination provisions in the Indenture. An Event of Default also constitutes
a Declaration Event of Default. If the Property Trustee fails to enforce its
rights with respect to the Subordinated Debentures held by the Trust, any record
holder of Preferred Securities may institute legal proceedings directly against
the Company to enforce the Property Trustee's rights under such Subordinated
Debentures without first instituting any legal proceedings against such Property
Trustee or any other person or entity. In addition, if a Declaration Event of
Default has occurred and is continuing and such event is attributable to the
failure of the Company to pay interest or principal on the Subordinated
Debentures issued to the Trust on the date such interest or principal is
otherwise payable, then a record holder of Preferred Securities may institute a
proceeding directly against the Company for enforcement of payment to the record
holder of the Preferred Securities of the principal of or interest on the
Subordinated Debentures on or after the respective due dates specified in the
Subordinated Debentures, and the amount of the payment will be based on the
holder's pro rata share of the amount due and owing on all of the Preferred
Securities. The record
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holder in the case of the issuance of one or more global Preferred Securities
certificates will be DTC acting at the direction of its Direct Participants, who
in turn will be acting at the direction of the Beneficial Owners. The holders of
Preferred Securities in certain circumstances have the right to direct the
Property Trustee to exercise its rights, with respect to other than principal
and interest payments on the Subordinated Debentures, as the holder of the
Subordinated Debentures. See "Description of the Preferred
Securities -- Declaration Events of Default" and "Description of the Preferred
Securities -- Voting Rights."
BOOK-ENTRY AND SETTLEMENT
If distributed to holders of Preferred Securities in connection with the
involuntary or voluntary dissolution, winding-up or liquidation of the Trust, it
is presently anticipated that the Subordinated Debentures will be issued in the
form of one or more global certificates (each a "Global Security") registered in
the name of a securities depository or its nominee. Except under the limited
circumstances described below, Subordinated Debentures represented by the Global
Security will not be exchangeable for, and will not otherwise be issuable as,
Subordinated Debentures in definitive form. The Global Securities described
above may not be transferred except by the depository to a nominee of the
depository or by a nominee of the depository to the depository or another
nominee of the depository or to a successor depository or its nominee.
The laws of some jurisdictions require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such
laws may impair the ability to transfer beneficial interests in such a Global
Security.
Except as provided below, owners of beneficial interests in such a Global
Security will not be entitled to receive physical delivery of Subordinated
Debentures in definitive form and will not be considered the Holders (as defined
in the Indenture) thereof for any purpose under the Indenture, and no Global
Security representing Subordinated Debentures shall be exchangeable, except for
another Global Security of like denomination and tenor to be registered in the
name of the depository or its nominee or to a successor depository or its
nominee. Accordingly, each beneficial owner must rely on the procedures of the
depository or, if such person is not a Participant, on the procedures of the
Participant through which such person owns its interest to exercise any rights
of a Holder under the Indenture.
THE DEPOSITORY
If Subordinated Debentures are distributed to holders of Preferred
Securities in liquidation of such holders' interests in the Trust, DTC will act
as securities depository for the Subordinated Debentures. For a description of
DTC and the specific terms of the depository arrangements, see "Description of
the Preferred Securities -- Book-Entry Issuance -- The Depository Trust
Company." As of the date of this Prospectus, the description therein of DTC's
book-entry system and DTC's practices as they relate to purchases, transfers,
notices and payments with respect to the Preferred Securities apply in all
material respects to any debt obligations represented by one or more Global
Securities held by DTC. The Company may appoint a successor to DTC or any
successor depository in the event DTC or such successor depository is unable or
unwilling to continue as the depository for the Global Securities.
None of the Company, the Trust, the Indenture Trustee, any paying agent and
any other agent of the Company or the Indenture Trustee will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in a Global Security
for the Subordinated Debentures or for maintaining, supervising or reviewing any
records relating to such beneficial ownership interests.
DISCONTINUANCE OF THE DEPOSITORY'S SERVICES
A Global Security shall be exchangeable for Subordinated Debentures in
definitive certificated form registered in the names of persons other than the
depository or its nominee only if (i) the depository notifies the Company that
it is unwilling or unable to continue as a depository for such Global Security
and no successor depository shall have been appointed, (ii) the depository, at
any time, ceases to be a clearing agency registered under the Exchange Act at
which time the depository is required to be so registered to act as such
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depository and no successor depository shall have been appointed, or (iii) the
Company, in its sole discretion, determines that such Global Security shall be
so exchangeable. Any Global Security that is exchangeable pursuant to the
preceding sentence shall be exchangeable for Subordinated Debentures registered
in such names as the depository shall direct. It is expected that such
instructions will be based upon directions received by the depository from its
Participants with respect to ownership of beneficial interests in such Global
Security.
MISCELLANEOUS
The Indenture will provide that the Company will pay all fees and expenses
related to (i) the offering of the Trust Securities and the Subordinated
Debentures, (ii) the organization, maintenance and dissolution of the Trust,
(iii) the retention of the Trustees and (iv) the enforcement by the Property
Trustee of the rights of the holders of the Preferred Securities.
EFFECT OF OBLIGATIONS UNDER THE SUBORDINATED
DEBENTURES AND THE TRUST GUARANTEE
As set forth in the Declaration, the sole purpose of the Trust is to (i)
issue the Trust Securities evidencing undivided beneficial interests in the
assets of the Trust, (ii) invest the proceeds from such issuance and sale in the
Subordinated Debentures and (iii) engage in only those other activities
necessary or incidental thereto.
As long as payments of interest and other payments are made when due on the
Subordinated Debentures, such payments will be sufficient to cover distributions
and payments due on the Trust Securities because: (i) the aggregate principal
amount of Subordinated Debentures will be equal to the sum of the aggregate
stated liquidation amount of the Trust Securities; (ii) the interest rate and
the interest and other payment dates on the Subordinated Debentures will match
the distribution rate and distribution and other payment dates for the Preferred
Securities; (iii) the Company shall pay all, and the Trust shall not be
obligated to pay, directly or indirectly, any, costs, expenses, debts and
obligations (other than with respect to the Trust Securities) related to the
Trust; and (iv) the Declaration provides that the Trustees shall not cause or
permit the Trust to, among other things, engage in any activity that is not
consistent with the purposes of the Trust.
Payments of distributions (to the extent funds therefor are available) and
other payments due on the Preferred Securities (to the extent funds therefor are
available) are guaranteed by the Company as and to the extent set forth under
"Description of Trust Guarantee." If the Company does not make interest and/or
principal payments on the Subordinated Debentures purchased by the Trust, the
Trust will not have sufficient funds to pay distributions on the Preferred
Securities. The Trust Guarantee will not apply to the payment of distributions
and other payments on the Preferred Securities when the Trust does not have
sufficient funds to make such distributions or other payments.
The Trust Guarantee will constitute an unsecured obligation of the Company
and will rank (i) subordinate and junior in right of payment to all other
liabilities of the Company except those made pari passu or subordinate by their
terms, (ii) pari passu with the most senior preferred or preference stock now or
hereafter issued by the Company and with any guarantee now or hereafter entered
into by the Company in respect of any preferred or preference stock of any
affiliate of the Company and (iii) senior to the Company's common stock.
The Trust Guarantee, when taken together with the back-up undertakings,
consisting of obligations of the Company as set forth in the Declaration
(including the obligation to pay expenses of the Trust), the Indenture and the
Subordinated Debentures issued to the Trust, provide a full and unconditional
guarantee by the Company of the Preferred Securities. If the Preferred
Securities Guarantee Trustee fails to enforce the Trust Guarantee, any record
holder of Preferred Securities may institute a legal proceeding directly against
the Company to enforce the Preferred Securities Guarantee Trustee's rights under
the Trust Guarantee without first instituting a legal proceeding against the
Trust, the Preferred Securities Guarantee Trustee or any other person or entity.
In addition, if the Company has failed to make a Trust Guarantee Payment, a
record holder
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of Preferred Securities may directly institute a proceeding against the Company
for enforcement of the Trust Guarantee for such payment to the record holder of
the Preferred Securities of the principal of or interest on the Subordinated
Debentures on or after the respective due dates specified in the Subordinated
Debentures, and the amount of the payment will be based on the holder's pro rata
share of the amount due and owing on all of the Preferred Securities. The
Company has waived any right or remedy to require that any action be brought
first against the Trust or any other person or entity before proceeding directly
against the Company. The record holder in the case of the issuance of one or
more global Preferred Securities certificates will be DTC acting at the
direction of its Direct Participants, who in turn will be acting at the
direction of the beneficial owners of the Preferred Securities.
If the Property Trustee fails to enforce its rights with respect to the
Subordinated Debentures held by the Trust, any record holder of Preferred
Securities may institute legal proceedings directly against the Company to
enforce the Property Trustee's rights under such Subordinated Debentures without
first instituting any legal proceedings against such Property Trustee or any
other person or entity. In addition, if a Declaration Event of Default has
occurred and is continuing and such event is attributable to the failure of the
Company to pay interest, principal or other required payment on the Subordinated
Debentures issued to the Trust on the date such interest, principal or other
payment is otherwise payable, then a record holder of Preferred Securities may
institute Direct Action against the Company for enforcement of payment on the
Subordinated Debentures on or after the respective due dates specified in the
Subordinated Debentures. To the extent the Company makes a payment to a record
holder of Preferred Securities in connection with proceedings by such record
holder directly against the Company, the Company will be subrogated to the
rights of the record holder of Preferred Securities to the extent of payments
made by the Company to the record holder. The record holder in the case of the
issuance of one or more global Preferred Securities certificates will be DTC
acting at the direction of its Direct Participants, who in turn will be acting
at the direction of the beneficial owners of the Preferred Securities. If
another Indenture Event of Default occurs and is continuing, the Declaration
provides a mechanism whereby the holders of the Preferred Securities, using the
procedures described in "Description of the Preferred Securities -- Voting
Rights," may direct the Property Trustee to enforce its rights under the
Subordinated Debentures.
UNITED STATES FEDERAL INCOME TAXATION
GENERAL
The following is a summary of certain of the material United States federal
income tax consequences of the purchase, ownership and disposition of Preferred
Securities. Unless otherwise stated, this summary deals only with Preferred
Securities held as capital assets by holders who purchase the Preferred
Securities upon original issuance ("Initial Holders"). It does not deal with
special classes of holders such as banks, thrifts, real estate investment
trusts, regulated investment companies, insurance companies, dealers in
securities or currencies, tax-exempt investors, or persons that will hold the
Preferred Securities as a position in a "straddle," as part of a "synthetic
security" or "hedge," as part of a "conversion transaction" or other integrated
investment, or as other than a capital asset. This summary also does not address
the tax consequences to persons that have a functional currency other than the
U.S. dollar or the tax consequences to shareholders, partners or beneficiaries
of a holder of Preferred Securities. Further, it does not include any
description of any alternative minimum tax consequences or the tax laws of any
state or local government or of any foreign government that may be applicable to
the Preferred Securities. This summary is based on the Code, U.S. Treasury
regulations thereunder and administrative and judicial interpretations thereof,
as of the date hereof, all of which are subject to change, possibly on a
retroactive basis. Any such changes may be applied retroactively in a manner
that could cause the tax consequences to vary substantially from the
consequences described below, possibly adversely affecting a beneficial owner of
the Preferred Securities. In particular, legislation has been proposed that
could adversely affect the Company's ability to deduct interest on the
Subordinated Debentures, which may in turn permit the Company to cause a
redemption of the Preferred Securities prior to 2001. See "-- Proposed Tax Law
Changes."
45
<PAGE> 47
CLASSIFICATION OF THE SUBORDINATED DEBENTURES AND THE TRUST
In connection with the issuance of the Subordinated Debentures, Akin, Gump,
Strauss, Hauer & Feld, L.L.P. ("Tax Counsel"), tax counsel for the Company and
the Trust, will render its opinion generally to the effect that, although not
entirely free from doubt, under current law and assuming full compliance with
the terms of the Indenture (and certain other documents), and based upon certain
facts and assumptions contained in such opinion, the Subordinated Debentures
will be classified for United States federal income tax purposes as indebtedness
of the Company.
In connection with the issuance of the Preferred Securities, Tax Counsel
will render its opinion generally to the effect that under current law and
assuming full compliance with the terms of the Declaration and other documents,
and based upon certain facts and assumptions contained in such opinion, the
Trust will be classified for United States federal income tax purposes as a
grantor trust and not as an association taxable as a corporation. Accordingly,
for United States federal income tax purposes, each holder of Preferred
Securities generally will be considered the owner of an undivided interest in
the Subordinated Debentures. Each holder will be required to include in its
gross income its allocable share of income on the Subordinated Debentures.
INTEREST INCOME AND ORIGINAL ISSUE DISCOUNT
Under recently issued income tax regulations applicable to all debt
instruments that, like the Subordinated Debentures, are issued on or after
August 13, 1996, remote contingencies that stated interest will not be timely
paid are ignored in determining whether a debt instrument is issued with OID.
OID must be included in income by all holders as it accrues economically on a
daily basis, without regard to when it is paid in cash or whether a particular
holder generally uses the cash method of accounting. The Company has concluded
that the likelihood of its exercising its option to defer payments of interest
is remote because exercising that option would prevent the Company from
declaring dividends on its stock. Based upon this conclusion, and although not
entirely free from doubt, in the opinion of Tax Counsel the Subordinated
Debentures will not include OID. As a consequence, holders of the Preferred
Securities should report interest under their own methods of accounting (e.g.,
cash or accrual) instead of under the daily economic accrual rules for OID
instruments.
Under the new regulations, however, if the Company exercises its right to
defer payments of interest, the Subordinated Debentures will become OID
instruments, and all holders of the Preferred Securities will be required to
accrue interest on a daily basis during any Extension Period even though the
Company will not pay the interest in cash until the end of the Extension Period,
and even though a holder may use the cash method of accounting. A holder who
disposes of the Preferred Securities during such an Extension Period may suffer
a loss because the market value of the Trust Securities will likely fall if the
Company exercises its option to defer payments of interest on the Subordinated
Debentures. Furthermore, the market value of the Preferred Securities may not
reflect the accumulated distribution that will be paid at the end of the
Extension Period, and a holder who sells the Preferred Securities during the
Extension Period will not receive from the Company any cash related to the
interest income the holder accrued and included in its taxable income under the
OID rules (because that cash will be paid to the holder of record at the end of
the Extension Period).
If the Subordinated Debentures become OID instruments (i.e., if the Company
exercises its right to defer payment of interest), the Subordinated Debentures
will be taxed as OID instruments for as long as they remain outstanding. Thus,
even after the end of the Extension Period, all holders will be required to
continue accruing interest on the Subordinated Debentures on a daily basis,
regardless of their method of accounting.
The new regulations have not been addressed in any rulings or other
interpretations by the Internal Revenue Service ("IRS"), and it is possible that
the IRS could take a position contrary to the interpretation herein.
Corporate holders of the Preferred Securities will not be entitled to a
dividends-received deduction with respect to any income recognized with respect
to the Preferred Securities.
46
<PAGE> 48
MARKET DISCOUNT AND ACQUISITION PREMIUM
Holders of Preferred Securities other than Initial Holders may be
considered to have acquired their undivided interests in the Subordinated
Debentures with "market discount" or "acquisition premium" as such phrases are
defined for United States federal income tax purposes. Such holders are advised
to consult their tax advisors as to the income tax consequences of the
acquisition, ownership and disposition of the Preferred Securities.
RECEIPT OF SUBORDINATED DEBENTURES OR CASH UPON LIQUIDATION OF THE TRUST
As described under the caption "Description of the Preferred Securities --
Distribution of the Subordinated Debentures," Subordinated Debentures may be
distributed to holders in exchange for the Preferred Securities and in
liquidation of the Trust. Under current law, such a distribution would be
treated for United States federal income tax purposes as a non-taxable event to
each holder, and each holder would receive an aggregate tax basis in the
Subordinated Debentures equal to such holder's aggregate tax basis in its
Preferred Securities. A holder's holding period in the Subordinated Debentures
so received in liquidation of the Trust would include the period during which
the Preferred Securities were held by such holder. If, however, the liquidation
of the Trust were to occur because the Trust is subject to United States federal
income tax with respect to income accrued or received on the Subordinated
Debentures, the distribution of the Subordinated Debentures to holders would be
a taxable event to each holder and a holder would recognize gain or loss as if
the holder had exchanged its Preferred Securities for the Subordinated
Debentures it received upon liquidation of the Trust.
Under certain circumstances described herein (see "Description of the
Preferred Securities -- Special Event Redemption"), the Subordinated Debentures
may be redeemed for cash, with the proceeds of such redemption distributed to
holders in redemption of their Preferred Securities. Under current law, such a
redemption would constitute a taxable disposition of the redeemed Preferred
Securities for United States federal income tax purposes, and a holder would
recognize gain or loss as if it sold such redeemed Preferred Securities for
cash. See "-- Sales of Preferred Securities."
SALES OF PREFERRED SECURITIES
A holder that sells Preferred Securities will recognize gain or loss equal
to the difference between its adjusted tax basis in the Preferred Securities and
the amount realized on the sale of such Preferred Securities. Assuming the
Company does not defer interest on the Subordinated Debentures by extending the
interest payment period, a holder's adjusted tax basis in the Preferred
Securities generally will equal its initial purchase price. Subject to the
market discount rules described above and the discussion below regarding accrued
and unpaid interest, such gain or loss generally will be a capital gain or loss
and generally will be a long-term capital gain or loss if the Preferred
Securities have been held for more than one year.
The Preferred Securities may trade at a price that does not fully reflect
the value of accrued but unpaid interest with respect to the underlying
Subordinated Debentures. If the Company exercises its right to defer payments of
interest, a holder who disposes of Preferred Securities between record dates for
payments of distributions thereon will be required to include in income as
ordinary income, accrued and unpaid interest on the Subordinated Debentures
through the date of disposition, and to add such amount to such holder's
adjusted tax basis in its pro rata share of the underlying Subordinated
Debentures deemed disposed of. To the extent the selling price is less than the
holder's adjusted tax basis (which will include all accrued but unpaid interest)
a holder will recognize a capital loss. Subject to certain limited exceptions,
capital losses cannot be applied to offset ordinary income for United States
federal income tax purposes. Accrual basis taxpayers would be subjected to
similar treatment without regard to the Company's election to defer.
UNITED STATES ALIEN HOLDERS
Prospective purchasers of Preferred Securities that are United States Alien
Holders should consult their tax advisor with respect to the United States
federal tax consequences, including in particular, potential withholding tax
consequences, as well as any tax consequences that may arise under the laws of
any U.S. state,
47
<PAGE> 49
local or other U.S. or non-U.S. tax jurisdiction. For purposes of this
discussion, a "United States Alien Holder" is any corporation, individual,
partnership, estate or trust that is, as to the United States, a foreign
corporation, a non-resident alien individual, a foreign partnership, or a
non-resident fiduciary of a foreign estate or trust.
INFORMATION REPORTING TO HOLDERS
Income on the Preferred Securities will be reported to holders on Forms
1099, which forms should be mailed to holders of Preferred Securities by January
31 following each calendar year.
BACKUP WITHHOLDING
Payments made on, and proceeds from the sale of, the Preferred Securities
may be subject to a "backup" withholding tax of 31% unless the holder complies
with certain identification requirements. Any withheld amounts will be allowed
as a credit against the holder's federal income tax, provided the required
information is provided to the Internal Revenue Service.
PROPOSED TAX LAW CHANGES
On March 19, 1996, the Revenue Reconciliation Bill of 1996 (the "Bill"),
the revenue portion of President Clinton's fiscal 1997 budget proposal, was
released. The Bill would, among other things, generally deny interest deductions
for interest or OID on an instrument issued by a corporation that has a maximum
weighted average maturity of more than 40 years. The Bill would also treat as
equity, instruments issued by a corporation that have a maximum term of more
than 20 years and that are not shown as indebtedness on the consolidated balance
sheet of the issuer. For purposes of determining the weighted average maturity
or the term of an instrument, any right to extend would be treated as exercised.
The above-described provisions of the Bill were proposed to be effective
generally for instruments issued on or after December 7, 1995. However, on March
29, 1996, the Chairmen of the Senate Finance and House Ways and Means Committees
issued a joint statement (the "Joint Statement") to the effect that it was their
intention that the effective date of the President's legislative proposals, if
adopted, would be no earlier than the date of appropriate Congressional action.
In addition, subsequent to the publication of the Joint Statement, Senator
Daniel Patrick Moynihan and Representatives Sam M. Gibbons and Charles B. Rangel
wrote letters to Treasury Department officials concurring with the views
expressed in the Joint Statement. Under current law, it is likely that the
Subordinated Debentures will be treated as indebtedness of the Company and the
Company will be able to deduct interest on the Subordinated Debentures
beneficially held by the holders of the Preferred Securities. The terms of the
Subordinated Debentures limit the right to extend the maturity of the
Subordinated Debentures to a date which is six months shorter than any
legislative limit on the length of debt securities for which interest is
deductible. Based on the advice of Tax Counsel, the Company believes this will
allow it an interest deduction if the 40-year weighted average maturity
component of the Bill is enacted. However, if the provision of the Bill
regarding a 20-year term is enacted with retroactive effect with regard to the
Subordinated Debentures, the Company will not be entitled to an interest
deduction with respect to the Subordinated Debentures. There can be no assurance
that current or future legislative proposals, adverse judicial decisions, final
legislation or official administrative pronouncements will not affect the
ability of the Company to deduct interest on the Subordinated Debentures, giving
rise to a Tax Event which would permit the Company to cause the redemption of
the Preferred Securities prior to July 30, 2001 (the first date on which the
Company would otherwise be able to cause a redemption of Preferred Securities)
as described more fully under "Description of Preferred Securities -- Special
Event Redemption."
48
<PAGE> 50
THE UNITED STATES FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE IS INCLUDED
FOR GENERAL INFORMATION ONLY AND MAY NOT BE APPLICABLE DEPENDING UPON A HOLDER'S
PARTICULAR SITUATION. HOLDERS SHOULD CONSULT THEIR TAX ADVISORS WITH RESPECT TO
THE TAX CONSEQUENCES TO THEM OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE
PREFERRED SECURITIES, INCLUDING THE TAX CONSEQUENCES UNDER STATE, LOCAL, FOREIGN
AND OTHER TAX LAWS AND THE POSSIBLE EFFECTS OF CHANGES IN UNITED STATES FEDERAL
OR OTHER TAX LAWS.
49
<PAGE> 51
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement"), the Trust has agreed to sell to each of the
Underwriters named herein, and each of the Underwriters, for whom Merrill Lynch,
Pierce, Fenner & Smith Incorporated, CS First Boston Corporation, Dean Witter
Reynolds Inc., Donaldson, Lufkin & Jenrette Securities Corporation, PaineWebber
Incorporated and Prudential Securities Incorporated, are acting as
representatives (the "Representatives"), has severally agreed to purchase the
number of Preferred Securities set forth opposite its name below. In the
Underwriting Agreement, the several Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all the Preferred Securities
offered hereby if any of the Preferred Securities are purchased. In the event of
default by an Underwriter, the Underwriting Agreement provides that, in certain
circumstances, the purchase commitments of the nondefaulting Underwriters may be
increased or the Underwriting Agreement may be terminated.
<TABLE>
<CAPTION>
NUMBER OF
PREFERRED
UNDERWRITER SECURITIES
------------ ----------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated..........................................
CS First Boston Corporation.......................................
Dean Witter Reynolds Inc..........................................
Donaldson, Lufkin & Jenrette Securities Corporation...............
PaineWebber Incorporated..........................................
Prudential Securities Incorporated................................
---------
Total................................................ 4,000,000
=========
</TABLE>
The Underwriters propose to offer the Preferred Securities in part directly
to the public at the initial public offering price, as set forth on the cover
page of this Prospectus, and in part to certain securities dealers at such price
less a concession not in excess of $ per Preferred Security. The
Underwriters may allow, and such dealers may reallow, a concession not in excess
of $ per Preferred Security to certain brokers and dealers. After the
Preferred Securities are released for sale to the public, the offering price and
other selling terms may from time to time be varied by the Representatives.
In view of the fact that the proceeds of the sale of the Preferred
Securities will be used to purchase the Subordinated Debentures of the Company,
the Underwriting Agreement provides that the Company will agree to pay as
compensation ("Underwriters' Compensation") for the Underwriters' arranging the
investment therein of such proceeds, an amount of $ per Preferred Security
(or $ in the aggregate) for the accounts of the several Underwriters,
provided that such compensation for sales of 10,000 or more Preferred Securities
to any single purchaser will be $ per Preferred Security. Therefore, to the
extent of such sales, the actual amount of Underwriters' Compensation will be
less than the aggregate amount specified in the preceding sentence.
Pursuant to the Underwriting Agreement, the Trust and the Company have
granted to the Underwriters an option exercisable for 30 days to purchase up to
an additional 600,000 Preferred Securities at the offering price per Preferred
Security set forth on the cover page hereof, solely to cover over-allotments, if
any, in the sale of the Preferred Securities. The Company will pay Underwriters'
Compensation in the amounts per Preferred Security set forth above with respect
to such additional Preferred Securities. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional Preferred
Securities as the number set forth next to
50
<PAGE> 52
such Underwriter's name in the preceding table bears to the total number of
Preferred Securities offered by the Underwriters hereby.
During a period of 90 days from the date of this Prospectus, neither the
Trust nor the Company will, without the prior written consent of the
Representatives, directly or indirectly, sell, offer to sell, grant any option
for the sale of, or otherwise dispose of, any Preferred Securities, any security
convertible into or exchangeable into or exercisable for Preferred Securities or
any equity securities substantially similar to the Preferred Securities (except
for the Subordinated Debentures and the Preferred Securities offered hereby).
Application has been made to list the Preferred Securities on the NYSE. If
approved, trading of the Preferred Securities on the NYSE is expected to
commence within a 30-day period after the initial delivery of the Preferred
Securities. The Representatives have advised the Trust that, if approved, they
intend to make a market in the Preferred Securities prior to the commencement of
trading on the NYSE. The Representatives have no obligation to make a market in
the Preferred Securities, however, and may cease market making activities, if
commenced, at any time.
Prior to this offering, there has been no public market for the Preferred
Securities. In order to meet one of the requirements for listing the Preferred
Securities on the NYSE, the Underwriters will undertake to sell lots of 100 or
more Preferred Securities to a minimum of 400 beneficial holders.
The Company and the Trust have agreed to indemnify the Underwriters
against, or contribute to payments that the Underwriters may be required to make
in respect of, certain liabilities, including liabilities under the Securities
Act.
Certain of the Underwriters engage in transactions with, and, from time to
time, have performed services for, the Company and its subsidiaries in the
ordinary course of business.
LEGAL MATTERS
The validity of the Securities offered hereby other than the Preferred
Securities will be passed upon for the Company and the Trust by Keating,
Muething & Klekamp, P.L.L., Cincinnati, Ohio. Certain United States federal
income taxation matters also will be passed upon for the Company and the Trust
by Akin, Gump, Strauss, Hauer & Feld, L.L.P., Washington, D.C. Attorneys in the
Keating, Muething & Klekamp P.L.L., law firm and Akin, Gump, Strauss, Hauer &
Feld, L.L.P. law firm hold shares of common stock of the Company. Certain
matters of Delaware law relating to the validity of the Preferred Securities
will be passed upon for the Trust by Morris, Nichols, Arsht & Tunnell,
Wilmington, Delaware. Certain legal matters in connection with the Securities
will be passed upon for the Underwriters by Skadden, Arps, Slate, Meagher &
Flom, New York, New York, and Taft, Stettinius & Hollister, Cincinnati, Ohio.
EXPERTS
The consolidated financial statements of AFG appearing in AFG's Annual
Report (Form 10-K) for the year ended December 31, 1995, have been audited by
Ernst & Young LLP, independent auditors, as set forth in their report thereon
included therein and incorporated herein by reference. Such report is based in
part on the reports of Deloitte & Touche LLP, independent auditors, relating to
the consolidated financial statements of American Premier Underwriters, Inc. for
the years ended December 31, 1994 and 1993 and of Deloitte & Touche, independent
auditors, relating to the consolidated financial statements of General Cable
Corporation for the year ended December 31, 1993. AFG's financial statements
referred to above are incorporated herein by reference in reliance upon such
reports given upon the authority of such firms as experts in accounting and
auditing.
51
<PAGE> 53
------------------------------------------------------
------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE
BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE TRUST OR
THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCE CREATE AN IMPLICATION THAT THERE HAS BEEN
NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THE TRUST SINCE THE DATE HEREOF. THIS
PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY STATE
IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM
IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................... 4
Information of Certain Documents by
Reference............................. 4
Prospectus Summary...................... 5
Risk Factors............................ 9
The Trust............................... 18
The Company............................. 19
Capitalization.......................... 22
Accounting Treatment.................... 22
Ratio of Earnings to Fixed Charges...... 23
Use of Proceeds......................... 23
Description of the Preferred
Securities............................ 23
Description of Trust Guarantee.......... 34
Description of the Subordinated
Debentures............................ 37
Effect of Obligations Under the
Subordinated Debentures and the Trust
Guarantee............................. 44
United States Federal Income Taxation... 45
Underwriting............................ 50
Legal Matters........................... 51
Experts................................. 51
</TABLE>
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
------------------------------------------------------
4,000,000
PREFERRED SECURITIES
AMERICAN FINANCIAL
CAPITAL TRUST I
% TRUST ORIGINATED
PREFERRED SECURITIESSM ("TOPRSSM")
GUARANTEED TO THE EXTENT
SET FORTH HEREIN BY
AMERICAN FINANCIAL GROUP, INC.
------------------------
PROSPECTUS
------------------------
MERRILL LYNCH & CO.
CS FIRST BOSTON
DEAN WITTER REYNOLDS INC.
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
PAINEWEBBER INCORPORATED
PRUDENTIAL SECURITIES INCORPORATED
OCTOBER , 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 54
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the expenses in connection with the offering
described in this Registration Statement:
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee*............................... $39,655
NYSE listing fee...................................................................
Legal fees and expenses............................................................
Accounting fees and expenses.......................................................
Printing and engraving expenses....................................................
Trustee's fees and expenses........................................................
Rating Agencies' fees..............................................................
Blue Sky fees and expenses.........................................................
Miscellaneous......................................................................
-------
TOTAL............................................................................ $
=======
</TABLE>
- ---------------
*Actual; other expenses are to be filed by amendment.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Ohio Revised Code, Section 1701.13(E), allows indemnification by the
Company of any person made or threatened to be made a party to any proceedings,
other than a proceeding by or in the right of the Company, by reason of the fact
that he is or was a director, officer, employee or agent of the Company, against
expenses, including judgment and fines, if he acted in good faith and in a
manner reasonably believed to be in or not opposed to the best interests of the
Company 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 the Company, 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 the Company unless deemed
otherwise by the court. Indemnifications are to be made by a majority vote of a
quorum of disinterested directors or the written opinion of independent counsel
or by the shareholders or by the court. The Company's Code of Regulations
extends such indemnification.
The Company 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 the Company and of
the companies which are, directly or indirectly, more than 50% owned by the
Company. The policy provides for payment on behalf of the directors and
officers, up to the policy limits and after expenditure of a specified
deductible, of all Loss (as defined) from claims made 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 and settlements and judgments, but not fines or penalties imposed by
law. The insurance does not cover any claims arising out of acts alleged to have
been committed prior to November 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.
The Company also has entered into indemnification agreements with its
executive officers and directors providing for indemnification (and advancement
of expenses) against certain liabilities to the fullest extent provided by Ohio
law.
II-1
<PAGE> 55
The Declaration provides that no Property Trustee or any of its Affiliates,
Delaware Trustee or any of its Affiliates, or any officer, director,
shareholder, member, partner, employee, representative, custodian, nominee or
agent of the Property Trustee or the Delaware Trustee (each a "Fiduciary
Indemnified Person"), and no Regular Trustee, Affiliate of any Regular Trustee,
or any officer, director, shareholder, member, partner, employee, representative
or agent of any regular Trustee or any Affiliate thereof, or any employee or
agent of the Trust or its Affiliates (each a "Company Indemnified Person") shall
be liable, responsible or accountable in damages or otherwise to the Trust or
any officer, director, shareholder, partner, member, representative, employee or
agent of the Trust or its Affiliates or to any holder of Preferred Securities
for any loss, damage or claim incurred by reason of any act or omission
performed or omitted by such Fiduciary Indemnified Person or Company Indemnified
Person in good faith on behalf of the Trust and in a manner such Fiduciary
Indemnified Person or Company Indemnified Person reasonably believed to be
within the scope of the authority conferred on such Fiduciary Indemnified Person
or Company Indemnified Person by such Declaration or by law, except that a
Fiduciary Indemnified Person or Company Indemnified Person shall be liable for
any such loss, damage or claim incurred by reason of such Fiduciary Indemnified
Person's or Company Indemnified Person's gross negligence or willful misconduct
with respect to such acts or omissions.
The Declaration also provides that to the full extent permitted by law, the
Company shall indemnify any Company Indemnified Person who was or is a party or
is threatened to be made a party to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or investigative
(other than an action by or in the right of the Trust) by reason of the fact
that he is or was a Company Indemnified Person against expense (including
attorneys' fees), judgements, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interest of the Trust, and, with respect to any criminal
action or proceeding, had no reasonable cause to believe his conduct was
unlawful. The Declaration also provides that to the full extent permitted by
law, the Company shall indemnify and Company Indemnified Person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Trust to procure a judgement
in its favor by reason of the fact that he is or was a Company Indemnified
Person against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Trust and except that no such
indemnification shall be made in respect of any claim, issue or manner as to
which such Company Indemnified Person shall have been adjudged to be liable to
the Trust unless and only to the extent that the Court of Chancery of Delaware
or the court in which such action or suit was brought shall determine upon
application that, despite the adjudication of liability but in view of all the
circumstances of the case, such person is fairly and reasonably entitled to
indemnity for such expenses which Court of Chancery or such other court shall
deem proper. The Declaration further provides that expenses (including
attorneys' fees) incurred by a Company Indemnified Person in defending a civil,
criminal, administrative or investigative action, suit or proceeding referred to
in the immediately preceding two sentences shall be paid by the Company in
advance of the final disposition of such action, suit or proceeding upon receipt
of an undertaking by or on behalf of such Company Indemnified Person to repay
such amount if it shall ultimately be determined that he is not entitled to be
indemnified by the Company as authorized in the Declaration.
The directors and officers of the Company and the Regular Trustees are
covered by insurance policies indemnifying them against certain liabilities,
including certain liabilities arising under the Securities Act of 1933, as
amended (the "Securities Act"), which might be incurred by them in such
capacities and against which they cannot be indemnified by the Company or the
Trust. Any agents, dealers or underwriters who execute any of the agreements
filed as Exhibit 1 to this Registration Statement will agree to indemnify the
Company's directors and their officers and the Trustees who signed the
Registration Statement against certain liabilities that may arise under the
Securities Act with respect to information furnished to the Company or the Trust
by or on behalf of any such indemnifying party.
The Declaration also provides that the Company shall indemnify each
Fiduciary Indemnified Person against any loss, liability or expense incurred
without negligence or bad faith on its part, arising out of or in connection
with the acceptance or administration of the trust or trusts under the Trust,
including the costs and
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<PAGE> 56
expenses (including reasonable legal fees and expenses) of defending itself
against or investigating any claim or liability in connection with the exercise
or performance of any of its powers or duties thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
- -------------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement for Preferred Securities
4.1** Form of Indenture
4.2** Certificate of Trust of American Financial Capital Trust I
4.3* Declaration of Trust of American Financial Capital Trust I
4.4** Form of Preferred Securities Guarantee Agreement
4.5** Form of Common Securities Guarantee Agreement
4.6** Form of Subordinated Debenture (contained in Exhibit 4.1)
4.7** Form of Preferred Security
4.8** Form of Common Security
5.1* Opinion of Keating, Muething & Klekamp, P.L.L.
5.2* Opinion of Morris, Nichols, Arsht & Tunnell
8.1* Opinion of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
23.1 Consents of Independent Auditors.
23.2* Consent of Keating, Muething & Klekamp, P.L.L. (Contained on Exhibit 5.1)
23.3* Consent of Morris, Nichols, Arsht & Tunnell (Contained on Exhibit 5.2)
23.4* Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (Contained on Exhibit
8.1)
24 ** Powers of Attorney (contained on the signature page).
25.1** Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the Indenture
25.2** Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee under the Declaration of American
Financial Capital Trust I
25.3** Statement of Eligibility on Form T-1 under the Trust Indenture Act of 1939, as
amended, of The Bank of New York, as Trustee of the Trust Preferred Securities
Guarantee for the benefit of the holders of Preferred Securities of American
Financial Capital Trust I
</TABLE>
- ---------------
* To be filed by amendment.
** Previously filed.
ITEM 17. UNDERTAKINGS.
(a) The Company hereby undertakes that, for purposes of determining any
liability under the Securities Act of 1933, each filing of the Company's annual
report pursuant to Section 13(a) or Section 15(d) of the Securities Exchange Act
of 1934 that is incorporated by reference in the Registration Statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Company pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any
II-3
<PAGE> 57
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(c) The Company and the Trust hereby undertake that:
(1) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company and the Trust pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective; and
(2) for the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
II-4
<PAGE> 58
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Company
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized in the City of Cincinnati, State of Ohio, as of the 11th day of
October, 1996
AMERICAN FINANCIAL GROUP, INC.
By: CARL H. LINDNER
---------------
Carl H. Lindner
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
CARL H. LINDNER* Chairman of the Board and Chief October 11, 1996
- ------------------------ Executive Officer and a Director
Carl H. Lindner (Principal Executive Officer)
CARL H. LINDNER III* Director October 11, 1996
- ------------------------
Carl H. Lindner III
S. CRAIG LINDNER* Director October 11, 1996
- ------------------------
S. Craig Lindner
KEITH E. LINDNER* Director October 11, 1996
- ------------------------
Keith E. Lindner
JAMES E. EVANS* Director October 11, 1996
- ------------------------
James E. Evans
Theodore H. Emmerich* Director October 11, 1996
- ------------------------
Theodore H. Emmerich
THOMAS M. HUNT* Director October 11, 1996
- ------------------------
Thomas M. Hunt
WILLIAM R. MARTIN* Director October 11, 1996
- ------------------------
William R. Martin
FRED J. RUNK Senior Vice President and Treasurer October 11, 1996
- ------------------------ (Principal Financial and Accounting
Fred J. Runk Officer)
*By: JAMES C. KENNEDY
-------------------
James C. Kennedy
Attorney-in-Fact
</TABLE>
II-5
<PAGE> 59
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, American
Financial Capital Trust I certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on Form S-3 and has duly caused
this Amendment to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Cincinnati, State of Ohio,
as of the 11th day of October, 1996
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed by the following persons in the
capacities and on the dates indicated.
AMERICAN FINANCIAL CAPITAL TRUST I
By: JAMES E. EVANS*
------------------------------
James E. Evans, as Trustee
By: THOMAS E. MISCHELL*
------------------------------
Thomas E. Mischell, as Trustee
*By: JAMES C. KENNEDY
------------------------------
James C. Kennedy
Attorney-in-Fact
II-6
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" in Amendment
No. 1 to the Registration Statement (Form S-3) and related Prospectus of
American Financial Group, Inc. for the registration of 4,600,000 Preferred
Securities of American Financial Capital Trust I and to the incorporation by
reference therein of our report dated March 15, 1996, with respect to the
consolidated financial statements and schedules of American Financial Group,
Inc. included in its Annual Report (Form 10-K) for the year ended December 31,
1995, filed with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Cincinnati, Ohio
October 10, 1996
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statement on
Form S-3 of American Financial Group, Inc. for the registration of 4,600,000
Preferred Securities of American Financial Capital Trust I of (a) the report of
Deloitte & Touche LLP dated February 15, 1995 (March 23, 1995 with respect to
the acquisition of American Financial Corporation as discussed in Note B to the
financial statements) relating to the consolidated financial statements of
American Premier Underwriters, Inc. and (b) the report of Deloitte & Touche
dated February 18, 1994 relating to the consolidated financial statements of
General Cable Corporation, both appearing in the American Financial Group, Inc.
Annual Report on Form 10-K for the year ended December 31, 1995, and to the
reference to Deloitte & Touche LLP and Deloitte & Touche under the heading
"Experts" in the Prospectus, which is part of such Registration Statement.
DELOITTE & TOUCHE LLP
Cincinnati, Ohio
October 10, 1996
